Lose Your Money Blues

The Five Safest Places to Hide Big Cash

2011-12-12T10:25:00.002-05:00

I had a lot of fun trolling the net reading people’s ideas about where to hide big money. Of them, the clear winner is the mason jar in the back yard. Unfortunately, according to most stories, it also usually ends in the money being lost because the person can’t remember where it is, or never tells anyone else.

We all would like to have some ways of keeping cash secure enough so a casual stranger won’t find it in five minutes of unsupervised snooping or outright burglary. Making the cash difficult to find is the aim. A safe bolted to the floor would outwit most short-time burglars, but here are some other ideas:

1. Books. Burglars do check bookcases if they have the time. They throw books on the floor to look behind them, and they will open some books looking for book safes. But if you own many, many books, chances are the burglar will give up the book-by-book search long before the money is found. Most burglars want to get in and out in five to ten minutes. Trouble is, a casual visitor to your home might pull out just the one book you’ve hidden the money in. Safe, or not so safe?

2. Clutter. Got clutter? Serious clutter? If you can’t find your valuable stuff, neither can a burglar. You’ve got bigger problems than burglary, though. Safe.

3. On your person, in a money belt or wallet. These are completely secure and invisible. Even if you are mugged, a mugger is not looking for big money, just whatever is in your regular wallet or purse. Very safe.

4. A bank account. It’s your money and they keep it for you. Simple. The down sides are: now the world knows you have this money, and possibly the account could be used by the bank to pay some other account or debt of yours or even frozen by some government entity. This can happen, but most people don’t have to worry about it. Very, very safe.

5. A bank vault. Unlike a bank account, the contents are not insured, not even by your home insurance policy. But you can put anything that fits into your bank safe deposit box and no one gets to know about it or have access. Choose a freestanding bank in a corner of a busy shopping center, or similar. With no contiguous building to tunnel from, and people always around, that vault is likely to stay safe. In a bank robbery, the bank employees would not have access to your box, so the robbers would have to blast. For various security reasons, they are unlikely to have the time to do so, or to rip through every safe deposit box, regardless of what you’ve seen in the movies. Safest of all, unless your bank is run by thieves who have duplicate keys.

If you truly do not trust banks and have significant money to hide, then the jar in the yard is your answer. Burglars who have unlimited time and aren’t just looking for $50 to $200 to fuel a drug habit will eventually find all your most cunning hiding places inside and around your home, but they don't usually arrive with metal detectors. You hope. On the other hand, are you really going to remember where you buried the jar? Of course using a mayonnaise jar with a plastic lid will make metal detecting useless, but then you still have the issue of remembering where the money is. Hmm...

Four Reasons to Toss Out Something Today

2011-12-08T11:05:00.004-05:00

1. Possessions can weigh you down and eventually suffocate you. Lighten the load. You'll feel a huge sense of relief.

2. Your donations will help others. People are prowling thrift stores looking for inexpensive holiday gifts or basics they can't afford to buy new. You can affect the lives of others positively if you donate your unnecessary items in good condition.

3. Recycling is good for the planet. You are the person best qualified to recycle your possessions. Whether you put metal out at the curb for the roving metal guys, or you carefully sort and haul your recyclables to special centers, every item you keep from the landfill helps.

4. Trash should not be kept for sentimental reasons. We all have items that no longer work and cannot be fixed. Their usefulness is long gone, and they should be, too.

You will never wear bell bottoms again. You will never find the match to that one winter glove. You will never fix that radio, glue that broken mug, or repair that bicycle. Send them all to the next best place.

Five Reasons to Keep Some Cash in the House

2011-12-03T13:46:00.002-05:00

1. If you are elderly, it is expected. Don’t buck the cliché.
2. You don’t have to go to the bank so often
3. It’s fun to open a drawer and find big denomination dollar bills.
4. Having cash you can see and touch makes you feel richer.
5. There are times when having up to $100 in cash in your home is a convenience.

A long, unexpected cab ride, for instance. Paying someone who plowed the snow off your driveway, for another. Forcing cash on a reluctant relative.

When I read that all older people hide cash in their homes, I was surprised. Then I remembered my mother told us she was hiding a little cash in her house, inside the flap of her hardcover copy of Dr. Zhivago. The dear doctor’s stash was used up long before her death. After she died, I found other hidden cash, under the dividers in her vanity table drawer, between the top and bottom of a cardboard box set inside another drawer, inside a sewing table, and more. They were never big dollar amounts by current standards. A five or a ten at most. Finding these little bits of cash was like finding Easter eggs. All good feelings.

Five Reasons to Sell Your Stocks

2011-12-01T10:59:00.002-05:00

1. If you’ve lost money in the market and it bothers you a lot, you’re not cut out to own stocks. Sell.
2. If your stocks are not making you money, find an investment that will produce a profit. Sell.
3. If you need to preserve your principal, the stock market is not a safe place to keep it. Sell.
4. If you are being killed by brokers’ fees or fund management fees, find an investment where the money flows toward you. Sell.
5. If you don’t understand why you’re in a stock or fund, find an investment you do understand. Sell.

The stock market is not for everybody. If you want to keep a few stocks just to feel you're still in the game, fine. But if anything on this list rings a bell, get out of the stock market now. You'll sleep better at night.

Three Reasons to Save

2011-11-30T22:12:00.002-05:00

1. It feels great to have a few extra dollars.
2. You can use your savings to leverage better deals from your bank, or start an account.
3. When an emergency occurs, your first thought won’t be “Where will I find the cash to pay for this?”

Do we need more than three reasons?

Why We Should Not Give Holiday Presents

2011-11-26T22:22:00.002-05:00

Personal finance guru Suze Orman had her staff ask people on the street what presents they got last year at the holidays. No one could remember.

This amazing consensus is proof we shouldn’t strain our finances to give holiday presents. They aren’t appreciated beyond the moment. The sad truth is, most of the presents we give make no impact on the recipients’ lives.* Why go crazy spending tons of money, especially tons of money we don’t have or can’t afford to spend?

What Suze Orman didn’t ask the people on the street was this: Did they remember not getting holiday presents? Did they hold it against someone because that person did not buy them a present?

Isn’t one of our chief fears at the holidays that we will not appear generous enough? That people will think ill of us for not getting them gifts, or for getting them presents that are not sufficiently lavish? And doesn’t that fear suck us into a never-ending effort to prove, through spending more and more money, that we are good people?

Our holiday gift-giving efforts are futile. The recipients do not remember what we give them.

This realization should be freeing. If no one remembers what we give them, it hardly matters what we give them, or even if we give them anything at all. Will they remember what we did not give them? If this year, we announce we won’t be giving gifts, will it be held against us for the rest of our lives? Probably not. This time next year, the people we did not give presents to won’t remember what they got or didn’t get, or from whom.

If we know people ready to be seriously offended because we do not give them holiday gifts, these are not our friends or loved ones. People who don’t like us will not like us any better if we spend big money on them. Within most families, there typically are some relatives who don’t get along with each other. Should they be forced to give gifts? I don’t believe so. In-laws are a common case in point. Or siblings. Presents don’t do it. If our decision not to give presents this year is held against us by someone, we should think seriously about why we are in such a judgmental relationship, and what we can to do change it or walk away from it.

Don’t get me wrong. I like buying holiday presents. I like wrapping them. I like seeing people open them and enjoy them. However, gift-giving is an art, and not all of us are artists. It can take years to learn how to give a memorable gift to even one particular person. Odds are that most of our gifts, year in and year out, will fall flat. Worse, sometimes the presents we give become a burden on the recipient. People don’t need to be reminded at the holidays that they can’t afford to give lavish presents in return. Be kind, and rein it in.

Buying a holiday gift is often an impersonal action taken to fulfill a conventional expectation. That’s why a singing bass and a pet rock and a chia pet all became best sellers. Offices have figured it out; the Secret Santa tradition limits the dollar amount to be spent, and everyone gets to unwrap one surprise item. That’s a civilized convention. Too bad we don’t seem able to carry it over to our families.

Yet it is easy enough to change the implicit family rules, and even long-held traditions. Just tell your relatives you won’t be giving presents this year, except perhaps one item each to the children. Ask your relatives do the same. When you release yourself from the social onus of buying presents, you should release others. You might be surprised to learn that not giving gifts is a relief to them, too.

Most important of all, you should not go into debt to buy anyone a holiday present. People who love you want you to be happy, not burdened by debt and regret come January.

(*Children are the exception, but they don’t need lots of toys. They'd rather unwrap less and participate in more fun holiday events, from outings to decorating and everything in between.)

What to Do About Medical Bills You Can’t Pay

2011-11-21T11:20:00.002-05:00

There's a big hole in the advice personal finance experts hand out. A really big hole. Oh, sure, we all know we’re supposed to argue with medical providers and get them to cut their fees. But many of us are not in any kind of physical or mental shape to argue. Meanwhile, if we have been lucky enough to get medical care without being forced to pay with cash or a credit card before we even saw the doctor, the bills pour in, and the phone calls start. Each provider or bill collector wants us to pay in full, and forget about paying anyone else or even having enough money to eat that month.

Here’s the basic scenario if you have health insurance or even if you don't:

1. Ask the provider to write off your portion of the bill after your insurance company has paid its share. Sometimes they will, if they’ve gotten enough from your insurer. Sometimes they will even if they’ve gotten nothing.
2. Negotiate the bill lower. Whether you have insurance or not, your goal is to pay between 5 and 50 percent of what you owe, max. Start your offer at 5 percent and let them negotiate you up. The main argument if you have insurance is they’ve already been paid a reasonable amount. The main argument if you don’t have insurance is they have billed you the utter maximum, and you want the bill to be cut to the remaining portion an insured person would be billed. Ideally, lower.
3. You don't have the money. By now they know you seriously care about the bill you owe, since you've called repeatedly trying to do something about paying it. They also know you can't pay it now. If they haven’t offered already, ask to make interest-free payments, stretched over a very long time. A year or more. These payments should give you space to recover first. Perhaps you can arrange to pay them a token fee now, or perhaps not. Then in six months, when you have regained your health, you’ll start making small monthly payments. Don't agree to a schedule that starts right now if you have no hope ot meeting it. Try for delayed payments. Six months or a year later, if you still don’t have the money, try the scenario from the top, asking them to forgo payment entirely.

The major goal of all this work is to stop the provider from putting you into collection. Your financial goal is to pay the very minimum amount you can wrestle out of the provider, and to only agree to a payment schedule you have a chance of meeting. By the way, if you like writing letters or aren’t afraid to ask your doctor directly, that’s a very effective method of asking for your bill to be drastically reduced or even entirely forgiven. The boss can do what the workers can’t.

But what if you've tried the basic scenario and aren't getting anywhere? Or what if you have insurance but worry it might not be enough? What if you are young and stupid and think you're invincible? The reality is that without insurance, any health blip can become a financial disaster. Some steps you can take, both before, during, and after the catastrophe:

1. Supplemental insurance. If you know you won’t have money to pay the remaining owed portion if you get seriously ill, buy insurance to pay that part. You’ve seen those TV ads for supplemental insurance; this is what they’re all about. When 80 percent coverage isn’t enough, there is a way to be insured to cover the other 20 percent. If you’ve got serious ongoing health problems such as heart disease or cancer, that additional coverage could be crucial. Those cheapie “we’ll pay you cash every day you’re in the hospital” policies may also help you out, but they’re unlikely to cover the multiple expenses that can be incurred in just a one-day visit to an emergency room or the ICU.
2. Catastrophic health coverage. This is cheap, it covers you well for big surprise medical problems only, but it’ll keep you from losing your shirt (or your credit rating) over a major medical crisis. You’ll have to pony up the first $5,000 or $10,000 before its benefits kick in, but you won’t have to pay $100,000 for a surprise stint in ICU or unexpected open heart surgery. It doesn’t cover pre-existing conditions, and you usually can’t buy it for a period longer than one year, and it may max out before your extremely expensive medical problems are solved. But it takes much of the risk out of not having conventional health insurance. Even after a medical catastrophe, if you think nothing else can go wrong, you’re mistaken. So get one of these plans if you can’t get any other kind of coverage.
3. State-funded health insurance plan based on your income or diagnosis. These vary by state, and some states aren’t generous. (A good reason to consider where you live based on state politics and resources.) These plans may have a “buy down” feature that allows you to pay a higher premium and be covered for a pre-existing condition. Some subsidize lower premiums based on your income. They also may have completely free coverage for certain diseases, such as HIV/AIDS, or breast cancer.
4. Your state’s administration of Medicaid. You may not qualify by reason of age or income until a medical catastrophe strikes. Then you probably will. The tough part to this is sitting at the state office for hours to apply, being treated like a deadbeat, and their various offices losing your papers. Persist. Your tax dollars are paying for this program. If nothing seems to be moving, call your state congressional representatives for help. It works.
5. Social Security, either Disability or Supplemental. Either one will qualify you for a health insurance program (Medicare or Medicaid), but they aren’t easy to get. Disability is almost always an automatic rejection. There are companies and lawyers who will help you. Use them, as it takes years otherwise. The Social Security Administration recently posted a goal of giving a first reply within 270 days. That’s a goal, not a track record.
6. Medical Billing Advocate. There aren’t a lot of these people around, but they’re pros at making sure you aren’t being overbilled by hospitals, labs, and doctors. They can bargain with your medical creditors to settle your medical bills for far lower than the invoiced amount.
7. Social Worker. There is a persistent myth that social workers actually exist who can help you and who want to help. Maybe when you’re trying to get public assistance, there actually will be a sympathetic social worker who wants to keep you from becoming homeless. Maybe not. Maybe there will be a hospital social worker who makes an effort to help you. Maybe not. At least while you’re waiting to see this probably overworked and burnt-out professional, you’re not at home stewing over bills you can’t pay, and you’re in a heated or air conditioned building, too, something that you might not have at home anymore.
8. Statute of Limitations. Perhaps you haven’t been able to access any of the prior listed methods of paying your medical bills. Each state has a statute of limitations on past due bills, and sometimes that’s only three years. Collectors are supposed to stop calling once you speak to them and ask them to, but examples abound of collectors not acting in a legal manner. Put a stop to it. Three years of being called by bill collectors is probably enough purgatory for anyone. Tell any bill collector you no longer are legally liable to pay, and they must drop the case and stop calling. If they overstep their legal authority—which is a constant problem with bill collectors—report them promptly to the state agency that regulates them.

Of course the real answer to the problem of medical bills you can’t pay is to change our health care system.

Throw Out Old Financial Advice

2011-09-15T13:05:00.004-04:00

You can keep whatever advice your mother told you. I'm sure that's engraved on your heart rather than taking up storage space in a paper or electronic file.

Otherwise, you're probably better off pitching every single piece you saved that tells you to invest in real estate (!), play brinksmanship with your credit cards and then do an easy bankruptcy, or get all the equity of out your house to finance new self-indulgence. I just spent an hour culling my financial article clippings and was discouraged by how time-sensitive all the well-meant advice was. The financial situation of this country has changed dramatically in the last ten years. The real estate bubble and its burst caused dramatic spending and equally dramatic regrets. Practically nothing about finance that was written before Lehman Brothers went down in 2008 is worth keeping, because at that moment, all the tried-and-true theories went out the window.

Nothing dates and becomes irrelevant quicker than specific financial advice. Laws have changed affecting credit and bankruptcy in particular, so consulting old advice that cites prior legal rights could be a crucial mistake. Holding on to dated expectations is just as foolish. Think of all those old retirement calculators that imagine you can average 10% interest on your investments. Try getting 5% today.

It's a sad world at the moment. Keeping around old personal finance advice that was keyed to a time of much fuller employment and wild credit card spending on consumables isn't going to increase happiness or give anyone pointers on how to live today and in the future. We return instead to the tried and true, the more general advice: Live below your means. Save as if trouble is around the bend. It might be.

Tossing all that now-useless advice in the recycle bin felt good.

Worrying about Saving for Retirement

2011-07-31T23:15:00.001-04:00

Do you worry a lot about saving for your retirement? Neither do I. Are we idiots?

No. Some of us will die before we can retire. Some of us will die only a few years later. People born during the baby boom---the group about to reach retirement age now and in the next few years---can be expected to live another for 20 years or so. Except if they are already dead, that is. According to the U.S. Census Bureau, those currently alive have a better life expectancy than those born in the year they were born. What this means is that even though life expectancy for baby boomers was circa 70 years when we were born, it now is circa 80 years simply because we (individually) aren't dead yet.

This presents an interesting puzzle. People are always dying. Although we have a better chance of living to be 80 than we did at birth, again, some of us won't make it. So how do we plan for retirement? Most personal finance counselors would advise us to plan as if we are going to live to be 90 or even 100. Some of us will, and we don't want to run out of money and have to live on cat food in some miserable rented room in a rat-infested inner city slum. Just painting a horrifying future to contemplate. No worries. It won’t happen to you.

Anyway, if you retire at 65, the magic number that no longer holds any magic, you’ll still have to wait a year or two to collect your full Social Security, so why do it? If you retire even later, at age 70, you can collect a higher Social Security benefit because you waited, and you’ll have had more years in which to put away more savings. Sounds great, yes? It is, unless you’re one of the unlucky baby boomers who dies about when expected when we were born, or even earlier. In which case you just wasted your last years working when you could have spent them living it up in retirement. Dang.

Truth is, the joker in the deck is not really whether you die when expected circa your 1946–1964 birth, but whether you get seriously ill. It is possible to spend down quite a decent fortune on medical care unless you spend it first on very good medical insurance. And, supposedly, unless you make the effort beforehand to invest in preventative health care and self care, such as eating right (however that is defined this week), getting regular exercise that doesn’t tear up your body, and so on. Still, whether you get cancer or have a heart attack or are run over by a truck remains rather random.

Meanwhile, what should you do about saving for retirement? And about working until retirement? Look at your own personal circumstances, not those of the mass of Americans. Some of us will receive substantial pensions. Some of us have very nice savings, inheritances, paid-off houses, and more. Some of us have hardworking or wealthy spouses, or grown children who've made it big and can turn around and help their parents. Our circumstances vary. Why shouldn't our preparations for retirement vary, too?

Mainstream media advice-givers keep painting a picture of gloom and doom, saying our money will inevitably run out. These experts tell us not even a million dollars in savings is going to be enough. A million dollars. It still sounds like a lot of money to most of us, because it is. Advice-givers usually offer whatever the current wisdom is about investing. Sometimes it’s not good advice because the deal is not in our favor. Sometimes, the tide of affairs works against us. Hasn't anyone yet figured out that if millions of people flock to a sweet deal, the sheer weight of their participation causes it to tank? Regardless, nobody can foretell the future. Seemingly solid investments can and do go sour. Companies that are deemed rock solid go bankrupt.

Should we be terrified of our future unless we are immensely wealthy? Are we all going to die broke? I don’t think so. The scary part about retirement is not running out of money, because we all will have some income. Even people who do not qualify for Social Security (and that would be who?) are likely to qualify for other government assistance. What is scary about retirement is the finite quality of our income. Those of us who have never successfully lived within a budget finally have to learn a new approach to spending. That’s a lesson the baby boom generation has been spectacularly bad at learning so far.

We could try that now. Live within our means, or a little under, and save the difference. Build up a cushion for the future. Who knows? We might save up that million dollars yet. Some of us will sleep better, too.

A Signing Bonus Instead of Unemployment Checks?

2011-06-25T16:01:00.003-04:00

Todd G. Buchholz, a former White House economist, had a huge spread in the Washington Post’s Outlook section recently about his idea of paying people who have been unemployed for 26 weeks to take jobs instead of continuing to draw unemployment benefits. “Will Work for Signing Bonus” contains a number of interesting ideas, and his math appears to compute, but alas, I don’t think Buchholz realizes just how nasty the job market is today. After being unemployed for half a year most people are considered dead meat to potential employers. No offers are being made. Many of the long-term unemployed aren’t even getting interviews, because people who already have jobs are openly preferred. Next come people who have left jobs within the past month or so. People who have been out of work long-term reside at the bottom of the employment heap.

The crux of the problem is most people are not sufficiently humbled immediately after losing their jobs. They don’t grab at the first thing that offers, and in this economy, likely they ought to. If the new job is a poor fit, the person can continue the job hunt from a position of strength—that of being employed. Unfortunately, most people who lose their jobs are in a state of shock when it happens, and they need time to recover. Time is what they don’t have in our fast-changing society. We have so many safety nets, not only unemployment benefits but also credit cards and spouses with jobs, that many recently laid-off workers aren’t quite desperate enough right after the event. They should be. This is a buyer’s market and employers have their pick. A resume is viewed as fresh for a month or so, but after two to three months, the resume is definitely sour. People who lose their jobs should settle for whatever is offered within the first two months, because there may not be any more offers for a long, long time. If ever. I know it sounds awful, but it’s the practical thing to do unless unemployment benefits happen to pay more than the new job would.

Buchholz wants to pay people bonuses to take a job, but impose an enormous penalty if the person quits or changes jobs in under a year. This presumably is to encourage people not to game the system, as has been done with the first-time homebuyers' credit and various other tax advantages. I think it would be more fair to require the worker to pay back the bonus with interest, raising that interest over time if payback is dilatory. Regardless of the details, Buchholz’s idea of giving unemployed people a financial incentive to take jobs instead of extended unemployment benefits is interesting. If it worked, it would save the government money and add to government coffers as the employed person began paying income taxes again.

Should we all rush out and take whatever jobs we are offered? Yes. If the worst your resume shows is a little job-hopping rather than a lengthy period of unemployment, you have a competitive advantage over other job seekers. And meanwhile, you have a job.

With one caveat. This strategy does not apply to low-level retail employment. The field is not stable enough, and your prospects are not good enough, to give up anything to enter it. In many cases, even working full-time at a big box store will not be enough to pay the rent if you previously held a moderately good office job. Also, I've done plenty of tax returns for people who only lasted for half a day at McDonald's or Home Depot. Firing people from these jobs is dead easy and happens all the time. Many out-of-work people are nagged to go work at these places, but accepting such underemployment is a strategy of last resort, to be taken only after all other avenues have been explored, including using up all unemployment benefits, getting a roommate, and selling possessions.

How to Get Out of Debt

2011-06-13T10:26:00.002-04:00

1. Stop buying on credit.
2. Contact your creditors and push to get your interest rates lowered.
3. Balance transfer your high-interest debt to lower-interest accounts.
4. Pay off your highest-interest debt first.

This simple advice presumes you have income. Maybe not enough income, but there's a paycheck coming in steadily, and that gives you some choices.

Another set of tips to try:

1. Change up your eating habits. Do not buy food at the same places, or the same food. Instead, try to work from a budgeted food amount outward. If you have $100 for food this week, what can that buy you, and how long can that last, and how often must you shop, and is food preparation involved?

2. Sell any vehicle on which you are making payments, and buy a used vehicle outright. It has to be in good condition. You have to be reasonably certain it won't beggar you with repair costs. But a paid-for car is usually cheaper to own and run than a new car.

3. Hold a yard sale (or post on Craigslist, which is free) and sell anything you no longer need or want. It may surprise you how little people are willing to pay for your used goods. They may not buy them at all. A good reminder not to spend so much money on buying all that new stuff in the first place.

4. Empty your clothes closets into your suitcases. What you own doesn't fit? Reduce it until it does, and never buy a piece of clothing again without getting rid of a piece. Be mindful of this when you shop for clothing, because it is easy to think you need multiples when the truth is you don't. If your suitcases are full, you have enough clothes.

Add your own tips for getting out of debt if you've got 'em.

No New Credit Cards Without Gifts

2011-05-28T18:30:00.001-04:00

How glad I am not to be caught in the toils of the credit card companies. Another offer came in the mail today, full of talk of penalty fees and other disclosures of punitive rules if I do not pay my balance in full and on time. Frankly, I can’t see any reason to apply for this credit card. It didn’t even seem that the credit card company was making any effort to sell me on their card, other than the usual balance transfer offers. I have made use of balance transfers in the past to my advantage, but recently I decided that keeping some money liquid made more sense than borrowing it from these companies. Especially since at the middle-class level of investments where I sit, the earnings on my savings currently are pitiful.

Yes, pitiful. Less than 1%. Sometimes less than .1% Far less than the 3% or 4% a credit card would charge for a cash advance. Obviously in this economic climate it is cheaper to use my own money to finance what I want to buy. What is the point of saving when one’s money cannot earn money? Ah, I know. To have cash when I need it. Presto. The reason to keep rainy day savings in liquid form, not locked away in CDs or stocks.

This isn’t always the best strategy. If and when the Big Inflation that everyone predicts actually happens, it may make more sense to get some quick profits from CDs or other guaranteed investments. Maybe banks will hand out toasters for opening CDs, the way they did in the inflationary 1970s. Not that I need another toaster, but we all like free gifts, don’t we?

That’s my primary objection to the recent credit card offers I have received. Not only are they full of threats, but also they contain no free gifts. Oh, I can earn 1% cash back on my spending, but then I’d have to spend, wouldn’t I? Nah, not interested. Many years ago, I banked at the Bowery Savings Bank in New York. Almost every time I visited a branch, they were handing out a little gift. I still have the bright red yardstick they gave me one day. Who buys yardsticks, anyway? They’re always freebies from someone. Well, I loved the Bowery Savings Bank because they gave me those little gifts. Still do, although they have long since been swallowed up by another bank.

So, no, I don’t want your credit card. I don’t want to make myself the victim of yet another bloodthirsty credit card company whose only intention is to trip me up and charge me fee after fee. And yes, I want gifts. Real gifts.

Depressing Credit Error Situations

2011-05-17T10:28:00.001-04:00

What do we do about news stories like this, that cite how cavalier credit reporting agencies are about our good names? They basically don’t care if they attribute someone else’s bad credit to us, and they hardly bother to make the corrections we ask for, regardless of how much documentation we supply. Innocent people often find they are unable to clear their credit reports of serious errors that conflate them with the guilty, which leads to denied employment or credit. This is bad.

A few tools to fight this nasty situation:

1. Check your credit reports religiously every few months.
2. If you spot an error, immediately take steps to have it corrected.
3. If all else fails, sue.
4. Change your name legally.

1. Check your credit reports. We’re all supposed to do this, but I am quite sure most of us don’t even get our one free annual credit report from each of the three major agencies. People with very common names should pay to check more often, or even seriously consider signing up for a credit alert service. Ordinarily, I wouldn’t recommend such a step, but common names can get mixed up far too easily. If you’ve ever had a serious problem with accuracy on your credit report, get your files locked, and do pay to have your files watched.

2. If you spot an error, get it corrected. I’m not claiming this will always be a simple process, but if you do it for little errors, you’ll have the experience to know what works and what doesn’t when a serious error occurs.

3. If all else fails, sue. If the police are coming to your door because you are being confused with a felon, you need paid legal assistance.

4. Change your name legally. I know, crazy idea, right? Not so crazy. By changing your name legally, you create a clear historical record of your ongoing financial activities, as opposed to any by your former doppelgangers. If “Jack Johnson” or “Cathy Taylor” keeps getting you into trouble because there are low-lifes with the same name, become Juwann Jacks or Caitlin Tawes. Seriously. Go a step further if you can and establish a name that doesn’t call up thousands of duplicates in an Internet phone book search like Zabasearch. You are less likely to be a victim of identity errors or theft if you change your name to an extremely unusual one.

Credit Card Fantasyland

2011-05-11T22:50:00.000-04:00

Oh, this is scary. I heard an interview on NPR the other day in which the financial expert said she met a girl who couldn’t wait to get a credit card. Turned out the girl did not know that you have to pay back the money you spend when you buy on credit. Seriously, this was a teenager, not a five-year-old, and she did not understand the basic concept of credit.

Every time I watch one of those “we’re up to our eyeballs in debt” shows on CNBC, I get the creepy feeling that these people think the same way. They may say they want to pay off their debts, but you can see the self-will oozing out of them as they proudly admit to their insane spending habits. These usually consist of constant shopping sprees and the accumulation of vast piles of stuff, although sometimes as a change of pace it’s eating out and ATM advances. These people simply do not understand that credit is only a means of delaying paying. It’s not free money. Even creepier, the CNBC shows are about Canadians. They’re been infected by the same spending virus we have. More than one society has bought into the entitlement fantasy of materialistic accumulation via credit.

An entitlement fantasy is just that, a fantasy. We’ve all had them. They’re the daydreams in which we inherit a fortune from a relative we never met. Guilt-free money, because we didn’t even have to go to the funeral. Or we win the lottery. Effort-free money, because we didn’t have to do anything other than purchase a ticket and pose for a winner’s photo with that giant check. Most of us are aware these are fantasies. Apparently, some people are living with these fantasies as real scenarios in their heads. They live as if money grows on trees because credit cards allow them to pretend their fantasies are real. For a while. When they don't make their payments, they qualify for the new penalty APR of 29.99% that Fidelity Mastercard just instituted. Do all these crazy spenders really want to pay almost one third of the purchase price of every transaction to the bank? No. In their heart of hearts, our materialistic spenders don’t intend to pay the bank at all. Scary.

Is Strategic Default Moral Turpitude?

2011-04-28T17:31:00.002-04:00

Strategic default is in the news because it is gaining popularity, and possibly may account for as much as 35% of all mortgage defaults. Strategic default happens when someone who can afford to pay the mortgage decides that it’s not worthwhile to keep doing so, and walks away. This is happening all over the country in situations where the value of homes has dropped substantially below the mortgage amount owed. It’s a daring strategy, not one usually employed by the meek middle classes. Financial writers tut-tut about this practice when individuals do it but strategic defaulters are simply taking a page from the behavior of large corporations. Corporations in our country are beyond feeling shame, but individuals until recently have not been.

Is strategic default an act of moral turpitude? Issues of right and wrong about money are very slippery. Historically, most of our ideas about money have been simple:

Pay cash.
Don’t incur debts, but if you do, pay them back.

That approach to money is now nearly obsolete. It’s in direct contradiction to the way we all have recently been trained to use money. Instead of waiting and saving up for something, we are pressed to buy now and pay later. We have been using capital leverage, i.e., credit, to do this. Just as the concept of paper money only works if everybody agrees that paper money actually is worth goods or services, so also the moral rules of money only work if everybody plays by them. Recently, we have seen egregious examples of companies that arrogantly refuse to be bound by even the most elemental moral rules, or even by regulatory laws. This creates an atmosphere of moral hazard. If the banking system is crooked and yet the banks don't have to pay and no one goes to jail, then why should individuals keep paying? Some people believe the only way to beat a rigged game is to stop playing the sucker. Walk away from a mortgage and the bank gets the house; that's what a secured loan is all about. End of obligation, both financial and moral. Yes, there’s a back-end income tax issue, and in some states the bank can come after you for what’s called the deficiency, but it’s still less hassle than the futile efforts people have been making to pay or modify mortgages they can’t afford.

The real hazard with strategic default is not moral, and it's not that the banks will go broke owning all these houses. It’s that if individuals feel free to act the way corporate crooks do, the entire financial system could grind to a halt. This system does not just depend on the Federal Reserve. It depends on every individual who accepts a paper dollar or a contract as worth something. Most people don’t believe that what they do has such potential for a far-reaching effect. We don’t know at what level strategic or other individual defaults will destroy the U.S. housing market entirely, but maybe we’re on the road to finding out. Meanwhile, the banks are not hurting, not when they seize homes worth $75,000 and sell them to investors for $30,000, while sticking the foreclosed owner with a tax liability for the “forgiven” $94,000 difference still owed on the mortgage. If it’s all a game, say the strategic defaulters, why shouldn’t they play to win?

It is not illegal to default on a mortgage. Right now is probably the best time to use the strategy, when so many others are doing it that one more default won't stand out from the crowd. Sure, your credit score takes a hit, but who says high credit scores are a moral imperative? Only FICO, which is in the business of collecting and selling credit scores, and therefore has a strong interest in making us all care terribly about scores. We have been brainwashed into believing we must behave in a certain way, or we will be punished by the Great God FICO. If substantial numbers of people have lowered scores, then the curve is lower, and who cares? A landlord will rent to someone with a low FICO score rather than let an apartment be vacant. A car dealer will make a deal with someone who has a low FICO score, because the dealer wants to make the sale. And so on.

