54% of workers said they have less than $25,000 saved for retirement

24% have delayed their retirement in the past year

27% of workers said they have less than $1000 saved

43% have less than $10,000 saved for retirement

Personally, I think there is a reason that defined benefit plans like pensions have been such a popular thing.  It would appear that the majority of people either don’t  know how to save, or have never been able to put themselves in a financial position to have the extra money to save at the end of the month.  Either way, it doesn’t speak well for our collective future.  While I’m glad not to be in any of the statistics above, I still wonder how it will impact me.

A combination of factors helped boost our income this month and helped us add a solid $5500 to our savings account in February.  The first factor was the blog.  There were a few renewals as well as some new business.  I book the entire prepaid amount for advertising in the month that I receive payment (as opposed to averaging it across the subscription period), so I saw a bit of a spike in the blog income in February.

The second contributor was my annual bonus at work.  It wasn’t as large as it has been in the past but it was better than zero and definitely helped increase our income for the month.

Along with the extra income, we also locked down our spending more than we have in quite awhile.  As I reviewed our Mint.com spending summary for February I was happy to see that we only exceeded our budgeted spending by a few hundred dollars.  That’s mostly my fault because I bought a new audio receiver from Newegg.com that was ridiculously priced (low).  No regrets.  The other area that we were over budget on was our food/dining.  Not a big surprise.  We usually overrun this, although we are trying to do better at it.

Needless to say, I’m happy with how the month turned out from a budget perspective.  I’m also fairly optimistic about the rest of the year as we don’t anticipate any major expenses this year.  Luckily most of the big expenses are out of the way for the foreseeable future.  We shouldn’t need a car for the next 5+ years, we have a new roof and new siding on the house, and the lake house construction is basically complete.  Sure, we could probably come up with a few ideas on how to blow a bunch of money, but the overall theme at our house this year is going to be SAVING!  If we are able to control our spending we should be able to double our savings through 2010.  With the potential instability with my employment next year, frankly, the more we save, the better.

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.

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

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?

With this in mind, we are setting a goal to increase our emergency fund by 50% this year. It’s not a terribly aggressive goal for us but I know we have some expenses in our future so I’m going to be conservative on this goal.

The second goal for the year will be to increase our 401K contributions. While I have been contributing the maximum to my 401K account in the past, I need to bump it up a bit so that it reaches the $16,500 limit for 2010 (I didn’t increase it from $15K in 2009). We also need to increase my wife’s contribution to get her closer to the maximum. If we are able to get her’s up to the maximum, that would be a full $33,000 towards our retirement accounts in 2010. My only concern with this is that we are putting a LOT of our funds in IRA sheltered accounts and I’m concerned that if I stop working prior to 59 1/2, I won’t have a good income stream outside of this.

That leads me to my third goal. I need to increase contributions to a standard brokerage account. I’d like to automate this but I’m concerned about keeping track of my basis for tax purposes. Does anyone have any advice on how to do this fairly easily?

Are you setting any financial goals for 2010?

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.

Last weekend, Fred came by to talk to us and make sure that we weren’t mad at him for buying the dingy old cabins to rent out. My only comment to him was that we hoped he’d be careful who he rents to because when you are renting at the very bottom of the rental market, statistics say you are going to get some real winners and some real losers. The last thing we want out there is some shady character dealing drugs or creating a nuisance in the neighborhood. He promised to keep a watchful eye on the renters and he asked us to call him if we ever saw anything going on that shouldn’t be. That was good enough for me to feel “okay” with the situation.

