Everybody Loves Your Money

As I was sitting back looking at my financial goals for 2010, I couldn’t help but focus on being ready for the unknown. Both my wife and I are very well employed and aren’t feeling as if there is an imminent danger of losing our incomes but with all the gloom and doom around, it’s easy to find ourselves focusing on “what if”.

Rather than just sitting around worrying about what might happen, I’ve been mapping out our strategy for weathering any financial storm. I have done this previously but it’s always a good idea to periodically look at options. Most of it has to do with validating what we’ve been doing all along and then asking whether we can do more.

Here are the scenarios that we plan for:

Scenario 1:
My wife loses her job

Nothing really changes at our house because we can very comfortably live on my income. We’ll certainly take a harder look at our spending and do our best to boost our emergency fund further but we’ll be relatively unscathed by the job loss. This is possible because we spend less than we earn. Our total fixed bills each month total about 50% of our after tax income. Spending less than we earn is a key part of our overall financial strategy.

Scenario 2:
I lose my job

This is a much more significant issue for us. If I lose my job, we will have to immediately start reducing luxuries and stick to a very strict budget. With unemployment we would still have an excess of cash left over at the end of each month but we will definitely need to minimize spending to make that last. Once unemployment runs out, we’ll have to start dipping in to our emergency fund. Currently our emergency fund could keep us going for almost two years if my wife was working and I wasn’t. That two year clock starts AFTER unemployment runs out so we really have a pretty good buffer. The ability to last this long goes back to that core part of our financial strategy: spend less than you earn. By spending less than we earn, we are able to continually increase our savings and cover any emergencies that come up in day to day life. If we do face a financial setback, like a job loss, we are able to live comfortably much longer because we maintain a more modest lifestyle. Spending less than you earn is really a double impact concept! It gives you the ability to save more when you are working and spend less when you aren’t without feeling much of an impact.

Scenario 3:
We both lose our jobs

This isn’t a very likely scenario but it’s worth thinking about. If we were to both lose our jobs we would have to get very aggressive in our cost cutting. While we could get by if we were both getting unemployment, in the current state of the economy, we would immediately consider selling our house and moving to our vacation house that is paid for. Certainly it wouldn’t be a crisis because we could live off of our emergency fund for about 9 months once the unemployment runs out but it would be silly to try to hang on to two houses while we were indefinitely out of work. By selling one house, we would be able to keep our heads above the financial water line for a much longer period of time.

So, those are the doomsday scenarios that we think about being prepared for. We are fortunate that we haven’t been hit by a setback yet but we feel pretty confident that even if we do experience job losses, we can still weather the storm for a reasonable amount of time. As I mentioned in an earlier post, we’ll be focusing on increasing our savings this year to give us additional wiggle room for any financial setback.

Do you think about what you will do if you have a financial setback? How do you prepare?

As the holiday season begins, I find myself feeling very thankful for a number of things. First off, I’m very, very thankful for my wonderful wife and amazing daughter. I’m also thankful that we have a roof over our heads, food on our table, and jobs to keep us humming along. I think this season feels much more real in terms of truly understanding what we all should be thankful for.

As we look past Thanksgiving, it’s shaping up to be another Christmas season that is squarely focused on retail sales and how much stuff people buy. For us, it will be another season of trying to minimize the focus on “stuff” while we try to enjoy our families and friends. Of course, we’ll have our weak points and spend a bit more than we should as we get swept up in the frenzy but I think we’ll do okay.

In order to try to set ourselves up for success this season, my wife, daughter and I sat down and listed all the people that we plan to buy presents for and then listed the dollar amount we want to stick to for each. By doing this we will have a clear budget to work from which should help us control our spending and keep our bank account in good shape. As usual, we will not be using ANY credit to buy gifts. We will charge the presents on our Costco American Express but will pay the balance off at the end of the month so that we don’t pay any interest charges and still get to take advantage of the cash back that they offer.

Will we be participating in the after Thanksgiving sales? While I’ve seen a few deals that are rather tempting, I won’t be getting up early to go stand in line anywhere. One example of a tempting deal is LCD tv’s. The prices on Black Friday are rather shocking. We are still using the same old 32″ tube TV that came with our house. Frankly, I’m kind of hoping it will die soon so that we can justify finally getting a new flat screen tv. I guess it’s a good thing that the tv has continued to work because prices have come down so much, we’ve saved a ton of money by not buying one until the last possible moment. So, unless the tv decides to blow up in the next day or so, we’ll probably keep our focus on buying just the gifts that are on our list.

Anyway, I hope that you have a Happy Thanksgiving and don’t get too sucked in to the Black Friday feeding frenzy.

I apologize for the lack of posts lately. I’ve been very busy at work making sure that I keep my spot on the competitive “large institution” roster. There has been a ton going on at work and it’s only going to get crazier as we end the year.