Would I default on a mortgage? Probably I should have 20 years ago, when the country had a real estate crisis and housing values dropped precipitously. They stayed low for some years, but then they recovered big time. Will this current miserable part of the cycle ever end? I think so, but I hope you enjoy the house you’re living in right now, because rather than strategic default, there’s an even better plan: Just live in your house.

Record-keeping Tips

2011-04-12T11:47:00.002-04:00

Some people hate record-keeping and others love it, but here’s a dirty little secret: these is no right way or wrong way. Just pick or create the one that suits you best. Here are some popular ones:

1. Shoebox
2. File folder
3. Multiple file folders
4. Expanding file box
5. Ring binder
6. Software program
7. Physical ledger
8. Hybrid

For some of you, record-keeping will consist of throwing receipts in a shoebox. This is perfectly acceptable as long as it doesn’t drive you (or your spouse) crazy. Just don’t attempt to deliver that shoebox to a volunteer tax preparer. And don’t expect that a paid accountant will sort the contents of your shoebox for free. Or in April. Still, if everything is in one place, you have won more than half the battle of record-keeping. Really.

One step up from the shoebox method is the file folder. Same principle: it’s all in one place. Maybe you bothered to sort the items inside the folder into categories; maybe you didn’t. If sorting is not your thing, pay someone else to do it. Again, a tax professional will be pleased to find all your records in one folder, even if jumbled up.

Then there’s the multiple folder method, or the expanding file box method. Of the two, the file box method is best, because it keeps the records in one place. (Notice a theme here?) Multiple file folders have a way of wandering off and becoming invisible just when you need them.

I recently met someone who kept tax records in a three-ring binder. The binder was impressive but incomplete; she had failed to gather all the documents relating to her taxes. One of my co-volunteers complimented her on her record-keeping method, but I was not so inclined. The time she had spent getting the binder, punching the holes, and placing the papers inside would have been better used finding her pertinent documents. The binder made this person look organized, but that was an illusion.

Then there’s the “entering it into a software program” method. Unfortunately, many people I know have been suckered into thinking this is easier than just sorting the actual physical receipts. They usually confess (with surprise) to being behind on entering the data. They have a pile of papers next to their computer, and other piles elsewhere. They are convinced that this is the easiest method, but somehow, they’re never caught up. Record-keeping methods only work if you follow through and use them.

Some people keep ledgers. My mother recorded every single household expense. Reading her old ledgers is like reading the story of my family’s life, since every purchase is entered down to a candy bar. Most of us aren’t that careful. I used to keep a kind of ledger but nowhere near as complete. Mine consisted of two photocopied pages per month with each possible business expense being given a column. After a while I realized that most of the columns were empty most of the year. When I did have entries for them, there wasn’t enough space for the details. Travel was the problem. I didn’t travel often on business, but when I did, of course there were numerous tax deductible events during each trip. My one box per day per cateogry record didn’t work for those. On the plus side, I could see at a glance exactly what my most frequent business expenses were, and adding them up was a mere matter of totaling each column.

I now do a combination method. I keep four file folders, labeled Bills, Tax Deductible, Banking, and Medical. Receipts are tossed into these files as I get them. Every few months, I sort the two biggest and messiest folders, Bills and Tax Deductible. (I never sort the Medical or Banking folders unless there’s a problem requiring research.) Sorting the contents of the folders takes maybe half an hour if I’m really stretching it out. Some other day I enter the items from the Tax Deductible folder into a computer spreadsheet. This takes another half an hour or so, depending on whether I have pre-sorted each category of expense and done it by date. If not, more time is consumed, but not much. This hybrid method works for me. I can be messy with my receipts when that’s my mood. And I can be precise with them when I’m feeling like handling details. I also let the computer do the addition.

Consider whether your current method of record-keeping is a good fit. Are you always losing papers, or behind on entering data, or finding that you have no place to put some category of receipt? These problems can be solved by choosing or creating a record-keeping method. Just make sure you get a large enough shoebox.

Zombie Economics, is that like Voodoo Economics? No.

2011-03-27T22:21:00.001-04:00

For the first time, I understand why the notion of a zombie apocalypse is so popular. In an irrational world, when everything we know has turned upside down and constants are suddenly variables, zombies make as much sense as anything else. I got this message by reading a new personal finance book called Zombie Economics*. By Lisa Desjardins and Rick Emerson, names familiar from CNN and other broadcasting, this primer is a mixture of fiction and nonfiction. The fiction is the gripping tale of a lone survivor of the zombie apocalypse who, chapter by chapter, is seen desperately seeking ammunition, supplies, medical care, and most of all, safety from the lifeless attacking hordes. The nonfiction is money advice taking off on the concept of a zombie invasion, such as the prologue, entitled “No One is Coming to Save You.”

The beauty of likening protective personal finance to self-defense during a zombie apocalypse is we completely skip over the concept of blame. A lot of us get hung up over blame, either blaming Wall Street, the banks, or the credit card companies. Closer to home, we tend to blame ourselves, our untrustworthy family members, or our lousy employers. Or ex-employers. But blaming entangles us in unprofitable historical research or quarrels. Does it matter if our financial boat started taking on water with that $50,000 entertainment center we had installed, or the fifty pairs of designer shoes we bought at $1,000 a pop? In a zombie apocalypse, there’s no time for blame. We’ve got to lock the doors and protect ourselves from the onslaught. Right now.

Desjardins and Emerson hand out straightforward advice skewed to the age range 18-35 (or perhaps older), people who don’t have children demanding their own cell phones or college tuition. The target of the authors’ admonitions are people who have jobs, have bills, and who need to act defensively to make sure inattention, poor choices, and sheer bad luck don’t destroy their world.

Sure, the authors are stretching it a bit with their zombie similes. The action scenes of shooting or whacking zombies and the descriptions of squishy zombie parts are a little gruesome, too. But this is the era in which personal finance counselors often throw people into homeless shelters for a week in order to get them to wake up to how dire their financial situation is. What’s a few scenes of zombie guts by comparison? Something has to mobilize us to fight to save ourselves, because no one is coming to save us. The younger we are, the truer that is. A lot of unemployed Baby Boomers are currently thinking if they can just hold out until Social Security kicks in, maybe they can make a dignified exit from the world of fruitless job hunting. Maybe they can even keep the house, or sell it and move somewhere cheap. For the young, the future may have more potential, because unemployed young people will probably find jobs eventually. But there is no lifelong pension about to come due. Instead, there are zombies.

If you’ve avoided personal finance books before, or are sick of their typical clichés, try this one. Go for the advice, and enjoy the blood and guts.

*Not to be confused with the book of the same name by John Quiggin, which is about dead economic ideas that walk among us.

We Don’t Need Money for Retirement, We Need People

2011-03-21T10:21:00.001-04:00

Here’s an important side issue to the big question of do we have enough money to retire in comfort: Do we have enough relatives and friends so we can decline or be ill in comfort? Some public discussion has arisen lately about which ethnic or class groups of Americans have fewer dollars set aside for retirement, with tut-tutting over which have more cash. I don’t think dollars are the only capital we can build up in our lives. When it comes down to it, dollars might not be as important as human capital. If I am part of a large family who lives near me, or deeply involved in a local social group like a church or a fire department or even a book club, then I may need less money for retirement or during an illness than if I am a loner whose only human contacts are via the Internet. Families and social groups often pull together to help people struck down by illness or old age. They create drives to buy needed medical equipment for one of their own, or medical treatment, for instance.

In my family, a daughter and a grandson provided most of the eldercare for our aged parent. Although we eventually did hire nurses to help, we also supplemented with friends who came over as unpaid sitters. Thus an elderly person did not have to go into a nursing home and become indigent to get government aid, and so on. If that parent had been completely alone, all the care would have been a cash transaction. Eldercare usually can’t be rendered in extremis by the friends of the person; very often the person has outlived all her contemporaries or they are too feeble themselves to help. Which is not to say that old friends don’t try to give whatever assistance they can. I know of more than one case in which people in their high eighties are giving care to friends in their nineties. But when the last person in a group has to stop driving, some help from a younger individual is necessary, or else cash must be available. Yet many aid programs only kick in when a person meets a needs test, that is, has no money. The assumption our governments make is that family and friends will provide most of the care.

Sometimes they do. When a person is ill, friends or family can pull together and trade off chores related to the person’s care: one friend takes her to doctors, another is the mediator with insurance companies, a third provides meals, others clean her home or sit with her on specified days, etc. Not everybody has friends or family like these, and some illnesses drag on or get complex, exhausting their abilities or expertise. Money again becomes a necessary substitute. But money ideally should be a third leg to the stool, a means of support after families and communities have done their share.

A statistician can quantify the services rendered by relatives and friends and give them a dollar value. We can investigate the cost of assisted living and nursing home living versus the cost of home health care, too. But the bottom line here is that some help can and should be unpaid. It makes a huge difference in how a serious illness goes or our declining years play out. We don’t all need $5 million in our retirement savings, because some of us will have people instead of money. On the whole, the people are the more valuable. Not because they give services free, but because they render them with a variety and often with a love and respect that few paid services can emulate.

Newsflash: Unemployment is the Fault of the Unemployed

2011-03-17T22:27:00.003-04:00

Of all the things that people without jobs dislike, it’s being told they aren’t doing enough to find work. Recently the Washington Post published yet another article blaming the victim. This time the Post came up with a new angle. Instead of honestly citing the real reasons people don’t find new jobs, the article describes a man who has decided to sit out the recession and let his wife and his savings support him. The article then goes on to say that when the economy recovers, this selfish man will skew the jobless rate by daring to look for work again---and thus increasing the total number of the unemployed again. Guess that’s what all the rest of us are doing, right? Not so fast, Washington Post. Over 200 angry comments later, here’s part of one that sums up the true situation:

We all know the unemployment rate is worse than stated, that older workers can't get hired, that recent college grads are doing menial jobs, and that contract and part time is becoming the gold standard of hiring for the HR stooges. [by veerle1]

It’s a cheap shot for an employed journalist to tell the rest of us we ought to try a lot harder to find a job. There aren’t enough jobs for all the people who want to work. I see people all the time who have tried everything they can think of to find a job. These are the ones at the bottom of the economic spectrum, people who are not too overeducated to work at Wal-Mart or at a Target distribution center, people who have lost their factory jobs to outsourcing. Clever resumes, smart business attire, and classy answers to trick interview questions have nothing to do with the kinds of jobs they’re seeking. They can’t get hired because there are no jobs available, not because they don’t know how to wow an HR rep. So they live on their savings and on the kindness of family members, plus the odd short-term gig and some government handouts. Are these people comfortably sitting out the recession? No. Do they get counted as unemployed? Only if they still get unemployment benefits. If they don’t, they aren’t counted. This method of counting the unemployed has never made sense, but short of going door-to-door, economists have few ways of measuring unemployment. Even so, this article posits a large potential workforce that lost jobs and isn’t trying to find jobs.

I am not a statistician, but even I know that if you intend to find the people who don’t want a job and are not looking for one, you investigate categories of people such as those aging out of the workforce, those voluntarily leaving it to stay at home and raise a family, those whose medical conditions force them out of the workforce permanently, and so on. Not by citing anecdotal evidence that some guys are letting their wives support them. Which BTW there is nothing wrong with doing, other than trusting that his wife will still have a job by this time next year.

I also don’t agree with the idea that “discouraged” workers have stopped looking for jobs. The reality is that many people have knocked on every door, exhausted all their contacts, imposed enough on the goodwill of their former coworkers, and used up all help from other sources. So they've moved on as a matter of daily life. They may no longer spend forty hours per week trying to find a job, but they’re still interested and still looking. Any hint of an open position is followed up. To blame people who don’t keep beating their heads against the wall of a bad economy is both silly and cruel.

Debt Collectors are Scum

2011-03-14T01:26:00.003-04:00

But you knew that, right? Here's a story of just how outrageous they have become lately, from our friends at Cracked.

This story leaves me speechless. Really. You've got to check it out.

Self-managing Retirement Money

2011-03-08T14:17:00.002-05:00

Someone I know self-manages his IRA. He directs his (discount) broker to buy certain stocks and to sell them based on his knowledge of a specific industry. Over the years, he has grown a nice nest egg from very little cash investment through this method. I applaud him, even while I know that I do not have similar expertise about an industry that would allow me to replicate his hands-on management style. The publishing industry, my field, is in utter flux right now over ebooks. The dust won’t settle for a while. Possibly this is the moment to invest in some epublishing start-ups. Possibly not. I don’t have the instinct to guess right about them, so I’m not going to try. I'm not unusual in wanting my retirement money to be managed by someone else so I don’t have to think about it. By allowing that situation, though, I am potentially setting myself up to be a victim of some fund manager’s folly. Do you have intimate knowledge of an industry that would give you a more-than-fighting chance of picking individual stocks on the rise? If so, perhaps active management of your portfolio, or a piece of it, would benefit you.

My friend who self-manages does not have the goal of amassing a huge amount of principal and then pulling it out as cash, which is the typical IRA or 401k plan. He has a far different goal. Although he buys and sells some of his stocks based on how the stocks are valued so he can make a quick profit, his purpose is to amass more cash to buy more stocks. He looks for stocks that pay dividends. We don’t usually think about dividends with IRAs and 401ks, because we usually arrange for all dividends to be reinvested automatically in the very same products. This is advantageous during our highly taxed years when we are earning our maximum. Later, however, this is not necessarily the best strategy. My friend, who is at retirement age even though still working, now allows the dividends to be paid to him directly. That money supplements his income from other sources. Meanwhile, he has not reduced his principal.

Hearing about this, I realized that the common way of thinking about IRAs and 401ks is all or nothing. Either we keep it all in various funds, locked up and not paying out a dime, to rise and fall according to the whim of the stock market, or we take it out as cash and spend it. Moreover, we are told that there is a formula for taking it out, usually around 3% or 4%, by which we can sell out on a yearly basis and keep our principal intact. This isn’t exactly true, though, if the stock market is not doing well. (We’ve certainly seen that situation in the last few years.) Meanwhile the federal government wants us to sell out of these funds on a regular basis, starting at age 70 1/2, whether we want to sell or not. At that time, we have to start converting our tax-deferred savings into taxable income, or face stiff penalties. We can do that, but we don’t have to let it all be cash. We can convert the required amount of principal (less the government automatic withholding of 20%) to the very same or different financial instruments as simple investments. Investments that pay us dividends or interest.

This strategy does not reduce principal dramatically. Most people expect to cash out their principal, and so they worry about it running out. If we create an income stream rather than sell off the principal that doesn’t happen. This method harks back to the old-fashioned concept of living on cutting coupons. Coupons were the quarterly dividends that bonds paid, and rich people bought the bonds and then cut the coupons and redeemed them for cash. Organized correctly, these became a constant flow of income, income not affected by the ups and downs of stocks. Also, if we don't spend down our principal but live on dividends or interest instead, we can leave an estate for our children, which an important consideration for some people.

It’s very daring to self-manage one’s retirement money, but at some point we all do have to make decisions about it anyway. Why not think about this method?

Does Your College Student Need a Car?

2011-02-26T13:43:00.002-05:00

Here's something to think about before the next kid or the first kid goes off to college. Someone I know is all bent out of shape over a child needing a new car while a freshman. Unless the child is commuting from home to college each day, even owning a car while in college is an unnecessary expense. No, it’s a luxury. There is virtually nothing for which a college student needs a car. Commuting from an off-campus apartment to college each day does not require a personally owned vehicle. It requires two legs. Or bus fare, if the off-campus apartment isn’t within walking distance (dumb idea, that; students should live very near the college library).

We are raising a generation of spoiled little princelings, I fear, who get trapped early into the mistaken belief that they “have to” have a car even when their job for four or more years is simply to attend classes and do their course work. Aside from the privilege issue is the unhappy truth that we’re not doing our teenagers any favors by enuring them to the idea that a car is a must. A few years later, out in the adult world, the cost of car ownership can be prohibitive to a young person who only has a McJob for support, or who has a “real” job but only a starter salary. Or who cannot find a job at all. A car is something to which a young person might aspire, but the several thousand dollars a year it costs to own one (even not counting gas) is a burden that many of them are not able to carry on their own. If they accept parental aid to own a car, they prolong their childhood dependency, something neither parents nor children ideally should do.

My college had plenty of rich kids whose parents were well able to give them cars, even luxury cars. But the college had a rule of no cars until one had lasted through the freshman year. This was a sensible method of encouraging new students to fully enter into campus life and bond with other students rather than run away from the college experience to go shopping or whatever. A car is an isolator, and our current generation of pampered youngsters doesn’t need more isolators. Many of them never even shared a bedroom with a sibling in childhood, and they enter college ill-equipped to deal with a roommate. College students have plenty to think about and explore. They don’t need the additional burden of worrying if their car needs oil or is about to be towed.

If you’re teetering on the edge about whether your teenager needs a car at college, let the kid try the first year without one. It’s a bracing experience; it teaches responsibility, ingenuity, cooperation, and even learning how to cope with public transit to arrive at class on time, all skills that will be helpful in adult life. Also, if you’ve signed on to pay your child’s college expenses, a hiatus in paying for a car will be a welcome relief as well as financially sensible. In later college years, once your child masters being a student, having a car might enable him or her to intern or do part-time work, but neither are recommended for the first year. Try this. See how it goes.

Seven Tax Tips for 2010 Tax Filings

2011-02-22T11:56:00.002-05:00

1. The AMT patch and the Educator Expense deduction are in---again.

2. The deduction of up to $500 of your real estate taxes ($1,000 if married filing jointly) on a standard deduction return is out.

3. Not all Energy Star appliances qualify for a credit. Washers and driers don’t.

4. The IRS is not sending tax packets out anymore, and libraries aren’t carrying tax forms. You’ll have to pull them off the Internet.

5. If you e-file, depending on who does it for you, you can get your federal refund in less than a week. Not a loan. A fee-free refund.

6. If you pay medical expenses for a parent, even if that parent is not your dependent and does not live with you, you can deduct those expenses along with your own itemized medical expenses.

7. If you break into your 401 k or IRA and use the money (or its equivalent, since money is fungible) to pay medical expenses, you won’t have to pay an early withdrawal penalty, but your tax preparer must know how to fill out a special form to get you excepted from it.

Is College Debt All Bad?

2011-02-22T11:00:00.003-05:00

Plenty of people talk about why college debt is bad, but thinking of higher education as a mere matter of dollars and cents, as Michelle Singletary seems to, is a mistake.

Here’s the single most important reason to go into student debt: to get into the very best school in your field if you want to become eminent in your chosen career.

Not only will you have exposure, often directly, with the outstanding achievers, both professors, visiting speakers, and fellow students, but you will have the opportunity to be on the cutting edge of developments within it. The people you get to know at that kind of college are likely to be the people you want and need to know later. The alumni of an outstanding school will become your personal old boy network. Your classmates will become the next generation of important people in the field. Some of them will become your friends, some your rivals, and others will be part of a network that will help you make career moves far in the future.

This is not a universal situation. At lots of schools, and in most fields of study, neither the professors nor the alumni nor your fellow students are likely to be significant to your future career success. Classmates might be potential friends or mates, but statistically, they seldom are potential colleagues. The reason for this is that most people who go to college do not end up making a career out of their college major (also, huge numbers change their majors), and even if they do, they do not reach for the top in their field. Only a very small minority do. There’s a huge difference between having a successful career as a scientist and being the scientist who is appointed by the president to run NIH, for instance. As for graduate school, which used to be for the elite, these days just about everybody gets a masters, so even there you are not necessarily hanging out with the future movers and shakers of your field. Most people you meet in an average college will not be important to your professional future.

If you plan to be a teacher, you don’t need to go to Harvard. If you intend to be an accountant, the same. Most careers can be prepared for quite adequately through the state university system.

High-profile institutions have their share of washouts, of course, but in the fierce competition to get accepted, there tends to be a larger percentage of highly motivated, driven students than there will be in a school for which acceptance standards are looser. The stakes are high and even seventeen-year-olds know it. There are careers for which the networking advantages of attending a high-profile college are so valuable that tuition debt is simply the cost of access, and well worth paying.

Not every teenager is suited to or driven to the kind of career that requires intense networking to achieve a high profile position. There is no point in going to a school where the student will be a fish out of water, either, unless that person has an exceptionally strong, determined personality. Of course it has been done, but when an exceptional child is sent to a school filled with the exceptional, there is a distinct possibility of personal adjustment problems interfering with the work of being a student. Parents should analyze their child's chances of making the most of an expensive prestige college experience. Another factor to consider is the financial stability of the student’s family. If the only way to finance a particular college choice is through punishing loans that the family can barely manage to pay, tremendous pressure is put on everyone. The student is under pressure to follow a predetermined career path and succeed. There may be hostility from siblings not given the same opportunity because the parents are completely tapped out paying for the first child. Unless the student is a perfectly performing robot who never makes a false move, always is lucky to be in a strong economy, and feels the moral responsibility to promptly pay the family back for the sacrifice, the dreams for which the debt is undertaken may not come true. That’s a huge moral load to put in the shoulders of a young adult.

Debt should be an important consideration when choosing a college, but not the only consideration.

Are we middle class?

2011-02-01T10:52:00.002-05:00

Not really. We only think we are. If we don’t qualify for food stamps or discounted housing, or the poverty credit that our state or city provides, we believe we are middle class. But are we?

If we are insolvent, are we middle class? What is “insolvent,” anyway? It’s the state of negative net worth. Many if not most Americans with a mortgage in its early years are insolvent, because they do not have the funds to pay off that mortgage on the spot. Many more Americans also have car loans that, again, they would find it impossible to pay off instantly.

Then why do we think we are middle class? Hundreds of years ago, in western Europe, there were laws that kept wealthy middle class people from wearing the bright and luxurious clothes worn by the nobility. The middle class was frozen as the middle class, or so it seemed, because they had to wear a uniform, usually black. In America today, with no such laws, the only way to define someone as middle class is through tokens.

Middle-class people aspire to houses, cars, and education, tokens of being middle class today. People who define themselves as middle class are determined to secure the outward show of being middle class even if they don’t have the money to buy it outright. They do it through consistent employment, with allows them to leverage their small net worth to get credit and thus have negative net worth and become insolvent. So they look middle class but they aren't.

Is this a different modus operandi than the working class and the poor use? Yes. They buy for cash because they can’t get credit. To the degree that the working class and the poor have been caught up in middle-class aspirations and tried to get in on the housing and credit booms, we have the subprime mortgage category and the credit cards with immense finance charges, and the payday loan phenomenon. But they are not middle class. Most don’t have or can't keep the tokens of the middle class. Others don't aspire to be middle class. They aspire to be rich, as defined by what they see on television, i.e., a flashy car, jewelry, and fashionable clothes, etc. Not middle class at all.

The true middle class is almost invisible. The solvent middle class is the group that owns homes outright, pays cash for their cars, and has cash saved for their educations. As distinct from the working class or the poor, though, the true middle class can afford nice houses in the suburbs (still the middle class ideal) or discreet town homes. This middle class is what most self-defined middle-class people aspire to be, the group that can afford the tokens. They still live a middle-class life. They just don’t finance it with credit. Or, to put it another way, they aren’t fronting. That’s what the rest of us are doing. Fronting, posing, whatever you call it, even though technically we are insolvent and we are only a few lost paychecks away from having it all collapse on us.

Why bother to define what middle class really is? Because we who self-define as middle class also believe that we must have the tokens of being middle class, and so we go into hock to get them. We believe we are entitled to these tokens, in fact, because a lifetime of fronting, posing, and pretending (while hiding those horrendous credit cards bills and getting repeated home equity loans) has accustomed us to believe we are middle class. But most of us, sadly, are not. If we can lose this mindset that we are middle class and we therefore must have certain possessions, perhaps we can behave with enough fiscal responsibility long enough to actually become middle class for real. Food for thought.

About Debt

2011-01-18T10:31:00.002-05:00

I like to read Michelle Singletary’s column in the Washington Post because she is not a financial professional so much as she is a financial synthesizer, as I am. She researches all the current information from various public sources about personal finance, and then she opines about it based on her personal beliefs. Like me. We don’t always agree, but most of the time I think she has her head screwed on right. She is anti-debt, perhaps rabidly so, because that’s how she was raised. In this current economic crisis, that attitude comes across as sheer prescience. How did she know the economy would tank? She didn’t. She grew up knowing how to squeeze a penny and stay out of the clutches of creditors. The heretofore comfortable middle class has a more benign view of credit than does Singletary, whose grandmother, a low-paid nursing aide, managed to support a family through persistent thrift. The grandmother knew that the kind of credit she could obtain would likely come at a huge price, a price she was unwilling and probably unable to pay. By contrast, for many of us, credit has been easy and relatively cheap for many years. And then, just like the frog being slowly boiled, it got a little more complicated, and a little more, and now we’re in severe danger. The frog could have hopped out of the pot when the water was cool, but didn’t sense the danger, and that’s exactly what has happened with the majority of Americans who have become overwhelmed by debt. Yes, there are many contributory factors. But Michelle Singletary’s grandmother knew that debt itself was peonage---like unto slavery---and she wasn’t signing on for it. Too bad so many of us closed our eyes to the danger for so long.

Scam Tax E-mails

2010-12-06T09:50:00.001-05:00

“Notification: Your Federal Tax Payment has been Rejected.

Status of your Tax Payment is Declined.”

Those are the ominous opening words of the latest e-mail scam I received. Or rather, they would be ominous if in December I was still trying to make a tax payment. In November I also received similar supposedly official notices, from which I can only conclude that these are meant to catch people who do their taxes at the last minute in October, when the standard IRS-allowed filing delay is about to expire. It’s not a payment delay, by the way. It’s a filing delay. Your payment is due April 15. You can take until October 15 to file your return once you execute a simple form asking for more time.

There is invisible code in every line of this scam e-mail, so it’s dangerous to do anything more than delete it as fast as possible.

I pity the fool who believes this scam e-mail. Trust me on this: the IRS does not decline payments. The IRS cheerfully takes your money, and if there is something squirrelly about the situation, has two defaults. Either the IRS sends you a polite note asking what the money was for, or the IRS sends you a letter saying you owe more. The IRS loves money and any money you offer is accepted. Even if you make out the check wrong, the IRS will still cash it.

This whole scam setup raises the question, who is the scammer expecting to fall for this? Someone in deep trouble with the IRS, of course. Would that person be doing e-mail? E-mail more and more is trending old---Baby Boomer age---whereas younger people don’t bother with it. They text or tweet or just don’t write anything. Very old people hardly use computers, though. Most are proud and happy to be computer-free. A few do, and perhaps they are credulous enough to believe such scams. What about people whose grasp of American laws, and IRS behavior, is weak? Ah, there’s a likely subset. The ignorant are the true targets here.

Basically, this scam capitalizes on panic. If your situation with the IRS is already causing you deep fear, or you view the IRS as a confusing and unyielding monolith (pretty accurate view), this scam might touch you on a nerve. Do I have to warn you that it is a scam? I sure hope not. Fake bank notices, fake PayPal notices, fake eBay notices, and so on are cluttering up Inboxes everywhere. Although your Internet service provider may filter most spam, you still have the responsibility of recognizing improper and misleading communications. The IRS is moving toward requiring all taxpayers to e-file, but currently the IRS does not e-mail. It still communicates by snail mail. In duplicate. Don’t expect e-mails from this agency anytime soon.

Here’s a hint. Finish and file your taxes by April 15. Then these scammers won’t have a chance to catch you in a weak moment.

Dumb Employers Demand the Unlikely

2010-10-14T13:23:00.005-04:00

Dumb, dumb, dumb. We've got a terrible unemployment situation in this country, huge numbers of very well-educated and experienced workers fruitlessly looking for jobs, and now Christopher S. Rugaber of the AP reports that "Employer Demands Mean Some Jobs Go Unfilled."

Rugaber explains that companies want new hires to do the jobs that several people did before, so instead of hiring people who have some of these skills, they are holding out for people who have skills in multiple areas. These people are a rarity. After all, previously, employees were encouraged to specialize and were punished for having too many areas of expertise--punished by not getting hired. Now, the reverse is happening, and companies would rather not hire unless they can find what HR pros call "purple squirrels." Rare indeed.

I suppose it looks good for the company's bottom line to show no hiring costs other than endless interviewing. To me, it's very obvious that these companies are being incredibly stupid. They might as well declare bankruptcy now, because they can't build a business or maintain a competitive edge by refusing to bring in fresh blood.

Imagine if a big publisher like Random House said, "We want to start an epublishing arm, but we are only willing to hire someone who has done it before AND ALSO has run a conventional publishing company." The pool of people who have been directly involved with running an epublishing venture is growing, but it's still a very small number of people, most of them scrappy outsiders, because this is a brand new part of publishing. The pool of people who have run a conventional publishing company may be larger, but it's also a small pool, mostly preppy insiders, because those people tend to retire and write books. Now do the Venn diagram for these two, and you get, oh, maybe ten or twenty people, tops, who have the dual expertise. I am probably erring on the generous side; it's more likely to be five people, max. Why? Because epublishing is a new field combining with an old field in a new way that is changing by the minute. And your company intends to wait it out until the "perfect person" is found? Dumb. Many companies are not this foolish, and that's why college students who are excellent bloggers get hired by major media firms on graduation. Media firms can't afford to wait for someone who goes and gets an M.S. in Blogging, and they know it. Apparently, many other American companies do not understand what they are losing every day by not hiring.

As much as companies might think that the answer to their fiscal issues is to hire (and of course routinely overwork) people with super skills in disparate but predefined areas, that is not how business grows. Companies that would rather wait to find their perfect employee will lose out to companies willing to take the "risk" of the imperfect new employee. Since it's a speed game in the marketplace, and whoever gets there first often wins the bulk of the industry business, that could be a costly mistake.

Just sayin'. Dumb.

A Few Social Security Tips, Just for Fun

2010-10-03T08:40:00.003-04:00

Not that you are old enough to qualify for Social Security, but let’s talk about it anyway. Don’t believe you have understood everything you pick up from idle chatter or even from various official and unofficial websites. When it’s nearing time to file for Social Security, go in and talk to a human. Otherwise, you may misinterpret what you are entitled to, and then be disappointed at how little your monthly payment is. I know somebody who thought that if claiming benefits was delayed a few months, the payments could rise 8% a month. Not so. We have many false ideas about Social Security. It pays to do some investigating.

Of course there will be Social Security when you retire. Who would dare to vote it down? As people often say, Social Security is the third rail of American politics; messing with it is the easiest way to commit political suicide. Millions of people have looked forward all their lives to receiving it. They do not intend to be disappointed. I include myself. Sure, people bring it up as something to be tinkered with. There even are a few diehards who still talk about putting it all in the stock market, despite the stock market’s recent dramatic dips. Right. Ain’t gonna happen.

On the other hand, Social Security payments are not a lot of money. The average woman gets just $11,000 a year, which is less than $1,000 a month. Try paying for all your living expenses on that, and footing some medical costs, too. Cat food will start looking more likely as a grocery item. The average man can expect higher payments, nearer $14,000 a year. Still not a princely sum.

If you want your Social Security checks to be larger, what can you do about it right now regardless of your age? Earn more money. Social Security is indexed to your lifetime earnings. It also is essential to earn for 35 years, because if you don’t, any zero-earning years will be averaged in. Ouch. That will lower benefits substantially. To overcome a history of some zero-earning years---very likely for women who take time out to raise children or care for elderly parents, or for the few men who do the same---consider taking part-time jobs or not claiming business expenses against income if you run a small home business. More income will result in more Social Security tax paid this year, true, but also in a larger Social Security check for years to come.

Even without working more, many women (and some men) have the option of switching from their own benefits to drawing on those of their spouses, or ex-spouses from long-term marriages. The catch is that the spouse must be old enough to qualify for Social Security. Thus, if a woman is older than her husband, she’ll have to use her own benefits first, and then when her husband reaches retirement age she can draw on his. Or if a husband is older than his wife but wants to draw on her benefits, he’ll have to wait until she hits retirement age. Why bother switching from one set of benefits to another? Simple dollars and cents. In most cases, men have earned more than women, and so a husband’s Social Security benefits will be larger than a wife’s.

