personal Finance Story

It must be hard being a bank these days. Bear Stearns is already gone, a victim of it’s own greed. Lehman Brothers is fighting off the same fate, erasing eight years of gains in a single quarter of losses. Meanwhile, a more mainstream bank like JP Morgan Chase is struggling as well. The stock is down more than 15% from it’s highs. A quick look at the it’s chart reveals a roller coaster of a ride.

I use Chase for my credit card, simply because they offer the best and most flexible reward plan I could find. It seems to me that Chase is getting a bit desperate to raise their cash flow in these troubling times. Case and point, the offer I received in the mail a few days ago.

That card you see is not an image. It is the real deal. They are attempting to bribe me with $15 of electronics goods in exchange for enrolling in their credit and ID protection plan.

To Chase’s credit, at least they are more forthcoming than other offers I have received. There happens to be a sticker on the gift card itself announcing the requirement to join the Chase ID Protection plan at a cost of $11.99 per month.

It is still a raw deal. The plan promises a lot.

• Monitoring of your Credit Files
• Daily Alerts
• Quarterly Summary of Activity
• 800# to Credit Specialists
• Identity Recovery Assistance
• $25,000 of ID Theft Insurance

On the back of the mailer, there is a bunch of fine print where it tells you, in legal speak, that everything on the front of the page is crap.

Chase ID Protection is not a credit counseling service and does not promise to help you obtain a loan or improve your credit record, history or rating. Neither Chase nor First Advantage bear any responsibility for the content, accuracy or completeness of the credit report.

If they are not going to be responsible for the accuracy of my credit report, then how are they supposed to do anything for me when my ID is stolen or there is a mistake I see in my quarterly report?

$15 is a nice treat for someone gulible enough to accept it. I for one, am not fool enough to bite. It would take only 2 months for Chase to recover their money from this kind of bribe. For me at least, they have instead wasted the postage.

I’ll keep using Chase for my credit card for as long as their rewards program gives me what I need. The moment that ceases to be, I will kick them to the curb and find another credit card to do my everyday purchases with.

One Million Dollars.

It sounds big. Big enough to have all of your worries go away in an instant. The sad truth is, it is not as big a number as it sounds. Not anymore at least, and certainly not in New Jersey.

My fiancé and I sat down a few evenings ago and did the math to see what it would take to walk away from our jobs and live in perpetuity off our investments. We made sure to add in the cost of independant health insurance as well as a comfortable level of spending for us both. After all, without work, we would have more time to ourselves and would need to be adequately entertained.

Without work, there are several expenses that go down or go away all together. For instance, we would be able to sell one of our cars and drastically reduce our spending on gas. And we all know what gas costs these days.

We also made our calculations based on staying in New Jersey, where the cost of living is rather high. If we moved to a lower cost of living state, we would be able to stretch our dollars further. However, we would want to remain somewhat close to our families and friends. We have spent the better part of our years here and would not feel right walking away from all of our emotional ties.

Some expenses would go up, such as the cost for heating and air conditioning and electricity. Since we would be home more during the day, we would be using all of these more.

The end result? We would need a bit over 2.3 Million dollars. And that would be today. For every year we don’t have that final amount, we would have to adjust up for another year of inflation.

While a million dollars is a significant emotional milestone, it is hardly the panacea it used to be. If I went to Vegas tomorrow and won a million dollars from a slot machine, I would be happy, but I would not be able to shed my day job just yet.

That said, it is a worthwhile goal to hit. I often joke that my taxable stock trading account has a goal of one million. I hope to actually hit that number in the future. I’ll make it so long as I don’t actually give up. While a million isn’t what it used to be, it still feels good saying it and it will feel good having it too.

The AP offered a sour bit of news yesterday. Ed McMahon is facing foreclosure on his $4.8 million mortgage.

While I am not old enough to remember the Johnny Carson days, I have fond memories of his spots for American Family Publishing and of course the legendary Star Search.

At the ripe age of 85, Ed is behind on his mortgage by around $644,000. The question that is racking me is why, at age 85, after several decades of being a paid TV celebrity, does someone like Ed McMahon have a mortgage to begin with? Why doesn’t he just have the $644,000 lying around for a rainy day.

