Monday, December 22, 2008

Have you started your brand yet?

Much earlier this year, I bought a bag of M&Ms. My excuse was that these were special M&Ms, a tie-in with the Indiana Jones movie. (Remember that? A big deal, and a so-so movie, and totally over by now because the hype has stopped and the movie isn’t good enough to generate further interest.) I keep the empty bag in a kitchen drawer where I can see it occasionally. To remind myself that I bought the ad, not the product, and that I got caught by the hype.

Eating M&Ms is pretty much a complete waste. Great candy if you like sugar and are about eight years old. But I like dark chocolate, and the chocolate content in M&Ms is low. I figured this out a long time ago. So what does that M&M bag signify? That we can all be lured into buying something whose value is negligible, simply because of its tie-in. If I really care about M&Ms, if I want to associate myself deeply with them, then I can buy all kinds of alternative products wrapped around some candy. I can litter my house with M&M seasonal packages and useless containers, and other tie-ins, and more. Or if it’s Harrison Ford I want to identify with, I can buy a poster of him and put it where I’ll see it every day. This is a complete waste of my time and money, though. I don’t know Ford and I never will and he isn’t important or even real in my life. When we buy the M&Ms or the licensed product that makes the M&Ms attractive, we are affiliating ourselves, identifying ourselves, with a commercial entity that we see as attractive and strong. Perhaps unlike ourselves.

The reason to not do this is that we each need to create our own brand. The Internet allows us to create new brands every day via new online names, and then try them out on various sites. If we get tired of our brand, we can abandon it with no one the wiser except Yahoo or Google. Not that they actually care if ViolinGenius and MashupMaven are identities generated from the same computer.

But why our own brand, instead of buying into and/or wearing the symbol of someone else’s? This is a good question, because historically, many people have been happy to draw their identities from their service to someone else’s brand. The lackeys of the nobility wore their masters’ crests, just as today, a factory worker might wear a company uniform. But this only works if it’s a two-way street. The serfs were legally tied to the land of their baron and he in turn had legal responsibilities to them. Today in America, we can no longer pretend to ourselves that we will hold any job for a decade, let alone even five years. Given that, we can’t afford to put our identities into some company’s hands. They’re going to dump us and we’ll feel all empty and miserable because we lost our brand affiliation. So we have to create and maintain our own identities.

I admit this is scary. The best example is the difference between a secretary versus any other employee. Both have a boss. But the secretary is shielded by the boss directly, is answerable only to that boss, and can assume the mantle of the boss’s power to enforce her or his needs in the office. The office worker is one of a pool of workers who are supervised by a boss, but who cannot act for or in place of the boss, and who is not shielded by the boss directly. The office worker acts on his or her own. The secretary does not.

What we are seeing more and more today in our employment milieu is the absolute need for each worker to act primarily in her or his own interests by becoming a self-directed sole proprietor of her or his own business: A brand. If the employee doesn’t pay attention to what is good for her or him, then the employee gets caught by layoffs and downsizings. If she or he has created a brand and invested in it, the employee is already seeking another job before the catastrophe occurs. Or has forged the office affiliations to keep being seen as a value to the changing company and survive to fight another day. Being nimble and agile is very important to continuous employment today. Trying to meld with a company’s brand, and become a company man or woman, is a mistake.

When it comes down to dollars and cents, so is buying a branded product unless it fits our own brand’s goals. Thus, it’s okay for me to buy the M&Ms for an upcoming party, because they are finger food that doesn’t cause a mess, and people like them. But it’s not okay for me to buy M&M souvenirs such as dolls holding the M&M logo, because I don’t own M&M, nor do I work for M&M. Sure, maybe I root for the company.

And that leads us into the area of expenditures on sports memorabilia. A bunch of guys (or gals) is paid to play games for us. We choose which teams we like, and then we show our loyalty to them by buying tickets to watch them and licensed products as souvenirs. It’s a phenomenon that has been studied a lot so there’s no need for me to go into the psychology of it. But quite obviously, it’s another instance of buying into somebody else’s brand.

But what is left at the end of the day, as the team advances to the Superbowl or the old M&Ms holiday packages are discounted on the store shelves? The memory of someone else’s athletic achievement and an empty bag from the M&Ms. No progress made towards creating our own brands, and forging ahead to our own better future.

We need to think of ourselves first. Of what will help our brands, our lives, first. Back in high school, we were briefly encouraged to think strategically when it came to choosing a college. We weighed each school’s academic and social strengths. We asked ourselves if we were personally suited to certain schools. But after college, the choice did not appear to be in our hands anymore. It was all up to the employer to pick us. This is not true.

Do you want to work for a specific company? What are you doing to prove it to the company? Are you frequently contacting hiring managers, HR managers, or even clients of the company? Have you been carefully following the company in the financial press (which includes the Internet) so you know where the company is heading and what are its obstacles and strengths? Have you made an effort to train in the specialties that this particular company values? If you haven’t, then not only are you not branding yourself, but you aren’t paying attention to the company’s brand. When you get an employment interview, you want to come across as knowledgeable about the company, and knowledgeable about your own potential value to the company. And you don’t want to be vague. You want to be specific.

This requires work. But the fact is that it is easier to hire someone who knows all about a company than someone who knows nothing. Training takes less time. Integrating with the other employees and getting up to speed takes less time. That’s why a would-be Dallas Cowboys Cheerleader has an advantage over the other contenders if she takes dance lessons before trying out, if she makes sure her BMI is correct for the skimpy uniform, and if she also educates herself about the football team. Her goal is to take on the Dallas brand. It helps to know what that is, in detail.

But I don’t want you to do that without previously deciding what your own brand is, and how working for this other brand will help your brand. Don’t just buy a package of special M&Ms, or a Redskins hat. Know what that brand is, and most of all, what you will get if you associate yourself with it. Maybe for some people, wearing a Yankee cap is like being on the team, and that’s good enough. But recognize you are drawing your identity from something outside yourself, and thus you risk being hurt by situations in which you play no direct role. It’s a substitute for real life. And meanwhile, real life is happening to all of us, willy-nilly, and we need to find our brand and burnish it and make plans for our future. Not for the future of M&Ms.

Monday, December 1, 2008

Things to do Before You Lose Your Job

The economists are finally willing to admit we’re in a recession, because we actually could be heading into a depression and they certainly won’t admit that. The biggest problem most individuals may have to face in the coming months is job loss. Tens of thousands of good jobs, jobs with health benefits, have already been lost this year. More jobs will be lost in the ripple effect.

So today let's think about what to do prior to losing a job:

1. Start or increase your rainy day savings. Right now. You might not have much time before every dollar saved becomes critical. Even an extra $100 is going to look very sweet when you’re struggling to make ends meet on unemployment compensation.
a. Create an emergency savings plan and put it on automatic immediately by having deductions made directly from your paycheck.
b. If retirement is far away, consider reducing (not eliminating) your 40l(k) contribution to increase your rainy day savings quickly. Remember, if you have to break into your 40l(k) early, you pay a 10% penalty and income tax on that money. You need at least eight months in living expenses in your rainy day savings. They must be in an FDIC insured account and accessible without any penalty.

2. Make a list of areas where you can cut your expenses. You don’t have to stop these conveniences or lifestyle choices immediately. But you should list them and the dollar amount they can save, so if the worst happens, you know what to do immediately. Sample expenses you can list for cutting:

• Smoking. Duh. Pricey. Cut down or quit.
• Drinking. Alcohol is an expensive luxury.
• XM Radio, OnStar, Netflix, or any other service billed monthly as an automatic charge on your credit card. Try a less costly level of service or cut it out altogether.
• Cable/satellite television. Investigate cheaper deals.
• Phone service. Keep your phone number so you won’t miss out on any employment calls. But try cheaper phone suppliers, or month-to-month minimal service, or even pay-as-you-go service.
• Haircuts, massages, manicures, etc. Go less frequently or find a cheaper-but-still-good supplier. Or stopping altogether. Most of us can skip pedicures, since no future employer will see them unless we’re going to work in sandals.
• Newspaper/magazine subscriptions. Do you read what you pay to receive? Can you get the same information elsewhere?
• Buying drinks and snacks whenever you are doing errands. It’s good for your waistline, too.
• Yoga and other exercise classes or gym memberships. Yes, they reduce stress, but look for less expensive adult education leisure classes or free classes instead. Or start your own at home.
• The best seats at sporting or cultural events. You might still go, but go to fewer events and buy the nosebleed seats. And don’t eat while you’re there; you’ll save a fortune. If you can use public transportation or park a little farther away, you’ll also save a bundle.
• Attend movies or other events at bargain times. And don’t buy from the concession stand.
• Entertain friends as a lunch date instead of a dinner date. Limit alcohol when dining out since it’s very expensive.
• Stick to a budget for presents, seasonal decorations, and foods.

