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Monthly Archives: February 2008

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February 2008 Networth

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Us DINKs have been on a net worth hiatus lately. In the scheme of things it doesn’t feel like the most important area to focus on. Given the market and so forth, we’ve also been extremely flat. This probably doesn’t help. Such is life.

What is working and what’s not. It seems that gains seen in Miel’s retirement has been offset by the realities of having payments and interest start to kick in for student loans that had previously been lying dormant, with the interest subsidized by the government .

Swiss bliss. While our recent R&R in the Alps didn’t help our bottom line, we wouldn’t trade it for the relatively small increase it would have shown in our net worth. We are richer having enjoyed time together in one of the most pristine places on the planet.

Autopilot. It also seems that the best thing we’ve done is to let it go and work itself out. We are pretty much doing all the right things and then just stepping back and giving it up to what may be. No sense in letting the market fluctuation affect our long term financial planning.

We’ll see how 2008 pans out for us DINKs. My vote is prosperity in ways that are harder to measure.

Best,

Miel

The Skinny On Investment Clubs

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Hi All,

We DINKs are hard at work, so today’s posting is a quick 4 minute interview with Dr. Boyce Watkins. Watkins gives a quick rundown on what investment clubs are and discusses some of the pitfalls of getting them set up. Its worth a look if you haven’t heard about investment clubs or are curious about starting one.

Best,

James

Ownership and Building Wealth

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As you’ve probably observed already, there is a LOT of information available on personal finance. When going over the literature I try to take a critical view of what I’m reading. Like you I’m mostly focused on bits of wisdom might be helpful for achieving our goals. Also, like you I’m mostly interested in information that helps us take effective action – for example learning that having super rich parents helps your net worth doesn’t help because most people can’t change who their parents are.

One actionable theme I’m starting to hear from several different personal finance writers is the importance of ownership. Popular writers like Edelman, Stanley, Charles Carlson and Lisa Keister all indicate that the wealthy are heavily involved with ownership. Specifically ownership of three things:

1) Housing
2) Business Assets
3) Stocks

So, given this consensus it seems to make sense to focus your efforts on these three things. Here’s some thoughts on how they improve your financial situation.

1) For housing, own your own home. There are a number of personal and sociological advantages to owning a home. But more importantly, home ownership has built in mechanisms that increase your bottom line. First, federal and state tax systems usually allow you to deduct your home interest payments, so you pay less in taxes. Second, with many types of loans you build up equity over time by paying down your principle. In this case, the idea here is that these two mechanisms steadily increase your net worth over time.

2) Business Assets Increase Income. Many millionaires tend to be self employed individuals who spend a great deal of time seeking out investing or income opportunities. Since healthy business assets tend to generate a great deal of income, having business assets means your wealth rises. So, basically business assets improve your cash situation. In this case the math is pretty simple. Lets say your business turns a $100 profit after expenses. Well, you’re $100 bucks richer than the person who’s not in business, all other things being equal.

3) Stocks Increase In Value and Pay Dividends. Stock are great ways to build wealth. It’s not surprising that most writers of personal finance literature have linked stock ownership with high net worth. Stocks increase your net worth in at least two ways. First, they can appreciate in value. Second, stocks make cash payments in the form of dividends. So, assuming your selection of a stock is sound, price increases and the amount stocks provide in dividends can help improve your bottom line.

When thinking about money its important to consider effective ways to build wealth. When you take a close look at what people write about personal finance, the theme of ownership keeps coming up. But specifically ownership of three things: housing, business assets and stocks. This suggests you might focus on these to help you financial situation.

Best,

James

How Bad Is Inflation Really?

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This posting is on something that effects everyone, namely: inflation. Unlike large gifts of cash or lottery winnings, inflation is not really everybody’s favorite topics. Even though its unpleasant, dear reader, it does affect you!

What is inflation? Inflation is technically defined as the rate of the rise of prices of goods and services in a given economy over a specific period of time.