What about taking benefits early, at age 62? Try to avoid this. The loss of up to 30% of your lifetime income from Social Security is not worth it unless you have good reason to believe you won’t live past age 73. It takes approximately 11 years for the advantage of getting benefits early to become the disadvantage of getting a lower rate the rest of your life. Thus for men, with their far lower life expectancy, taking benefits early may make sense; their average life expectancy is only 75. For women, who are likelier to live to 85 or beyond, taking Social Security early is a mistake. Even if they switch to a husband’s higher benefits, if women take Social Security early, they don’t receive full benefits. Who among us is average? Do we want to risk playing the odds?

By the way, Social Security is not tax-free income unless you have no other income. A lot of people remember the old system and don’t understand the new one. Years ago, the Social Security Administration construed all of the payments issued in the first years of retirement as the return of previously taxed dollars you contributed in the past. Thus in the first couple of years of receiving Social Security, regardless of other income, most or all of the Social Security payments received were not taxable. If people died in the first years after drawing on Social Security, they might never have had any Social Security income that was taxable. However, the government changed to a prorating system a while back, in part no doubt because of longer life expectancies. Under this system, a small percentage of each year’s Social Security income is considered nontaxable, i.e., the return of your own already taxed contributions. It takes about 17 years to earn that out, thus giving a person with other taxable income a bit of a break. This is significant because if you have income other than Social Security, some of it may be taxable. There’s a cute little ratio by which your Social Security income is compared to your other income. About.com offers a chart and an explanation. The IRS also has an explanation. Neither explanation is particularly complicated; it is the whole rigmarole of taking half your Social Security, adding your other taxable to income to it, comparing it to a base amount dependent on your marital status, and then subtracting the excess amount over the base that I find confusing. That determines the amount that is federally taxable. (At the state level, formulas are completely different and vary widely.) Again, if you have no other income, all your Social Security is likely to be tax free. I say likely because every description hedges on this. There are mitigating circumstances, but most explanations do not cover them. Frankly, I can’t imagine what they would be.

Clear as mud? I thought so. Maybe you have decades to go before you contemplate Social Security. Maybe you think it will be dismantled (over my dead body) by the time you’re ready for retirement. Maybe all these rules will change between now and when you are eligible to file for Social Security benefits. Whatever your situation, Social Security does affect you in the form of a tax on your earnings, and a potential lifetime pension. So pay attention. You are in the program whether you like it or not.

Enough About Chelsea’s Wedding

2010-08-15T20:34:00.003-04:00

Okay, it is safe to rant now? Chelsea Clinton is safely married, and we can all relax. We didn’t get a last-minute invite to the Wedding of the Year (must’ve been a slow social year), so now we can go back to being middle class and getting scolded for every choice we make. Instead of talking about Chelsea, whose family is rich and does not need to think about setting a modest budget for a wedding, let’s talk about us.

I got married a long time ago but I paid for all the expenses myself out of current income. Did overtime, saved my extra pay, wrote a lot of checks, and paid for the honeymoon out of salary as the bills came in and the paychecks did, too. No wedding debt, and though no day is perfect, the wedding went off well. Best of all, we’re still happily married. I ended up with a fancier wedding than originally planned, because there were so many relatives to please, or not please, as the case may be. (And the flowers cost a fortune.) For most people, a big formal wedding is a once-in-a lifetime event. Sure, if you get married a second or third time, maybe that ceremony will be even more meaningful. Maybe not. Or maybe you’ll celebrate your long-lasting marriage by redoing it all as mature adults and repeating the vows. Regardless, a wedding is a major rite of passage, and people go all out to celebrate it.

I don’t know if I should give Brett Arends of the Wall Street Journal credit for at least trying to write a sensible article about Chelsea Clinton’s expensive wedding, or just jump all over him for how ridiculous his article is. His basic problem seems to be that he knows the cost of everything and the value of nothing. My favorite line is, “But if your money earns, say, 4% a year above inflation, every dollar you save at age 20 will grow to about $6 by the time you retire. So that $17,500 will grow to about $100,000.” The $17,500 figure is the median cost of a wedding in America this year. It sounds as if we’re really missing out on a lot of financial growth by daring to spend big money on a wedding.

Here’s the problem with that kind of thinking: What investment reliably earns you 4% above inflation? In what dreamtime is he living? I’ve had a SEP IRA for almost a decade now, index funds, non-index funds, it doesn’t matter. That sick puppy of a stock market account has never yet made me a dollar. Never. Forget about a dollar over inflation. And 4% over? I’m hysterical with laughter. Wall Street mavens might make this kind of money by playing the market. Ordinary people who have other things to do with their lives besides follow the stock market do not make the profits he confidently claims that a wedding will do us out of.

In my book, paying for a wedding is a sure thing, unless there’s some question about whether either the groom or the bride will show up. You organize the affair, get the best of everything you can afford, pay back old social obligations, have a good time, and have a lovely set of memories, often captured on film, to remember. This frankly will be a lot more fun in our old age than the knowledge that there might be an extra few dollars in the bank account. Because it’s only going to be a few dollars, folks. A pitiful few.

So please, plan the biggest wedding you can afford. Invite everybody you know. (Don’t do a destination wedding unless all your pals are rich, because no one will come and all the invitees will hate you.) Enjoy your big day. I hope Chelsea enjoyed hers.

Should We Stop Buying Clothes?

2010-07-22T21:46:00.004-04:00

My friend James likes to send me (and a circle of his friends and relatives) whatever NY Times articles strike his fancy. We keep telling James to launch his own blog, but he dithers. This is the blog post that James should have written.

Apparently, there is a movement afoot to get people—mostly women—to swear off unnecessary clothing purchases. This Times article details just how small the movement is at the moment—under two hundred people have signed the pledge—which ought to tell us something about how unpopular saying no to buying more clothes really is.

My friend James virtuously says:

I have a simple rule for clothing, and most other stuff: I have a set number of items and if anything new comes in something has to go out. As for the number of items, I just decided one day that, “That's enough.” I don't need anything more.

I am haunted by the Fredrick Pohl story "The Midas Plague."

I haven’t read that story, but I have my own story to relate, about how noxious it is to be in close quarters with men who save money on shirt laundering or uniform cleaning by re-wearing clothes they have sweated in. My god, these men stank. If this is you, stop immediately. Want a date or a promotion? Wash yourself, and wash your clothes, too.

My vote therefore is for people to own enough clothing to have more than a week’s supply, if they leave their homes to go to work. If they work at home and have access to daily laundry, they can have three days’ supply, although this hardly gives much leeway; they’d have to do laundry three times a week. If they live alone, it would be more efficient of resources to own more clothes and do one big batch of laundry once a week.

Who does laundry, you laugh. Okay, so you send all your clothes to the dry cleaners, who mostly still imbue them with poisonous chemicals. I have personally seen people picking up hundreds of dollars worth of dry cleaning. If that’s you, you might want to think about the deleterious effect of the chemicals on the planet and your health, and the deleterious effect of the cleaning costs on your wallet.

Still, I do recommend that if you refuse to learn to iron (it’s easy enough), or if you are in an image-sensitive profession, or if you simply do not have time to do laundry properly, you have professionals clean and iron your clothing. An ambassador I once worked with wore an impressively ironed silk shirt, even though his embassy was basically decrepit. Now he’s the president of his country.

Most of us are pretty good at keeping clean and pressed. What too many Americans do is shop for excess clothing. It’s not necessary, except if you work in the fashion or movie industry—in which case, you should be getting designer duds at super insider discounts, not buying retail. In New York City, you’re considered a sucker if you buy at retail. The city is filled with suckers buying 5th Avenue merchandise. Only some of those shoppers are rich. For most of us, it’s not a good idea to buy on 5th Avenue—or its mall equivalent. That’s the heart of the problem, of course. A preponderance of Americans tries to spend as if they are rich.

That’s what this movement is all about, reining in people who have no business wasting their discretionary income on clothes, more clothes, and still more clothes. By now, those of you who have been reading this blog for a while know that I am totally anti-cluttering. Owning too many clothes is just another form of cluttering.

Somewhere in between the complete insanity of people who own closet after closet of clothing, and the insensitivity of people who always show up in the same shirt, sanity lies. As I have said before, it is especially important that women, who for the first time in history have substantial discretionary income and plenty of ability to use it to influence our culture and our institutions directly, stop wasting their money on trivial crap. We can be so much bigger than this, if we only let ourselves. The endless search for the next “perfect pair of black pants” is a tragic waste on all counts.

It's Not Small Change

2010-07-13T02:09:00.006-04:00

The latest AARP Bulletin--my vote for Most Depressing Magazine in America because it's always full of bad news about helpless and naive elderly people being ripped off and pushed around--the latest AARP Bulletin claims that the average American family today has over $15,788 in credit card debt.

Huh? Last time I checked, it was around $9,000, and rising about $1,000 per year. Not good, and the trend was terrible, but way different from 15k. Since then, we've entered the Great Recession, which in theory would have made the trend lower. Except for people who lost jobs and then had to live on their credit cards. Something must have changed to get the whopping 15k figure.

I Googled the concept. Money-zine.com quotes Federal Reserve stats of $5,100, but says stats are hard to come by as there is no official national way of measuring.

Credit cards.com has the same $15,788 as the AARP. Here's how they got that figure:

"Calculated by dividing the total revolving debt in the U.S. ($852.6 billion as of March 2010 data, as listed in the Federal Reserve's May 2010 report on consumer credit) by the estimated number of households carrying credit card debt (54 million)."

I'm not feeling the believability factor here, especially since in the last two years we've gone from a nation of spenders to a nation of savers, in a big way. Our savings rate is over 3%, up from levels variously calculated at zero or even less. You can see from the spike that the savings rate went way, way up in early 2009, after the market tanked and while we were still receiving bad economic news on a seemingly daily basis. People socked away 5% then. Unfortunately, we appear to be saving less now. Still, where does the $15,788 come from?

I checked out my old pal, Suze Orman, who doesn't serve up the current estimate for household credit card debt but does say the total we now owe is over $900 billion. Yikes. That's over $16,666 in debt per household. Unless more households are in debt.

Sometimes these numbers are like the total fifths of whiskey I supposedly consume per year. Since I don't drink, somebody else must be doing more than their share. I'm guessing that some households are deeply in credit card debt (that's an easy guess, isn't it?), while others are happily without any.

The big question is, which are you? The statistical person with about $5,100 in credit card debt--enough to make you a bit uncomfortable but not terribly alarmed, or the construct household with $15,788--which after all is $7,894 per adult in a two-person family, not exactly chump change--who is beginning to feel seriously pinched?

And what can you do about it today? Because you know this debt thing is a big, ugly weight that's only likely to get bigger, unless you change something about how you spend money. That's all. You make a change, and the situation changes. As we can see from that teeny tiny chart from the Department of Commerce, when there's a will, the financial picture can change quite dramatically in a hurry. I wonder if today is the day you make a change?

Blog Your Own Damn Way Out of Debt

2010-06-18T22:14:00.002-04:00

On the radio, they tell me that if I owe at least $10,000 in credit card debt, I “qualify for a free help program.” It's an obvious come-on from a debt consolidator who wants me to take out a huge loan and get further into debt. Now, Woman’s Day Magazine on their womansday.com site is searching for someone in debt who will write blog posts about her misery. She’ll get paid $50 for every post she writes spilling her guts to the world about her bad financial habits. This information brought to you courtesy of Laura Rowley’s Money and Happiness blog. She promises to provide tips and advice to help the woman chosen for this lucky experiment.

Too bad I don’t qualify for either offer. No, wait. Good for me. I’m not in debt.

How about you? Are you willing to go on television on some cable show or be profiled repeatedly on the same blog as you daily or weekly or monthly reveal every stupid money mistake you make? Didn’t think so. By definition, people who make these kinds of deals are desperate. They have given up, so they seize upon the idea of laying their problems at someone else’s feet.

Blogging about being in debt is a fine idea, though, and here’s why. The Internet is public. Most people in debt are keeping it a secret, and the shame is almost as overwhelming as the debt itself. Yes, it is traditional in this country (and many others, no doubt) to keep our money situation as very private business, even more private than our sex lives. But does this make us happy? How many people do we know who are deeply in debt but still trying to live a lie, to keep up with the image of prosperity they have been faking through the foolish use of credit? More than you might think. Years ago I read a warning to be an alert driver; it claimed that 10 percent of people driving at any time are drunk, drugged, high, sobbing hysterically, or otherwise seriously impaired. (We can now add texting and using their cell phones instead of paying attention to the road.) Bottom line, what we see is not the truth. Many people we know who act as if they have plenty of money, who spend with a large hand, are secretly in debt and frantic to get out from under. But their sense of amour propre continues to compel them to fake it.

Maybe blogging, even if no one reads your blog because you never tell anyone about it, can help you get control of your financial situation. You don’t need to take out a debt consolidation loan, or become the paid show dog of some multimillion dollar company, to blog your own damn way out of debt. Start by creating your blog, which as you know is free. Then consider topics, such as: How It Started, or How it Snowballed, or What I Hate the Most about Being in Debt.

Blogging is like thinking out loud. If you aren’t ready to tell friends (the real ones) and relatives (the nontoxic ones) that you are in debt, tell the world anonymously through your blog. Your words could help you see your life in a new light, and possibly, you’ll find your way out of debt.

It Helps If You Have a Job

2010-06-02T16:37:00.004-04:00

We all want financial stability and comfort, but those are hard to achieve without a job that pays well enough and offers a reasonable likelihood of employment next week, next month, or even next year.

My favorite book about job hunting ever, bar none, is called Hardball Job Hunting Tactics, written by Dick Wright, and published in 1983. It apparently wasn’t a big favorite with people who buy books, because I don’t see that it’s in print today, although it is available from various resellers used. That’s probably because Hardball Job Hunting Tactics is written for the kind of person who doesn’t read books. Among the pieces of advice Wright gives is what to do about getting a reference from your former boss--when your final official act on that job was to punch him out. Also, how to describe your time on the prison detail mowing the center strips of state highways as a landscaping job on your resume. And more. Not really aimed at the reading set, as you can see, although the tips in the book could have been a good guide for a job counselor, social worker, or probation officer, or any other person trying to help someone down on his luck through his own folly. It’s one of the most honest job-hunting books I’ve ever read, taking real situations that are negative and showing how to make the best of them. In that respect, the book’s advice is relevant to us all. Perhaps in the Internet age, some of Wright’s suggested tactics wouldn’t work, but plenty are still relevant to the job-seeking process today. If you have screwed up in just about every way possible on the job, I recommend you check out a copy of Hardball Job Hunting Tactics
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In contrast to Wright’s book is Harvey Mackay’s latest, Use Your Head to Get Your Foot in the Door. The subtitle is Job Search Secrets No One Else Will Tell You. I like Mackay, and I’ve read previous books by him and thought they were pretty good. That’s why I picked up this one, even though he is no young whippersnapper. In fact, all the testimonials at the beginning of his new book are from People Who Are Very Old. Norman Vincent Peale, for crying out loud. But Mackay is not wasting anyone’s time by dishing out old-fashioned advice. Instead, he is completely up to date about how employment and job hunting have changed in the twenty-first century. He makes no bones about how the onus is now 100 percent on the shoulders of the individual, and likely to remain so. Sure, companies make the traditional noises they always have, but today, those noises are often ominous warnings of layoffs to come. Mackay’s book covers the dark side, losing your job or not getting a promotion, and the other side, looking for work. Bottom line, Mackay advises what others have been saying for a while now: it’s all up to you. You can’t just sit in a corner and pay no attention. And if you did, and find yourself on the sidewalk, it’s time to network, because according to Mackay, networking is the serious way to find a job today.

Networking well requires the ability to make impersonal-yet-personal contact with people with whom you have little in common, whom you hardly know. That’s the truth of it. For Mackay, who is at heart a salesman, networking does not feel insincere. He has nothing but admiration for job seekers who go to heroic lengths to investigate any possible job leads and work any possible career contacts. His interview with a young woman in her twenties shows just how much effort she put into making connection after connection until she finally found the right fit for her. This type of person is likely to ace interviews and get job offers.

Mackay does not underplay the amount of work it takes to find a place to work. Winning job-seekers do significant prior background research on potential hirers. We’ve all heard about doing that, but how many of us have penetrated beyond the company’s bland website to contacts with people who can tell us something about what’s really going on there? You might ask why we should know so much about a company. Here’s why (true story): Say you’ve received a job offer and you move your family at your own expense from out of state in order to take the job. And then, a month in, you learn that your new employer is embroiled in a multimillion dollar lawsuit. If the company loses, it’ll go under. Wouldn’t it be better to know about the lawsuit before you accept the offer? Yes.

Mackay also cites the stories of successful job hunters who refuse to take no for an answer, and in so doing are impressive enough to get a foot in the door. I know a young woman who has an aggressive, sales-oriented personality. She has no fear of talking to strangers and trying to convince them to do business with her company, whatever that company might be. She wants to build sales and gain new clients. Is it any surprise that she has no trouble finding employment?

But what about the rest of us, the ones who are not sales-oriented? The shy ones, the awkward ones, the ones who cannot fake sincerity? The sad truth is that except in high-level technical and professional jobs, and low-level manual and service labor jobs, personality is what gets us hired. That’s it. If they like you, they hire you. We do not all have to be salespeople as such. But we do need to be able to sell ourselves, our valuable and appealing qualities, to the right people, and know how to pass with the people who will never “get” us. That’s a major hurdle for most of us. Mackay does not give specific ideas to transform our personalities (even temporarily) into the successful sales type, but he does give very detailed advice on how to weather intense job interviews with their trick questions, how to negotiate, and many other valuable pieces of information. Still, like a lot of confident people, it does not occur to him that throwing ourselves over the personality hurdle is the biggest obstacle to success. We can see the truth of what he’s describing, but we can’t see ourselves in that picture.

What can help the rest of us, the insecure ones, the ones with difficult personalities, the people with obvious strikes against us like age, gender, race, infirmities, weird tics, and so on? Maybe not this book’s advice directly, but some of the clues and the sources Mackay hands out. He generously includes descriptions of other books that tackle in depth some of the issues that hold many of us back. And for those Baby Boomers looking for work (again!) he included a link I am happy to pass on, to the MetLife Study of the New Realities of the Job Market for Aging Baby Boomers. Its official title is “Buddy Can You Spare a Job?” This study is an eye-opener that could save many of us, regardless of age, from negative job-hunting experiences. It might even be as valuable in determining your personal strengths and weaknesses as an employee as Wright’s Hardball Job Hunting Tactics. Still my favorite.

Penny Pinching or Profligacy?

2010-05-17T10:15:00.002-04:00

I don’t want to constantly rag on the NY Times or the Washington Post, but they are two of the nation’s most widely read and influential newspapers. (Even though printed newspapers are a dying breed, they still are read by many people, especially online.) Here’s yet another article about personal finance, whose headline says one thing but whose body says another. Since headline writers are a different group from reporters or columnists (although I suppose with newspapers collapsing, those jobs might be collapsing, too), the writer of this article on personal finance probably is not at fault for the misdirection of its title. The headline says, “Penny-Pinching Is Fine, but It Won’t Save the Profligate,” but the article by Alina Tugend mostly talks about small economies and how little difference they make in our financial bottom line. Nothing about the profligate as a group.

Yet the profligate in our society are the leaders whom we follow into hell. They’re the ones who started installing home theaters in their houses, so we all had to have them, too. Now they’ve got “outdoor rooms” instead of decks or patios, so vast numbers of us think we have to somehow take the indoors (no bugs) outdoors (bugs). No way. About the only advantage I can see to fancy outdoor cooking setups is that they appear to be mostly used by husbands. Which might mean that the wives don’t have to spend the whole party inside anymore. Or not, because who makes potato salad on a barbecue?

Tugend interviewed a couple of experts and cobbled together a mishmash of advice. Although the experts talked about making big money-saving choices, she focused more on smaller changes, the less painful cuts, if you will. Then she trotted out the old cliché about eating out less making a huge difference, as if it’s a major revelation. I’ve got news for her and for America: Grandma isn’t in the kitchen anymore, and neither is Mom. Constant eating out (or taking out, or ordering in) is now a common way of life for most Americans, so we might as well move on to the next item where we can be penny pinchers. Only in the case of dire financial crisis will we change this new paradigm. Tugend may be eating out a little less, but she’s still eating out. The handwriting has long been on the wall for the rest of America. Every crossroads has as many pizza places as it has gas stations. Don’t expect this to change.

What about the other big item one of her experts cites? Don’t carry a cellphone? Even Tugend knows this is ridiculous. More and more people are giving up landlines in favor of cellphones. It makes sense if you don’t know where you’ll be living next year because you’ve lost your job and may lose your home. At least your phone number won’t change when you’re living in the shelter. Why doesn’t Tugend challenge her expert and engage in a dialogue about the unrealistic expectations inherent in such advice? Because this is an article about penny pinching, I guess, and a sad little waste of space it is. I’m still waiting to hear about the profligate.

Why skim the surface of a tough issue? That's my real objection to this kind of article. Oh, it satisfies all the rules we learned in journalism school in our reporting classes. But it only touches the highlights, and it fools us, by dipping into the reporter's personal choices, into thinking that the message has significance. It doesn't, because it's a mixed message that blandly ignores our realities.

Perhaps I should check out a selection of some dumb online articles on personal finance, instead of ragging on the poor old NYTimes and its hardworking reporter who at least called two experts before she wrote this article. I should give equal opportunity to the banality of the web. I promise I will in future.

One Final Word About Clutter

2010-05-14T23:14:00.004-04:00

One more post about clutter and then I’m on to other topics. Decluttering requires constant vigilance, but it is easy if we keep our decluttering muscles limber. Gail Blanke’s book Throw Out Fifty Things is a nice guide to room-by-room decluttering, and she of course includes lots of stories about other people and their clutter issues. This is fun reading for those of us who want to be assured that we aren’t as bad as the Collyer brothers—at least, not yet. Blanke has a good website and some helpful video on it, to encourage us to take the plunge and declutter.

Of course her advice is simplistic; it has to be. Most serious clutterers have very complicated mental justifications for their continued ownership of anything, and no book is long enough to present the opposing arguments for each and every retained possession. I read in a comments skein on Salon about someone whose mother insisted there was still edible food in her basement—which was flooded with three feet of water. Yuck.

The majority of us are not so far gone yet, so the issue is to keep from clogging up our surroundings. Here’s where we ought to honor our brains more than we do. Our memories of the people we have loved, the places we have been, and every other experience in our lives are in our minds. Souvenirs may jog some memories, but if we lost everything in a fire we would still have those memories. Some people do lose everything, but when they talk about what stings the most it is not piles of expired food or stacks of newspapers that they mourn. It is not receipts, broken toys, and old clothing. It is not even familiar furniture and beautiful accessories, though certainly people spare a sigh for them. It is family photos. Family photos are all we need. These days we can scan them all and put them on CD or DVD and toss extra copies into our safe deposit boxes at the bank, post them on the Internet, archive them on the net also, and of course e-mail them to family members. Once we have safeguarded those photos, we can breathe easy. The rest of what we currently own can join the choir invisible if need be.

I don’t know what you’re keeping, so I won’t tell you what to get rid of. I’ve started my own list of fifty things I have thrown out, courtesy of Gail Blanke’s encouragement. Like her, I am not counting multiples; if I toss a dozen pairs of socks, they count as one item. It may not seem quite fair, and it may not be entirely helpful to people who think that their issue is that they have hundreds of one particular item that need culling. Blanke’s concept is that we all have excess stuff in many categories (and rooms), and attaining the fifty-tossed goal means checking everything out, going from room to room and drawer to drawer if need be. She believes that we gather momentum as we go, and that’s why the goal of tossing fifty items is such a high number. I agree.

So, start your own list, and remember that “throwing out” means removing it from your household. You can recycle, pass on to friends, give to charity, sell, or whatever.

My one caveat about recycling/giving to charity/selling at a yard sale is that if the condition of the item is not good enough for you to use it today, it’s not good enough for anyone else, either. No one needs your stained, broken, and worn-out possessions, so do us all a favor and deposit them in the proper places: textile and metal recycling or the like, or the trash. Yes, the trash. Landfills already have machines that can extract everything of value that you may toss in the trash, so don’t worry too much about not being able to directly recycle every single thing you’re done with. As I’ve said before, the universe will take care of this; it’s not your responsibility.

Good luck!

Deciding Not to Clutter

2010-05-13T10:14:00.002-04:00

How do we keep from becoming clutterers/hoarders? Call it a disease or call it a bad habit, cluttering is a threat to many of us because of the increasing volume of our possessions. We must be diligent in removing any excess we have. As I said in my last post, only when we’ve divested, detoxed, and learned how to avoid our acquiring triggers can we face who we want to be and how we want to live.

If we don’t want to slide into becoming clutterers (and then hoarders), we have to make decisions about the things we keep. We can’t keep acquiring without deciding. That’s the basic. Every item we already own must constantly be subjected to a test: Is this useful to me today? Today, does this bicycle work? Today, will I eat off this chipped plate? Today, is this silver tray adding beauty to my world?

Beauty has as much right to be in our lives as utility. I have a silver tray sitting in my foyer, and that’s where we put our outgoing mail. Since I was a child watching movies, I’ve wanted a silver tray to hold my mail, and friends gave me one. Every time I see that tray, it delights me. Don’t be afraid to keep your own version of my silver tray. Just remember I’m talking about one tray, not fifty.

Ah, multiples. If one tray is good, surely two are better? No. I bought another silver tray at a thrift store. Now I have two trays, almost exactly alike. The sad truth is that I have little or no use for that second tray, and every time I look at it I am reminded that it is an extra I don’t need. Maybe once or twice a year, for a party, I’ll find something to put on it. Is it worth keeping for years under those conditions, especially since it has no personal associations? No. Even though a tray hardly takes up any space physically, it does take up psychic space, and I am responsible for keeping this additional possession in good condition, for displaying, storing, and using it. It’s a burden. It is clutter. I could declare that I am a collector of silver trays, but that would be pointless. These trays are manufactured in the millions, and they all look the same, and a stack of silver trays is neither more beautiful nor more functional than just the one I use every day for mail. Substitute any other possession for my second silver tray and subject it to the same test. Do you use it daily? Does it add beauty or merely a burden of upkeep to your life? Do you have space for it in your home?

Some of us imagine that by saying we collect certain items, we are free from making any decisions about them, but this is not true. Collections should have upper limits, and proper collections are well maintained and displayed. If something new comes in, something old should go out. True collectors constantly cull their treasures and keep only the best. Most of us collect items of mass manufacture, so by definition it is impossible to own them all. We can’t own every coffee mug that was ever made, and why should we? By keeping up with the quality of our collections and removing the least attractive or least functional items, we can ensure that they don’t turn into an ocean of clutter. Yes, Star Trek fans, I am talking to you.

A third type of clutter is junk. Junk mail, old wrappers and cartons, stuff that doesn’t work, and so on. We don’t need to spend a lot of time thinking about these possessions. We simply have to decide to get rid of them. Strangely, a lot of us don’t, not even our junk mail. My mother used to ruthlessly rip junk mail in half the moment she recognized what it was. Today, you may want to send all your junk mail through a shredder, but the concept is the same: ditch it fast. Have the shredder set up right next to where you open your mail. There even are special junk mail shredders that can handle unopened junk mail if opening it is an issue. As for the rest of the junk, with all the recycling available today, few of us have any excuse for stockpiling empty cartons, dead batteries, broken appliances, or any other category of of useless possession. If you don’t have curbside pickup for everything, there’s probably some place nearby where you can take the rest of your junk. Just load up and head out. And don’t visit any thrift stores or yard sales on the way home.

You say it’s not that simple, that you must think about this. That’s the road to cluttering, which leads to hoarding. We can let go of our unneeded possessions and trust in the universe to deal with them. We are not responsible for their ultimate destination. My second silver tray can go back to a thrift shop. It’s shined up now, so perhaps the charity can get a couple more dollars for it the next time around.

Attaining Our True Desires versus Hoarding

2010-05-10T10:28:00.001-04:00

In a perfect world, we would not fritter away our time or our money acquiring possessions that don’t help us attain our true desires. Cluttering, and its advanced stage, hoarding, is the act of burying our true hopes and needs under junk. The junk may look pretty and be neatly organized, or it may look trashy and be thrown helter-skelter throughout our living areas, or it may be secreted away in rented storage spaces or garages or attics. How we maintain the stuff is hardly meaningful. What counts is why it is there.

I could go into a long diversion and discuss our stated intentions of honoring the value of the work put into crafting these items, or of the sentimental value of retaining every possession once owned by a beloved relative, or of the possibility that these objects might one day prove of practical use to us. But what’s the point? We’re completely fooling ourselves if we play this game. The reality is that if our lives are scary or empty or too difficult to face, retreating into a passionate relationship with possessions is one method of temporary escape. Some people hide behind alcohol, drugs, food, or sex with strangers. More and more Americans hide behind massive quantities of possessions, because they are legal, cheap, and easy to acquire. The very act of obtaining them gives us a measurable high. That’s right; researchers have proven that a part of the brain lights up when we get new stuff. Unfortunately, that pleasure area of our brain does not stay lit, and we have to keep replicating the experience to get the same high. It’s exactly like drug addiction.

Meanwhile, what we truly want in life is buried somewhere under the rubble. That’s why it’s important to talk about what we want our lives to be, and not about the clutter itself. Sensitive therapists and decluttering experts ask us what we want our home to look like, how we want to feel when we walk into our bedroom, for instance, or our kitchen. They want to know what we see ourselves doing in an ideal life. They want to draw us out of hiding, and empower us to have the courage to live authentic lives, and free ourselves from the cycle of addiction.

How do we identify our true desires so we can acquire what we most want in life? We ask ourselves what we want. What would make us happy? We make lists, if need be, of all the things we want to do before we die, of all the places we want to visit, or people we want to meet, or accomplishments we want to achieve. Then we consider, logically, which ones we can do, and how to do them. It’s that simple and that scary. Instead of living in a haze of confusion brought about by constantly collecting new possessions, we face the reality of who we are right now, and who we want to be tomorrow. Of course it’s frightening. Buying a new blouse or a new chair or trash picking an old bookcase or yard sailing a completely unnecessary lamp might be a lot easier. But we’ve already discovered that things themselves do not bring us lasting satisfaction.

Sometimes we need to fine tune our dreams. If we dream of travel, we need to pick a place to visit, and research how we could get there and what we would do there and every other detail. A trip to Paris is not that expensive compared to a weekly trip to the mall or the discount store. If we want an education or to live somewhere different or to learn the piano or even to start dating, listing these goals and breaking them into their component parts makes accomplishing them easier. Everyone has goals, although some of us will deny it until pressed. None of us wants to wake up tomorrow without a sense of purpose.

Cluttering our lives with possessions obscures our true desires, and that’s why cluttering usually has to stop before we can achieve those desires. People in the throes of addiction have to go through rehab. They have to stop the addictive behavior and then get the toxins out of their system. Then they have to learn their triggers and practice substitute behaviors that will help them to cope with the stress that previously has sent them to their drug of choice. No one expects an alcoholic to get sober while living in a bar, and clutterers can’t continue to live in their messes and hope to get their heads straight at the same time. It might seem possible that a clutterer could simply lock the door and walk away from a mess and start a new life. But that doesn’t happen. Clutterers need to deal with their stuff and get it off their backs.

If you think you aren’t quite a clutterer or hoarder yet, but are headed in that direction with your collection of this or your collection of that, now is the time to ask yourself if your collections are helping you attain your true desires. If not, it’s time to be diligent in shedding the excess.

More about reducing clutter next time.

Too Much Stuff

2010-05-04T16:18:00.000-04:00

I promised in my last post that I would not merely rant against hoarding, and so here is where I delve into the dilemmas we all face about possessions, things, stuff. It’s a two-part issue. There are many decisions we make when we acquire things, and many other decisions we make when we choose to keep things. Even no decision at all is a decision.

First let’s talk about acquiring possessions. Acquiring new possessions may be the biggest threat we face, yet it is behavior that our culture pushes on us. Our economy runs on the consumer model. Since at least the end of World War II, manufacturers have deliberately created objects that are not meant to last a lifetime. This is called planned obsolescence: the parts are manufactured to fail. When companies progressed to using mostly plastic parts, they converted to parts that barely function at all, that break easily and cannot be repaired even with Crazy Glue. In the past, there were many repair shops in our country. Now there are very few, because it is cheaper to buy a brand new television than to have one repaired. To push us to make the transition from keeping objects to tossing them in favor of brand new ones, manufacturers constantly add upgrades; each new television has some new feature that supposedly makes it superior to the old one. Advertising is relentless, and it has crept into every corner of our world. It’s no wonder that after being exposed to hundreds of messages telling us to buy something new, we want to.

