Real World Finance$

I’ve been teaching part-time now for a little over a year.  Most of that has been MBA level courses to working professionals at night.  The university I teach for uses the Cohort system for their evening classes.  That means a group of students start their first class together and take every class together for the entire program.  They have class the same night every week from start to finish.

The concept sounds like a great idea.  It allows the students to get to know each other and get used to working together.  They work in teams for projects in nearly every course, including mine.  The students tend to become like family.  That includes the bickering and arguing.

I have a range of students in my classes.  Some are there to better themselves and learn something new, but aren’t concerned deeply about grades, performance, or getting ahead at work.  Others are there because work will pay for it and they will get a raise just for finishing.  The last group I’ve seen seem to be there to try and impress someone else.  They want the resume padding and want people to treat them differently because of their new degree.

The problem comes in when each of these people project their own expectations onto the performance of others.  I’ve seen some sort of conflict between group members in nearly every class when two people have different expectations.  Even to the extent of calls, emails and letters to University administration on more than one occasion.

As someone who also got an MBA at night while working, I have some advice for those of you who are thinking about pursuing one.

1. Know WHY you are getting your degree and keep yourself focused on that end goal.
2. Don’t let the behavior of others keep you from reaching YOUR goal.
3. Be prepared for the time for your degree.  Expect to spend an extra 8-10 hours a week per class on top of your work schedule.
4. Just because you will have an MBA, don’t expect people to treat you like you are some Harvard brain (unless, of course, your MBA is from Harvard).
5. Regardless of your performance while getting your MBA (grade wise), the MBA itself is really only helpful for the first 1-2 jobs after getting it.  After that, you better be performing like someone who has Mastered Business Administration, otherwise you’ll be hard pressed to find it makes a difference.
6. Know that, regardless of your classmates performance, they will face the wrath of #5 if they really aren’t up to snuff, and you’ll stand out if you perform well.

Basically, if you do your job well, you will be better off in the long run than your underachieving classmates.  If you are going to go through the trouble of getting an MBA, then make sure you are getting your full value out of it and putting it to work for you.  If you want to get one and don’t have any real use for it, then why are you spending the money?

It will time for us to make a decision within the next couple of months about our doctor.  I have talked several times about our health insurance and that I’d prefer to have a much higher deductible on our insurance and pay more out of pocket when we actually use the doctor.  That way I only pay for actually using health care in stead of “in case” I use health care.

This last weekend we got the note from our doctor about his new practice.  As of August, we will be switching to a “Concierge” medical practice.  Basically, he will be limiting his number of patients by having an annual fee for care.  That fee will cover your annual exam with blood work, EKG and several other tests.  We would also get guaranteed same day/next day appointments and appointment times of 30-60 minutes rather than the typical 5 of most doctors.  Plus, we would also have access to the doctor’s cell phone and pager for after hour problem and our medical records available online.

The fee for all of this is $1,200 per adult (under 50) or $2,200 for a couple (under 50).  The prices go up when you are over 49. 

Now, I’ve priced out a similar plan to our current HSA that would change our deductible from $2,000 individual/$4,000 family to a straight $10,000 family.  The price savings is about $400 per month.  With it being an HSA account, I could continue to spend the same amount we are spending now and put that extra $400 in the HSA savings account and let it earn 3% interest towards our medical expenses. 

I’m still in the process of trying to determine if the doctor’s annual fee would be considered a valid medical expense under IRS rules.  If so, it would let me pay for it from the HSA account pre-tax.  If not, the expense is paid after tax and would make a bit of an impact on the decision. 

We have to send a letter back to the doctor by mid-July to let him know our decision.  I LOVE the idea of the more personal care (especially from a doctor I trust).  I guess I would rather spend money on the doctor and know he’s getting it rather than spending it on insurance and making him fight to get it. 

So, what’s your take?  Would you consider getting a high deductible policy and paying your doctor directly or do you prefer to pay insurance and let them haggle with the doctor over the details?

