Saturday, July 31, 2010

Love Marriage and Money (Part IV)

I will end this series on Love Marriage and Money with the basic financial rules for young couples. I haven’t posted it since April 2009. While some of you have seen it before, I expect there are new readers who have not yet seen the entire list. I am changing two words. This is the first change I have made since I generated the list about 5 years ago. In Rule 1 example c, I have changed OK to risky and added the word even. Too many people have borrowed money for college, only to find there are no jobs after graduation. Worse yet, too many folks didn’t even get a diploma, but now they have student debt.

Basics Financial Rules
For Young Couples

1)Stay out of debt unless absolutely necessary (four exceptions)
a)Just about no one can pay cash for a house
b)Medical bills come whether you have money or not
c)Borrowing for school (even with and only with a goal) is risky. Scholarships and work study grants are better.
d)Starting a new business or expanding an existing business. Keep that cash flow positive.

2)Pay off your debts as rapidly as possible. Pay off the debt with the highest interest rate first and the debt with the lowest interest rate last.

3)Don’t use a Credit Card unless you can pay it off every month.

4)When your money stash is declining (and it will) find out where your money is going. Keep detailed records (every penny) of your expenditures if necessary. My wife and I did this twice during the early years of our marriage. It proved a very enlightening exercise.

5)Many people recommend a budget. We have never had a budget except the one in my head. That worked pretty well for us but I think a formal budget would be even better.

6)No secrets. If you or your spouse spend more than the cost of a CD or a paperback book on something, decide on that expense together, as a couple. There are exceptions. My wife does not want to know about the power bill, tires on her car, or specialized tools she does not understand. Set your own rules and limits for your own marriage and stick to them.

7)Start a “rainy day” fund in a bank or a money market fund. The goal here is six months cash reserve (six months take home, both salaries). It will take some time to reach this goal. Don’t beat yourselves up about this but keep putting a little something aside every month.

8)When you have a little extra cash beyond the six months fund or maybe even as a part of the six months fund, begin to experiment on a small basis with stocks, bonds, mutual funds, or even real estate.

9)Start thinking about retirement when you are young. Take advantage of anything offered by your employer. This was not a problem or an issue 50 years ago, but my retirement picture is not all that good. Your retirement picture is positively scary. This is a very low priority with so many other demands at this time in your life but don’t forget retirement is sitting out there if you are lucky enough to live that long.

10)Give something to God without expectation of return. It is good for your heart.

Saturday, July 24, 2010

Love Marriage and Money (Part III)

As a properly functioning marriage evolves, so will its division of labor. There are certain tasks that must be accomplished. Someone will see to it that they get done. Often these tasks fall into the traditional roles of husband and wife. Men tend to accept responsibility for cutting down trees and keeping the cars on the road. Women often do the grocery shopping and the laundry. There are a certain number of financial tasks that must be done if a marriage is going to survive. Once the couple has decided what needs to be done (a statement of work if you will), the budget that will accomplish these goals, and agreement has been reached on some sort of schedule, there is no particular reason why individual tasks should be done by husband or wife. They just need to get done.

In my parents’ house, my mother took care of all the day to day expenditures. She did most of the shopping, for everything. She made sure the checkbook was balanced, that the bills were paid, that my father and I were properly dressed, that the house was presentable, and that food was on the table at appropriate times. My father went to work and brought home the check. On most issues my mother took it from there. Before I appeared on the scene my mother was an accountant. Therefore it was logical that she continued in that role in her marriage. Even now she handles all the taxes. When my father worked as an independent consultant and rented out farm property in another state, taking care of the taxes required a major effort.

If my mother functioned as the CFO of their household, my father was clearly the CEO. My mother could not deal with investment decisions. They just made her too nervous. She could not stand knowing that she had shares of stock that went up and down in value. My father made all the investment decisions. He bought and sold stock, in his youth he built and sold a couple of houses, rehabbed a rental property, and rented out a farm that was given to him by his parents. He also directed the search for and retained the final word on all major purchases such as cars and houses. Of course my mother had input into these decisions, but clearly they were my father’s decisions.