“New” is constantly touted as the optimum of our culture. Fashions in clothing have always been the ultimate in planned obsolescence; there is a new fashion every season of the year. Clothing designers collude to use the same colors and fabrics at the same time, and to make them as different as possible from what came before. The effect is to make whatever you own and wear now look “so last year.” Women and men who get caught up in this are forced by their learned hypersensitivity to newness to constantly update their wardrobes.

Of course personal issues enter into this acquiring spiral. We want to be perceived as on the cutting edge of technology, not old-fashioned. We want to be seen as fashionable, not dowdy. Not buying new means being out of step with the rest of our culture. Everybody else has a cell phone, so why don’t you? Elderly people are the only cohort that consistently opts out of this frenzy. No computers, cell phones, or even telephone answering machine technology for them. There are exceptions, but since most elderly people also are living on limited incomes with little or no hope of increase, they are wise not to be wrapped up in ceaseless acquisition. The truth is they can’t afford it.

Meanwhile, the rest of us do have laptops and cell phones, but what about that old desktop computer, and that old pager? They’re sitting somewhere in our homes, usually gathering dust. Along with the broken televisions and last year’s clothing. But do we get rid of them? No. They still work, or they could be fixed, or they still fit or…something.

That’s part two of the hoarding problem. As much as we are victims of advertising hype and the peer pressure in our culture that pushes us to keep acquiring new possessions, there’s a part of our brain that knows arbitrarily abandoning old possessions is wrong and unnatural. That blouse is perfectly good, and it cost half a day’s pay; why throw it out because something else is fashionable this year? There’s nothing wrong with that television that a halfway competent mechanic couldn’t fix. And surely there’s some reason to keep that old pager, which still works, even though nobody sends pages anymore? These are reasonable arguments. Unfortunately, the new possessions crowd out the old. That’s because there’s a gap between our good intentions and our actions. We’re busy. We throw the old pager in a drawer and forget it rather than decide what to do with it next.

We also keep possessions because of sentiment. Mothers typically keep some souvenirs from their children’s babyhood. Maybe a rattle or tiny booties or even a few toys in anticipation of becoming a grandparent. Where mothers begin to cross the line is when they keep every toy the child had from infancy on, and every piece of crayon artwork and every spelling homework paper, and so on. (Turning these items into endless scrapbooks is just moving the clutter from one shelf to another, unless 99% of the collected items are tossed in the process.)

The clutter problem starts with our natural outrage at the waste implied in tossing out something that still might have some value. That television was fine until the moment it stopped working. It originally cost $400. We want it to be fixed, but that is not our reality today. The pager is outdated technology; it’s hopeless, but it still works. How frustrating is that? What about the stuffed animal collection that was so cute when the baby was three years old? The baby is a strapping teenager now and those toys could make some little child happy, but can we bear to part with them?

If we do not throw out stuff, move it along, we run the risk of letting the mere trappings of our lives turn into piled-up trash, or totems. If our rooms contained every item we wore or played with or worked on in or ate from in our entire lives, we wouldn’t be able to move. We must live in the present without being constricted by the past. To do that, we must engage in a constant winnowing process, sending off and throwing out items that no longer are useful to us. Even when we wish they still were. Sorry about that, old faithful television.

In most homes, there are some items that need to be chucked, but we just haven’t gotten around to dealing with them yet. In the home of a clutterer/hoarder, the total number of these items keeps increasing, often exponentially and with no relation to rational thinking. Hoarders not only keep everything from the past, imbuing every item with sentimental totemic value, but they also keep bringing in new possessions. This kind of acquiring does not seem to be a response to the overmarketing of Americans. It’s related to a sense of not having enough. Hoarders frequently report feeling safer and more comfortable with all their excess possessions packed around them. They literally use physical objects to protect them from the world. Some trash pick, but the majority simply overbuy. Hundreds of garments, hundreds of food items, hundreds of containers in which they imagine they will one day sort their excess possessions.

How do we keep from becoming clutterer/hoarders? How do we avoid falling ill with their disease? We already know that the entire force of our culture is pressing us to keep acquiring. The logical response is two pronged: one, we need to identify our true desires so we can acquire what we most want in life, not what ads tell us we should want; and two, we need to be diligent in divesting ourselves of any excess we have.

More in my next post.

Hoarding is Ruining Our Country

2010-04-30T10:29:00.002-04:00

Yes, hoarding is ruining our country, because it diverts wealth that all of us have into objects the hoarder renders useless. Not very long ago, most people even in this rich country did not own many possessions. If you visit the governor’s mansion in Williamsburg, Virginia, the furnishing are sparse. If you check out Biltmore in North Carolina, built by the wealthy Vanderbilts, furnishings are opulent but there is lots of empty floor space. If you watch televisions shows that depict the homes of current celebrities, you will see that they may have many possessions, but they also have generous space for all of them. Why is it that, today, in ordinary American houses everywhere, excess possessions are jammed into every available space, often on top of each other and spilling across areas where people need to walk?

Everyone, including me, is very kind to hoarders to their faces, because we can see how completely oversensitive they are to reality. They can’t face it and they don’t thank us for telling the truth about how they live. But they want even more from us: They want us to ignore the sheer waste of their behavior. A lot of that waste is monetary. Hoarders usually claim they merely have a sorting problem. If they admit there is any problem at all, they claim they’ve just gotten overwhelmed. If they invite in normal people to help them, it is not to remove the clutter: it is to sort the clutter. They don’t want to part with any of their excess possessions. They just want the enormous piles of clutter to somehow miraculously fit into the inadequate space they have.

A scary television show, “Buried Alive,” visits the homes of extreme hoarders and shows them getting therapy over a period of time and trying to reduce their piles. I hope they succeed. Alas, these are not isolated instances. Serious cluttering-into-hoarding is a growing disease in our country. How many people do you know who waste money by keeping possessions in storage, for instance? Who trash pick? Who are addicted to home shopping television or eBay auctions or flea markets? Some people joke that a yard sale is when you put out all your junk and other people take it back to their homes. So true. How many ugly clothes, badly designed toys, now many completely unnecessary and useless decorative items make the trudge from one household to another each year? I know some people find this an entertaining and inexpensive method of shopping, but why go looking for useless junk?

Why not put your money to work for you? Sure, we've had a tough time recently with the stock market, but historically, the middle and lower classes have not been involved in the stock market and instead found their wealth in other ways. One way is to save money, just save it, whether in a cookie jar or a bank account. Another way is to make investments in people: Help a relative or friend, give money and time to charity, and so on. A third is to nourish a small business; a major reason most of them fail is undercapitalization. You could lend someone money, all tied up legally with a written agreement, or micro-lend through the Internet and earn interest while helping build a capitalist enterprise, whether in this country or elsewhere. You also could do what Americans did 100 years ago: restore broken items to usefulness, and sell or donate them. Finally, you could spend your money on improving yourself: on more education, on recreation that refreshes your soul and restores your body, on maintenance of your home, and much, much more. The possibilities are endless.

Interestingly, a lot of hoarders claim that they plan to fix broken items and then sell them or give them away. But they don't; instead, they stockpile them. People who compulsively shop for clothing don't even try to rationalize their need for hundreds of purses. This is wasteful behavior, and in some cases it is the financial ruination of a family. Unfortunately, no approach to cure hoarding has been found to work on a lasting basis. People who overbuy or overcollect slowly slip into trashing up their homes, renting storage units, even buying additional houses just to hold their excess possessions. They alienate their relatives and friends, and end up alone with their hoard.

What I dislike most about hoarding, aside from the sheer disgusting, unsanitary aspect of it (and make no mistake, most hoarders are creating toxic conditions--imagine all that formaldehyde outgassing in a cramped home, plus all the mold being created), is the waste. Americans are the richest people in the history of mankind, and we are throwing away our wealth on useless trifles and trash, or on excess volumes of useful items that we then turn into trash. That's why I say hoarding is ruining our country.

So far, this might sound like just another antihoarding rant. But we can do something about our hoarding tendencies. That's the subject of my next post.

The Financial Tuneup

2010-04-19T11:49:00.002-04:00

A tuneup is an expensive trip to the mechanic that is supposed to keep your car in tiptop shape. I’ve never been sure if a tuneup made sense. Today’s cars probably don’t need them, given their newer technology. But what about a financial tuneup? In March, the NY Times ran a cute article called “Thirty-One Steps to a Financial Tuneup.” But who wants to do anything in March? Now that we’re chastened by tax returns and hoping to do better as this year progresses, perhaps this is a good time to consider the list.

The truth is, this is a boring list. Many of the items on the list would take hours of research and they result in no joy, only second-guessing. Insurance, for instance. It’s a good idea to review your insurance, consolidate it, get better rates if you have improved your health, get a volume discount by having your house and your car insured by the same company, and more. But from personal experience last year, I know that doing this takes hours and hours and hours. You’re comparing apples and oranges. This company has a different deductible from this one; this one offers umbrella insurance and this one doesn’t. This one won’t cover any water damage, and this one will. And on and on and on. When you finally make your choice, you worry that you made the wrong one. It's your own little self-induced nightmare. How many of us want to start this kind of project?

Possibly the most interesting part of this checklist is the comments readers made about each item. People recount their own experiences, and since these are not the bland, one-size-fits-all of the initial advice, they give clues to your own personal situation that the checklist does not.

In case you don’t feel like following the link, here’s the NY Times’ list:

1. Save 1% more from your paycheck
2. Reconsider your investments
3. Rebalance your investments
4. Find a better bank
5. Make an extra mortgage payment
6. Open a home equity line of credit
7. Increase your student loan payment
8. Seek a lower-interest credit card
9. Set an automated payment toward your debt
10. Read the rules on your rewards card
11. Cash in your rewards
12. Find a better-earning rewards card
13. Check your credit reports for free
14. Consider a financial planner
15. Pare part of your budget
16. Read your tax return
17. Enroll in a flexible spending account
18. Reread your will
19. Automate your giving
20. Walk a loved one through your affairs
21. Ask your cable company for a better deal
22. Ask your wireless company for a better deal
23. Ask your landline company for a better deal
24. Spend your gift cards
25. Check your life insurance coverage
26. Buy a disability policy
27. Consider renter's insurance
28. Raise your auto and home insurance deductibles
29. Do a home inventory
30. Read your home insurance policy
31. Shop for new home and auto policies

Nothing wrong with working your way through this checklist, but in my case, and I suspect for many of you, some of these items just aren’t relevant. Gift cards? Don’t have any. Rewards credit cards? Don’t have any of those, either. Save 1% more of my paycheck? What paycheck? And that item about opening a line of credit for just-in-case cash is way out of date; banks have been closing these and refusing to open new ones lately. An extra mortgage payment in a year is your vacation. Do you want to skip taking a vacation just to end your mortgage a little sooner? I didn't think so.

Still, I admit that I love checklists, even ones that don't fit me very well. If there's even one action I carry out because I've read this list, the author, Ron Lieber, has helped me. Maybe it's worth following the link and checking out in detail.

A Note

2010-04-19T11:31:00.002-04:00

Cross posting my WordPress blog entry about money.

Tax Day

2010-04-15T16:46:00.006-04:00

It's April 15th, and for many people, this is a desperate day. If you have delayed or put it off or couldn't spare the time or couldn't find the documents, today is the day when you have to act.

Either you file your Form 1040 tax return today or you file a Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Form 4868 gives you until October 15th, no questions asked, to file your return. There is no penalty for filing within that extended period. Oh, but there is a catch. If you are going to owe taxes, you have to pay them with your application today. Otherwise, you'll pay interest on what is owed and a penalty for late paying, too. The good news is you can file for an extension via the Internet. But you should do it before midnight.

Or, you could just dig in and finish your taxes today.

I know the feeling of being in this final big hurry. One year I was so late getting our tax return together that my husband had to drive to another state to mail it--and he was the last one the police let into the line before they closed the mail drop. I also remember as a kid going in the car with my mother as she drove all the way into DC from the Maryland suburbs to drop the family tax return at the mailbox in front of the main post office near Union Station. Versions of these scenes will occur today. If you are the one heading out late tonight, my condolences.

Maybe next year you could make life easier on yourself and get your taxes finished sooner. There are volunteer sites across the nation where you can take all your tax questions in addition to getting your return prepared free of charge. Free e-file, too. These volunteer sites are not for everyone. If you run a small business and have inventory or employees, you need to look to a paid tax preparer. But if you have a job like delivering pizzas, where you are paid as an independent contractor, you can probably find a free tax preparing site that will handle your return. Even if you have a complicated tax situation, chances are that these sites can help you.

But don't wait until the last minute. That's self-induced stress you don't need. I won't pretend that income taxes are simple; they are not. Every year, the Federal tax rules get tinkered with, resulting in more confusion for us all. Often, state tax laws change, too. Before I do my tax preparer volunteering each year, I train in the new rules and then pass an exam, but I still struggle to remember all the changes.

It's a whole lot easier learning about these new rules in January than it is trying to learn them on the evening of April 15th. Desperation is not the proper mood in which to do taxes. If you handle yours early in the tax season, you'll be relaxed because you have plenty of time. This results in fewer errors. Many people do not realize that they can file their returns without mailing any payment until April 15th. The tax voucher, Form 1040-V, makes separating the return filing and the payment mailing easy. And of course you may pay by credit card these days.

On a day like today when you're down to the wire, it's easy to promise yourself that you won't let this happen next year. You'll get organized by March 15th instead, or maybe even February 15th. I hope you do, because if there's anything we volunteer tax preparers dislike, it's desperate, impatient people who have boxed themselves into a corner and now want that to be someone else's fault. We can't help you if you still haven't found all your documents. Or if you don't know the answers to the standard questions. Or if you have put this off as long as possible and now want us to hurry up and perform a miracle.

Nobody likes paying taxes; we get it. But since taxes are as inevitable as death, why kick and scream and procrastinate? The good news/bad news is that we get a do-over next year. We can aspire to handling our obligations better in 2011. Meanwhile, in only a few hours, the madness of tax day 2010 will be over.

Insurance Woes, the Happy Ending

2010-04-06T08:38:00.001-04:00

[See my post of March 12 for the back story.]

My friend’s claim was paid by Access America. He’s jubilant, and he ascribes the quick settlement to the power of blogging. I am glad that Access America paid attention to my blog post about the hazards of trip insurance, and offered to cut through the red tape involved in settling this claim.

Now I must point out that despite my friend’s happy ending, we each of us still have the responsibility to investigate in advance any insurance we buy. No more buying a pig in a poke. As the Romans said, “let the buyer beware.”

One of the pleasures of blogging is its potentially infinite reach, but sometimes we wonder if anyone is paying attention. This time, someone was, and we have a happy ending.

A Financial Fast

2010-03-17T08:28:00.003-04:00

My friend rails against another debt-reduction plan, Michelle Singletary’s 21-day financial fast, which she details in her book, The Power to Prosper. Although I have not read the book, her excerpt from it in the Washington Post was interesting and made sense to me. Lots of us tend to throw money away daily without noticing where its going. So I checked out what people thought on Amazon about the book. A lot of readers were turned off by Singletary’s specifically Christian religious tone. She originated the program and beta-tested it, if you will, within her own church circle. Some readers could not get past this, and so for them all the rest of the sound advice in the book was dead. You can check out the book for yourself, but meanwhile, what can we take away from the idea of a 21-day financial fast?

First, three weeks is short enough that most of us can commit to it. Singletary calls this a fast, and she is right to position it like the jump start for a diet. It’s not the way we can live every day, but if we are sick of excess, a fast is a good counter. What is the purpose of the fast? It’s to make people stop their automatic behavior and examine it piece by piece.

Second, we need new ideas about how to become more mindful of and able to control spending. As a nation we spend too much and we all know it. Unfortunately, marketers are working very hard to come up with new ways to entice us to spend more than we should. Their success is our financial failure. We have to fight back, and personal finance experts provide us with useful tools in this battle.

Third, good financial advice holds true whatever the source. I’ve read sensible personal finance books by fundamentalist Christians before (usually by southern white guys). Although their concepts for a woman’s financial role in a household are not mine, and I personally do not believe in tithing (since I more than tithe to federal and local government through my taxes), any new ideas about how to handle personal finance issues are welcome and can be adapted to individual circumstances. After all, plenty of women head their own households with no man around, so who cares if a particular book says the man should be the boss? The details of how to manage finances are the important part here.

What is Michelle Singletary’s plan? Go on a money fast. Three solid weeks without spending on anything but utter necessities. And no splitting hairs about what is a necessity and what is a luxury. Of course no using a credit card during the three weeks. But more important, no casual, random expenditures on a daily basis. That’s it. Sure, there are more details, but that’s the nut of the plan.

People who tried this regimen have discovered that in a mere three weeks they saved an enormous amount of cash. Several hundred dollars that otherwise would routinely slip away from them on idle pleasures. Sounds like a good experiment, you say.

But my friend refuses to admit it. To some people there is comfort in the daily expenditure of cash. They like it; it makes them feel as if they are functioning adults in the real world. All of us can remember being children and having no control over buying anything. Either we had no money or our parents controlled our every purchase, or both. Childhood was an endless round of negotiations. Being able to spend money without consulting anyone else feels tremendously empowering. That’s why even the idea of following a budget can resonate as another version of a parent saying no to us. For some of us, wanting to feel like “the boss of me” is what trips us up when we are tempted to buy something we don’t need.

Then there are those of us who cannot imagine going through three weeks without needing to buy something unanticipated. But that’s the whole point of the financial fast, to get us to see what we spend our money on. To make us think about every transaction and weigh how necessary each purchase is. And to consider what it does for us and what it does against us.

I welcome this entry in the effort to help Americans gain control of their finances. I just wish so many of us were not already on the financial fast called unemployment.

Insurance Woes

2010-03-12T09:01:00.003-05:00

Now I know why MetLife has those ads that say, “Get MetLife. It Pays.” Because other insurers do not.

A friend of mine was planning to fly to Europe and had to bump the date of his tickets because a close relative died. He'd bought trip insurance since it was such an expensive set of flights. His carrier was Delta Airlines, which told him that he must deal with its insurer, Access America. Access America won’t accept the funeral home’s letter. Access America won’t accept the dead person’s death certificate. Access America has demanded the dead person’s medical records. Huh? If my friend comes up with those, no doubt Access America will be demanding the dead person’s high school report cards. Or a permission slip signed by the dead person’s dead parent. People must sit around at Access America and vie with each other to come up with more and more difficult “proofs” that make it impossible for any claimant to get paid. This is so mean and rotten that it is almost surreal.

It makes me ashamed to be an American when companies like Access America can get away with crap like this. Ashamed to be a fellow human, too. How low is our society, that we allow companies like this to stay in business and keep preying on people?

I have proof that Access America has been pulling this for decades. Over 20 years ago, my mother took a Saga Holidays tour of Europe, and one of her suitcases was stolen. Saga bumped her to Access America, which refused to pay for the lost suitcase or its contents. How? By demanding more and more receipts—and only the originals would do—for items that Mom had bought many years before. Mom called. Mom wrote. Finally, Mom gave up.

And that’s what these companies depend on. They wear you out with more and more ludicrous and unfair demands. (Just like the health insurance companies, come to think of it.) They won’t give up until somebody bigger comes along and threatens to squash them like the bugs they are.

My friend has already gone online and found long lists of complaints about Access America. You can read them here. From these sad stories it appears that Access America sells insurance it has little or no intention of ever making good on. And Delta Airlines enables Access America. It can be hard to protect yourself against companies like Access America because it is a reinsurer, like AIG. You might sign up unknowingly with some other company, like Delta Airlines, only to discover after the fact that you have been tossed to the wolves.

I told my friend to go to AARP’s columnist, or to try local action lines, and of course to write a letter to the president of Delta Airlines. I guess contracting with an insurance company that does not pay on claims is Delta’s way of cutting costs. It’s worth telling the president of Delta that we want decent treatment. Otherwise, why not pick some other airline?

Can anything be done about companies like Access America? The insurance lobby in Washington is large and well-funded. (Of course it is, because they aren't paying claims.) Insurance is usually regulated on a state-by-state basis, but if regulation went to the Federal level, no doubt there would be less regulation rather than more. Any way you figure it, we the customers lose.

The moral of the story? If you want insurance for anything, first find a trustworthy insurer. Don't sign up for it blindly as an afterthought without knowing who the insurer is. And if you find yourself caught like this, persevere. Keep fighting until you wear the enemy out. With every insurer there is a moment when it starts to cost the company too much money to keep denying your claim. You just have to keep on until that moment is reached. Hopefully, you'll live that long.

Edited to add: My good friend Ron Fradkin, very experienced in the insurance industry, advises that anyone who has a problem with an insurer contact the state insurance department. State insurance departments have the power to fine noncompliant insurers, even on a daily basis; thus they'll get you quick action. This does vary by state, but it's excellent advice. Don't give up!

Buy a House When You Can Afford One, Not Before

2010-03-08T11:30:00.002-05:00

I just read yet another article about tightened lending standards, and how they could mean potential home buyers would have to come up with 10% as a down payment. The article went on to describe ways to circumvent the new standard.

Are people crazy? Sure, it’s a great time to buy, if you have several hundred thousand dollars in the bank that you will never need for anything else. Otherwise, this is a very risky time to buy, despite it being a buyer’s market and the rates being low, and hype, hype, hype.

If you can’t afford even a down payment for a house, why are you trying to buy a house?

For stability, right? So no landlord can toss you out on your ear. But a bank can do it, too, if you can’t pay your mortgage. People are being foreclosed on all across the country. What makes you think that you can beat the odds if you don’t have enough cash to begin with?

Trust me, I’ve been there. Before we bought our first house, we didn’t have the 10% down payment, either. So we put our furniture in cheap storage and went to live with relatives for a year. Five people had to share one bathroom and two people had to sleep in a basement, but at the end of the year we had our down payment. We thought we had it made. A year later, we were already in debt because of unanticipated but necessary purchases for the new house. The lawn has to be mowed whether you have the cash for a mower or not. And garbage cans really are not optional. You get the idea: Owning a house is more expensive than apartment living. Great big duh.

If you can’t even afford a down payment for a house, why do you think you can manage the day-to-day carrying costs of owning a house?

And then someone lost a job. There was no money to pay the mortgage until a new job was found. When the new job was found, it did not pay anywhere near as much as the old job. Welcome to the new reality for American workers.

If you can’t even afford a down payment for a house, and you don’t have the extra cash for the carrying costs, and then you lose your job, you will lose the house or go deeply into debt, or both.

Put your planned mortgage payment, plus 30% more, into a savings account and attempt to live on what remains. If you can’t, then you can’t afford to buy a house, down payment or no down payment. When employment was stable and lifelong, you could buy a house you could barely afford and gamble that it would become affordable as your income went up. Today, that’s a sucker bet.

Not Buying It

2010-03-03T08:12:00.002-05:00

Judith Levine’s Not Buying It made a splash a few years ago. It appears in a trade paperback edition suitable for book club discussions, including questions at the end of the book. I happen to be in a book club and we read this book. Well, some of us did. Others sneered at it for not being interesting; some members like a meaty story, and the tale of one year in a New York City freelance writer’s life during which she and her husband undertook to not buy luxuries simply did not appeal. Others did not finish the book because from the title they had expected it to be funny. “Not buying it” taken to mean that the narrator will comment humorously on some aspect of our culture. But an utter lack of humor characterizes this book.

What does Levine attempt to show in her diary-entry style posts from a year of trying not to purchase anything but necessities? First, she is honest about her own frailties, about the arguments with her husband over whether wine is a necessity or not, and about how queasy she felt being out and about with friends and not able to spend money. This is a peculiarly acute situation in New York City because little in that town is free. Oh, sure, you could stroll through Central Park or other parks, but everywhere else you are expected to pony up in order to rent a place to sit down. I distinctly remember how unequal I felt going out to lunch with a college friend years ago when she had a job and I did not. I was living on a shoestring, and the ordinary amount she could afford to spend on a hamburger was above my budget. Levine’s personal and professional life in the city was fraught with decisions about spending, or more often, not spending on social entertainment. She even got into an argument with a friend about seeing a movie.

Her half year in the Vermont countryside was easier, because the buy-in to a homemade meal is easier when everybody has a house and a car, and driving over for dinner isn’t a big deal. But she still managed to wring some angst out of petty issues such as her SmartWool socks. They may be wonderful socks; one of our book club members swears by them. But Levine’s obsession with trivial possessions really annoyed me.

Here’s why. She is an influential writer. She has the ability to put her ideas out to a mass market while synthesizing the thoughts of major scholars and thinkers. She is not rich, but compared to all the women who have ever lived, she has vast amounts of disposable income, and enviable personal freedom. And until her year of Not Buying It, she frittered it away on garbage. On trendy new fashions. On expensive trifles. On acquiring too many possessions. Her saga might resonate with other women who have found themselves casually slipping into poor financial habits, daily feeding their amour propre with retail therapy when they could be using their money, and thus their influence, more mindfully. But to me—someone who has known relatively hard times, albeit briefly—reading about a person who is profligate about money is offensive. This woman has been wasting her life and her power.

She seems to get it during the course of the year. She seems to reconnect with the political activism of her youth. And to want to live more purposefully. All to the good. But her book was not well received in our group. We’ve made much harder choices about buying or not buying than she does in her essentially frivolous year of attempting to be non-frivolous. And I don’t think the poverty that forces people to make draconian decisions about spending is likely to show us our authentic selves, as Levine suggests but also does not agree with. Our desperate selves, maybe.

And here’s another funny thing. Levine reports that as a collateral event, her nearly $8,000 of apparently permanent credit card debt was paid off early in the year. She’d carried this debt, adding to it and subtracting from it in the typical manner, for who knows how long. In a year of not buying, and without any overt intention of doing so, she easily eliminated her debt. Where is the “Well, duh?” here? Doesn’t Levine understand that there’s a cause and effect when it comes to random spending? I found this wonderfully naïve for someone who is such a successful elite writer. Almost as naïve as Barbara Ehrenreich was when she bought clothes for her Nickel and Dimed adventure. Levine buys fashionable shoes that Parisians won’t disdain, which is a whole different level from Payless or Nine West.

So, yes, some of my reaction to this book was simply scorn at the upper-middle-class artiste follies of the author. But at least she presented them for what they were, and this made for a very big difference in tone from the typical personal finance book. Levine is not prescribing; she’s describing. Toward the end there’s a bit of preaching about getting involved in civic causes. But basically what happens is that for a year the author had to live as people of lesser means do all the time, making compromises, having to deny themselves luxuries, feeling awkward in financially unequal social situations, and more. It seems to have had a salutary effect on her. Perhaps her story will help others to see their own relationships with commerce in a new and different light. One hopes. I find it extremely frustrating that a newly empowered class, women, wastes that power. Even if only the power to control themselves.

The Wealth Watchers Idea

2010-02-25T11:06:00.003-05:00

Here’s yet another personal finance plan, Wealth Watchers, by Alice Wood. Refreshingly, she does not come by her interest in personal finance from a background of having totally screwed up with credit cards and being addicted to shopping as therapy—or has she? She actually did endure a period of being in financial hot water, but it was the result of a brain injury that suddenly made it hard for her to keep track of every aspect of her life, finances being just one. Her solution was to take the well-known Weight Watchers point system and use it to plan daily spending.

I’ve encountered this concept only once before, in a television show about lottery winners. One lucky man now lived the high life in a mansion filled with very expensive furnishings, and all the rest. But he said that he knows exactly how much money he can afford to spend each day, and he never spends more than that amount. He lives off the interest he earns on his fortune instead of using up the principal. Unlike most lottery winners, he still has most of his winnings. He can reasonably foresee a comfortable financial future.

Alice Wood’s idea is the same as the lottery winner’s. You calculate how much you can spend per day and not go into credit card or other debt. When you reach the limit, you stop spending. This method has one beautiful aspect to it that I really like. It’s perfect for people who are perpetually foggy about what income is coming in and what they owe. It’s also perfect for people who are prey to impulse or bulk buys. Even if they are the type to rob Peter to pay Paul, to spend next week’s allotted cash on this week’s purchases, at least this method shows them how much total they can safely spend. People’s brains do work differently from each other. It’s nearly impossible to get certain types to pay constant attention to the big picture. Others are lost in endless minutiae. What Alice Wood has come up with is not a budget style per se. She has figured out a routine. The only hard part is the prep work, which requires you to learn what your carrying costs are by keeping track of them. Then you can break down your budget to fixed, semi-fixed, and discretionary expenses.

How do you separate your fixed expenses from your semi-fixed expenses? The fixed are the bills that must be paid and cannot be adjusted. These include

• Rent or mortgage
• Car payment

Here is where I disagree with Wood, because she includes several other items in fixed expenses that I don’t consider fixed. The next group, semi-fixed expenses, is my list. On it are items that can be modified by our actions:

• Car/Home/Life insurance
• Electric/Gas/Heat/Phone/Internet/Cable
• Day care/Private school/College
• Savings/Tithing/Charity
• Taxes/Medical
• Food

Wood does not include food as any kind of fixed expense, probably because it can fluctuate wildly depending on your style. But, like utilities that can be reduced by taking a cheaper Internet or cable package or turning the thermostat down, food costs can be modified via more or less eating out, buying of takeout, or home cooking. Every item of semi-fixed expenses is negotiable, but they are fixed to the degree that you have to have them. You must eat, but you can decide to spend less on food. You must insure your car, but you can find less expensive car insurance, or drop the collision on an older car. You can buy a premium cable package or just basic. You can skip going to doctors, although I don’t advise that, but you can decide to go to an immediate care clinic rather than an emergency room and that can drastically affect your medical costs.

A couple of items don’t fit these lists. You can choose to save, tithe, or give to charity; savings perhaps doesn’t belong in fixed as Wood has it, or in semi-fixed as I do. But it is not a necessity of life. And you may question whether taxes belong in the fixed or the semi-fixed list. We each choose the amount of our income tax withholding. Thus we can have more or less in our paychecks, and more or less in our refunds. Or no refunds at all. We also can choose the level of medical insurance we buy, if we have medical insurance. That’s why these ordinary expenses of life are semi-fixed. We can fiddle with them.

The bottom line of the Wealth Watchers program is that after all the fixed and semi-fixed expenses are tallied up and subtracted from your income, what’s left is your discretionary income. If you have included semi-annual expenses in your calculations (such as dentist visits), you can arrive at a daily figure you can safely spend on the items that are not fixed or semi-fixed.

Don’t imagine that it is easy to decide what you should spend on most of these expenses. Fierce arguments break out in many houses over how much should be spent on cable or telephones. People debate whether wine is a necessity of life and thus in a basic food category, or whether it is a luxury and thus firmly in discretionary. For Wood, food is all discretionary, but most of us are more comfortable with a baseline we expect to spend on food, thus making that figure semi-fixed. But we still argue over what is a food necessity versus a luxury.

To be frank, I think that Wood underestimates the difficulty of arriving at the safe daily spending amount. A book that is superior to all others in this regard is Make Your Paycheck Last, by Harold Moe. But Wood’s idea is something that one person in a family can do the work to compute and then others in the family can live by without concerning themselves with the big picture. It’s also possible to have a paid financial advisor calculate it all. Then the finance-impaired (or just bored) individual can still adjust spending to a safe level without going mad trying to figure out what that level is. And let’s be realistic; many people fall into this category. They don’t want to think about money. They just want to know if they can safely spend $20 or $2,000 today. Alice Wood’s book gives a good road map for making it possible.

With Great Power Comes Great Responsibility

2010-02-19T08:54:00.004-05:00

I just read a scathing indictment of the Abrahamic head of household concept, by implication condemning the Washington Post personal finance guru Michelle Singletary’s fundamentalist Christian way of living. This straight-faced roundup of objectionable paternalistic policies aggravated me—as it was supposed to—but it also amused me. It describes the tyranny of the head of household in great detail. But it does not describe the weight of responsibility that lies on that head.

