Friday, November 20, 2009

Wrestling with life

So there has been some unexpected family news lately that sort of puts a big question mark on finances for the future. It is a health related issue and as a result there is an outside chance that there could be a shock to the household monthly income.

In anticpation of this possibility the numbers have been run and we could do ok for a long while if things went badly. I will work to avoid that but it has also served to show me how important it is that I continue to practice gratitude. It really helps keep perspective.

Recently I updated my net worth with my new 401k values but I am somewhat skeptical and I realize that all of that money is risk money and it really gives me some reassurance to have some cash on hand and some money in the bank.

For Christmas, I am giving out some bonds to kids in my family who will not be getting gifts. Some kids already have enough toys and the bonds are hopefully a good way for them to learn how to invest.

Tuesday, November 03, 2009

New furniture

So after nearly nine years it is time to replace the living room furniture. This is furniture that I got when I first moved out into an apartment an it has held up extraordinarily well.

This time in making the decision it seemed like something more adult, more contemporary was in order. But I have to say that I think that more than the style, I'm excited about the comfort.

For the first time since moving in to the condo, it will be filled with furniture. And I finally fell like a grown up. What's more, the cash was on hand to buy it. It is completely amazing to me what you can do with a steady income and low fixed expenses. You cannot help but get ahead.

The budget was blown by a grand. But considering the value, it was totally worth it.

Wednesday, October 28, 2009

Back to World of Warcraft

It seems that I gave been on this personal finance journey for several years now and over the past several years I have cut, recut, and cut even more expenses. I have focused on insurance and lifestyle, investments an retirement. All of this has been a fantastic set of achievements for me personally.

In fact, given my personal situation, I don't know if anyone could have their financial house in much better shape. I basically rate myself at B plus.

All this has made me realize though that the point of all of this is to have a better quality of life. So, I am working on gettig better at this by starting to purchase selectively.

This year I have bought an iPhone, a new pc, and also now a wow subscription. The new phone has some serious practical applications and before the purchase I used pre paid phones which are nice but are very low end with few features.

The new pc was overdue. My prior pc wad seven years old. The wow subscription seems the most frivolous. But with the cost amortized over the number of hours, forty or fifty cents is a good expense for entertainment.

What have been your expenses? Have you started swinging back toward spending in the midst of all of these good deals?

Sunday, September 20, 2009

Blogging WealthTrack

This morning I watched Conseulo Mack: Wealthtrack and I found that it was extremely interesting advice about Diversification and Asset Allocation.

The most interesting point is one that is probably proved out in your own investments and 401k: International Indexes and US Stock Indexes have extremely high correlations. One graphic at the beginning of the show shows that the correlation of the S+P 500 to the MSCI EAFE Index from about 2003-2009 is between 80 and 90% with some small changes.

The point of this graphic really hits home for me. In my personal 401k, there is a basket of mutual funds to choose from, but if I am interested in equities, there's not much diversification necessarily when shifting from US to outside of the US for stock investing.

A guest, David Darst, author of The art of Asset Allocation - The little book that saves your assets explained that asset allocation had to include a different asset class to prevent losses during the last downturn (I'm paraphrasing). "If you had high quality bonds - Municipals - with adequate allocation and cash, those folks cut their losses in half...down 12-15% rather than 38%."

Another guest, Richard Bookstaber, author of "A demon of our own design" stated the issue succintly. "Diversification works really well until it really matters." In short, If you think that you're diversifying, it doesn't matter when there is a crisis. Two things matter in a crisis. Risk matters and liquidity matters. He also stressed that diversification and deleveraging (in other words, taking risk off the table) are two different issues.

In the end, I was interested in internalizing this point and deciding how I should change my strategy (if at all) for retirement investing. Inflation definitely appeared to be a medium to long-term concern for the guests.

The one investment for each of the guests:

David Darst: Inflation Protection, WIP, SPDR DB Intl Govt Infl-Protection
Richard Bookstabler: Inflation proctection, 20 Year TIPS.
Mark Cortazzo: Templeton Global Bond A Fund (TPINX)

Wealthtrack Action Point: Decide which flood (crisis) protection you want in your portfolio....
extreme 100 year, ST Treasuries, etc
30-70 year, corp bonds, gold, etc
10-25 year, broad;y diversify, change according to preferences.

Of course, the one-investment choices all focus on inflation, so I think that this is an interesting point. Do we really think that inflation will become similar to Turkey or to a South American country?

Thursday, September 17, 2009

5 Ideas For Keeping Wedding Costs Down

With the season of weddings behind us and having just finished working through my own big day, I thought it might make sense to share some of the key items that would make sense to consider if you're doing a cost-sensitive wedding.

Of course, that first paragraph is a big disclaimer. But seriously, if you were not cost-sensitive, you probably wouldn't be reading this. Furthermore, anyone else reading this and thinking about a wedding should be cost sensitive in my opinion. Weddings are crazy expensive. Many vendors charge more for a service simply because they know it is in connection with a wedding and that people feel like they are going to spend through the nose on those events.

Before reading this, understand that I am practical person before I am romantic. So, before the flames start coming about how I "don't understand," simply realize that these are my views. Take them or leave them.

All that said, here are five ideas:
1. Keep the guest list small. Figure out what you're going to do at the low end and then chop another 5-15% of the total. In other words, make the hard choices at the beginning about who to "not invite" and simply have that discussion with your significant other and family members.
2. Avoid cash gifts if practical. Most people tend to give cash when they are not sure what you need. If you have something you need to buy anyway, register. This will likely get you a gift instead of cash and you'll possibly end up with more value than if it was just cash.
3. Exploit your relationships. Almost everyone knows someone who can help out with something. And when it comes to loved ones and friends, everyone is usually more than willing to help. Use those connections to score free labor, discounted centerpieces, etc. Every little bit helps.
4. Consider avoiding the rehearsal dinner, gifts for the wedding party, or other expensive "traditions" that might not mean much to you. Or, perhaps just scale them back. No matter what you decide to do, you might be able to shave some of the cost off by simply adopting a "do less" attitude.
5. Pay cash. Like any vendor, some vendors can provide a cash discount and even if you just write a check, you can avoid interest fees. This will also force you to only spend what you can really afford. My personal feeling is that it should be in the 2-4 months worth of net income range. Anything more than that is likely too much if you're paying for it yourself and you don't have much in savings. (I'm talking <= 12 months of expenses.)