The AP states that after an accident 18 months ago, Ed could no longer work. That means even at age 84, Ed still needed to work in order to sustain his lifestyle. He began his TV career in 1957. After such a long and successful career, it makes me just a little sad to know that a TV icon like him is on financially shaky ground.

Why is this happening?

Didn’t Ed know that you should save for a retirement along the way, investing some of your hard earned dollars so that past the age of 67 at the latest, you should be able to pursue whatever it is your heart desired and not have to worry about foreclosure of your primary residence?

Didn’t Ed know that it taking out home equity lines of credit was not a sustainable way to get money?

We should all take this as a lesson on financial management. As hard as it is to learn from the mistakes of the apparently wealthy. Had the AP news article not pasted my RSS, I would never have even dreamed that someone like Ed McMahon could ever be in financial trouble at his age.

You need to save for retirement and save smartly, targeting your the lifestyle you expect to live. You need to leave the equity in your house alone. Tapping house equity is a bad idea and is counter to conventional wisdom of paying your mortgage off. No house payments means more money for other things, like travel, and expensive hobbies, and not getting foreclosed on.

In the last week or so, my fiancé and I have been been presented by two very generous gifts from friends. Only one of which we were half excpecting. Regardless, we are struggling to come to terms with actually accepting them. It would appear that despite our financial state, we would like to think that we should be better people if we did not accept our friends and family’s generous offers.

After spending much of our lives working things out on our own, we have been blown away by the magnitude of the gifts. At the same time, we feel guilty and disinclined to accept. We may not be in the best of financial situations given our geographic location and local cost of living, but we know we are doing well. Better than most of my family in fact.

The first gift was from a college roommate. He managed to overhear some of our complaints about getting lost on several short car trips in the last month or so, and a week later, he showed up with a preemptive wedding gift, a top of the line GPS unit.

After all of the bells and whistles he purchased to go along with it, the thing must have cost him a solid $1,000. My fiancé couldn’t resist looking up the full and fair market value after he had left. She is good at that sort of thing.

The second gift was a check for $2,000 from my soon to be mother-in-law. On top of that, she considered it a donation to the wedding and will be providing an actual wedding gift as well. My fiancé tried not to accept the check, but her mother managed to escape with it sitting on our kitchen table.

To Accept or Not to Accept

We had fewer issues accepting the GPS unit from our college friend than the $2,000 from family. Although, it was kinda hard to since he had already unwrapped it, activated it, and pre-loaded maps for us.

From family, it is a bit harder. My fiancé has a very good grasp on her parents finances. She knows that this gift is a very generous one for them. We would not want to put them in a poor situation from giving us too large a wedding present.

If it were only me, I would accept both with a good heaping of gratitude. Virtually every single one of our friends had some particular advantage starting out their wedded lives. I’ve talked about being green with envy in an earlier post. So when, finally, a family member bestows an advantage on us, even if it is only money, we should be willing to accept it with open arms.

No-one in our family is a real estate broker to help us buy our first house. We have no handy-men who are willing to put in time to fix things around our apartment or (hopefully soon) new house.

But people do have money. And it is their form of saying they care when they give those gifts. If they had other services to give, I am sure they would. For us to refuse them in any way is arrogant and distasteful. It tells them that we are better than them and that we don’t need or want their help.

That’s not the case. We should accept whatever help we are offered. We are not pandering or begging for cash. I would like to make it a point not to get in the way of generous people. I am sure that it makes them feel as good to give the gift as we should to receive it.

May ended up as a good month net worth wise. I had an increase of $2,403.08 after the dust had settled. Help came from a few different sources, such as the $600 tax rebate and a continued rise in the value of my 401K and taxable stock account.