3. Do not take on any new, long-term expenses. Samples of long-term expenses you should not sign up for at this time:

• Car leases. Nearly impossible to break, and you won’t own the car.
• Luxury car purchases. Any car you can’t afford is a luxury car. The payments and upkeep should be easy to cover each month, or don’t buy it.
• Magazine subscriptions. You pay it all in advance and you can’t get a refund.
• Sporting and cultural subscriptions. This is not the moment to commit hundreds or thousands of dollars far in advance. Put the cash in savings instead, and buy as you go. You could lose your job and have to move to another city and miss seeing the games or the shows.
• A purchase loan at a fixed rate whose total you couldn’t pay off this month if you had to. This could be for furniture, appliances, home improvement services, or any other big ticket item. This is not the right moment for big-ticket items. Sometimes they offer a nice deal, but what if you lose your job tomorrow? How will you pay off your debt?
• Any debt that you will not be able to pay in full if you lose your job tomorrow.
• Buying a new house unless you have the cash. Yes, it’s a buyer’s market. But unless you plan to live in the new house less expensively than in your current home, and have already sold that house, don’t do it.
• Overshopping, such as buying multiples of clothing or accessories. Assume that soon you may have no money to put in those handbags.
• Travel or other luxury spending, including electronics, clothing, and other toys. Don’t treat yourself to a blowout expense right now. You might very much regret that week at the beach or huge television when you’re scrambling to pay your power bill.
• Committing in advance to specific dollar amount of charitable giving. You might end up unable to make good on your pledge. Or you might try to sustain it at the cost of being short in some other area. Make your dollars go further by utilizing corporate matching funds or joining matching funds drives.
• Voluntary plastic surgery, lasik, braces, or other items that would lock you into a loan for a year or more. The exception is when disfigurement is too obvious and could cost you socially or financially.
• Organizing containers. You can organize your stuff without buying new stuff.

If we all followed this advice, then we’d be helping creating a depression by not spending. Which would not be a good thing for the nation’s economy in the short term. But we aren’t all going to be smart about our money. Some of us are going to keep on spending the same old way, buying too much junk, overextending ourselves with loans, and just hoping that it won’t all come crashing down on us. Not a good approach in an uncertain economy. Choose not to take this dead-end route. Instead, be one of the smart people. Think ahead to what you’ll need in the coming year, and take action.

Friday, November 21, 2008

How Not to Be an Alarmist

A few years ago, in an attempt educate myself, I read a book on economics. It explained how various economies in developing nations had been ruined by the flight of capital. This flight occurred just when the countries had taken stern measures demanded by the International Monetary Fund (IMF) to streamline and strengthen their economies. But the result was capital flight that collapsed their recovery instead.

But the US didn’t have to worry about that happening. Our economy was so strong that speculators would never just sell and run as they did from countries in Asia and South America. We were the model of stability for the entire world. Well, guess what? It sure looks like that’s what is happening. Oh, we supposedly are getting support from Europe and Asia, whose stock markets and economies actually depend on ours in this era of globalism. But what we’re seeing now is less money in the market. That’s capital flight. Without capital, a capitalist society can’t operate. Hence our government’s various attempts to shore up the market. Which some people look on with horror as socialism.

I am not sure what’s so wrong about socialism. My whole life, I have seen Americans get rich via their own ingenuity and drive. Should they pay taxes on their profits? Sure, why not? I pay taxes on mine. Is it socialism to take our tax money and help educate and lift people out of poverty? If so, I don’t mind. It has always seemed like a good investment. The more other people have, the less they’ll want to steal what I’ve got. I never liked communism. It never seemed fair to reward the incompetent equally with the competent. But that’s a theory of leveling, and our tax system certainly leaves plenty of juice for those at the top, even if they do complain about their tax burdens bitterly. And of course capitalism has some communistic elements, because it rewards the incompetent, passive owners (stockholders) of companies through the hard work of the employees. But I’m not here to debate systems. What’s the point? Real life economic problems don’t get solved by the application of theoretical social systems unless there is a terrible price paid, usually in lost human freedom or in famine or war. Real problems get solved by attacking what is going wrong and fixing it. Can this be done with the problems facing America’s economy today? Yes. Will it? The jury’s out on that.

What we do know is that our country doesn’t want to fall into a depression, and many people are working very hard to stop that from happening. A continuing problem seems to be intransigence, though. People and organizations that stubbornly refuse to face the reality that the old deal is done, and a new deal has to happen. The numbers of banks interested in working out foreclosures is very small. Still. The numbers of banks holding second mortgages (home equity loans) on properties in danger of foreclosure that simply refuse to make any deals is way too high. I am not sure if it is the sheer complexity of the banking system that is causing this mess, or just stupidity and short-sightedness, but it’s pretty obvious that the foreclosure crisis is getting worse, not better. We have to solve this, because land is real. Money is not. Once we stabilize land values, the rest of our economy will calm down.

All the media people running around and squawking about the economy should chill. Our stock market runs on rumor, on chatter. Right now, faced with the doomsday scenarios about our big automobile companies, the stock market is miserable and many healthy companies have seen their stocks tank. It doesn’t make sense. It’s sheer fear. And possibly some speculators running away. The talking heads on television and their blog-and-website counterparts of the Internet all get a charge out of talking negatively about the economy. But now so many of them are freaked out about the stock market that I am somewhat freaked out myself. Sure, everything can fall apart. But will it? Should I take their doomsday talk seriously? They keep talking and talking. But that’s the problem. They’re observers; they aren’t directly involved in solving our country’s economic problems. Once I turned off the television, I realized that I don’t think everything is going to fall apart. Not with so many people trying to make sure it doesn’t.

But let’s take the worst case scenario for a second. For Brazil in the 1990s, or Japan, things went seriously downhill. There was inflation. And falling values to all sorts of capitalist property. It was a mess. But they’ve climbed up from that point. Maybe not back to where they had been in the money markets. But when I visited Japan a year ago, the place looked solvent. People dressed well. The stores were full of people buying expensive items. There were plenty of fish in the market. So even if the US completely screws up our money economy and our land economy, I have to believe that some day, we will recover. Why? Because we’ve got land, we’ve got resources, we’ve got a healthy, educated work force, and we’ve got drive. We also have the Internet and a lot of bright ideas. I say the future is going to be good. We just have to stop being so scared.

A decade ago, a lot of Americans indulged in millennial fears. But I was too busy to stockpile water and toilet paper for the coming of the apocalypse. Since then, we’ve had 9/11, and more fears, some of them justified but most of them not. And now this, the economic meltdown. Is it finally time to stock up on toilet paper and bottled water? Get more shells for the shotgun so we can live on deer meat? I don’t think so. This country isn’t falling apart any day soon. So let’s not freak out.

Tuesday, November 18, 2008

Getting Ready for a Depression

I read an interesting article in the Washington Post last month by Paul Farhi that claimed that the Great Depression did not happen in the instantaneous manner we’ve always been told. That the stock market actually improved after the crash and―a long-cherished image―stock brokers did not leap out of windows en masse. The scary part is that a couple of years down the line, the country did sink into a mess of 25% unemployment.

Someone I know is about to lose his job. (Citicorp has just announced it is laying off 50,000+ people.) He has a nonworking wife whose own career never got started because they had two children, both of whom are still very young. If he can find a new job at a comparable salary, nothing has to change. If he can’t, but his wife can finally start the career for which she trained, some things will change but life should be all right. But what if neither of them can find a job that replaces his current salary? Or what if it takes a year or even two years before that job is found? Or what if they both have to work because each has to accept a very low salary? Everything about their life will have to change. The kids will have to go into daycare. The family might lose their house before they get enough replacement income. They might have to move to an area where there are more opportunities for both of them. Or where a relative can perform free child care. And more.

Thus job loss per se isn’t the only situation we have to fear in the coming months and years of finally-admitted recession and possible depression. Taking a big hit financially and changes in our living arrangements are very likely, too. The better we prepare ourselves for those possibilities, the easier it will be to accept necessary changes.

What we all need right now is an emergency game plan, one that is flexible enough to accommodate several possible situations. The plan should be based on the amount of living expenses we have in savings. Sure, Citicorp will probably pay severance. But some companies that have filed for bankruptcy have not, so be cautious about counting on severance as a significant part of your carrying costs before finding a new job. And unemployment compensation almost never pays enough to replace a good income.

The emergency game plan should be a timetable keyed the to the amount of our rainy day savings. In the past, personal finance experts urged us to keep three to six months of living expenses in savings. Suze Orman is now telling people to have eight months or more in savings. She’s a smart woman. She’s assuming it will take longer than before to find another job. Let’s say for argument’s sake that we have eight months of expenses in savings. And it takes a year to find a new job. We’d be in big trouble.

The plan should be based on the money we have, not on our hopes for regaining income. The timing of our actions also has to be based on the money we have or can access, perhaps by cutting expenses, but also by adding a night job, or getting another family member back to work, or by selling big items such as a second car or a tricked out racing bike.

Here’s a sample game plan based on having eight months of living expenses in rainy day savings:

• Month One: Job loss, followed by immediate efforts to obtain a similar level of employment with no change in location. Cut down on daily expenses. Postpone all big ticket expenses.
• Month Two: Drastic permanent cuts in family plans for vacations, presents, large future expenses such as private schools. Explore local housing market and consider selling current house. Month Three: Widen the job search to other states and other kinds of work locally. Check out housing costs and lifestyle indicators in other states, and lower-cost housing locally. Find a real estate agent.
• Month four: Weigh alternatives of lower salary locally coupled with local move, or relocating to another state. Sell and donate excess possessions. Ready home for sale.
• Month five: Hold yard sales to eliminate all excess possessions and empty any storage. Put house up for sale.
• Month six: Hold open houses. Find a potential new home and interview movers.
• Month seven: Pack. Lower price of house by 15%.
• Month eight: Start new job. Close on house and move.

Sounds draconian, doesn’t it? But this plan assumes some key positives, such as that you will find a job by the time your money runs out, and that it will only take you three to four months to sell your home. It also assumes you’re selling in the high season for home sales, which may not be your situation. And you’re only lowering your price by 15% after 90 days, which in some markets may not be enough to get the house sold.