Friday, August 28, 2009

Health concerns

Curiously, I recently became I'll and was forced to have a small surgical procedure done at my local hospital. While emergency rooms are rarely fun, I found this experience to be one that made me rather happy to have such a good system close by.

I know that there is much being said in the healthcare debate and that many people will have other ideas. My experience is an isolated incident. For my recent life I have not had to experience it.

The real concern now is the bill. Well, provided that it isn't exhorbitant, I will be happy. And for now, I am just glad to ne back to work.

Thursday, August 20, 2009

Out of this world spending?

This morning on the Fox Business network they provided a very interesting infographic that shows the spending on various program by NASA.

I've been convalescing for the past few days and during this time I have been watching the show called the universe. One of the experts from this show appeared and made an appeal for NASA to allocate some of their resources to this important task.

When sold as an insurance policy, it seems like a no brained. Many people think that NASA is important for the value it provides to motivate kids to get interested in math and science. Personally, I am not sure that holds much water. There was no NASA during the time of Newton or Copernicus or gallileo.

Here are the stats:

Space operations: 5.8billion
Science: 4.5billion
Exploration: 3.5billion
Aeronautics: 500million

The amount needed for asteroid servaillence is in the hundred million range total. That is over many years. I think that is good insurance.

Tuesday, August 18, 2009

Keeping a backup plan

The reality of healthcare and much of life is that much of it is a crapshoot. Emergencies can happen and make critical work quite difficult to complete. For instance I recently experienced this first hand when I was experiencing stomach pain this past Sunday night. It developed into and was diagnosed as appendicitis. Normally, this would not be a big deal, but knowing that I had a significant amount of work due at the end of the month, it became clear that I would need to use my backups.

What I mean by my backups is different for various circumstances. For existing projects that are currently in use, this means to make sure that there are people and processes in place to do whatever is needed to handle day to day tasks.

For projects in development, this means having documentation available that shows next steps. This documentation can provide what is needed to proceed forward even if I am not available.

These backups are critical for important projects and tasks that must continue no matter what. So, in considering these types of tasks, you can make sure you have a task backup plan by doing the following:

1. Keep a plan or task list updated for important projects.
2. Designate and train at least one reliable resource to help you in an emergency.
3. Maintain good relationships with key people for the task. A backup plan is useless if the person who is backing up is not trusted.

These are the steps I take and they worked well for me during this recent illness. What strategies do you try?

Saturday, August 15, 2009

Prosper for Dummies

So, after a couple of years, prosper is gone. I can't say that I am terribly surprised. They are still around and doing business but they are no longer lending any significant amount of money, according to Eric.

I'd like to say that I am surprised and that this was a great site that just went badly, but in many ways they reaped what they sowed. Personally, I invested several hundred dollars there and my money would have been safer and made just as much, if not more in a bank CD with a lot less stress and hassle.

Of course, it would not have provided me with the diversion of looking at loans and trying to size up who was a good credit risk, but that's not really what we should be interested in doing when it comes to our investments. Investing (at least for me) is not gambling.

Now many of my loans are almost done and I've made just short of 2.5% on my money but with tons of hassle. And if there is just one more default, I will be negative. This sucks. And it would be easy for you to point at this tirade and say it is sour grapes, and that would be partially true. But there are many people out there who are far more hurt than I was. These people have lost on the order of twenty percent of their principal according to Eric's Site.

In short, I won't do this again. These sites are probably all scams; I wouldn't trust Lending Club and these others either. They all want to make a big interest rate and pay no attention to the risk. And if the REAL risk were factored in, the interest rate would be so high that people would scream usury. The system is broken and what seemed like a good idea a couple of years ago is now just dying a slow, painful death.

Saturday, August 08, 2009

Priorities

In dealing with my quest to become more financially secure, I have to admit that there are times when you think that it is all about the amount of money in the bank account or how much debt hat you pay off.

For me recently, things have been going quite well at work and I think that it is a good idea to step back every once in a while and revisit your priorities. For me, I realized that my personal financial goals would suffer if my priorities were not taken care of first and foremost.

My priorities are probably more simplistic than most people. Food, shelter, and basic health top the list. Without those things everything else is just a bit pointless. After that I need companionship. Some people say they don't. But I know that I need more than others.

The point of this post is not to get touchy feely. Instead I want to recognize how important it is to maintain good relationships with family and friends. It is critical if it is a priority for you. Therefore do not be shortsighted by spending all of your time, energy and money on other persuits, even those generating income.

I found his out again in my life when I started to spend too much time on my work and business persuits to the detriment of my personal priorities. My own experience is that I do best when all is in balance. So, if you have the means, keep the balance from the start; it can be harder to recover once you become distracted from what's important.

Taking breaks is critical also. When you consider that the people around you have different priorities, it is easy to get frustrated and burnt out even if the people are behaving fairly and rationally. If people are not behaving his way, not keeping your priorities in order can be even more dangerous.

Situations within families, clubs, jobs can all be quite distracting without a good handle on priorities. And for me, this can be true even with the best of people. Some people call this process introspection. But whatever you call it, managing your priorities and spending your money, time, and energy appropriately is what will ultimately leave you feeling fulfilled with your life. It has for me lately. And that has helped me do better across all parts of my life.

Monday, August 03, 2009

Forecasting for Retirement: my approach

One of the key factors in my personal finance adventure has been dealing with the concepts of estate planning and also retirement planning. There are various calculators out there for helping you estimate your needs at retirement but I take a somewhat different approach.

My approach is that instead of looking at the amount of money you'll need and saving enough to get you to that goal, I first look at what I am saving and see what it could possibly get me in retirement. Of course all of this is a forecast. Currently I'm forecasting for six percent returns and two and a half percent inflation in this exercise. Then I see what is available when I invest in this way on a monthly basis for the next thirty years and take a four percent distribution divided by twelve as a monthly withdrawl down out of the accounts.

Many people might think that this is the same old thing. But I try to be pragmatic. I will certainly try to stay on track but life throws curveballs. My method lets me check in on what is happening now. And mostly the value for this approach is that I can learn to live with what I will most likely have instead of being a dreamer about what I should have amassed.