One article I read some time ago broke up financially functioning marriages into several different categories. What I have described above, the author termed a division of labor. More commonly, marriages have a driver and a rider. Either husband of wife takes on almost all of the responsibility for overseeing the family’s financial plan. If one partner is particularly talented or knowledgeable, he or she might take over most of the planning as well as the execution of the family’s finances. This is OK if and only if both partners know what is going on and are comfortable with the arrangement. If you are the driver, make sure your rider knows where you are taking the family. Every month or so tell your partner what you are doing. It might not require more than the statement, “We paid all the bills this month and put $500 in savings,” or “We are in trouble. I wasn’t able to pay off the credit card this month. We have to cut expenses or figure out some way to bring in some more money.” When making a major decision, such as buying a car, or investing in a stock, make sure they understand what you are doing and are onboard with that decision.

According to the author of the article (I can’t find it) a division of labor seems to work better than the driver/rider arrangement. Families that describe themselves as having a functional division of labor tend to be wealthier than other groups. I guess that makes sense. It gives everyone more time to do what they do best. However you choose to work out the details of the financial component of your marriage, make sure you are both in agreement with what is happening and that you examine the results, frequently, to determine if it is working. For example, if you are saving for a down payment to put on a new home within five years, make sure you are staying on track to reach that goal. How you do it is your business. After all it is your marriage.

Love Marriage and Money (Part II)

Well, you went ahead and you did it anyway. You are married. Now what? I am going to suggest something that is so far out of kilter with the zeitgeist, I expect some young readers will dismiss it out of hand. When you said, “I do,” two became one. There is no longer my money and your money. There is only our money. There are no longer your debts and my debts. There are only our debts. Merge your financial house as quickly and completely as possible. For the sake of this discussion, I expect two paychecks would be the norm for a typical young couple. The rules, however, would be no different if there was only one pay check.

When the paychecks arrive, they go into a joint account. At this point a negotiated budget would be very helpful in eliminating potential arguments. Here an Excel spreadsheet listing budgeted amounts for rent, groceries, utilities, cell phones, gasoline, car payments, and student loans would be helpful. It is not necessary to have a computer or know how to use Excel to budget your income. A piece of paper and a pencil works just fine. When all the expenses for the month are covered, the balance is available for saving for long term goals, such as a down payment on a house or discretionary expenses, such as restaurants and concert tickets. Approach this process with the idea in mind that money can only be spent once and avoid debt like the plague.

If you or your spouse spends more than the cost of a CD or a paperback book on something, decide on that expense together, as a couple. There are exceptions. My wife does not want to know about the power bill, tires on her car, or specialized tools she does not understand. Set your own rules and limits for your own marriage and stick to them. If you are not in debt, if you have a rainy day fund, and you are systematically saving for large long term goals, you can, as a couple, decide to create a blue checkbook and a pink checkbook for individual discretionary purchases. Again, if you wish to complicate your life with two additional bank accounts, make that decision together, as a couple.

It is likely husband and wife will bring radically different ideas of financial responsibility to a marriage. My aunt once told me that members of our family squeeze a nickel so hard that the buffalo bellows. That is an understatement. My wife, within reason, was given everything she ever wanted. Needless to say, this led to some heated exchanges during the early years of our marriage. Somehow, I intuitively understood that one joint account and agreement on most purchases would be the best path for our young marriage. A couple of times during those early years the ride got pretty bumpy, but we made it. In practice, this method worked out as follows.

I say, “Gee, I really need a combat handgun. It only costs $600.”

My wife would respond, “Yes dear. I really think you need a new combat handgun and I need a new pair of shoes and a little marble topped table to display the small shiny items I bought last year at the crafts fair.”

