Everybody Loves Your Money

MSNBC has a feature on their website that lets you check the health of your bank or credit union.  I took a look at my credit union and found that they have a troubled asset ratio of 18.  That’s actually pretty good.  There are over 389 banks (as of Dec 31 2009) that had a troubled asset ratio of over 100 which means that they had more troubled loans than they had money set aside to cover potential losses.

It’s definitely worth taking a look to see where your bank or credit union falls.

When I was younger, I think I always expected I’d have a house payment forever.  As I’ve gotten older I have realized that debt is evil and the sooner we can pay off the mortgage, the better.  I can’t wait until the day that I can walk through the front door of my house with the deed in hand, much like Nickel over at Five Cent Nickel.

What makes this more difficult is that we live in a part of the country where housing is relatively expensive.  The original purchase price of our house was $280,000.  While we’ve been paying on that for almost 7 years, we still have a long ways to go.  The good news is that if we were to magically find about $130K, we’d have the option of paying the house off.  You can bet if we do come in to any amount of money like that, we’ll definitely pay the house off right away.

The thought of living in a home that is paid for is very exciting to me.  While we’d still have taxes and insurance to worry about, the reduction in our monthly bills would give us a ton more options.  Even with the mortgage, we are currently living on about 50% of our after tax monthly income.  If we were to lose our mortgage as well, it would drop us down to living on about 32% of our after tax income.  At that point, we could definitely think about pursuing work that we are more passionate about with little regard to what the compensation was.

It’s been a tough week.  There’s really no other way to put it.  Layoffs at work have hit closer to home than they ever have before and the overall mood in the office is absolutely horrible.  Since last Friday I’ve been slowly hearing about many friends and really good employees that have been given their layoff slips.  Why?  Because the company has decided to try to outsource as much as they can to improve the bottom line.  Did they have to?  No.  We showed a very good profit last quarter and I believe we’ll continue to see very good returns.  I definitely feel a bit bitter about the whole situation and am really kind of mad at my company right now, and I didn’t even get a layoff notice!  Okay, enough about that.

I read an article today that talks about a recent Slate commentary from Charlie Munger titled “Basically, It’s Over”.  If you aren’t familiar with Charlie Munger, he’s been the sidekick of Warren Buffet for decades and I consider him to be pretty damn smart.  While you can always find gloom and doom articles out there about the end of America etc etc, I’ve always been impressed with both Warren Buffet and Charlie Munger.  They have always seemed incredibly honest and they have a great way of putting things.  So, when I read the article, I have to admit, it put a bit of fear in me.  I’ve often wondered how long we can sustain the massive debt levels that we’ve seen over the last decade (and beyond).  There is not a limitless supply of money or resources in this world and sooner or later all the excess spending at the government and personal level is going to come back to haunt us.  It appears that it might be sooner than later.  I found the comments about “blind optimism” to be very interesting.  While I haven’t studied history as much as I should have, I do know that we’ve seen many societies rise and fall.  It’s fairly likely that eventually the US will fall from world dominance and now seems like as good a time as any.  With trillion dollar deficit spending, the rise of a global economy and educated global workforce, rising unemployment and consumer debt levels that have never been seen before, it’s not a tough case to make for a rather gloomy future.

On the plus side, I just saved a ton of money on my car insurance……

Anyway, go check out the Yahoo article and the original Charlie Munger article as well.  Definitely worth reading.

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This week is a really tough week at work.  People at all levels of the company are getting laid off so there is a lot of “staring at the ground” going on as people deal with the prospect of losing their income.  While this has happened many times before at my large company, it’s hitting closer to home than it ever has before.  I’m seeing good friends getting their notices and I know that many more are coming later in the week.  I keep wondering how many of these people have prepared for a layoff.  It’s times like these that I like to go through my mental list of things I should be doing in case I am faced with the same situation.  (I’ve been told that I’m not at risk and should be able to keep my job so I’m breathing relatively easy for now).

Am I saving enough?

It’s a thought I have often.  We are saving well over 20% of our before tax income in our retirement accounts and are trying to build our emergency fund up higher, although I will confess I’ve slipped up on that goal more than a few times.  The good news is that we do have at least 6 months of income saved up and it’s easily accessible.  When you combine that with the safety nets that the local/federal government provide (unemployment benefits), our emergency fund should last us more than a year.  On top of that, the most likely scenario is that one of us would still be working.  In that case, we could go for years without my income because we have kept our fixed expenses very low.

Is my resume current?

I haven’t done a very good job of keeping up my resume, but with a few minutes of work, I think I could have it tuned up and ready to send out.  I’ve also kept up my contacts at previous companies and try to maintain a large network of contacts that I would certainly get in touch with if I found myself looking for work.  The most likely way that I would find a new job is through referrals and connections.  Blindly sending out a resume in this environment would likely not yield any results so my personal network is as important as ever.

Am I doing all I can to be valuable at work?

