Everybody Loves Your Money

It’s a crazy, crazy world these days.  Last night my daughter had her kindergarten orientation at the elementary school near our house.  Yes, it was a milestone that came way too fast for us.  It’s hard to believe it’s been 5 years since we were blessed with our wonderful daughter.

Anyway, I was walking down the hall of the school when I recognized some neighbors that live a couple blocks from our house.  They live directly across the street from a house I posted about previously.  The people that bought that house paid $614K for it about a year ago.  Apparently they got over their head and then decided to sell.  Unfortunately the market fell out from underneath them during the short time that they were there.  They tried selling at $599K, and then lowered it all the way down to $539K.  The house didn’t sell and they moved out almost two months ago.  The "for sale" sign sat out front listing the home for sale but nothing seemed to happen.  The sign is gone now.

So, like I was saying, I saw the neighbors across the street from this house and happened to overhear them as I walked by.  They were explaining to another neighbor that the people had moved out and took all the fixtures, sinks, trim etc from the house.  Apparently they took pretty much anything that was or wasn’t nailed down.  I had read about this but had never actually seen it happen.  In other areas, I have read that banks would offer a couple thousand dollars if foreclosed homeowners left the home in good condition.  Apparently these folks didn’t get that offer.

I completely disagree with these people’s actions.  Because they overpaid for a house that they couldn’t afford, they decided to punish the lender that gave them the money to move in.  Maybe the lender shouldn’t have loaned them the money, but ultimately these people made the decision to sign up for terms that they couldn’t afford.  It’s just morally wrong to screw the mortgage company like that.  Geez, I don’t even like mortgage companies very much and I still think it’s wrong!  Bottom line is that the bank is going to take a huge loss on this house and the neighborhood is going to have to watch the house deteriorate until someone buys it and fixes it up.  The crazy thing is that it was a beautiful house that needed nothing.  Now it’s a house that needs PLENTY.

CNN has an article that talks about some of your options when you are hit with medical bills that you can’t afford.  It’s definitely worth reading.  Just because you have insurance doesn’t mean you won’t find yourself in a difficult situation.  If you don’t have insurance, it’s even more important to read this article.  It’s amazing what you can get when you simply ask!

Here are the key mistakes people can make:

1) You ignore your bills

2) You don’t look for errors in your bills

3) You don’t negotiate the price down

4) You’re embarassed to ask for financial assistance

5) You don’t work out a payment plan

Anyway, go check out the article.  It’s worth the few minutes it will take to read.

You can see the latest carnival at Broke Grad Student:

http://www.brokegradstudent.com/carnival-of-personal-finance-167-highlights-from-the-beijing-2008-olympics/

It’s week four of the weight loss contest.  If you recall, I’m having somewhat of a contest with my brother in law where we set a target to lose 17 pounds each at the rate of a pound a week.  If either of us weighs more than we did the previous week, we have to pay the other person $10.  At the end of the contest (in Nov) if either of us isn’t at our goal, we have to pay the other $10 per pound that we are off.

I’m disappointed to tell you that I had to pay my brother in law $10 last week.  It’s a long story but is filled with many mouth stuffing incidents.  You see, they had a party out at the lake.  I drank too much and ate too much after being good all week.  That was all it took to pop my weight back up prior to the weigh in.  During the party I actually found myself thinking, "This is so much fun, it’s worth the $10".  Talk about terrible.

Besides that one "slip up", I’m actually doing well.  We are keeping a spreadsheet with the weekly weigh in numbers and I have charted those out so that we can follow our progress along a trend line (goal vs actual).  I was above the line once (when I had to pay my brother in law) but I’m now tracking on the line and should be able to keep myself below it from here on out.

Psychologically it was quite painful to pay the $10 to my brother in law.  It wasn’t because of the money, but was more because I had gone in to this with the goal of not paying him anything.  I underestimated how strong the temptation to eat and drink would be.  I suppose it’s a good lesson for me and I’m hoping to use that week as a reminder of why I need to keep on track.  I’m still much happier to pay my brother in law for slipping up than to pay a weight loss company every week.

I’ve been reading Rob Cockerham’s website for a long time.  He’s done some pretty funny things over the years.  If you’ve never spent any time surfing around his site, I’d highly recommend it.  His latest "project" had him posting a "found money" listing on Craigslist.  He was curious to see what kind of a response he’d get.  He’s convinced one group was trying to pull one over on him to get the cash.  I’d have to agree.  Anyway, it’s worth the read:

http://www.cockeyed.com/citizen/found/found.php

A few of my other favorites from over the years:

The torn up credit card application:

http://www.cockeyed.com/citizen/creditcard/application.shtml

Altering the menus of restaurants:

http://www.cockeyed.com/pranks/menu/menu01.html

The "Work at Home" Herbalife report:

http://www.cockeyed.com/workfromhome/workfromhome.html

Over and over I read about various people’s plans for retirement.  You know the one thing that they have in common?  They all have different approaches.  There is no "one size fits all" approach to retirement out there.  Rather than try to match someone else’s approach, I have laid out a number of my own possible scenarios:

1) Retire at 65 and do absolutely NOTHING

This is the least attractive scenario for me.  The magical number of 65 would (in theory) give me access to medicare if it’s still around.  It would also give me a longer saving horizon giving more of my money time to compound.  If I retire at 55 with $1 million, waiting until 65 could increase the number to over $2.3 million without contributing another cent.  That assumes I get 9% on my money, although that may be aggressive considering I’ll be less interested in the risk to get a 9% return.

I really don’t want to wait until I’m 65 to quit working.  Frankly, I don’t like work and would much rather pursue other interests.

Pros:

• Longer saving horizon
• More health care options
• Less risk in outliving my money

Cons:

• I’d have to wait until I’m 65
• Less quality years ahead of me
• Life is short
• Less time to pursue other interests

2) Retire at 55 and Do Nothing

This option sounds pretty darned attractive to me but I’m concerned I’d get pretty bored and I KNOW I’d annoy the heck out of my wife while trying to keep busy.  This option also carries a lot of risk in it.  While we are saving pretty aggressively, we aren’t saving aggressively enough to live on our money for 35+ years.  If things went well in the economy, we could probably pull it off, but I’ve proven to myself that I’m pretty darned risk averse and would like to have as much cushion as possible.

55 is a good age to stop working, but I just don’t know what I’d do with the time.

Pros:

• No longer a slave to a job I’m not too excited about
• More chance to try new things and explore the world
• Potentially many quality, healthy years ahead of us

Cons:

• What do we do about health care?
• How would we make our money last?

3) Retire at 50 and get a lower paid job in an industry that I am interested in

There are lots of jobs out there that I would love to do but the money is terrible.  We just couldn’t live on the salaries that these jobs pay.  I think this option is probably the most practical and interesting option of the 3.  If we scaled back our consumption and had our homes paid off, we could easily live on much less than we do today.  Our only bills would be taxes and ongoing living expenses like power, water, cable etc.  By retiring (aka switching careers) at 50, we could work less, and do work that was more meaningful to us.  This option would also give us access to health care options that we wouldn’t have if we sat at home.

We are on target to pay off our houses before we turn 50 and we don’t maintain any other debt so this option is actually quite achievable.  The only gotcha here is that our daughter will just be going in to college.  We are hoping to offset that by investing today in a 529 plan for her.

Pros:

• Pursue work that we enjoy
• Access to health care options
• More time for hobbies and other interests
• Use much less of our invested assets due to income from the low paying jobs
• More time for invested money to compound

Cons:

• Quitting your high paying job while your daughter is in college doesn’t feel too good
• May not have as much time to travel and enjoy "retirement"

When I was younger I used to think that the best thing I could do would be to buy a second home in Arizona.  Why?  Because some day I want to live there in the winter (aka: Be a Snowbird).  I was convinced that a key strategy to my investing and saving for the future was to lock in a low price on a place to live in Arizona today to get rid of the risk of unaffordable prices later.  I’ve since changed my mind.

Real estate in various parts of Arizona is dirt cheap these days.  Mind you, that comes from someone living in the Seattle area where prices are much higher.  In 2006 the median price of a home in the Seattle area peaked around $400K.  That has come down a bit since then but it’s still much higher than the price of many new homes in Arizona.  The median price of a house in Arizona in 2006 was half of Seattle’s.  I found brand new housing developments down there with houses starting in the $110K range.  During the real estate "run up" that we’ve experienced over the last X number of years, the prices in Arizona seemed to be going crazy.  Just like Vegas, reality is setting in though.

Over the years I’ve also realized that owning a second home isn’t a low cost endeavor.  Whether it’s used as a vacation home or a rental, there are many monthly costs to contend with.  Since long distance landlording (Hey, did I just make up a new word?) doesn’t sound very appealing to me, I’d most likely just sit on the property and let it drain my bank accounts.  For my personality profile, being a landlord just doesn’t feel like a good fit.

So what am I doing instead?  Well, for starters, I’m saving money.  On top of that, we have the second home out near the lake that we are enjoying during our younger saving years.  By my estimation, we’ll be able to sell it as we get closer to retirement age and use the proceeds to buy a place in Arizona.  Who knows.  By that time, we may decide to invest the proceeds of the sale and just rent a place there in the winter time.  The important thing for us now is to keep on task by saving and watching our spending so that we have all of the potential options open to us later.