Then I would think, “Do I really need to spend $1,200 on a handgun?” I still don’t have a combat handgun, but she does have a little marble topped table in her perfect room.

Generally, using this method works pretty well. Together we saved for things we both really wanted like college diplomas and nice stereo equipment. We both love music. It is a big part of our lives. Really, I can only think of one instance when our consensus consistently broke down. My extended family decided that spending money on Christmas presents beyond the nuclear family was an idiotic waste of money and ended the practice. In my wife’s family Christmas is a big deal. People who barely know each other are expected to exchange gifts. Every Christmas for years this led to at least one major blow up. Finally, we learned how far we could push each other without violating the cease fire agreement. Both of us were unhappy with the outcome, but we at least learned how to avoid the big argument, at least most of the time.

We continued to use the one checkbook, one bank account, one credit card method for more than the first 25 years of our marriage. Then my wife received an inheritance from her great aunt. She wanted that money in a separate pink check book. After some negotiations concerning what expenditures would no longer come out of the joint checking account, such as certain presents, I agreed. Now we have two accounts, our joint account and one containing the remains of two inheritances that my wife uses for discretionary purchases. I do not have a similar checkbook. That is OK.

I am offering a principle to avoid a great number of arguments and a great deal of pain. How you work out the details in your marriage is your business. Financial issues are sometimes listed as the number one cause of divorce. Hiding debt and expenses from one another is a sure fire recipe for disaster. If you want more statistics and horror stories here are two good recent articles.

Friday, July 23, 2010

Love Marriage and Money (Part I)

This isn’t very romantic stuff, but it is important stuff. Who you marry is likely to be the single most important, irreversible decision you will ever make. Not surprisingly then, this decision will also be the most important financial decision you will ever make in your life. Don’t kid yourself, you and your intended are forming a financial partnership, for better or worse, for richer or poorer, till death do you part. In most instances getting married (and staying married) is a wise financial decision.

If you don’t believe me, listen to Solomon.

Ecclesiastes Chapter 4

[9] Two are better than one; because they have a good reward for their labour.
[10] For if they fall, the one will lift up his fellow: but woe to him that is alone when he falleth; for he hath not another to help him up.
[11] Again, if two lie together, then they have heat: but how can one be warm alone?
[12] And if one prevail against him, two shall withstand him; and a threefold cord is not quickly broken.

I have seen these sorts of figures in many sources. I particularly recommend The Millionaire Next Door, but these particular numbers come from a MSN column written by Liz Weston. “The median net worth of married-couple households in the latest Census Bureau wealth study, conducted in 2002, was $101,975. For single men, median wealth was $23,700. For single women, $20,217.” When all other factors are held constant (income and education), just the fact that a couple is married led to an increase in net wealth of 4% per year when compared to single folks. Likewise, it has been repeatedly shown that divorce destroys wealth at a frightening rate. Again from Liz Weston, “Wealth declines typically started four years before a divorce was final, and the breakup ultimately reduced the typical person's net worth by 77% of that of the average single person.”

Before you tie the knot, count the cost. I know that is not what your hormones are telling you, but take some time to discuss these issues before your wedding day. Learn to communicate about money before you get married. It has been recommended that both bride and groom order a credit report complete with their score, then sit down at the table and examine each other’s financial history. In this conversation, bride and groom should also list all their debts including car payments, credit card debt, and student loans. I hate to be the bearer of bad news, but in most states you are not only marrying each other, but you are marrying each other’s debt.

In the story of a divorce told in an article by Lisa Scherzer, the wife discovers that prior to their divorce her husband had been racking up significant amounts of debt. Her attorney, Sheera Gefen-Greenberg noted, “Even though he's primarily liable for those debts, the wife, in a divorce, may still have to foot the bill at the end of the day.” The author goes on to observe, “In New York, any debt accrued during the marriage is legally considered marital debt subject to distribution between the parties in a divorce.”

