Archive for May, 2008
The Federal Deposit Insurance Corporation was created after the Great Depression to prevent bank runs. FDIC insures your personal bank deposits up to $100,000 per titled account. In other words, if you have $100,000 in a savings account in your own name, Joe Schmoe, and another $100,000 in a CD in the name of the the Estate of Joe Schmoe, your money is insured for $200,000 because the accounts are different and they are titled differently.
In practice, most of us rarely worry or even think about this because 1) most of us don’t have $100,000 in all our deposit accounts combined, and 2) no one worries about bank runs anymore. At least, no one used to worry about bank runs until Bear Stearns, an investment bank, tanked literally overnight. Bear Stearns failed due to what was essentially a bank run: its investors wanted to cash out, immediately if not sooner, all of them at the same time. The day before Bear Stearns failed, Jim Kramer of TV’s popular Mad Money stock tips program, was confidently proclaiming to all his viewers that Bear Stearns was inviolate, that it would be around for eons, that it was solid as a rock.
Whatever, Jim. I guess you win some, you lose some.
People are forever spouting off about the stock market, and why not? It’s fun, it’s entertaining, it makes you look like less of a jerk (somewhat) than talking about Vegas all the time. It’s mostly guessing though. Some would go so far as to say that playing the stock market is gambling. Whatever you personally believe about it, while all the talk continues, you might be interested to know that F.D.I.C. is quietly hiring back retired employees and beefing up its staff in anticipation of as many as 300 US bank failures in the coming two years.
According to the F.D.I.C, at particularly great risk are large regional banks that were left holding lots of mortgage backed securities when the housing bubble burst and everyone scrambled to unload their questionable products. As the housing market continues to deteriorate, the next wave of credit defaults is already gathering on the financial horizon: the construction loans, helocs, home equity loans, traditional second mortgages, debt consolidation loans, boat loans, motorcycle loans, and even unsecured credit debt. This impending wave of defaults on non-mortgage debt will cause yet another liquidity freeze that will hit smaller banks hard. F.D.I.C. keeps a list of about 70 banks already in danger of failure, and watches them closely.
One common tactic used by distressed banks to raise capital when money is not forthcoming from other investing institutions is to offer attractive interest rates on deposit accounts such as certificates of deposit (savings accounts locked in for a predetermined period). IndyMac Bank, one of the regional institutions at the top of the F.D.I.C. watch list, has currently been promoting some very high-interest CDs, as has National City Bank, a large midwestern commercial bank heavily invested in subprime loans that does business in states with high foreclosure and unemployment rates. Both banks are on the F.D.I.C. distressed list.
If you have over $100,000 to invest and you are attracted by a great CD rate at a bank you are not overly familiar with, it isn’t a bad idea to do a little research on the health of the institution. Sure, your money is insured by F.D.I.C. up to $100,000, but if you put that much money into a bank that subsequently folds, do you really want to go through what it will take to get your money back? Wouldn’t it be easier just to keep your money in a reliable institution?
We don’t hear a lot about bank failure in the press, because people are already upset and nervous, and everyone knows you don’t want to yell “fire” in a crowded theater, not even if there is a fire. Panic only makes matter worse. But I have always loved playing Cassandra, so I thought I’d put this out there.
Watch PFA for a future list of the top 10 healthiest banks in the US and how to find their best rates on CDs and other good, safe deposit accounts.
Until then learn a little Latin if you can:
Poor Microsoft. One minute they’re a towering colossus-cyclops striking terror into all rivals with a take-no-prisoners, get-er-done first and get-er-done cheap strategy that blows everyone else right out of the water. A few anti-trust suits and international wrist-slaps later, and suddenly they’ve got upstart ingrates and whippersnapper smart-alecks like Apple and Google kicking them in the shins and laughing all the way to the bank. And as if that all wasn’t humiliating enough, the next thing you know even Yahoo is telling you to go take a long hike off a short motherboard and stuff your billion dollar offers where the sun don’t shine. Well. Excuse us for dominating.
What’s a mega-corporation to do?
How about teaming with PayPal and creative young tech company Jellyfish to offer cash back on purchases made by using the Microsoft Live Search engine instead of stupid-face Google or ingrate-snotnose Yahoo? Customers love cash back, right? And how about souping up the Live Search shopping function with lots of cool extras similar to tickets, prizes, and other swell stuff nerds can already earn just by using Microsoft’s Live Search Club for Gaming? Announce that, get it in front of the public, and pretty soon people will be saying stuff like, “What’s a google?” And, “Does Apple still produce Beatle Albums? Or did you mean Fiona Apple? My mom has an apple tree. Do you have an apple tree?”
So Microsoft announced the new grand plan. Here is what they had to say about it:
On Wednesday, we will be announcing a major new initiative that our search teams have been driving. We are getting better and better with our core algorithmic search, and at the same time, we are investing to differentiate in vertical experiences and to disrupt the current model. You’ll hear more about our plans Wednesday.
Great. I think. I mean, I kind of nodded off there for a minute so I’m guessing what they said is in fact a good idea. I figured I’d go check it out myself, so I went to MSN expecting to learn all about it and maybe buy some stuff and make some cash back too (yay!) but guess what? It seems to not quite be there at all… yet. I guess they aren’t done differentiating to invest in those pesky vertical experiences. Yeah, I know how rough that part is, that vertical experience part. Bastard verticals.
Listen, can we talk for a minute? I mean just you, dear reader, and me, smart-mouthed blogger, just the two of us, mano et mano. I just want to ask you one question:
If you were stranded on a desert island with two nerds and one of them was Bill Gates and the other was one of the Google kids who plays video games while hauling down a zillion dollars a year at their awesome corporate playground, who would you trust to get you off the island if you could only pick one guy to get you off? (So to speak.)
Yeah, that’s what I thought. I’d pick the Google guy too, maybe marry him or something, or at least get a job lead as we coasted safely into home territory. Meanwhile, back on the desert island, I’m guessing Bill would still be trying to get past Vista on his handheld. He might also be back there smashing things with coconuts. Hard to say.