Is the only answer to unemployment to pack up and leave? No. We could add into the timetable:

• Month One: Sign up for courses geared to give you additional expertise or qualify you for a new career path. Register for state unemployment assistance in resume writing, network, interviewing, and more.
• Month Two: Network with classmates and professors to enhance employment leads.
• Month Three: Rearrange family living patterns to allow a nonworking spouse to work, or a teenager to get a part-time job or a scholarship.
• Month Four: Join local associations related to your field of expertise and arrange to be a speaker before the group. Teach adult education classes in your field of expertise. Network.
• Month Five: Rent out a room. If it won’t lower unemployment compensation benefits, get a bridge job as a night watchman, weekend pizza deliverer, store stocker, etc.
• Month Six: Sell excess possessions on eBay. Volunteer, and network as you do.
• Month Seven: Sell the second car. Take and teach more courses, and repeat all the networking steps.
• Month Eight: Start new job. Re-start rainy day savings.

Some people would also recommend cracking open a 401(k) in a desperate measure to keep funding your pre-unemployment life, but your retirement savings should remain untouched. You’re going to need every penny of your retirement savings later in life, when you’re likely to be even more desperate than you are today. Unless you have good reason to believe that you will be hired within a few months (for instance, when a new fiscal year budget opens up some jobs), there usually is little point in emptying your pockets only to delay the inevitable. If you’re not going to find another good job, or one in this area, and you can’t get another family member to pick up enough of your lost income, and you can’t create some other income-producing scenario such as renting a room or selling your garage full of classic cars one at a time, you should seriously consider downsizing your life.

Do you see how the longer you remain unemployed, the more you have to change your life? If you can find a new job in three months, you won’t have to sell your house or ask your spouse to work. If it takes you six months to find a job, maybe the income hit you have already taken makes selling your house and moving locally the smart thing to do. If it takes a year to find a new job, maybe you have already maxed out your credit cards paying day-to-day expenses, and your house is in danger of foreclosure, and you have to move hundreds of miles to take the only job you got offered. But what is the alternative? Santa Claus isn’t delivering great new employment opportunities in his sleigh, and winning the lottery isn’t happening, so you will have to take action.

Recognize which way the wind is blowing. If your area of employment has taken a big hit locally and there are thousands of people with your skills suddenly out of work, it may be sensible to plan moving to an area where there is less competition. You can find this out by asking job interviewers how many applications they received. If they received thousands, you know you’re up against it. Still, you got the interview, so maybe you will win out. I’m not advocating giving up hope. But I want you to have a plan.

Saturday, November 15, 2008

Stock Market Morass

When Dylan Ratigan of CNBC’s Fast Money jokingly suggested new names for the daily stock market show he hosts, including “Where the Heck is My Money?” his producer, John Molloy, evidently was not amused. Gallows humor is not proper for a serious finance program, I guess.

But I was amused, because in this market, a nonprofessional investor such as myself is utterly confused and likely to be asking exactly that question. I mean, what’s going on? Why have stocks in solid companies fallen dramatically when there is nothing wrong with those companies? I did finally look at my 401(k) statement, and somehow my fund manager(s) had lost money on bonds. How the heck do you lose money on bonds?

I don’t know. I don’t understand the stock market, except to know that it has always been a money market run by male gossips. Dignified by its association with big profits, but basically, a silly game of telephone. Still, as long as my future and the futures of millions of Americans weren’t likely to be monumentally messed up by their trading shenanigans, I didn’t care. But I kept away from actively trading myself because I knew I was ignorant.

Now, more and more, I am hearing that it is up to me to educate myself deeply in the stock market’s doings, and eventually to seize active control of my retirement savings and do trades myself. Even day trade, for gosh sakes. Buy stuff at 3:30 PM, just after all the hedge fund managers dump their stocks and everything takes a dip. Or something like that. That freaks me out. Not only is it far more involvement than I personally want with a market fueled by rumor and false expectations, but it’s a lot of hard work. And I’ve got other things to do with my life, other work to do.

But more than one of the endless talk shows about money that I have watched in the past month have begun promulgating the idea that the era of “buy and hold” is over. That we all stand to lose our retirement money if we don’t become active traders. Great. First they force us (or was it lure us?) into the stock market via 401(k)s and lots of dire talk about how ordinary savings can never match inflation. And now they’re pointing out that anyone who bought and held as I did from 2001 to 2008 made no money at all even before this latest cataclysm. So what am I doing in the stock market? As Dylan Ratigan said, “Where the heck is my money?”

It’s sad, really. During the tech boom in the 1990s, we saw people around us becoming wealthy overnight. We all wanted to get in on the action, and some of us did. The ones who took their profits and sold out, and then put that money into something secure (and I do wonder what that would have been) managed to keep their wealth. Meanwhile, others saw their shares of tech stocks become worthless. I remember older guys at my office showing me their 401(k) statements in 2001, telling me how they’d lost a third of their value. At that point I didn’t even have a 401(k), so I had scant sympathy for them. I figured they had time to recoup. And anyway, they were way ahead of me. But that was before Enron and WorldComm and other disasters, which also slashed at people’s retirement savings. Finally, the market started climbing again. Things got better. The funds of my fledgling 401(k) were showing a steady profit, and my retirement savings were compounding at last. And here we are again. That same scenario, just a different cause. Where the heck is my money?

Most people with 401(k)s do not want to become stock market traders. All we want is a sure thing. And the stock market has no sure things anymore. The insiders themselves say so. Then what am I doing in the market at all? I lost money on bonds, for heaven’s sake. How inept can these professional fund managers be? My 401(k) was supposed to be my escalator, my personal hedge against inflation. It’s not going to be after all. I’ll have to depend on Social Security for income growth. Meanwhile, my pitiful little IRA CDs at the bank are still intact and have been compounding interest all this while. Are they keeping up with inflation? Do I care? At least they haven’t lost a third of their value twice, or filled me with false hope.

The stock market always seemed silly to me. Now it seems both silly and dangerous, and to my mind that equals stupid. The only question that remains is whether I should stay in the market for another seven years, hoping that I can eventually sell my stock for the original dollar amount I invested in 2001. Pitiful.

Tuesday, October 28, 2008

Who Is Going to Bail You and Me Out?

What are we expecting, and what will actually happen?

1) The banks will get lots of money.
2) The banks will lend it to us, keeping our houses from being foreclosed.
3) The banks will lower credit card finance charges and make it easier to pay off balances without incurring penalties and harsh rate hikes.

Number 1 will come true. Even now, the banks are being given money by the Federal government, in fact, being forced to accept it.

Number 2 will come true for some people, but a lot will somehow not qualify or get caught at the wrong moment. A few people will even fall for yet another housing scam, and find themselves even worse off than before.

Number 3 will only happen if we the public put pressure on legislators to insist that banks who take a bailout also knuckle under and revamp their usurious credit card rates and practices. Banks are living on credit card finance charges and penalties. We are their huge profit center. They won’t give us up easily, and they will lobby not to let us get away with any write-down of our personal debts. Meanwhile, banks will get millions of dollars in write-downs of their own debts.

In this unfair situation, what are we to do? We should press our legislators to reenact usury laws to cap the rates we can be charged. But meanwhile, until Congress finally acts to protect consumers—thus warding off the third, currently unacknowledged but looming credit crisis of our economy—we need to protect ourselves from getting caught in the squeeze. I know someone who missed a payment and then was assessed 67% in finance charges. It could happen to you.

Here are some tips on how to maximize the value of your credit card payments:

1) Currently, credit card bills get mailed very late in the billing cycle, so we have only a few days to put together the money to pay the total on time. It’s getting harder and harder to trust that the credit card companies will admit that a mailed payment arrived on time. The US Mail is not as slow as the credit card companies claim. Fight back by establishing a free online method of moving money directly from your bank to the credit card company. And then check on your running total weekly, so you can begin to gather up the needed funds in advance. As the new total edges higher, seeing it will remind you to slow down your spending, too.

2) If you usually pay in full, pay in pieces during the month. Then you’re always sure of having paid the minimum on time, thus avoiding any late fees or penalties.

3) If you run a balance on the account, use this early-pay method to lower your finance charge total. The charge is calculated based on your average daily balance, which will then be lower as the month progresses, not higher.

4) If the minimum payment is all you can afford, make it work harder for you. As soon as the payment cycle from the previous month closes (your bill due date), make your next minimum payment. It’ll reduce your daily balance every day of the billing cycle. If you don’t have the full minimum that early in the month, pay what you can as you receive it. It’ll still help lower the bite.

The psychological advantage to paying your credit card bill online in pieces is that you will be continuously aware of the coming total long before you receive a mailed bill, and you will be handling it according to your schedule, not the credit card company’s. That puts more power in your hands. The bill is never a surprise, and you have a strategy to ensure that you never make a late or insufficient payment.

Saturday, October 18, 2008

Have You Checked Your 401 (k) Lately?

Well, don’t. At least, don’t check the total. You won’t be happy. Instead, look at your asset allocation. That’s the page that shows whether all of your 401 (k) is in aggressive growth stocks or in conservative funds or even in bonds. Typically, it will show a mixture. Your job now is to be your 401 (k)’s arbiter of how much should be in which kind of investment.

No one else can tell you what mixture of risk and assurance will allow you to sleep at night. But before you rashly sell and buy, consider your own personal track record when it comes to risk. Have you tended in the past to go whole hog for iffy stocks? And has that worked for you? Or is your style to lock all your money into extremely safe, low-growth stocks or no-growth bonds? Has your capital merely crept along, barely keeping pace with inflation? Is that good enough for you? You are the only one who can decide if you are happy with the trend of your investments. But you do need to know who you are as an investor. And this is something you should know regardless of the current state of the stock market or the economy.

