With the failure and government bailout last week of IndyMac, the fifth bank to fail this year, here are some questions and answers about what happens when a bank fails.

Q.What happens when the government takes over a bank?

A. In such a scenario, called a conservatorship, a bank's regulator takes control of the company and oversees the operations. The move is to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by the bank.

Q.Is my bank at risk?

A. John Bovenzi, the former chief operating officer of the Federal Deposit Insurance Corp., which guarantees bank deposits up to $100,000, has said that bank failures have been rare in the past, and that if more banks do fail, the government has enough in reserve. According to regulatory policy, there is no advance notice given to the public before a bank's assets are seized by federal regulators.

Q.How can I make sure my money is safe?

A. All deposit accounts worth $100,000 and less are automatically insured by the FDIC. Many retirement accounts, such as IRAs and 401(k)s, are insured up to $250,000 per person. But since it's a person's aggregate deposits, and not their individual accounts, that are insured, any amounts over $100,000 deposited at any one bank are not covered.

In a joint account, each depositor is insured up to $100,000.

The FDIC has information about its insurance on its website, at http://www.fdic.govdeposit/deposits/insured/yid.pdf.

Q.How much money does the FDIC have?

A. The FDIC has nearly $53 billion in insurance funds. Beyond that figure, Bovenzi said the FDIC would have go to other banks to raise more money, adding that in such a case, consumers could expect to see some of that amount passed on to them in the form of higher fees.

The current estimated loss to the FDIC resulting from IndyMac's failure is between $4 billion and $8 billion.

Q.How big does FDIC like to keep its deposit insurance fund?

A. The FDIC board of directors has set a designated deserve ratio of 1.25 percent. That means their ''target'' balance for the fund is 1.25 percent of estimated insured deposits. As of March 31, the fund was $52.843 billion and insured deposits were $4.431 trillion, which resulted in a reserve ratio of 1.19 percent, 0.06 percentage point below the Board's target. If the fund falls below 1.15 percent of estimated insured deposits, the FDIC is required by law to adopt a restoration plan that will bring the reserve ratio back to 1.15 percent within five years.

Q.Do banks have to pay into the deposit insurance fund?

A. Yes. The total amount depends upon the assessment rate assigned to the institution and the size of its assessment base -- which is roughly equal to an institution's total domestic deposits. Assessment rates are assigned to institutions based upon the risk they pose to the fund, and currently range from 0.05 percent to 0.43 percent, with the vast majority if institutions -- almost 94 percent -- paying between 0.05 percent and 0.07 percent.

Q.Does the government's decision to aid Fannie Mae and Freddie Mac help the nation's banks?

A.Tony Plath, an associate professor of finance at the University of North Carolina at Charlotte, says yes. ''As mortgage money becomes harder to get and real estate prices go down even more, the solvency of many banks is called into question,'' Plath said. ``The Fed is moving to protect the solvency of the banking industry by maintaining integrity.''

Source: http://www.miamiherald.com/business/story/606067.html

With an estimated $32 billion in assets, IndyMac Bank of Pasadena, Calif., which federal regulators seized Friday, is poised to become the third-largest bank failure in American history. Here is a list of the top 10 failures, based on total assets, according to Federal Deposit Insurance Corp. data covering 1934 through 2007.

1. Continental Illinois National Bank and Trust, Chicago (1984)
Total assets: $40.0 billion

2. First Republic Bank, Dallas (1988)
Total assets: $32.5 billion

3. American S&LA, Stockton, Calif. (1988)
Total assets: $30.2 billion

4. Bank of New England, Boston (1991)
Total assets: $21.7 billion

5. MCorp, Dallas (1989)
Total assets: $18.5 billion

6. Gibraltar Savings, Simi Valley, Calif. (1989)
Total assets: $15.1 billion

7. First City Bancorporation, Houston (1988)
Total assets: $13.0 billion

8. Homefed Bank, San Diego (1992)
Total assets: $12.2 billion

9. Southeast Bank, Miami (1991)
Total assets: $11.0 billion

10. Goldome, Buffalo (1991)
Total assets: $9.9 billion

Source: Federal Deposit Insurance Corp.

Bank Failure Facts

According to the FDIC, from 1934 through 2007, there were only two years with no bank failures, 2005 and 2006.
The year during that period with the most bank failures was 1989, when 534 banks closed their doors.
During the savings-and-loan crisis (1986-95), 2,377 banks failed, representing 67 percent of the 3,559 bank failures from 1934 through May 2008. At the peak of the crisis (1988-1989), 1,004 banks failed, a rate of one failure every 1.38 days.
Bank Failures by Decade

2000-2007: 32
1990-1999: 925
1980-1989: 2,036
1970-1979: 79
1960-1969: 44
1950-1959: 28
1940-1949: 99
1934-1939: 312
Source: FDIC Historical Statistics on Banking, 1934-2008

Source: http://www.usnews.com/articles/business/economy/2008/07/15/the-10-biggest-us-bank-failures.html

Remember 1989 – 1992? The housing market fell an average of 15%. 747 Savings and Loans went out of business. The unemployment rate in June 1992 was 7.8%. Inflation was over 6%. Does this sound familiar?

What is the saying, those who don’t study history a bound to repeat it?