Assets: $32,065.89

• Cash in Hand, $100.00
• Emergency Fund, $1,073.19
• House Down-payment Fund, $5,035.10
• Corvette Fund, $2.15
• 401K, $11,011.03
• Roth Startup Savings, $51.14
• Taxable Stock Account, $3,181.64
• Prosper Loans, $378.14
• Family Loans, $1,780.00
• Toyota Corolla, $8,000 (kbb.com value)
• Apartment Security Deposit, $1,453.50

Liabilities: $21,295.52

• Student Loans, $19,163.04 (6.00%)
• Car Loan, $2,132.48 (4.99%)

Spending Budget: $750.00

Spending Actual: $1,234.29

• Petty Cash: ($20.00) $10.00
• Tolls: ($40.00) $40.00
• Gas: ($180.00) $179.85
• Eating Out: ($120.00) $335.45
• Entertainment: ($50.00) $0.00
• Hobbies: ($60.00) $284.26
• Fitness: ($40.00) $73.69
• Gifts: ($100.00) $133.54
• Other: ($140.00) $177.50

(Budgeted) Actual

Need to manage your debts? Easy, become a deadbeat. It seems to be picking up in popularity now a days. The awful and horrible recession that the US is in right now is the latest excuse du jour for people unwilling to be responsible for their actions. The S&P 500 is up over 9% since the lows set in March and the GDP posted a better than excepted 0.9% growth, but seriously it has to be a recession because everyday folks just can’t seem to make ends meet.

Case and point, I was watching the news the other day. That alone is a bit odd for me because I usually do not watch television. I get most of my news online. However, for whatever reason, I was compelled to watch that evening and I was lucky I did, because I caught a very interesting piece on debt consolidation/settlement in and around my neck of the woods.

The featured local resident was around $20,000 in debt. Instead of diligently paying off her bills, she turned to a debt settlement firm. She is paying them $3,000 for the privilege of them “negotiating” with her creditors to possibly reduce her debt burden by up to 60%. She may end up paying 40 cents on the dollar. Maybe. In her own words, and this is an approximate quote;

If I go bankrupt, they get nothing.

The trouble with standing your ground and saying shoot, is eventually, someone pulls the trigger.

Depending on the type of debt involved, the particular variation of bankruptcy available to debtors may be less than pleasant and all the while music to creditors ears. I am in no way an expert on bankruptcy laws but I have heard that Chapter 13 can be very brutal.

Bankruptcy laws aside, there should be outrage in the streets at individuals like this who flaunt their ability to walk away from their debts. It’s stealing. Period.

I’ve got a novel idea. Use the $3,000 debt settlement fee to, I don’t know, pay down your debt! $3,000 comes out to 15% of her total balance. That would be at least $60 off of her monthly minimum payment. She could use that extra $60 every month to start paying down her balance. Sure it would take a while, but I wonder how long it took her to rack up $20,000 in credit card debt?

Some people have no shame, and that costs everyone in the end. I doubt that VISA, MasterCard, and American Express run charities when it comes to their business. They are in the game to make money. When a bum wanders off with $20,000 of their money, they have to make up for it and then some. That price is paid by all the responsible credit card users like you and I. We pay it in the form of excessive fees, high interest rates, and merchant fees that increase the sticker price of everything we buy regardless of our method of payment. The extra cost is passed onto you even if you use cash for all of your purchases.

I work in a cubicle, similar to most engineers I know. I have three direct neighbors. While I am sure that we all try to be as polite as possible, it is hard not to overhear each others conversations now and then. Each of them are aware of my work projects as I am theirs. That is why I practice a good bit of discretion when making personal calls at work. Most of the time, I will make a trip out to the parking lot by my car before making a call to my fiancé or to home or what have you.

However, my disciplined approach to discretion is not universally shared by my co-workers. I am alluding to one in particular who somehow manages to treat the thin cubicle walls separating our desks as if they were a fortress of solitude. He will from time to time, take calls on his speaker phone and that includes personal calls.

Suffice to say, if I were a bad man, I would have everything I needed right now to commit some form of massive fraud. There have been numerous occasions where I could have casually jotted down his social security number, credit card numbers, home address, and other security question related information.

I know about his problems at home and the crippling amount of debt he shoulders.

• He has at least a dozen credit cards, some of which are maxed out.
• He overextended himself near the real estate top expecting a future raise to help him pay the mortgage.
• He has some of his debt in a debt management service.
• Collections agents are calling his work.