The burden is on me. If I make a mistake I have no one to blame but myself. And when I use other calculators like the one on fidelity website, they focus on expenses. But I can't forecast that as accurately as I would like. I would like to think however that the forecasting that I can do is better suited to my situation than he generic forecasting done by large financial firms with a one-size-fits-all approach.

Another major aspect of the approach is that I expect to shift to a buckets of money strategy as I get into my forties and fifties where risk becomes much more of a concern. In short though, I think that the stock market holds real promise. And not despite the fact that there could be a strong retrenchment soon according to noted financial advisor Jonathan Pond, but because of it. That is, the idea of another retrenchment is somewhat exciting as another buying opportunity. In reality, the money in some sense is made in those down markets.

Thursday, July 30, 2009

The morality of healthcare

Ben Stein wrote a great article on yahoo finance about this topic.

http://finance.yahoo.com/expert/article/yourlife/178987;_ylt=AojOTBf8MTYC2QDenJZuT.e7YWsA

In the article he writes:

"A short while ago, I said in a public forum that while I did not doubt that in a society as rich as ours, no one should be denied health care, and that health care was a right, I still had some questions about the administration's plan. This had been my feeling for all of my life, i.e., that health care was a right, and that if necessary, it must be paid for by the taxpayers if some people could not afford it."

Put simply I don't think that simply because the united states is rich compared to other countries that the defenition or right changes.

A right in my opinion is life (this does not imply anything about quality of life), liberty and the persuit of happiness. I also believe strongly in the right to own property and no one elses moral obligation to provide healthcare to everyone should get in the way of that.

I do think that there needs to be some work done to make it more affordable but that doesn't mean giving it to everyone for free. If the government can decide what is a moral obligation and that you can be taxed extra to pay for these services that you don't use, there is no incentive to manage your wealth correctly!

Tuesday, July 28, 2009

iPhone as a productivity tool


Finding the right tool to be productive can mean the difference between being average and being a superstar. Although it still feels early, I think that the iPhone is that tool for me. I tried palm pilots and I've played with blackberries. The cost is significant but worth it.

It can be very easy to get caught up in the aspects of the phone that make it entertaining. Bringing games and other aspects of computers together really makes it a productivity tool. So I don't know what else to praise it for. But those are not the real reasons I like it. The very text that I'm typing right now is the reason.

Becoming adept at the keyboard is a bit of a learning curve. Butit is no different than the palm or the blackberry. And the quick composition of text makes the iPhone an all-star.

Now that I have this tool I can always work on something that interests me or even chill out with a game. But more than that, it is all in one. For me that I don't have to carry a separate item like a heavy laptop or notepad is a big deal. It let's me capture data how and when I want to.

My feeling is that this will make your time committing better. Even if you are in the car you can use the voice feature. I've experimented with some of the other features that there are in some of the iPhone applications. And the reality is that the people don't have much good technology to utilize the features. One example is a voice transcription software that I recently bought. The transcription was not stellar and furthermore the transcription took too long to process on the phone.

So, much like he Internet, the apple store is filled with stuff. Much of it is mediocre and the real gems are a rarity. But none of this detracts from the device. In short, if you are a desk worker and most of yorur productivity is done in front of a computer, then I would highly recommend this device to you. I've found that I use it as muh more than just a phone and that there is an incredible amount of time that can be put to good use with this device.

Friday, July 24, 2009

What's next

Ok so great. We finally are over nine thousand on the Dow and everyone is wondering if this is the right time to get back in. People find themselves rejoicing because those 401ks are starting to look better.

They are not alone. I am right there with everyone on this. The main difference is that I am not going to change my strategy in the wake if a good few weeks on wall street.

The new rules still apply for me. Cash beats credit. And there's no security like money in the bank. And getting in position to have many choices in case things go south is the best balm to soothe the wounds of any disappointment in any part of life.

So all of the above having been said, I am finding myself more interested in my retirement contributions. You see, I am not getting any younger and I think that it is worthwhile to get as much saved as early as possible.

Many people cite compound returns as a motivating factor and it is true that it matters. Over the past few months though, it has become increasingly clear that stocks may not be a sure thing even over the long term. But that's the best way I can come up with to invest long term right now with my own money. Unfortunately I am not a high roller so there is not much that I can do.

So, it may not be a sure thing but it is what I am doing in my 401k and Roth accounts using mutual funds. The exciting part of this for me is that my company just started offering very low expense ratio mutual funds. Now my urge to transfer to vanguard is somewhat diminished.

Sunday, July 19, 2009

Financial Primer

Financial Primer

When I think back on my financial situation growing up, I never really understood how many issues that there are when it comes to money. Understanding the major financial concepts early on in life and having some tangible, concrete understanding would have been much better than some random experiences and emotions. Just understanding these important aspects as a young person and how to handle them correctly can contribute to financial well being.

Income

Income is the way money enters your life. Usually, this is in the form of a job, but there are also other sources of income like gifts, bonuses, interest income, and investment income.

My concept of income was rather skewed as a kid. I didn't usually need much money. I like to think that I wasn't that greedy. I generally was happy if I had a bike to ride and some sticks and balls to play with outside and some video games to play with inside. I never got a steady allowance per se, so by the time I started learning about income, I was 14 years old. I think this is far too long to go before you learn about how important it is to manage the amount of money you have coming in.

Expenses

Expenses were not anything crazy. A trip once in a while to the store to get candy with money my mom or grandmother gave me. Or perhaps money that I had saved from a special occasion. I never really had enough money to save until I started working when I was fourteen. Again, that was when I first started learning about expenses.

Interest and Saving

Once I started working at 14, I had to open up a bank account to keep my money safe. I started with a savings account at the local baybank which has been bought and sold several times since then. But the idea of earning interest on my money was something that seemed rather abstract. When you are making 4.25/hr, 1 or 2 percent interest doesn't really matter all that much. I remember thinking, oh, cool, 20 cents interest, now I can get half a candy bar. Even at that age I was disappointed about low returns on my money. But I didn't know about other options.

Somehow I saved my money from working until I had about 400 dollars saved and I used that in conjunction with money and gifts for christmas to buy my first computer. That computer was a great gift because having AOL made me really love having a computer, forced me to become a fast typer, a really important skill for people working with computers all day, and also made me interested enough to really continue working in computer-related fields through college.