So, let’s compare to today. The housing market on average is off 15%. It will probably deteriorate a little more. You could also argue that a handful of areas are skewing the results. In particular, CA, NV, FL,MI, OH, and AZ account for most of the foreclosures. But in any case, the current market is down 15% and will probably continue to drop.

I am looking at the prices to start bottoming over the next 6 months and linger. An L curve is what I would be expecting. The market has excess inventory that just need to work its way out and that will take time, just like the 90s.

Analysts are estimating 150 banks are in or going to be in distress. That seems like a large number until we compare it to the 747 S&Ls that went out of business.

Just like the early 1990’s, real estate loans were to blame. RTC noted this was the number one contributing factor to the S&L crisis. Other factors included the high short term interest rates in late 70s and early 90s. Some might also say the deregulation of the industry. I would argue the deregulation allowed more time for the S&Ls to try to get out of the mess by being allowed to take on higher margin products (or riskier investments).

So, what happened? Well, the deposits were insured but the fiduciary did not have enough to cover all of these deposits. So, the fed stepped in to cover the gap ($124 billion).

Now, it is a little different. Banks have to be more capitalized and the insurance premiums that banks pay for that FIDC insurance have gone up. So, your money in the bank is safe. Just make sure you stay within the insurable limits.

Unemployment might go up to 6% in the short term and inflation may hit 5% or a little more. But to add perspective that 1992 saw 7.8% and 6% respectively.

So to summarize, I see this as more of 1989 – 1992. And just proves that these things run in cycles.

OK, time for another random Merch rant. I’ve your having a plesant day, please skip to the bottom (after END RANT) to continue your pleasant day..

Last warning…. OK, I warned you.

-----Begin RANT-----------

So lately, I have been getting more and more irritated by people in general. I don’t know what’s causing this in society or what. Maybe because we get our news from the internet or maybe it is that all news has hidden opinions or people are too lazy to research things. I don’t know.

But my issues are basically: 1) If something is repeated a certain number of times it is considered fact 2) People reinvent the definition of words 3) Feelings are more important then facts.

So let’s take a quick example. We are in a recession. I have heard this on the news and read it on the internet countless times. To the point where a recent survey found that the 75% of Americans believe we are in a recession.

Well, the definition is 2 quarters of negative growth. We haven’t even had one quarter of negative growth.

Well, that’s on definition of recession. No, that is the definition of recession.

Well, I feel like I am in a recession, so we are. OK, I admit I can’t argue feelings with logic.

Or another example. Inflation is out of control. And yes, I hear this on the news and read this on the internet all the time. The unadjusted 12 month CPI (April 2008) was 3.9%, which is hardly out of control. Source: http://www.bls.gov/cpi/cpid0804.pdf

The average since 1947 has been 3.85% so inflation seems about normal year over year. Source: http://bigpicture.typepad.com/comments/2006/06/chart_of_the_we_3.html

Well you know, the government isn’t taking into account oil or food properly so the methodology is wrong.

Really? Here’s what is measures:
§ FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, service meals and snacks)
§ HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
§ APPAREL (men's shirts and sweaters, women's dresses, jewelry)
§ TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
§ MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
§ RECREATION (televisions, pets and pet products, sports equipment, admissions);
§ EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
§ OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
And:

-------BORING CPI STUFF--------------
Each month, BLS data collectors called economic assistants visit or call thousands of retail stores, service establishments, rental units, and doctors' offices, all over the United States to obtain information on the prices of the thousands of items used to track and measure price changes in the CPI. These economic assistants record the prices of about 80,000 items each month representing a scientifically selected sample of the prices paid by consumers for the goods and services purchased.
During each call or visit, the economic assistant collects price data on a specific good or service that was precisely defined during an earlier visit. If the selected item is available, the economic assistant records its price. If the selected item is no longer available, or if there have been changes in the quality or quantity (for example, eggs sold in packages of 8 when they previously had been sold by the dozen) of the good or service since the last time prices had been collected, the economic assistant selects a new item or records the quality change in the current item.
The recorded information is sent to the national office of BLS where commodity specialists who have detailed knowledge about the particular goods or services priced review the data. These specialists check the data for accuracy and consistency and make any necessary corrections or adjustments which can range from an adjustment for a change in the size or quantity of a packaged item to more complex adjustments based upon statistical analysis of the value of an item's features or quality. Thus, the commodity specialists strive to prevent changes in the quality of items from affecting the CPI's measurement of price change.
The CPI is a product of a series of interrelated samples. First, using data from the 1990 Census of Population, BLS selected the urban areas from which data on prices were collected and chose the housing units within each area that were eligible for use in the shelter component of the CPI. The Census of Population also provided data on the number of consumers represented by each area selected as a CPI price collection area. Next, another sample (of about 16,800 families each year) served as the basis for a Point-of-Purchase Survey that identified the places where households purchase various types of goods and services.

---------END BORING CPI STUFF-----------

Well, I feel that we are in a high inflation period.

I don’t really understand what happened when feelings can override facts and people just except it. I feel that this is becoming more and more common place but I don’t have any facts. (Did I just fall into my own trap?)

------END RANT------------

And for those just coming back to my blog.

Puppy dogs, warm spring days, and a cool breeze. Don’t you feel better? I do.

nothing which comes stays, and nothing which goes is lost."

---Anne Sophie Swetchine


Very odd. Almost like a slap in the face. You might even say rude.