Microsoft knows it is in trouble and knows that it’s heavy-handed bullying approach to mergers and acquisitions isn’t likely to help it against forward-thinking Google and Yahoo, neither of which cry many tears over love lost between themselves and Microsoft. The internet is rapidly evolving into a new entity, one in which the lousy operating platforms designed by Microsoft and shoved down the throats of frustrated PC users are right on the verge of becoming obsolete. Already Google is offering its own online business software and services, and innovative companies are appearing faster than baby shrimp at spawning time. Some are reaching maturity before they can be gobbled up.
Competition can be great for customers when competition is spurring innovation, price declines, better service, new jobs, and new money. If Microsoft can keep up, especially if they can keep up by offering cash back on purchases just for using their search engine, that’s great. I’ll be there in a heartbeat.
If they can’t, oh well. Winning at any cost always works for awhile, but most of the time it quits working right about the time the initial idea gets old. At that point, all the bullying in the world won’t do much except confirm your reputation as a big bully.
I’m waiting. As soon as they work out that vertical whatever, I know I’ll get my email and I’ll be off in a flash to buy a case of black currant tea online, and I’ll buy it on Microsoft Live Search and post my cashback reward right here at PFA. Until then, I’m finishing off my hazelnut coffee bought right here in the real world. I’m ready though. I’m an open-minded kind of blogger.
As part of the Money Blog Network group writing project, today’s post is a special ten year retrospective meant to show how far I personally have come financially over the past decade. Since most of the other bloggers are doing this, I will take a deep breath and do it too, scary though it may be for all of us.
Maybe, as they say, we will all “learn a valuable lesson.”
Ten years ago, in the spring of 1998, my (now ex) husband had just announced he was going into business for himself. Part of his motivation, I’m sure, was the fact that he had just been fired (again) from the huge nursery and garden center where he had been working successfully for five years as a landscape designer, and where I continued to work happily and successfully as a manager in the perennial plant section.
I did not receive his announcement well. It wasn’t just that, with his termination, the pressure was now on me to quit a job I really liked as a show of my support. (The pressure was from him, not my employers, who liked me and liked my work a lot.) It also wasn’t that with me quitting on top of him being fired, it would leave us with basically no steady income at all. No, my anger and distress was mostly based on the fact that 1) I felt like it was a miracle he hadn’t been fired much sooner, 2) I was upset with him over that, and 3) I knew for a fact he had absolutely no clue about how to handle money let alone run a business.
We were doomed.
Like a lot of men who go into business for themselves (I should say ‘people’ here, not ‘men’, but what I actually mean is ‘men’) his master plan was that I would handle the financial end of it since I was ‘good at that’ and he would do all the genius boy-wonder designer stuff, since he was good at that. I envisioned bankruptcy for both of us within two years, tops, but because I was anxious not to be divorced again (it was a remarriage for me and up until that point it was going tolerably OK), I said, fine, whatever.
The first year the business made a whopping $5000 with me managing the bookwork, estimates, and appointments, payroll, accounts payable and receivable, and with him being flamboyantly himself in every gated community within 80 miles of where we lived. By 2001 the business had grown to six figures and he was spending twice the gross receipts and yelling at me a lot for not giving him even more money to spend. (How? From where?) He also decided to quit paying his income taxes, since in his opinion, the government had no right to encroach on his creativity in that crass, materialistic way.
At that point, the design business owed around $25,000 in taxes just for the first quarter of that year. I was sick of him, mad at myself for not leaving three years earlier, and terrified right down to my toenails. Without even telling him I quietly hired a small accounting firm to manage his books and his tax obligations. After turning everything over to them including the huge tax bill, I hired a divorce attorney, packed my stuff, and moved out.
Harsh? I guess it was harsh. But SOOOO many women sink this way. I was determined not to be one of them, however stupid I might have been in my past choices. A year later the divorce was final. My settlement paid off the divorce attorney with $1500 left over to start my new life. Ouch. I was 48 and I had $1500 to my name. I also had my clothes, a 10 year old MacIntosh computer, my car, and $30,000 in unsecured marital debt, much of it business debt I had foolishly put on my own charge cards in various attempts to put out supplier fires.
Hey, I warned you this would be ugly. But stick with me here; The happy ending part is coming…
I was hired (at last) by a multinational insurance company to work in their US phone center. The job paid pretty well and came with full benefits including a pension (I was hired in the last year they offered pensions), plus I was able to get a lot of training and an insurance license at no cost.
I moved into a small apartment, and started whittling down the debt. I had to buy everything new to start over, even spoons and towels and so forth. (My ex was a tad frosty after I left so I didn’t get my stuff back, ever.) Even so, I considered myself lucky to have escaped at all. My attorney got me out of the federal tax obligation by pointing out that if I was obligated to pay half the business taxes, then by law I was also entitled to half the current value of the business. The day after she floated that particular idea, my ex quickly signed divorce papers taking the full tax obligation on himself, which actually was the right thing to do all along, plus it was the cheaper option for him by far.
Knowing that my credit was trashed was one of the hardest parts of the divorce, but within two years I’d paid off two cards and gotten the rest of the debt down to the point where I was able to get an auto loan to replace my dying car. A year after that, I found a house and obtained a decent mortgage on my own and bought it. I became interested in stocks and finance and started to read up on both, not just because it helped me in my insurance job, but also because I didn’t want to go through anything that negative ever again.
Not long after buying the house I met a nice man. (No, seriously, he really is a nice man! Really!) We bought a house on an acre in Michigan and I rented out the small house I bought after the divorce at a small profit. I got a job at the corporate center of a huge bank, where I try to talk people into investing their money in fairly decent CDs and really awful home equity lines of credit. I am in the process of leaving that job right now, partly because I can make more money writing, and partly because I want to do something that is a bit healthier and more enjoyable.
