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Archive for July, 2006

What does financial security take?

July 31st, 2006 at 07:36 am

An important truth Amy Dacyczyn revealed was that her thriftiness and creative frugality came from her and her husband's desire to have a 2200 square foot house and six children. In other words, they designed their life a certain way and recognized and made the tradeoffs required to live that way the best they could. She and her husband weren't always thrifty, and they didn't always make perfect financial decisions.

This admission gladdened my heart and inspired me.

What do I want? Not six children. I don't need a 2200 square foot house. Certainly a house is very important to me, psychologically. My parents didn't ever own homes that they BOUGHT themselves, and I moved eight times in as many years -- yeah, that totally contributes to stability.

Some people want to live their lives so they can pay for annual trips to see their parents, or travel around the world, or become a race car driver. Some want to play Scrabble all around the world. Me, I want a paid off home and to be able to pay for things I want/need in cash. In short, I want security. I need to always remember my idea of security differs from others' ideas.

For instance, I tend to assume that because I am so insecure about my finances, that I'm doing very poorly compared to the rest of the country. After all, if I'm uncomfortable about my scooter debt -- actually it's not so much that, it's that I have been very lax about paying off the scooter debt because of unforeseen expenses along the way -- and others are comfortable about their vehicular leases and car loans, and the under $2000 credit card debt most credit cardholders w/balances have (the AVERAGE is $8600+, but over 50% of folk have balances much less than that), then they either know things I don't, or they have backup plans I don't.

Seven years ago we didn't quite make the 20% downpayment required for a house, but at the time my parent was dying, so I was VERY emotionally insecure. My security went into the house.

So people are now making zero money down, interest-only, adjustable rate mortgages twice as large as what we made seven years ago. That demonstrates either financial confidence ("our wages will always rise, even though historically there was even a FIFTEEN-year era of stagnant wages") or financial hysteria ("omg I am 25 and I do not have a house or condo of my own! if I do not buy right this minute the prices will go up forever and I will be so out of luck! omg! the panic! I can't see myself being 30 and renting! yi!").

I have a retirement fund, and some illiquid assets, including the inflated home equity all the other homeowners except those in Miami, Las Vegas and Phoenix currently have. That's not enough for my security. I have job skills, some wits, and health. That's not enough for my security. I have a spouse with a steady job. That's not enough for my security. The huge run ups in consumer and governmental spending do nothing for my emotional security.

What will be enough for my security? Why isn't it enough for me that I can pay my credit card balances in full at the end of the month and my net worth grows on average per month? Why do I feel I need the liquid cash to pay for six things that could go wrong all at once?

Venomous Folks Elsewhere

July 27th, 2006 at 12:06 pm

I don't know quite why the vibe here on savingadvice.com is more mellow, cooperative and positive compared to another board I won't mention. But it is. Maybe it's because the chorus are people going through the same thing -- they want to save money, and trading tips to help them achieve their goals is the currency here. That, to me, is what makes savingadvice.com great.

I do like that single parents with a heavy financial burden aren't reprimanded by members of the opposite sex who haven't even started a family and have no idea of the costs and energy involved here. Why does it seem to be the opposite sex who want to punish the parent verbally?

Maybe I am just blind to the wonderful feeling it must be to be lonely, smug and superior, but how does it help a single mom to be kicked by anonymous strangers for decisions she's made and is trying to provide for? Why can't these jerks just not be jerks and provide constructive ideas and advice?

What is it about some members of the American public that makes them the arbiters or judges of how many children other people should have? If I have one it's not enough, I am told, by childless people and people helped by their rich fathers-in-law to purchase apartment complexes for real estate, I need another. Where is the offer to pay for another? What if I feel only like having the number of children I can afford and remain middle-class?

These single parents are facing an uphill climb as expenses squeeze the budgets of any family earning under 1.6 times the median income. How is semi-anonymous Internet abuse going to help them?

I know compassion is learned, not innate. I keep thinking these people who have never been laughed at or criticized for wearing the same clothes every day because of a limited wardrobe, or have never had too many grilled cheese or fried bologna sandwiches because of reduced food budgets, who've never had gambling, alcoholic unemployed smoking parents giving them and the other parents emotional abuse should really shut their traps and skip the bullying and useless lectures.

