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Monthly Archives: May 2009

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Get Buy In For Your Joint Goals

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We’ve recently had several posts on how we deal with divvying up our finances. One thing that we didn’t cover is the importance of jointly contributing to household goals and expenses. We know that most couples experience shifts now and then on who has more money and who has less. At the same time, we believe that couples who jointly contribute to household goals and expenses will feel more mutual ownership. This leads to a greater likelihood of both partners feeling more satisfied and engaged in household financial decisions.

If possible, have both partners contribute to big ticket items. For instance, if one person contributes their money to supporting regular household expenditures and the other person contributes to a larger savings goal such as a house or a car, the first person’s contribution can feel more like a sunk cost and they will likely feel like they have less of a stake in the larger purchase. Clearly both people are contributing, but in the end the second may complain that they were the ones who made all the contributions towards the larger item.

For instance friends of our have a situation where the wife went back to work after having a child, and paid for 100% of child care expenses (an ongoing household fee), and the husband pays for the mortgage. Due in part to the way they have their finances set up, at the end of the day the husband feels like he has more ownership of the house and the wife is left feeling like she is throwing the majority of her paycheck down the drain. If however, they shared the cost of both items, the ownership and responsibility would be more joint.

We’ve also seen this to be the case in our own lives. If all of James’ extra money goes to buying stocks and all of my money goes to supporting our household, it doesn’t feel as equal. While I’m indeed contributing more to our household while James is in school, we still find ways to make sure that we are both contributing to the financial goals that we set. When we both have a stake in wealth building activities like investing, it will make the returns (positive or negative) feel more personal. In terms of household expenses, James pays for the utilities and I pay for the internet expenses. This makes it easier to manage, but also makes it so we both have buy-in to our joint goals and expenses.

Miel

Millions in Proposals

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Hi Folks,

It seems my life is never ending grant proposals these days. After having submitted another batch today, it reminds me of my first reflections on the proposal process. It is really very interesting when you think about it.

I’m certain it varies a great deal from sector to sector, but overall many types of businesses and organizations function in parallel ways.

My experiences in proposal development (grants, agreements, contracts) has been something like this. You spend anywhere from a couple of weeks to a couple of months preparing a proposal, sometimes with a small team, sometimes with a large. You ask for a bunch of money, sometimes a couple of million, sometimes twenty; I’ve never gotten up to past eight digits, but they are certainly out there.

At the end of the day, the twenty to forty pages that are submitted can be worth a whole lot more than a suitcase of cash; though sometimes those same pages are destined for the recycle bin.

You win some, you loose some. I guess that is just part of the game.

Right now my portfolio is around $20 Million, with all possible outstanding proposals in the near future it could be in excess of $40 Million, though its likely to settled somewhere in the middle.

At the end of the day, those millions were gained by crafting ideas and concepts. While it works differently in most of our personal lives, I still think it is interesting to reflect on how money flows. Most of us would love to trade a ream of paper for a few million. It may not go into my pocket, but I’m happy to have it facilitate helping people who are very much in need.

Wish me luck on a least a few wins coming up.

Cheers,

Miel

Was Obama A SubPrime Borrower?

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Hi All,

I’m mad busy this afternoon, but wanted to draw your attention to an opinion piece by by Ricard Lee at the NY Daily News. In it he has a moderately clever analysis of President Obama’s finances before he became president. The results of the analysis suggests that Obama’s wealth was largely funded by drawing on home equity before the President was elected to the U.S. Senate.

The open question is what it means that Obama drew on his home equity. Lee argues it means that the president was a debt addicted spend-a-holic. However, if you ask me, it just suggest that Barack and Michelle were basically average upper class Americans. Could he have found better ways to find his income stream? Or could he have spent more time and effort building wealth with what he had? Of course, but couldn’t we all?

NY Daily News.

Thanks,

James

Ten Factors Affecting Your Wealth

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factors impacting wealth
Okay. So for this posting, I wanted to generate list of factors that meaningfully affects one’s net worth. I’m a big believer in looking for models of behavior that can be used to build wealth. So, along these lines – here are ten things than actually impact your bottom line. Some of these you can can implement in your own life, others are more features of the sociological landscape.

1) Budgeting: We don’t often pay enough attention to budgeting, but its clear that if you know where your money is going, its a lot easier to improve your net worth – you can locate areas of waste, better balance your income and expenses, etc.

2) Home ownership: The vast majority of wealthy Americans own their own home. The richer you are, the more likely you are to own your home. The latest survey from the Federal Reserve puts the median homeowners net worth at $234,000 and the median renters at $5,000. Why? Well, it seems that home ownership has tax benefits, and forced savings mechanism via mortgage payoff have a substantial long term impact on your bottom line.

3) Maximizing your return: Some academic studies have pointed to the role of compound and accumulated interest in net worth improvements. This certainly makes sense. All things being equal, an investment compounded at 5 percent over 20 years will give you less than an investment compounded at 10%. Your return is very important for long-term building of wealth.

4) Education: Having a bachelors or professional degree also appears to elevate wealth. But only so much though, persons with a Ph.D. tend to have lower lifetime earnings. This partly because it takes such a long time to get one, but also because the humanities tend not to pay as well as skilled professional jobs such as law or medicine.

5) Not having Kids: Sorry to say this folks, but the Federal statistics are pretty clear. According to the 2007 Survey of Consumer Reports, childless couples have the higher incomes and tend to save more.

6) Coming from a smaller family: People with fewer siblings are more likely to receive an inheritance. Think about it, where there are more mouths to feed, everybody gets less.

