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Archive for December, 2008

2008 Year in Review

December 29th, 2008 at 04:31 pm

This may be a little early but I just got my last paycheck for 2008. It's been a little over a year that I have been on this site. The thing I find most interesting about this site is the helpful comments, the encouragement, and thoughtful alternative. Even if you disagree with people, their views, etc, this site continues to offers disagreement in a respectful way.

You also have a community here where people try to elevate themselves above petty jealousy and try to be truly happy for you and what you accomplished.

Enough of that and on to the review.

My original goals for 2008 were:

1) Pay of $6,000 in CC by May 1st
2) Pay of one car by August 1st (currently $5,700 is owed and last payment is 2/09)
3) Invest $10,000 by year end in Taxable assets
4) Invest $15,500 in 401(k)
5) Review and reallocate (if necessary) retirement funds by end of Q1

They quickly mushroomed to these:

1) Pay off debt (except mortgage) by October 1st
. a) Pay off CC
. b) Pay off Car
. c) Pay off Car 2
. d) Pay off wife's braces
. e) Pay off son's medical
3) Invest $15,500 in 401(k)
4) Review and reallocate retirement funds by end of Q1
5) Will by end of Q2
6) Life Insurance by end of Q2

MOVED TO 2009
2) Invest $15,000 by year end
7) Save $4,000 for college

Could I have done more in 2008? Probably. But as people here point out, you have to find a balance in your life with your family.

All and all, I experienced huge changes this year. I am out of debt (except for the mortgage), living below my income, living on a budget, have great communication with my wife, and truly feel as a team.

For people starting this journey, I think the biggest two things to start is to be honest and non-judgmental. What does this mean? You have to be honest with yourself and spouse about how much debt, expenses, and income you have. That second thing is not to blame each other for the problem. The truth is the both of you are to blame and you both have to work together to get out of this mess.

If you can do those 2 steps, the rest are easy.

The next step for me and my wife were setting up goals and the budget. We also set up some ground rules for the budget. Any changes to the budget after it was set, we would both have to agree. If one of us didn't agree, the budget didn't get changed. The first few months were tough on the budget. We forgot this expense or another. I actually had a line item called "Things I forgot to put on the budget" and I would fund this with a couple hundred bucks.

Once the budget started settling down, we could really start tracking our goals and looking at the progress. At this time, our relationship started to really change from the universe revolves around me to us. We were both making sacrifices for our common goals.

We still have a couple of common goals left, but soon we will be prioritizing are own goals into the mix. She wants new furniture and I want a riding lawn mower and shed. 2009 should be interesting as our individual goals come into the mix.

And thanks again everyone for your encouragement, thoughts, and advice. The journey hasn't ended. It's just starting.

Freedom - Oh Freedom!!!

December 19th, 2008 at 02:05 pm

Mirror: People walkin' around everyday
Playin' games and takin' scores
Tryin' to make other people lose their minds
Well be careful you don't lose yours!

Me: Huh?!?

Mirror: Oh freedom (freedom)
freedom (freedom)
Oh freedom
Yeah freedom (yeah)

Oh freedom (freedom)
freedom (freedom) freedom
Oh freedom
Yeah freedom (yeah) freedom!!
Hey - think about it
You! think about it

Me: One more time!!!!!

Mirror: Oh freedom (freedom)
freedom (freedom)
Oh freedom
Yeah freedom (yeah)

Oh freedom (freedom)
freedom (freedom) freedom
Oh freedom
Yeah freedom (yeah) freedom!!
Hey - think about it
You! think about it


And with that, I am debt free except for my mortgage.

Source: http://uk.youtube.com/watch?v=qE41YPdPuis or

http://uk.youtube.com/watch?v=J0y2dDlFmLg&feature=related

Wonder Land bailout

December 16th, 2008 at 06:12 pm

With the government on the brink of rescuing the U.S. auto industry, we have learned that the Treasury Department is drawing up plans to bail out Christmas. "We have reason to believe," said a person close to the matter, "that without an immediate capital injection, Santa Claus will fail before December 24." Mr. Claus could not be reached for comment.

Government officials are said to be concerned at the risk that the collapse of Santa Claus could pose to the nation's intricately related system of holiday happiness. Though a failure by Santa Claus poses the largest systemic risk, the government is also prepared to step in to bail out Christmas trees, caroling parties and mistletoe producers.

President-elect Barack Obama has been briefed on the initiative, and through a spokesman was quoted as saying, "I'm OK with bailing out Christmas."