You would think such an existence would trigger some emotional response. I would have expected a backlash of some sort to flush all of his troubles away in a massive wave of change. But it never happens. He goes to work each day and trudges along for the paycheck so he can give it to creditors at the end of the month.

To make matters worse, he keeps on buying things. He recently bought a Nintendo Wii for his kids, had a bit of gardening done, and several other miscellaneous home related purchases. Some of those, I overheard him having to split the purchase onto two or more credit cards.

I feel bad for him sometimes. It is not my place to come to his rescue with whatever personal finance wisdom I have. He made his bed over the years and now he will sleep in it for better or worse, mostly worse. At this point I am just waiting for the other shoe to drop. I am expecting that eventually I will begin overhearing the details of his bankruptcy.

Sometimes I cringe when I go over budget one month or the next. I try to save my pennies and be as frugal as I can with the tools I am given. At the end of the day, it could be worse. For all the griping I do, there are others who would kill to be in my position. I have no high interest debt, my student loans are manageable. I am living well below my means and I plan on keeping it that way.

I promise myself I will never be in the position my co-worker is in right now. That is no way to live. Success is not an option. It is the only way.

I need to offer up some penance for the month of May. I had another friend over this past weekend and with the visit, I made another round of spending above and beyond the budget. Suffice to say, and I have mentioned it before, May is going to be a bad month for my budget. It will be the first month out of the year to be over budget. It makes me just a little sad.

So in order to make myself feel better, I am announcing that July will officially be known as ‘Don’t Buy Crap’ month.

NO crap will be purchased for the entire month. I am going to make amends to my wallet. It is hurting this month.

Some Exceptions Apply, Void Where Prohibited

There are always a few exceptions to anything official and ‘Don’t Buy Crap’ month is no different. This only applies to discretionary spending. Obviously, I’ll need to buy gas and groceries. It is all of the rest that I will be targeting. Eating out, entertainment, hobbies.

However, I will still purchase gifts that I had already budgeted for that month. Just because I need to make up for a horrible month of budgeting does not mean that my generousity has to take the month off as well.

I will also continue to go out to eat at the end of each week with my pseudo-boss at work in typical Never Eat Alone style.

Why July? Just One Month?

It can’t be June because I am going to get married that month. I would be very interested to see someone make it through their own wedding without making several large purchases. July is the next closest month. By then, we will also be done with our honeymoon. After the wedding and the honeymoon, I wouldn’t be too surprised if I was tired of spending money anyways, which would make July go by easier.

Shouldn’t every month be Don’t Buy Crap Month? Well, yes, to a degree. Just because I am classifying my entertainment and hobby spending as Crap for the purposes of July, it does not mean that they are actual crap spending that I could do without forever. My hobbies make me happy and I will continue to make them a part of my life, frugal or otherwise.

What I am looking for at the end of the year is balance. When I look back on my performance for the year, there is undoubtedly going to be a huge black mark for the month of May. July can be the balancing force to even out the year as a whole. It will make me feel better about myself and will help me accelerate towards my financial goals which are for the most part on hold anyways due to the fact that my fiancé and I are paying for our wedding very soon.

I would of been better off if I never went crazy with my hobby spending at all, but I feel that I should be able to take opportunities when they present themselves. That is another form of balance. I should be free to pursue what makes me happy while taking the right financial steps along the way. Not every step is going to be the most correct through the unforgiving lens of frugality. But I am willing to live with it.

Credit cards can be a valuable tool. For those of us with the discipline to pay off the card each month, the cash back available to us can be a worthwhile. If you are going to buy stuff anyways, you might as well be rewarded for it.

Forget airline miles and hotel points. Unless you do a significant amount of travel for your work, you are never going to see enough points to make a tangible difference on your next vacation. Cash back is where it is at. My fiancé and I both use cash back credit cards. While I use a Chase Freedom card, she uses a Blue Cash from American Express. If we had to chose one over the other which would it be?

Blue Cash from American Express

Blue Cash offers 1% back on supermarkets, drug stores, and gasoline. 0.5% on everything else. The catch is when your purchases within a year exceed $6,500. All of a sudden the cash back jumps to 5% on the above items and 1.5% on all others.