Why does it matter for your wallet? Two reasons. First, since inflation is defined as price erosion, a high rate of inflation will undermine your buying power. Just to illustrate this, lets say that on a given month inflation is 10%. At the start of the month, you’d pay a dollar for whatever you want to buy – say a 1/4 gallon of milk. At the end of the month you’d pay a $1.10 for the same amount of milk. That’s a problem because long term inflation can seriously undermine the value of your dollars. A second reason why it matters that the level of inflation is a benchmark that your investments have to beat. For example, if your CD or money market pays 3% annually, but inflation is at 4%, then your cash is loosing 1% of its value.

Aside from prices at the gas pump and at the drug store, the best way to examine inflation is statistically. The most commonly used indicator of inflation in the American economy is the Consumer Price Index (CPI). The CPI is essentially an average of the Bureau of Labor Statistics’ estimates of what the average Americans’ out of pocket expenses are. Its based on a basket of expenditures including housing, apparel, transportation, etc.

Now, to turn to the headline of this post: How bad is inflation really? The story is complicated, but its got at least two parts. According to historical official statistics, the annual CPI rate for the past two or three years is running at around 3%. But, there is some controversy around the CPI. How it is calculated has been criticized by some economists and some say the CPI is actually closer to around 7%. Not being an economist its difficult for me to say exactly, but my gut tells me inflation is probably a bit higher than 3%. This is based purely on my experiences and conversations I’ve had with people in DC so my views are not representative.

Since you’re interested in personal finance, I’d offer this final word of advice: Pay attention to the headlines. If your investments are seriously underperforming CPI numbers you might consider corrective action.

Thanks,

James

Two Cents Worth

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I remember buying penny candies at the only store in our small town. I thought they were tasty and within my twenty-five cent budget. My mom wasn’t so keen on me buying twenty-five tootsie rolls just because I could. I now have a better understanding of why she wouldn’t want my twin sister and I bouncing off the walls, even if it did just cost a quarter for the ride!

Being in Switzerland recently had James and I talking about our beloved penny. It seems that even though it now takes more to make a penny than it is worth, in fact double its value, the feds still aren’t willing to give it up.

The underlying reason for holding out on the penny comes down to a possible increase in inflation. Presumably once you don’t have a penny around, folks will just round everything up.

There have been several attempts to do away with the penny, but thus far nothing has stuck.

1) Cost is an issue. Would you pay two dollars for a one dollar bill? Is it not bad enough that we already get screwed on the exchange rate, but then we shell out more than its value to make pennies.

2) Most financial transactions are done electronically these days. This means, that as is still the case for some countries, you can charge for the value of a penny without having the expense of making pennies.

3) I would also advocate for a stronger push on one and two dollar coins, they save money because they last longer and are handy for small transactions. Pennies have served their purpose in allowing me to slide my shiny coin up on the counter for a lolly, but I think their time has come. Here are a couple of things to consider in the great penny debate:

Switzerland, as well as most of the rest of Europe, said goodbye to their penny equivalents. Folks there end up using debit or credit cards so often that people don’t have to deal with coins if they don’t want to.

We’ll see how long it takes us to come around. I imagine that it only a matter of time before the old penny is a thing of the past, just like one cent candy.

Cheers,

Miel

You can check out more at The Mint.

LendingClub.com

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Good Morning All,

Its Sunday, January 24th. Another bright sunny day in America’s capital city.

Todays posting is about peer to peer lending. As many of you know, there are lots of ways to make money on-line. One of those is by lending your cash directly to borrowers using an internet lending service. The most common of these is Prosper.com, but there are others like Zopa and LendingClub.com.

We DINKs had some problems with prosper, largely due to a poor decision to loan to high risk borrowers. As a result, we’re shifting our on-line lending assets to debt reduction as the money becomes available.

However, I personally enjoy lending online and we were able to score a promotional offer at LendingClub, so I wanted to give our readers a quick update as regards our progress on that site.

The account set up process at LendingClub has been mostly smooth. There were some problems with the initial set up. This was because we first signed up as a team, e.g. Miel and James. But, with LendingClub you can only sign in as an individual. So, their processes couldn’t match our names to a single social security number or bank account. It cost us a couple of days and an email or two, but LendingClub’s staff was responsive and its heartening that their sign in procedures have some integrity. As I recall, identity verification was point of discussion when prosper.com was first getting started so its good that LendingClub has put some thought into this part of their business.

