Tuesday, September 25, 2007

Clutter -- out of control

Luckily, this isn't my fridge. This is the refrigerator of this guy's mom, who appears to have a problem with obsessive-compulsive hoarding.

We are still working on clearing out our storage unit, which costs us $175 a month and is sucking money away from our new rental. I think we can finish it up by this weekend and the whole house-selling fiasco will be at an end.

If I didn't feel the urge to purge right now, looking at the pictures of this house convinced me that I don't want to go down that road:

Thursday, September 20, 2007

Greenspan -- On my side

Although I didn't start this PF blog until last year, my husband and I have been discussing investments for quite a few years. This all started back when we were newly married and living in Washington, D.C. All my co-workers invested heavily, and thus we were introduced to the concept of investing money (we were also introduced to the concept of having money period, but that's another story). We saved and saved, and I read a lot of investment brochures. An unexpected pregnancy stalled our plans, but I kept reading and learning terms.

As I have written here, this year we branched out. Not only did I start this blog and start tracking our triumphs -- and mistakes -- we even put a tentative toe into the swirling waters of stocks, via an IRA. We turned our guesthouse into a rental, discovered online savings accounts, even discussed the meaning of "equity fund."

My husband and I agree on most things, but we have a fundamental disagreement about Economics. Now, I think that my theory is the best, primarily because we usually make money on it. This is primarily because I actually invest the money, rather than thinking about investing it. This is the fundamental problem my parents have -- all talk, no money in the bank. Honestly, though, I wish he was investing his own way so we could compare. That is a future goal, I think, but for now, it's just me.

In essence, I am a psychological investor. I look at people's attitudes and try to guess what they'll do. For example, if a stock crashes, it gets my attention. If it splits, I find that a good time to buy -- people's attitudes are positive, more people are selling, etc. My husband disagrees. For him, it is math. Two stocks at $25 are the same as one at $50. Sure, that's true enough. But for me, money is an idea; math is just a convenient way to tabulate it.

What do you think, PF community? What strategies do you take when investing in stocks, and does it work? As for me, I was surprised to find that Alan Greenspan, the math genius and long-time Federal Reserve Chairman, says that stocks are based on the emotions of fear and euphoria. While I can't try to time my buying with fear and my selling with euphoria -- that really is a crap shoot -- I have to say that it sounds like Alan Greenspan is agreeing with my point of view.

Which, what with our terrible financial year, makes me feel a little euphoric myself.

Monday, September 17, 2007

Downsizing again

Remember the car issue? Buy a new car, buy a used car, buy a scooter? Well, here's the story.

We have a 2002 Ford Focus and a 1990 Volvo station wagon. We bought the Ford new, but it has been a lot of trouble. We only got about a year trouble-free before things started happening to the thing.

The brakes and tires were so cheap we needed new tires at 14,000 miles, and new brakes at 17,000 miles. The rotors went out with the brakes, so it cost us nearly $600 to get that fixed. The materials in the car are extremely cheap -- the rearview mirror constantly falls off, the dashboard rattles, and the seatbelts make a squeaking noise the entire time you drive.

The transmission has gone out on it twice. The first time it was under warranty. The second time was in 2005, just 18 months later and a few hundred miles out of warranty. Before we could have it looked at, however, my husband had a major accident (the car got swept up in a flash flood) and the entire engine had to be replaced anyway, so we ended up not having to replace it ourselves. (Free transmission: positive. Car that smells like pond water: negative). The insurance company has insured the repairs it made, and the car actually ran better after it had been submerged in water, because they fixed everything, but that happiness only lasted about a year.

Now the transmission is making rumblings again; the clutch is also making strange noises, and the car has been plagued with electrical problems. The dashboard rarely works, and the car dies at every stoplight. We don't know if this is related to the flood or if it is just the general crappiness of the car.

Now for the 1990 Volvo Wagon.

We bought the Volvo as a stop-gap measure when the Ford was in the shop. It took eight weeks to get the Ford fixed, and our insurance didn't cover a rental car, so we needed something -- anything -- to drive during that time. I had been looking at slightly larger vehicles because we wanted to have another child, and a five-passenger car becomes a four passenger car if there are two car seats. I found the Volvo and it was cheap -- just $2400, and almost $900 under blue book. We bought it, and for what we paid, we've gotten a lot of driving out of the car.