Since none of this describes the BA I know, I choose to believe BA had no choice but to leave the community without posting a note.

And with that, I bid BA a fond farewell and all the luck, happiness, and success in the real world.

Much like a close friend who passed on, BA will be watching and reading our blogs from a far. He was taken away from us in his prime as a blogger.

BA will always be remembered for being candid, approachable nature and his starnge love for Bed Bath and Beyond.

So I say, God speed fellow blogger, God speed. And may you find happiness and comfort in your life.

True, my oldest son is 3 and Father’s day is a foreign concept to him. To him, it means my wife having him construct a work of art and pick a card. But he doesn’t understand the true gift he gave me.

You see now I am a role model. He studies everything I do. Do I yell at people, grab stuff away, do I tell lies, do I follow through on my promises?

Being around him, I have to be on my best behavior. I have to be polite. I have to be supportive and understanding. If I make a promise or give my word, I have to deliver. I can’t say well not today.

I promised him that we would sleep in a tent the other weekend. Well, won’t you know, they sprayed chemicals on my lawn. So, I set the tent up in the bedroom and we camped there. He told me scary stories about ghosts riding alligators (or at least that’s what I thought he said).

See, being a role model, means you are under constant scrutiny. You have to mind your p and q and dot you I and cross your t. Sure, he pushes my buttons, but he’s only testing me, making sure I’ve learned the lessons he has taught me.

So I want to thank you son, for the greatest present ever – making me a better person and expecting me perfect but accepting me as dear old dad – a work in progress.

The headline may seem like a trick question — even a dangerous one — to ask during an election year. And notice, please, that I didn’t ask whether certain politicians are more honest than others. (Politicians are a different species altogether.) Yet there is a striking gap between the manner in which liberals and conservatives address the issue of honesty.

Consider these results:

Is it OK to cheat on your taxes? A total of 57 percent of those who described themselves as “very liberal” said yes in response to the World Values Survey, compared with only 20 percent of those who are “very conservative.” When Pew Research asked whether it was “morally wrong” to cheat Uncle Sam, 86 percent of conservatives agreed, compared with only 68 percent of liberals.

Ponder this scenario, offered by the National Cultural Values Survey: “You lose your job. Your friend’s company is looking for someone to do temporary work. They are willing to pay the person in cash to avoid taxes and allow the person to still collect unemployment. What would you do?”

Almost half, or 49 percent, of self-described progressives would go along with the scheme, but only 21 percent of conservatives said they would.

When the World Values Survey asked a similar question, the results were largely the same: Those who were very liberal were much more likely to say it was all right to get welfare benefits you didn’t deserve.

The World Values Survey found that those on the left were also much more likely to say it is OK to buy goods that you know are stolen. Studies have also found that those on the left were more likely to say it was OK to drink a can of soda in a store without paying for it and to avoid the truth while negotiating the price of a car.

Another survey by Barna Research found that political liberals were two and a half times more likely to say that they illegally download or trade music for free on the Internet.

A study by professors published in the American Taxation Association’s Journal of Legal Tax Research found conservative students took the issue of accounting scandals and tax evasion more seriously than their fellow liberal students. Those with a “liberal outlook” who “reject the idea of absolute truth” were more accepting of cheating at school, according to another study, involving 291 students and published in the Journal of Education for Business.

A study in the Journal of Business Ethics involving 392 college students found that stronger beliefs toward “conservatism” translated into “higher levels of ethical values.” And academics concluded in the Journal of Psychology that there was a link between “political liberalism” and “lying in your own self-interest,” based on a study involving 156 adults.

Liberals were more willing to “let others take the blame” for their own ethical lapses, “copy a published article” and pass it off as their own, and were more accepting of “cheating on an exam,” according to still another study in the Journal of Business Ethics.

Now, I’m not suggesting that all conservatives are honest and all liberals are untrustworthy. But clearly a gap exists in the data. Why? The quick answer might be that liberals are simply being more honest about their dishonesty.

However attractive this explanation might be for some, there is simply no basis for accepting this explanation. Validation studies, which attempt to figure out who misreports on academic surveys and why, has found no evidence that conservatives are less honest. Indeed, validation research indicates that Democrats tend to be less forthcoming than other groups.

The honesty gap is also not a result of “bad people” becoming liberals and “good people” becoming conservatives. In my mind, a more likely explanation is bad ideas. Modern liberalism is infused with idea that truth is relative. Surveys consistently show this. And if truth is relative, it also must follow that honesty is subjective.

Sixties organizer Saul Alinsky, who both Barack Obama and Hillary Clinton say inspired and influenced them, once said the effective political advocate “doesn’t have a fixed truth; truth to him is relative and changing, everything to him is relative and changing. He is a political relativist.”

During this political season, honesty is often in short supply. But at least we can improve things by accepting the idea that truth and honesty exist. As the late scholar Sidney Hook put it, “the easiest rationalization for the refusal to seek the truth is the denial that truth exists.”

Peter Schweizer is the author of “Makers and Takers: Why Conservatives Work Harder, Feel Happier, Have Closer Families, Take Fewer Drugs, Give More Generously, Value Honesty More, Are Less Materialistic and Envious, Whine Less ... And Even Hug Their Children More Than Liberals” (Doubleday).