If you get to make all the decisions, then all the decisions and their outcomes are your fault. With great power comes great responsibility. Modern American men mostly are not under the illusion that women don’t look at them with critical eyes. Far the contrary. They know we are quite capable of analyzing and judging them, and finding them lacking. While I admit there are still plenty of stupid chauvinists around who genuinely believe that women are the mental and moral equivalent of dogs, most men know better. And even if a man is able to totally discount the opinions of his wife and daughters, the condemnation and hatred in his son’s eyes will eventually penetrate his thick skull.

As much as unilateral power over a household sounds appealing, there is terror involved. Men are tormented by their need to measure up to great expectations. Can I get it right? Can I keep my manhood—my job, my leadership role, whatever—and thus my reason for being the head of household? Can I make the right decisions? Can my decisions earn my family’s love? Can I make the world conform to what I need?

Most of the answers will be mixed, and that’s the number one reason to let the decision-making be mixed in a household, too. Whoever you are, you will not always pick the right electrician, or the right career, or the right words to say to your rebellious teenager. It’s a whole lot easier to sleep if your decisions are thoroughly mutual with your spouse. It’s fine to present a unilateral front to the world or to your relatives, but it is better to be a genuine team.

I shudder just as much as you do when employers talk all misty-eyed about teams, because work teams are usually the breeding ground of mediocrity, lack of responsibility, and in-fighting. But a family team has a reason to pull together and to make decisions and take actions that mutually benefit. In many families, if three or four people didn’t work, they couldn’t live in a comfortable home. Would it be better if just one, the father, did all the work, and the rest of the family stayed home and prettied up the place to his directions? No. Would it be better if the father ordered the others to work and to give him their paychecks? Of course not. They would have no incentive to keep working or to improve their job prospects. Or to stay in this household.

Incentive is the other half of the power situation. If one person holds all the power, the other’s incentive is naturally to resist. I can think of no clearer example than the typical situation with nursing home roommates. These are usually women who previously were in charge of their own households. Often women who have been solely in charge for years because they’ve been long widowed. That is the typical life expectancy of the American woman: widowed at 55, dead at 85 or so. These women move into nursing homes and immediately start bickering with their roommates because both of them are used to being the boss of their surroundings. Until and unless they reach a mutually satisfying rapprochement, they continue to fight. The blinds should be open. The blinds should be shut. The blinds should be up. The blinds should be down. The windows should be open. And on and on and on. You would think that at that time of life people would not be fighting for power and control. But they do. It’s a natural instinct.

So getting back to our Abrahamic household, the big problem is that if dad holds life and death power over everyone in it, they will struggle and resist that power. If law and custom won’t aid them, then their struggle simply goes underground, into sly manipulations. Who has not heard about seemingly obedient wives who secretly buy things and then hide them from their husbands? And why do you think that women have had the reputation since ancient times of being poisoners? Because poisoning is an undercover method of seizing power without giving the appearance of doing so.

Life is so much easier if we split up the power and the responsibility. Then men don’t die young from stress-induced heart attacks, and women don’t grow old resenting the men who had power over them. When we share the burdens of living, they truly are lighter. And there are fewer complaints along the way, too. If you pick the restaurant, then you get blamed if the food or service isn’t good. If the decision is mutually arrived at, you don’t. It’s that simple. Choose to share. It’s not only right; it’s the best way to negotiate the bumpy terrain of life.

Don't Quit Your Day Job

2010-02-11T21:09:00.002-05:00

Those words of wisdom are often spoken in the arts world, usually to talented people with big ambitions but as yet no big successes. But today, as I was reading Michelle Singletary’s personal finance blog at WashingtonPost.com, it came up in relation to a young woman about to have twins, who already has a young child. She plans to quit her $100,000-a-year job and stay home with the kids. Her husband, who also makes $100,000 a year, will support them all. It’s a lovely idea, but it’s a recipe for disaster.

Singletary rightly suggested they try to live on just his salary beforehand, to test it out. But I was unsatisfied with her answer, which seemed too encouraging of this plan. Talk of buying a practical used van to haul all the kids is fine, but you don’t start a period of lessened income by making a large investment in a depreciating asset (a car). And the couple would pay for it out of their savings, which are only $50,000.

I know, you say, $50,000 is a lot. But it’s only a quarter of what this couple currently earns per year. At the rate they are living today, it would be exhausted in three months. And if they buy a $25,000 minivan, their rainy day savings drop to a mere $25,000, enough to cover just one-and-a-half months. That’s not good enough for Suze Orman, who wants people to have eight months of living expenses in savings. And it’s not good enough for me, either. I know people who have been out of work over a year now. What makes this couple believe that they won’t need enough savings to last that long? Add in the cost of COBRA, which with three small children they must have, and the rainy day savings look like nothing.

Probably this couple is feeling overwhelmed by the thought of having twins, and who can blame them? But they need to get over that and focus on ensuring that they have sufficient income to raise their children. This young woman may think she has a secure career she can return to in the future, but these are uncertain times and I would not take a bet on it if she walks away. Her husband may have a secure career, but again, we’ve seen recently that few jobs today are 100% safe.

So what should they do? They can’t hold off on having the twins in order to build up savings; these babies are coming soon. This mother wants to be with her children, a natural desire, and not one I would deny her. She should negotiate with her employer to go from full-time to part-time, of course. If she is valued enough to be paid $100,000 a year, I suspect she has some leverage. And right now is the perfect moment to negotiate, because she can spare her company the expensive task of finding her replacement, something companies hate. She should work out an arrangement that has her in the office part of the week and at home the rest, or part days, or telecommuting, or whatever. As a key element of the deal, she should strive to maintain as much of her status and responsibilities as she can. Only by doing so will she remain a necessary employee. And along with her current seniority, she needs to keep her health coverage.

Assume the ideal, that this woman retains half of her job and salary. Who will look after the children? She and her husband will, but with household help. A woman earning $50,000 a year can afford to hire a housekeeper, nanny, baby sitter, or au pair, or any combination, on a part-time basis. Assume she pays $20,000 a year to various part-time helpers, what’s the advantage? First, the household has $30,000 more net income per year than if she simply quit. Second, the woman still has her job, that’s the big one. It’s a lot easier to go full-time again (or find a new job) if she’s regularly at the office and/or telecommuting. And if her husband loses his job, or they want to switch off, she can negotiate to take on extra work for extra pay, or go back to full-time work. A third advantage is that her husband will not feel resentful because she gets to stay home and “do nothing all day” while he still has to drag himself to an office. Nor will he be able to cop an attitude about how she’s just a housewife and not interesting anymore—not when she’s still in the workplace and dressing the part and meeting other men just as he meets other women. And remember, they’ll have $130,000 a year instead of $100,000, and the babies will have plenty of quality attention. The couple can buy that used minivan and still keep their $50,000 in rainy day savings. They’ll still have to make compromises with their lifestyle, but they won’t have to cut it to the bone.

Yes, my alternate scenario presumes a flexible employer, and most of us have had experiences with the other kind. But it can be done. The woman’s future earnings depend on staying in the game. You might reasonably ask why should this woman have to keep working? Raising three children is a full-time job in itself. True. But only by accepting a much reduced lifestyle on a permanent basis can this couple live on just the husband’s salary. That puts a lot of pressure on the husband, the kind of pressure that makes men die young—or run away. And meanwhile, the entire burden of tending three small children all day long falls on the wife. That’s a lot of pressure on her, too. Together, this woman and her husband currently earn $200,000 a year, well above the national average. They aren’t in an either/or situation; they just think they are. They can create their own mix and have the best of both worlds.

My FICO or Yours?

2010-02-01T10:14:00.003-05:00

What the FICO score measures and how the information is weighted:

1. Payment history 35%
2. Outstanding balances 30%
3. Length of credit history 15%
4. New credit 10%
5. Types of credit 10%

There it is, the formula that rules our lives these days. You do not need to pay for your FICO score, ever. All you need do is honestly survey your performance, based on each of these measures:

1. Pay bills on time?
2. Keep the amount of credit being used low?
3. Longtime cardholder or newbie?
4. Recent attempts to get new credit?
5. A mix of types of accounts?

Very obviously, paying your bills on time is the key. Its weight is over one-third of the total score. That means a single late payment is over three times more significant than your mix of credit lines, or the fact that you went car shopping and five dealerships pulled your credit score, or your status as someone new to credit or someone with decades-old accounts.

Pay bills on time. No need to pay FICO to learn this.

Debtors Who Are Clueless--And Scary

2010-01-17T20:52:00.003-05:00

I just saw a television show called "Til Debt Do Us Part." Two episodes, back-to-back. What amazed me, really floored me, was how casually two different young women approached their debt. They claimed they did not know why they had no money. And on salaries of $45k a year, not including their men's incomes, they felt entitled to spend on anything and everything they saw or wanted. One of them was even living rent-free, but still managed to get deeply into debt. Even after family paid off her debts, she racked them up again.

This is crazy behavior. But the frightening thing was that both of these women behaved in pretty much the same manner: as if a credit card was their license to spend. And they were unapologetic about it. There was very clear self-will at work. Both women also browbeat their husbands, keeping them from exercising any decision power over how the household money was spent. The host took the men to task for using domestic peace as the excuse for enabling their women to overspend. But in my opinion, the women were the ones who needed a sharp dose of reality.

How can people be so clueless about their own money that they do not notice they spend thousands more per month than they bring in? What part of the brain shuts off to allow this craziness? And how can we turn it back on and save these people and others from an endless cycle of debt and rescue, debt and rescue?

I’m asking because I don’t have the answer. People with chronic debt problems must wall off their fears, their shame and guilt, from their daily lives and thoughts. How else can a person with $100,000 in debt dare to charge another unnecessary $20? You’d need a powerful firewall, but more and more, it seems as if people in our society have just that. Perhaps they feel no shame at all. Perhaps they believe that they will always be rescued by others, or by new legislation, or by bankruptcy, or by windfalls. Perhaps their future plan is to win the lottery. I don’t know.

What is obvious to me is that too many people are brazenly selfish even while behaving in a self-destructive manner. What the host pointed out was that if these people continued to spend as they did, within a few years they would owe hundreds of thousands of dollars. More than a house costs, and yet they would not have a house. They are ruining their future while indulging their todays. Big time. They’re all living like the grasshopper in the fable. But winter does eventually come, and where is the preparedness we need to survive tough times?

Don’t we all have moments when we are these silly people? When we know we’re behaving foolishly with money and credit, but we do it anyway? Yes, and that’s what is scariest of all. You don’t have to be perpetually in denial as these two women were to be in scary, intractable debt. All you need to do is have flashes of ignoring your reality. A few minutes here and there, and you can throw away another few hundred or thousand dollars without even noticing.

It’s got to stop. We’re the richest country in the world, with more individuals having significant money beyond a bare subsistence living than in any civilization that ever existed. And we’re throwing our wealth away on trifles.

New Year, Same Old Debt

2010-01-10T23:29:00.003-05:00

Someone I know is in credit card debt again. The person was in a similar situation several years ago. At the time, I was able to help the person get out of it. I also tried to model the habit of making the regular, on-time payments that creditors like. I stressed this as the number one rule. But it did not stick. My friend’s credit score (FICO) is very low, so a car loan has been denied—which is bad, considering those are secured loans and they could just come get the car, so what’s the risk? My friend is flummoxed. But unrepentant, I suspect.

I wonder how many of us really change our disastrous financial habits for better ones? Or, after we recover from a dangerous low period, do we limp along, much in the same manner as before, slowly but surely ramping up our mistakes? Worst of all, paying little or no attention to what others want from us? The friend is indignant about the car loan, citing having paid off a car loan from that very bank a few years ago. But that was then, and this is now. Missing scheduled payments is one of the classic signs of shaky financial stability. The bank fears that the car loan will not be paid back, and the bank does not need a car; my friend does. The bank is understandably wary of lending in this scenario.

Of course this situation would be different if my friend had a good, steady job. (Pause to laugh hysterically.) Right. Like that’s happening anytime soon. So what can be done? Does my friend even have enough money to make regular minimum payments? And assuming so, how quickly can my friend’s credit score be rebuilt—again!—in this rocky economy? Would six months of perfect, on-time payments make a difference? Or will it take a year or more to climb out of this pit? And to what lengths must my friend go to fix things? Sell something major that would be painful to part with? Live without a car for a year? Or two?

Or is this simply an organizational issue? Some adults have serious attention deficit issues. Serious. They collect too much paper and they can’t seem to open their bills promptly (or even their bank statements) and they never are able to put everything in one place neatly so they can find it again. My friend is but one of thousands, if not millions, of these people. They’re more likely to buy a new set of storage containers or get a new checking account than to put all documents in one place or balance their existing checking account. And these people, these thousands if not millions, are walking around as supposed functioning adults. They’re being allowed, even encouraged, to sink deeply into debt through systems that work for people like me (Little Miss Organized), but never work for them. Unless they are very lucky, their chronic inability to cope makes them the financial dupes of the banks and every other financial transaction.

Some of these people are married to spouses who can handle money sensibly. Or even to spouses who can’t, but who earn enough to keep everything covered. But some people are alone and trying to deal with words on papers from financial institutions that they simply do not understand. They don’t understand the words. Or the banks. Banks don’t really care about your payment record of ten years ago. They care about your recent payment record. They’d also prefer that you have substantial income and assets—and that you do not need the loan you want. That’s right: banks prefer to lend to people who don’t actually need their money. If Warren Buffet asks for a loan, he’s going to get it. Or Bill Gates. You and me? Not so much.

The bottom line with financial hassles always comes back to paying attention. My friend will now have to enter into a penitent period of being very careful to make all scheduled payments on time. I’m sure my friend will do it, too, because the danger and excitement of this situation will be a constant reminder. For a while. And then, the ennui with paying attention to numbers will rise again. And the trouble will start all over.

I don’t know the answer to this one. Spend less money than you earn? Sure, but if you don’t pay your bills on time, that’s irrelevant. Pay cash for everything? That plan does not get the electric bill paid on time. Go off the grid? Okay, now you’re just being silly. The buy-in for going off the grid is very steep. Who has that kind of money—without getting a bank loan?

I'm Having a Semi-Stressed Christmas, How About You?

2009-12-24T00:01:00.003-05:00

First of all, I was baptized and raised as a Christian, so I call it Christmas and always will think of it as Christmas. It’s not “the holidays” to me. It’s the season for Christmas lights and Christmas decorations and a Christmas tree and even some Christmas carols. Including “Adeste Fideles.” That’s my personal heritage.

However, more and more, Christmas is simply a time of year when I try to do the minimum that is socially acceptable, and bag the rest of it. Our family situation is that none of us gives gifts anymore. Lack of vast amounts of money to waste, lack of lots of young children who hope for presents, and also, lack of false pride. I am proud to say that my family members (and friends) don’t try to front with each other, or pressure each other into a spiral of unwise spending. Some of us give a gift or two informally, but these are all modest (under $15) and casually delivered at random moments. A book, a calendar, that sort of thing. There is no more presents-under-the-tree ceremony. I’ll miss it. I was the last holdout, for years carefully shopping and then going into orgies of wrapping. But no more. I didn’t buy any gift wrap in 2009 and I’ve got plenty left from prior years. Only there’s nothing to wrap. It’s over, and I’m not fighting reality.

My major stress originates with the traditional holiday baking. I’m still baking cookies and pies and tarts (yes, of course I make all these from scratch). But it’s a struggle against reality. Everybody I know is dieting or else does not want to eat officially unhealthy foods (white flour, white and brown sugar, real butter). So who is there left to bake for? And as for ingredients, I’ve tried whole wheat flour in several incarnations and it makes a lousy cookie. I’ve experimented with cutting sugar and fats, replacing them with nothing or with applesauce or whatever, and that produces a lousy brownie with the heft of a chiffon cake. (Never heard of a chiffon cake? Too bad you missed the 1950s. They had desserts then. With frosting.) And there is the hassle of replacing sugar with supposedly safe substitutes only to discover that there isn’t a substitute that someone on the Web isn’t claiming is toxic. And don’t get me started on baking with substitutes for wheat flour. There’s not much joy left in this traditional Christmas endeavor except the physical pleasure of handling the ingredients and making something edible out of them. Which no one wants to eat. In the next few years, I may finally stop baking entirely.

But even though I am not buying Christmas presents, and the baking is tailing off, I am still spending money regardless of my cash flow, and that of course causes stress. I bought a new lawn tractor this week. My 20-year-old Craftsman tractor was pronounced dead at last. So now I have a new one. Brakes that work! An engine that doesn’t smoke! A mower deck that doesn’t drag on the ground! This winter will be fun. I use the tractor all season to haul wood, so that’s why I bought it now.

Unfortunately, a lawn tractor is expensive. Start at $1,000 and go up, way up. I didn’t. Go up, that is. My John Deere dreams are fated to remain fantasies, I fear. I went for low-end practical and no frills. And yet another credit card balance transfer in my future again, I expect. This is not my ideal way of paying for major purchases, but in this economy, considering my cash flow (and those still locked-up CDs I won’t be able to and am not willing to touch for months) it is practical. What I find humorous about it this time around is that Sears was not offering a six-month or one-year payment plan as they often do, and which their employees told me is offered through Citibank. So when I get the bill and I balance transfer this to one of my credit cards, Citibank won’t be in the running. (Because it would be in effect a Citi-to-Citi transfer, and they don’t allow them.) Citi’s rivals will get my balance transfer fee. It would have been smarter for Citibank to offer that six-month deal directly through Sears, but huge corporations aren’t very flexible even when there is an easy profit to be made. They are massive and I am not, and they won’t make any adjustments for me.

That’s why I am content to work this system in my favor as I can, and will feel no sadness or guilt when our government finally, years from now, allows Citibank and its ilk to die. Or Sears goes the way of other classic American corporations. Compare them to ocean liners if you will. Eventually too big to move with agility. Hard to slow down or turn around. A dying breed, or rather, a product that was once cutting edge and now is merely specialized (cruise ships, oil tankers, and container ships). Even though I still do use credit, I can see our mammoth credit systems coming to a natural end of their cycle and with it their ruthless hegemony over us. What comes next I can’t guess. But something will, and I won’t shed a single tear when it happens.

I’m much more likely to sigh over not baking apple pies anymore.

The Money Rehab Spa

2009-12-03T13:42:00.002-05:00

Wouldn't it be great? You'd sign up for a stay at the money rehab spa, and trainers would teach you how to deal with your money. All aspects. You'd get lessons on making your paycheck last. Lessons on not letting your cash drain away on frivolous daily extras. Lessons on how to properly use ATMs so you still have the rent money by the end of the month.

They'd bring in experts to explain exactly how behavioral psychologists play on your feelings to get you to buy bigger houses, cars, and wardrobes than you need. Fashion professionals would let you in on the secrets behind making your clothes look "so last year." Electronics nerds would teach you how not to get suckered into constantly upgrading your equipment.

And then you'd role play so you'd gain the confidence to go shopping for the things you need without getting ambushed by tempting marketing tricks. You'd also practice telling relatives that you won’t attend their ruinously expensive destination weddings, as well as turning down other social occasions designed to part you from a huge chunk of your money, like rent parties or showers where you pay for everything. You'd get tips on how to politely say no to your best friend's network marketing sales pitch or wonderful stock market tip--without wrecking the friendship. As a bonus, you'd be coached to negotiate buying a car and getting a fair price.

After a long day of learning all the dos and don'ts about your money, you'd relax in the evening secure in the knowledge that no bill collectors would call, no shifty friends or relatives would press you to loan them money, and you would be totally safe from any retail marketing ploys. Heaven!

The next day, you'd get up and do more of the same, until it becomes second nature to save your money, spend it wisely, and resist pressures by others to part with it foolishly. It all sounds so wonderful.

And nonexistent, alas. We don’t have money rehab spas. But we should. If you would like to be in control of your finances instead of feeling confused, helpless, or under attack, you can create your own personal version of a money rehab spa. Start by determining a time frame between one week and one month. Experts say it takes a few weeks to learn a new habit. Internet challenges often run for a month, and you might want to find some online buddies to whom you can report your successes and insights during your home rehab spa stay. Or get them to join you. Or you could start a journal or blog. You probably won’t have the luxury of getting away from your usual work or family responsibilities, but you can decide that all of your slender spare time for two weeks or even a month will go to your money rehab.

Next, outline your rehab program and gather your supporting materials. Because I am a reader and a writer, naturally I am going to suggest that you borrow a stack of books on personal finance from your local library or your friends. Then there are the television and radio programs that address personal finance issues. Record a batch. If you are lucky enough to have some regular programming on this topic, consider writing it into your rehab plan: “Saturday night, watch Suze Orman,” for instance, or “Monday night, watch Hoarders.” If crashing the Internet looking for frugal websites and money tips sounds more appealing, then put that on the agenda instead. Not every resource you collect for your money rehab will speak to you. Some will be disappointing, or concentrate on people whose circumstances are too different. That’s why it’s best to stockpile more than you can get through in the time you have set aside. If a resource annoys you, you can drop it and go on to the next.

Then you begin. Even if you only have one hour in a day to spare for your money rehab, put that hour to studying personal finance in whatever medium works best for you. Vary them. Read a chapter of a book in the morning, grab a few minutes of a television show late in the evening, and snatch some Internet time at lunch. If you can catch a few more minutes to listen or read during the day, so much the better.

Advice is not one-size-fits-all (the late great Erma Bombeck said that was the biggest lie ever invented). As you review the many excellent attempts to teach you about personal finance, slowly but surely you will gain a sense of what changes might fit your specific circumstances. There is no one right way to run your own personal economy. But there is a general direction in which you want to head, and that direction is financial control. This does not mean that you will never have any money worries; life happens. But you will have gained valuable knowledge and tools to help you chart your own course through the often confusing mishmash that is the American financial system.

Sadly, your self-made money rehab spa won’t have mud baths and massages. Even so, you will emerge from your self-made spa experience invigorated, better able to cope, and with luck, on the road to shaking your addiction to random spending. And that’s what rehab is all about, isn’t it? Breaking addictions and showing people a better way to live.

Spa time, anyone?

Being a Health-care Advocate is a Hellish Job

2009-11-24T16:41:00.002-05:00

Recently, I got pulled into being a health-care advocate for a relative. I’ve done it before, and I know that I can succeed at it. But it’s tremendously time-consuming plus it requires loads of psychic energy. That’s why I haven’t posted about it until today. It started with a phone call about some ominous symptoms, casually described. It took a few more phone calls to determine just how ominous the symptoms were. That was when I went into health advocate mode.

First, to locate the right doctor. Numerous calls to a prestigious medical center, but no assurances that the right doctor was there with the right specialty. Then, more calls to the billing department to determine what, if anything, it would do for a patient who has no health insurance. Finally, a price quote that left me gasping—and that was strictly for the initial examination. I was told by a helpful person that once the patient had been rejected by state Medicaid, the medical center would consider giving some kind of discount. But meanwhile, the most eminent doctor, recruited after a worldwide search, was still in visa limbo. And it would take at least three months to be rejected by Medicaid.

We did not have time. Another doctor at the medical center couldn’t see my relative for several months. No good.

I went back to doctors we had seen 20 years ago, before we had graduated to the eminent medical center. The generalist still recommended the same specialist. The specialist could see my relative immediately. But my relative would be treated as a new patient, and there was no upper limit on how much would be charged at the initial examination. My relative could not even get in to see the doctor without authorizing a credit card payment in advance.

Did I mention that I don’t live anywhere near this relative? That the doctor’s office would not take my credit card over the phone to pay for the visit? That my relative might not have enough funds to pay for that visit? And every group of phone calls I made to doctors’ offices had to be followed up with another call to consult with my relative?

The appointment was made, and the doctor relieved everyone with a relatively benign diagnosis, consisting mostly of “WTF” and “looks okay, but strange, so go see this other specialist.”

Then the office told my relative the charge was $1,100, but their credit card machine was down that day, and so my relative would not be charged. Instead, a bill would be mailed. I called later that day and heard the same thing from the office, which again refused to take my own credit card information, saying they couldn’t be responsible for it.

A few days later, as I was beginning to make the next round of phone calls to try to determine the costs of the unique exam the other specialist was to give, my relative received what looked like a bill for $736. Huh? A discounted charge, perhaps? When my spouse saw the piece of paper, he immediately recognized it as a credit card payment receipt. Despite what they had told my relative, and told me later, the doctor’s office had gone ahead and done the credit card payment after all.

So it was back to calling the first doctor’s office, to find out what had happened. But no, I had to call the billing office. Did that. The billing person handling that doctor was gone for the day. Next day, out that day. Next day, not the right person after all. I must call the office manager at the doctor’s office. The office manager was busy. The office manager would call me back. And so on. Finally, we had our chat, and the office manager promised to look into the billing. Turned out that $736 was a mistaken amount charged accord to a four-years-out-of-date billing schedule. It wasn’t a discount on purpose. But the doctor’s office had accepted that amount as full payment. Any further discount would have to be discussed directly with the doctor. At that point, I decided that a 33% discount was good enough. Especially because it had already been paid. The time to argue that you don’t have the money to pay a medical bill is before you pay it.

Meanwhile, I had put in numerous calls to both offices to determine the correct name of the exam to be done by the second doctor, its likely price, and to ask for a discount in advance. To my very great astonishment, the second specialist agreed to take about one-tenth of the usual charge, a mere $75 for what usually cost $700. Fist in the air for a big win. That win only took about six phone calls over several days.

We’ve already done the pro forma application to Medicaid, including a depressing personal interview, and have been told that my relative will likely be rejected. So when the eminent foreign doctor finally gets that visa, we can go back to the prestigious medical center, where we’ll be lucky if the doctor does not want to re-run all the same emergency tests just taken. Hopefully, by then we can get a discount.

There is more to this story, but I don’t imagine that this kind of tale makes particularly entertaining reading. This is what medical advocating is all about. Endless phone calls. Endless quests for information, for recommendations, for discounts, for getting strangers to see your side of a difficult situation and cut you a break. Wouldn’t universal health care be a lot easier? Yes. Because then, the people who get paid to do medical billing do all the work. Not the patients or their advocates.

Why You Never Bought My Book

2009-10-18T11:34:00.004-04:00

Five years ago, I wrote a book on personal finance. You haven’t seen it at the stores? You didn’t buy a copy to support me? No prob. I never bothered to send it to an agent, let alone a publisher.

Do you know why? Because, silly me, I thought that my adventures in credit card debt would not be of interest to most people, because I did not resolve them in the conventional manner (getting a second job, contracting with a credit card counseling company, etc.). What loosened the grip of the credit card companies was a deus ex machina: a big fat wad of unexpected cash that arrived through a piece of extreme good luck (which was the result of hard work and sheer talent, but that’s another tale).

I came to some striking conclusions while writing my book. Chief among them was that we should never have bought our first house. Daringly, I concluded that most people’s money problems (if not related to the obscene costs of health care) could be solved by downsizing their lifestyles. And the most effective way to do that would be to sell the house and move into a cheaper one.

Really. I wrote this five years ago, as the real estate bubble was near its zenith. Sell the big house, get a smaller house, and everything else gets cheaper, and you can breathe. Am I prescient or what? Yes, I am prescient.

Last night I was reading a money book written in the middle 1990s. Ordinarily I would not bother. There’s hardly any point in reading a book about personal finance that does not take note of the amazing crash of our economic system last year. But this book was by Andrew Tobias, a writer I’ve always liked, so I was willing to read it. How dated it already seems, like a trip back in time. What was true then is not true now. Both for him and for me. Except for his basic message about making safe investments versus taking stupid risks.

So I am a little more at peace with the thought that I missed the boat with my personal finance book manuscript. In 2004, no one would have listened; they were firmly in the grip of maxing out all possible legal and shady sources of credit. And by now, 2009, everybody knows better. They don’t need me to tell them what to do. Or do they?

I still hear of people trying to game the system and buy housing with nothing down, or maybe only a 3% down payment. If that’s all the cash you can lay hands on, you should not be buying a home. You should be renting somewhere cheap and saving up your cash. And you know it. But you aren’t listening, are you? Please, listen. Being broke for a decade in order to eventually make a handsome capital gain is a lousy way to live. You can have a much nicer life if you live within your means. Take it from one who has lived it both ways: not being in nasty debt is better. Having a few dollars to play with is a lot more pleasant than always worrying where the money for the next payment is coming from.

Right now, a lot of us are experiencing the double catastrophe of reduced income because of unemployment and the inability to downsize our lives by selling our homes. My best answers to deal with this kind of crisis are:

1. Get more income; everyone in the family who can work should. In the Depression, kids got jobs to help put food on the table. They can do so now, too. Pool all family income to buy necessities; don’t treat the income of a dependent child (even a returned college graduate) as merely their personal money. It’s okay for each member to get an allowance according to their contributions, though.

2. Consider doubling up with other family members or friends in one house, to cut overhead. We’re not used to this anymore, but it was common years ago, and it works. Yes, there can be problems, but you can draw up leases and make sure that responsibilities are shared and rent is paid.

3. Sell as many possessions as possible to generate cash. Do not fret that you bought these things for X dollars and can only sell them for Y dollars. That is a constant in life.

4. Do not buy more possessions. Most of us have far more than we need. If you have a working washing machine, you don’t need two weeks’ worth of clothes. (The only exception is if you work in an office and have to front.) Similarly with electronics. You’re going to be working for money or to keep your home going; how much time will you have for toys anyway?

5. Follow anybody’s and everybody’s economizing tips that you can bear to. Examine your feelings about the ones that stick in your craw. Can you change your mind about them? Try it and find out.

And that’s it. I wonder if five or ten years from now these suggestions will feel completely outdated? I hope not. Some ways of approaching life should never go out of style: Spend less than you earn. Don’t waste. Everybody works for the common family goal. If you are single, that family goal means your personal goal to be financially secure.

Maybe I’ll write a book about this someday.

Sunk Cost vs. Pricing Tough Love

2009-10-14T15:18:00.002-04:00

“Sunk cost” relates to “throwing good money after bad.” We’ve invested in a course of action and it has not paid off, but do we stop? No. We keep doing it. “In for a penny, in for a pound” is another adage that demonstrates how people feel and act. When we commit to something, we do it wholeheartedly. That’s a good trait. But when we are doggedly loyal to our mistakes, such commitment is not to our advantage.

A lot of people still have not fully accepted the reality that their houses are not worth what they paid for them only a few years ago. Many people are trying to sell, either because they are overextended financially, or they have lost their jobs, or they have changed their plan to live in that house and want to move elsewhere. Having good reasons to sell is fine, but it does not make the market any better. It does not mean you will break even on the investment, let alone make a profit.

How do we change our stubborn feelings that this item was worth X yesterday and still should be worth X today, even when everything around us says it is not? One way is to gather lots of information. If you’re planning to sell your house, look at the MLS, the multiple listings of homes for sale, and see what the sale prices are for homes in your neighborhood with and without your amenities. And then forget the fact that you like your home better. A buyer might not care about your wallpaper or your granite, and instead will consider your distance from a busy street, or whether you have a fenced yard as more significant. That’s why the next step is a talk with a real estate agent who knows your area and can tell you what the final sales prices were nearby. Real estate agents know what the average sales prices are, regardless of personal style, and you’d be wise to heed their estimates.

(By the way, some people think that they can break even by selling their homes without paying an agent. This is usually a mistake, because your house does not get on the MLS, and many buyers will not deal directly with a seller. You always want the biggest pool of potential buyers, not just the ones who happen to drive down your street and see your homemade sign.)

If you want to sell personal possessions on eBay, Craigslist, through a classified ad, or at a yard sale, check out the prices other people assign to similar items. And what they sold for, if they sold at all. Then, think about what it is worth to you to be rid of your clutter or that clunky old car. Does it really matter what you paid for it, if keeping it means that you must keep paying for it? It shouldn’t. And yes, you bought that lamp for $50, but nobody is going to buy your used lamp for $50; you need to remember that possessions depreciate. Too many of us are paying for storage of possessions that aren’t worth the monthly rent. Purge them.

I recognize that it is hard to think realistically about our possessions. That’s why so many people lose out in the stock market. They buy too high, see the stock tumbling, and keep holding on in hopes of recouping their original investment. It does not work that way. Take the loss and go on to better prospects.

