Everybody Loves Your Money

Wow.  It’s amazing what a difference a week makes.  It was only a little over a week ago that I was feeling bummed that rates had gone down since I locked in at 4.875% for a 30 year fixed.  Fast forward to today and my credit union’s rate has increased to 5.45% for a 30 year fixed.  That’s after being down to less than 4.5% last week.  Literally a full point increase in about a week.  Mortgage rates seem to be fluctuating as much as the stock market.

Needless to say, I’m feeling good about the rate that I locked in.  The appraiser was supposed to come check out our house on Monday but she canceled due to the weather.  It has snowed over a foot at our house so it’s made driving a lot more interesting around here.  I love this weather and have been driving all over the place.  We finished our Christmas shopping and I even drove over to my mother’s house (about 15 miles away) to shovel her driveway.  She had been cooped up in her house for a few days and wasn’t able to get her car out.  My daughter and I also took her shopping and had lunch too.  Good times.  That’s just a short update from my part of the world.  We are gearing up to host Christmas eve at our house tomorrow night and then will be off to visit family around the area on Christmas day.  My wife’s parents are in England visiting our relatives there.  My wife has family in London, York, Felixstowe and Ipswich and I believe they are visiting all of them while they are there, although most of the time will be spent with my wife’s grandparents in Felixstowe.  (The joke there when someone asks where Felixstowe is, is to say “It’s on the end of Felix’s foot.  Heh.)

Let me also take this opportunity to wish you a Merry Christmas!

Today was one of those days that you remember for the rest of your life and I didn’t spend a nickel all day.  Up here in the Pacific Northwest the weather has been a little abnormal.  By that I mean that it snowed.  It has been cold for a week and we even saw temperatures in the single digits overnight in a couple areas.  With all this cold it was only a matter of time before we got a decent snow storm.  Today was the day.  School was canceled for our daughter (in kindergarten) so she spent a few hours at a friends of ours while we worked.  I took off early today to help my wife get home from work (it continued to snow and driving was getting challenging).

To say that people freak out here when it snows is putting it very mildly.  You’d think it was nuclear fallout the way the news was covering it.  One of the local channels preempted all programming all day to cover the “Winter Blast”.  It’s always humorous to see how everyone responds to snow here.

Anyway, I went and picked up my daughter from our friends, came home and after we warmed up, we headed over to her elementary school where they have some nice big hills on the playground.  That ends up being the best place in the whole area to go sledding so we weren’t alone.  There were probably about 30 other kids there but there was plenty of room for everyone.  My daughter and I had a BLAST screaming down the hill over and over. She’s 5 and this was her first year of really getting crazy on a sled.  She’s fearless.  I was wiped out (tired) long before she was so I spent time talking to various other parents that were there.  All the while the snow kept coming down.  It was really amazing.  The time I spent with her today was priceless (no Mastercard required).  Just seeing her playing like a kid should, without a fear in the world, was something that you can’t even put a price on.

I was also fortunate to talk to a couple friends that have the same financial point of view as me.  The concepts of “living within your means” and “investing for your future” were the central themes of our conversations.  I can tell that we’ll have some great conversations in the future.

A bit about them:

I’d guess they’ve been married for about ten years

3 kids

1400 square foot house

Mid 90’s Dodge Caravan

86 Honda Accord

Stay at home mom who watches kids before and after school for extra income

He’s an engineer at a large company

Absolutely no debt and they live well within their means.

As Jim and I were talking the subject drifted towards the current economic events.  We both discussed the overall state of things and both agreed that it isn’t the stock market that is causing the economic crisis but rather it’s the fear that everyone feels from seeing the events of the stock market and real estate market unfold (and not being very well prepared for it).  The reality is that people are scared and they aren’t spending like they were.  We both lamented about the fact that as people started saving some of their money instead of spending it, they were pulling us long term savers down with them.  Sarcastically we came to the conclusion that rather than try to get people to save their money like we both had done for years we now needed to tell everyone to treat themselves.  It’s time to tell everyone to go back to living beyond their means.  Maybe if they all get back to that state of denial, us long term savers can finally start seeing some improvements all around us.  </sarcasm>

Here’s a picture of our daughter playing in the snow:

It sure is interesting to see the kinds of things people spend their money on.  Safe to say I wouldn’t be putting this kind of money in to this ride…….

Housing Crisis Vindicates Guy Who Still Lives With Parents

http://www.theonion.com/content/news_briefs/housing_crisis_vindicates

$700 Billion Bailout Celebrated With Lavish $800 Billion Executive Party

http://www.theonion.com/content/news/700_billion_bailout_celebrated

WaMu Files For ChapLev

http://www.theonion.com/content/news_briefs/wamu_files_for_chaplev

How Did The Economy Go Bad? (Infographic)

http://www.theonion.com/content/infograph/how_did_the_economy_go_bad

I liked this 2 minute video talking about why you should spend less on Christmas.  It seems like an appropriate video to share during these harder economic times and my overall desire to tout the benefits of jumping off the Christmas present orgy express.

Okay, so that title probably sounds a little bit moronic.  I don’t think anyone can avoid the fraud we’ve seen on Wallstreet over the years.  Here are a few of my favorites:

Enron

Worldcom

Madoff

Mortgage Securities

It seems that the only limit to the amount of fraud on Wall street is people’s ability to imagine it.  From energy manipulation to massive Hedge fund ponzi schemes, how the heck can the average investor protect themselves?

My answer has been to invest in a diversified set of index funds with low costs.  By dollar cost averaging every two weeks in a set of index funds I’m buying during the peaks and most importantly during the valleys.  As tempting as it has been to hunker down and slow down my 401k contributions (in order to build up our emergency fund further) I won’t do it.  I like buying low and selling high.