If someone is scraping: there are six billion people on the planet. Three billion of them likely live in worse conditions than even a full-time working/part-time studying parent of four is. SOMEONE has got to have some good advice for that parent. That parent is WORKING and STRUGGLING and SACRIFICING so as NOT to be on public assistance and to BECOME a consumer that can help keep the economy afloat!

And the parent should be able to read that advice and profit from its use without recriminations from people who've never walked a mile in his or her shoes.

Which is why I like and appreciate the quality of content on savingadvice.com and the personal finance forums.

Tell me Child Care is Not Forever

July 26th, 2006 at 04:03 pm

I have one more year to go. Every year is a cinch further in my girdle. Except, we pray, this September, when we actually can look forward to a REDUCTION because we're transferring the boy.

Daycare is close to twice the tuition cost of our local university. When I read these personal finance "save your way to wealth" books I never encounter anyone telling me that daycare is expensive, and there is light at the end of the tunnel. Instead there's advice like "the one earning the lower salary should stay home with the kids."

$58K + $56K. "Gee 56K, you should stay home with the kid so we can save $11800 after tax, as opposed to earning 33K after daycare costs."

Post-tax, I estimate the share that my loving and generous husband will bestow upon me for honourable stewardship will be $1850.

As with most folk, I have many options for the share proceeds, but the proceeds won't completely cover all of them.

The no-brainer solution would be to apply half to the scooter debt and half to the Roth IRA.

The risky-frisky solution would be to buy at least one ounce of gold, and divide the rest between scooter and Roth IRA.

Aw, what the hell, let's go risky-frisky.

Mortgage Payoff Scheme
$56031.71 of principal will be paid over the next ninety months, leaving me to come up with $101473.29 principal.

I will use: 25% cash, 25% stock, and 50% bonds. I can buy five-year TIPS at auctions in April and October through a broker, bank, or dealer. So that is a good plan until October 2008. AFter that, maybe just I-Bonds.

Total Money Makeover

July 23rd, 2006 at 02:56 pm

Ever read many online recommendations for a book, to the point where you pick it up, and your expectations exceed the value you receive from it?

I like Dave Ramsey's Baby Steps to Get Out of Debt. I like the concept of Financial Peace. I like the debt snowball plan. I believe that they work. Sell all your crap to get the consumer debt on the road to gonesville -- makes total sense to me.

Those are the only three things I like about his Total Money Makeover. It's true that you can't go into debt if you don't borrow. It's true that with an emergency fund crises are merely inconveniences.

If DR wanted a larger audience, he'd have skinned the TMM down to eight pages of pure financial golden wisdom. However, by padding it with cruft to justify hardcover binding and $2X.XX price tag he dilutes his message and limits his audience. The letters he chooses to share are from white families who live in areas where $120,000 single-family residences in decent neighbourhoods can still be bought. I did not read anything about $950/month daycare costs. I did not see pictures of families with Samoan, Nepali, Laotian, Caribbean, African-American, or Hispanic descent.

I looked at the Windermere.com real estate site. 5163 matches for homes for sale from $125,000 to $200,000, two+ bedrooms, one+ bathroom, 800 sq ft to 1120 sq ft. I allowed for manufactured and multi-family properties, and year built ranged from 1906 to 2005.

When I reduced the range to Washington state, the number of properties fell to 1630. When I reduced the range to Seattle, I had zero results. If you have a $150,000 mortgage on a three bedroom SFR in Seattle, you're not in over your head, you're floating, buoyantly, on a sea of equity.

DR also skirts around white-collar crime. He refutes the "wrong-headed" sects who settle for financial mediocrity. A Christian's duty is to create wealth to be used for the glory of God. If we believe it is morally wrong to be wealthy, then the only rich people will be pimps and drug dealers.