I believe this is more important today than it was when I got married over 35 years ago. I like to tell people my wife married me for my money. I owned a 67 Chevrolet. It might have been worth $450. I also had $900 in the bank. I did not have any debts, no credit history, and I did not even know that such a thing as a credit score existed. Today, the average age for a first marriage is pushing 28. That is long enough to develop a credit history. Six years for a college graduate or ten years for a high school graduate is sufficient time to develop some bad habits and rack up some significant debt.

In marriage, as in the beginning of any business venture, the partners need to determine their assets, liabilities, and goals. Discuss where you want to be in 10, 20, or even 40 years. Do you want to start a family? That will cost you about $250,000 per child if you wish to raise them as traditional middle class Americans. Do you want to retire sometime before you die? Better start soon. Laura Rowley even suggests discussing hypothetical questions, like what would you like to do with an unexpected $10,000 inheritance?

When you say, “I do,” you are making a decision that has serious financial implications. If you study Consumer Reports total cost of ownership and frequency of maintenance data, if you read test reports from Road and Track magazine, if you research fair price numbers before buying a new car, why would you do any less before making the most important decision of your life?

Friday, July 16, 2010

Oh, Those Little Foxes

Catch for us the foxes, the little foxes that ruin the vineyards, our vineyards.
The Song of Solomon 2:15 (NIV)

I always found this a curious and amusing verse. It appears in the middle of some pretty hot love poetry. In context, I suppose the bride wishes to banish all distractions that could possibly interrupt the physical expression of their love. The most frequent allegorical interpretation is that the little foxes are the little sins that destroy our relationship with the Almighty.

So, today I am going to discuss some of the little foxes that spoil the vineyard of our long term financial goals.

The average U.S. Cable TV bill runs $70-$75 a month. That would total up to $900 per year in real after tax money. My coworkers, with children, digital cable, and pay for view options seem to be running about $125 a month. That would be $1,500 a year.

Then there are the new cell phones. The numbers come from a New York Times article entitled, “What is That New Phone Really Going to Cost.”

The HTC EVO offered by Sprint costs $200 after rebates. It works on Sprint’s 4G network, and requires the high speed data option whether or not you live in a city that offers 4G service. This service cost $110 a month. If you add the hotspot option that allows computer connection to the Internet through the phone, it will cost you $140 a month.

That would total $1,680 a year.

The iPhone 4 with 32 GB of memory costs $300. AT&T, who still holds the monopoly on this highly desired model, no longer offers an unlimited plan. You can pay $115 a month for 2 GB of data per month, but you incur an additional $10 per gigabyte charge for each additional gigabyte of data.

That would total $1,380 a year.

Verizon offers something called a Droid X for $200. Their unlimited plan is $120 a month. The hotspot feature costs an additional $20 per month, matching Sprint at $140 a month.

Again, that would total $1,680 a year.

Whoops, I almost forgot. “To any carrier's monthly bill you also have to add an average $9 in taxes and surcharges, a total of $216 over the life of a standard two-year contract,” so double all those annual total and add $216 to understand where you are spending your after tax dollars.

My new car came with a XM satellite radio. I really like it. I love many different kinds of music. They offer so many stations I am not going to bother counting them. I also like Bloomberg Financial Radio, and the redneck comedy channel. Go figure, I like Mozart and Jeff Foxworthy.

The total for one year, $164.

I think I will probably let that little fox into my vineyard when my three month free introductory subscription expires at the end of this month.

Oh, those little foxes.

Sunday, July 11, 2010

Widows, Orphans, and Me

Let me admit my prejudice, I like dividends. I don’t own too many stocks that do not pay a dividend. Some of these stocks, such as Johnson & Johnson are traditionally called, “widow and orphan” stocks. The idea is that they are so safe that widows and orphans can count on a dividend income that will last the rest of their life. Of course, there is no such thing as a sure bet in this life, only probabilities. Conservative, boring, dividend stocks are relatively safe but not guaranteed. British Petroleum was viewed as a profitable, well managed corporation that paid a good dividend—until it didn’t. The proverbial black (in this case a black oily) swan flew over a drilling platform in the Gulf of Mexico. In a matter of weeks British Petroleum, a company whose dividends paid approximately 1 out of every 7 pounds sent to British pensioners, lost ½ its value and all of its dividend. That is why we diversify.