Thinking strategically is another way to deal with hard-to-swallow realities. If you and your family invested $100,000 in your college education, in a down economy you might be forced to take a job that only pays $10 an hour. A job that you could have had without all the years at school and all that tuition money. But if taking that job means the difference between being able to make ends meet and not, obviously, you take the job while looking for a better one. But don't just sign on for any old job. Try to pick the employment that also offers some advantage related to your preferred career. Pay attention to the business model of the company. Actively seek to learn on the job. Think of it as an internship, and you might produce less stomach bile during the months you have to hold on while still searching for something with more promise that relates to your career interests. And remember, many people have ended up with successful careers doing things they never trained for in school.

Effective sales people know that selling is compromise. Each side has to give up something and must get something. In a depressed market, what you might give up is a high dollar sales price for your house or other possessions, or a high dollar income that is consonant with your training and experience. But what you’d get is some peace of mind, and often that is well worth the compromise. And your feelings about sunk cost won't sink you.

We the Cattle

2009-09-28T14:52:00.000-04:00

It used to be that the study of man’s foibles was the province of philosophers and religious theorists. By and large, those people wanted to understand us to improve our lot, whether on earth or in heaven. Now, we are the constant subjects of randomized double blind experiments with control groups. Of surveys. Or marketing data collection. And sociologists and behavioral economists are delving deep into the psychology of our behavior, but not out of concern for our souls, or even for the general state of mankind. They want to know what we do and why so they can tell professionals of all kinds how to deal with us. Manipulate us. Gain our support. Con us into buying stuff we shouldn’t, whether it’s political nonsense like death panels or physical garbage-to-be like huge entertainment devices.

I’ve recently been reading a book on public administration, which is a fancy term for the nuts and bolts of government. Because I have led my life on the creative, artistic side, I was surprised to learn just how codified and studied are all the behaviors that go into the running of our systems, whether public or private. And right along with that is the constant study of we the people, since we are either the clients or the customers of such organizations. It’s not enough that every bit of our buying habits that can be pulled from store discount/loyalty programs is marketed in hopes of piercing the truth of our grocery buying habits. It’s that today there is a specialty within economics that is all about every aspect of our behavior.

This idea can give you the creeps. Malcolm Gladwell has made the study of people and their snap judgments into a bestselling book, Blink, which is fascinating reading. He tries to come off like a scientist, and technically perhaps he is. But he undertook all those studies for commercial clients who wanted to sell us stuff.

Which leads me back to the real life of people who act without any self-consciousness that they are following a herd mentality—other than that they want to be fashionable, which is to be in the herd, after all. To be like the others. These people begin to ache to own iPhones and plasma TVs and blu-ray because well-educated marketers have used all their behavioral data to shape the hype. Which then enmeshes us in an ever-escalating series of created (rather than innate) desires, most of which are for ephemeral crap. The televisions of yesterday, which still operate, cannot even be given away today—despite the fact that anyone with cable can hook them up easily and receive all the channels with no problems. Why? Because thousands, if not millions of us have decided to “upgrade” our televisions. Without marketing, we wouldn’t be thinking this at all. We are treated as cattle to be herded first this way and then that. And without deliberate marketing, no one would be wasting a moment on mythical death panels, either. Someone is selling and deliberately pushing our emotional buttons to make us buy.

And the kicker in all this is that we, the cattle, get blamed for following what others have pushed upon us. The media says we spend too much, that it’s our fault that we buy too much. We listen and believe too much, too. Yet at the same time, the lingering recession is our fault because we’re spending too little. And we don’t listen and retrain ourselves into employees-to-be of towering technical skills. (Talk about satori!) Forget the fact that people aren’t spending because they don’t have jobs and don’t have money. Or that they can be very highly skilled professionals, but still be undercut by talent elsewhere on the globe because of the financial rate of exchange. After years of criticism because we as a nation don’t save, our savings rate has gone up dramatically. But we still get the tsk-tsks. Spend, cattle, spend. And tell me exactly why you buy, so I can pitch something new (and unnecessary) to you with deadly accuracy. And blame you in almost the same breath.

I don’t want to carry this cattle analogy to extremes, but herding people is a frightening concept. Yet, every day, some interest or other is trying to do exactly that.

Craigslist Junkie

2009-09-17T20:24:00.002-04:00

A month or so ago, we bought an expensive mattress and springs. Today on Craigslist, in the Free section, I have so far counted listings for three queen mattress sets, one twin set and one twin springs, and one unspecified set that is probably a full size. That’s a lot of free mattresses on a weekday, and the night is young.

The homemade pictures look okay. Out of five mattress sets, probably at least one is quite acceptable and has substantial life left in it. And these are just the free ones. Over in the Household section, somebody wants $750 for a king size mattress only. I don’t think he’ll get it, but you never know. Somebody else is selling a twin mattress, springs, and frame for $60. Now that’s more like it. Another person is selling a twin mattress only, for $25. The deals keep on coming.

Yes, I have become a Craigslist junkie. This is my latest Internet addiction, and it’s totally free. I check to see what people are selling and giving away. Luckily for me, I live so far from where all this personal retail activity is taking place that it is not practical for me to rush out and get one of these deals. Gas costs too much. But I can see what fun it would be to be a young man out to furnish a new apartment cheap with his buddies: All they need is a truck or van, some rope and old blankets, and their healthy young backs. They can totally get everything free. There are so many free couches and recliners that no self-respecting young person should even consider buying one. Free TVs. Free bedding. Free dishes and kitchen implements. Free everything. Makes me want to hop in the car and start collecting things.

There even are dirt cheap recycled wedding gifts floating around, in case one is invited to events. “Unopened, in original box” is a common theme in the descriptions. From the photos, it looks as if Mikasa, Lennox, and other well-known manufacturers are creating these items—overdone vases, serving bowls, large decorative platters, and more hideous stuff—just for the wedding gift crowd. Which apparently does not like them. So why buy one on Craigslist? Because they are decorative, they are giftlike, and you can get them at a fraction of retail. Just be careful to know the true retail price (after sales events and discounts) of these items. It often is substantially less than what the Craigslister claims. Also, a lot of glassware is described as crystal on Craigslist. Dream on, ignorant ones.

The real crystal and objects d’art in the Antiques and Collectibles sections do tempt me, and their prices are often substantial, though fair. But then I remember that I have nowhere to put anything new—first, I’d have to buy one of those handsome china cabinets that are also on the list. There’s a time in life for acquiring, and a time for reducing the load. Right now I am edging into the second period. The serious one, not mere de-cluttering but giving away or selling or otherwise getting rid of high-quality belongings. Downsizing for real. I’m not quite there yet. Meanwhile, I get a lot of fun out of seeing everyone else either at the beginning or at the end of the same cycle. The Recycle of Life, if you will.

It's All About the Coins

2009-08-26T13:36:00.003-04:00

I performed that old familiar money ritual again. I opened my Superman bank (Motto: “Saving money is Powerful!”) and counted the coins. This is the ritual that so many of us find ourselves performing when our finances are suddenly uncomfortable. We check under the couch cushions, in the crevices of the car, and of course, we eye that huge bottle, jar, or actual pig-shaped container into which we usually throw all our change.

We put change in these banks for two reasons: 1. It is not cool to pay with exact change. Supposedly, only fussy old ladies do it, and no matter how fussy we secretly are, we don’t want to look fussy. We want to look cool and careless with money. 2. We formed the habit as children of keeping our extra cash in a container we could look at to see our wealth increasing, or shake to hear the lovely sound of coins clanging against each other. Reason #3 is a guy thing, but it’s actually just a subset of #1: Not wanting to ruin pants pockets fast by constantly loading them with change. Which cycles back to reason #1 again, because they sell change purses for men, those half-moon-shaped leather things that unfold with a little tray for your coins to be displayed. But supposedly, only fussy men, men who probably wear socks with sandals, carry those. Catch-22.

Anyway. A somewhat large, unexpected expense came up recently. (I should be expecting these by now, shouldn’t I? Didn’t I have an unexpected expense about a year ago?) Unfortunately, I find that cash is a bit tight this month (welcome to the club, right?), but I need to spend this money immediately. Even more unfortunately, I discovered that my rainy day savings, carefully laddered as the finance gurus have suggested, are months from being available without taking a major penalty hit. Ouch. When those CDs open, I’m going to change my strategy. Meanwhile, no way am I going to take a penalty to get my own money. I’d rather pay (less) to use someone else’s.

So I have been searching for the best option. Take money from an IRA? That adds to my taxable income for the year (and for some people would also mean an automatic 10% penalty), and I would rather not. Plus, anything I have invested in stocks, while certainly more liquid than a bank CD, I prefer to keep in the recovering market. It’s nice to see the values of stocks going up, but they aren’t back to where they were last year. No, I plan to leave my stocks alone.

Credit cards? Not the best time to be playing with them, but still, better than getting an unsecured bank loan at 15% or more. Or going through all the rigmarole to open a home equity line of credit, when there are penalties for not using at least $30,000 of it. That’s way too rich for my blood, and completely unnecessary when the issue is cash flow, not lack of funds. (Even as I write this, I have contracted to do a freelance gig that will more than pay for the loan I need to take out. It’s all a matter of timing.)

I was disappointed to learn that Chase has decided not to do those lovely, cheap wire transfer loans anymore such as I took out last year for a mere 3% fee and once before, entirely free. Everybody’s cash advances seemed to be at 19.99%. Yikes. I ended up examining the credit card statement junk inserts that arrive each month, comparing the language and the fine print on the offers accompanying “convenience checks” and “balance transfer checks.” And trying to figure out if they are one and the same thing. Which it turns out they are not. A convenience check, unless it is otherwise stated, is a regular cash advance, and thus is going to incur a cash advance finance charge rate (in this case, 19.99%) and might also include a transaction fee of several percent (in this case, 4%). Not what I want. Eventually, I found a good enough deal from Citi, a balance transfer with a 1.99% finance charge plus a 3% transaction fee. It also has the advantage of not involving me in excess transactions such as starting a new credit card account just to get a super low rate. I only need the loan for a very short term. (I could have tried a loan shark, but the rates wouldn’t be good. And I couldn’t do a payday loan, lousy as their rates are, because I am not an employee. I wouldn’t even consider a car title loan; again, lousy rates. Even as volatile as credit cards currently are, they remain less dicey than these choices.)

Imagine my surprise when, having gone through all my options, researched the details, and settled on a satisfactory plan, I suddenly found myself wanting to count the money in my Superman bank. I even got out my stash of coin wrappers and packaged up the coins. And then put them back in the bank. There is just something about cash. To the visceral child in me, coins represent cash even more strongly than bills do. Asking myself why, I realized that as a child, I seldom had any dollar bills in my possession. A nickel, dime, or quarter was exciting. On some level, this childhood valuation of money still has resonance, still connects to my financial life as an adult. And maybe I’m not alone. Maybe that is the real reason #3, why so many of us keep jars, bottles, pigs, and even superheroes filled with coins. Coins symbolize wealth. They have heft and character. They shine. They clang. I know that for some people it’s all about the Benjamins. But to me, it’s all about the coins.

More Money, Fewer Problems?

2009-08-11T10:45:00.003-04:00

Why does every problem (mine and yours) seem really complicated only because there is no extra money to throw at it? Recently I heard someone say that throwing money at problems does not solve them. But I can readily think of at least half a dozen people whose lives would not seem to be messy failures if they just had more money.

For instance, the young man who lives with his grandmother, and is decried by older family members for not having a life, etc. All he needs is enough income to rent an apartment (or share one), and instantly, his status in the family will improve. He will no longer be viewed as a problem. Aunts and grandmothers will no longer call his mother and harangue her about him. And outside the family, his new independence will make him more attractive to others. Girls will date him. Boys will date him. Whatever. He might actually start to have a life.

Or what about the elderly single lady (and most elderly people are women, and most of them are single, because you men are fragile beings who die young) who never had much income, and now must live with other family members to pool meager resources? If she had more money coming in, she could have the dignity of her own home, or better respect in the shared home because she could stay there out of family togetherness, not dire need. And she could afford to go off on a vacation away from her family members, thus reducing the stress of litter-mates returning to a shared nest after a lifetime of making their own choices: Brillo versus S.O.S. Miracle Whip versus Hellmans’. Oreos versus Hydrox. You get the picture. There’s even the way the paper towels and toilet paper rolls are hung to bicker over. A bit more money, and they’d be able to laugh at their different tastes and habits.

It works similarly in other relationships, though perhaps not as tidily. The spouse who seems to constantly be buying new clothes would not be criticized at home if there was an obvious cause and effect of wearing new clothes to work and staying employed or getting promoted. My friend who keeps buying the latest little technology gadgets is forgiven if the tweets he generates land him a media deal. The person who contributes to a 401(k) even though she is in serious credit card debt would be told she has foresight—if only she wasn’t in debt. These are indirect benefits, sometimes long-term benefits, and when money is tight, personal choices and stylistic differences cause relationship friction. If there’s plenty of money, only control freaks still care.

And yet...we all know that most people claim they’d be well set if they just had a little more income. But studies show that when someone gets a raise in income, the tendency is to increase spending on all fronts. The person now earns more but owes more, too, whether in additional debt or in new obligations. So, according to the behavioral scientists, I’m dead wrong about money solving any problems. After all, the kid living in his grandmother’s basement needs to put down the video game controller and leave the house and find a job. Giving him the money to launch a future does not automatically give him the courage to live his life.

But I still am teased by the idea that with just a little more money, so many thorny relationship issues would be smoothed out.

A Good Time to Save for the Future

2009-07-31T23:44:00.002-04:00

A friend just lost a job, and the spouse’s work hours also got cut to almost nothing. They worked at the same company. This is not exactly the best plan, to double up in such a manner, but initially, the one spouse used the job connections to bring the other spouse on board. So you can understand why they both worked at the same place.

Now what happens to them? I don’t know. They’re really hurting from the psychological blow, and they had just spent big money on a home improvement, thinking that their jobs were fine. They’ll have a couple of months of severance as a cushion, but then what? Can they find new jobs in this economy? Will they get rehired if their former employer’s situation improves? I hope they have family who can help. I think they do.

What about you? And me? I’m doing as much work as I can find. So far, my spouse has a job and we have no financial issues. But just in case, we’re selling some items to build up savings for our next vacation. (I know, it sounds obscene to talk of a vacation in the same breath as a double job loss. But our situations are different--today, at least.) Still, we are being cautious. Instead of charging the trip and planning to pay it off with future income, we’ll put the money in the bank in advance. And if between now and then we do lose our main source of income, well, at least our savings will be that much greater for having built them up.

Are we that perfect on all fronts? Of course not. We just bought a new mattress set and a car warranty insurance policy. Those put us thousands in the hole, even though both purchases are for the express purpose of being able to sleep better at night. They could take a year or more to pay off. Thus it would be nice to continue to have income so we can do exactly that. But if we don’t, will we be okay? Yes. Will we still have our current income a year from now? There’s no way of knowing.

Life’s like that. For a while now I have been aware that our current personal situation of financial peace is likely to be temporary. There will be a family crisis. Or we will have a crisis. Or both. Is there any way to avoid these possibilities? Nope.

So meanwhile, we save a large chunk of money regularly, and then we spend the rest. We are cautious about it, of course. We learned how not to fritter money away in a very hard school. Someone else is spending our national average for eating out or buying fast food meals. Someone else is buying our share of the national average for clothing, and shoes, and cars, just as for decades, someone else has been spending our share of the national average of liquor, cigarettes, and drugs. Are we alone in being savers and careful spenders? No. Plenty of Americans are saving these days. It’s fascinating that the U.S. has gone from a 0% savings rate to 7% in a mere matter of months. People are saving like crazy. They aren’t spending. That makes the economy bad, but it keeps them sleeping at night. Until a job loss, that is.

I like sleeping at night. Which is why I push myself to keep working hard every day, trying to create future income and bring in current revenue, too. I’m not going to let the future take care of itself. My spouse is the same way. That’s why, when we take our vacation, we will feel entitled to it; we’ll have earned it.

What are the rest of you doing? Every day I ask myself if I can or should do more. Are you asking yourself the same question? If there is anything you can do, from turning clutter into cash, to reducing waste and improving the comfort of your home, why not think about taking action? Not all contributions to your happy life need be in cash, after all. And if you create more peace, pleasure, and health through careful management of your current resources, you won’t necessarily need so much cash as you might imagine. Today is a good time to save for the future. Whatever the future turns out to be.

Collectors and Collections

2009-07-20T11:35:00.002-04:00

A recent article about baby boomers who grew up playing with certain toys and now as adults feel entitled to expensive toys of a similar nature reminded me of the sad demise of each generation’s hobbies. Just as today’s middle-agers collected Star Trek toys as kids, so today’s nonagenarians as children collected first day airmail covers from all over the world. Back then, the airlines were beginning to establish the routes that exist today, and sometimes, such flights were fraught with dangers. Some of my mom’s airmail covers have scorch marks because the plane went down and most of the mail on it burned.

At one time, about when my mother was middle-aged, those airmail covers were worth a lot of money. The kids who had collected them or yearned for them were middle-aged themselves, and some of them had money to buy their childhood desires at last. I remember my mother selling a few Graf Zeppelin first day covers for hundreds of dollars. And I remember how angry she was that she needed the money and had to break up her collection. Now, at nearly 95, she is too far gone into the twilight of dementia to care. But the people who might have bought the rest of her collection with great enthusiasm are mostly dead. Or at the disposal point in their own lives.

Which got me thinking about my comic books. When people come to my house and see them, they always comment on how valuable my comics must be. I put them straight: I don’t have old Marvel comics. I have Superman DC comics, and most of them are in so-so shape. I read them over and over, or I bought them from other kids, or they were subscription copies that were mailed folded. In other words, these comics are pretty near worthless as collectibles. The good thing about it is that I can enjoy them with a clear conscience instead of feeling that I ought to sell them for big bucks right now.

My mother, who did not like parting with her Graf Zeppelin covers, did not sell her collection when it was worth the most money. She loved her collection and did not want to sell it for ten cents on the dollar to a dealer. And back then, that would have been her most likely option. Now, despite eBay, the value of airmail covers and stamps in general has plummeted. EBay and other online options make it easy for buyers to find sellers and for sellers to compete with each other. This forces prices down if there is more supply than demand. You can buy dozens of such covers for under $100, easily. And stamps, too. And old paper money. And old coins not made of precious metals.

In other words, collectibles have a bust and boom cycle based largely on who cares about them. True, some kids who have seen the recent Spider-Man movies might become deep fans and want the first issue of the comic in which he originally appeared, Amazing Fantasy 15. That comic, which sold on newsstands in 1962 for twelve cents, is currently worth many thousands of dollars. But the majority of the fans who care about that specific comic and want to own it are the ones who were kids when it came out, and who are nearing or at retirement age now. And most of them can only afford to buy an expensive comic (between $500 and $250,000 depending on condition) while they are still working.

So...what does this mean for you and your collectibles? Probably the same thing: that your generation will always value them, but once your generation starts retiring or dying off, the value will plummet because the demand versus the supply will slacken. If you want to get the most money from your collectibles, you have to sell them while they are still valuable.

Yes, it is true that some items will still have residual value as rarities, but remember that online auctions make rarity less likely. Any mass-produced collectible could be competing with thousands more just like it. I once knew a girl who kept the historic issue of Sports Illustrated that had Sammy Sosa on the cover because he broke the record for home runs. But millions of copies were printed, and millions of people kept that issue, thus making the eventual value of it very low indeed. If there are many sellers, it becomes a buyer’s market and prices go down.

There is a time in everyone’s life when they acquire, and rightly so. And there is a time when they should be letting go of things. If you have a large collection of Star Trek or Star Wars memorabilia, this could be the right time to sell most of it. And by the way, don’t be swayed by dealers who want you to part with whole sets. Keep and display just one representative item if that’s what you want to do. But don’t imagine that your collection will send your children to college, because it won’t. Most collections are of items that were produced in the millions. China and silver, too, as so many people have discovered, although with precious metals there is always the option of selling them by weight, with no regard to the artistry of the piece itself. Original works of art are a different story, since they are unique, but they too suffer the vagaries of fashion. If the artist or style of art is hot, you may get an enormous price for yours. If not, the final figure might be disappointing.

Another sad fact about selling collectibles is that unless you personally have the time and energy to sell your collectibles on an auction site, you will only receive the wholesale, dealer’s price for them. Depending on the market, that price could be as little as 10% of the current retail price. Yes, only 10%. If dealers in your kind of collectible all offer you around the same percentage, you know you won’t get a better cut no matter how many more dealers you contact. For many collectibles, 25-33% of the current retail value is considered very good. The cut is different with auction houses, but the principle is the same. The moment you decide not to be the retailer yourself, you lose the majority of the profit on the item because you have to assign it to the middleman who actually makes the sale.

People who resell their used books that are not collectibles already know this. The resale prices they get are extremely low. For a book that originally cost $5.99 at a bookstore, and might have been discounted 10% but then been subject to sales tax, the 17 cents a used bookstore will offer for it is about 3% of the original cost. Three percent! It might make more sense to give the book to a charity and claim the thrift store price as a tax deduction. It is bound to be higher than 17 cents per book. Can you do better on an auction site trying to sell a mass-produced book? No, not if you take into account your time and trouble to market each one individually.

Am I back to exploding the eBay myth? Yes. Although I know people who make good money selling collectibles on this or other auction sites, they are retired and have no other responsibilities. And eBay’s new rules have sent some of them scurrying to collectibles shows to sell their items directly to the public. But that’s a major devotion of time and personal effort. If the object is to get cash no matter how much time it takes, fine. But for most of us, that is not the preferred situation.

Much as we love our possessions, eventually, they must all be disposed of. The ideal is that they go to good homes, to people who will cherish them, either relatives or friends, or even strangers. The next best scenario is that they sell for huge prices, thus justifying the collector’s effort in originally obtaining and then storing them carefully for many years. But the sad reality for most of us is that the items we or our relatives prized simply go to the first dealer who offers a fair price. Or to the junk dealer. Or to the dumpster, if their value is not recognized or has been lost to the vagaries of time. This is what makes the television show, Antiques Roadshow so interesting. At any moment, some odd item that has been taking up space in an attic will be identified as worth a lot of money. Which the owner will not be able to sell it for, alas.

Stop Whining about Getting Organized

2009-07-07T11:50:00.002-04:00

I don’t know about you, but I am tired of all the whining. People are whining everywhere, about everything. Legitimate beefs, such as lack of a job, lack of a home, lack of a spouse, lack of health care. And stupid complaints, which can be lumped as one big general whine about lacking a mommy to tidy up their messy lives for them.

Have I been overdosing on Clean House, the TV show that finds people who like to buy and hold onto cubic tons of worthless possessions, which they seem to throw up in the air and let lie where they drop, and then live amongst like pigs? Probably. I can (just barely) understand buying too much stuff. I will never understand tossing it about like a burglar and then sitting in the same room with it for years, never cleaning it up.

But it’s not just these crazy people who are addicted to buying and to lazing about who are getting on my nerves. It’s the other people, the smarter people, if you will. Only they don’t act smart. They keep telling me that all they need to do is get organized. They feel overwhelmed, they say. They are looking for a system that will finally help them address their messes. And even more annoying, they keep finding such systems, and claiming that everything will now change. But of course it doesn’t.

Just yesterday I read a NYTimes piece by Ron Lieber about how he had taken a financial health day and finished many of his undone financial tasks. He finally spent some serious time on a long laundry list of unfinished money-related chores. He even claims, as you can read if you follow the link, that he saved a couple of thousand dollars by this day of attention to his finances. But to my mind, he missed the boat completely.

Here’s where I’ll probably start sounding like Suze Orman. Her most potent message has always been to protect you and your loved ones from catastrophe. And this NYTimes reporter freely mentions that he does not have a will even though he has a very young child. He gives himself props for finally (during his day of financial attention) investigating a few lawyer choices to make a will. But he does not finish the day as a man who has a will. He finishes it by rewarding himself with more stuff. He uses up a gift card and buys (overpriced) socks. Great move, Ron. What if you die tomorrow, and your kid’s guardianship has to be determined by a court? Everything gets messy. For the same $15, Lieber could have bought a will via the Internet that would have assigned the guardianship of his child. A simple trip to his bank, and it would be notarized. Done. The kid is safe. But no, the man goes shopping for socks, even though the most important task of his financial day remains undone.

Of course I understand that a will is a complex document, but covering the basics should not be put off because you haven’t got a trust yet, or you’re not sure how to include your spouse’s interests, or whatever picky little details you’re indecisive about. Lieber can always write another will, after lengthy consultation with a high-priced attorney. But in his drive for perfection, he leaves the critical task undone, that of protecting his child.

And that’s the same as what happens with all the whiners who claim that if they could just find the right system to organize their stuff (and of course, the time to do it), all their issues would be resolved. No, they won’t be. It’s not organizing the chaos of your life that is important, it is separating the important from the unimportant. And then doing what is important.

Too many people don’t get this. Their lives feel empty so they fill their physical spaces with clutter, or they act out with addictions and crazy behavior. Which does not get the basic job done, of dealing with the important issues. So stop whining, will you? Look around and identify your most important tasks, the ones that affect the core of your life. And then do them.

The U.S. Debt is No Big Deal

2009-07-03T09:36:00.002-04:00

I checked out someone’s blog today and ran across the idea of looking at the U.S. debt clock, which increases as fast as a clock moves in a cartoon. We’re supposed to be scared by this. But it’s all hooey.

The national debt is up. So what? Millions of people have lost jobs, and as a result, are paying no or lower taxes. Some businesses have shut, and are paying no taxes. Others are suffering very low sales, let alone profits, and as a result are paying very little in taxes, too. But when this whole foreclosure-fueled mess clears up, there will be more employment, thus more individuals paying higher taxes. And there will be increased consumerism, thus more companies paying higher taxes.

Isn’t this just going to get worse and worse? No. Why I am so confident? The stock market crumble is based on phony values of cheesy financial instruments finally falling apart. That means that certain of these instruments can eventually be determined to have zero value. It’s paper money; it gets assigned a value.

But the real estate bubble that popped has a big silver lining. “Real estate” is called that because it is based on land, on buildings, on items you can see and touch that have intrinsic value. And guess what? Even as we speak, the millions of people who have some extra money saved up are nosing around the many houses and condos and businesses for sale, looking for bargains. They will eventually buy all the real estate that isn’t totally cursed (such as, with a stream running through the basement and a freeway easement through the front yard). Even bad real estate will eventually be sold, too. Haven’t you ever driven or walked through a city where even the meanest little crooked lot has a building on it...with a business on the first floor and apartments upstairs? Of course you have. Even condemned, tumbledown houses get purchased, to be cleared away for new building.

Yes, overpriced real estate will eventually sell at bargain prices, and someone will take a financial loss on it. But as stupid as the banks have been about going ahead with foreclosures when they should have compromised (it always profits them more to keep the homeowner in the home), the foreclosed houses are selling. Some are even selling like hotcakes. Eventually, this new money in flow will get to individuals who used to have jobs, and they will work again. And then they can go shopping again. Maybe we won’t all be able to spend like drunken sailors anymore. But spending will increase. And then jobs will increase again. And then the tax money will pour into the U.S. government, and the national debt can be brought down.

So here’s the reality: All this country needs for the national debt to get paid down very quickly is more people with good jobs and more businesses making a profit. If we earn more money, we pay more taxes. Thus the national debt gets wiped out. End of story.

Limping Along when You Have No Money

2009-07-01T15:03:00.000-04:00

Somebody I know does not earn enough money. Period. The ordinary expenses of month-to-month living add up to more than this person earns. Every single unexpected expense is a crisis. It’s a heck of a way to live. Been there, done that. I hope I never have to experience it firsthand again, but life is uncertain. I might be in this same fix myself . Again.

What did I learn from that experience that might help my friend, or might help you? Make the credit card payments on time. Always keep an eye out for a lower finance charge rate. Dispute immediately any erroneous or late charges; the company will usually remove or reduce them if you are an on-time payer. Keep extremely organized about what bills are coming in and what money is expected and on what day, so nothing is wasted and no bill due dates are missed. Ask for discounts whenever you buy anything; most store personnel are authorized to give you a 10 percent discount without a fuss, and some managers will do more. Always look for ways to cut unnecessary expenses, and be ruthless about your own personal extravagances. Your purpose is survival, after all.

Sell stuff you don’t need. If you have the time, be creative about finding ways to sell it. If not, just sell it and use the money to keep going. Buy stuff you need at yard sales or discount stores. But never go around such stores with a shopping cart. Trust me, you don’t need that much stuff, and it’s just too easy to toss in yet another bargain item if you’re pushing a huge cart. Never go shopping aimlessly; stay away from malls and other retail (or etail) establishments whose only purpose is to get you to spend. Of course go shopping for essentials with a list, and stick to the list. As for mall walking, find a new place to get some exercise, so you don’t expose yourself to constant retail temptation. The same goes for etail: Get an adblocker on your computer, so you don’t get distracted by all the temping ads on your favorite sites. Focus on not letting good marketing separate you from your money.

Maintain what you own. Wind up the garden hose and put it in its proper place. Mow the lawn promptly. Wash your windows. Change the oil on your car on schedule, and wash the car, too. That includes vacuuming the inside. Remove that pizza stain from your shirt. Iron your clothes. Change the sheets. Keep your living space clean and uncluttered. Establish a regular housecleaning routine and stick with it, or just make a point of checking on certain dirt indicators and dealing with them promptly. It’s depressing to be broke, look like a slob, and live in a dump. So don’t turn yourself or your space into a mess. Treat your possessions and yourself with respect.

Get more money. No, I’m not kidding. Find another job, a part-time thing, a fill-in for a few hours, do some freelance, or whatever. Being careful with your money, not buying what you don’t need, selling things you don’t need, and maintaining what you have all will help. But they will not solve the basic problem, that you do not earn enough money. The only solution to that is to earn more. Yes, for some people, being foreclosed and having to move to a much smaller place, plus having to sell off their stuff and then not being able to pay for expensive schools, clubs, or pampering services has meant that they in effect earn more. But until and unless you make such a drastic lifestyle change, one that reduces your day-to-day living expenses radically, the only real answer is to earn more money. You won’t do it sitting in front of a television or listening to an iPod or even wandering the net looking for entertainment. You have to make connections with other humans. Get out there and try. An amazing number of people simply don’t have the courage to ask others for work. Don’t be one of those people. Keep asking until you find the work that will finally allow you to live in dignity and with peace of mind.

Go to College

2009-06-29T09:13:00.001-04:00

My mother told me that back in the Depression, the boys who usually quit high school without graduating to go work in the steel mills of Chicago got the word from the mills to stay in school. Their fathers were having a tough enough time holding onto their jobs, and there was no room for newcomers. So a generation of boys who might have ended their education with the 10th grade graduated from high school instead. Thus paving the way, once military service was over, for that same generation of boys to go to college on Uncle Sam’s nickel, and move up in the world to white-collar work. Some of them undoubtedly ended up running the very factories in which their fathers had spent their whole lives laboring.

Today, a lot of people question whether bothering with college is worth the effort, since so many recent graduates are not finding wonderful, high-paying jobs the moment they graduate. (Not that this is unusual. That was the situation when I graduated from college, too. Every job I applied for got thousands of resumes. Still, eventually, I found interesting, well-paid work that related to my degree.) Right now, many more college graduates are being let go from good jobs. Is college a good investment in the future?

My answer is a resounding yes. The U.S. Department of Labor issues statistics on the lifetime earnings of persons who have attained various levels of education, and as you can see the more college a person gets, the higher the person’s income is likely to be. And a person with a college degree earns twice as much over a lifetime as a person with only a high school diploma. Sure, these are averages, and this chart is in ten-year-old dollars. But the nature of these differences holds steady. And, although we still have serious gender and racial differences in earnings, the way people leap over those barriers is through education. The statistics plainly support that fact, too, although I haven’t found that chart on the Bureau of Labor Statistics site this time around.

Nothing is certain in life beyond death and taxes, but education is the gift that keeps on giving. Thousands of manufacturing jobs that required little prior education have been lost to this country and will never return. Education at the college level prepares people to enter a fluid job market. As much as anything can, and that’s a big caveat. We are now supposed to be the CEOs of Me, Inc., and plan our futures ourselves, not expect some paternalistic company to give us lifetime employment. How well is that going? It’s too early to tell, because of the massive displacements of workers from outsourcing and globalization, plus the wretched downturn in the economy. But the basic idea, to navigate your own ship of lifetime work, makes sense. And college can give you the skills to do it. For the rare individual, high school is enough of a launching pad. But statistically, the more schooling you have, the better off you will be financially.