I’m definitely reevaluating my role at work and am going the extra mile to make sure things are done right and done quickly.  I’m also keeping in touch with my boss to be sure I’m doing all that’s needed.  I actually just met with him yesterday to lay out performance goals for the year and then we had lunch afterward.  My sense is that I’m still considered a valuable member of the team and would be one of the last to go if layoffs were to happen in our group.  I’ll continue to watch my performance and volunteer for extra work.  By doing this, it will help me gain even more visibility with my management chain and hopefully reinforce that I’m one of the key players on the team.

Are we keeping our bills to a minimum?

I’m still religiously watching our fixed monthly expenses so I know we are doing all we can to keep our bills low.  Our total fixed bills for things like mortgage, utilities, gas, food etc are still floating around 50% of our after tax income.  If we were to lose our jobs, we could probably reduce that another 5-7% by really locking down spending and getting rid of expenses like Netflix, cable and a couple other “extra” expenses that we have now.

All in all, I think we are doing all we can to prepare for the day that we might be faced with a layoff.  By spending far less than we make, and saving some of our monthly excess income, it is providing us with a level of security to weather most any storm.  If we hadn’t been doing this for so long, I think we’d be much more stressed out about potentially losing our jobs, that’s for sure.

Yahoo has an article up that shows how much customer misery there is out there with the big banks.  Check out these stats:

The report, Forrester’s annual Customer Advocacy rankings, ranks nearly 50 financial services firms in the United States by the percentage of each firm’s customers who agree with the statement: "My financial provider does what’s best for me, not just its own bottom line." The results are based on a survey of about 4,500 consumers.

The bottom seven of this year’s rankings, first to last, are Bank of America, Chase, Capital One, TD/Commerce, Fifth Third, Citibank, and in last place, HSBC.

Among Bank of America customers, 33 percent agreed with the statement above, while 31 percent of Chase customers agreed, 29 percent of Capital One customers agreed, 28 percent of TD/Commerce Bank customers agreed, 27 percent of Fifth Third Bank customers agreed and 26 percent of Citibank customers agreed.

A full 33% of Bank of America’s customers believe that their bank is looking out for them.  That means 67% do NOT.  Wow.

Have I mentioned I’m a big fan of credit unions?  The number one reason that I like doing business with a credit union is that they aren’t trying to make a profit from me.  That results in higher rates on deposits, lower rates on loans and lower fees.

Anyway, go check out the article.  It’s worth reading

Today I was browsing through the homes for sale in my general area (after work) and came upon a really nice looking place that is exactly the kind of property I’ve always wanted.  It was relatively close to the city but had a very definite “country” feel to it.

The house sits on about 1 acre of land, is about 3600 square feet (way too big for us, frankly), has a 3 car attached garage and a separate 40 X 50 shop with a large bonus room above it.  What really caught my eye was the massive shop and the 1 acre+ lot.  We certainly don’t need a house that big and we aren’t really interested in moving but I was intrigued by it and decided to drive over and take a look at it.

When I arrived, I saw the telltale signs of a bank owned property.  The yard, which you could tell was well kept previously, was showing signs of abandonment.  There were papers taped to the inside of the window that said “Winterized” which is a sure sign that a bank has hired a property management company to drain the pipes and turn off the water.  Since it was vacant and obviously bank owned, I decided to walk around it and peek in the windows.

As I peered in the first window I could see a kitchen with granite counters, hardwood floors, and beautiful cabinets.  What I did not see were any appliances.  The people that lost the house took every single appliance, including the oven, (leaving a large hole in the wall), the range, (leaving a gaping hole in the island), the dishwasher and the refrigerator.  Surprisingly the sink and faucet were still there.  I also noticed that they took various switches off the walls and I believe they took a few of the light fixtures.

When I peeked in the second window, I could see the first few stairs before the staircase turned right and out of sight.  It was obvious that they weren’t too careful as they moved out because there were large gouges in the sheetrock and about a 14” hole punched in the sheetrock on the landing.

As I looked around outside a bit, it became clear to me that the people that owned this house played a large part in building it as well.  It may have even been built by the owner.  There were just subtle hints that some of the work was not done by a contractor.  The reason I say this is that, while the work was done fairly well, I don’t believe someone would have accepted the quality of the work on a few things.  I wandered over to the side of the large shop and noticed that there were large piles of decking and various types of lumber that was obviously used in the construction of the house and outside decks.

As I was leaving, it occurred to me that this was most likely the former owner’s dream house.  It looks like they put a lot of blood, sweat and tears in to the construction and were probably very happy to be there.  What isn’t clear is what went wrong.  Why did they end up losing the house?  Where did they go?  I can only imagine the stress, sadness and anger that they felt as they had to walk away from their dream.  What struck me even further was the thought that this same scenario has probably been played out thousands of times across the country.

I’ve read more than a couple articles predicting gloom and doom for the commercial real estate industry.  Many are concerned with an impending collapse of the commercial real estate market and what that is going to do to the many banks that have billions in loans supporting it.  Not being an expert on anything related to the subject, all I could do was ponder whether these people are right about what’s coming.