Source: http://www.examiner.com/a-1419425~Peter_Schweizer__Conservatives_more_honest_than_liberals_.html

Ok. I am getting really fed up with this. Everywhere I turn people are saying we are in a recession. So where do we start? How about the definition of recession?

“In macroeconomics, a recession is generally associated with a decline in a country's real gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.” (Source: http://en.wikipedia.org/wiki/Recession).

Of course, the NBER can overwrite this and say that we are in a recession, but I didn’t see that in their news release. (Source: http://www.nber.org/releases/). Now true, I only go to this site every few weeks and may have missed it but I don’t see anything there.

So, let’s stick at our working definition of 2 quarters of negative growth. So we should go to the BEA site, right?

“Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6 percent in the first quarter of 2008, according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP also increased 0.6 percent.” Huh, seems like the economy has been expanding for the last few quarters, slowly but not negatively. (Source: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm)

Oh yea, this was released April 30, 2008 so it’s pretty current.

Well it FEELS like a recession. Well, my desk at work feels like I’m in a cockpit of a jet fighter. Guess what. I’m not. And we aren’t in a recession.

So enjoy life because we have 4 months before we could possible be in a recession. That’s right, we need 6 months of negative GDP before we can declare a recession.

So back when I was but a little Merch, I joined a swim club. I was like 12 but for some reason had to swim with the high schoolers. Every day in practice I got my but kicked, made fun of (I was a skinny kid with long arms), and would bike home.

In meets, I would swim the back and again get my ass kicked. I was a 12 year old , swimming with 17 year olds, and an outcast from there group. After practice and meets, I would bike home and have my headphones on listening to my walkman.

I listened to the same tape before every meet and before practice, especially one song – Don’t Look Back. At first, I think that my coach would always yell at me “MERCH KEEP YOUR HEAD BACK!!!!!! DON’T LOOK AT ME!!!!! DON’T LOOK BACK!!!”. So the song just re-enforced what I needed to do.

Well, then I started to listen to the song and the lyrics. One set really grabbed me.

I can see
It took so long just to realize
I'm much too strong
Not to compromise
Now I see what I am is holding me down
I'll turn it around, oh yes I will

At age 14, I was extremely competitive and 15 – 17 I was undefeated for 3 seasons. And I always listen to that one song before a meet and it got me fired up and focused.

Through out my life, this song has been playing in the background, whether a new job interview or first day at college or first date with my wife. The song reminds me to quit holding myself down and sometimes to enjoy the ride if you are on the right road.

Today on my way to work, I heard this song and I feel all fired up and ready to tackle what’s next, because:

Now I see what I am is holding me down
I'll turn it around, oh yes I will

Do you have an anthem? Does it change depending on where you are in life?

If I had to rewrite the lyrics, I would change “Don’t look back” to “Won’t go back”. The whole lyrics:

Don't look back
A new day is breakin'
It's been too long since I felt this way
I don't mind where I get taken
The road is callin'
Today is the day

And I can see
It took so long just to realize
I'm much too strong
Not to compromise
Now I see what I am is holding me down
I'll turn it around, oh yes I will

I finally see the dawn arrivin'
I see beyond the road I'm drivin'

It's a bright horizon but I'm awakin'
Oh I see myself in a brand new way
The sun is shinin'
The clouds are breakin'
'Cause I can't lose now, there's no game to play

I can tell
There's no more time left to criticize
I've seen what I could not recognize
Everything in my life was leading me on
But I can be strong, oh yes I can

I finally see the dawn arrivin'
I see beyond the road I'm drivin'
Far away and left behind, left behind

(guitar bridge)

Oh the sun is shinin' *and I'm on that road*

(guitar solo)

Don't look back
A new day is breakin'
It's been too long since I felt this way
I don't mind where I get taken
The road is callin'
Today is the day

I can see
It took so long just to realize
I'm much too strong
Not to compromise
Now I see what I am is holding me down
I'll turn it around, oh yes I will

I finally see the dawn arriving
I see beyond the road I'm driving
Far away and left behind

Don't look back
Don't look back
Don't look back
Don't look back...

I believe the author of the blog made few incorrect points and with my rambling still I thought a blog might be needed to encompass what I wanted to say.

So the major assumption that Dave makes is that the individual is not making enough to attack all the goals on has (reducing debt, saving for college, saving for retirement, emergency fund, etc.). So he lays out a road map to get you to a stable base as quick as possible. These are the first three steps (1,000 emergency fund, all debt paid off but house, and fully funded emergency fund).

And, he wants these three steps not to linger. You want to get on them and knock them out. He wants you very focused on these steps. Once you get through step three, he usually let’s people loosen up. You want a vacation? Go ahead but pay for it in cash. You want to go out for dinner and a night out. Go ahead, make sure it’s in the budget.

As for step 4, 5, and 6; these should all be done at the same time (15% in retirement, college for kids, and pay off home).

As for the compounding argument made by the author, it really doesn’t hold much weight. Isn’t the compounding on your debt working against you? And aren’t those interest rates generally higher then what you are earning in your retirement accounts? Also, Dave Ramsey has said that the first 3 steps should only take a couple of years and not longer.

In general, people who are trying to reduce their debt are not saving 15% towards requirement. In fact in general, I would argue that most people are not saving 15% of their income.

