Real World Finance$

Yep, we were one of the crazy few up and about bright and early this past Friday.  After getting to be a little after midnight we were up again at about 3:30 in the morning.  We got dressed again and headed to the car and got to our neighborhood JC Penny just after they opened at 4:00.

We spent 30-45 minutes there.  We took advantage of the sales to stock up on our winter wardrobes (good timing since there was snow on the ground this morning).  We dropped a couple hundred dollars, and we hadn’t really purchased much in the way of clothes the last 2-3 months, so it was within our budget.  We have a vacation planned the first week of February, so we aren’t doing much in the way of Christmas this year.

The store was busy, but wasn’t really crowded.  The store near our home doesn’t have a lot of other shopping nearby, so the real die hards were elsewhere.  We got checked out, headed out to the car and then back home to bed by 5:00.  A little silly maybe, but that was the extent of our Black Friday shopping.  One stop to buy only clothes that we really needed anyway.  No impulse shopping, no fancy electronics, not junk that’s going to collect dust in someone else’s home.

Besides, we are working on doing a homemade Christmas this year and using our talents to make gifts for each other.  My wife has been having fun with her knitting machine and learning how to felt knitted items, so those will be some great hand made gift items that cost a fraction of what they would cost in a store, and they will be worth so much more because she made them.   Hope your Friday was as financially easy as ours!

This summer we have been rather lax with our spending.  We haven’t made quite the progress we were earlier in the year.  Although, only part of that was because of our spending.  The other part was that I haven’t been teaching and bringing in the extra income.  The summer off was nice, but it’s time to get back down to business again.

Having just got back from vacation a couple weeks ago, we have begun to tighten the belt again and hold ourselves back to our budget.  We’ve got some old furniture up for sale on Craigslist so that we can pay for a new bed for our son.  I’ve signed up to begin teaching another class starting in early November as well.  That should give me two more extra paychecks by the end of the year and one more the end of January (just in time for Christmas and an early February vacation).

In light of the stock market this year, I’m not anticipating actually reaching my goal on retirement savings.  Then again, I don’t know anyone who is!  So, this year is not shaping up to be quite as good as I’d hoped, it’s still going to be many times better than if we’d continued with our previous habits, so I’m still happy at this point.  If things continue to go well with my new business, we just might make some very big strides next year as I start to get income from there while I’m still working my regular job.

Keep your fingers crossed for me.  By the way, I do plan on writing up a little something on our venture here soon.  We are putting some final updates to our website this week, so after that I’d love to start getting some traffic over there!

There have been a rash of financial bailouts over the past several weeks.

• Bear Stearns
• Fannie Mae & Freddie Mac
  
• AIG

Add to that the restructuring of the last 2 large investment banks

• Goldman Sachs & Morgan Stanley

And don’t forget the other bailouts in the works by congress

• $700 Billion for the financial industry
• $25 Billion for the auto industry to re-tool for more efficient vehicles

Wow, that’s a lot of money going to help out companies who made bad decisions and I’m sure I’m forgetting some.  Should we really be helping out these companies?  Shouldn’t they be forced to face the consequences?  Yes…. and No.  It’s a difficult question to answer.  Yes, they should face the consequences of their actions, but those consequences if they were left to rot would have ripple effects to more Americans than those that will be felt by the bailouts.

Consider just the housing market for instance.  If all of these large banks were forced to make do at the same time, then the cost of mortgages would skyrocket in the very near future as no one would have money to lend (supply would be next to nothing).  With the difficulty of getting a mortgage, the construction market would turn even worse than it is today, forcing even more people into unemployment.  These workers had nothing to do with how the banks made their decisions, but they will feel the after effects.  Fewer construction workers means there will be fewer pick-ups sold, fewer hammers sold and so on and so forth.

As my wife and I listened to NPR over the weekend and heard about all these deals going on, part of me wanted to be a real fiscal conservative and say “tough luck.”  But as much as higher taxes and lower income will probably hurt me, it’s still for the greater good of me to be able to help out.  As I finally said to my wife, “Now is not the time to point fingers.  Now is the time to fix things.”  It’s not fun doing what this country is doing right now, but it needs to be done to keep things from going from worse to terrible.

Of course, there SHOULD come a time for finger pointing.  We must keep in mind what happened and work diligently over the next few years to avoid the type of scenario we have witnessed from reoccurring.   Failure happens, but it can also be a valuable learning experience.  As long as we use this massive failure as a way to learn from our mistakes, we will be a stronger country in the future.

So, what about me?  Where’s my bailout?  Well, either you will indirectly be bailed out by keeping your job and/or your home when you otherwise might have lost it, or you are part of the unfortunate bunch that will only pay the bill to help everyone else.  So sorry, thanks for the help, we promise to do better next time.

Late in May my neighborhood association elected new officers.  I had thrown my name in the at for a member at-large position to get more involved in things.  Unfortunately, I was unable to attend the election meeting because I was teaching my graduate accounting course that night.

