Financial Problems Aren't Just For the Other Guy

So what started off with a decision to read a post at http://www.emptyeasel.com/ about blogging ended up taking me to England and Wisconsin and back. At the easel, a sketch artist's blog was pointed to as an example of how to attract visitors. But when I got there I discovered the artist/blogger was posting about what she found out by standing in line waiting to get into her bank, Northern Rock.

Apparently, the subprime lending situation isn't limited to the US. In England, when the folks who placed their money at Northern Rock found out that their savings, etc, were not fully insured, they began to line up to move their money. But after several days of the pressure building the bank announced not only were they now fully insured but anyone replacing their money before Oct. 9 would receive a full refund of any penalties they had to pay for early withdrawal. We aren't the only country feeling a credit crunch.

Here in California we haven't seen any bank runs yet, as far as I know, but that hasn't stopped us from beginning to wonder and worry exactly how banks work.

And for that matter what is going to happen in the whole credit industry has become a question that over the next few days I intend to study.

I am not an investor . . .

but I am interested in the subject because my partner T. is. So I read with interest J.D.'s post at http://www.getrichslowly.org/ today when he mentioned a site called Transparent Investing the brainchild a San Francisco based financial planning group called Iperio Group LLC. A quick overview of the site revealed a simple but articulate 10 step approach to designing your own investing strategy. I especially liked the calculators and links to sites. Also, several of the steps were accompanied by video presentations which was excellent for my wife who is much more of a visual learner than a reader.

Meanwhile, at http://www.alternet.com/ one of the day's lead articles was about America's apparent addiction to credit. At first, as I read the headline and opening sentences, I thought no it's not an addiction. But then I thought back to the Christmas before last when I was in the midst of a cash crunch and how I justified using my card by comparing myself to the country's trillions of debt. Hell, I thought, why should I worry about a $1000.00 when the whole country is pushing 8 trillion? Sounds a lot like the justification a drinker might make just before that fatal car crash, right? Unfortunately, in the article, John Ince, fails to fulfill the promise of the headline. Yes, he does provide several examples of over indulgence in the use of credit that could be very useful in arguing that such behavior is out of control. But no he does not stay with the argument long enough to prove satisfactorily that the reason for the behavior is that it is addictive. Instead he goes off on the tangent provided by the examples and discusses what will happen as we continue on this course of irresponsibility. Too bad, I liked the premise. But I might argue that we are really addicted to the things that the use of credit brings us. Credit in this case is the enabler that when abused becomes the destroyer.

Still the Flow . . .

Did I say double? I meant to say, since that was the beginning of something that was out of control, my credit debt began to grow exponentially. I had married this time to have peace in my life. Which translated into whatever it took to make her happy is what we did. New car, buy a house, three times a year trips to visit her folks in Canada or Florida,dance conventions several weekends a year,too. Not that I didn't enjoy it. I love to travel. I like the west coast of Florida in April and the snow in Canada on temporary basis. I liked feeling that I was a part of something besides my work which suddenly came to a screeching halt when I decided to retire early and get out on my own. But something had to pay for all this, even when your credit limit is $35K per card. One day I realized I was borrowing money to pay monthly minimums of $650. I was maxed out and so was she apparently. I discovered that she was more interested in her newly acquired inhertitance than in staying married. The credit debt was in my name. So long, sayanarra, and by the way, have you ever heard of bankruptcy?

Going With the Flow, continued . . .

At the time it seemed like the best plan. I had been living alone for years. My son grown enough to know what he wanted at 18 had moved to Santa Barbara several years before. And finally, I had packed up all my books and left the noise of the city for a small town on the edge of the ocean. I needed a change I guess. I needed something emotional maybe. I needed, at the bottom of it to be in something that mattered. Anyway, those turned out to be the wrong kind of reasons. I bought a car. I began to remember how a car actually owns you. Maintenance, repair, insurance, gas, parking fees . . . I hated it. I let my wife drive it while I still rode my bike to work 20 miles each way. But we had to have a house to live in. I'd always rented, like the main character in the John Barth's The Floating Opera, preferring to pay as I went rather counting on a future.