Not everybody should go to the same kind of college or major in the same kinds of subjects, but nothing helps if there are no jobs, which is the general situation right now. America has an abundance of highly educated, versatile workers, and not enough jobs for us. It also has an abundance of highly skilled, non-versatile workers, and not enough jobs for them, either. So what can we do? Stay in school. It’s the only occupation at which it is entirely respectable to be broke, to wear shabby clothes and not have a car and live in a dump. Granted, there are a lot of college students financing an affluent college experience through credit cards, but by and large, being of modest means while a student is the norm. College is a good place to hide out during an economic storm. And, duh, you could learn something that leads to a career.

Unlike the ads you see and hear, college is a not a scam. Paying tuition to a trade school for a "highly-paid job in the computer industry" or for a "highly-paid career in home staging" is a scam. So is being a network marketer or a phone sales person, usually. (See my recent post for why you don’t want to become a network marketer.) Training to be a hairdresser often is a scam; it's a common fallback of indifferent students, and then they discover they're no good at that, even though they love to fool with their own hair. And the jobs aren't out there. And the tuition does not even qualify for the Hope Credit. Training to be a plumber requires pull to even get an apprenticeship; you usually have to be somebody's relative. (I have never met a plumber’s assistant yet who wasn’t somebody’s nephew.) And the world only needs so many plumbers, plus you can get killed doing it. The same goes for electrical work. Or cleaning gutters. It doesn’t take a degree to clean gutters, but one misstep could leave you unable to stand, sit, or walk, let alone work. That’s another reason that people go to college, to aim for employment that will not kill them. Coal mining can kill you. Factory work can kill you. Pushing papers and spending all day on a computer at most can give you paper cuts and wrist trouble. But it will not give you black lung, cancer, or asbestiosis. The biggest physical risk at a white-collar job is obesity.

There will always be more workers than managers in any organization, but the most skilled navigate to the top. For white-collar workers, the risk of not proceeding to a managerial job is chiefly to income. And that can be remedied through job change, more education, career change, etc. College gives people the opportunity to gain the basic and some of the advanced skills to become a boss instead of just a worker. Of course the reality is that few will become bosses. But it's still better to aim for the top than for the bottom. And college is also the stepping stone to a wealth of interesting careers. The fact that none of them appear to have any vacancies at the moment should not deter anyone from entering or completing college. There always are times when the supply of educated workers in any field is higher than the demand. But everyone does eventually get absorbed into the economy. And having a college education simply gives you better odds for a better level of integration. Not to mention many networking opportunities.

What about majoring in fields that have few job prospects? Like medieval literature, or archeology, or philosophy? Is that wasted time? No, because college is not trade school. An education is more than a collection of specific job skills. It is the basis for lifelong learning. And there will be a few people who do follow their interest in philosophy, say, into a lifelong career. Will you be one of them? First you have to go to college.

Sick of school? Plan to take a year off. The gap year is an established tradition in other countries. Young people explore volunteer opportunities, work on farms, travel, or whatever. And then, having tasted a bit of the world, they go to college to get ready to take a place in it. Been out of school for decades? Go back. We all know people who have returned to college in middle age. By then, your focus may have sharpened and you’ll have a good grasp of what you want college to do for you, and how much effort you’re willing to put in. As we get older, many people allow their lives to narrow. Education can expand your horizons just at a time when you think there is nothing new to be learned.

You might well ask where the money comes from to finance a college education. We have all heard of people stuck with enormous college loans who could never find work that would pay the loans off. But plenty of people finance college without that issue, often by picking schools with modest tuition, or by getting creative about financing. There are grants and scholarships that some students obtain, and work study programs, and employer funding of career-related courses, plus part-time, evening, and weekend classes specifically aimed at adults who already have jobs. The possibilities are endless.

And that’s really the bottom line on education: the possibilities are endless. So what are you waiting for? Look around you and sign up for a class today.

Cash for Clunkers Redux

2009-06-15T10:29:00.001-04:00

It looks as if this idea—turning in older, less fuel-efficient cars and getting a government rebate with which to help finance a new one—might be passed into law. Conceived to clean up the air by removing old cars with bad emissions from the roads, this idea has now been transformed into a method of helping the failing American auto industry. But will it help Americans? Is what’s good for General Motors still good for the USA?

I’ve already considered this issue as a theory (see my post “Old Cars for New Debt” from August 19, 2008), but now I get to check it out as a reality. A friend of mine has a ten-year-old American-made car (paid for) with 130,000 miles on it. My friend has to use premium gasoline to run it (ouch). And my friend has just had some repairs done that weren’t cheap. But all the recent repairs don’t add up to anything like an average new car payment.

That’s the problem. My friend could benefit from this new law—in theory. But my friend does not have the income to make a monthly car payment. Not this year, and certainly not for four years or more. Another issue is that my friend’s car already gets around 20 miles to the gallon, even though it is a station wagon. To get substantially higher mileage per gallon without going to a luxury vehicle, my friend would have to get a much smaller car. Which would not fulfill my friend’s needs for transportation. My friend routinely hauls a lot of stuff around in the car. But there’s still the problem of not being able to make a monthly car payment.

What about going down to a compact car and not hauling anything? Inconvenient, but a much cheaper car. The Chevy Cobalt and the Ford Focus (both 30+ mpg) are two American brands to consider, and maybe, with incentives, could be purchased at around $15,000. But even with 0% financing on a five-year car loan, the car would cost $250 a month. My friend does not have an extra $250 a month; luckily, car repairs are running much less than that.

Plus there’s the fuel economy issue if my friend tries to stay with a car big enough to haul. The Ford Flex, a big station wagon costing around $30,000, gets 17 miles per gallon in city driving, the only kind of driving my friend does. The Pontiac Vibe, at closer to $20,000, gets only 27-29 miles per gallon, an improvement, but a 0% five-year car loan for that would mean a monthly payment of $333. Even more out of reach for my money-starved friend.

Do I seem to be going around in circles? That’s because people don’t drive ten-year-old cars just for the fun of it. They drive them because they cannot afford to buy newer and more expensive vehicles. I’m not against a government discount. But the people who will benefit most from this are the ones who have a second or third car hanging around the driveway that they seldom use, who can afford to buy a brand new car. Not my friend’s situation, and perhaps not yours, either.

Don't Become A Network Marketer. Please.

2009-05-31T16:57:00.001-04:00

Last night I saw a TV commercial pushing women to become Avon ladies, claiming that in this economy it would be a really good deal and you’d be your own boss. That is, you would make money and no one could fire you. An Avon lady is a network marketer. Network marketers are usually women who mine their friendship and acquaintance connections with other women to sell them things. Things that most of them don’t need and some of them can’t afford. Things like Mary Kay cosmetics, Tupperware, Pampered Chef kitchenware, and many other categories including candles, statuary, lingerie, and more.

How does network marketing work? Friends are invited and encouraged to bring their friends to a party in the marketer’s home. Most people who attend feel obligated to buy something, even though they are always told that there is no obligation to buy anything. It doesn’t feel nice not to buy, so they buy. The marketer makes a commission on these obligation sales. A few people actively want to buy the products, and the marketer may then convince these women to become salespeople themselves, so they can buy the many items they want at extra discounts. The marketer gets a rakeoff on the sales of every customer converted to a saleswoman.

As a volunteer tax preparer, I shuddered at that ad. I’m looking ahead to next year, when a lot of hapless and confused women will come in to have their taxes done, and only then discover that they have been running a home business at a loss instead of at a profit. This is what easily can happen when you are a network marketer. Why? Because you buy inventory from the parent company, and then you have to sell it. If you don’t sell it, you’re stuck with the stock. Sometimes, by the time you have bought the inventory and tried to sell it, the parent company had decided to no longer support that inventory with brochures or other sales devices. So you end up stuck with last year’s catalogue of unsellable inventory.

None of this is illegal. I wouldn’t even call it unethical except that I end up seeing too many confused people who clearly never have understood the network marketing business in which they have engaged. A basic rule of inventory is what’s called turn. In retail stores, inventory is carefully followed to ensure that it sells out, thus turns, in a given period of time. If it doesn’t, the retailer gets rid of it in favor of some other item that will turn faster. So one principle that network marketers often don’t understand is that they must sell out all their inventory, turn it, quickly. A second reason for quick turn in the case of cosmetics is that the products themselves age and become unsellable or unsafe. You don’t want to put eyeliner on that’s over a year old, do you? Not a good idea. The chemicals deteriorate.

So here the poor woman is, having bought sometimes thousands of dollars worth of stuff that she didn’t sell. Why? Maybe she got caught up in the excitement of it all, and ordered too much inventory. A mistake. Retailers keep their shelves full but their back rooms empty, and they get customers all day long, every day of the week. Network marketers, who are usually part-timers, should keep as little stock as possible, and put everything on order. Let the customer wait for the order to come in. The delayed delivery gives the marketer a second opportunity to sell to the customer, anyway.

Another reason the marketer might have too much inventory is that the parent company is insisting on volume buying, or encouraging it with discounts. Discounts are a funny thing. One has to look no farther than the hilarious explanation of how the mother saved money on a hat in the movie “Life with Father,” or one of Gracie Allen’s killer routines, to realize that many women still believe that spending $20 instead of $40 is saving money, when the truth is that spending $0 is the only way to save money. It’s a neat trick, and these network marketer babes-in-the-woods get caught by it again and again.

A third reason a network marketer might get stuck with too much unsellable inventory is that she is not a good saleswoman after all. She might like the social aspect of the business, but she might not be good at pushing the products. This is especially true because it’s typically a part-time business capitalized by other income and thus not truly at risk. What do I mean by that? Most women who become network marketers don’t go to a bank to get a business loan to buy inventory, so they don’t have loan payments looming to push them to succeed at selling. Instead, to capitalize the business, they simply open their personal check books or flash their credit cards, and divert family money. This may or may not be true discretionary income, but the marketer acts as if it is. She does not hold herself strictly accountable to repay the family for every dollar she spends on the network marketing business. And without the incentive of a business loan to repay, it’s easy for the network marketer to lose track of the profit concept. She’s having a good time, or she’s not having one after all, and well...

I’ve bought goods from network marketers, and there was nothing wrong with the products or the prices, or the service for that matter. I even enjoyed the network marketing parties I attended. But I am ethically opposed to network marketing because it preys on the bonds of friendship, it cynically uses the ancient rites of hospitality, and it too-often leaves the network marketer herself under water financially. Anybody considering doing it ought to think very carefully about sales as a career, because the most successful salespeople are always the people who enjoy selling. Anything less, and you could wind up being another unhappy victim of network marketing fever, with a garage full of useless stuff, and a hole in your bank account.

Savings Accounts. Use Them.

2009-05-24T10:09:00.002-04:00

I did something wild this week. I took money that I had in my checking account and put it in my savings account. This is earmarked money. Half of it is money I have already spent. I ordered some flower bulbs, but the company isn’t going to bill me until they send the bulbs in the late fall. So I need to make sure that when I get the bill I’ll have the cash to pay my credit card company. The other half of the money was for a writers conference I attend every year. The entrance fee is something over $200. So I put away $200 so I can pay the fee the moment registration opens. These two expenses are definite later this year. It made sense to sock the money away in a savings account, because freelancers don’t have a steady stream of income and it’s important to earmark the cash that comes in.

I am experiencing a strange byproduct of having done it. Without that money sitting in my checking account, I’m feeling a bit broke. Not willing to spend like a drunken sailor. More careful about my immediate expenses. This is as it should be, considering that these two purchases are definite. But it brings home a lesson that many personal finance books have tried (and failed) to teach me before: You can’t just let money sit in your regular account, because having it there will give you the sense that you are wealthy, even though that might be far from the truth. And when you think you’re fine financially, that’s when you will spend more money. If you make plans for your money and segregate it in different accounts, you’ll have the money you need for the things you really want. In my case, for flower bulbs and a writers conference, but in your case it could be for an HD TV, or a discounted Coach handbag, or whatever.

This isn’t pure savings. I’m not just siphoning off extra cash I just had lying around to indeterminate savings. This is planning ahead. Maybe when the time comes to pay the two bills I’ll have cash available that isn’t earmarked for anything else, and I won’t have to use the money in my savings account. Then, that money becomes pure savings. Until I designate it for some other future purpose.

It always amazes me that I can understand the benefit of an action intellectually, but I don’t understand it emotionally until I experience it myself. I am so glad I took this action. I recommend it.

Is Lowering My Credit Card Limit Bad?

2009-05-17T11:17:00.002-04:00

It finally happened. Friends have reported this happening to them, but now it has happened to me. One of my credit card companies, Fidelity, has cut my card limit almost in half.

I am not sure what to think about this. Did I need a card limit of $23,000? Will my new limit of $12,000 be enough? Enough for what? Another driveway pave? Unnecessary. A home improvement? I’d rather get a conventional loan or do without the improvement. No more loans whose terms can be changed unilaterally by the credit card companies, thank you very much. Been there. Done that. Would $12,000 be enough to pay for a trip to Australia? No worries. But that’s not how my next trip to Australia will be financed.

By my calculations, which admittedly are extremely simple, I have never, ever made so many purchases on this credit card to warrant even a $12,000 limit. And if an emergency situation arose where I’d be looking for $23,000 in cash, I wouldn’t go to a credit card company for it. I’d go to rainy day savings. Or my IRAs.

Is this going to affect my FICO score? I suppose. But what do I care? I’m not getting a mortgage or buying a car. Or a yacht. How many points on the scale do I slip when I owe nothing anyway?

A friend’s story is different. This person is mired in credit card debt, so cutting the limit put a damper on the possibility of making new purchases. But isn’t that a good thing, if you can’t pay off the purchases you’ve already made? Ah, but we’re all stuck on the treadmill. This is our lifestyle, and nothing in it shall change, even if we have to finance the lifestyle through unsecured loans from credit card companies.

Face it, few of us have assets that anyone, even a loan shark, would accept to secure a loan. It’s not as if we have large diamonds to hock. Our houses? Forget it. Cars? Doubtful, but maybe the used car market is in better shape than the new car business. Objets d’art? We don’t own them. Try to sell a plasma TV for anything like what you paid for it. Yeah, I thought so. Not happening. Maybe on Craigslist you could find someone, but all I see are unrealistic prices and no buyers. Most buyers would rather have the factory warranty, anyway. So, yes, most of us use unsecured loans to raise cash if we don't have other resources.

What happens if six months from now this same credit card company again cuts my limit in half, and I’m down to a $6,000 limit? Still enough to finance a trip to Australia. But taking trips is not what I use this credit card for. I buy gas, I buy groceries, and I go to various stores for random household and hardware items. Do I need even a $6,000 limit for those shopping habits? No. What about my online purchases? Opera tickets? Books? Flower bulbs? Those can add up, but still, about $1,000 would be fine. Make it $2,000 in case I decide on the spur of the moment to fly to California for a weekend.

I don’t need a lot of credit, and that’s the truth. I remember several years ago, arguing with a credit card company that insisted on raising my limit. I had called for some other reason but they were pushing giving me more credit. That was raising the limit to $5,000 or so. They won that round. Now, the credit card companies may think they have won another round, but I disagree. I think I have won. If someone steals my identity now, they can’t get away with $23,000 worth of stuff. Only $12,000.

Thanks, Fidelity. I await the next credit limit reduction with eagerness.

Banks Are Stupider Than We Are

2009-05-11T12:23:00.002-04:00

An article in the New York Times today says that banks are bracing for taking losses on their credit card customers. The banks might have to write off some debts they realize they will never be able to collect. Nowhere in the article are the dollar amounts of actual purchases separated from the dollar amounts of expected profit from late fees, finance charges, and finance charge hikes, and the many other punitive measures banks use to raise their expected profits from credit card holders. Nowhere does the article mention the transaction fees the banks have already collected from merchants for each purchase.

I wonder what Americans really owe? Is it $8,400, as Moody’s Economy.com is quoted in this article? Or $9,000, the figure that various financial writers fling about? And how much of that $8,000 or $9,000 is actual purchases, and how much is the additional punitive fees banks add on?

This is meaningful because at some point, someone has to recalibrate bank expectations of profit from credit cards. We all know that finance charges and late fees have been minting money for card issuers for decades. If they are used to making, say, 70% profit on these cards, perhaps in the future, they should expect to make only 35%. I don’t know what percentage of profit banks routinely make on credit cards because most of the articles I pull up on the net are about the losses they expect to take this year. But a little probing reveals that some quote percentages such as 71% profit and a 24% loss. Compare that to the 1% or 2% profit that the grocery store industry typically nets. Or the 6% profit that publishing used to make. That’s right. Those figures are correct. Many large businesses make huge dollar amounts but only tiny percentages in profit. The banks have been making huge percentages ever since they got deregulation of finance charges.

But, and this is interesting, in searching for the figure on bank credit card profits, I have realized something else about them. If we think that individual consumers are stupid about credit, we now have proof that banks are even more stupid. Why? Because the banks are taking a bath on credit cards right now and in the foreseeable future. It’s all over the net. And nobody seems to realize that if the banks did not charge such fantastic and unfair fees, consumers, even consumers who have lost their jobs, might be able to pay them back. Well, duh.

Which brings me back to that $9,000 average credit card debt. What if it’s only for $2,000 in purchases? It looks a lot easier to pay back, doesn’t it?

Here’s the thing. We all know how credit cards work today. And we all know that credit cards were originally only issued to people who were wealthy or whose purchases were on an expense account and would be paid for by an employer. At that time, the banks collected their profit as fees from merchants. But then the banks changed their paradigm. They decided to make credit available to more iffy customers, including college students, which enlarged their customer base enormously. This drastically increased their percentage of failures, i.e., customer defaults. And it increased the banks’ internal costs of operation, since they now had to monitor and deal with many more customers. In other words, the banks took a solid business based on people who could pay and turned it into a precarious business based on people who might pay but often could not. And now that the economy is in a significant downturn, the folly of basing a business model on such a precarious concept (overloading individuals with debt and then milking them for finance charges) is self-evident.

So, yes, another instance of the banks being even stupider than we are.

Something’s Wrong Here

2009-05-04T22:48:00.002-04:00

Guess what my car insurance company just gave me as a free service upgrade.

Accident forgiveness? Nope.

Reduced rates with more coverage? Nope.

Pet insurance? Yep.

That’s right. In this time of worldwide financial crisis, with many people out of work and others trying to subsist on terribly reduced savings, my car insurance company has seen fit to bless me with accident insurance for my pet if the pet is injured while in the car.

And there’s no deductible.

Last time I heard, there was a deductible if I got hurt in the car, but then again, it’s likely that I don’t understand my automobile insurance policy. Maybe there’s no deductible for me, either. But I do understand this new part of my policy, because the insurer sent me a special full-color page describing it. Too bad they’ve never sent me a similar page elucidating the ins and outs of my human coverage.

Do I begrudge pets this coverage? Yes, I do, because I don’t have an option not to carry it and that means I am paying for it buried in my rates. My insurance company charges every single customer for this supposedly free coverage by raising rates it could have held steady, by not reducing rates it could have discounted, and by not expanding coverage for humans. The very humans who are the company’s paying customers, unlike Muffy and Rex.

Look, I like animals, and I would never be deliberately unkind to any that aren’t invading the sanctity of my home. (Those that try, die. Come to think of it, I pretty much hold the same view when it comes to humans.) Still, I do not believe in wasting any precious human-grade resource on animals, be it food, shelter, or medical care. I don’t think animals should be made to undergo surgeries that prolong their lives yet subject them to continued pain and confusion. I don’t think dogs should live in tiny kennels, or on chains, and I hate seeing wild animals in cages in zoos. Pets are okay, and working animals are more than okay. Guard dogs? Good. Rodent-hunting cats? I’m for them. But unless they are sources of revenue, pets should not merit better treatment than we give other humans.

People ought to look around them at all the humans who need food, shelter, and medical care, and who are going without these resources. If you’ve got extra, before you pamper your pet with super-special food or other luxuries, ask yourself if you have at least donated the equivalent to some charity or other organization that helps people. If you haven’t, then what are you doing feeding sirloin steak to a dog? Or fresh salmon to a cat?

And where’s my no-deductible insurance for when a deer runs in front of my vehicle and I can’t stop? Or simply runs into the side of the car before I even see it? (I saw that happen one afternoon. A deer ran across a suburban yard into the road and banged into the side of a car, and bounced off. They do that.) But no, such no-deductible insurance apparently doesn’t exist. If I threw the half-dead deer into the back seat and called it a pet, would my auto insurance company pay for its life-saving care? Yes. From dime one. But if the deer caused me to lose control of the car and slam into a tree, I’d still be liable for a deductible while I’m being sent to the trauma center.

Something’s wrong here.

Another Life Lesson?

2009-04-22T11:44:00.001-04:00

Blogs are supposed to be short, because generations of American children raised on Dorling Kindersley pictures-and-blurbs books have no ability to concentrate on anything for more than a few seconds. We live in Attention Deficit World, it seems. But that’s not true, is it? People are quite able to concentrate for long stretches to play and win video games. People still watch entire movies; they don’t routinely walk out halfway through. They can still read long paragraphs, and follow arguments that take more than a sentence or two to develop.

So here’s my latest thought about personal finance, inspired as usual by events in my own life. Recently, I obtained some freelance work, a very encouraging thing in such a depressed year. Then I broke my ankle. The costs associated with the injury will absorb all the profit from my work, even though I have excellent insurance coverage. I could look at this with dismay and frustration, thinking that bad luck dogs me, that I can never get ahead financially, and so on. Or, I could be grateful to have extra income just at the moment when I incur involuntary extra expenses. It’s the old “the glass is half empty” versus “the glass is half full” dichotomy. How do I decide which response to choose?

Widen this question to the financial situations of millions of Americans right now. We can choose to feel completely at the mercy of random bad luck, or we can decide that we are the happy recipients of good luck. The system is corrupt, and we haven’t got a chance. Or the system is silly, and we have to make our own chance. If bad things happen, maybe they’ll be followed by good things. Someone loses a job, but gains time with the children, which strengthens previously strained and distant relationships. Or someone in the family has to take on a job who didn’t previously, and gains self-esteem. Pulling together as a team and planning finances together brings spouses closer. Ceasing idle spending sprees helps a person regain control of common sense about money. Even stopping the much-maligned latte habit gives someone a chance to learn the difference between following a fashion and fulfilling an important personal need. These are all good things: Improved relationships with other people, with oneself, and with money, plus the opportunity to decide on one’s own what is important.

Sometimes, life pulls us up short, and demands that we examine the rationale behind our choices. I wouldn’t say that breaking an ankle per se is a good opportunity to examine my financial plans. But it certainly reminds me of mortality, of the consequences of behavior, and of my constant opportunity to shape my own future. I knew, for instance, that a house with stairs wasn’t going to be practical in old age. But I bought it anyway. Now, as I struggle around on crutches, I’m getting a preview of how difficult life in this house could be in the future. Will this play a large part of my thinking about whether to stay in this house and put in ramps and an elevator, or move to another place that has no stairs? You bet. Previously, it was only theoretical, as the future always is. But since injury temporarily makes me as fragile and helpless as an elderly person, I’m getting an unexpected tryout. And a wake-up call. The next time I go looking for a house, I will treat its livability in old age as a deal-breaker.

Drag this back to the financial situation we face today. The economy has tanked to a frightening degree, as we all know. But most people have jobs and many are doing well. No matter where we are on the spectrum right now, this is our opportunity to think seriously about taking whatever steps we can to ensure that we have sufficient income to live comfortably. In my case, that means actually going looking for freelance, rather than sitting at home and hoping it will come to me like manna from heaven. Which we all tend to do when we get discouraged, when we think that no matter what we do, we can’t get ahead. Maybe I won’t get ahead of the medical bills that will soon pour in. But I’ll be even. And I will have had the benefit of the shakeup in my expectations, the confounding, if you will, of my belief in my robust good health. Stuff happens. There are steps I can take to make sure more of the same bad stuff doesn’t happen, or that the consequences are less severe, and that I will be okay regardless. Life is filled with possibility, and on the whole I believe that it’s a good thing that we’re not all just on an endless treadmill.

Why You Can’t Get Out of Credit Card Debt

2009-04-09T09:00:00.002-04:00

No, it’s not what that radio ad says, that “the banks won’t let you.” And no, it’s not the unfairness of a system that allows your creditors to charge you any amount of interest they please, and to change the terms of your agreement with them completely at whim. And no, it’s not because there’s a secret that “the banks don’t want you to know,” as a television ad states.

You can’t get out of credit card debt because you refuse to change the way you spend money.

It’s like the jokes about fad diets. “Eat less, exercise more” really does the job. It does cause people to lose weight. But that’s just not sexy and silly and weird enough. People are suspicious of such simple advice. There must be something wrong with a diet if it doesn’t involve a pill, or a drink, or a regimen of strange food.

So, too, people like to fool themselves that getting out of debt is complicated, that “the system is rigged” against them, and that therefore, their honest efforts to end their debt are being thwarted by some Evil Empire of greedy bankers. Sure, it’s true that banks are jacking up their rates these days, even as the cost of money to them has gotten lower as the Federal Reserve has dropped the prime rate. But banks have also extended so much easy credit to obviously uncreditworthy customers that in the end the score may be even as more and more people default. I don’t care about the banks’ profits. Let’s talk about why you aren’t getting out of debt.

When you go on a diet, you promise yourself that you won’t eat a whole list of forbidden foods. These foods may be actively bad for you, or they might just be too much food. For instance, many people would argue that a piece of toast as part of a healthy breakfast isn’t bad for you per se. Yet dropping off that one piece of toast and its accompanying butter, jam, or whatever saves hundreds of calories and is an easy way to diet effectively. Take this analogy into the financial realm, and the issue is that many of the items you buy with a credit card are not necessarily bad for you, but they are too much to be charging if you want to lose debt. For example, if you buy gasoline, it’s not bad; you need gasoline to perform your life’s ordinary tasks such as getting to work or to school or to stores. But if you owe money on your credit card, using a credit card to buy the gasoline amounts to voluntarily paying as much as 30% more for the gas. That’s crazy. Most people know not to do that with gasoline. They pay cash, or use a gas card that they pay off in full every month, or a debit card.

But they don’t seem to know not to keep buying other items that they could do without, and they use credit to buy. It’s easy to get into debt with a credit card, because it allows you to buy things you actually can’t afford. Once you’re in debt, it’s easy to get out of debt: You go on a money diet, a term that is so apt and analogous to dieting that Richard T. Case wrote a book with that title propounding a dieting system to reduce debt. I haven’t read that book so I can’t comment on the details of his plan. By my definition, a money diet consists of two parts, just as a diet does: Part one is to stop eating junk food (stop buying junk). Part two is to eat far less than you need to survive (make drastic economies) so your body must make up for the difference by using up fat (so you have extra money each month because you bought less, allowing you to pay down the debt faster).

And that’s it: Buy less, pay down more.

You say I must be joking. It can’t be this easy. There must be something complex, some secret the banks don’t want us to know. No, there isn’t. If you live above your means, stop. It’s that simple.

But many of us don’t stop, do we? Like the body’s famous (and possibly spurious) set point, we have a set point for our lifestyle. Most of us keep using debt to shore it up when we should change our lifestyle to match our money situation. I’ve talked about this before. Committing to a more lavish lifestyle than we can support with cash means permanent credit card debt.

High finance charges make it more difficult to pay the debt down, just as a low-burning metabolism from too many nights on the couch makes it difficult to lose weight. But these ills can be overcome if you truly intend to get out of debt or lose weight. By the time you get into serious credit card debt or serious overweight, you feel trapped. But you are only trapped by your behavior today and tomorrow. You can get out of debt regardless of the banks’ often unfair tactics. Just as you can lose weight even after you have injuries, body systems failing, and so on. All it takes is the will to buy less, and pay down more.

But you don’t stop using the credit cards. In your mind, every purchase on them is a necessity. Breakfast would not be complete without a piece of toast. Yes, it would. But that’s why you can’t get out of credit card debt.

Broke Like All the Rest

2009-04-01T23:59:00.002-04:00

Why is it that I happen to have no extra money just now? Now, when it’s a buyer’s market for cars? Now, when there are rock-bottom-priced real estate deals to be had? Now, when vacations, elegant restaurant meals, high-end clothing, and more are super-discounted? This is so frustrating. I’m missing many gilt-edged opportunities to get a lot for not a lot.

I remember about ten years ago, at the top of the tech boom, I also had no money and thus no way to invest in the tech stocks that were going crazy and producing amazing fortunes. But I was able to get a job, in fact, several jobs. During the tech boom, we were nearly at full employment. Companies were begging for workers. Anyone who could walk and talk at the same time could get hired. It didn’t matter what you looked like, what your experience was, or if you had a bad attitude; there were jobs for everybody who wanted to work. Maybe not great jobs, but employment nevertheless. So I worked. And my debts got paid off.

Only later, when I owed nobody a dime, did my credit card companies start sending me offers for balance transfers at zero percent interest. Where were they when I needed them, when I had a lot of credit card debt and would have been grateful even for a lower APR? And now I’m back to being done with a debt again, and the zero percent offers are arriving again when I don’t need them. Because I’m certainly not going into debt to take advantage of all the great deals around. I guess my caution proves that I am no capitalist at heart, but I don’t like thinking of my credit cards as my own venture capital line of credit. It’s too close to home. The whole idea of indenturing myself again to a credit card company makes me uneasy.

As it is, although I’m not in debt and my home isn’t in foreclosure, I’m feeling kind of miserable over money. I’m feeling broke. And I have been wondering why.

Today it dawned on me: We’re all in this together. That’s the answer. Regardless of how well I manage my finances, I can’t get business that isn’t out there. My opportunities for income have shrunk, in concert with the gloomy economic situation in our country. Realizing this makes me feel a little better. It’s not just me. It’s all of us.

But I realize that I can’t just sit here and be a victim of this massive economic downturn. Sure, I’m leaving my few dollars of retirement alone to recover from the stock market crash. But I can do more. I can look for more work, do new kinds of work, sell stuff that I don’t need, and do jobs myself that I might otherwise pay someone else to do—with the mythical dollars that, currently, I don’t have. Or, I could look for new ways to economize, so I can use the money saved to employ people who are currently hurting more than I am for income. I also could volunteer to stay with an elderly person to give the full-time caregiver some free respite care. I’ve got the time, so why not? I could make and deliver a meal to a family that is finding it hard to buy food lately. If that seems too much like Lady Bountiful, I could spread a little of my small amount of available cash around at local yard sales, thus helping my neighbors in a manner that cannot bring offense to their pride. I might even pick up some items I could resell for a profit.

Thus the capitalist is reborn. I don’t have to think like an employee. (I haven’t actually been an employee for years, so it’s about time.) Getting away from the employee mindset means not sitting around waiting for a job to drop in my lap, or for the economy to get better without me. It means being creative, going looking for opportunities, hustling. Not constantly reading depressing stories about how the economy has tanked and everything that is being done to rescue it is wrong.

Granted, this isn’t a great time to make a fortune on eBay. But it might be an excellent time to write another novel and submit it to a publisher. Or to do something else. Whatever I do, I want to use some of the energy I’ve been wasting--wasting reading and talking and thinking about how bad the economy is--to try to improve my own personal economy. Or at least my karma. Maybe things will only get markedly better for me in terms of dollars and cents when things get better for everyone else. But I’m not going to sit around and feel confused and miserable anymore. I’m going to take action to try to improve my economic situation. And my attitude.

Now, I’ve got my own personal recovery plan.

The Report on My Credit Card Loan

2009-03-23T22:30:00.002-04:00

I promised I’d report on the outcome of that credit card loan I took out last June to pay for paving our driveway. Here it is. Today I used our tax refund to finally pay off the loan completely. A couple of months early. The original terms were that I had a year to pay it off, and I paid 3% on the loan amount up front as a loan fee, and nothing more. It seemed like a good deal at the time, far easier than applying for a home equity loan. And technically, it has proven to be one. But after almost losing the terms in August because the post office supposedly took ten days to deliver my payment, thus putting me in default, I got scared. Sure, I cleared it all up with the credit card company. And I switched to online payments to better control the official payment arrival date. I can't see paying for Express Mail or some other extra delivery confirmation service when I don't believe the post office delivered my payment late in the first place. But that experience brought home yet again what a slippery slope credit card indebtedness is.