There is a difference between wealth and living below your means. If you give a good portion of your disposable income to social justice, and use it to heal the sick, counsel the incarcerated, feed the hungry, clothe the naked, you're giving glory to God. Is it giving glory to God when one hands over money to white collar criminals who oppress the poor and try to depress the standard of living of many as they nourish the elite in the way of "investment?" Or who suck up to the state for tax breaks? Can you tell the difference between someone who merely pays lip service to helping the poor and oppressed so s/he can get elected and someone whose humble and direct actions speak for themselves? If by aiding the poor directly you reduce the number of people in prison, or in the hospital, or at food banks aren't you investing in your community? The money that would otherwise be spent could be invested for the betterment of all, rather than guns and gated communities and planned subdivisions to make sure society's smelly rejects are as far from us as possible.

Pimps are people who profit from the prostitution of other people. Prostitutes have their self-esteems and their freedoms crushed by literally "working for the man." Drug dealers offer empty promises and addictive substances -- they enslave their customers. The borrower is always a slave to the lender. Ramsey gets that quote right, and uses it often, but he overlooks the many, many instances of corporate misconduct, the growing disparity between stagnant workers' wages and rising executive salaries and perks.

I tried investing to grow my income. However, I looked only at balance sheets and growth, rather than the values and purpose of the companies. Imagine my surprise when, time and time again, my companies with the stellar 10-K and 10-Q documents had "misstated earnings," taken charges, or had been met with class action suits by stockholders. Who's behind buying up smaller banks and credit card companies who have your business, then turning around and squeezing people with rising net worths and improving credit ratings with fees and penalties that used to be levied against the financially irresponsible and overwhelmed? Bigger banks. Who's charging 10% or greater premium increases annually against you, who may be actually claimfree, because you either spent most of your life without requiring credit, or have yet to spend most of the rest of your life? Insurance companies.

And if he hadn't overlooked those instances, I wonder if Sean Hannity and Bill Frist would have given Ramsey his backjacket blurbs.

I don't need to be hoarding money that can go to the poor. I can adjust my expectations of security in this life and my outlook, decide there are more important things to do with my life than partake in class envy or feed the tapeworm economy, such as work for social justice and community reinvestment for the betterment of all. Helping the poor is a Gospel imperative, addressed with vigour to all Christians, who are never allowed to pass by their neighbour who has been stricken with misfortune (cf. Luke 10,33-35). So why give to entities that, through offshoring and outsourcing of jobs, and stagnation of wages, seek to create more of the poor within our own borders?

And if I decide to achieve financial peace through being debtfree, and to commit greater quantities of disposable income to social justice, alleviating poverty, feeding the hungry and ministering to the sick, Dave Ramsey's baby steps to get out of debt are all I need. I don't need propaganda aimed at the Farm Belt zipcodes.

Goodbye Cellphone

July 21st, 2006 at 07:37 am

It was some laughs for a little while, but then my bill came in, and uh, there is not enough value here to compromise my savings goals. Also, my spouse looked at my bill and said "geez, for sure I can get you a better deal through my employer." So yeah. Bye bye wireless.

Go to wireless website. Click 'choose a plan'
Enter zip code

200 Anytime Minutes for $29.99
Monthly rate $29.99

Look at bill.
$30.99
plus taxes

No. Why does my bill have to be different from what is advertised on the Website?

Tell wireless plan provider -- "Don't send me MBNA credit card solicitations or I will return your phone."

Receive canned response -- "we used to partner with Fleet, but they were bought by MBNA, and our contract is still being honored."

I wanted to read "okay we will not send you MBNA credit card solicitations because we want to keep your business."

No.

Why do wireless plan providers need a credit card? I'm not giving to agencies that partner with MBNA. Uh-uh. Ixnay.

On the plus side, I saved $60.00 in water consumption this year over the same billing period last year.

Is the Middle Class Masochistic?

July 20th, 2006 at 10:36 am

NOTE:
The paragraphs below were copied from The Motley Fool. Someone else other than I wrote it. That's as much attribution I can muster right now, so know that this is not (intentional) plagiarism.

Demographically speaking, the American middle class is responsible for the largest portion of discretionary spending and should therefore face the greatest decline in living standards. There are many poor, but their ability to decrease consumption without dying is minimal. The wealthy consume a great deal more, but their numbers are few and raising taxes isn't likely to slow their consumption much. Dividing the economic pie is a political game and there is little doubt that wealthy Republican supporters have been spared much of the pain as their people have been in control in Washington.