Our 6 month update of our electric bill came this past week.  Last year the bill had been $104 per month.  It was increased last fall after we got the new AC unit to $124 a month.  That was okay mainly because we had used it as supplemental heat that kept us from leaving the natural gas boiler for the radiators on as long.  That meant the gas bill had actually dropped from $165 to $126 at the same time.

Now that we’ve been through a winter with very little electric use the budget is set to adjust again.  We’ve now been in the house for just shy of 2 years and have a full year of the new AC unit on the bill.  Next month, our budget billing will be dropping to $102!  Yeah us.  I’m hoping that our efforts at turning off lights, converting to CFL’s and being more stingy with our temperature in the house that we can get that under $100 by the next adjustment. 

On other notes, we have our 6 month auto insurance to pay yet this month as well as our annual VoIP bill.  Yet, even with those large bills, we should blast past a -10k net worth this month.  I’m hoping to finish up my current class I’m teaching through next month and take a bit of a break.  I want to use that time to get a better handle on our situation and see what I can do to speed things up even more.  Things are going well so far and I want to make it better.

Our stimulus payment hit the savings account this past Friday.  It’s amazing how much work I can squeeze into a 4 day work week when I’m taking a day of vacation on Friday.  Took a whole day off work and barely missed any time on my weekly time sheet!

The stimulus payment was almost really bad timing for us.  My brother was in town visiting and had his truck.  “If there’s anything big you want to buy while I’m here let me know and we’ll take my truck to get it.”  Great, just when I have an extra $1500 in the bank!  That new TV we’ve been dreaming about seemed so very tempting, but we managed to let it slide by.

For now, I think it will just sit in the bank until we are ready to get the new garage door and electrical work done in the garage.  When we are ready for that we would have the cash without the stimulus though, so it’s not that big a deal to us right now.  To me, it just feels good that between our E*Trade savings account and my wife’s account at the credit union we will have close to 7k in savings by the end of the month.  That’s a comfortable cushion should something happen at my contracting job. 

Time for the budget update for the month of April.  Here’s where the budget stands for the year and some comments below:

• Income - Always the top line of any budget.  We are over budget still yet this year.  The addition of our tax refunds in April helped keep this number above budget.  However, things will change the last half of the year as my wife will no longer be babysitting and I’ll take a break from my teaching so we can take a vacation.  All that will eat into the over budget and into our cash savings we’ve been building up as well.
• Committed- This is a target of 60% of our income and includes all of our monthly commitments such as taxes, mortgage, insurance, etc.  We are still 14% under the YTD budget so far, so that’s good.  Part of that is due to missing 2 mortgage payments early on, but even with that this past month we were several hundred dollars under budget.  I don’t see that trend changing, so I may move some more from that category to the debt category.
• Debt - The target here is 10% for all debt except for the mortgage, but we are budgeted at 14%.  We are way over budget here because of that large payment this month.  Future months will be back to normal so to speak and we’ll drop down some, but I hope to keep that number up as high as possible this year. 
• Retirement - The target for this category is 10%, but we are down at 6% to put more towards debt.  I’ m putting 6% of my income in my 401(k) and started getting a matching contribution from my employer in April.  So, that puts us over the 6% budget for the year and will keep us over I’m sure.  It’s also helping out as it’s classified as extra “income” that I hadn’t really planned on for the budget.
• Fun- This is another 10% of the budget for all of our fun expenses for things like dining out, baseball games, new clothes, Netflix & Gamefly, etc.  We are still under budget here, but part of that is because we’re a bit over budget in Irregular at the moment.  Some of the expenses we’ve had lately for getting a garden ready and doing some planting around the house have been going to irregular rather than fun.  Re-classified we’d be right on budget in both.
• Irregular - This is the last 10% of the budget and is for stuff like my orthodontic payments, vacation and home improvements.  See the note on our Fun category for much of this, though we did also have our gutters and sewer lines cleaned out this past month.  That’s keeping the water flowing away from the house and out of the basement.  A much needed repair.
• All expenses- I put this line on there just to see where we were in total for expenses.  We went from 11% under budget for the year last month to 3% over this month.  The big change, the now infamous 4 grand debt payment.  Our expenses will be much lower in future months and we’ll continue to try and stay under.  The more we can stay under each month, the more we can save for extra debt payments.