The problem is that the credit card company has the legal right to change the terms on me unilaterally and at any moment. At best, that’s like having an intimate relationship with a schizophrenic, in the old sense of the term, a split personality. You just never know who will show up this month, Dr. Jekyll or Mr. Hyde. I have seen with my own eyes credit card bills with finance charges of 67%. (Not mine, but still absolutely frightening.) What’s to stop any of my credit card companies from deciding that’s my rate? Nothing, absolutely nothing. Oh, sure, Congress passed a law that’s supposed to improve this situation. But it goes into effect next year. We all have to live through this year first.

Maybe competition is what keeps credit card companies somewhat in line. If I am deemed a credit-worthy person by another card company, one that is willing to give me a better deal, then my current company has to decide whether to push me away by being as nasty as possible, or to retain me as a customer by being nice to me. But I haven’t seen a whole lot of nice lately, have you?

No, I must be fair. This same credit card company is now showering me with offers of balance transfers at 0% interest. That’s right, free. A great offer, but I don’t owe any more money. Why do these offers always come in when I don’t need them? Are they supposed to tempt me into going back into debt? But how could my credit card company know that I would pay off my loan so early? Perhaps the company wanted me to add to my indebtedness, and possibly lose my current, low interest rate in the process? If so, that’s evil.

In the past, I have called various of my credit card companies to try to negotiate better terms. Sometimes they have cooperated. But some companies, even when I explained that if they couldn’t give me a better rate, I would balance transfer my indebtedness to them to some other company…well, some companies just did not care if they lost my business. That’s why, when the companies are kissing up to me, I take it with a large grain of salt. Sure they care. I’m just another 16-digit number to them.

Of course in this period of economic crisis, if you don’t use your credit card, the bank might close it down or reduce your available credit to less than plane fare to the coast. And if you do use your card and carry a balance, the bank might reduce your credit limit to $5 over what you currently owe. So you can’t fly anywhere. And on and on; we’ve all heard of versions of banks getting goofy over credit card accounts lately. That’s why a perfect payment record is so important to protect. It’s your only way to fight back when the cards are stacked against you.

That, and paying cash. But we don’t live in a cash economy anymore and I doubt if we will go back to one. Sure, I could write checks at some stores. But the gas station wants a credit card or cash. The line to pay cash is often long, since I’d have to wait behind people buying lottery tickets, fast food, and cigarettes, and who wants to stand in line? I might end up with a lottery ticket I don’t need. So at best I could play mix and match, paying cash, writing checks, and charging on my credit card. That becomes a lot to keep track of, though. Maybe I wouldn’t let anything slip through the cracks, but it would be work. Just using a credit card is so much simpler. It’s the payment process that seems to have become so fraught with danger.

Does my adventure in 21st century credit card indebtedness have a moral to the story? Not really. Am I glad it’s over? Very. Am I thinking ahead to the next time I might be tempted to charge a major expense to a credit card? Yes. I don’t plan to cave in to the temptation. Sure, it’s easy money. But it’s hard debt.

Why You Should Keep Contributing to Your 401(k)

2009-03-19T08:10:00.000-04:00

In the current Wall Street bear market, you could buy hundreds of shares of stock for a fraction of what they cost a year ago. Many companies are trading at or below $10 per share. It’s a wonderful opportunity to get a lot of stock for not very much money. And if you were buying stock through your 401(k) through the bull market, that means dollar cost averaging will pull down the final cost of, say, 100 shares bought over the last two years. For example, if you bought 50 Citicorp shares at $67 last year, you paid $3,350. A few days ago, those same 50 shares would have cost you $116.50. (Of course buying them at all now is a risk, but the US government is not going to allow Citicorp to fail. Not now that we have given Citicorp so much money.) Your dollar cost average for those 100 shares would be $34.67.

But why throw good money after bad into the stock market? There are a couple of excellent reasons. One is that many, many solid companies are currently very underpriced. Thus the value of your purchase today is bound to go up as the economy improves. These companies have nothing to do with overleveraging or insurance credit swaps or derivatives, or the subprime mortgage market, for that matter. People still buy soup and soap, and many other items represented in the market. (Am I recommending that you buy Citicorp? It’s only a fun example, not a serious investment for us small-time investors.)

The second reason is that money you put in your 401(k) is shielded from taxes until you take it out. Yes, you could lose that money by investing it, but you could win big with your investments over time. If you don’t invest that portion of your wages into a tax-deferred account such as a 401(k) or IRA, you must pay income taxes on it right now. And you will have lost a portion of that money forever. Maybe as much as a third to a half. Investing is a gamble. Income taxes are not.

Strange, that the amount you could lose to taxes is the same as what most people have lost from their 401(k) in this down market: a third to a half. If you put that money into the stock market, you could lose it, but you might double it. If you let that money go to taxes, it is gone. I suspect that most people who don’t contribute to 401(k)s don’t realize that they’re taking a hit equivalent to the Worst Bear Market Ever—every paycheck.

Reason number three is that some relatively high earners will fall victim to the Alternative Minimum Tax if they don’t contribute to a 401(k), which is an even higher tax bracket and thus a bigger bite out of hard-earned income. Why let that happen?

Am I bullish on the stock market? I never have been. It’s a gossip mart, fueled by unrealistic expectations and skittish behavior. We’re seeing that in action very vividly these days. But I do have confidence that America’s actively traded companies, most of them, are in good shape despite their current stock prices. The soup and soap theme, if you will.

So think seriously about continuing your 401(k) contributions. Direct them to conservative investments if you prefer and your plan allows. But don’t waste the opportunity to keep and grow your money.

Wasteful Habits are Out of Fashion

2009-03-16T11:24:00.001-04:00

I read an interesting article online last night about how the tips appearing in the media about how to save money are meant for people who don’t need to save money. For people who have plenty of money and should be encouraged to spend it so our economy doesn’t totally tank. But instead, it has become fashionable in the affluent set to pare back and ape the habits of the more modest-earning middle class. The author was not terribly amused. (I would give her credit, but at the moment I’m using a computer that I have not registered with a couple of newspapers, so I can’t find the article again. And isn’t it a drag to register and accept cookies and all that nonsense? Yup.) Anyway, the writer has a good point. So many people do what is fashionable, not what makes sense for them. She herself had been intimidated years ago into not brown bagging her lunch. A boss had contempt for people who did, so she stopped. She now regrets that.

I come from a modest enough background that our mother would announce to us kids before every outing that she had brought food for a picnic and would not be buying anything from the concession stands. So don’t ask her for anything. She stuck to her guns, too. Making a comfortable home for a husband and three children on her husband’s salary meant some compromises. There were many economies. Still, we always had piano lessons and trips to the theater. There just wasn’t a ton of cotton candy. We never missed it, either.

Of course as an adult I have indulged in some wasteful habits. It was a pleasure to do so when I got my first real adult job. I even was thrilled just to receive bills in the mail like a grown-up. Fast forward some years and the bills no longer thrill me, although being able to pay them still does. I have reverted to my upbringing. I pay for cultural events that enrich my life, but otherwise hold the line. Clothes shopping? Ha. When the sneakers wear out, I buy new sneakers. This is the privilege of the freelancer, the un-hired, the non-employee. For individuals who have to show up at an office or store or factory every day, clothing becomes a necessary uniform. But then again, I once worked with a woman who always wore black. She told me she did that so people would not notice how few clothing choices she had. She was a divorcee with several children and not enough child support. She wasn’t wasting any of her money on her wardrobe. There always are choices within choices, and she drew the line on clothing.

We do all waste. Every single person makes decisions about money that others would call foolish. From time to time, regardless of the world economy, we should review what we spend our money on, and what we have to show for it. There is nothing in our lives that cannot be altered to improve our financial situation. We simply have to put it all on the table. “But I have to” is just an excuse not to examine all areas of our lives for their shortcomings. Last night I heard Suze Orman advise a woman to change the thing in her life that was causing her financial pain. I so totally agree. Whatever it is, identify it. And then be brave enough to stop that wasteful behavior that is the cause of your pain.

If you are lucky enough not to absolutely need to stop wasteful habits right now, consider examining your life for them anyway. Some extra savings could empower you for the future, or enable you to give to others who are in need. You also can chose to spend your money more purposefully, to support institutions or businesses you appreciate. Many of them are in serious trouble and need your help. For instance, if you have extra cash, think seriously about increasing your charitable giving. Or if your habit is to eat out and you don’t have an economic reason to stop, go to the restaurants most worthy of your patronage, and help keep them in business. Don’t just go to the drive thru of a fast food franchise; fast food is doing fine. If you can afford to buy books, donate them to the public library, which is under double pressure now from smaller budgets and more patrons. Mindfulness is the key to not being wasteful even if you are affluent.

As for the rest of us, we’ll be tightening our belts even more than usual. Substituting our labor for buying labor-saving devices and services. Trying to skewer our wasteful habits and root out what we can. As long as the trend lasts, we’re in fashion, too.

Sighing Over My 40l(k)

2009-03-03T15:01:00.000-05:00

Regardless of whatever advice I hand out, I’m only human. I was cleaning out a file drawer and decided to find out if the financial institution in charge of my 401(k) had perhaps cut me a break by waiving a fee on the account. The recent stock catastrophe undoubtedly dropped my total below the cutoff amount for it being a no-fee situation. Sadly, the fee was not waived. And even more sadly, my inquiry resulted in learning the current dollar value of my account.

Pause a moment for a sigh.

Of course I knew it would be bad. And that it doesn’t matter much, since I don’t ever intend to retire. Writers don’t. I certainly couldn’t retire on the pitiful amount of money in my 40l(k) before this. So it’s not as if I have lost anything really big. Actually, that’s not what I’m sighing over. People in my family live a long time. I have an excellent chance of being around to see my 401(k) regain and surpass its former value. I am not particularly upset over the drop per se. Well, no more than anyone is in this worldwide economic mess.

What makes me a little sad is that there were years in my life when I earned less than the dollar amount that just vanished from my 401(k). Those of you with big fat 401(k)s have already experienced this reaction, perhaps. But I hadn’t looked at it this way before. During some of those years, I didn’t have the option of easy saving for retirement in a tax-sheltered account; they did not exist for ordinary individuals and I would have been far too intimidated to approach a broker to purchase tax-free municipals or the like. Which was what old people did, anyway. And I was young and stupid. Back then the most I did was save the excess from my paycheck, and invest it in CDs. And then cash them in a couple of years later to live high on the hog. For which I am not even sorry; I quite enjoyed spending the money I had earned.

But the paper loss I learned about today seems like an awful lot of money to have (temporarily, I hope) disappeared. I think of all the mornings I didn’t get to stay in bed, the nights when I had to end the evening earlier than I wanted to because there was work the next day, and all the extremely painful shoes I had to wear as part of the uniform of a working woman. And I sigh.

Okay. Done. It’s the past. Tomorrow could be a better day.

Anxious Over Money? Stop. Just stop.

2009-02-27T11:13:00.001-05:00

Most of us feel at least some anxiety over money these days. No need to reiterate the cause; we all know what is happening. We are beset by what ifs. What if we aren’t saving enough money? What if we aren’t putting it into safe enough institutions? What if someone in the family loses a job? What if one of us gets seriously ill? What if the car breaks down?

To try to assuage all this anxiety, many well-intentioned people are handing out financial advice these days. (And some not-so-well-intentioned, so be careful.) But is anybody listening? It’s so easy to give advice, and so hard to follow it. Every day, each of us makes decisions on small and large issues that could impact our financial health in the future. Despite nodding solemnly about the necessity of building a rainy-day savings cushion in these uncertain times, many of us continue to spend as if our incomes are not likely to be threatened. Oh, maybe not on big items like supersized televisions and new cars. Most of us have gotten the message about those. But on the little items that add up to just as much. Why? Are we trying to keep life unchanged until the blow falls? Are we instinctively trying to store up plenty now, in case catastrophe strikes? Are we simply rebellious? Do we fantasize that somehow, everything will turn out okay, so we don’t actually have to change our habits? Is this another instance of incurable American optimism? Except that, along with refusing to change, we feel anxious.

But many of us have suddenly switched to saving instead of spending. So many that we are accelerating the downward spiral of the economy. And we’re still anxious. It feels odd, initially, to have changed a habit. When I had to drastically stop spending years ago during a period of sudden (relative) poverty, I grieved, actually grieved, for a while. I wandered through stores where I used to spend freely, and I felt very sorry for myself. And then gradually, my emotions caught up with my new habits. I no longer went shopping aimlessly in stores where I couldn’t afford to buy. My attitude and behavior began to fit my circumstances. What at first was a kind of purgatory became a new way of living. I don’t miss the old habits at all. This is good news, because some of us have to change our habits right away, whether we want to or not. Does this mean that we might suffer Starbucks withdrawal for economic reasons, and eventually not be sad over it? Yep. Not right away, perhaps. But humans are almost infinitely capable of adapting, even to unpleasant circumstances. The important thing to keep in mind is that while this economic downturn might force us into dramatically changing our lifestyles, we’re still in charge of our response to all this. We do not have to be anxious and miserable. We can choose to shape our emotional response to unpleasant circumstances. (I didn’t invent this idea. It’s a Holocaust survivor concept. And the point is, many people did survive and a positive attitude had a lot to do with it.)

Feeling anxious probably won’t change any outcomes. Anxiety over money is only useful if it galvanizes us to act to improve our situation. After that, it’s time to shut off the negative thoughts. We don’t want to develop a lot of cortisol to roam our bodies and weaken our immune systems. And we don’t want every day to be filled with fear. The answer is to do as much as we can to positively affect our situation, and then stop fretting. Feeling anxious has never solved a problem yet. So stop. Just stop.

Recession? What’s that?

2009-02-24T13:49:00.001-05:00

Here’s something strange. Last weekend, I went over to Rockville, Maryland and had lunch out and dinner out. In between, I went to a popular shopping center, Congressional, which is an old strip mall that has a Whole Foods, a Harry & David, and an extravagant baby store, among other shops. After dinner, I went to an upscale shopping mall, White Flint, to a Borders bookstore. At all of these places, there were crowds. The restaurants were hopping. There was hardly a parking space to be found at either shopping mecca. And the line to pay at Borders was long, so people were buying, not merely browsing.

How to account for all this? I was visiting an affluent area, I guess. But if we believe the media reports these days, there aren’t any affluent areas left. Maybe these people hadn’t been rich enough to invest with Bernie Madoff and lose their shirts. Maybe they’d all just received tax refunds and were determined to spend them. Maybe all the holiday bills had been paid, and they had some extra money to throw around. Whatever the reason, I did not see any evidence of an economic crisis.

Nor have I back here in West Virginia, where people on average are poorer than they are in Montgomery County, Maryland. At least, not in the stores. They’re busy. So are the gas stations and the pizza restaurants. Even the karaoke bars that might actually be strip clubs. And on every return trip from Maryland, I pass by Charles Town Races and Slots, and there always are lots of cars turning in, and lots leaving. People still have enough money to gamble it away, even here in a poor state.

Where I see signs of the recession are when I do volunteer income tax preparation, and people have very little income to show for 2008. Or they have unemployment compensation. Or they tell me that they’ve been looking for work every day, and not finding any.

So, yes, the recession is real. But people still have to eat and buy other necessities, and they still do. And whether they are affluent or not, they still entertain themselves by eating out and shopping. I don’t know if this is good or bad, a sign of resilience or folly. We’ll see what the next few months bring.

Plan Ahead

2009-02-16T00:36:00.003-05:00

I haven’t been adding to this blog for the last month because people have been dying and I’ve been attending funerals. And that does not include the other people who suffered losses to whom I sent condolences. It hasn’t been a good winter.

The first funeral had been planned and pre-paid years ago in all its details. I’ve never been a fan of such plans, but amazingly, this one worked. In the interim between signing on and now, the price of all the funeral appurtenances had skyrocketed. This family saved many thousands of dollars because they pre-paid. Plus, the bereaved family members left behind knew with certainty that the deceased person had wanted these exact arrangements. This was a blessing during a difficult emotional time. And since the person who died had been ill for a long time and medical bills were pouring in, this family didn’t have a lot of spare cash to fork over in a hurry for expensive arrangements. The result of pre-planning and pre-paying was no confusion for the family, no hurried decision-making, and no financial stress regarding the funeral.

The second funeral was arranged after a death that doctors would call predictable, but family members tend not to accept as inevitable. The person had serious health problems, but still, the end was a surprise. So no prior details had been worked out, and the funeral arrangements had to be decided during the stress of coping with an unanticipated death. In this case, the family was large and had substantial financial resources, so the huge expense of the funeral at today’s prices was not crippling. But all the decisions had to be made during the period of maximum shock and grief immediately after the person died. And the person who died may not have made known any wishes for funeral arrangements.

We all die, but many of us like to pretend we won’t. I remember a radio commercial years ago in which a man brings up the idea of life insurance and his wife gets upset and refuses to talk about it. Period. This is how many of us approach the inevitable outcomes of life. We pretend they won’t happen. We wince away from them. Women even go further into denial about death: we pretend that our husbands will outlive us. We do this even though men have a shorter average life span and husbands usually are older than we are, too. Statistically, the odds are that married women will end up as widows. But few of us plan for the long years of widowhood, or for the financial challenges of being a widow. Let alone for the funeral.

I’m not advocating one style of approaching one’s inevitable demise over another. Probably, the person who didn’t pre-plan knew that family members already had a reasonably clear idea of what would be the preferred funeral. And the person who pre-planned may have been over-meticulous. Funerals do tend to be generic, after all, even though different faiths and cultures have different customs. Regardless, both funerals were dignified affairs that did honor to the deceased.

But I do think that people ought to voice their opinions about what they want long before family members have to make the arrangements. If some of the arrangements are made in advance, so much the better, but sometimes, pre-paying has turned into a financial disaster because of dishonest funeral companies. It’s best to investigate state laws before pre-paying. In some states, all pre-payments must go into an escrow account, but if yours doesn’t offer that protection, pre-paying might be a major financial risk and should be avoided. Of course lately every investment seems like a risk, but an FDIC-insured savings account specifically earmarked for funeral costs is completely safe. Just make sure that the account is accessible to the family member who has to pay for funeral arrangements.

And by the way, leave a will. Nothing spells out your final wishes like a will, and inexpensive will forms are available online that are valid for all states. Living wills are available at hospitals. Durable powers of attorney are on the net, too, as are guidelines for funeral arrangements and local laws. It has never been so easy to plan ahead.

Temptation, the bane of January

2009-01-16T21:24:00.001-05:00

I had a close encounter with temptation today. Ordinarily, I’m not an aimless shopper, out to tempt myself by just wandering through stores. But I walked through a grocery store this morning, not to shop, but to get warm. The power went out in our neighborhood on the coldest day of the year. We had work to do, so we grabbed our laptops and headed for the free wifi at the store. Which they must keep at 60 degrees so the fruit doesn’t rot. After a few minutes inside, I was freezing. When I couldn’t stand it anymore, I took a hike around the inside of the store. I wandered down one aisle and saw all the candies for Valentine’s Day, which is nearly one month away. But like most Americans in the middle of January, I am on a diet at the moment. Which I could blow by buying this supposedly seasonal candy. Because there’s a holiday in every month. There’s always an excuse to overindulge.

It’s the same with electronics. There’s always a sale on at Best Buy. Apple always has some wonderful new product I could purchase. Or maybe it’s time to get a satellite radio. Or perhaps I’ll go to the home improvement barn and decide that now is the time to replace my completely functional but old-fashioned-looking powder room sink and faucet. Heaven help me if I get caught looking at those new washing machines and dryers. Or maybe I’ll take that key the car dealership mailed me, and pop in and see if it starts the car they’re giving away. Of course sales people will surround me like flies, and try to tempt me to take advantage of the deals on cars available these days. Still, this is probably the best moment since the 1973 oil crisis to negotiate an automobile purchase.

We live in a land of plenty. We have a monetary system that makes it possible to eat and keep a roof over our heads even if we’re in debt. We can buy comfortable personal transportation with mere pennies down, all borrowed money. We can throw out functioning appliances and essential home furnishings just because they’re not this year’s style or color. But can we afford to? Not merely in money spent or debt piled up, but in closed off possibilities because we ignored important goals in favor of futile, fleeting pleasures. After all, Valentine’s Day chocolates are just everyday candy in a red wrapper. A new car is only new for a year. And for every electronic must-have of today, there are a half-dozen passé pieces that each of us has relegated to a drawer: pagers, cell phones, PDAs, and more. We could have financed tuition for college, a trip to an exotic land, or a reunion with far-flung family for what we have frittered away on temptations large and small.

In the world of commerce, it is always time to feast. But buying simply because we want something, because some other entity has decided we should feast, is not a good idea. It’s up to each of us to shape our own future irrespective of all the commercial pressures to buy, buy, buy. Did I get any Valentine’s Day candy? No. And I’m not going to rip out my sink this month, either, or get a new car. Once the power came back on, I was glad to go home and leave temptation behind. If you don’t want to lose your focus on your own goals, try not to be around temptation any more than necessary.

Listen to Suze Orman. And Me

2009-01-11T15:47:00.003-05:00

When I first encountered Suze Orman, it was on a PBS program, where she was almost-desperately trying to convince us that we needed durable powers of attorney and other legal documents, especially living trusts instead of wills. Her sense of mission hasn’t visibly lessened in the years since then. By now she has published many books and has a long-running show on CNBC. In which she acts like a caricature of herself, but that’s another story, and she still dispenses sound financial advice.

But that’s not enough for Suze. She obviously doesn’t want to talk only to the converted. She has made outreach efforts with younger generations, and with women. After her previous book had been out for some months, she offered it as a free download via Oprah’s site, and it was so successful that the hardcover book shot back to the bestseller list. She has once again teamed up with Oprah to offer a free download of her latest book, Suze Orman's 2009 Action Plan, available on Oprah's site for only a few more days.

I read it this morning. As usual, her advice is dead on. She gives one of the clearer explanations of the origins of the financial meltdown I've seen, with enough details but not too many. She tries very hard to impress upon us that the banks to whom we owe so many thousands of dollars in credit card and mortgage debt are getting ever tougher. So we need to clean up our act now, or face the inconvenience and extra expense of dealing with punitive interest rates, account closures, housing foreclosures, and more. It’s very logical and reasonable advice, and we should all take it to heart. And then act on it.

But another book I am reading, Buyology, by Martin Lindstrom, says that scientific experiments show that people behave more and more irrationally the more fearful they are. So the warnings to be ultra-careful about money just now are fueling our drive to be crazy with it instead. Is it possible that Suze's well-meant warnings might actually send people running to the mall? Or, taking it a step further, that all the talk about the obesity epidemic is just making us eat more? Because according to the research Lindstrom cites, people actually smoke more after seeing the cancer warnings on cigarette packs. What are we, nuts?

Maybe so. We’re certainly far from rational beings. Lindstrom says he wrote his book, the result of work he has collected to help clients target their advertising campaigns effectively, to tell the rest of us what weapons are now available in the marketers’ arsenal. And presumably, what we can do to combat them and our own self-defeating instincts. He claims his purpose is noble, and maybe it is. Regardless, because of him, I am rethinking the good advice I have handed out over the years, attempting to scare straight the friends and relatives whom I thought were behaving like the feckless grasshopper in the fable. The truth is that often people have such huge financial problems that all the best-meant advice in the world won’t solve them. So why attempt to terrify these poor folks who already suspect, deep down, that they are just one or two missed payments away from living on the street? Maybe it’s no kindness.

Yet people constantly ask others for advice, for help. People beg Dave Ramsey and Suze Orman, and Carmen Wong Ulrich, and anyone else who will take their calls. They describe their financial bad luck, and their willful financial follies, and they ask for help. So what is the financial guru to do? Obviously, dispense advice. Although I am no guru, some things in life have come easily to me. Such as being efficient and consistent in paying bills. When I had plenty of money, I paid my bills on time. When I didn’t, I also paid them on time, which resulted in being able to keep rather large credit lines open despite low income and high debt at one point. I feel sure that others can learn these same efficiencies, and that I can teach them. Maybe that is the hubris of all teachers, whether we are financial gurus or just plain folks.

It took many years to lure Americans into conducting all their transactions via credit cards. It will take many years to undo that mentality, if indeed it can be undone at all. Plenty of companies refuse to accept cash payments. Even some toll highway exits don’t. In the meantime, what are we to do? We can’t go wrong if we follow basic advice: Pay with cash as much as possible. Don’t overextend. Don’t live on your credit cards. Don’t run up your credit cards to try to stave off your house being foreclosed. And don’t take equity from your house to pay off your credit debt.

Suze Orman sometimes looks very concerned when she has to tell advice seekers the errors of their ways. Dave Ramsey also looks sympathetic. But they’re both tough, too. Carmen Wong Ulrich takes the reportorial approach, not really offering a strong personal line of advice. She gathers advice from experts and relays it to people who call or write in. But I think she cares as much as Orman and Ramsey do. I care, too. I wouldn’t be spending my free moments sending essays on financial sense into the Internet ether if I didn’t hope very much that you all, whoever you are, can escape the misery of being in debt. We’re not trying to scare you. We’re trying to get you to activate your own good sense and learn how to keep your personal financial house in order.

Want More Money? Sell Your Stuff

2009-01-06T11:24:00.002-05:00

At this time of the year, most people are feeling some regret after holiday splurges. We’re trying to shed bad habits. We’re also trying to relieve the financial pressure we feel as bills are coming due. When there isn’t enough money coming in, one way to rid ourselves of debt is to sell things. These could be items we don’t need, or use, or even like. Or they could be items of a size or magnificence that does not suit our current lifestyle and income. The classic method of selling one’s used stuff is to hold a yard sale, except this is not the weather for it in most states. So we turn to other methods.

We all know about eBay, but most of us don’t use it. And we shouldn’t just jump in, because amateurs never get the best prices. But if you have a collectible possession that you would like to turn into cash, eBay (and other auctions of its ilk) is your best bet for getting the attention of a huge pool of potential buyers. And, more important, for selling your item at somewhere near its full retail value.

The sad fact is that most of the time we can’t re-sell a possession for anywhere near the full price we paid for it. The big exception is a house, but right now, with the housing market in freefall, a lot of people can’t recover the price they paid for their houses. Housing prices will recover. A car, or television, or article of clothing will likely never gain in value as the years go by. Unless they become collectibles. Ordinarily, if you sell something to a dealer, you will be lucky to get 10% to 25% of it current retail value. And that value may be substantially less than its original purchase price. Selling your possession directly is the only way to up your percentage.

You can put an ad in your local newspaper or on Craigslist, or on eBay. In some cases, the ads will be free. Take advantage of the free ones, and see if you get any responses. If not, then it’s on to other venues or to lowering your asking price. You can sell your item through an auction house, although the auction company may take a very large bite as a commission. We’ve all heard about auctions that garner millions of dollars for genuinely valuable items, so an auction house for old paintings, seriously valuable sterling silver, collectible comic book original art, or antique furniture is often the right choice.

You also can place your item in a consignment shop, but these stores take a fairly high cut, so you need to be willing to accept a low dollar figure as your eventual net. And some items just don’t sell, because the stores depend on foot traffic only.

But don’t try any of these venues before investigating them. Talk to friends who use eBay and get tips on how to maximize your profit and minimize your risk. Read the ads on Craigslist over a period of time. Contact auction houses and ask about their typical terms and their buyers. Ask friends if they have had success with a particular consignment shop. If you have social reasons not to want to admit you are trying to resell possessions, then investigate discreet resellers. If you’re not sure that the item you want to sell will be marketable through a particular method, ask. Auction houses will be happy to tell you what they can sell and what they can’t. Talk to consignment shop employees to find out what their most popular items are, and what is the financial level of their customers. Obviously, a thrift shop located in a poor neighborhood caters to a different clientele than an upscale designer resale shop located in a more affluent area.
If you are lucky enough to be able to use the IRS itemized deduction form, Schedule A, another way of getting some financial relief is through deductions when you donate your unneeded items to charity. The catch here is that you are on your honor not to overstate the value of the items. A moldy old couch is worth nothing, so take it to the dump. A nearly-new couch might be worth at most a few hundred dollars. You have to check the price structuring of the charity you select. Some price higher than others. As a rule of thumb, expect to claim slightly higher than yard sale prices for any used item you donate to an ordinary charity. (If you are donating rare artworks to a museum, that requires an entirely different level of appraisal and bookkeeping. I’m assuming that anybody reading this is not at that financial level.) So go inside the Salvation Army store or the hospital thrift shop and look at the prices for items similar to the ones you are donating. Those are the values you must assign. In rare cases, you can donate never-worn, tags-still-on clothing to high-end shops and credit yourself the full purchase price. But you know they aren’t likely to sell for that, so don’t pull a con on the IRS. Settle on a fair price in today’s market.

Vintage items are harder to price, but the same method applies. Go to an antiques mall and find out what others are charging for their beautifully restored furniture pieces. Price your own similar piece lower if it needs some repairs or refinishing. Hundreds lower. Go online for prices on vintage garments, but remember, these prices are for attractive, cleaned, and mended garments, not the smelly, stained dress you found in the back of your late aunt’s closet.

The worst aspect of reselling is dashed expectations. You know that vase is art glass and it’s worth a lot of money. But it’s so hard to find a customer willing to pay what it is worth. It’s also a lot of trouble. If you have a house full of such items, at some point you may have to just call a junk dealer or auction house and let the pros make the profits. Your time is worth something, after all. Maybe you should go to Plan B and look for a moonlighting job. It’s a lot easier to trade your time for cash than it is to spend time trying to sell your things.

Tips for Having a Halfway Decent January

2009-01-01T11:00:00.000-05:00

It’s the month when we’re all ashamed of ourselves. It’s the month when we make promises to ourselves. And then promptly break them. It’s the month when the bills come due, in more ways than one, for the excesses of the previous month.

Did you step on the scale and run shrieking from the bathroom? Did you add up the total of the bills soon to arrive, and want to run shrieking from being the adult in charge of your financial life? Did you look around at all the junk you have accumulated in the past month, or the past year, and wonder what kind of drugs you’ve been doing?

Here’s the way to start undoing the glum mood threatening you on January 1st. Begin with something really small and simple:

1. Pretend you have guests coming over, and do a hasty pickup of your living space. No, do not promise yourself to vacuum the whole place and get down on your hands and knees and wash those kitchen baseboards with a toothbrush. It’s the wrong tool and that’s far too extravagant a goal for the beginning of January. Just take 15 minutes and neaten up your space, so you can bear to live in it.

2. Pretend it’ll be tax time soon (it will), and get all your financial documents in one spot, and then make a grand gesture and organize them. Don’t write them all down or tediously enter them into some stupid computer program. Just organize them. For most of us, that means tossing them in the correct file.

3. Look around at any unfinished projects that have been hanging over you and making you gloomy. Mentally calculate how much time each will take. Do not write them down; that would depress you. Instead, pick the one that will take the least time, and do it. Sew on a button, re-string a blind cord, varnish the rake handle.

4. Take down the Christmas lights. Sure, it’s cold outside. But unless you’re a believer in celebrating the entire twelve nights, it’s about time to kiss that extra strain on your power bill goodbye for another year. Declare to the rest of the world that you can handle your life. Front.

5. Return something to a store next week. Not this week; are you crazy? But next week. There is probably at least one item that you bought foolishly that you regret. Put it in a bag by the door. If you’re too macho to return it, then give it to someone immediately. Get the bad karma out of your house. You don’t want to spend the rest of the year staring at your mistake.

6. Apply for that television converter box coupon, even if you don’t need it yourself. You know you have at least one friend or relative lame enough not to get around to it. You’ll be doing them a favor and building up your good karma.

7. Create some kind of piggy bank and put a dollar in it. You’re not broke if you have savings.

Feel a little better? These are things that won’t take you much time, don’t cost you money, and are not fattening. As the man on the TV commercial says, “Guys, you can do this.”

Have you started your brand yet?

2008-12-22T10:02:00.003-05:00

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.

Things to do Before You Lose Your Job

2008-12-01T20:01:00.002-05:00

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.