Everybody Loves Your Money

JD over at Get Rich Slowly points to a great resource over at Dave Ramsey’s website.  It’s a short PDF file that reinforces that the best course of action during economic certainty is to NOT PANIC and manage your emotions.  I’ve always enjoyed Warren Buffet’s phrase, “Be fearful when others are greedy and be greedy when others are fearful”.  I think it’s a great phrase for our current situation.  There are other great quotes in the PDF file and some very good lessons from history.  I’d highly recommend reading this.

I’ve been trying very hard to manage the fear I have in the economy.  While I’ve been a bit of a doomsayer during the last 9 months or so, I’m trying very hard, at a personal level, not to let the fear drive irrational financial decisions.  What do I mean?

As people have started to lose their jobs across wide sectors of the economy and I’ve personally been witnessing many acquaintances lose their jobs my first reaction has been to shut down spending and just put money away as fast as I can.  While I believe that saving is always a good thing, I need to be targeted at how I save.  Just shoving a bunch of money in a savings account isn’t going to help me prosper from the current economic crisis.  It may help me feel more secure right now but the long term benefit will be minimized.  It’s been very valuable for me to sit down and really think about my plan.

Here’s what I’m doing:

• Increasing my 401k contributions as much as possible
• Maxing out my ROTH IRA
• Continuing to save in my daughter’s 529 plan
• Starting to slowly move cash that’s in my 401k back in to the market
• Increasing our savings account balance just in case we do get hit with a job loss

While it hasn’t felt comfortable to make these decisions, I think they are the right decisions to make during the downturn.  If I sit on the sidelines through the entire downturn and just hoard money, what’s my upside?  Sure, I’ll have a decent cash position at the end of it but I will have made very little return on that cash.  Based on historical data, it seems that the wisest investors have fought back their fear and pushed on.  Hopefully that approach will yield me a great return over the long term.  As I’ve mentioned in previous posts, while I’m scared, I’m also excited that this downturn happened now, during my 30’s instead of happening later in my investing career.

For the past year or so when I was working at home I would just happen to glance out my office window at just the right time to see the gorgeous blonde house cleaner arrive across the street.  After a few months of this,  I happened to notice that she normally showed up on Wednesdays and I’d guess she comes every two weeks.  It became quite a joke in our house that the hot house cleaner had come that day, similar to my wife joking about "Jason" the milk delivery guy really being my daughter’s father.

Last week I was out talking to my neighbor across the street when he delivered the bad news.  "We’ve had to cut back on a lot of expenses at our house", he said.  "I’m worried I’m going to lose my job of 16 years so we are tightening up our expenses.  I had to let the house cleaner go."  I was shocked.  "Tell me you’re joking!" I said.  He insisted he was telling the truth and then we joked about what a loss that would be for the neighborhood men.  "I’ll tell you what", I said.  "I’ll pay half to keep her coming by every two weeks!"  We both had a good laugh but then I started to think about it.  That woman has just lost a good customer and has instantly seen her income shrink.  While it was the right thing to do for my neighbor, it was definitely not without impact.

Of course I never really thought about my neighbor’s job security.  I asked him what he was planning on doing if he did, in fact, lose his job and he said that he was thinking about going back to school to get caught up on his teaching certifications.  Apparently he has a bachelors degree in teaching and he has often thought about going back to that profession after many years in the corporate rat race.  He is fortunate that he has a significant amount of savings from a previous home sale so he has many more options relative to other people that are at risk of losing their jobs.

While we’ve never been willing to spend the money on a house cleaner, we have thought about what "extra" expenses we could get rid of if we needed to.  Unfortunately, (or fortunately) we have not maintained a lot of luxury expenses over the years.  The only two things that we can really get rid of at this point are the $8.99 Netflix subscription and home delivery of the milk.  Neither of those really add up to much and I’d really hate to put my daughter’s father out of work…….

I’ve been reading a lot about all the possible gloom and doom that can be realized when the majority of citizens start saving more.  While no one disagrees that saving is good, we’re starting to hear from more and more "experts" that saving is really best done during economic boom times.  It turns out that saving during an economic downturn only makes things worse.  Unfortunately, we are all individuals and make individual decisions about when we want to save.  That doesn’t help the broader economy.  While our family has been saving all along, we’ve actually increased our savings rate now for the same reasons many others have.  The more money we have in the bank, the more secure we feel.

What really has the experts in a tizzy is that most of the saving that is happening now is due to reduced spending.  In other words, people aren’t making more money and then saving some of it, rather, they are making less money and spending even less.  The end result is that we are continuing to see things get worse.  Unemployment is increasing, foreclosures are increasing (and I bet they take a nice big jump once the banks quit holding back), and the stock market keeps seeing negative numbers.

So, why won’t people just start spending like crazy to help our consumer driven economy?  It doesn’t make sense to.  On an individual basis, why wouldn’t I hold on to more of my money to increase my security?  Even if I’m not fearing a job loss, right now it makes sense to hold off on purchases to wait for prices to decline further (deflation).  While that doesn’t help the greater good, it’s a better financial decision for the individual.