The sticking point is that your cash back is credited to your account at the end of the year. Not exactly cash in hand but still good considering the higher than average % back.
Advantages:

• Higher cash back %, after spending $6,500 within a year, your rewards jump to 5%
• No cap on rewards

Disadvantages:

• American Express is not as widely accepted as VISA
• “Cash Back” is statement credit at the end of the year

Freedom from Chase

Chase Freedom offers 3% on supermarket, fast food, and gasoline and 1% on all other transactions. While that may not seem quite as impressive as Blue Cash, Chase offers to sweeten the pot by letting you get the cash back as you earn it. You can request a check with a little as $50 in rewards. But if you wait until you have $200 in rewards, Chase will cut you a check for $250 instead. For those of you keeping score, that is a 25% bonus to your usual rewards.

Advantages:

• Cash back can be redeemed as you earn it
• It is actual cash, not a statement credit

Disadvantages:

• Rewards % is not as high
• After spending $600 in a month on 3% purchases, the rate drops to 1%

In order to take full advantage of either card, we would have to pool our purchases together to reap the maximum reward possible. So if we had to choose, which one would it be? That depends on how much we would actually spend during a normal month.

• Groceries: $350
• Fast Food: $100
• Gasoline: $420
• TOTAL: $870

We spend approximately $700 more in other purchases a month. That would include bills we could pay via credit card. Assuming that spending to be our baseline, we can run the numbers to find our best situation.

Our total yearly purchases would come out to $18,840. Wow, scary right? I smell another post coming in the near future, but I digress. Here are the numbers crunched and tabularized for your enjoyment and hopefully both of our enlightenment. While the full spreadsheet would not display properly, I’ve included the summaries here.

And it’s Blue Cash by a nose! I did not include the extra 25% bonus from Chase. That would bring the total Chase rewards up to $415.50. Not a blowout by any means. While Blue Cash takes the overall crown, we would have to weigh the extra $59.47 from Blue against the convenience of cash in hand from Chase.

For most families, $400 or so dollars over a year is not all that exciting, but it is money that you would otherwise not of had. For that reason, cash back credit cards are going to be a piece of my financial plan until such time as they become not worth the effort. $400 is still very much worth it to me right now.

I’ve got that sinking feeling.

This month I will be over budget. After four consecutive months of good behavior, May is going to kick my behind.

It all comes down to choices, and this month, I made several decisions to prioritize entertainment and eating out at restaurants higher than others. Here is a quick rundown.

I had an old college friend over for a full weekend. While we made a point to eat in where possible, we just could not resist the quick and easy option of a restaurant. So we went out twice, once for dinner and once for breakfast for which we paid for.

And then there were the purchases. The whole reason for my friend coming over was to revive an old hobby. An expensive old hobby. I managed to almost double my entertainment budget alone on one trip to the store with him. It seems easier to spend money when you have a friend around who wants the same as you.

This month will be the first of this year to be over budget and I accept it. I’m not going to go back and try to expand the original budget numbers. I am going to bite the bullet and let the chips fall.

That in and of itself is another conscious decision. It is better to admit to yourself your shortcomings rather than be surprised when the truth comes out. In personal finance, that means being accountable for all of the line items in your budget.

I look at the numbers constantly and know where I stand at any given time during the month. For all of the prior months of this year, I knew they would be close, but I knew I had otherwise behaved and thus had a good shot at coming in under budget, which I did. Today, I know that I’ll be over. There is no doubt in my mind.

What I am not doing is sticking my head in the sand. That sort of behavior is true financial suicide. I have seen that sort of attitude ruin a few folks I know including close and not so close family. Knowing and accepting the truth about your money is very important. I believe that way of thinking will allow me to make amends later on this year.

That said, there are few options at this point to get me through to the end of the month without too much more financial heartburn. It basically comes down to watching my spending and not allowing myself to write off the month as a loss and rack up a bigger shortfall than I would otherwise of had.

Whatever shred of discipline I have left will have to work harder this month.