The argument I make is that if you could get out of debt and live within a budget, it is far easier to reach that goal then if you have to make debt payments.

And if you look at his plan as a diet, it is an intense diet for about a year. During that time, your doing things like changing your attitude and habits with a small safety net to catch you. And after step 3, it’s all about maintaining.

And, step 7 is all about getting to the point in life where your money makes more then you and you can coast. Do what you want. And that is living like no one else.

Now in all honesty, if I was following Dave’s advice. I would dropped my emergency fund to $1,000 and stopped contributing to 401(k). I didn’t do this, but I am on a budget and intense on getting rid of my debt. And I will be through step 5 by the end of the year.

I keep on hearing about gas prices. How they are hurting the average American. Typical media frenzy? Have you wondered how much gas prices increased from last year? A dollar? 2? 1.50?

How about 40 cents. That’s right the average price of gas went from 3.22 to 3.62 a gallon. Yes I do have sources below from CNN.

So what does that translate to? If you fill up your car every week, it’s probably an increase of $32 a month. 20 gallons X 40 cents X 4 weeks.

Is the average American so over extended that $32 a month per vehicle is the straw that broke the camels back? What’s the median income in the US? About $48,000.

Well, I guess if you have a $600 car payment, mortgage, HELOC, boat payment, plasma TV and credit card debt, it might be hard to come up with that $32 a month.

I really haven’t felt the gas or the food increases. Maybe because I live on a budget and follow it. True, I might have to substitute lower priced options like pasta for rice. But, it’s not like I have to go from Lobster to Ramen noodles.

Anyway aside form truck drivers, I really don’t see how all this really affecting the average American. Maybe, I’m too rich. After all, I am only 23k in debt.


Source: http://money.cnn.com/2007/05/21/news/economy/record_gas_monday/index.htm

Source: http://money.cnn.com/2008/05/05/news/economy/gas_prices/index.htm

I was thinking about my journey on my way to work. Basically, where I was last year and where I am this year and where I am going. About every 6 months, I look back over the past year and I look forward for the next year.

About 7 years ago, I had a job where I would be vested in 5 years. The company would put away 15% of my salary allocated the same as my 401k every year and it would be vested after 5 years.

Jokingly, I told my boss at the time “looks like you got me for the next 5 years.” His reply was “If you look at it that way, this job will kill you.” And he went on to give me probably the best corporate advice I ever got. He said that after every six months look at where you are, where you came from and where you are going. The philosophy is that during that six months, it is a short enough time that you can stay in a job or situation you hate with enough time to rectify the situation.

After 5.5 years at that company. I left that job. It baffled more then a few people. I was leaving at the top of my game, but I could see my opportunities a year out not being there. I need to retool. So I took a job as a consultant. I told by wife that I’ll do this for a year and then we could reevaluate. Will we did and ten months ago, I took a different consulting job that had no travel (I had 80% travel before).

Yes, I do talk to my wife about career moves. A new job directly affects her whether a move or hours I’ll be home to money we have to spend. I know men who just concentrate on their careers and could care less about their wife’s input. Sad.

Well in August my second son was born and started having medical issues (seizures). He’s ok now but my health insurance was less then spectacular and I owed about $25k.

Well that was the cause that forced me to reevaluate where we were with my wife. We decided that for the next six months we would put together a budget and really stick to it. We would go in fully committed and see where it took us.

It’s been about six months since we made that decision, so time to reevaluate.

First, if you can have an honest conversation about money you can have an honest conversation about anything. The communication between my wife and me continues to improve. Six months ago, we had money fights (she spent to much, I spent to much, grocery cost too much). Now the conversation centers around our goals and budget. If we buy that then we have to reduce our debt snowball this month.

My wife also asked advice about parenting our 3 year old. I would have never envision this 3 weeks ago never mind 6 months ago. I feel that we are getting on the same page and acting more like a team instead of individuals.

I also feel less financial stress, especially this month. I see the snowball really taking hold and see my cash flow freeing up a little bit. My wife is about a month behind me in where we are on our path, but we are on the same path.

I also feel a lot of hope lately. Probably because I am moving in the right direction faster then I thought I could.

I have already planned my last half of 2008 and it looks like all my goals will be met, plus I might add a few in Q4. I have started roughing out my goals for 2009, which are really sub goals that bring me closer to my real goals.

My real goals are to work because I want not because I have to and spend more time with my family. In other words, I am looking at passive income (whether real estate or investments) to support my monthly expenses.

So when I look at setting up my goals, I ask myself do they support or get me a step closer to my big goals. I review everything every 6 months just to make any course corrections or evaluate new paths.

By the way, my two big goals also align with my wife’s.

I was reading Petunia’s blog and it got me thinking why some people fail and some succeed.

My first thought was having a “what” or a vision. You start by dreaming what would by life be if I was debt free. But that isn’t the answer. We all have dreams but not all of us will achieve them.

Maybe it’s the “how”. After all, it wasn’t the “what”. Well, it’s really not hard to get out of debt. You budget less then you make or pick up another job and throw the excess at the debt. Not rocket science and I could even give you a formula. Income – expenses = what’s left for debt reduction.

The leaves us with the “why”. But not any old “why” will do. You see if I said to you your life would be better off if you could save $30,000 this year. Could you? Maybe and then again maybe not. What happens if you need to save $30,000 because your spouse or child needs an operation. Well now, that’s one big “why” and I can tell you I would have $30,000 saved will before operation whether 6 months or a year away.