Inside Treasury, some officials privately worry that such a precedent could result in the nationalization of Santa Claus, leading to similar calls for help next year from the Easter Bunny and even Valentine's Day. Treasury Secretary Henry Paulson personally concluded, however, that "Santa Claus is too big to fail."

Indeed, the situation was considered sufficiently dire that Mr. Paulson agreed to travel to the North Pole to speak to Mr. Claus. A Treasury official with knowledge of the situation agreed to provide this reporter with an account of the meeting. "Secretary Paulson," this person said, "has had a lifetime belief in Santa Claus and firmly supports what he represents."

Last Saturday morning, Mr. Paulson flew by government plane to meet with Santa, though a spokesman would not disclose the exact location of the famed toymaker's North Pole workshop. Mr. Paulson's plane landed on the polar ice cap, and then the Secretary was taken the final 300 miles in a sleigh pulled by Santa's fleet of reindeer. In deference to Mr. Paulson's unfamiliarity with sleigh-riding at altitude, Mr. Claus ordered his assistants to bring the Treasury department party overland.

The picture of Christmas painted for Mr. Paulson by his rosy-cheeked host was bleak.

Apparently Santa's difficulties in "producing product," as Mr. Paulson described it, originated in a poorly understood aspect of the jolly elf's current operations known as "Christmas list swaps," or CLIPS.

Mr. Claus said that going back as far as anyone can remember, Christmas lists had been handled in the traditional manner. Children would draw up lists, which were left out in the evening with a glass of milk for collection by Santa's elves; other lists would be exchanged with siblings, cousins and loved ones.

Several years ago, according to a participant who requested anonymity, some of Santa's elves were contacted by representatives from Bear Stearns and Lehman Brothers, who persuaded the elves of the benefits of an elaborate scheme of Christmas-list securitization.

As outlined to the elves, the idea worked like this. Brokers would break each item on the Christmas lists into separate pieces and repackage the requests as securities, using a formula known as a "benevolence diffusion algorithm." This would guarantee happiness for everybody in the world on Christmas morning. No one would lose.

At first Santa was doubtful of the plan. Mrs. Claus was especially skeptical, pointing out that in her experience with baking Christmas cookies, a seemingly foolproof enterprise, a failure rate of 5% was not uncommon. "There is simply no historical data to suggest the whole world can be long Christmas," Mrs. Claus said. "No scheme will ever rid the world of bad little girls and boys."

According to a person with knowledge of the North Pole couple's affairs, Santa received a call from a Franklin Raines, who identified himself as the president of a "government sponsored enterprise" known as Happie Mac. Santa apparently became convinced that Happie Mac sounded similar to his own business of free giving, and so agreed to the proposed system of Christmas list swaps.

Difficulties emerged when a CLIPS salesman from AIG called a senior elf to say that a large number of the Christmas list swaps had ended up in the hands of Russian billionaires with links to former Russian president Vladimir Putin. "These plutocrats don't even believe in me," Santa was heard to say as Mr. Paulson's sleigh rode out of sight.

On returning to Washington, Mr. Paulson's plan to bail out Christmas immediately ran into problems. Fed Chairman Ben Bernanke, whose great-great uncle is rumored to have been an elf, pointed out that Santa Claus might not qualify for a TARP loan. According the Fed's analysis: "Santa Claus belongs to the people. Any bailout must pass through the appropriate committees of the House."

House Speaker Nancy Pelosi, notwithstanding that she is the mother of five children, has reportedly told Mr. Paulson that Congress will bail out Christmas only in return for a promise from Santa Claus to "go green." Speaker Pelosi said the Environmental Defense Fund has long complained about Santa's eight tiny reindeer and that Mr. Claus would be asked to appear this Tuesday before Rep. Barney Frank's committee with a plan to reduce the sleigh's carbon footprint.

With only 13 days remaining for a Santa rescue, Mr. Paulson and Speaker Pelosi are said to be discussing the appointment of a Christmas czar. The leading candidate is Oprah Winfrey

Source: http://online.wsj.com/article/SB122895773035096657.html

Mid December Update

December 15th, 2008 at 03:03 pm

Just a couple weeks left before we close out 2008. So this quarter was to concentrate on three things: 401(k) maxed – DONE, Pay off all consumer debt – almost done, and no new holiday debt – so far so good.

The medical debt keeps shrinking. I have $768 left to fund before I send in the check to Amex. I'll probably have it all funded this Friday and will send the check this weekend.

The closer we get to the end of the debt, the more excited my wife gets. For most of this journey this year, she was happy to just review the monthly summary reports, ask for slight adjustments, and manage a few of the categories (groceries, household items, and clothes).