Has your understanding of the market, especially of ups and downs, been proved faulty? Years ago, mine was, and I took that lesson to heart. I had been given some stock in a big corporation. It made a large investment in a product line that tanked in a very visible fashion (think Classic Coke or the Edsel), and its stock took a beating. So I sold it. Big mistake. A company that large commands so much talent and market presence that it soon had another wildly successful product. The stock split, and then split again. And it has been on an upward trend ever since, although I am sure it has had periods of being down a bit, too. I haven’t been looking carefully, because it reminds me of how I lost a huge amount of profit. All because I thought a momentary down was permanent. In these extremely volatile times, you need to consider that lesson. Some businesses are going to do well in the future regardless of current craziness. Others are headed for oblivion. If you don’t have enough knowledge to forecast which is which, then your choice is to educate yourself or let a fund manager do the worrying.

I could have bought stock in that company again, and participated in the rest of its good times. But being stubborn and stupid about a mistake is a common human failing. It even has a behavioral economics name, the disposition effect. That’s when we tend to throw good money after bad, even though we know we should cut our losses. I’ve talked about it on this blog in the past, although not by name, when it comes to being stubborn about staying in a house you can’t afford. Turns out we’re all doing this all the time in all areas of our lives. That’s probably why your friend took so long to dump that loser she dated.

I tried again with the stock market, years later. I bought an index fund. But I hadn’t been paying attention to the trend of the market, which was down. It immediately lost one third of its value. So did everything else in the stock market, of course, but I felt like an idiot. Because I was. The safest thing to do if you aren’t an expert on the stock market is to hire an expert to work for you. Individual brokers haven’t usually been the answer for the modest investor; mutual funds have. With a mutual fund, you spread your risk because you buy a defined mixture of assets, and then depend on the fund manager to keep buying and selling the right assets at the right moment. Still, in a precipitously down trending market, you’ll initially lose money.

I’ve previously advocated putting money into bank savings accounts or CDs, and I still do. It still makes sense to protect your principal. The problem with utterly safe bank investments and bonds is that they don’t grow your principal. So you have to decide what you are saving for. And this is where it gets sticky. If you are saving to pay your mortgage, car payment, tuition payment , and other set obligations for the six months to a year it might take you to find a new job if you lose your current one, a bank is the best place for the money. Why? Because as I have said before, even the deflated value of money in the bank still pays the original percentage of a fixed obligation. If the mortgage is $2,000 a month, it’s still that a year later. So if you have $24,000 in the bank to pay your mortgage for a year, you’re fine. But you don’t necessarily want to have two or three years of payments sitting in the bank not keeping pace with inflation and not growing. And that’s why people turn to the stock market.

What you want to think about is how long you have to grow the bulk of your savings as investment, versus when you want to draw on that money. And that’s unfortunately where the current stock market mess is giving people anxiety attacks. Because some of us need to retire very soon, or we need to draw on education accounts to pay for college very soon. As Jim Cramer of the TV show “Mad Money” said recently, if you need the money in the next five years, pull it out. He has been credited and vilified for saying this, because the stock market went even lower after he said it. Is the advice of one man that influential? Possibly, in a time of general panic. But then why did Warren Buffett’s three billion dollar investment in GE stock not send every investor in the world to buy GE? Incidentally, Cramer put his money where his mouth was. He sold stock from his elder daughter’s college fund because she’s in college now. He’s holding the stock in his younger daughter’s college fund because she has several years to go before college. My own personal decision has been to leave all my investments in the stock market as is. But then my own 401 (k) and SEP IRAs are so small that they’re not particularly significant to my future. I still have hopes that I can grow them so they could become substantial, which is why I am leaving them in.

Most of us are familiar with the concept of dollar cost averaging. This is a great time to buy stocks cheaply. So keep shoveling all you can into your 401 (k), acquiring more assets in the proportions that make you feel comfortable. Buy more bonds, for instance. Your research should not be on individual stocks unless you have an area of expertise that allows you to understand how a certain field trends. I have a relative who specializes in railroad stocks. As a lifelong railroad fan, he has accumulated a vast amount of knowledge about the assets of individual railroads and he knows when a certain stock is undervalued. But he also knows when to take his profit and sell, thus avoiding the disposition effect. If you don’t know that—and I certainly have proof I that don’t—then individual stocks are not the investment for you.

Instead, research funds and fund managers. You want a fund, or a mixture of funds, that gives you a fighting chance to cash in on every stock that is underpriced in today’s market (and there are plenty). But you don’t want or need the heartache of knowing their individual ups and downs. That way lies madness. Your fund should include rebalancing on a regular basis, whether the stock market is in crisis or not. What is a comfortable risk profile when you are 30 is not the same as when you are 60.

And stop checking your 401(k).

Tuesday, October 14, 2008

Math Madness

An article in the NY Times complains that math skills aren’t prized in our society and as a result, we’re missing out on a lot of talent. Girls in particular, but boys also are discouraged from doing anything that labels them as smart, and thus nerdy.

No surprise. I was good in math, but my problem with math is how it is taught divorced from real life situations. As an adult, I look around me and realize that complex math is what professionals are using to design houses and build bridges and manufacture just about everything. And these skills are only taught in specialized, advanced math classes that are labeled as something different. Astronomy, for instance, or Engineering, or Architecture, or Production.

What I find infuriating is that math is not taught at the introductory level as it ought to be taught, not stripped of all relevance to the complex work of the world, but specifically tied to it. I spent an entire year learning trigonometry, and I did well in the class, but even then, I had only a vague notion of what use trigonometry had in the real world. Yes, I knew that harmonic curves are related to sine curves. But I had no school work that tied the two together. Thus there was no need to learn trigonometry beyond what I had to in order to pass the course. And no need or opportunity to retain the knowledge and use it again in a trig course that connected the dots. Imagine how much more interesting and useful it would have been to have been taught about sine curves in conjunction with music theory. Or with any other area of relevance to trig.

Similarly, my friend who sent me the article (yes, you, James) mentioned logorithms. I remember doing quite well with them. (As I said, I was good in math.) But even then, I didn’t know what real-world purpose logorithms served. There were tables of them, but why? I’m sure they told us, but the information did not stay in my head because it never got used outside of math class. And we talk about algorithms all the time, but how are they related to logorithms?

Calculus, which I took in college and which was taught so poorly that basically my entire section failed, was another mystery. What it was for, I could not grasp, and thus it was hard to remember any calculus function long enough to pass an exam. And yet it turned out that calculus was a prerequisite for astronomy, a subject about which I and many other people are interested. But the general public knows very little about the complex math of astronomy. It’s as if the scientists speak a secret language to each other, and we’re just left to admire the bright side of the moon.

Why must we all learn math stripped of its color and life? I grant that some people have a sheer love of numbers, and that those people may be determining math curriculums. But it’s crazy to deliberately make a field of study theoretical only, when you can sell it to people so much more readily if you make it real world. Although choosing which real world application to teach might be an issue of economy, and that’s why it gets taught at the theoretical level instead.

(At this point, I must mention that I trotted out this theory at a party recently and the calculus teacher there refused to comment on it, claiming he did not want to offend. Actually, he refused to say anything more on any topic, period. So even though he may have had insightful, valid objections to my theory, since he obviously considered himself above his company and couldn’t be bothered to voice them, I haven’t a clue what they might be. Other than that math classes actually are taught today with direct links to the real world uses, and I’m just a blowhard with amnesia. )

Even simple math functions need more humanizing. Students may leave school knowing how to add, subtract, multiply and divide, but if they don’t know when to do it, they know nothing. People make wild guesses during essential mathematical transactions, and merchants and marketers constantly take advantage of this. We need to know whether a bottle with 200 ibuprofen at $4 is cheaper per pill than a bottle of 500 at $7.22. (I can’t do the math in my head, and the prices are deliberately uneven in order to make it hard for me.) Shelf talkers often don’t compare by the same terms. We need to know just how many variables we must take into consideration—mathematically—when we decide on many other essential purchases and conditions of our lives. But mostly, we guess.

Why is adding and subtracting not taught using ATM withdrawals and fees? Is Drive Thru banking taught including the cost of idling the car versus parking and walking inside and then re-starting the car? What about the value of a bulk buy at a grocery store versus the rate at which we consume the item? Whether to take the cash back or the interest break on a car deal?

Maybe some teachers do use these real world calculations. Then I guess the question becomes why didn’t they stick? Why are we constantly making very wild guesses at the true cost of things we buy? We could all be carrying graphing calculators hanging from our belts or handbags, and making complex calculations based on many variables. Or computers that talk to our home computers. Which would mean that no one would ever buy a chair again that doesn’t fit through the door to their home. But we don’t. We go along, deliberately vague, letting our wild guesses arbite our buying decisions. It’s crazy. Which costs less, a used or a new car? Used, flat out. Which costs more, a new car or a leased car? A leased car. Which costs more, a loan from a bank or from the finance company the car dealership uses? The dealership loan. Which saves you more money, a lower interest rate or cash back at purchase? I don’t remember, and I don’t know the calculation that would give me the true savings in interest. (Ah, there are more variables in this: How many years you expect to own the car, how you expect to use it, etc.)

These are all decisions ordinary people have to make. Why isn’t the math we learn infused with these situations? I don’t care how long it takes Johnny to get to a mythical city at 30 miles per hour versus at 60 miles per hour. I want to know what advanced mathematical calculation explains why it takes him two hours to drive 25 miles at 7:30 AM, and only one hour at 10 AM, and what that extra commuting time is going to do to his personal time, his family life, his sleep habits, and his chances of getting a promotion because he’s always exhausted at work. Real life. Real math. Real money.

Wednesday, October 8, 2008

Who Needs Granite Countertops?

I was posting on LiveJournal about our economic mess and the poor homeowners stuck with impossible mortgages, and then I had a thought: Who needs granite countertops if you don’t cook?

I watch a lot of home improvement shows. I’m not sure why. I never used to and in the past I would scoff loudly that they were a waste of time specifically designed to move useless product. I happen to believe that the entire decorating industry exists to decoy women’s energy into useless endeavor. Spend months or years decorating your house instead of earning a college degree or a promotion, or starting a new business, honey. No.