Inflation

The concept of inflation didn't really hit me until I got out of college. Of course, for the first time, I was really making money and having to pay for everything. This was great, but I realized as well that I needed to make sure that I had enough money to pay for food and gas. And oh, geez, this seems to cost a lot more to fill up my gas tank now than when I was 17 in high school!!! These thoughts start to really come into play when you see gas prices spiking.

Credit Scores

In college, in my sophomore year I decided to get my first credit card. It was for a small purchases mostly. I knew that I needed to build up credit but I also knew that on my low-paying work-study job, I couldn't afford to pay a huge bill. So I kept the charges under 20 bucks. But then, the second semester of my senior year, my laptop that I used for college died. And I needed a computer to do my work and my programming. So I bought one. It was a refurbished pc that I bought for about 300 bucks. But it let me work into the wee-hours without having to worry about the computer lab being closed. This was my first real experience with credit. Even now I wish that I had started a little earlier. It would have been good to start building a good credit history earlier.

Blogging My Net Worth

I've been using a tool to track my household net worth for years and I think that it has been an enormously helpful tool as a motivating factor for helping me to make the correct decisions.

The tool I have been using is NetWorthIQ. You can view a small sample chart that they produce. But I think that more than the chart, it is about the motivation that the chart provides. Besides providing a simple line of how your net worth has grown or shrunk, it shows how your net worth can be impacted by the events of the day and how well you've navigated those storms.

Personally, the great opression of 2008/2009 has been awful. It has left me feeling somewhat void. My feelings are not that unique, and my approach is not that unique. From the perspective of making money, it is difficult because the people that tend to do well are people who are far out on the risk curve, people who are doing something different.

So, with the net worth tracking tool, I am able to determine that my approach, while bad, may not be so awful. My net worth is essentially flat since this crisis began. And the vast amount of the destruction of worth is a result of the crash of the stock market. The value of my cash accounts (my fdic certificates of deposit and savings accounts) is stable. Furthermore, my home, while now worth less, is really only a loss on paper.

Paper losses, which is what many people feel is the case with stocks, are losses you can tolerate. Tolerating these losses only happens if you are in a position where you don't need to sell the assets. The key to avoiding selling such assets is to avoid leverage. As such, I've avoided debt like the plague other than a mortgage and I've been paying off student loans and auto loans and other debt with wreckless abandon. All of this is motivated at consistently and carefully growing my networth.

The importance of this strategy comes back to one point that most professional investors agree with when it comes to money: Don't Lose Any! So, this is my feeling also. I look at the net worth chart as a scoreboard. If I lose in one category, I want to have gains in another that offset the change. In the end, only time will tell if this crisis will end quickly. Many people feel like the changes in March 2009 are indicative of a good possibility that is has now ended, but only time will tell.

Wednesday, July 15, 2009

Healthcare on Life Support

One of the possibly most historic bills in the history of the united states. It could be compared with the new deal and other initiatives like that.

Interestingly, many people who were once big supporters of Obama seem to have now withdrawn support. Popular opinion among political pundits is that he was elected as a left center president but has now begun pushing a radical agenda.

In some versions of the legislation, people making over one million dollars will be taxed an additional five plus percent. In reality, the problem is the additional burden will impact the average American.

In short order this legislation will transform not just healthcare but the entire economy. Personally, this feels like the biggest economic issue since the stimulus.

By standing by and doing nothing, we are giving our legislators a blank check. I think that is a mistake. I've written to my reps and I urge you to do the same. Right now the decisions to spend money will impact us and our future generations more than most decisions in the past decade. Please contact them and weigh in. It will help your money more than most other things you can do.

Sunday, July 05, 2009

Wealthtrack for July 5th 2009

This week Wealthtrack's Consuelo Mack had a sit-down with PIMCO's co-CIO Bill Gross. This was part of a new series of interviews with great investors. It was an interesting episode where Consuelo Mack pointed out some of the clear and present dangers for the United States of America:

1. An increasing reluctance on the part of large foreign nations to take on more treasury debt due to the lack of good real returns and the lack of strong returns on the US investments.

2. Increasing debt levels of the United States being rather sticky since the only way to really combat them is to re-inflate the economy and then pay down the debts with cheaper dollars.

Interestingly, Bill was asked the question whether or not there were any investments that he was excited about long term and he answered with a resounding "No." When the conversation drifted into why that was the case, it seemed that the "mean" return for investments long term would be in the 6-8 percent/5-7 percent range.

But on the other hand, it seems that there are other options for investors who are still seeking double digit returns, according to Gross. He pointed out that with his own personal money (and for his "poor" relatives) he'd recommend bank preferred stocks and closed end funds (some of which are managed by PIMCO and invest in corporate debt). These would offer double digit returns.

As always, I found that this was particularly interesting because it points out something that I've personally wondered about for a long time: does it make sense to hold large amounts of government backed debt or even government backed savings? I have an interesting take on this, so consider whether or not you have the correct level of savings. I'll talk about this more in an upcoming post.

Thursday, July 02, 2009

Madoff Madness

One of the more interesting things that happened in the news recently is that Bernie Madoff was finally convicted in what was basically a shut case. Many people have decried the punishment he received though: a hundred and fifty years in prison. His representatives were taken aback by this judgement but it seems reasonable to me.

According to the article I read online, there was not even a single person who wrote to the judge prior to sentencing in support of Madoff. Not his family. Not his friends. In the end it seems that Madoff is utterly alone.

Unfortunately Madoff took a lot of people. And certainly some of these investors should have known better. But, if you even ignore that, aren't we forgetting the people who probably were otherwise involved? I will be much happier when I find out that the accomplices are brought to justice also. Read the news story here.


All that this story does is underscore the fact that people need to be responsible for their own actions. No one else will watch your money for you. And if you end up like madoff you will need to have at least some friends to write letters!

Tuesday, June 09, 2009

Old Friends and Maintaining Networks

Today I ran into an old friend from a previous job. I think that given the state of things, now more than ever, it is important to maintain the network of past colleagues. Unfortunately, I haven't been taking the time to do that, but it is definitely something that I want to do.

If you have a group of people at your workplace, it might even be worthwhile to start some sort of regular meeting with them outside of work so that as people leave and move on to other pursuits that everyone can stay in touch. I have done this with the people from one job and I think that it is very helpful.

