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Monthly Archives: January 2009

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Where To Turn For Financial Help

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Hi All,

We’re busy running around DC taking care of our non-blogging lives.  So, today’s posting is a video from MoneyTalksNews.  MoneyTalksNews is a much underrated project focusing on current events, helpful financial tips and debt management.  In this installment, they discuss the role of consumer credit counseling resources for those with financial and debt problems.

Just for the record, I don’t endorse going to consumer credit agencies.  I DO endorse a trip to library so you can learn how to handle things yourself. – That said, consumer credit outfits have been helpful for some, so enjoy the video!

Bush Seizing TARP Fund To Bailout Citi?

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Hi All, 

I just saw this posting.  Evidently some bloggers are speculating that the reason Bush is asking for the second half of the 700 billion bailout is…get this – to shore up Citigroup’s financial situation before the Obama administration can get involved.  The implication is that George W. wants the money for Citi before Obama’s crew can slap a lot of restrictions on corporate welfare.

The reason Obama is going along with Bush is his staff thinks it makes more sense to take office with congress on the new administrations side, rather than engender ill will with a fight before he takes power.

Click here for the goods at the Naked Capitalist. 

My take: I just wish these guys would get out of the way and let free markets do their work.  

Best,

James

Family Real Estate Ventures

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We thought our readers would be interested in hearing the latest on buying a place in Portland.

We’ve now received back the comps from our real estate agent and will likely get the interest rate info from our lender in the next day.

There have been some recent developments that we hadn’t expected. We discussed the project with James’ younger brother Lexi, as we’d need some local support with managing the place. Miel’s twin sis would be helpful, but she is expected her second child any day now and will obviously be occupied by more pressing matters.

When we called to ask Lexi about his support in doing some of the local management, he asked if we’d be interested in going in as partners. As it stands, he has $20k saved up that he would like to invest. Buying a place of his own has less appeal, as this would be significantly more expensive than what he pays at a shared house and would tie him down in terms of location.

While there are certainly down sides to mixing business with family, it feels like a proposition that could be a win win on both sides.

On our side of things, having an extra $20k to add to our $40k would mean that we’d be able to easily break even on the place that we have in mind now. It is also easy in terms of numbers, as it would be split in thirds. We would have someone local on the ground to help out. Having a vested interest would ensure this help as well. It would also make it easier to cover expenses. Overall we’d have the same amount of investment either way.

Lexi would have an opportunity to invest in real estate that he wouldn’t have otherwise. He’d also have more of a commitment to the place rather than just helping out us in his spare time. Being in his early twenties it would also likely help just to have the money socked away where it isn’t tempting to head to South America or something. In the long term it would likely be a good investment of his money.

In the long term should James & I end up living there at some point, or Alexi, we could then just continue to act as if we were paying rent – even if part of this went to ourselves.

We are obviously still thinking it through, but we thought that we’d mention it to our readers. If you have any experiences of similar family business matters we’d love to hear your comments.

Miel

Paying the Price of Cheap Stuff

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Things Fall Apart.

No, I’m not referring to the highly acclaimed novel by Nigerian author Chinua Achebe – though I would recommend the book! I’m talking about the general decay of cheap household furniture. Two years ago, we furnished our then new apartment with tables and a desk from Target. Well, now this stuff is starting to fall apart.

Here are just a few examples:

Our $60 dollar coffee table leg has fallen off. Its currently delicately positioned in hopes of making it until we can take the time for a replacement.

Our $30 dollar desk chair (which was never really one to begin with) has its naugahyde covering starting to deteriorate, the legs are loose and the frame can be felt through the cushioning.

The joints on our fiberboard desk are coming apart – the desk is now held together by its own weight and fact that we’ve got stuff set up around it.

Why is our furniture falling apart? The reason is that we initially made a decision to focus on price. So, we bought cheap furniture. Our thought was that we wouldn’t necessarily be in DC for the long term so we’d be better off getting something that was relatively disposable. Disposable it is.