Account deposits are no problem. It took another couple of days for our first credit to reach our balance, but there weren’t any hassles with that part of the process. So, the sign up and account set up procedures were relatively painless.

We haven’t started shopping for prospective borrowers, but my initial impression of the service is that the browsing options seem “clunky”. – I know that “clunky” isn’t necessarily a helpful description for you, but looking through menus takes some work. Specifically each borrower’s profile has a line of text and a couple of icons to represent various characteristics of their profile including requested loan amount, credit worthiness, etc. Its not as user friendly as one might like.

Despite the clunky interface, I think that LendingClub may have more integrity than some of its competitors. They only allow borrowers with FICO scores greater than 650 on their site, but also borrower profiles usually reference only characteristics pertinent to the loan and say less about the borrower’s demographic profile. There isn’t a picture of the loan applicant so you don’t know whether the person is attractive or ugly, fat or skinny, classy or geeky. That’s good, because I suspect that with some P2P services impressions of a borrower’s social desirability may conflict with their objective credit profile. That is with a service like Prosper.com, an attractive white lady with marginal credit may have an advantage over an overweight black man with good credit. Disagree with me if you like, but the fact LendingClub is blind to these sorts of considerations is a big plus.

I’ll update you when we do some lending, otherwise these are just my first impressions.

Check it out: LendingClub.com.

Best,

James

A Hassle Free 6 percent…

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Seems relatively elusive these days.

As readers of our blog know, Miel and I have set the priority of paying off our second mortgage. We currently owe $16,700 at 9% on that loan. One way we wanted to address the debt is to refinance part of it into accounts with smaller balances. For example, we could borrow $5,000 at a rate lower than 9% and pay off part of the mortgage balance. So, we’re using a “divide and conquer” strategy.

Well, over the past couple of mornings I’ve been making calls to the banks we do business with. So far I’ve canvassed Washington Mutual, PNC Bank, Schwab and ING direct. Unfortunately, none of these business have been able to offer a hassle free product with an interest rate that’s low enough to meet our needs.

Since our current rate is at 9%, I anticipate that we’d need an interest rate of about 6% to make the transfer worth our while. This is translates to about a $510 difference in interest payments per year. Since we plan to discharge the debt by September 30th, the rate has to be sufficiently low – for us that’s around 6% – to make the hassle of transferring economically rewarding. No luck so far.

At this point there two options currently on the table: 1) A zero balance credit card transfer. This would slash the interest costs, but increase the probably that we’d be hit with hidden fees. 2) Borrow via a lending service like prosper.com or LendingClub. We’ve never borrowed using these services, so their rates and repayment terms are an unknown.

Best,

James

Guest Post: 10 Travel Tips to Save Money and Time

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Whether you are enduring travel for work or enjoying travel for pleasure, your time away from home can be very expensive. There are plenty of resources offering tools and advice on saving money on your plane tickets, car rentals, and hotel rooms, but these big-ticket items are only the start of your expenses. There are dozens of other smaller expenses associated with travel that can quickly add up to significant sums if you are not careful. Fortunately, most of these can be avoided with the help of a little planning before leaving home.

Packing for a trip is a pain and it is a chore. Most people put it off until the last minute and then rush to get it over with as quickly as possible, only to suffer the consequences of a rush job. However, packing poorly won’t only cause you headaches and frustration once you’ve reached your destination with two dozen pairs of socks and no underwear; it will also end up costing you a good deal of cash. Follow these tips to help you plan ahead for your trip and you will save both time and money once you reach your destination.

1. Plan before you pack. This is a catchall rule that you should keep in mind as your trip approaches. Lay out everything that you will need well before you leave so that you can shop the local bargains for anything that you don’t already have. Start the process far enough in advance and you will avoid forgetting important items and dodge the eleventh hour rush that inevitably results in over-packing.

2. Pack liquids separately. As you plan, make sure that you have a separate bag for your toiletries and any other gels or liquids that you might be taking with you. If you have room and want to keep everything in your main bag, then be sure to put everything in individual plastic bags. There is nothing worse than having to clean or replace your whole wardrobe because of an in-flight shampoo disaster.