On the home front things are smelling rather porkish. We knew it was only a matter of time before we started coming down with swine flu as it worked it’s way around our 1st grader’s class. It finally hit. My daughter is sitting on the couch getting to watch more TV than usual and is in remarkably good spirits considering she’s running a 102+ fever. We are watching her closely for any signs of more dangerous symptoms. All in all, I’d say it’s rather stressful. It’s times like this that I’m very grateful to be employed with good health insurance. I’m starting to feel a little under the weather as well and my temperature is fluctuating between normal and 100 degrees. My hope is that we can stagger the sickness enough that one of us will be healthy to help the others.

On the financial front, we are trying to buckle down on our spending. We really haven’t tightened up our spending nearly as much as I wanted to. Things seem to just keep coming up. I’m a bit ashamed to say that we ended up buying a new Honda CRV for my wife. We weren’t eligible for the cash for clunkers and it had already expired. We did our best to minimize the cost but in the end, it was definitely not the best transaction of our lives. We looked for used CRV’s but the prices were amazingly close to new prices. We’ll definitely keep the car for a LONG time and ultimately I think our daughter will drive it (in 10 years). I’ve also been needing new tires for my 2000 Toyota Tacoma. I priced them out and the cost was going to exceed $500, even at Costco. I decided to keep my eye out for used wheels and tires on Craigslist, and after about a month of looking, I finally spotted the ones I wanted. I was able to buy newer, larger wheels that I really like, with tires that have about 60% tread for $325. I will sell the old wheels and tires on Craigslist for about $150-$200 which I’m hoping will bring the total cost down to about $125. That will get us by for a couple more years so I’m happy.

I’ve also been watching the market with a close eye. I’m convinced the market is overpriced. There are just too many variables in the economy that aren’t performing well. With that opinion in mind, I’m now putting more money in cash (in my 401K) and have moved a bit of my existing holdings in to cash to reduce my risk a bit. For the most part, I’m just dollar cost averaging every two weeks but I am “playing” with about 10% of my total account value by trying to time the dips a bit. I have had a few trades over the years that really benefited my account balance by trying to recognize macro economic hits to the market where good companies got thrown out with all the others. Obviously it isn’t smart to try to time the market, but my past performance keeps me interested in using a small portion of my 401K balance to take advantage of large dips or other major changes in the market.

The only other thing worth mentioning is that we are planning on setting aside the total amount we are going to spend on Christmas for 2009. We have put together a list of people we will be buying something for and the dollar value that we will use. That has given us a firm goal to keep our spending in check. My wife and I are also planning on only buying each other necessity items. She needs some new shirts and I could use a new coat and I’d like a new garden hose nozzle in my stocking. This definitely won’t be the year for excessive “wish list” items.

The New York Times has an absolutely top notch interactive feature that lets you look at unemployment rates for various demographics. While I sometimes find myself getting a bit stressed at how high the unemployment rate is, when I punch in my age, sex, race etc, I find that my unemployment rate is 3.9%. While that makes me feel a bit more at ease for myself, the fact of the matter is, our economy is in a world of hurt right now with the general unemployment rate over 10%.

Anyway, I highly recommend checking out the link:
http://www.nytimes.com/interactive/2009/11/06/business/economy/unemployment-lines.html

Update:
As I try different variables in the tool, it’s absolutely SHOCKING to see how much the unemployment rate varies by both race and sex. If you are African American, male, between 15 and 24, and have not finished high school, your unemployment rate is 48.5%. White males in the same category are at 25.6%. That is horrible. One other observation, is that people who completed college are faring much better in this economy. They have the lowest unemployment rates of all groups with most in the 3.X% range.

Sorry for the lack of posts over the last week or so. I just got back from a business trip in Southern California. I spent a week down there working 11 hour days locked up in a conference room. The days were long but rewarding. As it happened, the conference room we were using all week was the executive board room. I’m far from an executive so it was interesting to see how things go there. The seats were incredibly comfortable. Plump and leather would be a good way to describe them. There was a break room with a refrigerator crammed full of soda, waters etc. They had their own professional grade coffee machines and every kind of tea on the planet.

On top of the nice conference room, I happened to be staying in the Huntington Beach area. My hotel was directly across the street from the beach and was very nice. Luckily my company had negotiated a ridiculously cheap rate. My only regret was that I didn’t have more time to enjoy the area. Every morning there was a mass of surfers swimming out in to the surf to catch the amazing waves that crashed against the shore 24 hours a day. No wonder this is such a popular surfing destination. At night the beach was full of people enjoying bonfires all along the beach. I sat out on my balcony with a cocktail trying to relax after the long days and kept finding myself wondering what all these people did for a living……… (Had they just worked all day too?)

I did manage to get out a bit in the evenings. On one night, a friend of mine and I drove down to Newport Beach to drool at some of the high end car dealerships there. We’re both car nuts so it was a fun trip to make. I couldn’t help but notice how wealthy the area seemed to be. I think that BMW’s were considered the economy car around there. I was absolutely amazed at how many there were. I can’t even count how many Bentleys, Mercedes and even exotic cars like Ferraris, Aston Martins and others there were. Either everyone down there is rich, or there is a TON of debt in that town. My friend and I were talking about how incredibly wealthy it seemed to be there and he said, “There must be a ton of millionaires around here”. I thought about it for a second and said, “Yeah, either that or there are a ton of debtonaires around here”. My guess is that it’s a bit of both.