So, we’re planning on changing our strategy. Given that the economy is the pits, to replace our stuff we are planning on buying quality. At the moment, we are still focusing on getting a down payment together for a place in Portland, but when we do start shopping, we’ll be looking for durability and quality, rather than low price. As regular readers would guess, we don’t tend to be the type to run out and buy the latest fashion, so getting classic and durable items will probably do the trick quite well.

Best,

Miel

Health Insurance Costs

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As I’ve just finished my first week at work I’m in the mode of selecting insurance policies and the like. Looking into my options I find that they are different than I’ve had in the past.

The good news is that my new employer pays 100% of my premiums. Considering that I was used to paying $596/per pay period at my old employer, this is a savings of $14k annually.

The down side is that they only pay the premiums for me, and if I want to cover James on the same policy it would cost about $550/month, or nearly $7k with dental at another $150 annually.

Given the cost implications for James alone, who has only been to a doctor once in the last five years, this seems like a pretty steep price. Needless to say, we are looking to see what his options would be to get a student plan up at the University. This would cover him basically under emergency situations and certainly be a great deal cheaper.

With the topic fresh on my mind, I can’t help but reflect on what a broken system we have in America. Certainly we have good health care options, and for that I am thankful, but prices of this system have really gotten out of control. I sincerely hope that we will be able to modify our health and insurance structure to be beneficial for all Americans. For obviously if insurance coverage is an issue for someone with our relative financial health and excellent overall health, I can only imagine the difficulty for so many others.

For example, my mother has had a series of difficult dental issues over the last number of years. Now as she gets to the final, hopefully, stage of things she has recently gotten implants for four molars that had previously been pulled. The cost has been so expensive, even with insurance, that she had had to take out a loan for the over $10k price tag to fix her teeth. I find it incredible that it will have cost her more money on her recent dentistry than it has for her car. At her salary being a public school teacher it will take her years to pay off her medical care.

Overall it just feels like a very sorry state. Certainly we don’t have many of the dire health issues that result in a vast majority of the world, but you can’t argue that our system is functioning to the benefit of all.

Best,

Miel

Friday News Round Up

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Hi All, 

Well, there is certainly a lot going on today, so here some news that caught our eye. 

1) Unemployment is at decade long highs.  According to the department of labor, unemployment is scraping 7.2%, a 16 year peak (1).

2) Partly as a result of uncertainty in the financial markets, some rich people may be buying gold.  Merill Lynch is reporting that their clients are interested in gold – not the paper kind, actual bullion bars and coins (1). 

3) Dick Morris – the former Republican advisor to President Bill Clinton is complaining that Obama’s tax cuts will make it that only the rich and large companies will be left to shoulder the federal tax burden (1).  Honestly…we’re not all that bothered.  

4) Yay!  Its a new Tax Year!  The IRS has some helpful information about 2009 on their webpage (1).  Don’t forget to check out the listing of 2008 changes that are retained in 2009 (1).

5)  Oh yeah, the porn industry wants a bailout also.  FOX news is reporting that Hustler publisher Larry Flynt and Girls Gone Wild’s Joe Francis have requested 5 billion dollars from congress.  Something tells me they aren’t going to get it (1).

On a personal note, we’re moving forward with buying a place in Portland, OR. Mortgage rates are very cheap right now – at under 5% – , and people are selling apartments at 1o to 20% off asking prices.  So, the conditions there are good for buyers.

Best, 

James

Why are Whites Richer than Blacks?

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Hi All,

It’s a statistical fact, Whites have more wealth than blacks. According to the US census bureau in 2000, households with White householders had a median net worth of $79,400; those with Black householders had only $7,500. In short, Whites had nearly ten times the wealth of blacks (1).

Why?