Historically, dividends account for 43% of the U.S. stock market’s long-term returns.

Dividend paying stocks do better in bad times than those that do not pay a dividend. In the crash of 2008 stocks that paid a dividend lost an average of 39%. Non-dividend stocks lost 45%. One of those widow and orphan stocks, Procter & Gamble, only lost 15.8% in that debacle. They continued to pay their dividend, even through that horrid debacle. The widows and orphans still received a check every month and those of us who use DRIP plans (dividend reinvesting) to buy more shares of P&G with our dividends now own a more shares that continue to pay more dividends.

A word about DRIP, most dividend paying American corporations allow investors to use their dividends to buy fractional shares of the same stock without any charges. Using this method of investment brings the full force of compound interest to increase your holdings.

Dividends can grow. P&G has raised its dividend 53 years in a row! It is one of 42 dividend aristocrats, companies that have raised their dividend every year for at least 25 consecutive years. I can not think of a better objective measure of good management.

Here is a list of ten of those dividend aristocrats found in an article entitled, “10 Stocks with 45+ Years of Boring Steady Annual Dividend Increases. I own three companies on this list, Coca-Cola, Proctor & Gamble, and Johnson & Johnson. I also own General Electric, a company that use to be on these lists, until investments made by its financial division caused the company to tank in the bank crisis of 2008. Parts of GE’s financial division were legally classified as a bank, so that the company could share in the Federal Bail Out. Also the genius, Warren Buffet, took advantage of the situation and purchased $3 billon in a special issue of General Electric preferred. GE will survive, but I took a bad beat down on that black swan.

Colgate 47 consecutive years of dividend growth pays 2.50%
Johnson & Johnson 48 consecutive years of dividend growth pays 3.55%
Coca-Cola 48 consecutive years of dividend growth pays 3.34%
Cincinnati Fin. 50 consecutive years of dividend growth pays 5.62%
3M 52 consecutive years of dividend growth pays 2.54%
Proctor &Gamble 53 consecutive years of dividend growth pays 2.93%
Emerson Elec. 53 consecutive years of dividend growth pays 2.77%
Genuine Parts 54 consecutive years of dividend growth pays 3.89%
Dover Corp. 55 consecutive years of dividend growth pays 2.22%
Diebold, Inc. 57 consecutive years of dividend growth pays 3.57%

A final word from Seeking Alpha, “Earnings can be manufactured, cash can not. Always follow the cash and it just might lead you to a great company. There is no faking the cash that shows up in your brokerage account.”

Hey, let’s be very careful out there.

Saturday, July 10, 2010

A Word About What is Happening Here

After a year an a half and 125 posts, I thought I might be a good time to review where this all started and how it turned out. In the beginning I wanted to extend the original Silver Eagle Experiment to my church. In fact, I presented the opportunity at two churches. The couples who were serious about their commitment received pretty good results. Those who did not sustain the effort to pray, seek to learn about finances, and maintain their notebook did not do as well. I am convinced the Silver Eagle Experiment will work for anyone who is ready to turn their financial problems over to God. As a part of extending the Silver Eagle Experiment to two churches, with some technical assistance from one of our church staff, I started this blog. Originally, I hoped it would become a forum to exchange ideas and experiences as we moved through the six months of the Silver Eagle Experiment. That never happened. I have come to learn people are just about as likely to share the particulars of their financial life as they are the details of their sex life. I wanted to make this blog into a useful resource. If others did not want to participate, then I felt led to do it myself. At first (and several times thereafter) I was afraid I would be unable to find enough topics of interest, within my abilities to understand, to keep the blog fresh and interesting. However, just when I was about to run out of ideas, something would appear.

