December 10, 2008

The High Cost of Living

Yesterday I very nearly made a VERY foolish money decision.

I'm currently on the hunt for a new apartment. I set an upper limit for myself as far as what I could afford (and was willing) to pay per month. But last week I saw an apartment that absolutely enchanted me. A two-story, one-bedroom, working fireplace-equipped, full-size-bathtub-adorned palace. It had a dishwasher. It had a (little) view. It had a huge walk-in closet, and the building had a rooftop deck. The stuff dreams are made of.

The price, however, was exactly the upper limit of what I had planned on. And that price included NO utilities. So it was really more like my upper limit plus $75-$150 per month. Which was, technically, over my limit.

But I loved it so much that I filled out the application and put down a deposit while they checked my credit. Two nights ago I got the call that I had passed the check and they wanted to rent to me.

And my heart sank.

I looked again at the numbers and realized that while I could afford it, even with the utility costs, moving in there would leave me no income to use for extra payments on my debt. Granted, mostly that's student loan debt. While it is quite a lot -- just under $40,000 -- it's at a fixed interest rate of 7.5%, and student loans are classified by many as "good debt".

But whenever I look at that balance, my heart sinks a little. I see it as a barrier between me and freedom -- the freedom to not work, to travel, to do what I want and live where I want.

So I called back and said I wasn't going to take the glorious apartment after all. And as luck would have it, someone else came along that same night and put down a deposit, clearing my guilt about changing my mind. Maybe the universe is trying to tell me something?

I'm listening. And I'm still looking for a place. But my "upper limit" has come down significantly. And hopefully my student loan balance will too.

November 24, 2008

Credit Cards: One Down...

Today I did something I have never done before. I canceled a credit card.

Yes! I finally took the step I've meaning to for ages and got rid of one of my cards. While the card was one of my two oldest (I got them within a month of each other) it was the younger of the two, plus the only one of the four cards I have that charges a monthly fee AND an annual fee. (All three of the other cards do not charge either fee.) Also, it had a very small limit of $500. So it was an easy choice.

Not so easy, however, was the process of actually canceling the card. I had to speak to a "customer specialist" or something of the sort, who I literally had to tell four or five times, 'No, I just want to cancel the card," as she alternately tried logic, fee credits, and scare tactics to keep me from closing the account. But now it's done and I am saving $6 a month (the monthly fee) plus about $100 a year (the annual fee). And I still have three other cards to serve my credit needs, so I'm happy and my wallet is happy.

November 9, 2008

Riding the Money Train of Thought

My head is full of money. (Ha, if only that were true.) Actually, my head is full of thoughts about money. What I want, and what I need. What I will have to spend, and what bills I will have to pay. How to manage it all so that I can pay what I need to and spend only what I have to. The long-term goals I want to achieve for myself financially, and the short-term outlays I need to figure out.

Sometimes I get tired of thinking about money. I think with wistful joy of my childhood, which didn't involve nearly as much fiscal planning. Growing up, I knew we had money problems, but I didn't know the hard numbers, or the actual scope of the situation. There are times when I wish I had a "grown-up" around now that I could hand all these decisions off to. But the price of independence is awareness. Someone has to see that dinner gets on the table, the roof stays over your head, and the lights and heat stay on. And as hard as it is to make all these different tasks and dollar values and priorities work, it is better to know -- to be in control, to be independent.

October 16, 2008

The Logjam Effect

Sometimes it seems as though there a one million and one things you want to do. Take up that exercise routine. Finish up that pile of projects at work. Get everything organized in advance for this year's taxes. You look at them all, your list or pile of plans and dreams, and feel... a sense of utter despair and a certainty that you will never get it all done.

You might call it the Logjam Effect. A big pile of great ideas, completely blocking your thoughts and creativity. It happens to all of us every so often. But how do you get out of it? How do you "break through"?

I've found there are two strategies that get me past that point and moving forward again with a fair amount of success:

1) Do anything. Pick one project from the list that is small enough that you can accomplish it fairly quickly. The feeling of getting it done is a bit like the feeling you get when you pay off a bill. You feel a little giddy and you want to do it again. So you jump into another task.

2.Do nothing. If you are really feeling overwhelmed and paralyzed, give yourself a small amount of time to run with that feeling. Huddle up for two hours in bed with the blankets over your head. Indulge in some escapism by watching a movie or some cartoons. Get out of the house and take a walk. Just get completely away from everything for a two-hour period. You'll come back feeling better -- slightly recharged, maybe ready to laugh at yourself a little (especially post-hiding under the covers) and ready to work on and look at everything again.

If you fall, get back up again. If you backslide on your saving plan, or bust a section of your budget, take a deep breath and get back on the horse. If you feel like you're trying to juggle too many things at once (a budget AND a savings plan AND retirement investment research) scale back and try to tackle one thing at a time. Ten small steps can take you the same distance as two big ones.

October 9, 2008

Your Imaginary Money

Last night, I saw a couple on the news tearfully describing the recent loss of a substantial part of their retirement savings in the stock market. They are apparently only a few years from retirement and now have accounts that might support them for three or four years, instead of ten or twenty years. As I watched this tragedy unfold, two thoughts occurred to me:

1) If they are only a few years away from retirement, why is so much of their money in the stock market?
Pretty much every retirement strategy says you should move your investments out of more volatile areas (stocks, mostly) and into more stable areas (bonds, mostly) as you get closer to retirement. What kind of planning were these people doing? Did they have a financial advisor? (If so, they are clearly due a refund of any advisory fees.) Even if your retirement accounts are run through your place of employment, you should still get some say over where your money goes. Start thinking, reading and planning about what kind of lifestyle you want to have in retirement, and when you want to retire, and structure your accounts accordingly.