So, here I am, ten years later. I own two homes, two cars (both cars are fully paid), and I have my own 401k, pension, and investment plans, as well as my own bank accounts, both savings and checking. I run a successful small business writing web copy and freelance articles in addition to blogging for PFA. I live with a nice man who has his own money and does not tell me what to do.
So, ten years ago: Needed spoons. Now: doing pretty well, thanks.
While you won’t read about this much in financial blogs, most financial experts and attorneys are well-aware that one of the biggest financial mistakes anyone can make is marry someone who is financially self-destructive and then stick by them no matter what. We don’t hear this because it’s not very romantic. There’s no greeting card for it. (Although that may well be an untapped market just waiting for the right web-preneur: “Still married to that greedy dope? Dump that clown and get some hope! Go girl!”)
One writer I know describes it as “financial abuse syndrome.” Are you an FAS victim? Ask yourself a few key questions:
1 - Does your spouse demand to use your credit card because he/she can’t get one on his/her own?
2 - Does your spouse make part of the money but demand to make all the financial decisions?
3 - Would your spouse consider a separate bank account (yours) a betrayal?
4 - Does your spouse feel entitled to know how much you spend on everything you buy?
5 - Does your spouse insist on pooling your two incomes leaving you with little or no cash of your own?
6 - Does your spouse refuse to open or pay bills and explode when you bring that up?
7 - Does your spouse hide material pertaining to his or her financial past?
8 - Does your spouse expect your to pay off his or her debts?
9 - Does your spouse have a pattern of being fired from jobs for being ‘unappreciated’?
10 - Does your spouse steal from work and consider it normal?
If you answered yes to any of these questions, take a hard look at your joint financial life and ask yourself if you are being controlled in subtle or not-so-subtle ways by a person with money issues. If you are, address those problems immediately before they escalate into something overwhelming. Get help if you need it, both financially and emotionally. If you can’t fix the problem, get out. Fast.
In my opinion, every woman (and man) should have a ‘mad money’ account with at least two months rent in it, and preferably at bit more. That way, if you get mad, you have some money. I will leave the symbolic meaning of money in a relationship to Dr. Phil and Oprah. The main point I want to make with my retrospective here is that you earned the money you make, it’s your money, and anyone who shames or abuses you verbally for taking care of yourself financially doesn’t love you. It’s really that simple.
The good new is, you can turn that boat around. And things get better a lot faster than you might expect!
If you are healthy or if you have creme de la creme health care, you might not be aware that the US is currently neck deep in a health care crisis. Seven years ago when I started working in the world of finance and insurance, I also got my very first corporate health care package. That package included dental insurance, full medical, outpatient psychotherapy, cheap or free medications, just about anything you could possible imagine and then some, all for a $15 co-pay, period, unto infinity. It gave me great peace of mind even though I only used it a few times. I got my eyes checked. Went to the dentist. Got routine well-person medical care.
The following year, that HMO went bust and the corporation went with a traditional 80/20 plan with a $100 deductible instead. The year after that, the deductible was up to $300 per person and there were a number of exclusions and conditions, plus the price went up, a lot. I dropped the dental and eye care. The next year after that the deductible went up to $500, the cost was higher again, and many doctors were excluded. I quit going to the doctor for routine care.
The plan I have now has a $5000 deductible, and pays 80/20 after that, but they are notorious for denying claims outright. The young man who sits in the cubicle ahead of me at work wants to quit, but last summer he broke his ankle. He’d also injured his knee in the spring, so the insurance company denied his second claim for the ankle on the basis that he already had one leg injury so two were ‘suspicious’. He says as soon as he pays off his ‘suspicious’ hurt leg he is out of there.
The last time I was forced to go the doctor’s office (for a twisted knee) I waited six hours for five rushed minutes with a physician who seemed frantic, distracted, and impatient, and just wanted to get right to the prescription pad and get me out of there. If I was an addict, which I’m not, I could have a five pound bag of vicodin from that provider alone, since that is pretty much their cure all for anything that walks in the door.
Across the nation, health insurance is costing employees lots more and getting them lots less. Many employers are dropping health care benefits altogether. The kind of financial panic people once felt when uninsured is now shared by insured Americans as well. You don’t have to have a terminal illness to be wiped out financially, even with insurance. A $30,000 hospital bill (which covers a short inpatient visit of two days or so if that) can leave an insured patient with $8,000 in bills payable upon receipt. Most of us don’t have $8,000 lying around for such an event.
So what can you do to get that sense of security everyone needs to live their daily life without fear? Here are a couple of ideas:
Keep a Health Savings Account.
Not all plans allow this, but if you can get one, go for it. Typically they have higher deductibles than other plans, but health savings accounts are tax-free, and if you have one that can be rolled over from year to year you can keep the money if you don’t spend it. My own HSA is mine to keep even if I leave my current employer, and after 62 I can take withdrawals for anything, even non-health-related issues. To my mind, anywhere you can park money, earn interest on it, and not pay taxes is a good thing.
Eat Right and Exercise.
This is old, old advice but it has never been more important than now, when care is expensive, hard to get, and often just plain bad. Most adults benefit from 45 minutes a day of moderate exercise. I walk my dog, but you can do anything you like: bike, roller skate, run, garden, anything. Just get moving. East lots of fresh veggies, at least 5 a day, the brighter the colors the better. Stay away from processed foods especially starchy sweets that are high in transfats and high fructose corn syrup, two food additives that have no nutritional value, lots of calories, and have been directly linked to diabetes, obesity, and heart disease.
Learn Yoga or Tai Chi.
Both of these practices teach you to breath deeply and properly while becoming very aware of your body and how it needs to move. Westerners tend to drive themselves to the point of illness. If we exercise, we are punitive about it: No pain, no gain. Consider a tradition that teaches you to develop and maintain optimal health in a non-competitive, non-stressful way. Practice every morning for at least 20 minutes and end with 5 minutes of quiet meditation. Meditation alone has been shown to lower blood pressure and stress.