But rent for a two bedroom house is three times the cost of a studio. Furniture, hell, I'd done with just a bed, table and chairs, board and brick book shelves for years. Now we needed a couch, refrigerator, washer, dryer, things and more things, a second car. Then she didn't like her job primarily because she had to work during the summer while I still, now with the use of credit, hit the beach. By the time we split, I was $10,000 in debt and totally stressed. At least she took one car and most of the furniture, and of course my favorite albums.

I began a single life again with an extra room to rent and a futon to sleep on. Luckily, I had always ridden my bike so I found myself slowly finding my old level of comfort but with one significant change. I had gotten used to using credit to pay for things. While I wasn't paying attention, I had moved into a social world that necessitated clothes of a certain style. No more sandals and bare feet. I found that if I wanted I could maintain this life style and take my summers off too. Just use credit cards and pay the minimum. What was worse was in a couple of years I married for the third time. And all my expenses more than doubled.

This week I plan . . .

to go with the flow. I liked what I was doing and thinking about last week so much that I am going to keep looking at it this week too. But first I need to explain why I am taking this approach to Personal Finance blogging. I am never very comfortable telling people what to think or what to do. I can give advice but I'd much rather listen and then feed back questions that can help see the topic more clearly.

I don't can food, nor go out of the way to put together recipes, though I am an excellent cook. I prefer to keep things simple. Steamed veggies, I fill the pot and then eat the leftovers for lunch or dinner until they're gone. The same with pasta or with a beef stew in a crock pot. But here's the thing. I could pretend that you've never heard of this stuff and write about like Oh here's a great idea. But it would be a pretense. In life and in my cooking, I season to taste, my taste. I laugh when people ask me how I cooked such a great meal because for me everything is based in experience. First hand.

I read a lot of fiction, and, since T. and I started investing, I am discovering that non fiction writers have become much more literary in their style. Possibly because first person writing has, since the 1990's, been what has been taught in the public school English classes. Or maybe it's because memoir writing has become so popular. But I have found over the years that the more often I recommend a book the less often it gets read. I think its because most people don't like to be told what they should like. Either way, I prefer to tell people about what I'm reading if I am asked or if I feel the need to understand it better myself by writing about it here. Then people can take it or leave it be.

As far as personal finance goes, I know what happened to me as I grew older. There was a time when money was scarce and we ate a lot of potatoes. That was when my family was a wife, a new son, then a new daughter and I was really stretching myself thin between trying to support us and finish college. Then we added a third son. I walked to work, we used the bus if we needed to travel around town, and lived with the entertainment of the radio. Luckily, for us, radio was really good in those days, with jazz hours and radio plays and sports announcers who could let you see the game through their words. And then we had FM before it went commercial. Just about the time I finished my schooling we got a car but I had learned a powerful lesson. You can do what you have to do especially if you are willing to finance it with your own sweat equity. Though I would have laughed in those days if anyone would have suggested such a term for what I was doing working three jobs and going to grad school too.

But though I learned that banks don't help poor people, credit lending companies do, I didn't learn the big lesson about finance all at once. I learned that something in my upbringing taught me to better myself, though I can't really pin down what the something was. After ten years of marriage, we decided that we had different plans, my wife and I, and we went our separate but equal ways. That's when I began to discover what kind of a parent I was, as one son, the oldest, stayed with me and the other two came to visit on the weekends and during the summers.

I grew up mentally in the 70's. I learned that I liked letting people make their own decisions as a teacher and as a parent. I learned that living with the consquences was the best way for independence to develop for all concerned.

Meanwhile, I began living a life from day to day. I worked ten months of the year so I could spend my summers on the beach. I fell back on the old days of no car, no tv, no phone. I rode a 10 speed bike or walked or hitched. I used Grey Hound. But I didn't save for the future beyond each year. I spent it all. Alimony, child support, rent, food and 20% of each monthly check into a savings account for the summer months. Carpe Diem!

Of course, that all ended when I decided to remarry.
To be continued . . .

AdBusters

If ever a magazine is going to surprise you, this is the one. Cover art meant to jar your sensibility, articles like blog posts designed to make you react, and the best thing of all, no ads except the magazine itself. Take a look, I'll get back to you later.