But with the first scenario, it would be a hit or miss. Yea, it would be nice, but then life happens (nice vacation, eating out, etc.).

My point? A big enough “why” keeps us focused and on point and our dreams can be achieved. For spouses, the “whys” maybe different but should be big enough.

My “why”? For me and my wife to feel more secure and spend more time together as a family. And the first goal is getting out of debt with the second goal to reduce my hours away from the family.

I know the “how” for the first but not the second, because my “whys” got me focused.

And Happy Marathon Monday from Boston!!!!

OK, this has been simmering in the back of my mind for about a month now. My wife’s best friend came over with his family. Him and his family are nice people. I really like them.

Well, there in the same place I was about 5 months ago. The cash flow is getting squeezed. Under my old thinking, there were only a couple ways out: find a new job making more, get a second job, or hold on ride this because in the future we will always make more. Right?

He has decided it best to hold on tight and hope for the best. He has a pretty good job and could have a decent jump in income over the next 5 – 10 years.

I started to talk to him about budgeting and how we have been able to find money and start cutting down the debt. While I could tell, he felt I wasn’t under the same financial pressures as him. In other words, my cash flow was better. Well, needless to say, I ended the conversation by saying that he should look into Dave Ramsey. No sense in getting things all heated for no good reason.

I was also going to say that if I could do it, you can do. But I knew that wasn’t true. And this is the issue of my rant. It’s not that what I am doing requires a master degree in finance. It requires something that a lot of people today do not have: discipline, focus and the ability to sacrifice.

Yes, it’s hard work to stay focused, to have the discipline, and be able to sacrifice. But it’s far better then the stress of picking which bills to pay and just scraping by.

To each there own, but don’t suggest to me that luck played a part in this. There’s a lot of hard work behind these numbers. YTD through debt reduction and adding to my 401(k), I have added $29,843 to my net worth (not taking into account market conditions during that time).

My 2008 goals are very aggressive for me, and I am right on track. Why? Because my yearly goals are broken into quarterly goals, which are broken into monthly goals. which are broken into weekly goals, and daily decisions are made on how they effect weekly goals. The weekly goals may need to be adjusted to keep the monthly goals on track or the monthly goals must be adjusted to keep the quarterly goals on track but the yearly goals are not being adjusted.

What have you done to increase your net worth YTD? Are you where you thought you would be? Why not? What decisions are you making today to keep you from your goals?

You still have 8 ½ months left in the year. Time to get back on track and start accomplishing your goals. There’s still a ton of days left in the year, time to get cracking.

So, my wife has started her new job and she will be working 5-10 hours a week. Truth be told, this will probably last until June when the weather gets nice and then she’ll start working again in October.

Well, after her first day on the job, she was feeling all empowered and made the statement “Now that am working, you can stay home with the kids.”

I said “OK, to bring home what I bring home you would need to work over 100 hours a week.” She quickly calculated in her head that would be about 20 hours a day. I said or 14 hours if you work 7 days a week.

She then said “Never mind, you can continue to work.” I just kind of laughed to myself.

So my dream of staying home with the kids and watching ESPN will drinking beer and eating chips is still but a dream.

Shifting gears, I have been watching Dave Ramsey’s TV show at night lately, mainly because nothing else in on and I like to see him slam some of the people that call him. My wife usually sits on the couch next to me reading a book or magazine.

Well last night, I was watching some coverage about a little tourney coming up.

My wife goes “No Dave Ramsey tonight?” I was really stunned. I didn’t even know she listened to the show never mind enjoyed it.

Especially since she was complaining the other about needing more clothes the other week. Now for some perspective. We have a closet that’s 9x10 filled with some of her clothes and all of mine. Yes I do have about 5 feet of one wall. And she has a closet in the guest bedroom (not walk in but still big) and she has the entire coat closet. I think she may have boxes of clothes in the attic or basement but I’m not sure.

Since, watching Dave Ramsey, she hasn’t asked for money for new clothes or in general money for anything discretionary. She also is asking more questions about the budget and participating in it.

In fact, I never bring my lunch to work and always buy lunch, she said Dave Ramsey wouldn’t approve. Probably not, probably not.

I so disgusted today with stories I see in the news about people not taking responsibility for their actions.

At lunch, I watched a video on CCN.com about a couple in Las Vegas that were foreclosed on and moved from a house with huge kitchen and granite countertops on a mobile home. The basic story is that the moved into a house for $276k. For the first couple of years, the house went up into the $420k or $450k range. Then wife lost her job, they took equity out, and the ARM re adjusted.

So who do they blame? The lender and everyone else but them. These evil lenders took advantage of them.

Are you kidding me? Do you actually think a bank makes money on a foreclosure? You think banks want to be in real estate?

Then I was hearing some advise on credit cards. Basically to not pay for 120 days and then you can settle with the credit cards for half. Is this sound advise? This is the way we want to bring up the next generation?

I’m sorry but that’s not how I roll. If I borrow money or use credit cards or have medical bills, I pay what I owe. If I did something stupid that costs money, I take responsibility and pay what I owe. I don’t try to screw someone out of something I owe.