De-stress Your Life.
Life is stressful and then you die, right? Well, it can be, but only if you consent to be a part of that kind of thinking. If your job is making you sick with stress and worry, get a different job. If you are freaking out over your debt, get some help and get yourself out of debt. If you are in a terrible relationship, ditch that person pronto. So much of illness is caused by unhealthy situations we are reluctant to change for fear things will be even worse. Grow a spine and get the poison out of your life before it makes you sick.
Write Your Congresspersons.
I know there is a lot of cynicism in the US right now, but that’s no excuse for sitting on your hands when you know how to express yourself. Let your representatives know that we need universal health care and we need it now, and that you are sick to death of being on a par with Zimbabwe when it comes to infant mortality and quality of care. We are one of the most powerful developed nations in the world but we have the worst health care system of all those nations, and what’s more, it’s also the most expensive.
When a Crisis Happens, Just Get What You Need, Worry Later.
Stuff happens. People fall and break bones. Cars get into accidents. People become ill with diseases they did not ask for. If this happens to you in spite of all your care and caution, do not put off taking care of yourself because you think you can’t afford it. It’s only money. Citigroup just lost how many gazillion over, what? Mortgages? But you are going to endanger your life and well-being over lack of a few grand? Get real. Take care of yourself first, work the mess out later.
These are just a few suggestions. Perhaps you have some more. If so, post them! We love to hear from you.
Oh, and stay well. As Mr. Spock says, “Live long and prosper!”
The price of oil briefly hit $135 a barrel today, causing the International Energy Agency, a Paris-based policy advisory group for industrialized nations, to start revising its longterm estimate of world oil supplies. A consensus is now building worldwide that the recent upward spike in the price of oil is not being driven by speculation or recalcitrant OPEC nations, but rather by increased worldwide demand in the face of genuinely shrinking oil reserves.
For a moment, the ghost of Stan Meyer hovered in the air as the market and lots of other worried people all held their collective breath and believed with all their collective hearts and minds that Tinkerbelle is still alive. All we have to do is believe!
Well, she isn’t. And neither is Stan Meyer. And, um, we have to do a little more than that…
Stan Meyer, the rogue Midwestern inventor who claimed to have invented a device that could convert an automobile to run on ordinary tap water, died in 1998. He was either poisoned by dark underworld multi-national government operatives, or he died of a cerebral aneurysm caused by his chronic high blood pressure shortly after eating a meal in an Ohio restaurant. In the 1990s, Meyer claimed he had converted an ordinary Dune Buggy to run on tap water and had sold contracts to various individuals (for $25,000 a piece) that gave them the exclusive rights to sell the vehicles once they went into mass production. Stan Meyer was found guilty of “gross and egregious” fraud in a lawsuit filed by the investors in 1996, and was ordered to pay them back their $25,000 each and every one.
The water-powered car either absolutely did work, or was never witnessed as having worked by anyone with any knowledge of the topic who could confirm Meyer’s claims. Meyer’s brother now holds the many patents and plans for Meyer’s work and refuses to share them with anyone.
Did OPEC murder Meyer and his water-powered car? Did NASA or the US military murder him? Both were said to have approached Meyer repeatedly and to have offered him large sums of money to use or not use his knowledge, and/or to threaten his life. It all makes for a great story, especially if Gillian Anderson could be in it in some role (she’s so pretty), but I just have one question:
Where is this water-powered car?
Habeus watercar-us, you know?
I think what gives the Stan Meyer story ‘legs’ is that we see elements of truth in it, and just enough uncertainty to allow our imaginations to run wild. It is true without a doubt that a car that runs on anything besides petrochemicals is a real threat to the oil and energy industry, and viable cars have already been pulled from the US market at least once in recent years. (See “Who Killed the Electric Car” by Sony Pictures.)
It is also true, however, that if a viable, cheap means of extracting hydrogen from water had already been invented, some geek would be driving one around Southern California at this very moment, showing it off to his friends. Lots of people do create their own electric car conversions and even sell then on E-Bay (they’re getting pretty hot too, so if you want one, don’t dawdle and bid high), but where are all the kit-version hydrocars?
Right, I haven’t seen any either.
It’s likely that the coming months will get uglier and uglier due to the oil situation. That’s not all bad: We probably won’t change until we have to, so now we will have to. But it’s also likely that anyone who can put their money where there mouth is will get very rich very quick, and OPEC and Dick Cheney will not be able to shoot ALL those people in the face before they get their products to market.
Right now, governor Jennifer Granholm is busy making my home state of Michigan the mecca for green energy and innovation. When water-powered vehicles are available, we will almost certainly have them first right here. I’ll take a photo. I’ll drive one around. I’ll post a video of me doing that.
Until then, I’m looking forward to the next X-Files movie. God I miss those guys.
Over the past ten years employers in the United States have been abandoning traditional pension plans for full-time workers and replacing them with 401K benefits or, sometimes, with nothing. Some pension plans were underfunded and went bust or are shaky at best, and changes in the laws governing pension funding have left employees victimized by mismanagement with little legal recourse.
The way we look at work has also changed radically. Employers now look to ‘turn over’ workers in about two years in most jobs, well before their new employees qualify for increased benefits, raises, or promotions, and most people starting out in the world of work expect this and plan from the start to move around a lot. ‘Up or out’ in two years is the new unwritten corporate rule, and though it might not be written, it is spoken openly.
That’s all fine if you happen to be 22, new to a career, and financially savvy, but what if you’re middle-aged, unlucky, or unfortunate? Many Baby Boomers are financially unprepared for a retirement that is just around the corner. For some, the rules changed in the middle of their game and they now have only partial pensions or no pensions at all, inadequate 401k or IRA savings, and lots of debt. Some counted on the equity in their homes funding their retirements, then got caught upside-down on home equity lines when the housing bubble burst. Some simply got lost in the increasing cost of everything, and now are looking at working far past the age of 65, just to make ends meet.