My topics seem to start and end with the “old school” virtues of thrift, deferred gratification, setting and working towards goals (particularly long term goals), improving oneself as a product in the marketplace by learning new skills, and most importantly examining the area where the financial and the spiritual intersect. That is not difficult. The Bible is full of financial advice.

In the years prior to beginning the Silver Eagle Experiment, I saw that excessive consumer debt and mortgage burden would destroy a lot of people in this area. I tried to convince my church the opportunities for financial ministry and divorce counseling would be huge in the years to come. Unfortunately, I was right. In this blog, I frequently howl about consumer debt generally and in particular the misuse of credit cards. Debt is destructive. God states debt is part of the curse. When, will God’s people get that through their heads? I want to convince people to stay out of debt. If they find themselves with debt, I want to help them extricate themselves from that miserable form of slavery.

About 10 years ago I set out to learn about investing (creating wealth). I have always been a good money manager. My wife and I each earned a college degree with money from our own savings and jobs without going into debt and we have always paid cash for our cars. But I never knew how to create wealth. Trying to learn was not easy.

As the Chinese say, “Give a man a fish, feed him for a day. Teach a man to fish, feed him for a lifetime.”

Financial counselors do not want you to learn how to fish. It would put them out of a job. Since those days, I have learned the basics of value investing. It is a style that matches my personality. More importantly, it works. Since starting a serious effort to learn about investments, I have increased the net worth of my investments (excluding the value of my house) more than 4 fold. That is pretty good given we just went through the worst stock market crash in 80 years. God has blessed me and I am grateful. I know I am not that smart, but I will share all I have learned (including my mistakes). My prayer is that young people will learn about investments while they are still young and time is on their side. Don’t do what I did and wait until you are 50 to get serious about the creation of wealth.

I have been surprised to discover that the Silver Eagle Ministry also seems to be turning into a prayer ministry for the unemployed. Over the last year, I have felt a tremendous burden for the unemployed in this country. From time to time I try and remind my readers that our neighbors are in need, and given the realities of this economy they are in need of encouragement and our prayers. I have also tried to put up some ideas on problem solving and self improvement. Some of them are my own. Some come from reputable, scholarly sources.

By the way, I also discuss giving. Generosity, an open heart, is an important part of anything that claims to be true religion.

James 1

[27] Pure religion and undefiled before God and the Father is this, To visit the fatherless and widows in their affliction, and to keep himself unspotted from the world.

Monday, July 5, 2010

Work at Home Scams

I find those who swindle and rob the poor and the desperate, the vulnerable, the widow, and the helpless disgusting. Such stories make me angry. They also make God angry. In this recession some of the unemployed are falling victim to work at home schemes that rob them of their last dollar, even as they try to find a way to support themselves and their families. Unfortunately, these stories are becoming more common as the recession lengthens.

The number one red flag warning of a potentially fraudulent scheme is any scheme that requires you to send money before starting your new at home business. These include toy assembly, jewelry assembly, envelope stuffing, Internet searches, processing rebates, Internet advertizing schemes, and most recently medical billing scams. The Federal Trade Commission always recommends avoiding pitches for these “opportunities.”

A recent example of the newest in big dollar work at home fraud was recently reported in an article from the USA Today. EDI Healthclaims Network told their victims they would help them set up a medical billing business after they paid a licensing fee" of $4,985 to $5,985. When asked for references, Healthclaims Network employees identified themselves as successful customers. When the FTC finally closed down the operation, the owners declared bankruptcy. Noel Tufele-Jones of Wichita received a restitution check in the amount of $29.00. That was all that was returned of $5,900 she invested in a nonexistent medical claims processing business. Now, pending mail fraud charges may actually put these scoundrels in prison, where they belong.