There were 3 of us running for the 2 at-large seats.  I lost the election to the 2 persons who were there for the meeting.  However, word must have gotten out as to why I wasn’t there.  It seems a couple of people thought I’d make a good candidate for the unfilled Treasurer position and wrote my name in.  Since there was no one running, my 2 votes was the winning tally and the position was mine to accept or reject (since I was a write-in only).  I considered it for a few days and decided I would make the leap and give it a try.  It’s a 2-year post and puts me as an official executive member of a not-for-profit organization.  In addition to the neighborhood group and newsletter, we also sponsor a local dog park with upwards of 600 members.

I sat and made the transition with the previous treasurer (he’d done the job the last 4 years) recently.  He’s made an extensive guide book to how he’s managed and organized everything, so that’s a bit of a help.  However, the “accounting” for the organization has been done strictly in Excel, which is not in my best interest to keep that way.  Also, with the dog park as well, we have 20-25k in the bank and it’s all in a non-interest bearing checking account.  How blah.  I’ll be working on changing that over the next few months as well.  Our local bank has several options to get us some interest on all that money.

I’ve been checking out some software to let me take care of the accounting.  Both Quicken and Microsoft have free versions of their business accounting suites.  They are some what limited, but still have all the basics that will work for most small organizations.  The trouble I’ve found so far is that only the pay for versions allow the use of classes or divisions so that I can easily keep the money for the association and the dog park separated. 

I’m still trying to find my groove and organization style for keeping records and managing the monthly reporting for association.  I’ll have another report due next week when we have our next general membership meeting.  I suppose the work I’ve done on my personal finances will help me to get more organized with the association as well.  It will also prove to be some great experience and resume padding for later.  I was already planning on taking the rest of the summer off from teaching, so I guess I’ll have some more time to get things in order. 

On another note, I know I missed my monthly progress update last month on here.  However, I did get my Net Worth IQ profile updated, so hopefully you saw that change as well.  I hope to get my regular update for June put together tonight and start those posts tomorrow.  To be honest, it won’t be pretty.  Not only did the stock market tank, but we had nearly $3,000 of repairs made to our roof.  The good news though, we paid for it with cash!  A year ago we never would have been able to do that.

We finally made the plunge with our big debt for our A/C we had installed last year.  It was “financed” then with 1 year, no payments and not interest.  That was set to expire in Mid May and I’ve been putting together plans to make the move.  The total debt on that special card was $16,064 (we had no duct-work or anything, so we were starting from scratch, and we also qualified for the $300 energy tax credit this year because of this).

I have a scheduled transfer from our savings account of $4,000 on the 30th of the month.  That same day I have a scheduled payment from the checking account of $4,064.  The remaining $12,000 is in process to be transferred to a credit card that is in my wife’s name.  It didn’t have a balance previously and had room for the balance.  While we did have to pay a 3% transfer fee, the transfer offer is at 0.99% for 6 months and then goes to her current fixed rate of 5.99%.  The 3% fee basically washes out with the savings from the 0.99% for the first 6 months.  That said, the fixed rate on her card is outstanding for a credit card, so we don’t really have any complaints there.

The best news is still that there is $4,000 less of debt for the end of this month!  That’s a really big step and puts us near the halfway point of our goal for debt reduction this year.  Hopefully after we get some other work done on the house and plan for our vacation there will still be some money left for another big payment sometime in the next few months.

In a preview of our month end, I saw where we currently have less than $48,000 in “credit card” debt with these payments (though there is an interest charge yet to post on our line of credit account) and our net worth has gone up to -$12,000.  That’s another big jump this month thanks to the tax refunds and such.  Everything should be done and posted by the end of the week for me to get some final numbers by the first of next week. 

Just yesterday, the local paper here in St. Louis ran a story by Bill Poole, the current (and retiring) President of the Federal Reserve Bank of St. Louis.  His commentary was entitled Financial Education is the Key.

In the story he cites the root cause of the current financial crisis in the US on three distinct groups of people.  (more…)

I read this post recently over at Five Cent Nickel:  Past Performance Does Not Predict Future Returns

It reminded me of my recent post on Oil Prices, Future Predictions and the Weather.

I mention this to my class every time we go over forecasting and regression analysis.  The further away from you set of data you get, the more inherent error will occur.  Outside of your data range is all sorts of things you don’t know about that could effect the outcome. 

One of my favorite examples in class to demonstrate this is global warming.  We have weather data from the last 50-100 years that show a gradual increase in average temperatures.  Some how, some scientists seem to think that means the trend will continue indefinitely.  We know better in statistics.  Because that 100 year time frame is very small in the grand scale of time, there is no telling what the actual temperature pattern would be.  Sure, it could be an increasing trend, but it could also be a sinusoidal trend as well.

While I won’t try to say here that global warming isn’t real, I will say that some of the methods of “proof” are scientifically flawed in nature. 

And yes, the same is true of looking at past returns for any kind of investment.  Take the time to do your research to understand the risk of the investment and that you are comfortable with that risk.  In other words, just because your friend tells you about all the money they made on some stock or mutual fund, don’t assume you can hop in and do the same.