Yet another reason to save is to take advantage of buying opportunities in the market.  Eventually the market is going to stop hemorrhaging and it will begin recovering.  This may go fast, but more than likely it will be a much more gradual recovery.  The more money you have in cash, the more you can take advantage of historically low stock prices.  I’m keeping my eye on a Berkshire Hathaway Class A share.  I’ve always wanted one and Berkshire hasn’t been immune to the massive share price reductions.  If it comes down further, it may reach my affordability range.  Of course, the more money I save, the closer I am to being able to afford it, or other investments like it.  The point is that it takes money to make money.  If you can manage to accrue enough in your savings accounts now, you just might have the opportunity of a lifetime.  Of course, this strategy is much more relevant to people in their 20’s and 30’s than it is to people who are getting close to retirement.  Finally, time will be on our (the younger generations) side in a way it never has been before.  I’d much rather buy in to a cheap market and then have 20+ years for growth, than I would buy in to a bloated market and then have 20 years to realize substandard returns, or even losses.

Bottom line is that cash is king in this environment and the more you save, the more you’ll reap the benefits as things level off and start to improve.  People in the great depression probably never thought they’d see a light at the end of the tunnel.  The reality is that eventually, things will improve.  If you have 20+ years on your side, you are going to be in the drivers seat for huge potential gains.

Here’s an interesting twist on the home foreclosure front.  People around the country are having success in getting additional time to avoid foreclosure by requesting that the lender produce the original mortgage documents to prove that they have responsibility for the mortgage and have a right to foreclose on the property.

It’s no secret that I’m not super duper sympathetic for many of the people facing foreclosure.  While I’m normally a very tolerant person, I’m frustrated that so many people bought houses that they couldn’t afford.  Of course there are exceptions to every rule on this.  There are plenty of people that did everything right and are still facing down the foreclosure monsters.  No one can afford their mortgage forever if they find themselves out of work for an extended period of time.

So, if you are facing foreclosure and the lender hasn’t been willing to work with you, make sure you ask for them to produce the original mortgage documents and make sure that they follow every rule that they are supposed to.  If they aren’t willing to help you, you definitely shouldn’t cut them any slack.

Here’s a link to an article at CBSNews talking about this in more depth:

http://www.cbsnews.com/stories/2009/02/17/business/main4807671.shtml

I can afford the payment.  I responsibly only borrowed what I could truly afford.  I’ve stayed debt free with no credit card debt, car loans or anything other than a mortgage.  I save and invest regularly.  I’m pretty much doing all I can to be a financially responsible citizen.  Unfortunately our society doesn’t seem to reward good behavior.

In my daughter’s kindergarten class there are kids that pay attention, do their homework, and generally do what they’re told.  The reward for being a good student is extra privileges.  The kids in the class who act out, don’t pay attention and are hard to keep control over don’t often receive rewards for their behavior.  In fact they never do.  It seems that our school system believes that rewarding good behavior is a positive reinforcement method to teach good behavioral skills.

I guess this kind of positive reinforcement only works on young children because we certainly don’t seem to be using anything of the sort on all the people that have irresponsibly run up their credit card bills and bought homes that they can’t afford.  The remedy for those people is to spend MY tax dollars to adjust the terms on their debt.  So, the lesson I’m apt to take away from this current economic crisis is if enough people are living beyond their means and spending more than they can afford to, then I might as well do it too.  On the plus side, I’ll get to live far more extravagantly than my old self would have and if things get too bad, someone else will pick up the tab.  So far I haven’t seen any drawbacks to taking this approach.

I’m extremely torn on what type of bailout/economic stimulus is needed for our country.  It absolutely kills me that people who haven’t planned and have been irresponsible with their lives are now my problem.  Sure, there are some people that are being impacted through this that truly did try to do the right things.  The problem is that it’s a small percentage of the people that are standing in line asking for help.

I’m trying really hard not to be a whiner/complainer about all of this stuff but it really does kick me in the ass that we are deepening our national debt by trillions of dollars.

What do you think?  Should we just let the economy reset on it’s own, or should we use trillions of dollars to try to basically manipulate reality?

So, as much as I’d like to live beyond my means and hope for a bailout some day, I won’t.  I won’t because it’s not the right thing to do.  I won’t because I pride myself on being financially independent.  I won’t because it’s against everything I’ve ever believed was right.  I’ll just sit back, keep saving, and hope that someday society will recognize the fiscally responsible people in our midst.

Sometimes I lay awake at night, worrying about all those people in Las Vegas that need our help.  Without tourists, there  won’t be rooms to clean, food to serve, maintenance to perform, security to manage and Craps tables to watch.  It is with this concern that I have decided it is time to help.

Okay, I’m not being completely honest here.  While I do share a genuine concern for all my fellow worker bees out there, that isn’t the reason that we are going to Las Vegas next month.  It turns out that there are some great deals going on down there right now and my sister and brother in law are going and asked us if we were interested.  After doing some quick research on weather.com to find out what the average temperature is in March and talking to my wife, we decided to splurge and have a short get away to hopefully warm up and just relax.  So far it sounds like my sister, brother in law and his sister and brother in law are going.  I booked a flight on Southwest airlines (with the "Wanna get away?" promotion) and now we are on the lookout for a good deal on a hotel.  My sister gets reward points through MGM so they are most likely going to be able to stay for free at one of the MGM hotels.  Unfortunately, I only have a Costco rewards card so I don’t get that bonus.  (I prefer the Costco cash card anyway).