But I keep seeing house hunters traipsing through homes that are perfectly adequate, complaining that there are no granite countertops. And sometimes I look at those people and I just know that all they do is order takeout. They don’t cook. They don’t need a professional stove, a stainless steel refrigerator, or a two-drawer dishwasher. Because all their dishes are plastic takeout containers. And they toss their cutlery in the trash.

What people keep looking for in homes is status. Flash, if you will. And I admit that when I went house hunting four years ago, I was doing my version of the same. I had lived in a modest, completely unpretentious house for 15 years. Now I wanted something that had grace and charm. That was expansive. A house whose hallways weren’t cramped. With bedrooms big enough so that if you fell out of the bed, you wouldn’t hit the dresser. Or the wall. Now I have it, but I also have 26 more years to go on a big mortgage. If I’d stayed in my old house, I would have been done with the mortgage in another 11 years. About when I’d probably want to sign up for Social Security payments. Did I make a mistake? Only time will tell, but I surely have taken a risk I did not need to take. Nobody was forcing me to leave my old house. Only my sense that my time there was over was pushing me out. And I am glad I sold up. I feel as if I was reborn when I moved into my current home. A new me has emerged, and the gracious, spacious, sunny and private new house has a lot to do with it. However, all it will take is a job loss and several years of unemployment or underemployment, and I will lose this house. And then have to move on to another, lesser version of a new me. I’ll cross that bridge when I come to it, but I am not ignoring the threat. But I’m typical of many Americans. I take risks.

The conventional rule has always been to buy as much house as you can afford. But somehow, the definition of what we can afford has splintered, because tons of us have managed to buy houses that we quite obviously cannot afford. People have bought houses they couldn’t even make the first payment on. I couldn’t afford our previous house as soon as a layoff occurred. It took years to re-climb the pay scale enough to afford the house again, years in which credit card debt fueled our extremely modest lifestyle. I’ve often thought that we should have just given up the dream of home ownership, sold the house, and gone to live in a relative’s basement. But, like so many other Americans, we didn’t. We wanted to be homeowners so badly that we were willing to sacrifice many other aspects of quality of life. And looking back at it, that’s a crazy risk.

Another crazy risk was paving our driveway recently, and thus putting a lot of debt on a credit card. It gives me a fellow feeling with other Americans who are crushed by debt. It makes me very careful with our money. And, irrationally, I believe that being careful is the answer, even though logically the solution to lack of money is always to obtain more of it. Get another job. Get a better job. Prod a family member to get a job. Sell something, etc. But this is a terrible economy in which to be looking for a job. The only bright spot is the thought of all those arrogant Wall Street guys also looking. Maybe they’ll have to sell their posh homes with all the granite countertops.

But I still don’t want one. Granite’s a bitch to take care of. It’s pretty, but we have the darkest kitchens ever now, full of dark granite, dark hardwoods, and basically non-code, hot, dark task lighting. A working kitchen should be bright and filled with light, so you don’t chop off a finger. But in a time of excess, it’s a status symbol to have a dysfunctional kitchen with appliances fit for a professional chef and all the rest looking like a boudoir. A beautiful showplace with a huge countertop for all the takeout containers. Count me out.

Saturday, October 4, 2008

Savings Accounts, Part Trois: Staying Safe in an Unsafe Financial World

We all know that the finance side of the American economy is in meltdown right now, so let’s not talk about that any more until it reaches some stability. Let’s talk about our personal savings, which we don’t want to see vanish through either a stock market that stays down forever or inflation that wipes out the value of those savings.

An entire generation of Americans has been persuaded to put its personal retirement savings, usually as 401 (k)s or IRAs, into the stock market. Which did not feel very good in 2001 when the stock market took a serious tumble after the tech meltdown. And it doesn’t feel very good today, either, with major investment companies failing and banks going under, too. But down markets don’t usually last. Given time, our stocks will recover. Or at least, they should. The one aspect that bothers me is that for the first time ever, foreign investors, the very people whose fickle confidence has been responsible for major financial collapses in many developing nations, are not confident in America. These foreign investors are waiting for the fire sale; they aren’t treating this dramatic mess as just a minor blip. I believe this is a genuine and scary sign that the US is on its way out as a major economic power. The power issue doesn’t bother me as much as the fact that we could become helpless pawns in the same games of economic opportunism that messed up many another country’s economy and plunged it into runaway inflation. And inflation will destroy the value of our savings and of our 401(k) and IRA accounts.

Maybe. As I’ve said before, if the mortgage stays the same and the dollar amount we have in savings stays the same, then we haven’t lost anything as long as we pay the mortgage with those dollars. The same thing with paying any other fixed obligation incurred before inflation. The principal doesn’t rise, so dollars that are worth less will still pay off the same dollars of debt. The problem is going to be when we try to live on assets from a 401(k) or a pension (we should be so lucky to have one) that add up to a fixed dollar amount when the price of everything has gone up via inflation. Then, we’ve got trouble. Some retirement payouts are indexed to inflation; others are not. And therein lies the potential to be faced with eating cat food in our old age or not buying needed medicines, because our income dollar amounts have not increased to match inflation.

Which leads us back to the stock market and all the risks it entails, because it is about the only game in town that can offer profits that hedge against inflation. Yes, there are TIPS, the US Treasury Inflation-Protected Securities. But buying TIPS is complicated and yearly recordkeeping regarding their earnings is required. Unless you are a financial expert, you’re pretty much stuck using a broker to buy TIPS, and that means more fees as well as exposing yourself to the persuasion of a broker to do something not in your long-term financial best interests. And as far as I know, TIPS cannot be part of a retirement account. (If you know something different, please comment.) Thus anyone contributing to income tax deferred 401(k) or IRAs is not able to sock that money into TIPS. Another reason why our contributions to retirement are mostly at risk.

There’s also the bond market, and most of our 401(k) portfolios do include some bonds. But unless we buy bonds at a discount on the face value, they don’t pay much. And their value never goes up. They do not protect us against inflation. Although bonds are the first call on a bankrupt company, ahead of preferred stock, they’re still a risk. In the current meltdown, even bondholders could take some unpleasant payoffs if the money just isn’t there anymore. And that’s one reason why our government is bailing out some of these big financial institutions. Everything is intricately connected to everything else.

I recommend that we save more in conventional savings accounts and CDs. Why? The common reasoning goes that savings banks only pay a puny rate of interest and thus will not grow our money. Putting our money in savings banks will ensure that our savings do not keep up with inflation. And so on, and so forth. But all along, I have had my doubts about this line of thought. The thing is, a savings account at an FDIC insured bank is safe. How long would my savings have to sit in a bank to be seriously affected by inflation? Is it the length of time I save or just being exposed to inflation at a certain moment? In other words, if I keep money in ultraconservative, fully federally insured savings accounts until a time when inflation starts happening in a big way, and then switch my money instantly to stocks, wouldn’t I get the best of both worlds? Long-term safety, and short-term gain? And isn’t that what owning a house for decades and then selling it in an up market achieves?

Not so long ago, our current president was touting privatizing Social Security and wanting to put all that money in the stock market, too. That would have been a disaster, especially considering what has been happening with the investment business lately. Each of us could then go broke in two different ways. And I doubt that there would be a federal bailout for the poor suckers whose Social Security benefits were wiped out by investing in BearStearns or Lehman, for instance. This is an idea that is quite dead at the moment. If someone revives it, point to 2008 as a good reason not to go for it.

So what’s the bottom line here? The usual, of course: Live within your income and make a point of saving. If you can. Save even if it means denying yourself something that you want today. Then maybe you will have money for things you actually need tomorrow. Put some of those savings into utterly secure accounts such as FDIC insured CDs with short terms or conventional savings accounts, not retirement accounts. The bottom can’t drop out of those, nor will you have to pay an IRS 10% penalty tax to get at your money before age 59 ½. Make sure that some of your money is available with no penalties at any time. As always, visit a half-dozen savings banks (including online banks) to get competitive quotes on terms and rates.

Friday, September 26, 2008

Class Warfare: Who Gets the Bailout?

The rich and the middle class and the poor are not friends; they are enemies. (To the rich, everybody else is the poor, by the way.) The rich do not care about the fate of the poor. Soaking the poor, grinding the poor down into greater poverty, is the time-honored method of getting rich. But there are consequences to such indifferent venality, as the aristocrats guillotined during the French Revolution may have realized.

The recent real estate bubble was a direct consequence of investors fleeing the uncertain stock market after 9/11 for a safer venue. Land always exists, after all. But the sudden fashion for investing in real estate and the availability of this new investment money created pressure to use the money creatively. And that embroiled too many ordinary citizens in what amounted to a giant Ponzi scheme. Yes, as with any scam, the mark has to agree knowingly to some kind of cheat. And people did, signing up for mortgage payments they knew they could not afford. The scam they thought they were running was to dip into increasing equity in their new homes as the market continued to rise crazily. Meanwhile, the biggest investment companies were selling each other a different scam, consisting of complicated bets on whether this would happen. Swaps of risks, at high earnings. When the bubble burst, everybody had to lose.

That of course is the reason that people are saying no bailout at the top of the financial pyramid will work unless there is a bailout at the bottom. If foreclosures continue, the value of the complex securities bolstering the big financials will continue to drop because no one knows what they are worth in today’s market. If foreclosures stop, the market will stabilize.

My own personal suggestion is that every mortgage in or nearing foreclosure should be renegotiated to a 50- or 60-year term. Anything to get the monthly bite down to what is affordable. It’s not as if the length of a mortgage really matters, since 80% of people sell their houses long before they pay off their mortgages. (The total dollar indebtedness hardly matters, either, since in a stable housing market, prices normally rise. Thus even a house that has lost 25% of its value in today’s market will eventually regain that value.)