Now, she wants to know what day everything is going to be paid off. She is telling all her friends and family. She's ready to really start attacking other goals next year like the EF and college accounts.

The real part of the journey I enjoyed this year is the honest and open communication with my wife. When we started last year, our marriage was very strained. I would yell at her about how much she spent on groceries and she would yell at me about how much I spent for lunch and breakfast every day.

Once we came together about the budget and started to respect each other and really listen to what is important to each other, the financial sacrifices didn't seem like a big deal.

So right now I am looking at the close of 2008 meeting most of my goals. I have our goals for 2009 set and approved by my wife. I am looking forward to spending the holidays with by family (not worrying about if I have enough money in January to pay for this month) and continuing this journey next year (getting closer to my wife and accomplishing more of our goals together).

As an aside, I blogged about having long term 5 year goals and all my short term goals move towards these goals. With that in mind, I have added two other goals. These goals are really to start preparing me for 2010. In 2010, I would like to start saving up to invest in real estate and start a foundation.

So, 2 new 2009 goals are to educate myself and start preparing for this. I would like to put 10% of my salary (right now, I don't know gross or net) into a foundation for charitable giving.

This really came about in a couple of places. Having two sons, I want to instill onto them an idea of charity. I also want it to be something they can be a part of – contribute to, chose the charity, and help with the investments.

At this point, I don't know enough about foundations to know if it is even feasible to start a foundation with less then $10,000.

In any case, I'll probably be asking for some thoughts on this in 2009 as I prepare for 2010.