About a year later, however, the a/c conked out on the Volvo (rough in Tucson, let me tell you). Since then we've had many small problems, but the worst came about 9 months ago. The car would randomly die while we were driving it. It is an automatic, so this meant we had to stop the car, put it in park and restart via the ignition. As the condition worsened, driving became hazardous. Finally, the car was only used by my husband to get to work and back, a commute of only 2.5 miles each way, and he could go via residential streets. It would die as many as four times each way. We took the car to a mechanic 3 times -- each time cost $85, just to look at it -- and while they changed the electronic fuel transmission, did something with the battery, or held up their hands in amazement, they never fixed the problem.

Two weeks ago, the Volvo died for good.

The Ford regularly dies up to a dozen times on a trip to the mall or grocery store.

We were at a loss. Here we have a five-year-old car that barely runs, and a very solid Volvo station wagon that doesn't.

We decided to just sell the Volvo for cheap, so I put it on Craigslist for $1000 and invited anyone to bring their mechanic and hope for the best. Well, someone e-mailed me the name of a Volvo mechanic here in town.

He works on his own. He travels to where the car is -- doesn't need it to be towed to him.

He charges $55 an hour, but only if he actually works an entire hour. What a concept!

He took a look at the Volvo, found what was wrong, and fixed it in less than 30 minutes. He charged us $83.51. The cost of labor was a scant $35. I was practically singing in the streets.

Meanwhile, we went Scoot Over here in Tucson to look at scooters and took some test drives. Boy, are they fun! They are a lot more powerful than they used to be. I drove a the Kymco People S 200 -- a 167cc 4-stroke -- and it went from 0 to 45 mph with just a flick of the wrist. It scared me a little -- I was in a residential area and the speed limit was 25! Plus, it's cute.



See? :)

We discussed and hemmed, we hemmed and hawed. Finally we made a decision -- we are going to keep the Volvo. Rather than invest in a car, we're investing in a mechanic.

We're going to sell the Ford. While it doesn't seem intuitive to sell the newer car, if we sell the Ford it will pay for the scooter -- in full (it's a consignment bike with just a few hundred miles on it for $3100). We'll have enough left over to pay for air conditioning in the Volvo, we won't touch our small savings and we'll get rid of a car that has been nothing but trouble. On top of that, we'll cut our insurance costs by half, even including insurance on the scooter.

It's hard to make this choice. Being a one-car family is never easy. But the scooter gets 80 miles per gallon, and together with the lower insurance, we will save nearly $100 a month. It seems like this is our time to downsize. I just hope we can be disciplined enough to pay down our debt. I can't wait to be out of debt...for the freedom it brings. If I have to give up a crumby car to get there, well, it could be worse.

The Tortoise Wins

About eight months ago my husband and I both opened an ING savings account with the $25 referral bonus. I had high hopes for our finances this year, and at the time I was working full time. I immediately put an automatic $100 a month into the account, and added more when I could. My husband thought that was too much, so he just put $25 a month in.

In April, my husband and I both had to empty our savings accounts and put the money into IRAs or face paying major taxes. We started again from nearly zero.

Also in April, I went to part-time work and we decided to sell our house.

In June, I cancelled the automatic withdrawal.

Yesterday I asked my husband to check his balance. The entire time he never changed anything, and hardly noticed the $25 that went in each month.

My balance today: $61.52. His balance: $335.26.

In finance, as in many things, the tortoise wins the race. I plan to start automatic withdrawal, but this time, I'm going to follow my husband's footsteps and only put in $15-20 a month.

It pays to just plod along...

Strategy

A couple of weeks ago I wrote about our plummeting finances and both cars breaking down. While none of this is pleasant, and mostly I wanted to throw myself on my bed and be depressed, it has been a good lesson. There are many decisions we made that are still excellent ones. Primarily this: we did not take out all of the equity on our house, and used most of the money on actual repairs. We still have $50,000 in equity on the house and have paid down our primary mortgage by $8,000 in three years, mainly by putting just $35-50 extra a month on our payment.