If anyone knows of a great way to get a rock bottom price on a hotel towards the end of March, please let me know.  I’ve been watching fatwallet.com and have found a couple decent deals, but of course, I like screaming deals better.  Any ideas?

With the economy in the toilet we’ve been doing our part to make it worse by eating at home almost exclusively. We’ve actually noticed a reduction in our food spending and we’ve been eating some really good quality meals at the same time. It’s no secret that I LOVE Costco. The meat there is very good quality. I’ve never been disappointed with a cut of meat from there. We have been eating a lot of tri-tip steaks from there at $3.49 a pound. The meat is tender and is as tasty as any NY steak I’ve ever had. We can have a nice steak meal along with garlic mashed potatoes and fresh vegetables for less than $7 total.

When we are really feeling fat in the wallet, we like to buy the filet mignon cut of meat at Costco. I was absolutely dumbfounded to see they were selling it at $8.99 a pound when I was there last week. A pack of 4 nice steaks is about $20. My wife and I can each have an incredible steak that you can literally cut with a butter knife, potatoes or rice, and fresh vegetables for less than $13 total. We would pay well over $60 for the same kind of meal in a restaurant. Add a nice bottle of wine and we are still eating for 50% less than just a meal, without wine, in a restaurant.

What are you treating yourself with these days?

I didn’t mention it in January, but this marks the fourth year that I’ve been blogging on Everybody Loves Your Money. It’s amazing how far the personal finance blogging world has come since I started. I remember back when there was a much smaller number of personal finance blogs. Now, I have trouble keeping up with all of them.

While I haven’t been as active a blogger as many of my peers, I have enjoyed writing and hope that there have been a few stories or posts that people have connected with. I think this blog has been therapeutic for me as I work through the daily grind of managing our finances as well as life in general.

For all of you that have been reading ELYM over the last four years, I just want to say thank you. Thanks for your comments and thanks for your time!

You’d think that, with this economy, I’d be hunkered down in my bunker only spending money on beans, rice and other essential foods and drinks. I’m still not getting warm and fuzzy about the current economic downturn and the prospects for a turnaround. In light of that, you’d think I’d be having zero trouble keeping our spending in check. Well, in reality, I’m still struggling to keep the spending demons away. Maybe it’s because prices on the things I really want are down. Maybe it’s because I’m getting bored. Heck, maybe I’ve just got some sort of neuron receptor damage in my brain.

I am happy to report we’ve done pretty well keeping our spending down for the last month or so. After shelling out all that money for a new Jennair cook top and new couches, it was relatively easy to put the wallet away. I just paid the credit card bill that had both of those items on it and, let me tell you, it was a painful check to write. Between those items and all the other “budgeted” items, the bill was over $4500. Since I refuse to pay interest on credit card debt, I sent the entire balance in via my bill pay. Ugh. At least it’s done.

So, here I sit, reviewing our finances and thinking, “Gosh, things are looking pretty good. Maybe we CAN afford a couple splurges.” I’d love to pick up a cheap flat panel tv for the house. Do we need one? Nope. Should we buy one? Nope. Luckily my common sense is still intact. Since we refinanced the house, we don’t have our first house payment until April 1st. That means we should be able to build up the rest of the money to replace our roof. We actually have the money for it now, but I’d be a little nervous to spend that amount of money out of our emergency fund unless I really had to. By just holding on a little longer, we should have the cash to pay for the roof without dipping in to the emergency fund. We’ll also be getting roughly $1800 back from our old escrow account (from the old mortgage that we just paid off) and I’m receiving a small bonus in the middle of February. I’m definitely feeling a lot better about our overall cash position now.

There are a couple reasons that I’m trying to build our cash position up these days. First of all, I don’t know if I’m going to be able to avoid layoffs by the end of this year. My company just did a large round of layoffs (thousands) but I think they are going to do another one later in the year as they get a better idea of how sales are going to go. The more money I have in the bank, the easier it will be to be unemployed for awhile. If I am able to avoid the layoffs, the larger cash position will be great for picking up some great values in the stock market once the economy seems to be bouncing back.

I’m not sure how long Mint.com has had this feature but I just noticed it today. Now you can add assets like real estate, vehicles and any other valuable assets you have. You can even associate an asset (like a house) with a particular loan so that it calculates your equity in that asset.

I found these features by clicking on the “Your Accounts” link in the upper right hand corner of the site once I was logged in. They do have a feature where you can plug your address in and it will go out to a third party to get a current value estimate, although that didn’t work for me. I ended up manually putting my values in based on a conservative method I’ve used for calculating values.

Anyway, if you are a Mint user, go check it out. If you aren’t a Mint user, you might want to check it out. I’m thrilled with the app.