For Baselle: Treasury Bills Trade at Negative Rates

December 9th, 2008 at 09:45 pm

Looks like you can stop searching for change and still outpace treasuries

~~~~~~~~~~~~~~~

Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

“It’s the year-end factor,” said Chris Ahrens, an interest-rate strategist in Greenwich, Connecticut, at UBS Securities LLC, one of the 17 primary dealers that trade directly with the Federal Reserve. “Everyone wants to be in bills going into year-end. Buy now while the opportunity is still there.”

The benchmark 10-year note’s yield dropped seven basis points, or 0.07 percentage point, to 2.67 percent at 3:10 p.m. in New York, according to BGCantor Market Data. The 3.75 percent security due in November 2018 gained 21/32, or $6.56 per $1,000 face amount, to 109 12/32. The yield touched 2.505 percent on Dec. 5, the lowest level since at least 1962, when the Fed’s daily records began.

The two-year note’s yield fell nine basis points to 0.85 percent. It dropped to a record low of 0.77 percent on Dec. 5.

If you invested $1,000 in three-month bills today at a negative discount rate of 0.01 percent, for a price of 100.002556. At maturity you would receive the par value for a loss of $25.56.

‘Horrible Year’

Indirect bidders, a group that includes foreign central banks, bought 47.2 percent of the four-week bills, compared with 31.7 percent in the prior auction. Primary dealers bought 52.1 percent, while direct bidders such as individual investors purchased 0.7 percent.

“It’s been such a horrible year people want to show they have the good stuff on their balance sheets, not the bad stuff, but with yields already so low it pushes these even lower,” said Theodore Ake, the head of Treasury trading in New York at Mizuho Securities USA Inc., another primary dealer.

The rate on four-week bills peaked at 5.175 percent on Jan. 29, 2007. The government began issuing the four-week bills in July 2001, according to Stephen Meyerhardt, a spokesman for the Bureau of Public Debt in Washington. The bills are intended to reduce the government’s reliance on irregularly issued cash management bills.

Meyerhardt wasn’t aware of the three-month bill ever trading at a negative rate before.

Housing Slump

Treasuries of all maturities have returned 11.4 percent this year, the best gains since all of 2000, according to Merrill Lynch & Co.’s U.S. Treasury Master Index. That compares with a 39 percent loss in the Standard & Poor’s 500 index, including reinvested dividends.

Bonds have surged as the U.S. housing slump pushed up the cost of credit globally, causing equity markets to tumble. The world’s biggest financial companies incurred almost $1 trillion in writedowns and losses since the start of last year, helping push the major economies into recession.

The National Association of Realtors’ index of signed purchase agreements, or pending home resales, fell a less-than- forecast 0.7 percent to 88.9 from a revised 89.5 in September, according to a report from the group today in Washington. The median forecast in a Bloomberg News survey of 35 economists was for a 3 percent decline.

Futures contracts on the Chicago Board of Trade show odds of 98 percent the Fed will lower its 1 percent target rate on overnight loans between banks to 0.25 percent on Dec. 16. The probability was 38 percent a week ago. Rate predictions based on the futures are not considered as accurate as once were because the Fed hasn’t sought to bring the daily effect rate to the level of its target.

Mutual Funds

Money-market mutual funds that buy mostly Treasuries are starting to turn away new investors as the record low yields pull down returns for shareholders and squeeze managers’ fees.

At least three Treasury money-market funds run by JPMorgan Chase & Co., Evergreen Investments and Allegiant Asset Management recently stopped taking outside cash, according to Web site notices and regulatory filings. Barring new customers protects returns for investors already in the funds because managers don’t have to buy as many new Treasuries with yields lower than current holdings. Higher fund yields also prop up management fees.

The record low borrowing costs for the Treasury may turn out to benefit President-elect Barack Obama as he faces a widening budget deficit while pledging to embark on the biggest U.S. public works plan since the 1950s to stimulate the economy.

The U.S. is headed toward $1.5 trillion in debt sales as the budget deficit approaches $1 trillion in the 2009 fiscal year according to Bank of America Corp. The deficit this year was $455 billion.

The Treasury will sell $28 billion of three-year notes tomorrow and $16 billion of 10-year notes the following day. The $44 billion total is about $3 billion more than expected by Wrightson ICAP LLC.

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Cordell Eddings in New York at ceddings@bloomberg.net

Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aOGXsWKEI6F4&refer=worldwide

Debt in General and then a little Dave Ramsey

December 8th, 2008 at 06:15 pm

I thought I would just comment on debt in general and then Dave Ramsey and his steps.

Debt is neither inherently evil nor good. It is just a financial tool, but it is a double edged sword and can cut both ways. Many people view a student loan as good debt.

In some cases, it is not. If I borrow $60k for college and come out making $30k a year was it worth it? This is the risk aspect. In essence, when you are taking on student loan debt, you are betting that your future earnings will greatly exceed the debt.

If you were laid off or unemployed, you would still need to service your debt. This is where the risk really becomes evident. You took a loan that must be repaid for a better job that you are unable to get. (With hardship deferrals, this might not be the greatest example but I think you get my general point.)

With debt, you also need a larger emergency fund. You need enough to pay the minimums and your other expenses. In my case, last year, I was paying about $1,700 a month to service debt on medical, cars, and braces. For a six month emergency fund, I would need to have an additional $10k just to stay current on the debt. If I were to add in my mortgage of $2,042, the emergency fund goes up another $12,252. So, my example, over $22k of my 6 month emergency fund is just to service debt.

What do I truly need to survive? Food, utilities, transportation, insurance (health at least) – total cost might be $2,500. Or a $15,000 emergency fund. Or about 60% of my emergency fund is used towards servicing debt.

The interest on the above debt ranged from 0% - 4%. In fact, the highest interest rate I paid this year was 5.5% on my mortgage. Some people would say well you could invest that and beat what you are paying on the interest.

Also, this year might be a good example where it would have been hard to beat 4%. Sure, this year might be an anomaly, but my point is that you can't guarantee that you can beat the interest on your debt.

More importantly, I didn't have the money at that time. And that is the real reason for the debt, and I suspect this is the reason that most people go into debt in the first place. In my opinion, the whole investing and taking out debt argument is a way for most people to rationalize the debt.