Monday, June 08, 2009

Enduring the down economy

I'll confess, that now, as we are easily in the midst of a down economy (some would say we're coming out of it), it is easy to become somewhat down. For me, this has not been a simple matter of just putting my head down and becoming more of a hard worker. Instead, this has made me realize a few things. Perhaps you have had these observations as well, in which case this will be somewhat of a confirmation of your ideas.

First, this economy hurts more than just the people who have lost their jobs. In many ways, this down economy hurts the people who still have jobs in several ways. First, in families that are usually dual income homes, there may be a sole bread winner now. This adds to the stress for that individual where there is fear that there could be a job loss.

Second, in all situations, there are people who are still working at some companies where there have been layoffs etc. As a result, there is just as much work but fewer people to do it. In fact, due to hiring freezes etc, there are situations where there is simply not enough mobility within the company. People cannot be promoted, hired, and sometimes (for fear of not being able to replace the resource) fired. So, here we are with resources not being allocated correctly.

Third, there is simply less opportunity for investors. Very little is happening in terms of the velocity of money. Whereas a dollar went from your paycheck, then was spent and passed through something like 8-12 hands before it was sunk back into a bank account, now we're still seeing a serious decrease in economic activity as unemployment nears 9% nationally and those who are still working are saving.

All of this has me somewhat nervous. But given my timeframes, I am still investing in my 401k for retirement in nice diverse mutual funds. I look at what I expect to be slow, and perhaps even anemic returns over the next 12-36 months and I still feel ok about investing. I know that at some point, I will get paid off for being patience. I can see the wisdom of this especially given that I play poker...another place where you're paid to wait.

But even more than that, I am focusing on good places to spend my money. I am looking for bargains now for things that I need. I know that the inflation is going to come back; even gasoline has jumped a dime per gallon in the past week. So if you have projects that you're interested in taking on, I would start shopping for prices now. I don't expect to see much in the way of higher bank account interest rates as an incentive to save. And I do expect to see real destruction in terms of purchasing power.

But most of all, I have hope. I feel that I will learn from this some key lessons about self reliance and what I really need versus what I want. I think that most people like to say that they don't live an extravagant life or have many luxuries, but I think that this economy, and these times have shown that nearly all of us have something that is a luxury. Perhaps this will teach me to be even more grateful for what I have. Maybe as a country and a society we'll become more grateful as well. Here's hoping....

Saturday, May 16, 2009

Buying a Car

Recently, the unexpected happened. One of the cars broke and started to feel like it was going to completely break down somewhere on the side of the road when there was no one around to help.

Personally, I am not a huge fan of living with stress. In fact, I'm nearly 100% convinced that this is the cause of many health problems. So, when I can avoid the stress, I do. In this case, having a car that was unreliable and just waiting for a final breakdown was not appealing to me.

So, after deciding on a car and what we thought would be a reduction in sticker price and trade-in, we went and found the car dealership closest to where we live, walked in, test drove, and finally bought a car. In short, we did it in a single trip, single transaction. Fortunately, we were able to afford it and had good credit. Other people are not so lucky.

The big lesson learned is to not wait until the last minute. The car had already started showing signs of getting worn down and needing repairs. A repair bill from only about six weeks ago topped 1000 dollars. So, it would have been much better to trade it in before those types of bills started cropping up because the trade in value probably would not have been much different.

I would follow the advice over at Free Money Finance on getting a car. It certainly seems like solid advice. So, like many things in life, the longer you wait to deal with the problem, the worse your situation will be.

There were many positive aspects though. And I think that one of the best things that you can do in life is to focus on positive things.

1. The car is brand new, eye-catching, reliable, and will hold its value better than the old car.
2. The monthly payment is easily affordable and is 100 dollars less than the old car payment.
3. We'll easily be able to pay it off early and finally be in a positive rather than negative equity position when we trade it in.
4. There will be savings on repairs as well as cost of fuel. So overall, a good deal.

Friday, May 01, 2009

Just Do It

One of the most basic things that I've realized this past month is related to health. For the past few weeks, I've been busy but have been unable to do something that has become so much a part of my life that I really miss it. And it has become second nature to me. The thing I'm missing is exercise.

Since I usually arrive home late from work, I find that there can be some pent up stress associated with work and also with my commute. After starting an exercise regimen, I found that my stress was under control. I started slow, and I followed up with my doctor to make sure that I was really doing the right thing.

After about two years of exercising, I've never had a bad experience in terms of a serious injury. Then, about two weeks ago, I was afraid that had changed. After what seemed like a normal exercise routine, I must have pushed too hard. The next day I was showing signs of pain.

I can't say that it was not completely unexpected. I didn't spend enough time warming up usually. But, more than that, I realized that even if I had warmed up, that there could be injuries that "just happen". In the end, I have not had to go to the doctor, but I won't soon forget the incident.

Here's three ideas to think about with regard to your health:

1. Be aware of your activities and make sure you're taking the possible risk into account. Certain injuries could cause permanent injuries and generate disability.

2. Be grateful for your health, whatever the status. This incident has made me even more happy for the days when I'm healthy without any problems.

3. Ensure that you are realistic. In taking on a regimen of exercise, take into account your age, your warm ups and other types of adjustments you may need to make over time. Just relaxing and taking it slow might save you from hurting yourself.

All that said, I can't wait to get back to exercising. I feel like the tiny risk from exercise is well worth it when I consider how much benefits it has for my overall health.

For options that are easy and cost effective include the following:

1. Try using a bike to exercise outside. Using this over and over will allow for you to be able to experience a great workout at a reasonable cost.

2. Pick up some small dumbells with adjustable weights. Using this and looking up the exercises on the internet, you can get many different types of exercises done without even having to go outside.

3. Finally, if you do choose to attend a gym, make sure you look for values. Some insurances will even give a partial reimbursement, so look into this before chosing a gym.

Monday, April 20, 2009

Redecorating on a Budget - The Costs and 3 Tips

One of the things I remember when I was in the process of getting my first mortgage before any refinances etc, is that they said that you had to plan to have about 1% of the value of your home in addition to mortgage payments set aside. This money was to handle the upkeep of such a home.