You might be saying that you owe $90k in CC and only make $30k. I say pay it all off and don’t weasel out of the bill. You owe the amount, you signed a contract, now pay it off up. Sure it may take 10 years but “man up”.

Sorry about the rant but I am so pissed off about people not taking responsibility in this country.

Your word is the only thing you have in this life so man up and accept your fate.

There was an interesting article I came across that offered a different way to look at retirement planning.

The article discusses a years worked to years in retirement ratio. So, if I work from 25 – 65 and plan on living till 85, my ratio is 40:20 or 2:1. To live comfortably in retirement, I would have to save 15% a year. The article continues that a 15% savings rate over 40 years is extremely aggressive

I just thought it was an interesting and different view of retirement savings.

W:R RATIO AND REQUIRED SAVINGS RATE FOR RETIREMENT

Working Retirement W:R Required
Savings Rate (%)
40 20 2:1 14
43 17 2.5:1 11
45 15 3:1 9.5
48 12 4:1 7
50 10 5:1 6


Source: http://www.aei.org/publications/filter.all,pubID.24940/pub_detail.asp

Tax rebate checks will begin going out in May, Treasury Secretary Henry Paulson said after the House's passage of a Senate-approved $167 billion economic stimulus package Thursday.

Senate Majority Leader Harry Reid: "This legislation is not everything that I wanted. But I am very happy."

The House of Representatives voted 380-34 to send the measure to the president a few hours after Democratic and Republican senators reached accord and ended a dayslong stalemate over the legislation.

Earlier, two White House officials said President Bush would support the package. The bill will be delivered Friday to the White House, with Bush's signing likely sometime next week, Democratic aides said.

The package, which passed the Senate 81-16, will send rebate checks to 130 million Americans in amounts of $300 to $600 for people who have an income between $3,000 and $75,000, plus $300 per child. Couples earning up to $150,000 would get $1,200.

The checks are an advance on next year's refunds, and most, if not all of the money, will be deducted from taxpayers' refunds in 12 months' time.

"My team will be sitting down with the IRS tomorrow, and the IRS, right in the middle of tax filing season ... will be working to get checks out," said Paulson, who helped broker the deal.

Paulson said the process of sending the checks would be completed by the end of summer.

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The leadership of both parties hailed the efforts that moved the package through Congress.

"You don't see anybody up here gloating about being a winner," Senate Minority Leader Mitch McConnell, R-Kentucky, said after the House vote.

"There were no winners or losers in this except the American people, who saw us rise above any differences we might have had and work to agreement on what is the No. 1 issue, and that is our slowing economy."

House Minority Leader John Boehner, R-Ohio, said, "The House gave a little, the Senate gave a little. I think that's what the American people expect of us -- to find some way to come together and deal with the problems the American people are facing."

Senate Majority Leader Harry Reid, D-Nevada, called the approval an "example of how government is supposed to work." Reid said, "Legislation is the art of compromise, and that compromise comes very hard sometimes. It came very hard this time."

After the House passed a stimulus package last week, Senate Democrats made a number of changes that Republicans would not accept, saying that they were too big and loaded with special-interest provisions.

After Democrats were unable to break a Republican filibuster threat, the leadership headed back to the negotiating table, finally agreeing to leave rebate check amounts at the House level. (Senate Democrats had lowered them and raised the income caps.) The Senate measure also added checks to more than 20 million Social Security beneficiaries and 250,000 handicapped veterans and their widows who were left out of the original House bill.

The Democrats dropped demands for an extension of unemployment benefits, energy assistance for low-income households and tax breaks for energy providers.

"This legislation is not everything that I wanted," Reid said. "But I am very happy."

While the members of Congress and Paulson applauded the bill's quick passage, a survey found that about one in four Americans (26 percent) said they would spend their tax rebates.

Nearly half (46 percent) said they plan to use the rebate to pay off debt and a quarter (28 percent) would save the money, according to the International Council of Shopping Centers and UBS Securities, which jointly commissioned the study of 1,005 households between January 31 and Sunday.

"The money will go into the hands of lenders rather than retailers," said Mike Niemira, chief economist of the International Council of Shopping Centers.

The crushing weight of Americans' debt load was underscored Thursday when the Federal Reserve reported Americans owed a record $943.5 billion in credit card debt at the end of December.

Including loans other than mortgages and home equity lines of credit, Americans are shouldering a record $2.5 trillion in debt.

That amount increased during the month by a relatively modest 2.1 percent, an indication that Americans have been restraining their spending


source: http://www.cnn.com/2008/POLITICS/02/08/economic.stimulus/

Justthe shear amount of debt boggles my mind. $2.5 trillion in debt not including mortgages and home equity loan? Wow!!!

46% said they would use it to pay off debt. I wonder what the actually numbers will be. I say most of the 46% will spend atleast some of the money.

Yesterday, my wife decided to go grocery shopping, armed with a budget of $100. I gave her some coupons to use on stuff I know she buys. There is a ton of other stuff she buys that I don’t know about. Well, the coupons were $0.75 off of this $0.50 off of that.

She was talking about the gold old days when she didn’t have to use coupons. She also use to grocery shop everyday before we had a budget. It was like $40 at the grocery store and stop into CVS for another $30. Well, now we budget $100 per week for groceries and we eat out far less.

We used to eat every meal on the weekends out. We have changed that. I now spend $20 a week on pizza for Saturday night and we eat the leftovers for lunch on Sunday.