Lets have some fun . . .

Today I had the big idea. Here it is. I need to plan each writing week. Put together an outline. For example, on Monday, I list the topics I'm going to be looking into during the week. Along with that I include a list of favorite posts from the past. Tuesday, I start the story for the week, introduce the character, set up the plot, foreshadow a bit. I, also, include updates on the weeks topics and the research results. Wednesday, I start with the continuing research results. Part two of the weekly story. Posts from blogs/sites I've visited for entertainment are next. Thursday and Friday, I review a book/magazine/blog. Saturday, the story concludes. Sunday, the week's research concludes.

Here are some examples: Monday: Topic one - A history of money. Topic two - Middle class America's salaries. Topic three - Politics and money. Tuesday: The Man with $20 Bill. Wednesday: blogging and the arts. Thursday and Friday: Lets take a look at Adbusters.

As I said, lets have us some fun next week.

Paperless?

Yesterday, while reading GRS I came upon this post which fits in with my current ruminations about letting go of the newspapers in our lives. I know it is a hard idea to get your mind around, especially when the banks are all clamoring for us to go "paperless" and the utilities, credit card companies, and anyone else who can have already started using an electronic debting system even though we wrote them a check. It is really difficult to trust these changes. For one, who trusts the companies who are fostering them? And who trusts completely the electronic storage systems that we all have seen break down or delete info or simply mis-file it?


I like the fact that several comments about this recommend a paper backup system of essential docs. That means that we can reduce the paper in our cluttered lives without losing complete control of our own information. And it seems to me that those individuals who recommend this system are more likely to listen the idea of giving up the actual newspaper for its online version. In fact they are probably already doing it.

The great unwashed is the target here. We may all be computer connected one way or another but there are no doubt millions of people who aren't and may never be. So how do I address this problem and build trust into the possiblity that we could live in a future that has learned how to use its resources responsibly?

More news

The Arguement, Eli Pariser, Paul Wellstone, and assembled thoughts. Things really can't help but come together when the connections are just a click away. Today after reading another chapter, this one on the development of Moveon.org, I found myself Googling Paul Wellstone just to see what the news would bring. Of course, earlier today I posted more about the idea that it may be time to give up our newspapers. But then I went down to the B&N to buy my Sunday times. So I don't know, it's easy to see the forest but man I would really miss the trees.

The News

First some research: You know the Google kind, pages of hits on the subject, newspapers, and some interesting options to the process of reading a newspaper. For one thing if you are really interested in finding out what the world newspapers think about a specific topic then starting online is a much better way to go. Besides, the economics of the situation may take the decision out of our hands. We may not be able to support our habit. Though I have to use that word habit advisedly. My wife never read the newspaper until we met. Our son, a 22 year old, only uses computers to find out what is going on. So maybe the habit will be a generational thing and just as fewer people read books so will fewer read papers. Of course, this doesn't rule out the possibility that the political arena will always need analysis from the underground.

Still, the idea I am trying to espouse is the necessity that we face as we try to harness our remaining resources and learn to live within our means not just as an individuals but as world wide society. Maybe that's what this Blog Day will presage?

A while ago, I wrote my . . .

Five rules for learning to be more independent.

1) Start with something simple like learning how to make your own bed and wash your own clothes. It seems simple but from the evidence available this must be one of the hardest tasks known to humankind. The more you rely on someone else, Mom or maid or life partner to do this simple task the less independence you have. And for me that is the secret of taking control of your finances and your life: to have a sense of independence or rather self-dependence towards whatever faces you.

2) Read, even if its just your daily dose of blogs. My life has been tied to books since I was three and hiding under a blanket with flashlight so I could finish reading a Classic Comic version of the Count of Monte Christo. Being able to make sense out of written material has been my savior many, many times, counting the GRE. Two years after I started teaching I decided to go back and get my masters. In order to score well on the GRE I needed to know my math as well as I already knew my language skills. So down to the library I went where I spent the next four weeks checking out and studying (reading) beginning math, algebra, geometry and calculus texts. I crammed into four weeks a lifetime of ignoring math while I covertly read any literature I could get my hands on. Still, I had confidence that I could read and make sense of what I read. And I did, which was proven by my 1350 total score.