After 15 years of paying premiums to Allstate, I have finally started the process of shopping for a new insurance company.  I can’t say I’ve been unhappy with Allstate but it’s time to see if they are truly giving me a good deal or not.  A couple things have caused me to do this.  First, I’ve read too many times that you should do some comparison shopping on your insurance once in awhile.  I’d say after 15 years, it’s time.

The second reason I’m shopping around is because of a massive insurance claim I handled for my parents over the last 1.5 years.  In December of 2006 my parents had a massive fire at their home.  Two weeks later my dad passed away.  Once we got over the shock of both of those events it was clear I needed to step in and handle the rebuilding of my parent’s home.  I learned a TON through the process and one thing has haunted me since going through that.  It was early in the process and I had a couple contractors in the house giving me estimates.  As the two contractors wandered through the house they ran in to each other and one said to the other, "I wouldn’t even want to bid this job if it was Allstate."  Yikes.  The other contractor chuckled and nodded his head in agreement.  Between that comment and the outstanding job that Hartford insurance did managing my mother’s claim, I’ve known for awhile that I needed to explore other options.

So I called an insurance agent today to see whether the rates I’m getting and the coverage I have is right for my family.  I gave them some basic information and am waiting for them to email me a quote from 6 other companies, including Hartford.  If Hartford is the same or cheaper than Allstate, I’ll probably switch.  In the end Hartford paid a very large sum of money to rebuild my mother’s home and reimburse her for her lost personal property.  They didn’t try to nickel and dime my mother and were fair about pretty much everything that we asked for.  I think the most amazing thing they did for us was to hire an outside contractor to come in and inventory the 24X60 garage to help us identify all the things that we needed to claim (and believe me, there was a TON of stuff in there).  Other insurance companies might have just told me to fill out the personal property form.  That one decision that the Hartford claim adjuster made to get a "post fire" inventory company to come in and sift through the charred property increased my mother’s settlement by over $50,000.  It’s completely unrealistic to think that I could have sifted through all of my dad’s stuff in that garage.  He had thousands of things in there and I wasn’t in the emotional state to be able to try to identify each and every item.  As it was, I spent way too much time in that burned out structure and it was incredibly difficult because it brought back so many memories.  Having someone come in and document everything that was there was like having an angel from heaven drop in.

What am I getting a quote on?  We currently have policies on our main home, our lake house, both of our cars, a boat (for the lake), and an earthquake policy on our main house.  Needless to say, we are paying a pretty decent chunk of coin for insurance every year.  Getting competitive prices is probably long overdue.

The sky is falling.  Okay, well maybe not yet but I sure have been reading a lot of articles about gloom and doom.  Our budget deficit is around $9.5T (yeah, that’s trillion), real estate is declining rapidly, consumer prices are rising rapidly, loans are harder to come by, our national spending is increasing and is causing billions of dollars in increases to our national debt, consumer credit is out of control, layoffs are imminent at many companies, local and state governments are not hiring and I could go on and on.

What I can’t tell from all this is when the crisis starts.  Is it time to panic yet?  I’ve been practicing running around the yard yelling, "We’re all gonna die!!!!" so that I’m ready when the time is right.

Seriously though.  How do we work our way out of this tough spot?  Does it just take time for the magic to happen?  Do we just hold on and keep doing what we’re doing?  My gut tells me NO.  The only solution that I can see is for a drastic change in behavior at the consumer level and at the governmental level.  We need a drastic change in strategies here.  The longer we wait to face our reality, the worse it’s going to be.

I read an article yesterday that talked about how a depression might actually be good for our country.  After the initial shock that someone might think that, I read on.  The author’s point is that we need a shock to our system.  We need people to experience the pain of not having everything in order to alter their behavior.  It’s hard to argue that something isn’t needed to change people’s approach to money management.  While I don’t want to see our country go in to a depression, part of me wonders if we are headed there no matter what.  If you only read one article that I’ve linked to here today, I’d make it the link in this paragraph.

You know how I love reading about the trials and tribulations of lottery winners.  Brad Duke is the example of someone that knew how to turn his lottery winnings in to a life long investment.  Unfortunately most other people aren’t that successful with their winnings.

Take Rhoda Toth as an example.  She won $13 million 18 years ago and has long since gambled and spent that money.  In 2006 she and her husband were accused of tax evasion and the trial just completed.  Unfortunately for her husband Alex has since died so it’s just poor Rhoda facing the music.

At her sentencing, she claimed that she had MS and couldn’t walk.   When the judge saw video of her walking around, he opted to sentence her to jail, rather than let her off with a smaller punishment.

Just think.  18 years ago she was on top of the world.  Now, she is facing jail time and is broke.  Had she invested that money all those years ago, she’d be dining in the same restaurants as Warren Buffet.  (Okay, bad example because we all know Warren eats in pretty darned normal restaurants, but you get the point.)

http://www.tampabays10.com/news/local/story.aspx?storyid=86972&catid=8