Well, when she said do you remember, I started remembering about double income and no kids. Living in a condo in Brookline (in 2004 it was $360k condo for 900 square feet). Eating at the Radius in Boston ($300 per meal, I recommend the chef tasting menu). And sleeping in late on the weekends.

Sorry about that tangent. Where was I? … Oh yes … grocery shopping.

My wife came back from the grocery store and showed me the receipt. She spent $77 this week for all our meals. She saved about $33 on coupons and sale items. She was talking about how she got a center cut roast for $10 that’s normally over $20. She was talking about how see saved on this and that.

Not all of the buys were great. She bought strawberries on the cheap and some of them were rotting.

I thought to myself, who is this woman and what did they do with my wife that left the house. And could I keep this one?

She must have had one of the light bulb moments in the store or the way back after seeing all her savings.

I was listening to Dave Ramsey the past few days.

The first caller I remember was a guy engaged. He had a 30k car and his wife to be had a 30k car. They were making 60k between them. The guy also just got out of bankruptcy. He also had a couch from Rent-A-Center.

I was thinking to myself “WOW, what the heck.” Could you imagine being the loan officer at the car dealership? “Let’s see. You make between 30k – 40k? And you just got out of bankruptcy? How about fully financing that purchase?”

So, who pays the price of this high risk loan? The dealership? The car company?

Neither, you and me take the risk on these people. See, Wall Street bundles up all these loans from GMAC, Nissan, BMW, credit cards, etc. and sells them to mutual funds (similar to mortgages). So the auto company sells their receivables to Wall Street then they offer securities based on these loans. These are called Asset Backed Securities.

Anything with a payment stream (auto loans, credit card payments, bank loans, boat loans, etc.) can be securitized.

No wonder store credit and loans are so easy to get. The stores don’t have to hold on to them sell the best ones to Wall Street and then the really bad ones to collection agencies. No need to wait for your money.

Where does this leave us as a society? The sad thing is that this isn’t a unique story.

An interesting article about the Smiths.

http://therebutforthegraceofgodblog.blogspot.com/2007/12/introducing-smiths.html

Please read.

I thought it was an interesting read this time of year, especially with the new year around the corner. I agree with the blog that we look at other people’s situations through our own glasses of experiences. Often times, those glasses are tainted with not enough information and “the way I do things is right”.

People have different priorities and experiences that drive to the outcome we all see as the end result. We are not privy to every conversation and decision a couple makes.

The Smiths on my street get a new car every 3-6 months. They just got a new Mercedes. Most people would ask why is this family getting a new car every 3-6 months and why high-end cars. I would never…. But the guy works at a car dealership and this is one of the perks.

So as 2007 draws to a close and 2008 is about to start, I am going to try to be less judgmental of people and refrain from gossip.

Let’s be honest, refraining from gossip is hard. For instance, Britt Spears is living paycheck to paycheck and makes over $700k a month. And Paris Hilton’s grandfather just announced that 97% of his net worth (estimated at $2.3 billion) will be going to his foundation and not his heirs. (He mentioned that part of the decision was based on Paris’ behavior.)

Hey, I said I would try … and it’s not 2008 yet.

Why am I the poorest one in the neighborhood? Why am I the only one struggling? These are questions I used to have.

I live in a new neighborhood where the houses are 2 – 5 years old. So everyone in the neighborhood is about the same age with 2 young kids. There are a couple of kids in the 6-12 range but most of the kids are less then 5 and most houses have 2 kids and of course 2 cars. Besides our occupation, we are probably the same statistically.

So why do I feel like the poor one in the neighborhood? I have a push mower; my neighbors have a lawn service or riding mower. I shovel the snow my hand, I don’t have a snow blower or someone snow plow my driveway. I don’t have a nanny or maid service like others in the neighborhood. My TV and stereo are from college (my wife is embarrassed by both).

Is everyone in the neighborhood that much more financially responsible then me? Am I not the norm; am I the statistical out layer? Or the black sheep of the neighborhood – GASP!

Everyone in the neighborhood has the nice granite in the kitchen; a lot of houses have finished basements. Not mine. When I was building the house, I was very careful on adding things that would go over budget. My philosophy, if it adds square feet it will cost less now. Kitchens and such become outdated no need for a 30-year loan for that.

Well, I kind of like looking at real estate. I even dream of flipping to being a landlord. I don’t have the money to embark on this (or knowledge). So, I’m kind of in the education phase. Well, looking at some websites I came across one my county has for public records on a property, so I put in my address to see what would come up.

It listed my mortgage, the price I paid for the house, and some liens that were discharged between the town and builder – all public records. Amazing what is out there… and for free…

Of course you know, I had to try other addresses around me. All but one had a higher mortgage than me (on ave 30% higher principal) and most also had second and one had a third mortgage.

What’s my point? From a distance, the grass always looks green. It only when you get up close and walk around that you see all the imperfections.

So this holiday season I’ll look at my Charlie Brown Christmas tree and the few gifts under it, and feel content. My fondest memories of Christmas don’t revolve around the gifts I got but the family together and enjoying each other.

So I’ll gleefully wish my rich neighbors health and happiness and “oh” and “ah” at their latest gadgets, but please don’t have pity on me I’m doing just fine.