Meanwhile, working class and poor Americans have been taking on a disproportionate share of the pain as rising expenditures for heating, transportation, housing and debt service have cut into already tight budgets. Going forward, there is likely to be much more pain to share (especially from rising energy costs) and political change is possible if there is enough outrage over declining living standards for middle and working class families. Whether or not the political focus shifts to providing a better safety net for the poor while raising taxes on the wealthy, the continuing Middle Class Squeeze will be necessary to reduce American consumption to ecologically and financially sustainable levels.

Implications for investors
Going forward, there are certain sectors that should be avoided by prudent investors. While the broader indices have remained remarkably stable, many retail stocks have been declining since late July 2005 as retail sales have been disappointing and consumer confidence has fallen off a cliff. Service sector companies and jobs in particular are at risk because they are most dependent on discretionary spending. Housing and financial stocks have also begun breaking down and are vulnerable to bigger declines as trends accelerate, especially homebuilders and mortgage lenders who profited by taking on high levels of leverage and risk during the boom. Public utilities are vulnerable as energy costs rise if the political will shifts to shielding consumers form rising energy costs as it did in California during that state's recent energy crunch.

Lastly, most bond investments should not be considered 100% safe. Municipal bonds in particular are vulnerable as many local governments have gotten themselves deeper and deeper in debt. Even US treasuries should not be considered as the national debt has reached a point where it may be politically impossible for the government to pay it off. Not all middle class Americans have been over-consuming as badly as the average citizen, and many have saved up diligently for retirement. In recent months Asian stocks in particular have done well, and a steady shift in consumption from the US to the countries who've financed the trade gap likely means that this is an early stage of a much larger trend. It is imperative that middle class investors be aware of the evolving trends so that their retirement portfolios can provide a cushion against the ongoing Middle Class squeeze.


So is the middle class aware they've been spending too much?

Is the middle class in its entirety the 95% of Americans who think they are (incomes ranging from $20K -> $140K)?

Which will bring down the economy faster: the middle class reining (not reigning, that is synonymous with ruling) its expeditures or the current rate of government spending?

Do the middle class intentionally elect politicians and parties to give them the discretionary spending paddling and SQUEEZE ("really, I squeeze you out of love") because they secretly hate themselves?

Is 95% of the US population really the middle class? Would 95% of the US population be able to effect legislative change? What % of the middle class enjoys being squeezed?

Do people who believe in making indebtedness as excruciating as possible also believe that should also apply to the federal government when it's indebted to foreign interests?

Also, a look at July 10, 2006's G.19 Release of Consumer Credit Outstanding (billions of dollars) from the Federal Reserve indicates that total consumer credit is up to 2.1616 trillion dollars. Finance companies hold 43% more obligations than they did in 2001, commercial banks 25% and credit unions 23%.

For major types of revolving credit, all noteholders have increased the amount due to them.

For nonrevolving debt, finance companies are holding fewer securities.

Another item: whereas the overall public aren't going into debt for plasma TV screens and iPods, the Department of Homeland Security and other border protec....

Debt Ratios

July 19th, 2006 at 11:53 am

http://www.federalreserve.gov/Releases/housedebt/default.htm


The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio.

2006 first quarter indicates a 11.41 ratio for mortgage, and 6.18 ratio for consumer debt and automobile leases.

That's not terrible. If you're a renter, then count on 24.33% of your disposable income to be your financial obligations ratio.

NOTE: The 2006 Q1 release incorporates data from the 2004 Survey of Consumer Finances and the March 2005 Current Population Survey.

So the rising % of interest-only loans has not yet been factored in. Where I live, last year, 38% of recent home mortgages were interest-only loans. The national average percentage of mortgages that were interest-only loans is 19.1%. I suppose these people are just temporarily playing house in Seattle -- good for a short time, but lethal if they're still in the home after awhile.

People tell me that nobody buys a home at 2.5 - 3 times a household income anymore. Is that true? I thought everybody did that. I know not everyone puts 20% down -- I don't know anyone who bought the same time I did who managed to do that, at least not without the help of Mumsie and Daddy-dear.

Mortgage: $157,505.85
Scooter: $ 4,692.21
Credit C: $ 88.15
------------------------
$162,286.21

Cheap/Frugal Anxiety Killers?