Secondly, most of our debt is in student loans that we refinanced at the bottom of the interest drop with a non-adjustable rate for the life of the loan. Eighty percent of our student loans have an interest rate of 3.47%; we have one loan at 5% and one small loan at 6.7%. Our credit card debt is down to $5,000.

We rented out the guesthouse behind our house, finally, after a lot of repairs and sweat equity. In the spring, I can rent it out weekly during the Gem and Mineral Show in Tucson and make nearly $1000 a month for it.

I quit my job, which cut down our costs for food, transportation and daycare, and which allowed my husband to go back to school. The G.I. bill more than makes up for my salary.

While taking out $45,000 in equity on the house was hard, we were desperate to make repairs, and there were several big-ticket items that we simply had to address. I hate what it's done to our finances, but there it is.

Our strategy now: hunker down and pay it back. We are focusing on the home equity loan first, as it has the highest interest rate. We are continuing to pay down the credit card, but it was actually a loan with a fixed rate of 3.99%, so we decided to keep it rather than take out more equity on our house and pay it off. Once that is paid, we can focus on paying down the mortgage. During this time, I want to save $5,000 in an emergency fund as well.

Time to tighten the belt...

Greenspan's Optimism at an End?

One columnist sees Greenspan's memoir as uncharacteristically downbeat after Alan Greenspan's 18 years as an upbeat and optimistic Federal Reserve Chair. I have to say that I tend to agree with Greenspan, that times for the U.S. will get harder for a while. We have depended largely upon cheap labor and commodities from other, poorer countries, while saying that we were helping them "pull themselves up by their bootstraps." Well, funny thing is -- some of them did. And now we are seeing them demand better and wages and more fuel, energy, food, meat, textiles (you name it) for themselves. There's a reason International Funds have performed so well the last few years, and as for me, I am glad to see the change, even if it means we might have to give up that flat screen television or fancy new truck. It seems fair. Now, more than ever, we should start saving for that rainy day.

From Greenspan Taking Off Gloves in New Memoir

...In the second year of his retirement, freed from the political constraints of his old job, the maestro sounds pretty downbeat. To put it bluntly, he thinks the near-term outlook is sufficiently bleak that we'll soon be pining for his "Age of Turbulence." Between the mounting odds of a U.S. recession and a global inflation trend, Greenspan foresees sharply higher interest rates — and lower asset returns.

Putting it bluntly, of course, was never one of the chairman's faults. He's left himself plenty of wiggle room, so that the likelihood of a U.S. recession is now "slightly more than a third," i.e. only slightly higher than he estimated earlier in the year. But "we do have the capability of far bigger [housing] price declines," Greenspan told The Wall Street Journal.

And sometime after the Fed lowers interest rates to cope with that threat, it may have to jack them up again — perhaps into the double-digits — to keep the rising tide of global inflation at bay, Greenspan writes in his just-released memoir. And, by the way, Ben, you're doing a great job. Sir Alan also openly regrets the fact that the dominant political parties seem to be led by economically ignorant hacks. A pox on both their houses: The most esteemed of our public servants says he might not do his civic duty come election time. How's that for a vote of no-confidence?

The market tape seems to have Greenspan's back in at least one regard: The rapid appreciation of commodities is unquestionably eroding confidence in all the paper currencies, but in particular the U.S. dollar. The deflationary effects of the seemingly endless cheap Asian labor pool were always likely to be countered eventually by those workers' increased consumer demand. Their demand for more protein, more energy, more stuff is now stoking inflation in China and elsewhere, which Republicans and Democrats alike seem keen to import with their advocacy of a freely traded (read: weaker) dollar.

Thursday, September 13, 2007

Words I Wish I Had Written

Just when I feel down in the dumps, I read this post from Get Rich Slowly. I still feel crumby about our net worth, but it's reassuring to know that we are not alone and that making the best money decisions aren't always the best life decisions. Any thoughts?

Once upon a time, my husband and I made almost $100,000 a year, had a mortgage payment of $900 a month for a house in a nice neighborhood, drove two new cars, had two cell phones, a full cable package, nice computer, went to a fancy gym with a sauna, ate out all the time, etc. etc. etc. Once upon a time, I had infinite free time and remodeled our kitchen for $2000, increasing the value of our starter home by $12,000.