7) Being Jewish or Episcopalian: We covered this a while back, but certain beliefs and religious communities have psychological and sociological characteristics that are appear to result in higher wealth levels.

8) Avoiding High Interest Debt: Since you are an obvious reader of personal finance blogs, you probably already know that payday loans, high interest credit cards, rent to own and overdraft protection loans are basically usurious schemes to separate you from your dollars. Wealthy people tend not to mess around with high interest consumer debt products.

9) Ownership: If you look at data driven studies of rich people such as Stanley and Danko’s The Millionaire Next Door or Lisa A Keister’s Getting Rich: America’s New Rich and How They Got That Way, you see that a lot of millionaires are self employed business owners. Why? Great question. Its possible that overall earnings levels are higher for business owners than people who work for others.

10) Saving: Who can forget saving! The impact of saving on your bottom line is obvious. Every dollar you save is a buck towards your net worth. More importantly though, saving fuels the processes of investing and debt reduction. For example, if you want to buy a house, you’ll need to scrape up a down payment. Similarly, if you have want any serious position in the stock market or an equity stake in a small business, you need a small pile of cash. The classic way to do is save! Living frugally can also have a drastic impact on your ability to save.

Folks if you’ve got anything to add, we’d love to hear about it!

More reads from Dinks Finance:

This Kind of Thinking Drives me Nuts…

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Saw this on Craigslist Sunday…people who have this kind of attitude drive me up a wall. 

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Is it better to file for Bankruptcy now or wait? < ———– >05/09 21:48:14 

I have close to $100,000 in credit card debt. Been unemployed for close to 5 months, just got offer making only $90,000 a year. 

During this period my already shaky credit got worse. I have not made any payments to chase this year. AMEX has cancelled both my cards and I owe $6,000 on both that are over 60 days late. 

Other than those two there is about $50,000 or $60,000 of credit card debt on various cards.. 

Running the numbers, I DO NOT have a hope in hell of paying this debt nor do I want to or feel obligated to after the banks accepted TARP funds. 

So if I file now, can I get in on a chapter 7 to wipe everything out since I will show minimal income for 6 months??

A Personal Reflection on the Last Six Months

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Hi All,

The world is a big place but, I wanted to take a moment to personally reflect on some events of the past few months.

First, the meltdown in the financial markets has left an impression on me. Watching major financial institutions like Bear Sterns, Washington Mutual and AIG implode and witnessing the value of my stock portfolio drop from $82,000 to $29,000 are hard to forget.

Second, Barack Obama was elected president. He’s the first black man to do so. This flies in the face of nearly 100 years of sociological thought. Right, theories of stratification typically place African Americans at the bottom of the social ladder and argue that racial preference and differential disadvantage effectively prevent wide scale upward mobility among African Americans. Having a masters in Sociology, I believed that.

According to traditional financial and political models, a depression and the election of an African American were not supposed to happen. But they did – and both at the same time. This suggests to me that improbable events are far more probable than one might first assume.

So, far I’ve had two reactions to this.

First, I’ve wanted to take significantly less risk with my personal finance. I’ve been putting my money into savings bonds and bond funds. I’ve bought some stocks – mostly positions in companies we’ve owned in the past. But, most of my retirement cash is going to bond funds.

Second, there has been more focus on investing in things I’ve got direct control over. For example, I put $10,000 in a friend’s call recording software start up. The start up is the sort of situation in which I could directly help out to make the company profitable if needed. In other words, there is more autonomy involved. In contrast, holding a small number of shares of common stock, means you’ve generally got fewer options for creating change in companies you partly own. It’s much easier, in my opinion, to build your wealth when you are the one controlling it.

So, for me the bottom line has been to reduce my risk and increase the amount of autonomy I’ve got over my finances. Seeing my brokerage balances implode and having the scope of US politics change drastically in the course of a couple of months has left a lasting impression on me.

Hope you all don’t mind the personal reflection.

Thanks,

James

Another Bank Six Feet Under

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Hi All,

You saw this, right? It came out Thursday. Westsound Bank has been taken over by Kitsap Bank. Both are small institutions in Washington State.

Brutal. Here is the press release from the FDIC. It didn’t get as much coverage as least week’s news because only one bank went under, as opposed to last week when 4 were liquidated.

Release is below.

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FOR IMMEDIATE RELEASE
May 8, 2009
Media Contact:
David Barr (202) 898-6992
Cell: (703) 622-4790
Email: dbarr@fdic.gov

Westsound Bank, Bremerton, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Kitsap Bank, Port Orchard, Washington, to assume all of the deposits, except those from brokers, of Westsound Bank.

Westsound Bank’s nine offices will reopen on Monday as branches of Kitsap Bank. Depositors of the failed bank will automatically become depositors of Kitsap Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.

Over the weekend, customers of Westsound Bank can access their deposits by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of March 31, 2009, Westsound Bank had total assets of $334.6 million and total deposits of $304.5 million. Kitsap will not assume the approximately $9.4 million in brokered deposits. The FDIC will pay the brokers directly. Customers who placed money with brokers should contact them directly for more information about the status of their deposits.

Customers who would like more information on today’s transaction should visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/westsound.html.

In addition to assuming the failed bank’s deposits, Kitsap Bank will purchase $49.3 million of assets comprised of cash, cash equivalents, marketable securities and loans secured by deposits. The FDIC will retain the remaining assets for later disposition.

The transaction is the least costly resolution option, and the FDIC estimates the cost to its Deposit Insurance Fund will be $108 million. Westsound Bank is the 33rd FDIC-insured institution to be closed this year and the second in Washington. The last bank to be closed in the state was the Bank of Clark County on January 16, 2009.

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