3. Don’t pack anything that you aren’t sure you’ll need. While it is a good idea to try and avoid purchasing every day items once you arrive at your destination, certain articles just aren’t worth it. If something takes up a lot of room in your bag and could be purchased cheaply on site, consider making this small contribution to the local economy once you arrive.

4. Save room for presents. Leave some space in your bag or pack an extra duffle so that you can return bearing gifts and appease friends and family who were jealous that they did not get to go with you.

5. Save War and Peace for later. Pack a couple of magazines or compact paperbacks instead of lugging around a big hardcover. Books can be bulky and heavy (and nobody wants to do serious reading on a plane or at the beach, anyway).

6. Wear your jacket or sweater. Unless you’re going to be running around with a crowd into haute couture, there is no reason to bring more than one sweater or jacket with you on a trip. Wear it on the plane to avoid the discomfort caused by fluctuations in cabin temperature and you’ll save room in your luggage.

7. Pack clothes that can be worn multiple times. Some of your clothing can stand up to a couple of outings between washes without looking any worse for the wear, so be sure to bring these gems along. Jeans, khakis, and anything that doesn’t wrinkle or stretch can make multiple appearances in the rotation if necessary.

8. Pack clothes that won’t wrinkle. Unless you want to spend the bulk of your trip ironing, be sure to pack items that don’t wrinkle easily. Anything that you iron or send to the cleaners for pressing at home shouldn’t make the trip.

9. Put your shades in a hard case. Sunglasses can be expensive to replace, so make sure that you protect them from the many hazards of travel. Prescription eyewear should be even more closely guarded as it can be difficult and even more costly to restore in short order.

10. Pack snacks. Unless you’re lucky enough to be traveling business or better, your airline probably isn’t going to feed you much, no matter how far you are going. Traveling can be stressful, so reward yourself by bringing a few of your favorite snacks in your carry-on. You’ll save money by avoiding exorbitant airport prices and you’ll be in a better mood when you arrive at your destination.

By-line:

Heather Johnson is a freelance business, finance and credit writer, as well as a regular contributor for BusinessCreditCards.com site for comparing small business credit cards. She welcomes questions, comments, and freelancing job inquiries at her email address: heatherjohnson2323@gmail.com

Back and Taking Stock

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Hello All,

You may know from my wife’s earlier posting that I’m back from Switzerland. After getting home last night and taking care of getting our apartment back in shape I find that I’m taking a brief look at our financial situation. Traveling is terrific, but I’m more of a homebody than my globetrotting wife so its good to take a breather and check the status of our accounts.

1) Second Mortgage Payoff:

We’ve both decided to make this our highest priority. So far, its going okay. We’re down to $16,700 from $17,730 at the start of this year. Thats not a while lot. It may make sense to think about some way to reduce the interest rate so we can attack the principle more quickly. We discussed this back in late January, but we haven’t acted on it yet. The most likely plan will be either a) call Washington Mutual and demand a rate reduction or b) transfer part of the debt to a zero balance credit card.

2) Stocks:

Things with our portfolio are just okay. We’ve got a fair amount in Canadian energy trusts (PVX, AAV) and the southern copper corporation (PCU). The prices for shares of these three companies have been fluctuating a fair amount recently. For the time being, their values seem to have stopped declining, so our account values have improved a bit recently. While there isn’t much to be gained from watching the daily fluctuations of stock prices, it’s a psychological boost when our accounts increase in value.

Best,

James

Wealth in Switzerland

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More adventures from the land of the Swiss…

James took off this morning back to the grind of DC, but I figured I’d share a few tidbits from a self-service internet place in Bern. If onlz I can get the kezboard to verk….

I’m currently reading The Geography of Bliss, by Eric Weiner. His is an NPR correspondent who diverted from his usual reportings in places like Baghdad and Kabul, in search of the happiest places on the planet. Switzerland ranked among the highest.

He made some interesting observations about wealth in Switzerland. As he puts it, “The American way is: If you’ve got it, flaunt it. The Swiss way is: If you’ve got it, hide it.” He quotes a Swiss person that says, “You don’t dare dress or act like you’re rich. Of course, you might have a four-thousand-dollar espresso machine in your apartment.”

It’s interesting to take a moment, in a smoke filled café, to reflect on what the Swiss have long ago figured out.

Cheers,

Miel

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