July 6th, 2006 at 11:17 am

Scooter: $5183 -- overestimated how much I paid blush. Mailed payment for $518.30 to motorcycle company.

Mortgage: $158002.28 -- mortgage now due.

Credit card: $686.83 -- some of this is from buying clothes and mailing nutritional supplements for my brother (he owes me $110 for those, plus $120 for other expenses). $266.00 accounts for ten weeks' worth of vegetables from our CSA.

I tweak out at the silliest, mildest things. I saw where two acquaintances demonstrated much more financial cojones than I have, recently taking out $380,000 mortgages. The median price for a home here is $410K, and neither of these acquaintances is a first-time home borrower. Sure, they're thirty-year mortgages, and with windfalls and bonuses there's bound to be some prepayment. But they're not freaking out. I would be.

Things are tight for us because I don't earn a whole lot of money and the boy's therapy eats up our $. Our mortgage is due in just under seventeen years -- almost half of a regular term! Eventually I'll get full-time pay, eventually day care will be a past memory. Eventually my scoot will be paid off.

So my debt is $163872.11. Ish kabibble.
Maybe it's not the end of the world to be carrying a balance. There are people who always pay their balances in full, and people who always carry a balance. How big is the percentage of people who make occasional cashflow slippages, or have emergencies that outstrip their funds? $165000 is my ceiling though.

That Green Energy Fund I got a prospectus for: WGGFX. Expense ratio is 1.45%. I'm getting out of my blue chips.
Enough blue and red, in with gold and green! BRSIX looks good too.

The problems are my impatience and anxiety. Yes, there are reasons for fear, but how much of the fear is justified, and how much of it is from living in a society I don't understand?

July 5th was a no-spend day.

$2500 -- how would you divide this among a Roth IRA, emergency fund, and scooter payment?

The Food Delights of Summer!

July 3rd, 2006 at 10:38 am

We went strawberry picking yesterday. We did blow $ on gas, but we saved 75% picking our own organic strawberries, and I accomplished one of my 101 tasks in 1001 days.

My son made me proud.
I asked him: "Do you want to be my personal assistant? You can remind me of things that need to be done, or help me do them. I will pay you and you can spend your money on toys and at Cafe Racer."

"Spending money is not appropriate. We must save our money," he responded.

Not even five years old.

Spent $32.01 on food -- 40% of that was meat: chicken thighs and breasts, 60% was on fixings for the upcoming barbecues this week. With any luck we'll take home leftovers and eat well for a week.

Bottom Line Secrets; Loan Payoff Calculator

July 2nd, 2006 at 01:38 pm

I found a great newsletter in my local library: Bottom Line Secrets, featuring tips from experts -- the editorial board includes Sheldon Jacobs, Dean Ornish, Alexandra Armstrong, and other names I recognize -- on health, wealth, safety, pretty much anything you need to make your life better. I've already learned about a socially progressive mutual fund CRAIX, tax liens as a form of investment, and exchange traded funds. Here's the Website.

It's a skinny newsletter but it's 100% subscriber-financed. No advertising!

My PC is futzed -- hubby suspects it's the toggle switch. I had accepted some updates, and rather than restart the machine I thought I'd save electricity and shut it down. I'll be saving even more electricity.

I made a budget for the month. I'm in a quandary about some extra cash we'll be receiving -- not enough to pay off the scooter, sadly, but enough to pay half of it.

I also found a nifty loan payoff calculator at office.microsoft.com! It's an Excel spreadsheet, and I can use either incremental payments or sudden extra payments in a column to play with various payoff scenarios. Go to office.microsoft.com and search for "loan payoff Excel." The template will be in the result set.

Scooter: $5183.22
Mortgage:$158002.28
Credit Card:$417.81

I borrowed the Laurence Kotlikoff and Scott Burns Coming Generational Storm book, an oldie book by Shel Horowitz about how to Penny Pinch and yet live royally, and Jeff Schnepper's Tax Guide for 2006. I wish I could tap into my intuition as far as investment goes, but I really need to decently research my options first. I'm thinking about an ETF for water, and a mutual fund that invests in companies offering palliatives and solutions for energy, global warming, and water ills.