Fortuntately, I have been in the position that there hasn't really been a ton of upkeep. The roof was replaced which was a pretty big expense and there were a few other minor things. However, when all is said and done, it was pretty reasonable given the quality of the space that this money had purchased.

Even now, in the midst of spending a tidy sum on redoing the two bedrooms, I can't help but feel like this is money that needs to be spent; it is not extravagant and it should help the value of the place as well as the quality of life overall.

So far, these have been the expenses:
2300 dollars for new carpeting (original was over 15 years old).
120 dollars for paint
200 dollars for new curtains and curtain rods.

After that, I'm expecting between 2500-3000 for living room furniture that will be used to go in the living room and some of the downstairs furniture that is still usable will come upstairs -- at least that is the plan right now.

Figure another couple of hundred dollars for curtains downstairs and then I think that the grand total will be in the neighborhood of 5500 dollars for redecorating 3 of the 5 main rooms in the house, including quite a bit of furniture.

These were the things I did that I think has helped keep the costs reasonable:
1. Reuse furniture if possible. Often times, you just need to change rooms and the furniture becomes usable again. I did this and used an old antique that was in storage.
2. When doing work with contractors, try to hire locally in a bad economy. You may get a better deal than with a chain. Be sure to include an estimate.
3. Shop around, even at chains you normally ignore. I was able to score very nice curtains at Bed Bath and Beyond that were not much more expensive than Wal-Mart curtains I bought for the other room, just by shopping around.

Wednesday, April 01, 2009

Loan Payoff and Change of Color

Well another major hurdle has been met for the personal finance journey to get out of debt. Amazingly, the car loan is now paid off and there is a significant improvement in the ability to have free cash flow each month as a result. Doing a debt snowball is extremely daunting, but now, nearly 2 years after my original start, I am starting to really really see the benefits. Other than the mortgage, there is only one loan left, and it is a student loan that gets paid at an accelerated schedule.

What this means

In reality, there is not much to doing this other than paying off bills early and aggressively, but in terms of the psychological benefits, it is just amazing. I feel more free than I have ever felt and along with the emergency fund, having additional free cash flow makes it quite easy to feel I could survive comfortably for a large number of months if I were to suffer any loss in income.

Taking Rewards

One important thing to realize when making these kinds of big progress milestones is to take some kind of reward. For me, this reward has been threefold.

First I decided to repaint a room in the upstairs of the condo. This is a good investment of time and money and I think that it looks great. A nice bright and neutral color. The amazing thing about this personal finance journey is that way it can permeate your entire life for the better.

Personally, I've found myself to be more upbeat and happy. Furthermore, with less debt, I am able to confidently make positive changes in my environment that require spending money for good reasons like repainting a room. And for the cost of about 80 dollars worth of new paint and supplies, the improvement to the room is simply amazing. I highly recommend making one or two small changes of this nature in your own environment and seeing the positive impact.

Second, I've decided to try to be more productive during my trips to and from the office. I've bought a small netbook computer which is compact enough that it allows me to use it comfortably on a cramped subway. This has seriously helped increase my productivity already since most of my work is typing of some sort.

Third, I've decided to upgrade internet systems. Now I am using the comcast internet cable in order to be able to have a better connection and keep everything on one bill. This is my first night using it and so far it is great and I really do notice a difference.

Tuesday, March 03, 2009

So What If You Can Call The Bottom?

The funny thing about nearly every decline in a market, whether it is stocks, bonds, or housing is that people are incredibly fixated on calling the bottom. In fact, just this past week, the market came back up over 7000 and there was a bit of hoping going on that the bounce was an indication of the bottom. I get it.

I really do get it. But even if you think that you have a good chance of being right...and even if you are right this time and you think you can get out and back in at the right time, (There are many studies that say statistically that you can't do this reliably....) the more practical question for many people is: so what?

Most people at this point are over leveraged with debt up to their eyeballs. It is a combination of consumer debt, mortgages, credit lines, and loans for education, cars, or even rehab projects on homes. It doesn't matter what kind of debt it is; the average consumer in America cannot afford to be in the business of calling a bottom.

The reason that people are so interested in bottoms is the idea that you can 'get in' at the bottom and make much more money. But in the price of 'getting in' is high when there are actual bills to be paid and the savings account balance is a paltry sum. This is the opportunity cost. When your lottery ticket costs only a dollar but you are holding one hundred, it is quite easy to make a bet. But, where most people are right now is someplace quite different.

Many people actually owe high multiples of what they actually earn in an average year. I think that all of this talk about bottoms and deflation is the proverbial tempest in a teapot for the average American family. Few families have the requisite 'spare thousands' required for this kind of action...and even if they did, how confident do you have to be in order to risk it given how volatile the markets have been of late?

Personally, I continue to invest for retirement with diverse mutual funds, save a little each month, and stick to my budget. It is old school, but I think it makes a lot more sense when compared to worrying about huge macro-level trends that are literally 30-40 years from playing out entirely. Furthermore, by paying off debt, I am dealing with items that are in my control without worrying about the scare-tactics that others like to deal with. They make great TV and radio, though.

Saturday, February 28, 2009

Progress Update

Well, like everyone right now, things are a little scary in this economy. So I'll take this opportunity to focus on some good things that are going on with my personal finances. In a huge feat, I've paid off the car loan (a year early). This reduces monthly outflow by 450 dollars (even though I was paying 600/month).

Given the current climate of the job market and the situation with the politics in this country and throughout the world, it seems to me that the safest thing I can do with my money is to pay off debt and give myself more options and mobility.

As for the net worth, that has finally come back a little bit with some big contributions for the 401k and the tax returns. Finally, after many months, its finally starting to come back. I'd encourage anyone who is worried about what to do with your money right now that looking at debt as a place to "store" your money is worth considering if you have a fully funded emergency fund (as I do).

With these changes, the only two outstanding debts that I have to worry about are the mortgage and the last student loan payment. Each debt paid-in-full makes me feel more alive and more grateful for each dollar I make. It is as if I have some sense that more and more of this money that I'm working for is actually mine for keeping and spending on things that I want, rather than making up for things that I've already taken/spent/used.