3) Ride alternative forms of transportation to get to and from work. I was thinking about this yesterday as I rode my bike back from Borders books where I had been studying a new book by Matt Bai. I have been riding a bicycle for 40 years. I bought my first one as an adult when I sold my car and moved to within a mile of my new job. The thing I learned almost immediately, and have enjoyed ever since, is that a bike can take you off of the beaten path. It happens both physically, as you choose alternate routes, and mentally, as the routine of riding frees up your left brain for cogitation and rumination while your right brain takes over the guidance system. It great for working out problems and for coming up with new ideas. And as a philosophy it ain't half bad either.

4) Pay all your bills first. This too is tied to independence. Even if it's is just a pittance of what you owe, pay a little on each, use the snowball approach, starve yourself, live without, but pay off what you owe and you guessed it, you are free. Of course, Bobby McGee may have said it all when he pointed out the true freedom is when you have nothing left to lose. But I'd rather be able to say I owe no one.

5) Work no work, no work work. When I first started teaching, I came across this concept in a unit I was putting together about world religions. It struck me then and stays with me now. When work is work that you enjoy, then it really isn't work.

Politics . . .

Yesterday, admidst the various blogs I travelled I came upon a discussion of some merit that had to do with how one goes about judging a candidate's merits especially in regard to their stance on lowering taxes and I really enjoyed the intelligent tone of the discussion. But more than that, I found myself thinking about the real situation that our country has gotten into and how looking at the problems and needs through a personal finance perspective might just be what we need. Frugality first. Not by cutting taxes to please a rich and powerful minority but by actually starting out with the idea that we need to care for our money and our lives and our planet in equal amounts.

Seeming isn't being . . .

I tell myself that things are going well and that I am right where I want to be. But then it comes to me that things that seem alright may only be that way because I am really not taking the time to think about them in relation to what I had planned. It is very easy to slip into the state of mind that says a task is completed especially if I haven't written down the actual goal I set myself. It is at this very point that seeming isn't being.

Your money or your life?

This morning while noodling around two of my favorite blogs, I had cause to think about how important it is too really pay attention to the things you enjoy in life. Simple things, like the feel of spring time sun on your back as you step outside of your classroom or the rush of catching a wave just right and sliding through the water before you kick it out and start again or the wonderful feel of signing that check that pays off your last credit card debt. And complicated things, like working out a way to teach a seminar on personal finance to kids or figuring out how to control your urge to treat yourself by giving in to your wants instead of working on satisfying your needs.

The simple things are easy to enjoy but the complicated things quite often make us feel stressed and unhappy. Robert Kiyosaki points this out quite well in his RichDad series when he talks about how schools teach us. We learn to fear failure and thus set ourselves up for a life time of it. One thing my own education taught me was that it never hurts to ask for help is a difficult concept to keep in the forefront of your thinking as a problem develops. All they can say is no is usually the concomitant back up. But the truth is that it does hurt and sometimes they can say a lot more than just no. The key for me was in learning the concept behind these homilies. What others think about your ideas and plans doesn't have to matter especially if you are happy in working on the problem until it is resolved. And that brings me back to my original thought, letting life's complications be enjoyable can really be just as simple as waiting for that ninth wave even if it never comes.

Sabra wins but do we?

So You Think You Can Dance ended Thursday with the big surprise being that neither Lacey nor Danny nor outside chance Neal won. Sabra did. All of them deserved to win somehow but that ain't the way competitions work, right? One person wins and everyone else is second. But the real winner was we viewers, anyway, so why quibble about the one that ended up with the $250,000?

I quibble because I can. Terri and I were talking on the way to work today about her difficulty in staffing the market she manages. She can't find help. The high schooler's all want to take vacations even after they sign on and the college age kids aren't even applying. She points out that if you look around you'll see that all the businesses seem to be hiring - counter help, barristas, clerks, cashiers - the signs are everywhere and have been all summer. Meanwhile, the LA Times reports that the state of California lost over 8,600 jobs in the month of July.