This weekend we had lots of errands to run.  Normally I do most of the driving but this weekend my wife wanted to drive so I sat back in the passenger seat and just admired the landscape.  (Okay, not exactly “admired” because it wasn’t much to look at, but you get the idea).

Anyway, since I had the time to really look around as we made our way around the city, I started noticing a lot of “For Lease” signs.  I decided to start looking for them as we drove along and was honestly surprised to find that EVERY commercial complex, whether it be retail, office or warehouse space, had “For Lease” signs up.  Literally, on one street that was about 10 blocks long, every single complex had vacancies.

I can only imagine the various scenarios that the building owners are facing from building to building.  Certainly there are some complexes that are doing just fine.  I’m sure that some of them have more equity in the buildings and less loans so that they could probably get by with 50% occupancy, while others are so leveraged that they need close to 100% occupancy in order to cover their expenses.  Regardless of the scenario, it’s doubtful that I’ll ever see any more signs of the commercial real estate struggle than just the “For Lease” signs out front, or a small blurb in the local paper when a building changes hands.

Maybe I should have looked in to buying stock in sign companies.  With all the “For Lease” signs and all the “For Sale” signs out there, the sign companies must be doing pretty well!

Nickel over at FiveCentNickel has accomplished what I would really like to do. He has paid off his mortgage in about 7.5 years. You can feel the excitement and satisfaction in his writing as he explains how he did it. I’m impressed.

We are also paying additional towards our mortgage since it’s really the only debt we have. My goal isn’t quite as aggressive as Nickel’s but I do intend to be able to pay the mortgage off when my daughter enters college. We’re off to a great start!

Currently we are paying an extra payment each year by participating in our credit union’s FREE biweekly payment program. (They don’t charge a fee for it like most banks). We are also paying additional blocks of money towards the mortgage each month once we see how much we have left over after all the bills are paid. The critical part of this is that our bills only account for less than 50% of our take home pay. That leaves us with a sizeable chunk of cash to put in savings and towards the mortgage each month.

The other part of the equation for us is that we own (no mortgage) the lake house that we built a couple years ago. We have no debt against that and, even in this market, estimate that we could sell it for about $150K. My goal is to pay the mortgage down far enough that we would always have the option of selling our second home so that we own this one outright. Our primary house is much larger and is located close to the city where all the jobs are so we wouldn’t want to sell the house we are in and move out to the lake, although it’s always an option and would make us mortgage/debt free instantly.

Anyway, go check out Nickel’s posts on being debt free and how he did it. It’s well worth reading!

With the changing regulations on credit cards, banks are giving their card fees and rates a makeover. The latest bank to do that is First Premier Bank, which caters to the subprime market.

Previously the bank charged a whopping $256 in first year fees for a credit line of just $250. Incredible.

Now, due to changing regulations, they are capping their fees at the maximum allowed 25% of the credit line value but jacking the interest rate up to 79.9%. That would be $20 in interest per month on a $300 balance. Wow! This card will only be attractive the people with nowhere else to turn.

http://seattletimes.nwsource.com/html/businesstechnology/2010532431_apussubprimecreditcard.html

It didn’t take long for me to remember why I hate banks and love credit unions. In October, we finally bought my wife a car. She had been driving her Honda Accord for nearly 10 years and we decided now was the time to take advantage of great deals on cars. After doing a lot of research, we purchased a Honda CRV in October. While we had the cash to pay for it at the time, I decided to take out a small loan on the car in order to keep a comfortable nest egg in the bank.

Our original intent was to use our credit union for the short term loan. In the end, I got talked in to a better interest rate with Chase. I really didn’t think that much of it at the time because I was intending to pay the principal down quickly. Taking the loan just gave me a bit more flexibility. Strike one for me.

Yesterday I created my online account with Chase so that I could easily make additional principal payments. They were very clear on the payment slips that they sent me that I needed to check a box if I wanted any of the amount above the normal payment to go towards the principal. Otherwise they would apply the additional funds toward future monthly payments. The only problem with this is that I send all my payments via Billpay so I can’t check the box. The only way I could make additional principal payments would be to mail in a separate check. That seemed rather ridiculous in the age of the Internet so I logged on to Chase and figured I’d just transfer a payment electronically.

Once I had mapped my credit union account to Chase I went to the payment page and clicked on “pay additional principal”. As I was filling in the amount I noticed that they added an “immediate payment fee” of $10. Are you kidding me? I was not about to pay $10 for the privilege of paying down the principal. Frankly, I was disgusted. Still not wanting to burn up a large chunk of our emergency fund, I picked up the phone and called my credit union to explain the situation. They were happy to help and we created a new loan over the phone to pay off Chase. As a bonus, their interest rate has come down and is cheaper than the loan from Chase.

The main reason I’m happy to switch this over to my credit union is that I can make all the extra payments I want for absolutely no charge and it’s as simple as transferring money online in my, already established, Internet banking account. NEVER AGAIN will I let myself use a commercial bank.