Sunday, February 01, 2009

WealthTrack Wrapup

This week's Consuelo Mack WealthTrack was particularly interesting with three notable guests: Tom Forrester, forrester value fund - only value mgr to make money last year 1/2800; Thomas Russo, Gardner Russo Gardner; Randall Forsyth, Editor in Chief Barrons.com

The main topic for this week's show was the credit markets. As usual for those who are investors, each felt that there was opportunities in this market. Even despite the negative return of the S+P over the past 10 years, there is even some sense among these experts that a reversion to the mean might actually indicative of decent returns in equities in the years to come.

Of particularly interest was the way in which Forrester managed to eke out a positive return last year. His secret was basic: avoid housing and financials. As a result he shifted a large portion to cash and overweighted in other sectors like healthcare.

Summarizing the reality of this past year, Forrester noted that 2008 was the 'year of the balance sheet'. Russo continued this theme by explaining that a major factor in the decline in price of stocks is a result of multiple contraction. Multiples are one way in which it is possible to judge how much investors value stocks since they indicate an amount of value placed on future earnings of the underlying companies.

In response to the idea of a more frugal future, there was a major indicator from Forrester's point of view: savings rates. From his perspective, savings rate is hopefully a bellwether. He thinks...(I'm summarazing and paraphrasing here).."let's see if we get back to 6-8% savings rate where the consumer is building a base and then you can grow earnings on these larger companies again. Once you do that, you can shift from 'balance sheet' mode to the 'income statement' for growing earnings."

All of this was compelling for me to hear, on both a macro and a personal level. The idea of 'hearkening back to the days of Ozzie and Harriet' rings particularly true for me. I think that it would be somewhat encouraging to see the average consumer savings rate increase. Perhaps that would be a mustard seed in what looks to be a series of troubled months ahead.

Wednesday, January 28, 2009

Three Tax Tips

The time has come again where I am preparing to do taxes for 2008. This year, like most years in the past, I am actually looking forward to doing my taxes. Fortunately, my W2 form came a little earlier than the January 31 deadline, so I was able to start early.

Many people recommend going to a professional to do taxes to avoid any mistakes. If you have a complicated return or are uneasy for some other reason, then I would definitely go that route. Personally, the first year I started my business, I made an appointment at H+R Block to get my taxes taken care of. As for the subsequent years though, I simply did the taxes online.

Over the past several years of doing taxes though, I've definitely learned some key tips that have really helped.

1. Make sure you adjust your tax withholding. If you have a business, you may find that you tend to owe taxes. In this age of shrinking economy, you don't want to be in that position next year, so make sure to pay quarterly taxes and/or increase your withholding at your primary job. This will help you by giving you some assurance that you will get a refund.

2. Know your deductions. Most people have specific situations due to business, retirement account, property, children, and dependents that impact taxes and deductions. Some of these things cannot be deducted after the fact though if there is not planning and proof. If you have had dramatic life changes, it can help to see a professional, if not to save money this year, at the very least to save money next year. An example for me is that the mortgage deduction shrinks each year so it is important to adjust accordingly.

3. Finally, make sure that you know your marginal tax rate. In the event that you are trying to make contributions to retirement accounts or do other tax planning, it is important to be aware of this. As salaries increase and income rises, these can change and start to make a dramatic difference. This is especially important for small business owners as the brackets can change by between 5 and 10%. A change this dramatic can effectively erase your profit margin for the final dollars you make each year if you're not careful.

Saturday, January 17, 2009

Don't Discount Good Health

Everyone who has been paying attention is aware that the economy is in dire straits. From the serious tumble that the stock market took, to the completely tanking housing market, it is easy to see examples nearly everywhere that things are going badly.

Fortunately though, the chances are, that if you're reading this, that you're in relatively good health. This is something that has the kind of value that doesn't have a price tag. There, I said it. Now think about it for a minute; you're good health is priceless.

Recently I had someone close to me undergo a serious surgery. This has given me a new perspective on my health and also made me realize how important it is that everyone, no matter what their situation, do what they can to stay healthy.

When you go to the doctor, you may be told to change your lifestyle, quit smoking, stop eating bad foods, etc. When you go to the dentist you may be told to brush better, or floss more. Regardless of what these professionals are telling you, you should probably take this common sense, preventative advice and follow it.

This blog is about easy change you can make to have a better life. I am realizing, even personally, that I was able to make some improvements to my health by exercising more consistently and taking even better care of my teeth. These things were not expensive in terms of money, but rather, more expensive in terms of motivation.

However, when compared with the cost and pain and emotional drain of having root canals, or some sort of heart surgery down the line because you chose to 'live fast', it certainly seems like prevention is the way to go. Not only is the the less painful and cheaper method (which avoids all sorts of Moral hazard), it is in your self interest. Take this opportunity that this new government, economic turmoil, and new year is giving us, and see if there is some positive change you can make on your life to improve your health!

Suze Orman's Action Plan 2009

Recently I was in the position of being able to download the latest of Suze's books-Action Plan 2009.Although I was hopeful that it would be an amazing new take on money for the current economic enviornment, it was not the case. Personal finance stays the same over time and Suze's advice is fairly standard for those who are interested and are following personal finance. I suppose that the upside is that I am not in a position to worry. One nice feature of the book is that much of it is in question and answer format.

Monday, January 12, 2009

What Happened to Moral Hazard?

This week on Meet the Press, an contributor to Vanity Fair was one guest and she asked this very question. The concept is rather simple, it asks the question why America has become so content to spread the risk around?

That is, if we fundamentally think that people who make bad decisions should bear the consequences of those decisions, then we must consider bailouts which significantly reduce and/or eliminate those risks to be a problem. Moral hazard is the term applied to such an event.

Indeed, this is a fair question. Listening to broadcasts from the fall of 2008 would bring you to the same question when there was a workout for Bear Sterns. Some felt that any type of intervention, even in the form of a deal, was a bad idea. But others felt like this type of government assistance was a bad idea and was a moral hazard. This was a backlash which might have contributed to the U.S. government allowing Lehman to fail.

Regardless of the whys and the hows, the question is now: why has the average American changed his mind about moral hazard? The argument is that this people have realized that it was wrong to feel that way and that we need stimulus and bailouts. I personally am not so sure. I am not convinced that people have had a massive epiphany since the middle of 2008.

