Everybody Loves Your Money

Thanks to some good friends of ours, my daughter has a whole new wardrobe.  Our daughter is burning through clothes at a much faster rate now that she is attending daycare.  She gets to spend lots of time doing arts and crafts, and playing outside.  I think the playground is where the majority of the damage happens, but that’s a small price to pay for our daughter to have a good time and get exercise.

Anyway, a friend of ours dropped by a big bag of clothes that their daughter has outgrown.  Their daughter is a couple months older than ours but has grown at a faster pace than our daughter.  Both of the girls are good friends with each other and they just love getting together to play.

Our daughter (who is 3, almost 4) was ecstatic to get the clothes, but not for the reason you’d expect.  She was walking around all day, putting on different outfits and I caught her pulling the clothes up to her nose and smelling them.  At first I thought there was a problem.  I said, “What’s wrong honey?  Do the clothes smell bad?  Do we need to put them in the laundry?”  Her reply surprised me.  She said, “No, they don’t need to go in the laundry, daddy.  They smell like Maddie”.  As she said those words, she had a huge grin on her face.  For the rest of the day, and even the next, she would tell us that she liked how her clothes smelled because they smell like her friend.

I was talking to a friend of mine and she was saying that she and her husband were trying to decide whether they should try to pay off their house in five years or not.  They currently have a 15 year loan and have an excess $3K plus per month that could be used to pay down their mortgage.  They also have a couple of kids that are about 6-8 years away from college.  For them, the thought of having no morgtage payment is huge.  Their goal is to be absolutely debt free.

What’s most interesting about this story is that these same people used to struggle to make ends meet on a salary similiar to what they make today.  It was only after they lost one of their incomes for a couple years that they realized they had been letting their money own them, as opposed to how they are today where they own their money.

We talked about the standard items you’d bring up when trying to decide whether to pay off a mortgage or not.  Could they make more money by investing the additional money instead of paying off the house?  If they invested the money and received a 10% return, maybe they could cash out that investment in five years, pay off the house, and then have additional funds left over.  We also talked a bit about the tax benefits of a mortgage.  On paper, it probably makes the most sense to invest the money, take the tax benefit from writing off their mortgage interest and then pay the house off with proceeds of their investments in five years.  The reality is that, after more discussion, they are probably going to stretch out the goal a bit and shoot to have their mortgage paid off in 6 years so that they can use that additional money to pay for college for their kids.

One thing that struck me was that it really didn’t matter which decision they made.  They had already made the life altering decision to spend less than they earn and pursue investing for their future.  That was truly the main factor in their finances.  They are smart people so regardless of whether they decide to invest their money, or pay off their mortgage, they have already succeeded, simply by having changed their financial strategy 

I’ve been following Circuit City ever since I read that they fired 3400 of their highest paid workers and brought in a bunch of “new hires” at a lower pay rate.  At this point, I would say that their strategy is failing.  Go figure.  Get rid of your best people and your sales miss your forecasts.  It’s amazing to me that they really believed getting rid of their top performers and replacing them with a bunch of newbies would really help their bottom line.  I would have predicted a little bit more subtle drop in sales but this article makes it sound like they are scrambling now. 

Circuit City’s stock is now at a new 52 week low.  Obviously there are other factors at play to explain their continued weak business, but certainly they aren’t a very attractive stock right now.  I’m all for buying a company’s stock when it’s in the tank but Circuit City feels a little extra risky.  I’m not exactly thrilled with their management approach.  It should be interesting to see what their numbers look like over the next few quarters.  I think they are going to lose a lot of market share to Best Buy permanently.  Maybe I should go look at Best Buy as a stock to own.

http://hosted.ap.org/dynamic/stories/C/CIRCUIT_CITY_OUTLOOK

Five Cent Nickel is celebrating it’s two year anniversary with a great promotion!  Nickel is giving away some outstanding prizes (not your typical free book type promotion).  I’ve been reading Five Cent Nickel for just about the whole two years it’s been around.  I started my blog almost two years ago as well and back then there weren’t nearly as many PF blogs around.  Nickel has always done a great job of staying on topic and has really built a great collection of personal finance articles.  I think I’ve been linking to Five Cent Nickel just about the whole time we’ve been around, although I’m sad to say Nickel doesn’t link back to me.  Maybe he will in the future, I can only hope. 

One of the more recent articles that I read at Five Cent Nickel was The Cost of a Wired World.  Did you know that it cost businesses worldwide over $7.2 billion in energy costs to run their servers?  I was amazed at this figure when I saw it.  I work for a large company and was also amazed at how much water we use to cool our data centers.  I guess virtual sites aren’t quite as environmentally friendly as we thought.  Maybe we should go back to reading our news on paper…..

Anyway, go check out Five Cent Nickel and see what you think.  He has great relevant articles that you will most likely learn a little from.