Another red flag is a promise to earn big money with little or no effort or experience. Life is not like that, but in our despair we sometimes hope for a miracle. Guarantees, implicit or explicit are often included in pitches for both fraudulent and legal moneymaking schemes. I have only known one couple who made money running a legitimate multilevel marketing business, in this case Amway. They gave it up because they came to the conclusion that while they were making as much money selling Amway as they could in a regular job, they were working as hard or harder as they would in a regular job.

Sometimes these sales pitches are nothing more than fronts for outright criminal activities. Sometimes victims are given a low cost “teaser” offer to learn more about the program, perhaps a number like $1.95. The purpose of this offer is to get a hold of your credit card number. Then, somewhere in the fine print, they mention they will charge an additional fee of $49.95 unless you cancel the offer in 30 days. They know small crimes are likely to go unreported as the cost and difficulty in making recoveries across state lines far exceed the value of the money in question. Some of these people are even worse than those mentioned in the previous example. Their innocent victims believe they are opening a home business selling various items purchases from a wholesaler. In fact they are part of a fencing operation selling items purchased with stolen credit cards.

There are legitimate work at home opportunities offered by major companies. Typically these are for home-based customer service agents. They do not require any up front fees and they do not promise big bucks for little or no work. They offer a salary to potential workers with “a clean record, a good head, moderate computer skills, and a quiet place to work.”

Remember, If it sounds too good to be true…….

Ezek. 22:29,31.

"The people of the land have practiced oppression and committed robbery, and they have wronged the poor and needy and have oppressed the sojourner without justice... Thus I have poured out My indignation on them; I have consumed them with the fire of My wrath; their way I have brought upon their heads," declares the Lord GOD.

Jer. 5:28f.

"[The wicked] do not plead the cause, the cause of the orphan, that they may prosper; and they do not defend the rights of the poor. Shall I not punish these people?" declares the LORD. "On such a nation as this, shall I not avenge myself?"

Sunday, July 4, 2010

Stone Cold Facts

Here are the facts:

“The recession has killed off 7.9 million jobs. It is increasingly likely that many will never come back.”

Excluding temporary Census workers, the economy has added few than 100,000 jobs a month.

Some of these jobs are temporary.

Some of these new jobs are in the public sector, adding to our debt and tax burden. I work in the public sector. I believe I am a nice person doing good things, but I do not create wealth. Someone in the private sector created the wealth necessary to build a great naval ship research & development center and provide me with a job. I am grateful.

"As many as half the people who lost their jobs will have to find something else to do," says John Silvia, Chief Economist Wells Fargo Securities.

Since the start of 2008:

The construction industry has lost approximately 1,000,000 jobs.
The auto industry has lost approximately 300,000 jobs.
The finance and real estate sector has lost 500,000 jobs.

Our working age population grows by about 150,000 people per month.

Therefore, “It would take the creation of 10.6 million jobs immediately for the same percentage of the population to be working as was the case three years ago.”

Current estimates indicate that approximately 25 million Americans are either unemployed or working less than full time because full time employment is not available.

Most economists and financial analysts believe we are heading into a “double dip” continuation of the current recession.

That is why I pray for the unemployed. May God have mercy on our nation.

Source: Chris Isidore an article from CNN Money quoting:

Scot Melland, CEO of Dice Holdings, a provider of specialized career web sites
John Silvia, Chief Economist Wells Fargo Securities
Lakshman Achuthan, managing director of Economic Cycle Research Institute

Friday, July 2, 2010

The Debt Disaster

In “Après moi le déluge” I discussed the indicators that are warning us some of our state governments are headed towards bankruptcy. In that article, I also observed, “When an individual begins to use borrowed money (credit cards) to meet current operating expenses, be assured, the end is near.” I would like to expand on that theme. Some of these ideas can be found in “10 Tip-Off You’re Heading for a Debt Disaster,” by Brian O’Connell.