I would submit instead that people are simply more self-absorbed now. Before, during Bear, people felt like it was happening to those big, bad investors and that it would have no impact on them. Now, people have seen their retirement accounts chopped in half in the midst of a significant economic slowdown on a global scale where credit is painfully tight. In short, people are too worried about how to eat to be concerned about moral hazard. So, I think that the amount of pressure on government officials is weak now that Obama is about to take office.

This doesn't negate the principal concept though; moral hazard still exists if we shield people from the consequences of their actions. Indeed, the current bailout and stimulus packages are projected to be approaching 1.7 trillion dollars. This is money that America will likely be trying to repay for the next 50 years. Isn't that a hazard? And we haven't even talked about Social Security or Medicare. What do you think? Are we on the right track with the TARP, the stimulus or is it too dangerous to continue down this path?

Saturday, January 10, 2009

Counting My Blessings -- And How it Happened

Recently, I got some very good news with regard to work-related compensation. In this economy, and in this troubled time of unemployment, any good news is really great news. So, for us right now, we're looking at a bonus, albeit smaller than expected. In addition, there will be a three percent raise.

So many people are losing their jobs, that there are not situations where people who even have their jobs may not be getting raises or bonuses at all. So, I'm quite grateful. I think that it is important that people are grateful for what they have and realize that this is a time to be even more conservative.

In this regard, I'm practicing what I preach here. And even in a good economy, this type of behavior is a good idea. It will make you more likely to keep your job when times are tough and more likely to get a raise and/or promotion when times are good. I'm convinced that these principals are what has helped me succeed in my current job.

1. Work hard. This is general, but in practical terms it means that you want to be someone who gets the work done, gets it done quickly and correctly.

2. Show initiative. Never say no to new work or challenges at work. If you're concerned about being able to do it, ask for help, but never refuse opportunities.

3. Be Grateful and non-confrontational. You have a job! Regardless of what you're putting up with, it beats being unemployed. While you want to be strong, you want to make sure you're being strong in order to do a good job, not just to be obstinate.

4. Add Value. This is a bit of a cliche, but you generally want to add value to the companies bottom line. No matter what your position is, you can add some value either by saving money or by generating additional revenue. Make sure you work hard on projects that are related to adding value and saving money and take note of your efforts.

5. Track your efforts; other people are. Come in early, stay late. Show that you're putting in extra time on weekends if needed, and never complain about the commute or extra hours. If you do this consistently, you're in much better shape. Other people may notice when you leave early so make sure that your work is without reproach and you'll be able to succeed.

Sunday, January 04, 2009

The Next Financial Crisis

This week, Suze Orman did a show called "Face it to Erase it". This show was not anything incredibly new but one point that she made toward the end has really made me consider some of the macro economic implications.

For example, there is a significant, nearly 800 Billion dollar outstanding credit card debt in the United States. An entire show was dedicated to people with large amounts of debts, but it became quite obvious to me that the vast majority of these people who were calling in were likely in a position to be unable to repay their debts. And these are not tiny debts. 10, 20, 40, even 80 thousand dollar debts.

Suze made the observation which was quite pointed; this is the next major financial crisis for the United States. This is important because of the fact that credit card companies and banks are in the position of adding a significant burden to individuals here as they significantly raise interest rates and reduce lines of credit. The callers and other information out there has made it clear that this is already happening.

What impact this would include is unclear. But it seems quite certain that there is a significant chance that this will further decrease retail spending over the next 12 months and that this will also increase the rates of bankruptcy. The ripple effects of this kind of situation is not clear. The FED has reduced rates to almost zero, but this does not matter if people cannot get additional lines of credit.

In this environment of decreased leverage, it is hard to imagine what the end-results of this will be....but I think that we're going to see the following trends over the next few years:

-- fewer stores and malls and an increased use of cash for transactions.
-- less consumer options; this will happen as more companies who were operating with little revenue are unable to survive.
-- options that remain will be of lower quality and higher prices as a result of decreased competition and also a desire to "recoup" costs associated with the down markets.
-- an increased interest in "safe" financial instruments like money markets and fixed income securities. Even though many people consider the demand for treasuries to be a bubble, it seems like there is going to be significant demand for government-type, safe, taxing-authority backed instruments. Income from these instruments, when compared with the yields found elsewhere is often as good or better, especially when tax-breaks are considered.

Thursday, January 01, 2009

Looking Forward to 2009

So it is a new year and with each new year there is a new opportunity for change and improvement. I'm actually guilty of being quite optimistic. This past year, the economy was the main story, hands down. But I'd like to say that I think that things will look better in 2009. And even more than many people, I think that we're going to be quite pleased by about 6 months through 2009, sometime in the summer.

I need to be very clear that I have nothing other than a hope and a prediction, no real solid evidence. It's just my feeling. The amount of wealth destruction that has happened as the global economy has deleveraged is staggering. So, I think that as we begin to add leverage again, we're going to realize that it was not quite as bad as we thought it was.

I'm very specific in why I feel this way. I think that most people want things to go well. That is, I think there's more optimists than pessimists overall. And I think that despite the increased unemployment (nearly 8% last time I checked), that still means that 92% of people are employed. And those 90+% are the people who matter when it comes to getting this economy back on track.

The mentality of many people right now, myself included, is that there is too much risk. Risk exists in whole areas that felt rather safe 6-12 months ago, even if they weren't. Health seemed safer. Jobs seemed safer. The ability to get another job felt more certain. And the price of energy seemed more stable along with prices. In some way, the decrease in gasoline prices has helped, but it has contributed to my increased uncertainty. If it can go down so rapidly, why can't it increase in just the same manner? And when might that happen?

So how to react? Save. Then stop, rethink. Wait. Save more. Save even more. Look around, and save more. That is what people are doing. Reconnecting with family, friends, saving more, consuming less, and refocusing on what they think is important in life -- not stuff. However, eventually, things will get somewhat easier again and those people (myself included) will start to spend again. And once that happens, I think that we'll see an increase in consumer confidence. That is what I think will improve.

Besides that, I think that the changes that a new presidency will bring will also help. More than specifics, just the mentality that things are different will help. Again, perhaps it is just blind optimism, but I think that we're near the bottom of consumer confidence. Here is some interesting info from gallup. And if confidence goes up and people spend more, the economy (including job and stock and housing market) will recover over time. I'm not looking for instant gratification...just an end for this long downtrend.