At the end of 2007, 18% of Americans had who had 401k plans also had outstanding loans against them, up from 11% in 2006, and studies have shown that most people are cutting back or cutting out their contributions to these plans entirely due to financial stress. This is a serious mistake.
If you are nearing retirement and are in this situation, you can take some basic steps to make a plan. Yes, it’s late, but as they say, better late than never. Consider the following list as a way to get started:
- Make a balance sheet. Total up your debts and your assets. Don’t forget to include property and personal belongings on the assets side. Be honest about your debts. Facing them is the first step to getting out from under them, no matter how late in the day it is.
- Make a budget. Yes, it’s boring and tedious and depressing, but do it anyway. What comes in to your budget in the way of income each month? What goes out? What do you spend money on? If you aren’t sure, carry a little notebook around with you for a week and write down every single thing you buy. This will in all likelihood shock you. Don’t pretend to do it, thinking you already know. Actually do it. Don’t judge yourself, just record every penny you spend.
- Review, with help if necessary. Do you own things you could comfortably sell to get rid of some of your debt? Are there things on your list of expenditures (your little notebook list) that you could do without in order to save the money instead? When I did the little notebook exercise, for example, I discovered I spend about $90 on tea, crappy vending machine snacks, and coffee at work each month. By bringing my own and forgoing that convenience, I was able to pocket that money instead.
- Seek legal help where appropriate. Is your debt-to-income ratio so hideous you can’t figure out a way to pay it back even if you live to be 150? Make an appointment with an attorney and find out what your options are. Sometimes you can negotiate the debt down, especially if its unsecured, and make a payment plan contingent on closing your credit line until you are back on track.
Once you’ve done this initial review, you can then proceed to make a plan to clean up your financial life and simplify so you can look at retirement. Your goal is to pare down your expenditures whatever it takes and start saving money, while looking for additional income. Here are a few possibilities:
- Move down. Can you move to a smaller, less expensive home and be happy? Everyone’s situation is very different, but if you are able to sell or are in a position to buy, this single step might solve a lot of your problems and free up cash that you can put away for when you do hit 65.
- Make more money. It’s funny, but most people don’t ever think of this option. Ask yourself if you are being paid what you are worth, and if not, ask yourself how you can get that amount of money. Maybe no jobs exist in your locale that fit your life experience and skills. In that case, what about self-employment instead of or in addition to what you currently do? Most people over 50 have gotten pretty good at something, and if you are not currently doing what you are good at, ask yourself how you can. Make your last working years as lucrative as you possibly can.
- Pay yourself first. Do you pay all your bills and get what you need and then save what is left over? That is completely backwards. Stop doing that. Figure out what you need to save for your retirement, put that away first, then find a way to cover what you have to pay for daily expenses with what you have leftover. This is where extra income, creative thinking, help with debt management, and selling off stuff you don’t need can be crucial. It may sound harsh, but no one is going to look after you except you. If you put retirement money away, you will somehow be here and be fed from one day to the next. If you wait until you have ‘extra’ you will never have what you need and you will . You come first, Citicorp comes last. Sorry, Citicorp.
- Network, ask for help. A lot of people are in the same situation you are. Talk to them. Find out how they are coping and ask about local resources for displaced workers, debt management, help with utilities, financial planning, and investment planning. Become a pest and a tireless advocate for yourself. Now is not the time for pride or modesty. Be bold about your abilities and open about what you need. You might be surprised by what develops.
- Write out your ideal retirement. For most people, retirement means they stop doing whatever they did for eight hours a day for most of their adult lives. Few people take the time to think about what they want to do instead. What are you looking forward to most when it comes to retirement? Is it down time? Travel? More time for hobbies and interests you have set aside while working? Can you do any of these same things for money, even ten or fifteen hours a week and be happy? Once you know what you want, you can begin to make a realistic plan to get it. If you don’t know what you want, then all those warnings about how you must have X amount of dollars to retire comfortably will intimidate you into doing nothing out of sheer hopelessness.
None of these suggestions are magic bullets. Like that annoying investment house TV commercial says, your retirement is as individual as you are. Only you can see where you are financially, where you want to be, and what you need to do to move from Point A to a blissful Point B.
The point is to get started. Don’t wait another minute. Quit reading this. Just do it.
First of all, if you are asking yourself these kinds of questions at all, take a moment to pat yourself on the back. Just thinking about these things put you miles ahead of eight out of ten people in this country, and if you are under 30, you are probably miles ahead of more like 10 out of 10 people. Good job!
The right answer is, you need to do both. J.D.’s popular financial blog Get Rich Slowly posed this same question earlier this month and concluded that while from a strictly dollars and cents perspective paying down the debt makes more sense,
…there’s more than math involved in this decision. Building retirement savings can be a powerful motivator. Just getting in the habit of setting money aside is a valuable skill itself. Although there’s a cost involved, I wouldn’t say that it’s wrong to save for retirement while also repaying debt.
Indeed, while paying off debt should usually be a top priority (except in the case of certain kinds of debt that yield tax advantages, but we’re not going to go there today), paying off debt instead of saving for retirement is risky. The farther away from retirement you are, the riskier it is.
Let’s say you are 25 and you have maxed out your VISA card and owe money on a student loan to the tune of $200 each month. Even though your new employer matches your 401K contribution up to 7% of your gross pay, you pass on that because you really need to pay off your student loans and that credit card first. You figure, “I’ve got plenty of time to save for retirement. I’ll do that when I’m out of debt.”
That may make sense superficially, but if you look closer it makes no sense. Say you make around $32,000 a year and can count on a 3% annual cost of living increase in your wages or salary. You decide to contribute the 7% to your 401K right off the bat so you can get all the matching funds available. Congratulate yourself for doing this, because you just gave yourself a tax-deferred raise of $2240 a year, just by deciding to contribute. If you keep your contributions at 7% and earn an average of 8% on your invested 401K money, by the time you turn 65 you will have saved $1,210,295.