Number 4 from my list of 10 Basic Financial Rules for Young Couples, states:

When your money stash is declining (and it will) find out where your money is going. Keep detailed records (every penny) of your expenditures if necessary. My wife and I did this twice during the early years of our marriage. It proved a very enlightening exercise.

The earliest sign of trouble is usually a drop, particularly an unexplained drop in your bank account balance. Something is wrong. Perhaps it is a major expenditure that you planned, like a vacation or a new set of tires for the car. Perhaps, you are losing control of your finances and are headed for major problems.

The author considers rising credit card balances the second indicator of problems. I consider any balance on a credit card to be an indicator of a problem. Consider number 3 on my list of 10.

Don’t use a Credit Card unless you can pay it off every month.

I REALLY BELIEVE this to be the true cornerstone of any plan for financial sanity. The misuse of credit cards causes more problems in more marriages than just about anything except for, perhaps, sex and family issues. There is an exception to this rule. I have a friend who runs a small business. By skillfully moving her balances from credit card to credit card in order to take advantage of zero interest introductory rates, she has successfully managed her business cash flow problems, paying little or nothing in interest and other charges.

I have given her a standing offer to write an entry for this blog.

If you do not carry a balance on your credit card, you do not have to worry about how to make payments. I have posted a number of pieces on the power of compound interest (see “The 800 Pound Gorilla and You” from December 2009). Making minimum payments, in some cases, leads to years of debt that can triple the cost of a disposable item (like a big screen TV).

Debt Card Overdraft Charges are a certain indicator that you are no longer in control of your finances. I don’t like or use a debit card. If I put two $20.00 bills in my wallet in the morning and they are gone by the end of the day. I have immediate feedback on my spending patterns. If I wait until the end of the month to receive a debit card statement, it may be way too late. It is altogether too easy to rack up several hundred dollars worth of overdraft charges on a hand full of small purchases.

The End is Near!

The final indicators from the article, “10 Tip-Off You’re Heading for a Debt Disaster,” point toward immediately impending doom. If any of these problems are a part of your life, stop what you are doing and take account of your situation.

“If you’re juggling your monthly bill payments” In sitcoms the hopeless dad looks at a stack of bills saying something like, “Hey, we paid that one last month,” as he throws the new bill in the trash. If you are juggling your monthly bill payments, get rid of as many as possible as quickly as possible. That would start with cable TV.

“You don’t know how much you owe,” Child please, I can’t even wrap my brain around this one. When I owed money on my house, I maintained a Lotus spreadsheet that recalculated my status every month. If you do not know how much you owe, sit down with your bills. Do it today. Then develop a plan to rid yourself of the debt parasite. Several methods have been discussed in the blog. (See The Debt Avalanche, The Debt Snowball, and the Debt Snowflake from September and October 2009).

“You’ve got a credit card collection” Really, I don’t think it is necessary for anyone to have more than two credit cards. My wife and I have only one credit card account. This is pretty old school. I can imagine situations when a second credit card could cover you if there was a problem with your primary credit card. Keeping track of more than two accounts offers too many chances for something to go wrong. It just isn’t worth the additional headache to carry a wallet full of cards.

Finally, if you find you are lying to yourself or your spouse about your financial situation it is time to stop and ask yourself, “Oh my Lord, Oh my Lord what shall I do, what shall I do?”

Hush, hush somebody's calling my name
Hush, hush somebody's calling my name
Hush, hush somebody's calling my name
Oh my Lord, Oh my Lord what shall I do, what shall I do?
Sounds like Jesus, somebody's calling my name
Sounds like Jesus, somebody's calling my name
Sounds like Jesus, somebody's calling my name
Oh my Lord, Oh my Lord what shall I do, what shall I do?
I'm so glad, troubles don't last always
I'm so glad, troubles don't last always
I'm so glad, troubles don't last always
Oh my Lord, Oh my Lord what shall I do, what shall I do?