I finally have a breather to get back to this.  April turned out well and was fun with our big debt payment.  We are a third of the way through the year, so you would naturally expect to be 33% of the way to our goals.  Let’s look at the numbers, shall we?

• Credit Cards - Over a $4,000 reduction in our credit card debt.  While we made a payment almost that large on our AC debt, we also had a balance transfer fee to transfer the remaining balance.  Luckily, the introductory interest rate reduction will make up for the transfer fee in the end and keep the remaining portion of that balance at 5.99% fixed.  Over 40% of the way to our goal, so that’s good, but we’ll need to keep up with that to make sure we stay on track after such a large payment.
• Net Worth - Up another $3,600 this month.  About two thirds of that was due to our tax refunds however, so we won’t see that big a jump every month.  Even knowing that, the remaining change this month would keep us on pace to hit our goal of $0 net worth by the end of the year.
• Retirement - This one picked up the pace this month as I started getting my employer matching contributions to my 401(k) this month.  So, while I am still behind the 33% pace, I’ll be making up ground on that from here on out (as long as the stock market co-operates and we don’t have another 8 months of January!)
• Cash-Down quite a bit this month as expected.  Considering that I made a $4,000 extra debt payment though I think a $2,500 drop isn’t too darn bad.  Even though I have some more home improvements planned in the near future, I think we should still be able to hit that goal number by year end.

Now for the details on the Net Worth Update:

Pretty much as expected this month.  Our cash was down which was offset by the decrease in our credit card debt.  Our other debts are making steady declines with their fixed payments at this point as well.  You can also see the uptick in the retirement account now that I get matching funds from my employer.  Between that and a timely purchase of 100 shares of Countrywide (CFC) made for some nice changes this month.  Of course, Countrywide has taken some pretty good hits this last week, but I managed to buy very close to their bottom point a couple months ago.  I was up as high as a 50% return at one point, but I’m still in it for the long haul.  The good thing is, I ONLY have 100 shares, so that’s still only like 5% of my retirement funds at this point (and shrinking as I contribute more to my 401(k) funds).

What I love to see most on this chart was the nearly five grand reduction on my liabilities side!  I look forward to those total debts to someday be $0!

Looking forward to May, I expect some more regular changes plus our “stimulus” check.  We’ll hang on to that in savings until we are ready to do our electrical work and garage door sometime this summer.  If the month goes really well we just might dip within 10k negative on that net worth.  Wish us luck!

I realize it’s already the 7th of the month and I haven’t posted my month end update from April.  I’ve got everything done and I’ve updated my Networth IQ profile, but things at work are pretty busy with a software implementation going on this weekend.  I hope to get the update posted before this weekend, wish me luck!

Our current line of credit that is the bulk of our unsecured debt is at a 10.99% interest rate.  Not the best, but it’s also a line of credit with a fixed rate and fixed payment schedule which helps to avoid the “minimum payment” trap.  My wife, the homemaker, just got a solicitation in the mail from the same bank advertising the same program at as low as 7.99% (when we got ours, the ad was for as low as 9.99%). 

So, me being the industrious person I am, I called them up and asked for a lower rate.  After all, the Fed has lowered their rates by 3 points over the last 6 months or so.  Here’s my recollection of the phone conversation:

• Me - I wanted to inquire about getting the interest rate lowered on my account.
• Bank - I’m sorry, but that account has a fixed rate, only variable rates adjust down.
• Me  - I realize that, and I’m asking for a review of the account to get a lower fixed rate.
• Bank - I’m sorry but we’re not able to do that.
• Me - You realize the Fed has lowered rates 3% in the last several months right?
• Bank - Yes, but they lowered the Prime rate and only variable rates tied to prime adjust down.
• Me - Actually, the Fed doesn’t deal with prime, that’s set by the bank.  The Fed lowers the Fed funds rate.
• Bank - No, the Fed sets the prime rate and only variable rates tied to prime are able to adjust down.
• Me - You see, the Fed has lowered both the Fed Funds rate which is what banks charge each other for overnight loans as well as the discount rate which is the rate the Fed charges banks like you to borrow money directly from them.  So,  you are borrowing your money cheaper and I was wondering if I could get mine reviewed for a cheaper rate as well.
• Bank - I’m sorry, we’re not able to do that.
• Me - My account is up to date and in good standing, correct?
• Bank - Yes.
• Me - So, the only way for me to get my rate changed is to either open a new account under my wife for the amount you offered her, or to move my up to date, always on time payments to another bank.
• Bank - Yes.
• Me - Okay, thank you.

So, it appears that even the bank customer service people aren’t taught about how banking actually works, and they are supposed to help the customers.  I think the lady was a little taken aback when I explained in detail what exactly the different Federal Reserve rates were.  She sort of shut down and gave as little response as possible after that point.  I wasn’t trying to be rude, just trying to make an argument that I should be able to get a reduction. 

Yes, there is an occasional bank that ties their prime rate to LIBOR (London Interbank Offered Rate), but most strictly advertise prime and want you to assume there some big board someplace that says Prime Rate that is set by the market.  It just ain’t so.  There may be some “accepted” norms for what constitutes prime in general, each bank still has the final say in what their prime is.  Oh, and for the record, my view of prime rate was given to me by a graduate finance instructor of mine who was a retired bank president.

What does it say about the state of our economy that even the people who are supposed to help us with our banking don’t understand the basics of how banks operate?  At least, I hope the lady really just didn’t know.  If the bank had taught her what she told me, then the bank really is out to get you with misleading information.  Either way, the bank needs to revisit their training program.  A script and phone manners just isn’t enough.

I just recently finished up reading the book Naked Economics: Undressing the Dismal Scienceby Charles Wheelan.

The most memorable parts of the book were the last few chapters that deal with international trade and poverty.  There are some very compelling arguments against the idea of trade restrictions with countries that have a poor working conditions.  His suggestion is to actually buy MORE product from those countries.  The idea being that higher demand for their labor will lead to better conditions as companies try to compete for workers.  That, in turn, would lead to higher wages and a better standard of living.  Instead, those who generally oppose the “sweat shop” type of work environment would rather see third world citizens out of work than working in conditions deemed sub-standard by our own terms.

Another thing I had never really considered was the lack of a well developed nation between the Tropics of Cancer and Capricorn.  Is there something to do with being in warm weather that makes for unintelligent or lazy workers?  Not according to Wheelan.  He suggests that much has to do with diseases that never go away.  Why is malaria a problem in most African countries and not in the US?  Maybe because our winter freeze kills mosquitos that continue to breed strong all  year long in those warmer temperatures. 

While we often try to fix problems in other parts of the world with things that work in ours, we just as often fall short of the mark.  Because of economic incentives, we have very little desire to solve problems in developing nations.  But we are usually willing to throw money at a problem to make us feel better about it.  It’s just too bad too many of those governments squander whatever resources they are given.

In general this isn’t a bad book, but wasn’t one of my favorites either.  If you’re in the mood for some challenging ideas, pick it up at the library and read the last few chapters… then put it back.

Can you believe it’s May already?  My how time flies.  I was pretty busy yesterday at work and had my first night of a new class (Managerial Accounting this time), so I didn’t have much extra time to wander through here.  I did see some really good links and stories posted in my blog reader this morning though and thought I would share:

JLP over at All Financial Matters posted a great Interview with Larry Winget.  I’m not familiar with the guy, but I like the way he thinks!

Five Cent Nickel has a short, but sweet post on the idea of the Gas Boycotts.  I had a couple of similar posts over on my other blog here in the last week as well.  Short story even shorter, if you want to save money on gas, don’t drive so much!

Madame X has a great set of links to Today in the News over at My Open Wallet.