What is important is that we provide a way for ordinary people to stay in their houses, living from paycheck to paycheck as usual. The middle class must be able to keep up with their payments. All their payments, including home equity loans and credit card bills. The US economy depends on the pressured middle class to keep paying and paying, at high rates of interest. It’s not an ideal economy, but as long as people don’t go too far into debt, it works.

What the housing catastrophe has proved is just how devastating a significant middle class loss can be to the highest levels of the economy. Increasingly in the past several decades, anti-regulatory laws have enabled the rich to make amazing financial gains at the expense of the middle class. The rich have brushed off concerns about the financial burdens of the poor (remember, that’s how they think of the middle class). Now the rich are hurting because their own investments are tied up in the companies that are foundering. And these companies are foundering directly because of the foreclosure crisis affecting our middle class. Ironic, isn’t it? Maybe the rich are not so immune from consequences after all. And maybe we don’t have to guillotine them to punish them for their vicious greed. They can take the fall that the rest of us are taking.

So count me as anti-bailout unless the rest of us get a bailout, too.

Wednesday, September 17, 2008

A Lesson in Pricing

Wall Street is a mess right now. The biggest, oldest investment banks in America are tumbling like dominoes. The world’s largest insurance company is in deep trouble. And looking at your 401(k) at this moment is an act of self-torture.

The New York Times had a very interesting article describing this entire situation, “On Wall Street as on Main Street, a Problem of Denial,” by Joe Nocera. I’m intrigued by the idea that these big institutions have been in the same denial as individual homeowners, thinking their property is worth more than it is. Market determines worth. It’s a hard lesson right now for some people.

Yet only a few years ago, we sold our house for a fabulous profit because of the rising market. Not because our house had suddenly become wonderful. It was an ordinary home with no architectural distinction, and it had some flaws. But suddenly, in that crazy rising market, it was worth twice what we had paid for it 15 years before. Did we object to the absurdity of that high dollar amount? Of course not. We took the money.

Right now another modest suburban home is for sale a couple of doors down from my relatives. It is priced to sell, as the phrase goes, but there have been no takers. Even though the price has been lowered several times, the house is lingering on the market as so many houses are across the country. But it should be noted that the price they started with was way, way beyond what that level of house was valued at only a few years ago. It’s a fair price for the market that no longer exists. Until the price is reduced to meet the market as it exists now, the house isn’t going to sell. Even though they have dropped the price more than $60,000, that impressive dollar figure is only a reduction of 15% in price. We expect 15% and more off when an item is on sale in a store. Why not expect a house to be similarly discounted? This house still has not been reduced to the price level of what those houses were worth five to eight years ago. Depending on how far the market has fallen, the owners may still be out of luck even though they aren’t in denial. But as long as they have owned that house throughout this entire bubble, they haven’t lost any money; they’ve simply lost expected profit.

According to the Times article, the big investment firms have been and may still be in denial. They aren’t longtime owners of specific dollars the way a homeowner can be the longtime owner of a property; their money gets shifted around constantly. So they are looking at real losses. Except that the values they have assigned to their now tumbling assets have always been arbitrary. And right now, retaining the old pricing is a form of denial. They simply haven’t been willing to admit that they need to discount until the stated price of their holdings reaches the current market value. Because they’re talking in billions of dollars, we ordinary mortals find it hard to grasp that the percentage is the issue here, not the dollar figure. But the house near my relatives tells the true story.

Who knew that these big companies could get as silly and stubborn as we individual homeowners? It’s a lesson in scale. Also in pricing.

Monday, September 8, 2008

Financial Instability Sucks

Recently someone chastised me for talking negatively about my financial situation. The person cited how good it is compared to that of other people. That got me to thinking about why I was carrying on so.

These are scary times for our economy. People keep losing good jobs, and never finding good ones again. Whole categories of work have gone from our shores forever. Age discrimination is real, and so is degree creep, both of which are helping to keep me and many other people out of employment. Not to mention other forms of bias. I have hit the wall on serious employment, like many people whose employers have been merged, shut down, and downsized (I’ve experienced all three). My employment resume is too old and too cold for a regular job. And my freelance work is too odd and unusual (romances? personal finance? comic books?) to be attractive to a conventional employer. Plus I live way out in the boondocks where there aren’t many good jobs anyway. In fact, I feel pretty darn sorry for myself. Sure, I can change where I live, and I can go back to school again, but these efforts are expensive and they might not be enough in today’s tough employment scene. I’ve been a freelancer for many years, but so far have never made big bucks at it. The fact that I make any money at all as a freelance writer puts me miles ahead of many other writers I know, but that is cold comfort when I’m feeling worried.

Still, ten years ago, my life really sucked. Bad things were happening, and I owed enormous amounts of money. It was a terrible time. But why am I so down in the mouth right now? All of those ills are over. Our income is higher. I only owe one credit card the price of paving the driveway, and that can be paid off at any time because we have savings. Everybody is healthy and happy. What’s the problem? Is having that one credit card bill enough to send me into a funk? Is that how fragile I feel?

And why do I feel fragile? Because I feel helpless.


If these were good times for employment, I could solve a real money problem or even an imaginary one by getting an additional job. But they aren’t good times, and with gas prices so high, the cost of the easily-come-by bad job in a discount store is too close to the net pay. So it won’t solve my problem whether my financial issue is real or imaginary. The next few years may prove that all my fears are for naught, but I don’t know that now, do I? And it makes me fretful and even whiny. And that’s how I feel based only on worrying. Imagine how bad people feel who have something concrete to worry about, such as high credit card bills, college loans, impossible mortgage payments, declining health, and more. No wonder these are negative times in our country. People are stressed and the result is a “the glass is half-empty” attitude. When actually, my glass is half-full, and probably yours is, too.

I don’t know the answer to turning my attitude around, but counting my blessings is certainly a start. If you’re feeling down and out, maybe you should do the same. Because the truth is, things could be worse. We might as well try to enjoy today.

Monday, August 25, 2008

Big Mistake?

People make financial mistakes and they don’t want to admit them. It took me a long time to realize that. You’d think that living with my mistakes in the past would have made me own up to them. But no. It took a lot of thinking to even get to the point of admitting that I had made any mistakes.

So today I’m going short-circuit that self-delusional impulse, and admit that maybe I made a mistake a couple of months ago by financing my new driveway with a wire transfer from a credit card. Oh, not because we’re having trouble making the payments, or even making large enough payments to clear the balance before our 3% paid-in-advance fee period runs out. But because this month when I opened my bill I was absolutely horrified to see that the check we mailed on the 1st was credited on the 10th. Thus making our payment late. There was a late fee of $39, but more horrifying was the finance charge of $106.31 which was tacked onto the bill. By supposedly missing a payment due date, the terms of our loan had been breached and the credit card company could now charge us 11.74% as long as there was a balance outstanding.

Of course I called the company and had the late fee and the finance charge removed. And the CSR said she would send the case to another department to petition that the original terms be reinstated, so no more interest would accrue. She said that nine times out of ten, such petitions are approved.

So I should be relaxed now, right? But I’m not, because another bill we mailed the same day—actually, our mortgage payment—was credited the 6th, a full four days before the credit card company claimed to have received the payment. And so now I’m wondering if the credit card company is playing games. Has the company deliberately been ignoring opening its mail? Has it created labyrinthine processing structures just to trap the unwary? Hoping that most people won’t bother to call and protest? In recent years credit card companies have been shortening the number of days between when the bill is received and when it is due. I’m absolutely positive that this is a deliberate effort to entangle customers in late fees, as well as give the company an excuse to hike the finance charge rate. Are the companies now pretending that it takes the US Mail nine days to get a payment from West Virginia to Delaware?

There is legislation in Congress that attempts to set a generous 25 days for paying credit card bills. Maybe it’ll pass, but that might not solve the problem. After all, many credit card companies take up to 10 days after the monthly closing date on an account just to mail the bill. Another processing slowdown that in this electronic age I can’t help but think is deliberate.

Meanwhile, how do I feel about all this? Not so good. I’m seriously considering the online payment option if it turns out to be free. Or even an electronic check via the phone, which my state mandates must be a free service. But credit card companies play games with those, too. They’ll take the phone payment and credit the account a couple of days later, which makes no sense technically but lets them charge a couple more days’ interest on accounts that run a balance. I’m also thinking about just paying off the balance of this loan the next time one of my CDs comes up for renewal. Who needs this kind of roller coaster ride? Even though the plan was good on the face of it, living under it makes me uneasy. It’s beginning to engender that “I’m trapped” feeling that I lived with for so long when I had huge balances on all my credit cards and no way to pay them off. Been there, done that. Don’t want to go back.

So let me be an example to us all. We’ve had two months’ ride on this borrowed money at 3%, which was good. Now we probably will have that same rate for the next 11 months. But it’s not up to us anymore; it’s totally up to the credit card company. They have little incentive except to keep me as a customer. They’ll make a lot more money off me if they refuse to go back to the original agreement. That is, until I balance transfer the debt to another card with low terms, which I will do if I have to. But I hate to have my thoughts tangled up with these strategies. It’s a drag. My next CD renewal comes up in late October. Check back to learn if I go for paying off this debt so I can breathe freely again.

Thursday, August 21, 2008

Cars versus Alternative Transportation

In my previous post, I ranted against Alan S. Blinder’s foolish ideas about giving up old cars. But I didn’t talk about his casual suggestion that people would simply choose other forms of transportation. Now I want to address that, because he ought to know better. His idea is nonsense.