Then came kids.

Everyone has to adapt to children. Furniture, diapers, breast milk storage bags, and all the baby accoutrements add up fast, but our first baby came with extras — five open-heart surgeries extra. Even with good insurance, our out-of-pocket expenses for all that — plus two c-sections, and cord blood banking (I support this for chronically ill children) — were $50,000 by the time our son turned three. Our second child was less expensive, but since she showed up only 13 months after her brother, we had a double diaper/crib/car seat challenge.

Daycare is not a safe option for a baby on oxygen, going in and out of surgeries, so we had nannies for a while. They were nice girls, but in the end, after payroll taxes and salary payout, it made sense for my husband to become a stay-at-home-dad. I had the higher salary and the better insurance options, and he was willing to give it a go.

Two and a half years later:

  • We have one car.
  • I ride my bike to work.
  • I use the free gym at work.
  • I use the free banking at work.
  • We have only basic cable.
  • We drink only water.
  • I bring my lunch.
  • Our family eats out only when it fits in our budget.
We pay cash for everything, we plan all of our purchases, and we, strangely, have far more cash saved than we ever did when we made significantly more. Even stranger, I am happier now, with my costly kids and leftover lunches, than I ever was burning through money.

Net Worth, hurdling toward zero

Two days ago I recalculated our net worth and got a huge shock -- if I value our house according to Zillow.com, our net worth has dropped from around $65,000 this year to a mere $15,000. How can this happen? I wondered.

The housing market is really crazy right now, and the worth of our house went from $230,000 earlier this year (according to Zillow) to $198,000. Since we also put in $22,000 worth of improvements this summer, that is a total loss of $54,000 -- ouch!

While we may not be able to sell our property for more than $198K right now, I decided to adjust the worth of the house back to $215,000 -- what we would expect to get from it. Our net worth still dropped $30,000, but I think this shows our actual spending/saving habits. We took out $45,000 in equity, paid off all our credit cards and our home equity line of credit. We still have about $4,000 left, which we will probably need to buy some kind of transportation for my husband.

When I calculated that out two days ago, it depressed me so much I spent the day in a real funk. Here I am, trying to save money, and our net worth is plummeting. It's like trying to diet and watching the scale climb.

Our biggest mistake this year was trying to sell the house in a down market. We had a million reasons for doing so, most of which were valid. We were honestly trying to downsize and move into a smaller/cheaper place, using the house to pay off all our old debt. The problem is that talking about downsizing may be easy, but actually doing it was hard. Looking at starter homes after five years of fixing up was terribly depressing, and in the end we spent a ton of money trying to sell our house while paying rent on another house, rent for storage, and utilities on both houses -- all on top of our mortgage. We spent a lot of money we will never see, and had an endlessly frustrating summer. Here's what we learned:

1. A house is NOT a good investment if it is your primary home. We know people who move into houses, fix them up and sell them for a profit. This is great if you don't have small children and don't get bitten by a down market. Not so good for us.

2. Downsizing is harder than it looks. We were faced with poor choices: move into a crumby neighborhood, buy a fixer-upper, move out into the suburbs. We looked at each and weren't happy with any of them. How could we live in a bad neighborhood with our oldest just getting ready for school? Could we really bear to live in another fixer-upper with two kids and not enough time? Could we stand a commute -- or more importantly, could our hardly-working vehicles stand it? In the end, we couldn't accept any of these things.

3. You have more than you think. After a miserable summer in a swamp-cooled house, my house -- yes, the one I have despised for five years -- was a veritable mansion with smooth floors, a working dishwasher, an energy-efficient, new washing machine, and air conditioning. I was living in the lap of luxury and was too obsessed with what I didn't have to realize it.

We've had a rough year. My husband didn't get the job he was hoping for, even after nine interviews (yes, NINE!). If he had, it would have doubled his salary -- a big blow for us. I quit my job out of frustration and exhaustion and to save us money. We had family disputes over an estate property, issues with our rental, and just this week our second car finally gave up the ghost and died for good. I had hoped to raise our net worth by $20,000 this year, not drop it by $30,000, but, as the famous Scarlett O'Hara said, "Frankly, Rhett, I don't give a damn." Oh wait, that's not the one. It's, "Tomorrow is another day." :)

Right now we are faced with a killer decision: buy a new car, a new-used car, get by with one car or buy a scooter. My husband only commutes a couple miles, so the scooter is a decent option, but getting by with one car (that only works most of the time and not all of the time) is still a challenge.