Do you think you could retire comfortably on one and a quarter million dollars? I think there’s a good chance you could even adjusting for inflation, and not only that, in your first year working this will cost you a whopping $43 a week, roughly the cost of a movie out followed by a burger and a couple of Mojitos. After a few paychecks, you won’t even miss that $43. You’ll forget it went anywhere at all.
Now let’s look at what happens if you wait. Instead of starting your 401K and getting the most matching money out of your employer possible right from day one, you wait until you’re 35 to start saving for your retirement. Your student loan is paid off all right, but now you have two kids, a mortgage, two car payments, and three credit cards with balances instead of just one. So you really can only spare about 3% of your paycheck, but you’ve been promoted a time or two and now you earn $45,000 a year.
When you hit 65, in the second scenario, you will have all of $305,754 to retire on. Nothing to sneeze at, but over a million dollars sure would be nicer. Even if you kick it up to 7% at 35, you’re looking at a retirement nest egg of about $1 million even and now it’s going to sting because you haven’t been saving and you feel like you can’t afford 7% at all. If you’d been contributing 7% all along, you wouldn’t feel oppressed by it, but coming as it does when everything else is going out, it hurts.
One of the biggest financial mistakes people of all ages, but especially young people, make is passing up 401K employer matching funds. The younger you start, the bigger that nest egg grows. What’s more, if you build up your 401K early on, it makes it easier for you to get a mortgage approved, and also just about any other kind of loan approved. You can even borrow from your own 401K (not usually a great idea but it’s good to know it’s there if you need it), and in certain extreme situations you can in fact get at the money without penalty.
Bankrate.com has some cool financial calculators you can play with to determine your retirement savings given different matching fund scenarios. It’s a good idea to fool around with these as soon as you can, but if you’re already approaching retirement, it’s still better to do it late than never.
The truth is, if you start saving for retirement as soon as possible and learn to live on what is left you’re not as likely to pile up debt in the first place. I strongly believe that socking away as much as possible is the best approach, because if you pay yourself first, you have that money. If you wait until later, well, when is ‘later’ exactly? How many things (tell the truth!) have you done successfully that you started ‘later’?
Not many I’ll bet.
‘Later’ is what we tell ourselves and others when we don’t want to do something at all or don’t want to have to think about it. As more and more employers gut their pension plans or drop them altogether, saving for retirement is becoming more and more vital. Social Security is looking shakier than ever, and even if it’s still around when you retire, it’s not likely to be enough to feed the cat and you both. One of you will have to go if you haven’t made other plans.
You can pay down debt and save. Even if all you can afford is $10 over the minimum payment on your cards and an occasional lump sum extra payment, you can do it if you plan it out and stick to your plan. Various websites offer debt repayment calculators that allow you to plug in your exact debts and interest rates, what you can afford, and when. The calculator will then spit out a plan for you and tell you exactly when the debt will be gone. More on that in a later post.
In the meantime, save for retirement, save as much as you can as early as you can. Feed that pig.
You’ll be glad you did.
Starting today and continuing every Monday for the next seven weeks, Personal Finance Analyst will be posting a Recession Survival Guide focusing on everything you need to know about getting through the coming recession without losing your sense of humor or your mind.
First things first: Is a recession coming or are we already in one? Economists disagree about the precise definition of the word ‘recession’ and usually only declare that one has occurred after the fact. A common rule of thumb is that three quarters of negative economic growth usually heralds the beginning of a longer period of negative growth, job shortages, and other unpleasant problems usually referred to as a recession. While it is still possible to find pundits on the radio arguing about whether or not the US is in another recession right now, most ordinary people have decided that, duh, yes. We are. Totally.
If you are looking for a job right now, you know better than anyone that times are tough. It’s an employer’s market for sure, and the ‘let’s-hire-a-PhD-to-make-the-coffee syndrome’ is in full swing. However, even in a recession, some job categories experience growth and even employee shortages. Some of the job categories unlikely to be affected by a recession in coming years include:
Almost half of the fastest-growing 30 jobs in America are in health services, and not all of them require four to eight years of college. Medical assistants, home health aides, physicians assistants, medical records and transcription professionals, physical therapists, and all kinds of technology-related medical jobs like x-ray technologists and lab services technicians all desperately need filling, and all of these jobs pay well and are likely to be around for quite awhile. Many local community colleges and technical schools offer fast track training for health care jobs with financial aid, so if you are recently laid off from the auto or financial industry, give some of these schools a call and make an appointment with a career counselor. Some states even have money available for retraining displaced workers.
Energy & the Environment.
I saw a feature on television recently about a college that has added an environmental energy program to its curriculum. It is so wildly popular, and so needed, that many of the best students are being hired before they even finish their degree. One student joked that “if you can spell ‘environmental’ you’ve got a job waiting for you” and he wasn’t kidding. Traditional energy jobs in natural gas and oil industries continue to be strong as well, with Texas currently experiencing boom times again as oil and natural gas fields that just weren’t profitable to drill when prices were lower now are unbelievably profitable.
The US education system is in sorry shape and everyone knows it, including presidential hopefuls on both sides of the coming election. Good teachers are badly needed in many areas of the country, less so in others. Recent college graduates who are having trouble with their job search would do well to research certification requirements in various states and go where the need is. In fact, you can defer or even pay off some of your student loan debt if you agree to teach in certain depressed areas ( for example, some Indian Reservations) for a specified time period.
Police officers, port and international security experts, airport security, border patrol agents, and other jobs involving police work and security will continue to grow even during a recession, especially with the current political climate favoring heightened border security and anti-terrorist measures. Incredibly, the CIA is actually in the midst of a recruitment campaign and recently ran a large ad on the landing page of the online version of the New York Times, so if you’ve ever dreamed about being a spy, this is definitely your moment.