My response to T. was that in a culture that popularizes reality tv shows where you can pursue your dream and win millions just for opening the right suitcase, where the lottery and sports betting and Indian gambling casino signs flash from every freeway what we are seeing is what we should expect. VISA is a way of life right? Don't slow down the purchase line with cash. Don't slow down at all. Run those red lights, yellow lights, push yourself forward and grab for all your worth. Who knows, you might come up with a new show idea.

Meanwhile, the fed is being forced to lower the interest rate to save CountryWide or the government from having to bail out CountryWide and we get to sit on the edge of our seats and see how it all plays out. Hmmm, maybe we will all get to apply those frugality lessons our great grandparents used during their great depression after all, instead of the whoopee isn't this fun of doing it by choice way we seem to be adopting here in Personal Finance land?

Tuesday, the 18th

Well, here’s a new idea. Since I don’t feel the same about writing to this blog in a crowded bookstore, why don’t I write it in my notepad and then just copy it in later? I know you’d think I would have thought of it before but I didn’t, so there.

Meanwhile, let’s get back on topic. It takes a certain kind of spirit to work as a vendor/carney on the fair circuit. Independence slathered with flexibility. Obstinance and durability and the ability to smile through the pain. And like many of the personal and financial choices you make in life, choosing to work as your own boss in this manner can reward and punish you in equal measure. You beat up your body for six months and then you’re on vacation until the circuit begins next year. But when you are up close and watching the turtle like intensity with which these men and women slog through each day so that they can answer the question, "Didja' make any money?" with a sure and sly smile its hard to see past the pain of sore backs, swollen joints, and sleepless nights. I know for myself it takes at least a week to get in shape. My hands ache and my shoulders are as tense as the cat lady's tail. But not many quit. They stick around and even though their children now run the show the old ones are there in the background ready to help or join in on the complaining with stories of their own.


Volumetrics: About that cottage cheese, I haven't gotten to the part in the book where it's explained how something that is 45% fat grams can be a low energy food but I am taking thier word about it until I find out different. It is fun though to do the math on so called health foods and diet drinks and see where they are really at.

It's going to be wild

This fair bodes to be a wild one. First, and foremost, we have an almost new staff. Of 22 employees only six have worked for us before. Second, the new fair management has seen fit to rearrange the layout. This means that the traffic pattern will change and, most importantly for us, it means that our competitors may have been placed in front of us. The only thing we still have going for us is that our product is unique. We sell fresh fruit and all natural smoothies to which we have added a whole line of chocolate dipped products. Oh well, at least the set up is done almost. And we are experienced at this. But on the other hand, as we've gotten older we have grown to like the idea of managing rather than working the fair.

Today, by the way, is the fourth day of my use of the fair as a way to diet and exercise. Volumetrics. Lets see how its gone. I started out with weighing myself. 201 at 5'11''. We have been working every day, lifting, sweating, and putting in 10 hour days. Unfortunately, the eating plan has been sketchy. Since we're busy setting up, someone usually just runs to a fast food place and then we scarf down whatever we've ordered and get back to work. Then there are the old friend's meals. Since we only see these people once a year, we usually spend our evenings with one group or another eating a big meal and drinking a lot of iced tea. So four days in and I'm at 200 lbs. But no worries mate, at least I'm thinking about it.

And on another tack, there have been some more interesting developments in the real estate purchase we are pursuing. As everyone knows the lending market is in the throes of resizing itself. What this means is that the loan offers keep coming but the guarantees are less valuable. Almost every thing the lender promised at the beginning of this process has been restated to the lenders advantage. The lock-in rate is really not locked because our finances have to be verified at least twice. It seems that we will need extra insurance even though we are putting 20% down and the rental property we are buying is for sale way under appraised market value. And now that the wheels of the deal are moving, we are fair bound and less willing to spend extra time renegotiating what we thought was a done deal. I keep saying we've done our part and now lets let escrow do theirs but T is a worrier so I have to let her. Oh well.