2) Technically, have they actually lost any money?
Most people forget (or don't realize to begin with) that any money invested in the stock market is only real at two points: when you put it in, and when you take it out. What happens in between those two points is all virtual.
Let me explain. The day the Dow dropped 778 points, I was riding the bus home from work. The bus driver struck up a conversation with me, and he mentioned the Dow drop. I replied, "Yes, they say it erased about $1.2 trillion worth of value."
"Really?" he replied. "Where did that money go?"
I answered him without even thinking about it. 'Well, nowhere," I said. "It wasn't really there to begin with."
(Now, I am looking at this from the perspective of a stockholder, so save your comments about market capitalization and quarterly reports, etc. etc.)
You buy 10 shares of Company X at $10 per share. Three months later, you sell your ten shares at $15 per share. You make a $50 profit. What happened during the three months in between?
It doesn't matter.
Let's say that at the end of month 1, the stock was down to $8 per share. But you didn't sell any.
At the end of month 2, the company announced that it was merging with another company and the stock went up to $18 per share. Again, you decided not to sell any.
Then at the end of month 3, the stock was at $15 and you decided to sell for a profit.
Whether the stock goes up or down in the intervening period, all that really matters is what you put in and what you take out.
You could have sold at $18 per share and made a nicer profit. Or you could have panicked, sold at $8 per share, and lost money. But you didn't.
The value of the stock you buy doesn't matter until it's time to sell it.
Tax-wise, profits and losses are recognized when you sell, not before. So panicking and selling at a loss when your stocks are low only makes those losses real, as opposed to being losses "on paper". Also, you need to consider exactly how much real money you put in to start with. You have only lost money if you end up with less than that amount after you sell.

Just some food for thought...

October 8, 2008

Finding Money Where You Least Expect It

Since I was a little girl, I have been a money finder. I find pennies, other small change, the odd bill, and on a few notable occasions, several bills. I find money on sidewalks, on the floors of shops and restaurants, in hallways, snagged in bushes. Once my mother pulled up in front of the local Girls’ Club to drop me off for an after-school session and three one-dollar bills blew across the street practically under my feet. Another time I found a quarter while digging under an old tree behind our apartment. I found a Mercury dime in beautiful condition lying in the dust beside a parking meter. And I could go on and on. According to family legend, my paternal grandmother had the same knack.

Over the years I’ve become fairly certain, however, that this is not due to some genetic blessing. Actually, it mostly had to do with my being very shy as a child. People made me nervous, so I spent a lot of time looking at my feet. Consequently, I ended up seeing a lot of things that other people missed -- like spare change.

Most people don’t look down or notice their surroundings as they go from place to place. I saw a great 20/20 episode years ago where John Stossel dropped some wallets to see who would return them and who would keep them. (The wallets contained some money and some identification clearly showing an owner.) tried a larger version of the experiment, dropping 100 wallets. In both cases, what got my attention was not who returned wallets and who didn’t, but the fact that most people did not even notice the wallets on the ground. The SciFi channel show Mind Control With Derren Brown ran a version where the wallet had a circle drawn around it with yellow chalk. Again, the most notable factor of the experiment was that even with a bright yellow circle around it, most people did not notice the wallet. One guy even stood on the wallet while waiting for a streetlight to change, yet didn’t notice it under his foot.

My point: be aware of what is around you. Look around, and look at the ground occasionally. If you see a penny, pick it up. While it’s not certain that you’ll have good luck all day, it is certain that 100 of those pennies make a dollar. I have an empty multivitamin bottle labeled “found money” that I keep by my front door. I’ve already had to empty it once into my savings account this year.

October 7, 2008

The FDIC And Your Money

In these troubled economic times, everyone seems to be worried about their money. Even savings accounts have suffered pullouts by frightened investors. While hiding your money under your mattress or in a jar atop the fridge might seem like the only way to avoid any uncertainty, you should know that your savings accounts (among others) have some special protections in place.

The Federal Deposit Insurance Corporation, or FDIC, is responsible for insuring deposits at banks of all sizes across the country. If you have ever seen the "member FDIC" sign on the front of a bank, or placed on their website, you know that bank's deposits are covered. Specifically, the FDIC insures checking accounts, savings accounts, CDs, trust accounts, and IRAs. If your bank offers a money market deposit account, the FDIC will insure that also. Until recently, all these accounts were insured up to amounts of $100,000 ($250,000 for IRAs). With the passage of last week's bailout, the Emergency Economic Stabilization Act, that limit was raised to $250,000 for all insured account types -- but only until December 31, 2009. Also, that coverage is $250,000 per depositor per bank -- meaning if you want to keep more than $250,000 in one of the above named account types, you can open the same type of account at another bank, deposit your additional money, and have up to $250,000 of coverage at that bank.

So what exactly does the insurance cover? In the event that your bank should fail, the FDIC guarantees that you will get every cent of money back that you've deposited in a covered account. According to their website, since the agency's creation in 1933, no depositor has ever lost any money from an insured deposit. You can look through their website information for more details and answers to specific questions -- it's really easy to use.

What does this mean for you? Whatever happens to your bank, if it is an FDIC member, your money is in a covered account type and within the coverage limits, your cash will be safe. Don't break out that empty mayonnaise jar just yet.