Ce la vie.

Monday, September 10, 2007

Downsizing our life

During our recent moves, we decided to do a bit of downsizing. By a bit, I mean a heart-rending disposal of approximately 50% of all our worldly goods. As you can tell, this was easy for me, as I am someone who throws things away all the time. Okay, maybe not so much. I come from the school of "save everything until you die, and then give it to a relative." My mother has kept practically everything since 1965, in addition to collecting "antiques" from long before then.

So I started wondering, since I read a lot of personal finance bloggers, if frugal people tend to save stuff like my mother does, or if it is something people do in order to appear to be frugal. Sort of an 'image versus reality' sort of thing. I mean, most PF bloggers seem thrilled to find that 50 cent box of nails they put away five years ago, counting that change towards retirement goals. But frankly, I got to the point where I was overwhelmed with things, and mostly I swam in a house too full of stuff, and ended up rebuying things simply because I couldn't find the originals I had stuck away someplace.

I may have mentioned reading Clutter's Last Stand, a book that pointed out what a waste saving stuff is. I can't disagree with the premise that saving stuff can be harmful, particularly because I tend to be a depressive person, and too much clutter depresses me even more. I have a hard time dealing with an excess of "stuff," probably because I grew up in my mother's house.

That being said, we have thrown out a lot of good stuff, stuff I try not to think too hard about, and occasionally we've had to replace things. I was starting to rethink how much we were throwing out when I went to my parent's house. That visit gave me a sharp reminder of what it means to collect material objects, and also reaffirmed my decision to give up a lot of my belongings in order to increase my peace of mind. (Should be a formula -- decreasing material items = increasing peace of mind)

Now, my parents could be famous for "how not to invest," and I have to say that I am blogging right now in part because of them. My mother has no investments of her own, under her name. They invested $4,000 into an IRA eight years ago, it dropped to $800 in 2001 and my father promptly sold the entire portfolio and reinvested in bonds. I told my mother, "It wasn't wise to sell at the bottom of the market," and she replied, "Oh, he didn't sell them. They were transformed into bonds." I'm not sure if a magic wand was included in this, but perhaps that gives you an idea of how my parents work when it comes to finances. (Other quotable quotes: "Of course I have it in writing. I wrote it down right here," and, in response to the comment "if you spend less and save more you'll have more money," she said, "It's not that simple. Our finances just don't work like that.")

Sunday, September 9, 2007

$15-a-week for food?

Wow, how time flies...I realize it has been a few weeks since I've posted something.

Here's a great article from one of my favorite blogs -- Get Rich Slowly. I like the motto, and I definitely like the advice.

This article reminded me of my last semester in college. I lost one of my three jobs (yes, three!) and it was the job that provided room and board, so I found myself trying to live on a fixed income of $615 a month. My rent was $290 a month for a tiny studio in a very bad part of town, and I had to pay for gas for my car (about $45) and for my telephone ($25). That left a scant $255 for everything else. Like the author of this article, I found that I could not eat out -- period. Not a soda, not a latte, nothing at all. I made everything from scratch, mainly living on whatever produce I could get cheap (10 pound bags of potatoes for $2.99 at the time). I had no packaged foods, no sweets, and the only drinks I could have were coffee, tea and water. I hardly had money for milk. I also went the oatmeal route for cheapness.

I don't know how I survived on so little those days, but I will say it was stressful. I want to save money, but I don't want to go back to the time when finding out the dollar movie was actually full-price would reduce me to tears (very embarrassing when with friends, I might add). Nevertheless, I will be thinking about how to curb our very bloated food budget, and add some more to our savings or towards our debt in the meantime.

From Get Rich Slowly:
1. Never allow leftovers to go bad.
2. Supplement with inexpensive foods.
3. Shop in the produce aisle.
4. Never eat out.
6. Avoid junk food.
7. Avoid pre-cooked foods.
8. Buy a basic paperback cookbook.
9. Don’t buy beverages.