If you are first-generation Chinese and are fluent in the language, consider some business training or a business degree and you will never want for high-paying work. A few grade schools in the US are now experimenting with teaching Chinese to young children. Anyone who has a language ability that correlates with a booming formerly-third-world nation like China, India, or any of the Middle Eastern countries, should have no trouble finding good paying work, no matter how bad the recession gets.
Another path you may want to consider if you are struggling to find paid work and you seem to just be treading water is self-employment. Certain seasonal jobs, like lawn-mowing, landscape design, and landscape maintenance are forever in demand. Even a stack of business cards letting the world know you will plant annuals will result in nonstop work for at least two months, after which you should have made enough contacts to keep doing maintenance on perennial beds and borders until the next snowfall. Lots of healthy younger people manage to combine this kind of self-employment with Christmas retail and do quite well with it.
All signs also point to rapid growth for online sales, so if you have a unique product you feel strongly about, you might want to consider marketing it now. While it’s true that competition online is fierce, it’s also true that many untapped niche markets exist and are likely to continue to appear. Actually, you don’t even have to have your own product; you can sell someone else’s niche product (or products) if you prefer. Do a Google search on ‘niche marketing’ and you will find more material than you can read in a lifetime, most of it obnoxiously promotional. Just don’t fork over any money to anyone upfront for ‘secrets’ on niche marketing that will make you thousands your first week. There are no secrets. Find the right niche, work really hard, make money. That’s the secret. (And remember, you got it here at PFA for free!!)
Some other tips to keep in mind:
Don’t take it personally.
It’s not you, it really is the economy. Remember that in tough times employers can be as annoying as they want to be, and some of them you really don’t want to work for anyway. Do your best, present your best side in an honest, professional way, then let it go. (After following up of course.) Remember that you are also interviewing them. A good interview cuts both ways, and a good employer will welcome your questions and concerns.
When hundreds or thousands of people apply for the same job, it’s not likely you will receive a ‘no thank-you’ letter or a call back, so take the initiative and be a pest. Often, huge employers have an endless checklist of procedures they have to trod through for each and every employee, so don’t assume you didn’t get the job if you don’t hear back the next day. Ask at the interview when you can expect to find out if you’ve been hired, and ask if there are other interviews or tests to follow if you make it through this one. Then call them back in about a week to ten days.
Big corporations all have phrases they like and want to hear their employees say, even if these phrases are completely delusional and everyone knows they are ridiculous. I’m a proactive, enthusiastic kind of person! I hate to be idle ever, I need to be constantly busy. Difficult people don’t upset me, I see them as a challenge and an opportunity. Stuff like that. Say that stuff. You can wash your mouth out when you get home, and no one will fault you for it. The person interviewing you knows it’s crap too, but if you don’t say it with enthusiasm, you won’t get the job. The caveat here is be realistic. It’s one thing to play the game to get the job; it’s another to have that sinking feeling like you want to shoot yourself right at the interview and still keep trying. Sometimes it’s really better for everyone to just say, “Thank you for your time. I think this is probably not for me.”
Save your stories and write about them.
If nothing else, you can publish your recession job search on the web and make lots of friends and even some Adsense money. Some of the funniest stories I’ve ever heard are recession job search stories. In fact, I think I just thought of my next post here at PFA!
Food prices are all over the news right now, and for good reason. Milk alone has doubled in price since 2004, and wheat, corn, eggs, produce, cheese, rice, and just about everything else is right behind it. The rapid increase in food prices is probably more alarming than gas prices in a lot of ways. With a little effort, anyone can figure out how to drive around less, but most of us do have to eat on a regular basis no matter what it costs.
Here then are some ideas for keeping down costs while keeping nutrition high. Please add your own ideas, recipes and comments.
- Buy in Bulk. Not only will you make fewer trips to the store, you can usually save money and eliminate lots of packaging that normally would end up in a landfill. Staples like rice, dry beans, flour, sugar, baking powder & soda, spices, powdered milk, powdered eggs, vegetable oil, vinegar, cereals, teas, coffee, and canned goods are almost always cheaper in bulk. Set up a pantry in your basement or mudroom with some inexpensive heavy-duty shelving and stock up in one trip.
- Cook Meals. Even if you live alone, cooking is almost always cheaper and better for you than buying prepared or prepackaged convenience foods. You can cook in bulk and freeze microwavable portions, or if you have a family, freeze family sized entrees. Easy-to-freeze homemade meals that can be prepared in large quantities include chili, spaghetti sauce, meatballs, meatloaf, homemade soups and stews, cookies, rolls, pizza dough, and lasagna.
- Buy a Quarter or a Side of Beef. If you find a local grower and buy your beef in bulk you will not only get a better price, you will know exactly what you are getting and who you are getting it from; no small thing in a era in which prepackaged meat is chemically altered to make it look eternally fresh.
- Plant Some Veggies. Even if you live in the city you can plant some patio tomatoes, a few peppers, and a window herb garden. If you have only a few feet of sunny good soil, plant runner beans. They will grow all summer and produce more beans than you can eat. Blanche and freeze what you can’t.
- Have a Special Recipe Party. Find a killer recipe for salsa, rhubarb jam, flavored oils and vinegar, anything that is useful, unique, and cheaper for you to make than to buy. Make a ton of it and host a party where members all share their specialty. In other words, give away twelve jars of salsa, get 12 jars of something else you can eat.
- Learn to Can. It’s not that hard, and it’s the kind of thing you can do with other family members or a few friends cooperatively for an afternoon and then split the rewards and use them all year. My mother and grandmother put up applesauce, peaches, pears, cherries, blueberries, tomatoes, and prunes every year. (You can skip the prunes, but actually, they’re delicious.)
- Make Your Own Jam. I live in Michigan, one of the biggest orchard states in the country. You can buy bushels of almost anything in season here and in an afternoon put up enough jam for an entire year. It tastes great and it leave you with a ready gift on hand should you need one in a pinch.