People don’t drive beat up old cars for the fun of it. They drive them because they need transportation. A TV news show I just watched claimed that 50% of us live outside the cities. In the countryside and suburbia, where buses don’t run. As for trains, nearly every new commuter rail proposal gets fought to a standstill for years on end, while existing rail is often at capacity. Our governments don’t want us to use public transportation. If they did, they’d provide very cheap and very convenient transportation everywhere. There still is no public transportation within five miles of the house I bought 20 years ago in Maryland, and there is absolutely no plan to provide any, even though more and more homes have been built up to and in that neighborhood. The government runs the zoning, and could have forbidden the construction of those homes. But it did not. By area, most of the US is not densely populated cities. Some people believe we all should live in cities, and that would solve the transportation problem. But the fact is that some of us don’t want to, and aren’t going to.

I just visited Denver, where the city runs free buses on one mile of a downtown street. The buses are always packed. But that was only on one street, on a pedestrian mall, downtown. The light rail system hardly serves the poorer parts of the city, where people could use a fast, pleasant, and clean alternative to noisy, stinky buses. Or to driving old clunkers. There was plenty of car traffic in the city. The light rail only serves the richer suburbs. People who live there could park in the rail garages and lots, and go into downtown Denver and see a baseball game at Coors Field without having to drive in and park. They could easily attend a concert or other downtown function. This is good. But why does the light rail only serve the fancier suburbs? Because if it served the poorer ones first, the more affluent people would never use this means of transportation? I have a sinking feeling that is the ugly truth. Thinking back on it, I realize that WMATA built the Washington, DC Metro system using the same method: It built the system to the most affluent suburbs first, and only now is finally getting around to hooking up the people most likely to be desperate for public transportation, who otherwise would have to drive old clunkers or take three buses to get anywhere. Or walk.

Walking to work is overrated. It’s fine in a nice, safe city neighborhood in the daytime. It’s not so much fun at night in a creepy neighborhood. Or where there aren’t any sidewalks. Or when the weather is bad. Or when you have to walk for miles because there are no alternatives, not even a taxi. And it takes a lot of time to walk, and few Americans have an extra two hours every day to give to walking.

What about bicycling to work? Most of us don’t want to bicycle in the rain, nor do we have the ability to ride a bicycle on an icy road. Maybe Lance Armstrong can, but he’s got a bicycle that costs more than a car. In some cities, buses are becoming more welcoming to people who want to board with a bicycle. But buses aren’t set up to handle more than a few bikes at a time, if that. And lots of businesses don’t look kindly on employees who show up with bikes. And let’s be candid. Working up a sweat on a bicycle out in the open can make people stink, get them dirty, and even stress their immune systems. Not to mention get them killed by trucks or buses.

Compare this with India, where the burgeoning, computer-assisted outsourcing business has led employers to make rational decisions. They employ many men and women who cannot afford cars. They want these employees to show up on time. And they certainly don’t want the women to be attacked on their way to or from work because they’re CSRs doing the night shift to mirror our daytime. The answer? The company provides free, safe, transportation. Indian companies run company buses that loop through to where all the employees live. Even better, by creating these bus schedules, the company has to promise not to overwork employees. Workers have to be let go to take their company buses home. It’s a win-win situation. Absenteeism is low, overwork is kept to a limit, and hundreds of potential commuters aren’t driving to work and jamming the already overcrowded roads.

But this is America, and we insist that workers find their own way to work—and also that they stay longer and longer hours, which is another reason why public transportation wouldn’t be convenient even if it existed. If employees are forced to stay and stay at the office, then bus and train schedules can’t be limited to classic commuting hours. Which makes the system more costly and inefficient to run. Carpooling can’t happen under these circumstances, either, because it depends on workers who share a ride leaving at the same time. Maybe the traders on the stock market floor actually get to go home at a regular hour once the market closes. And government workers often are allowed to keep regular hours, but not always. With less factory work in this country, fewer and fewer workers leave their jobs at the same time.

Even in New York City, the one city in the US whose public transportation system works, plenty of people own cars. The subways run all night. There are buses and express buses. There are commuter trains. There are taxis and car services. Still, many people have cars. It’s expensive to garage them and inconvenient to move them constantly for street cleaning or risk a fine or a tow. And lots of cars get stolen. But people have cars anyway. They own cars because the automobile is the best invention ever for getting people where they want to go, at their convenience, in comfort, safely, and regardless of their physical abilities. We’re not giving up our cars.

Tuesday, August 19, 2008

Old Cars for New? Or for New Debt?

Recently, I read a remarkably stupid article in the New York Times by Alan S. Blinder. He proposes that the Federal government pay people to give up their old cars. This kind of program evidently exists in several states, and the purpose is to get the cars that pollute the most off the highways. It’s a noble enough purpose. But I dispute the consequences.

Blinder suggests that owners of old clunkers, as he calls them, should be paid 20% over Kelley Blue Book value, with a cutoff of $3,500 to $5,000. A nice enough deal if you are 88 years old and have given up driving. You’d get some cash. But what about the rest of us?

Blinder thinks that people who own really old cars and trucks (older than 10 years) have income as high as $60,000, so that’s the upper income cutoff he suggests. He’s an economist. In theory he knows who owns old cars. But does he? This is one of those times when personal experience seems more accurate. Maybe it isn’t. You be the judge.

I used to own old cars. In fact, until a couple of years ago, I never owned a car that came out in the same decade in which I was driving it. The newest old car I’d buy would be six years old. I ran my old clunkers until they died, usually in their early teens, long before they could become valuable collectible classics. I did not do this because I like driving old cars. I did this because I could not afford a newer car. In fact, I drove such old cars that my mechanic would eventually sit me down and in his fatherly way advise me that it was time to get something newer because I was putting too much money into repairs. Still, until then, it was cheaper to do the occasional $300 repair than to make a car payment every month. Insurance was cheaper. Even sales tax for titling the car initially was cheaper. Fuel efficiency on most of those cars wasn’t outstanding, but wasn’t bad, either. I’d get around 18 to 22 miles per gallon. And all of those cars were big enough so that when accidents happened, no one in the car was hurt.

Is a person who is driving a 10-year-old, paid-for car earning $60,000 a year? I don’t think so. I wasn’t. The person driving a car that old is earning $30,000 a year or much less. Like $10,000 a year. This person depends on the low book value of the car to keep the cost of running it low. They drop the collision insurance to reduce insurance costs. In states where personal property taxes are levied on cars each year, the advanced age of the car also reduces the tax from hundreds of dollars per year to a pittance. And lots of people with old cars and trucks do all the maintenance and repairs themselves. It’s a typical sight in West Virginia to see a guy fixing his car by the side of the road. Keeping the car going with baling wire and chewing gum, if necessary. I’ve known plenty of people who tied their mufflers on with a coat hanger.

But let’s assume I go for this great new government program. I get the maximum $5,000 cash for my car. Now I have no car. Blinder would have us believe that I will then be able to purchase another car, specifically, a new car, thus boosting the ailing auto industry. That’s a laugh. A government payment of $5,000 will not buy a new car. It won’t buy a used car outright, either, unless it’s another old clunker. So I’m stuck replacing my old car with another old car, or with a car loan for a newer car. Which means I have to go into debt.

If employment in this country were secure anymore, which it isn’t, I’d buy a new car on time and make monthly payments for four years. Or even a used car on the same terms. But what if I lose my job, a common occurrence these days? If I still had my old clunker, it wouldn’t cost me anything not to commute in it anymore. But with a car loan outstanding on a newer car, I’d risk having my car repossessed if I didn’t have enough money to make the payment. Unemployment insurance runs less than a year, but car loans run longer. Sooner or later, I’d either be homeless in that car, or I’d try to keep the roof over my head and have to let the car go. Thus making it very difficult to find or keep a new job.

Blinder is happy because an old car has been gotten off the roads. He’s also happy at the idea that people will run out and buy new cars and keep Detroit afloat. But he pays no attention to the dire consequences of piling up more consumer debt. A car loan is a secured loan, which is good for the seller. But a repossession isn’t good for my credit record. It means that the next time I need to get a loan, I’ll be offered higher rates. Blinder probably thinks this is a good thing, because it boosts the bottom line for credit companies. Apparently, the US economy can no longer run without the help of nightmarish levels of consumer debt. But wait, there’s more. The new car is taxed and titled and insured all at a much higher rate than the old clunker was. Thus adding to the coffers of state governments and insurance companies. This makes everybody happy except the car owner, who used to own a car that ran, and now merely owns an interest in a car.

A government program to help remove old clunkers from the road isn’t likely to improve the lot of the people driving them. It’s adding insult to injury to tell people that their cars are too old. They already know it. Thanks, Mr. Blinder. With friends like you, more poor Americans can be poorer still.

Friday, August 15, 2008

Overspending Creates Clutter

People with poor money habits complain about not having enough money. But they don’t want to stop spending the way they always have. They don’t want to modify their lifestyle. What they really want is for someone to show them a system that will allow them to keep on spending and somehow not end up in debt and out of money. Can’t be done.

I recently watched an episode of “Clean House,” a de-cluttering TV show. People whose homes are stuffed with clutter don’t think they have too much stuff. They think they need someone to help them get it all organized. They want someone to perform the miracle of shoving two homes’ worth of possessions into one. Also can’t be done.

Even though money is basically an intangible (dollar bills have no intrinsic value; we merely assign value to them), it is like clutter in that it is finite. Although credit gives us the opportunity to spend money we don’t have, we do eventually have to pay up. And we can’t re-use money to pay off two different bills. (Brinksmanship is merely a transfer of debt from one account to another.) But many people don’t want to accept that money or clutter is finite. They want what is impossible, for two objects to occupy the same space or one dollar to be several.