I find myself not trusting too many people these days when it comes to the financial markets.  I’d like to say I still trust Warren Buffet’s judgement but I’m not even sure I can bring myself to do that, and he’s never given me any reason not to trust him.  (Not that he cares whether I trust him or not).

Anyway, I’m feeling more and more motivated to completely walk away from the concept of investing in individual companies.  The SEC seems less and less capable of tracking down fraud in these companies and their accounting practices seem to offer more and more ways to manipulate earnings reports.  I know that the majority of companies are acting ethically and doing their best to portray their results accurately.  The only problem is that I don’t which companies those are.

So, I’m going to continue embracing dollar cost averaging in index funds.  By doing this I believe I’m diversifying my risk adequately enough that I feel I can ride out any of the scandals by buying as the market dips on the scandals and improves as recoveries are made.

Well, it never seems to fail.  I’ve never been able to time the market and trying to time interest rates has proven to be just as difficult.  I locked in our refinance rate at 4.875% for a 30 year fixed rate loan.  It’s a great rate and I’m thrilled to have gotten it.  Of course rates have come back down further since then.  My credit union is now offering a rate of 4.5% for a 30 year fixed.  That costs a bit but there is a 0 points option at 4.625.  Oh well.

I was thinking that if rates stayed low, or went lower maybe I could extend my closing out passed my 45 day lock period so that I could lock in a new lower rate.  Apparently I’m not the first person to think like that as my credit union clearly states on their terms that if I go passed the lock period, they will lock in a new rate that is the higher of my current locked rate, or the new market rate if that is higher.  Bastards.  So, whether rates go up or down, they get the best deal.

Oh well.  I’m still happy with the rate I locked in and the business case for doing the refinance hasn’t changed.  We will still benefit from it.

It’s good that we will be saving money on our mortgage because it’s getting cold here.  I may need to use some of that savings to run the furnace much more often.  They are predicting that the temperature could get down to 10 degrees by early next week.  That’s darned cold for the Pacific Northwest.  It hasn’t been that cold here since 1990.  I’m actually looking forward to a change in the weather.  It’s always fun to mix it up a bit and have a little bit different weather.  I’d love to see a foot of snow here, although that is extremely rare.

In other unrelated news, I noticed that the blogs are alive with the story of Bernard Madoff.  Apparently Bernard has been very busy spending other people’s money in what’s turning out to be the largest Ponzi scheme of all time.  $50 Billion dollars worth.  What’s fascinating to me about this is that there were a lot of hedge funds and wealthy individuals that were stripped of a lot of money.  Gosh, I thought Ponzi schemes were a poor man’s risk.  It’s hard to believe that this could go on for so long.  Whatever happened to third party audits?  I wouldn’t have invested a large amount of money unless someone could show me that the books were independently audited.  Then again, I’m a fairly paranoid individual.  I think I’ll just continue to trust myself with my money.

“Think of inflation as your friend. Wouldn’t you like to wear $1,000 suits and smoke $100 cigars? I know I would.”

Heh.  Happy Friday.

I think everyone should collectively pat themselves on the back.  All it took to start reigning in the debt was a massive financial collapse.  Hopefully this trend will continue.

http://money.cnn.com/2008/12/11/news/economy/flow_of_funds/index.htm?postversion=2008121114

Anyway, check out the article.  It’s interesting.  I wonder if people are willfully changing their habits, or whether it’s just a lack of available credit……

It was finally too much for me to ignore.  We have been paying 5.75% on our mortgage for the last 6 years.  We’ve always felt that was a great rate, especially when you consider historical rates.  Well, the appeal of a sub 5% loan was finally too much to keep me on the sidelines.  We were able to secure a new loan at 4.875% for a 30 year fixed rate loan through our credit union.

I went back and forth on this for quite some time.  On the one hand, we really didn’t want to extend our loan back out to 30 years.  On the other, we know that we can pay additional on the mortgage to speed it up.  That’s what we plan to do.  We will take the savings each month and pay it towards the mortgage (and probably more) to keep paying it down as if we had the higher payment.  Over time, this will help shorten the loan period for us.

One of the other things that played in to our decision was that the lower payment will be very helpful if we were to find ourselves unemployed.  As it stands now, with both of us employed, 51% of our income is left over at the end of the month if we closely follow our budget.  If you include what we are putting away each month in our 401K’s and investments, the number is much higher.  This decision will help us keep our monthly expenses as low as possible.

Last week I was amazed that rates had gotten so low.  As I was logging in to my credit union website I happened to notice that they were offering an APR of 4.99% last week.  I didn’t act on it right away because I wasn’t sure it was something we wanted to do.  As I debated the pros and cons, I finally decided it made sense.  The benefits far outweigh the closing costs in a very short amount of time.

Once I decided that we were going to do it, I sent an email to a mortgage broker that happens to live in our neighborhood.  I gave him the basics of what we wanted to do and asked him to send me a Good Faith Estimate  (GFE).  His GFE showed a fair amount of fees that I wasn’t too thrilled with.  I also went through the basic process with my credit union online and downloaded the GFE for them as well.  When I compared the two, I found that my credit union was about $800 cheaper.  The other thing that drove me to my credit union was that my neighbor was quoting rates from Countrywide.  I have to admit, I found myself having a negative taste in my mouth from all the news I’ve heard about Countrywide.  In the end I decided that I wanted the convenience and peace of mind of doing business with my credit union (they service all of their loans).  The $800 definitely was a factor as well.

If you have a rate that is 5.75% or higher, you may want to look in to whether refinancing would be a benefit for you or not.