- Add a Meatless Meal. You don’t have to become a vegetarian to cut back on your consumption of expensive cuts of meat. Macaroni and cheese, bean burritos, cheese pizza, marinara sauce with spaghetti, and beans and rice are all cheap, filling meals that even kids like. Try to include at least one no-meat meat each week, more if you can.
- Eat Breakfast. Most people skip breakfast and then eat expensive crap out of the vending machines at work around 10:00 am because by that time they’re starving. Don’t do this. Breakfast is cheap, filling, and good for you. It will actually keep your weight down and cause you to eat less the rest of the day. Oatmeal will keep your cholesterol down and costs pennies per bowl.
- Make a List and Stick to It. Don’t go to the store hungry and don’t impulse shop once you get there. It’s scary how fast your bill goes up when you grab what looks good. If you see a good in-season buy, that’s one thing, but if the $6.99 custard pie is calling, plug your ears.
Saving money on groceries takes discipline, but mostly it’s just a matter of changing old habits. For years now we’ve had lots of cheap food, so much cheap food that two thirds of us are clinically overweight and one third are obese. While change is always hard, today’s high food prices can lead to better nutrition and a more careful diet if we take the time and make the effort. In other words, this dark cloud could have quite a silver lining. I’ll take homemade cobbler over Cheetos anyday!
George has gone begging to the Saudis again, “Please sir, can we have another bowl of oil?” And once again, their answer was a semi-polite “I don’t think so.” George was gravely disappointed in his old friends, telling the American people:
“I said very plainly that you’ve got to be concerned about the effect of high oil prices on some of the biggest customers in the world.
“As the (Saudi oil) minister said yesterday, Saudi Arabia has increased the number of barrels of oil by 300,000 a day and they’re increasing refining capacity which is not enough.
“It’s something but it doesn’t solve our problem…Our problem in America gets solved if we expand our refining capacity, promote nuclear energy and continue our strategy for the advancement of alternative energies.”
I hate it when George goes begging to the Saudis. He’s kind of embarrassing even when he’s being arrogant and saying dumb things, but when he’s fawning for oil he’s hard to watch. It’s just painful. He reminds me of that famous tape of Tony Blair fawning over him at some state dinner while he sat there talking with his mouthful and shooing the guy off like he was a housefly, not the the Prime Minister of Great Britain.
I know the White House staff has to be just worn out to the bone after eight years of non-stop damage control. So in the interest of the future of the US economy and to help them out a bit, I’ve compiled a list of Ten Ways Not to Bring Down the Price of Oil. George can either avoid these 10 things and bring down the price of oil, or he can target this things to insure the price keeps climbing.
Just trying to help out.
- Go Beg from the Saudis. Ick. So lame. What kind of cowboy goes begging for Arab oil? We really should not have to witness this obsequious behavior and listen to tough talk about Iran at the same time, as if we have any bargaining power at all in either case.
- Bring Democracy to Iraq. As nearly as I can tell, ever since we decided to do this, we haven’t been able to lay our hands on so much as a pint of Iraqi oil. Where is that oil anyway? What good is it to invade an oil-rich country, get accused of doing it so we can seize and use their oil, and then not seize and use any of their oil? We never hear about Iraqi oil anymore.
- Drill New Wells in Alaska. Haven’t we made things hard enough for polar bears? The real issue though is that any oil we get up there will take the edge of our oil hunger for at best a year or two, and then we’ll be right back where we are now.
- Stop Sending Oil to the Strategic Reserve. This was one of those unanimous symbolic gestures that George and all of Congress could support precisely because it affects nothing and no one–including the price of gasoline–until the next major natural disaster (Katrina?) or the next terrorist attack. At that point, everyone in Congress will claim they were against it all along.
- Build More Nuclear Power Plants. I’m not saying this is a bad idea. It’s probably a good idea given the current situation regarding energy in the US. But will it bring down the price of oil and eventually gasoline? Not unless Ford or GM or Toyota starts mass producing electric cars that run on the power from the nuclear power plants.
- Ignore the Railroads. Shipping goods and food across the US by truck is horrendously expensive even when gas is under $4 a gallon, but now that it’s sailing right past $4 a gallon (and diesel has been over $4 for months) it’s just plain nuts. There was a time in this country, and not that long ago either, when all this stuff was shipped by rail. Passenger train travel has already increased by as much s 30% in the a single year in many areas. By all means, don’t encourage any more of that.
- Ignore Public Transit. This is America. Everyone is entitled to their own SUV, preferably a Hummer. By no means should we waste any time making public transit easy, cheap, and available.
- Don’t Subsidize Alternative Energy. This year, while Congress was fighting over big issues and not accomplishing much except new mountains of pork, several tax cuts for things like buying hybrid cars and other forms of alternative energy were allowed to quietly expire. By all means keep this up and make it nearly impossible for ordinary people to generate their own energy off the grid using existing technology.
- Keep Suing States that Pass their own Tougher Emissions Standards. Those upstart states! Who do they think they are anyway? Especially California, damn tree-huggers! Teach them a lesson and make them stick to the lazy federal standards until the whole country shuts right down. Show ‘em who’s boss!
- Harass and Intimidate Green Groups and Protesters. These traitors obviously have no real concerns, so make sure to shut them up. Don’t let the American people know about what kinds of technology and ideas are out there right now, or the next thing you know they’ll be thinking we can actually live without oil.
November seems like an awfully long way away lately. I have noticed, however, that the American people are starting to disregard their fearless leader and take matters into their own hands, which is probably not a bad idea. Sales of small motorized bikes and scooters have jumped off the chart here, public transit and train usage is up dramatically, more people are biking or walking where they need to go, and just about every other person I know is thinking how to heat their home through the winter of ’08 without home heating oil. What other options are there? People are finding out on their own, with little or no help from their government.
So keep it up, George. You’ve only got six interminable months left to secure your legacy.
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