Anyway, this post is more about Fred than it is about any specific rental properties he owns. Fred is a pretty wealthy guy. If I had to guess, I’d put his net worth at over $10M total. Fred didn’t go to college and worked hard over his lifetime to acquire what he has. If you were to see Fred on the street you’d never guess he was worth so much money. Sometimes you might even stop to consider offering him a dollar due to his appearance. Fred buys all of his clothes at second hand stores. He had me convinced that he moonlighted at a Wendy’s, a Taco Bell and a McDonalds because he always wears shirts with the logos on them. His story went something like this: “A friend of mine owns a number of fast food restaurants in the Seattle area. He asked me to open a couple of the restaurants each week and put the money in the cash registers etc. On Tuesdays I open the Taco Bell. On Wednesdays I open the Wendy’s and on Thursdays I open the McDonalds”. While I was skeptical, after weeks of him telling me all about these jobs, I finally figured he must be telling the truth. A month later a couple friends of mine out there started laughing and told me that he has never opened any of the restaurants. He made the whole story up. The reason he has the shirts is because he bought them at the second hand store. What’s comical about these shirts is that they are the nicest shirts I’ve ever seen him wear. He normally wears shirts and pants with multiple holes in them. At first I thought maybe he just wore those clothes when he was out at the lake, but he doesn’t think twice about going to one of the fancy Indian casinos near the lake wearing the same clothes.

When it comes to food, Fred isn’t picky. He gets all of his bread at the bakery thrift store and only buys the stuff that is about to be thrown out. All of his ketchup, mustard and mayonnaise are in the little packets that you get in restaurants. A few nights a week, when Fred is back at home, he stops by the small local grocery store near his home at just the right time in the evening when they are clearing out the deli case. There is always a plate of food prepared for him at 75% off the retail price because the food was going to have to be thrown out. I’m sure the people at the grocery store believe they are keeping a poor old man fed. Little do they know.

Fred loves stuff. To say he is a packrat is a serious understatement. Of the 5 houses he owns near the lake, only one is not filled with his stuff. (His renters have to tolerate all the storage areas of each house being full of his “stuff”.) Every time Fred shows up at the lake, he has more stuff with him. Over the years he has developed a reputation for being the guy that is always happy to receive free stuff. There are piles and piles of used lumber, multiple clothes washers, dryers, dishwashers, boat motors, boats, old dingy furniture, old tv’s and the list goes on and on. Fred spends a lot of his time trying to figure out where to put the additional items he shows up with. Apparently his regular homes and rentals in Seattle are equally full of stuff. When you talk to Fred about any of his stuff he lights up. He can tell you, with striking accuracy, where he got each item, what he paid for it, and what a great deal it was. As he’s telling you all about the item you can just feel the energy that talking about the item creates for him. Fred NEVER buys something new. In fact, Fred usually buys stuff that is very old and is probably going on it’s third or fourth owner. To him, if it works, it’s shameful to buy something newer to replace it. Fred still shakes his head when telling the story about how his daughter and her husband replaced all the old kitchen cabinets in their house. They were probably 20 years old and his daughter wanted to update the kitchen with newer cabinets and granite countertops. Needless to say, Fred brought all the old cabinets out to the lake and put them in one of his places there. When one of his rentals needs a new door or window, Fred has more than enough old doors and windows to cover it.

Fred was recently in a car accident and his car was totaled. The car he was driving was a Mercury Cougar that was given to him buy a little old lady after she died. The car was, by far, the nicest thing he’s driven in years. It was an early 1990’s car and probably felt like a Cadillac compared to his old Ford truck that he had been driving for years before that. Unfortunately the old Ford truck’s engine died so now he’s driving an early 1970’s Dodge Aspen. The Dodge had been sitting in his yard at the lake for at least 7-8 years. I was surprised that it ran but he has diligently started it every few months since he parked it there so it was quick to put it back in to service.

Fred is an interesting guy. With the amount of money that he receives in rental income (he owns all the houses) and investment income (he has an accountant and attorney that help manage his estate) he could drive whatever he wants to, live wherever he wants to, wear whatever he wants to and go wherever he wants to. The thing is, Fred doesn’t care about any of those things. He simply loves to find new bargains, or find a new use for an old item that he’s had sitting around for years.

As we were sitting down by the lake one night having drinks (He only drinks “Milwaukees Best” beer) I asked Fred, “Are you ever going to sell any of your houses, or spend any of your money?” “Nope”, he replied. “I’m leaving everything to my kids. They can do whatever they want with all of it.”

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.

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.