On Tuesday night the main street was crammed with booths for a street party. Again, I wondered, “What do all of these people do for a living?” I mean, rent down there has to be incredibly high. Modest houses were upwards of $1M. I suppose if you drive far enough inland the prices probably come down enough that middle class families can afford them. If you live in Southern California near the water, I’d be very interested to get your input on the local economies there. It could be that I just happened to be in one of the wealthier areas of Southern California during that week.

I will say that if I had a choice and could afford it, I would live there. The waves were mesmerizing and the climate is exactly what I like. Unfortunately I don’t think I’ll ever be able to afford that lifestyle. As aggressive as we are being at saving, I don’t think we’ll ever amass enough money to live in that area.

Pfizer will be offering approximately 70 of their prescription drugs for free to people who have recently lost their jobs and have been taking Pfizer drugs for at least 3 months. The program will provide the drugs for up to 1 year or until you get new health insurance.

For more information about the program you can read this article at ABC News or visit http://www.PfizerHelpfulAnswers.com for more information.

Seems like a decent gesture from a major drug company. I wonder if others will follow their lead. Providing much needed prescription drugs to people who have recently lost their jobs is a very good PR move for a drug company to make.

Interesting article that highlights the risks that many of the credit card companies are facing. Their default rate is skyrocketing and they are having to retrench and stop lending additional money to try to preserve capital.

People have been talking about the next wave of defaults being in credit cards. Apparently Advanta is one of the first to start drastic measures. Other companies have been lowering limits and canceling some customers but I think Advanta might be the first to quit lending to all their cardholders.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_FhoI2A4ZsM

Most of the time I feel fortunate to live in the Seattle area in the Pacific Northwest. The one time that I don’t appreciate the Seattle area is during the drab months of winter and early Spring. This year seems to have been particularly dark, rainy and gloomy. I was hoping that my quick trip to Las Vegas would feed my body’s need for sun and warmth and while the weather was decent, it just didn’t do the trick.

If you’ve been reading the news much you know there is a small real estate crisis going on these days. In my area of the country that translates to properties losing upwards of 20% of their value. For other areas of the country the equity drops have been even more severe.

Take Phoenix and Las Vegas as examples. Not long ago you couldn’t buy a house there without a bidding war and frothy interest from investors everywhere. Oh how times have changed. I’ve been watching Craigslist for both of these areas and it’s surprising to see 2-3 year old houses selling for between $95K and $125K. Amazing.

There’s obviously a reason that prices have come down so much. There is far more supply than there is demand at this point and I’m guessing that won’t change any time soon. That’s good news for someone like me who is just a little bit tempted to grab a house down there nice and cheap. If I could split the house with one other family (like my sister), we could keep costs low and it would give us a place to go warm up in the winter. With my job, I could easily spend a week at a time down there working remotely with no problem. The only complication is my daughter is in elementary school so that would limit our travel time significantly.

These days I’m a tad bit wiser when it comes to figuring in operational costs for owning a place like that. Since we built our house out at the lake a couple years ago, I’ve become intimately familiar with pesky costs like taxes, power, HOA dues etc etc. While the outlay to buy a place down there is somewhat affordable at this point, I’m not sure I want to add more monthly expenses to our budget just so that I can enjoy warmth once in awhile. As tempting as it is to jump in and buy a place that I could someday use as a winter home, I’m leaning more towards just planning a couple winter trips down south to warm up. This would give me some time in the warmth and also minimize my total cost outlay.

So, I’ll continue to ponder the idea of buying a place in Vegas or Phoenix while the prices continue to stabilize a bit. At this point, I’m leaning towards holding off.

Well, it had to happen sooner or later.

People who stayed on the sidelines, diligently saving their money so that they could, one day buy a home that they knew was within their means, are starting to enter the home ownership club by buying homes that are drastically cheaper than they were a couple years ago.

These kinds of articles give me hope for a bottom to this economic storm:

http://www.nytimes.com/2009/04/03/us/03florida.html?_r=1&hp

How could I not post about this article? I found myself feeling less than sympathetic for Ken Karpman. If ever there was a poster child for why you need to have emergency savings and a fall back plan, Ken Karpman is it. Ken was making $750,000 a year when times were good. He has now been reduced to delivering pizzas and his marriage is stumbling. I’m sure Ken realizes now that consumerism doesn’t make the man. Through their confidence in his ability to make that level of income, they failed to plan for the time that Ken couldn’t make that kind of income. It sounds like Ken is far from bottom but I guess you have to give him credit for at least trying to provide for his family.

My recommendation to Ken would be to sell off some of the many personal possessions his family accumulated during the “good” times. It sounds like there are some jet skis, and designer clothes that might cover a house payment or two.

http://abcnews.go.com/Business/story?id=7111098&page=1