It’s a known fact that many people who overspend also clutter. Sadly, they often overbuy organizing containers. On this TV show, storage containers played a prominent role. They were everywhere, empty or full, tossed sideways or stacked precariously. They weren’t helping. And the sad reality was that despite the efforts of the four-person staff, the items that they were able to clear out of the house and sell at the yard sale—and these things were covering all surfaces in all rooms—only brought in a bit over $900. That’s right, all the supposedly valuable things with which these people had been choking their home were deemed by willing buyers to be worth under a thousand dollars. And you can be sure that those items cost considerably more to purchase. Most yard sale prices are 10% or less of the original purchase price. There’s a good chance that family spent $10,000 or more just on the items that sold. And then there was the rest of their junk, which nobody wanted to buy and had to be hauled away. I wonder how many thousands of dollars were wasted on that? It’s frightening to think that people are constantly throwing money away to buy possessions that quickly become useless junk.

Having money edges out having possessions, because money is fluid and can be used for many different kinds of needs. Money doesn’t get put in yard sales or hauled away to the dump. So think twice before spending money, that precious commodity, to purchase even one new possession. There’s a thin line between spending and overspending. You may discover that you already own something that can fulfill the desired item’s function. Or that you can live without it. In these tough times, if you have the choice to spend or not, choose not to spend. And especially, not to spend to create the clutter than turns into junk.

Monday, July 28, 2008

Dealing with the IRS

Someone I know only from a message board is having trouble with the IRS. S/he didn’t get a tax refund, or a Stimulus Rebate. When s/he finally called to ask why, the IRS agent claimed s/he hadn’t filed income taxes this year. Or any other year this millennium. My message board friend freaked out. Because I only know this person from a message board, I’m not sure what steps s/he has taken since then to clear up this mess. But I do know that anybody who has this kind of phone chat with the IRS needs to take action, and fast, because the IRS won’t. In fact, with the seasonal crush of returns to process, the IRS is only now responding to queries sent to them months ago.

It’s common to freak out when the IRS says you haven’t paid your taxes. For years, the IRS cultivated a reaction of fear from the American public, clearly believing that fear alone would ensure that citizens would pay their taxes. Arbitrary audits, punitive audits, ridiculous red tape, and long-delayed or nonexistent responses to taxpayers’ letters were all in the IRS repertoire. And it worked very well, except for one thing. The IRS was wasting taxpayer money in the campaign to terrify ordinary citizens who didn’t owe them anything much in the first place. A few dollars here or there. And the big tax cheaters were still getting away with it. A few years ago, the IRS was forced to make significant changes, including reducing the number of audits. But ordinary Americans do not believe that anything has changed. Ordinary Americans talk to the IRS with fear in their hearts, and open any letter from the IRS with dread.

In my volunteer work as a tax preparer, I see the result of that fear. Many people to whom the IRS owes a refund don’t file, for one reason or another including the difficulty of filling out a tax form. Then they become increasingly terrified, expecting to be horribly punished for not filing. And they could be, because unpaid taxes accrue interest and penalties until they are paid and despite their stated policy, the IRS often does not inform taxpayers when such fees are still accruing. The first time you might know about them is when you don’t get an expected refund because the IRS has diverted it to pay back taxes, interest, and penalties. Not the kind of surprise you want.

Taxpayers only have three years in which to claim a refund, and they often forfeit it. People just barely making enough income to scrape by are afraid that filing will make them owe money, money they can’t pay. The labyrinthine rules for filing a tax return don’t help the situation. Even tax experts find these constantly-changing rules difficult to follow. Plenty of people hate the idea of taxes so much and live such chaotic lives that they try to ignore the IRS completely. But sooner or later, the IRS catches up with them. Some people have said that the Stimulus Rebate was actually the government’s sneaky way of finding people who otherwise weren’t bothering to file or pay taxes. It definitely turned up some elderly people who owed taxes even though they thought they didn’t. Not a victory worth trumpeting about. Especially if the IRS ends up taking back Social Security or government retirement benefits that the government itself paid to people. What’s the point?

Citizens have a duty to pay their taxes and to file their income taxes each year, but the IRS also has a duty to properly handle these filings. The advent of computers has improved the IRS’s efficiency. It is now possible to phone and find out important pieces of information directly, because the IRS agent can call up a computer file. It might not be a fully accurate file, but it’s a beginning. The problem is that the IRS still sends mystifying form letters to people, and then a phone call does not reveal why those letters were generated, or who did it. Take the letter to an elderly lady of 93 that stated the IRS had reason to believe that she had recently served in a combat zone. Oh, really?

What to do for my Internet message board friend? I had a lot of suggestions. If you are having trouble with any aspect of your income taxes, these might help you, too:

1. Call the IRS about your situation and make sure they have your Social Security number correct and that nobody else is using it. Ask them for whatever facts they have, like your address of record, names of employers, and more. Take notes. Call back if you don’t understand any part of it or if you’ve forgotten any part of it. You don’t have to talk to the same agent.
2. Call the IRS again, once you understand what the problem is, and ask them what steps they want you to take to fix it or that you can take to fix it. There may be some forms you’ll have to fill out. You can get those forms at, but you need to know their numbers and names. You also can do a lot via the IRS automated phone system, including requesting copies of your prior returns and W-2s. If you got burned out or flooded out or all your papers were lost in a move, you can reconstruct your records by asking the IRS for theirs. (You can also ask your state tax departments.)
3. Write the IRS, return receipt requested, stating your position and asking for whatever action you want it to take. If you are writing at the height of tax filing season, don’t expect even a form reply for six weeks. And don’t expect a real reply for another six weeks or more.
4. If the matter is urgent, call your Federal congressional representative, outline your problem, and ask for help.
5. If you e-filed, go back to whatever agency did the e-file or sold you the software, and ask for help. But don’t pay for it.
6. If you need verification that you earned income in a certain year and the IRS doesn’t have it, check with the Social Security Administration. They keep records back many years.
7. If the deck seems stacked against you and you can’t seem to make any headway, call a local radio, newspaper, or television action line and ask for help.
8. If the situation warrants it, hire an attorney experienced in dealing with the IRS. Don’t get that name from a television ad, but from your local bar association.
9. Breathe.

Dealing with the IRS requires patience. It can take half an hour on hold just to talk to a live person on the phone. It can take three months to get an answer to a letter. And the IRS still manages somehow not to receive some letters that you send. That has happened to me. But persistence does pay off with the IRS. Turn your energy to improving your situation. Make the informational phone calls, and take notes. Seek assistance from any and all persons and agencies that can help you. The IRS has a person called the Taxpayer Advocate, but you’ll have go several rounds with lower level agents before you are allowed to take your case to that person. Getting that far can take many months or even years. Even so, if you make the effort, you can clear up any problem with the IRS. And you’ll sleep the better for having done so.

Tuesday, July 22, 2008

Brinksmanship is not Income

I’m not proud of this, but at one time in my life, I was in brinksmanship. I was borrowing money from one credit card to pay another. I used free balance transfers (zero fee transfers) to reduce the amount of interest I was paying on the money I owed. At the time, credit card companies had not dared to break into 20% finance charges or more. But I wasn’t satisfied to be paying 18%. So I worked the system, borrowing as much as I could from one card and paying down my balance on another. Since there usually was a six month grace period during which a very low rate of interest would be charged, I simply kept track of when the six months would be up on one balance, and then paid it off with another free transfer and rode the grace period on that card for another six months. This worked only because I paid meticulous attention. If I had had a full time job that paid a decent wage, I wouldn’t have had the time to pay such attention. Or the need to.

Brinksmanship only works for a short period of time. Unless there is some hope of actually paying down the balances, it’s really just a shell game. Moving balances around doesn’t eliminate them. So brinksmanship is at best a temporary plan. While you’re playing it, you’d better have a solution in sight. In my case, more freelance work was on the horizon and then became a reality, so the inevitable crash of the tower of debt was averted. But if I had kept going without a new infusion of cash to pay down my debt, my fine edifice of slick brinksmanship would have crumbled within a few more months.

That’s what you do when you are desperate. But it should not be your only weapon. I used to listen to a radio advice guy late at night who was a font of common sense, Bruce Williams. People would call him up and say they had bought a property and it had a flat roof, and he would say, “That roof is going to leak.” They didn’t want to hear it, but he knew. I remember one time a woman called to say she and her husband had no money. She was a stay-at-home mom, and so on. Turned out, she liked to call her mother every night long distance (this was back when long distance was very expensive) and complain. Williams told her to write Mom letters, and get a nighttime job to pay down their debt. Her husband could watch the kids when he was home. You could tell that this woman did not want to hear it. But his point was, instead of bellyaching, or looking for miracles, go out and change the situation. It was good advice then, and it’s good advice now.

If you’re about to tumble over the brink, grab hold of a branch and pull yourself up. Don’t just let it happen. Brinksmanship, manipulating your debt to reduce the amount of interest you are being charged, is a tool to reduce the financial drag on you. But it won’t get you out of debt. Only additional income will do that. When I was a stay-at-home mom, I seldom met another who wasn’t trying to add to the family income with small part-time gigs. Babysitting, house cleaning, network marketing, freelance writing, racking merchandise, product demonstrating, cashiering, you name it and we did it, all at hours when it wouldn’t upset the family routine. We all knew that additional income was the solution to not having enough money to pay our bills or to pay for the extras our family needed.

So don’t make the mistake of thinking that brinksmanship in any version is going to save you. That includes borrowing from your 401k, real estate shenanigans in which you pull out equity to pay off credit cards, and debt consolidation loans. These only reduce the cost of debt, and will only delay going over the brink. If you can’t drastically reduce your regular expenses and free up money you already have, then the only way to pay down debt is to get additional income.