According to recent research, Whites are more likely to receive an inheritance, have higher incomes and devote more money to saving. Don’t believe me? Check the research below:

Racial Differences in Patterns of Wealth Accumulation

Maury Gittleman and Edward N. Wolff

Making use of PSID data for 1984, 1989, and 1994, we examine race differences in patterns of asset accumulation. Our results indicate, as expected, that inheritances raise the rate of wealth accumulation of whites relative to that of African Americans. But, while whites devote a greater share of their income to saving, racial differences in saving rates are not significant, once we control for income. Though our results may be period-specific, we also do not find evidence that the rate of return to capital is greater for whites than for African Americans. Simulations suggest that African Americans would have gained significant ground relative to whites during the period if they had inherited similar amounts, saved at the same rate, had comparable income levels and, more speculatively, had portfolios closer in composition to those of whites.

Click here for the abstract. 

Stocks, Age and Asset Allocation

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Hi All,

This posting is about age and asset allocation. It sounds boring, but since most peoples wealth building varies over the life span, its important to consider how age impacts your investment strategy.

When thinking about age, remember the younger you are, the greater the amount of long term money should be in stocks. The main idea behind this is stocks have historically outperformed other asset classes. So, when young people put their long term investing dollars into stocks they theoretically maximize their overall return. While at the same time, older people have a greater proportion of bonds or cash, thus allowing them optimize the balance of risk vs. return.

The rule of thumb is: 100 – your age = % in stocks.

For example, someone who is 33 should have approximately 67% of their long term investment funds in stocks (right, 100 – 33 = 67).

However, like most investing wisdom, you should take this with a grain of salt. There are at least two problems with this rule.

First, it relies on historical information about the long term return on equities versus other types of assets (bonds and real estate). The rule is based on the historical performance of US markets since the 1930s. What people don’t tell you isother markets, like postwar Japanese equities and US stocks before 1930 showed far different patterns.

Second, credible investment thinkers say even with stock market risks, one is still better off fully in stocks. David Carlson is a proponent of this philosophy. However, the recent extreme losses in the stock market may have changed the views of those who argue this perspective. Its too soon to say who is correct, but recent stock performance notwithstanding one can reasonably say it makes sense to be 100% invested in equities.

Thanks,

James

In 2009 Go Back to Basics

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Hi All, 

Like most hardworking Americans you probably spend a good deal of time working for your money.  After last years colossal bankruptcies and stock market declines, you are probably looking for ways to be sure your cash isn’t wasted.  Well, for 2009 consider these basic financial moves. 

1) Max out your retirement accounts.  There are several reasons to max out your retirement.  First, you obviously don’t want to turn 65 without any funding.  But more importantly, you probably don’t want your family to feel obligated to expend precious resources taking care of you in old age.  Family aside, maxing your retirement contributions increases the effective return on your dollars due to tax sheltering.  The 2009 contribution limits are here and here.    

2) Spend Less Than You Earn.  The math is very simple.  If you earn $100 dollars and spend $120, then you’re in the hole 20 bucks.  You’ll have to borrow or spend your savings. Either way, your financial position degrades.  On the other hand, if you have $100 and only spend $75, then you’ve got a $25 dollar surplus.  You can invest it to increase income or save it for future bad times.  

Bottom line: overspending = financial problems.  Saving = financial strength.   

3) Dump High Interest Debt. If you’ve got any kind of high interest debt that’s not tax sheltered, dump it immediately.  If you’ve got a 9% car loan, or a 20% credit card.  Dump it.  If you owe money on rent-to-own appliances, pay it off. If you have back taxes, pay them off.  Pay off anything that’s more than 4 or 5 percent and isn’t tax sheltered.  Don’t be wishy washy, eliminate high interest debt.  

4) Own your own home.  Home ownership increases your bottom line in several respects.  First, its a key part of your networth.  Most studies of household wealth show that, as a general rule, homeowners are richer than renters.  This is due to a couple of mechanisms; mortgage payoffs result in increased savings, asset prices for real estate increase over time and there are substantial tax breaks for owning your home.  Second, home ownership increases social prestige.  Third, home ownership is better for children and families.  Click here for the proof. 

Most Americans will spend their entire lives working.  If you don’t want your efforts going to waste, stick to the basics in 2009. 

Best,

James

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