Buying a Rental Property, pt.4

This story just gets better and better. One reason, maybe the main reason, that my partner and I haven't purchased a home is that the amount of interest that one pays over the life of a 30 year loan sticks in our combined craw. I am reminded of this as I look over the loan lock-in documents for our recent rental property purchase. For a loan of 103K at 6.875% we will be paying $143,131.82 in interest. Since it is a rental property and a tax deduction and the renter will be paying 100% of the mortgage, we can swallow this info fairly easy. But think about it if it is a home purchase. Yes, we get to write the interest off but we still have to pay the mortgage out of our pocket. And since home prices in our area, the beach in SoCal, are hovering at $550,000 to $780,000, the resulting interest we would pay for just the lower amount would be close to $700,000. Imagine the retirement fund we could have with $700,000 invested in an index fund over 30 years. Oh yeah, I should mention that our current rent for a large 2 bedroom, 2 bath, with office, and clubhouse and swimming pool is $1600 a month.

Some sense, cents, scents . . .

Is there really a future in ethanol or hybrid vehicles or lithium powered super bikes? A recent article in the LA Times about the transmogrification of motorcycles got me to thinking about this especially since every once in a while my partner T. gets it in her mind that that's just what she needs to go to work. Sometimes it's a Harley, sometimes a Vespa but either way when she's feeling frugal or adventurous she says she's ready to jump on a bike. And I don't doubt her. I just don't believe her. In my mind if you want to do something you do it. Not doing it means just that. Like when I drive on our California freeways and I see 50 cars with single drivers for every one car in the carpool lane. So while I applaud the creativity of these bike manufacturers for creating a lithium-battery proto-type, I still don't believe that it will have any effect on what people will choose for their transportation in the future.


What's the connection between the green revolution and the world's immigration problems? So we revolutionized the farming techniques and created a jobless, homeless hoard of wanderers who are like flotsam washing up against the shores of richer countries, and cities around the world. Australia, Paris, Jackson, Mississippi - we take away their livelihood, refuse them entry, decry their unwillingness to fit in, and there you have it, the unsolvable problem. Get those emergency funds ready folks. Here they come.

Ads in our restrooms. I wrote about this just the other day. Do you think we are ever going to reach a saturation point (tipping point?) where the advertising agencies finally realize that the real message in TIVO and fast forwarding is that people are really, really, really fed up with the bombardment. Or will that mean that the people in charge have finally come to their senses and decided to base the economy on less instead or more?

What's really up with China? Is China a democracy now? Has economics driven the country to change its politics. They use to be our enemy, The Yellow Peril, are they now US? I can't help but laugh as they become more like us with our gas hogging, over-producing ways. Because from what I understand the majority of the population in China isn't able to afford what the country is producing for the rest of the World's economy while their growing middle class and younger generation of bloggers are creating a tremendous pressure that someone is going to have to deal with. Wait I take that back, it doesn't make me laugh it makes me curious.

Insurance, assurance . . .

Today, I sat down to ruminate over our new whole and term life insurance policies. After much thought and some careful (we thought) research, we chose to buy $100K of whole life and $500K of convertible term. The whole life comes with a guaranteed annual premium and will be completely paid up in 22 years. We will have contributed at that point $49,261 and the benefit amount will be $105,479 guaranteed. This insurance is for my partner T. and assures her that when she dies she will be leaving an inheritance to her son. The term life is also for her son and in her mind guarantees that if anything happens to her before the 20 years is up, her son will receive that death benefit, too. Originally, the plan was for T. to convert the term insurance gradually over to whole life so that sometime before the 20 years ran out she would have $600K of whole life insurance to pass on.

They say you buy insurance for one of two reasons: you love someone or you owe someone. They also say love can make you blind. I love my partner so I worked with her to set this up. But all the way through the process I knew that there were other choices that would provide the same thing and still let us be in better control. Once the insurance company has our money, the only way we can access it is through borrowing against the current cash value. At 8%. Of course the money we contribute is guaranteed to, at the least, double while it is in their care. And that is worth something. But the same $300 a month place in a 4% savings account will reach $168K over the same time period and we could use it if the need arose without any penalty. And if we put it in a long term investment fund like the Vanguard 500, the return might be 10% which would mean its value would compound to $268K. But in order for us to choose either of those two options we would need to have the assurance that our continually growing net worth would be the legacy that she would pass on to her son. Because that's the real key to deciding about whether to buy insurance, isn't it? Do you trust yourself or some insurance company?