Switching gears and looking at Dave Ramsey. I believe his true goal is to free up your cash flow as quickly as possible and use that towards wealth building. With that in mind, the issue I have with Dave Ramsey is that he is short on investment advice. His goal, I believe, is to bring you to a spot where you can start building wealth.

If you look at his first three goals, they are really to set up an emergency fund and pay off all your "small debts" (everything but the big mortgage or big second mortgage). His argument is that in the long run, it doesn't matter if you miss a year or 2 of saving for retirement or college for the kids.

His other point is that when we are first starting this journey, most of us don't have enough extra at the end of the month to do everything – save for an EF, pay of debt, save for retirement, save for college, invest. So, his method is a path that helps people focus their resources and quickly move to free up cash flow.

Personally, I have been paying debt and maxing my 401(k) contribution. In retrospect, I would have been debt free at the end of September and had an additional 3 month of EF saved. In hindsight, I probably would have been better off following Dave Ramsey's advice. I definitely would have had less stress.

And next year, I will be attacking 3 goals at the same time – EF, 15% to retirement, and college funding. I will be doing these all at the same time as well. By the end of 2009, I'll be in the same please regardless of which way I went, but I do think following Dave Ramsey's plan would have reduced my stress further.

Dave Ramsey also makes some exceptions to his rules that I think are good. If you are in danger of being laid off or your wife is expecting, stop paying off debt and start saving everything. Once these events past, throw everything saved at debt and then proceed.

So to sum up this rambling, debt is neither bad nor good. It is merely a tool. The real issue is how we use it. In the example of student loans, is it a way to increase our earnings at a reasonable cost?

Do we really do an analysis on how we use debt? Do we look at risk and added stress, opportunity costs, and the future payoffs of our decisions now?

For most of us, we use debt to fund a want we want now. We buy cars by looking at the monthly payment without thinking about what we are giving up by making this choice. We fund things on credit cards and carry balances month to month, wasting money on fees and high interest rates.

As for houses and student loans, the issue is that you don't want these debts to be a burden and you need to look carefully at these debts.

As for Dave Ramsey, I think that his steps of budgeting, eliminating debt, and savings for college and retirement are pretty solid. He gives you a step by step approach on how to focus and gives you tool that help you see quick progress.

Some people say to pay off the highest interest rate first. Mathematically, it does make sense. In truth though, you might save a few months. If you look at your credit cards which probably have the smallest balances and the highest rates, you might have a difference of 5% per card which is about 0.4% monthly difference. If you have zero percent and 30%, the interest difference per month would be 2.5%, which I think would be the most extreme case.

But you need to also take into account what your goals are. Are you welling to give up your life in the short term to pay off debt or would you rather slowly pay off your debt and enjoy more of your life?

For the first, Dave Ramsey's plan works. For the later, you are better off saving a little for retirement and building an EF.

The real issue and the end of the day is: What are your goals?

Is that the finish line up ahead?

December 5th, 2008 at 07:11 pm

A few days I posted that my wife was going to call the hospital and just put the balance on the credit card. The hosipital told my wife it would take a couple of days for the charge to go through.

Before we charged the amount I knew 2 things would go through our minds– a) we have charged more then we currently have saved (I am currently about $1,800 short) b) we have $10,600 sitting in a bank account that's will soon be gone.

The little bit of fear was just our subconscious self saying "are you sure you want to do this?" In other words, a gut check. So I took my wife aside, we looked at each other and asked "do we really want to do this?"

Well, the charge hit today. $12,398.26!!! Wow!!! I have a little anxiety over this, but I know that this should be paid off with my pay check on 12/19. Until then, I got a big charge out there and am $1,800 short.

At this point my emotions are out weighing my logic, slightly. I am using this to intensify my focus on the budget and get this last debt paid off.

Much like the end of a marathon, I can see the finish line and I got nothing left. This journey has been both draining and joyous; but at this point, I am not concentrating on that. All I hear is the man in the mirror. "Let's go!!! One foot in front of the other!!! FOCUS ON THE TASK AT HAND!!!"

And that's what I am doing. Blinders on.

Goals Review - November

December 1st, 2008 at 06:12 pm

I hope everyone had a great turkey day. Since I only worked 3 days last week, I will only get paid 60% of what I usually make this week. Oh well, such is life as a consultant.

So I have been talking about 3 goals this quarter: Max 401(k) – done, pay off all medical bills, and not take on new debt – so far so good.

With the medical bill, I entered November with $5,909 and leave owing only $1,853. I paid off another $4,056. When I say I have paid off $4,056, I mean I have it in account to be shipped out. .So I told my wife to call the hospital this week and charge the balance on a credit card (somewhere around $12k).

Why am I charging before I have only the money set aside? It really has to do with taxes. After a certain amount, I can write off a certain amount or something like that. My CPA knows. In any case I want to maximize that deductable if I can. Other wise, I would have probably sent the check after Christmas. In any case, I'll have the money before the credit card statement comes. More of a timing with when the cash will be available and when I can cut a check, just want to make sure everything clears in 2008.

Sometimes I wonder how excited my wife is to the fact that we are almost out of debt. Now, my wife is a low key person and plays things very close to the vest about everything. So imagine my surprise when she started to tell her parents that all of our debt but the house was going to be paid off in December. She also retold this to her sister.

She is also really into our goals for next year and when they will be accomplished. I even brought up investing in real estate and she didn't even dismiss it. She just asked a couple of questions. She was neutral about the concept which was far better then where she was when I last brought up the topic.

So, next goal on the horizon is to top of the emergency fund. My wife wants 8 months, my wife will get 8 months. I look at the emergency fund as security and whoever has the most months wins.

As for no new debt – one holiday down and one to go.