I read an article this morning on Kiplinger titled Financial Milestones for Kids.  The author, Janet Bodnar, list some financial awareness that kids should have at different ages.  I tend to agree with her on most points and thought I would share her thoughts with you.

• Preschool:  Basic awareness, know that money can be used to trade for things and the difference between the different types of money (pennies, nickels, etc.)
• Ages 6-7:  Great time to start a basic allowance.  Kids are also learning basic math by this age and should learn that 2 nickels make a dime and 4 quarters make a dollar.  At this point they will also start to notice how much things cost and make some of their own buying decisions.
• Ages 8-9:  Here she suggest opening a savings account.  We’ve had one for our son for much longer than this, but he’s just now starting to understand how it works (he’s 8).  We’ve also been training him to bargain shop at the grocery store and compare prices.  He loves popcorn, so his goal is to always find the best deal on that when we need to get more. 
• Ages 11-12:  She suggests expanding allowance to include extra for chores around the house to learn the effort involved with earning money and to consider learning about investing in stocks.  We’ll likely start the stock investing with our son a little before this age, but probably not much.
• Ages 14-15:  Start thinking about your kid getting a summer or part-time job.  Since we homeschool, it doesn’t have to be limited to the summers.  She also suggests an ATM card at this age.  I’m not so sure I’ll agree with that at this age yet.  That depends a lot more on their responsibility with money than just their age.  The point of giving them easy access to their own money in the bank is not a matter to take lightly I think.
• Ages 16-17:  Here she suggests they definitely have a summer job as well as a checking account with a debit/ATM card.  I can see this much more at this age as they are getting closer to college and will need some experience managing and handling their own money.  She also suggest giving them full access to their clothing allowance for school and letting them make the decisions of what/how much to buy.
• Age 21:  Now she says they are finally ready to apply for a credit card.  In today’s world, good luck getting them to wait that long.  Expect them to have one when they come home from their Freshman year if not by Christmas that year.  I know I had one well before now, and was very responsible with it during college.  I never carried a balance on it during school.  It was after graduation that I started down my path of debt.

While much of this might seem to be sound advice, again, it’s more about your own child and their awareness and responsibility.  If they are interested in learning about money and eager to take on those responsibilities, give them a chance and see how they do.  Set up some safety nets to make sure they can’t spend more than they have.  That way you can make sure they learn a lesson should they go “hog wild” once they have control. 

Have you started educating your child on finances?  Ours is involved in the family finances when we review our budget and goal status from the month and understands what we are trying to do with getting out of debt.  He also has a checkbook register he uses to keep track of his spending money we have set aside in an E*Trade account for him.  He doesn’t have direct access to his money there, but we will spend for him when he picks out something, then balance his register.  At the end of the month we “re-balance” the online account to match what he has left to spend.  We even let him keep the interest!

Sorry about being gone for a few days.  Things have kept me busy at work and at home.  The next month or so will be tough for me as I start working my teaching job 2 nights a week rather than one.  Each of these classes has a lot of students as well, so grading homeworks and exams will keep me tied up quite a bit on weekends as well.

With that said, things are going well around our household.  Our budget this month is pretty much on track at this point.  I called yesterday to cancel our old checking account so we can fully work with our new accounts at this point.  I had already transferred all the money out of it to our E*Trade savings account last week, so we are free and clear there.

Also, we’ve gotten the checks in the last week for the escrow account clearing from our previous mortgages.  One was just $65 and was only because the pay-off was over paid.  It was our second on the house so there was technically no escrow account.  The other check came in over $900 and is on it’s way to the savings account now. 

Our goal is to have $4000 available by April to pay down the AC debt before moving it to a low interest credit card from our current no payments no interest for a year plan that expires in May.  By then, we’ll have the small balance on our other credit card paid off and the extra $350 a month available to make the minimum payments and still be in budget.  Also by then, we’ll have my wife’s dental bill paid in full and be able to save more of my paycheck from the second job. 

To help pay things off more, I also still had about $100 in a Bank of American checking account that I opened just to get the $75 bonus they offered for making a $25 deposit and holding it for 60 days.  That 60 days is up so I transferred the money sitting there into an extra payment on our big line of credit there. 

Things are shaping up to look pretty good this month debt wise.  I think we’ll make a nice chunk of our debts disappear this month and our assets should continue to go up (no help from the stock market of course).  It’s only the 12th and I’m already excited to see how the end of the month turns out.  Of course, my birthday is just a little over a week away at this point, so I’ll have to make sure I don’t splurge too much on myself!

Yesterday I ran across this article on CNN Money (Retire Rich: Learn from someone who did).  They story is about a retired executive from Boeing who started a website where he offers excel data sheets to analysis different retirement and financial planning scenarios. 

This sounds so much like something I would do.  Like him, I have an engineering degree and have spent time in my career in planning/forecasting and financial analysis.  That’s why you’ll find my page up top with Downloads.  So, check out what I have to offer.  More will be coming in the months ahead as I analyze my own situation.  And check out what this guy has to offer as well over at Analyze Now.