Archives for May 2008

Spring Cleaning: “One Year Rule” For Reducing Clutter

Posted on May 4, 2008 // 32 Comments
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photo: sindesign

I spent most of today going through all our stuff to see what would go in the house. The one negative of having your employer pay for relocation costs is that you are less motivated to fully purge all of your belongings…

As I went through all our things, I wondered – What if we were forced to toss anything that we hadn’t used in one year? Clothes, sports gear, electronics, books, magazines, trinkets. Either sell, donate, freecycle, or throw it away. Critical things like birth certificates or anything that would fit on a hard drive would be exempt. Imagine what your home would look like if you did this…

I don’t know if I could pull off that “One Year Rule”, so instead I made up an alternate one for myself: Once every May I will unpack every single item in storage, consciously make the decision to keep it, and inventory it. Theoretically this would be for insurance records in case of loss, but realistically I am hoping this actual process of having to go through 10 boxes of stuff annually will make me less sentimental about things like my old textbooks.

A few years I ago banned all travel souvenirs except for photos and one postcard from each place I visit – instead of those odds and ends I used to keep accumulating – and it’s been very liberating.

Forget carbon footprint… What kind of tips or tricks do you have for convincing yourself to reduce your stuff imprint?

Filed Under: Simple Living //

The Coming Collapse of the Middle Class?

Posted on May 2, 2008 // 61 Comments

Sound a bit bleak, but this lecture by Professor Elizabeth Warren explores how a middle class family in 1970 differs financially from one in 2005. The full title is The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net. The actual talk starts at 4:45 in, and lasts about 45 minutes. Via Economist’s View and gbs at Diehards. My notes below.

Earning More
Starting around 1970, more and more mothers started working full-time. How did this affect finances? Household income indeed went up from 1970-2000 from ~$40,000 to ~$65,000. However, the inflation-adjusted income for employed males actually went down slightly. So the increase was entirely due to the additional women working.

But hey, households are still earning more. Good, right? Next, she crunched some data on what a dual-income, 2-kid family spent their money on in 1970 vs. 2000.

Spending Less
We actually spend less on an inflation-adjusted basis on many things nowadays:

  • 32% less on clothing
  • 18% less on food – including groceries, eating out, and yes, even Starbucks
  • 52% less on appliances
  • 24% less on car expenses, per car

Spending More
Not so fast, we also spend more in many areas:

  • 76% increase in home mortgage payments . Surprising, the actual house size didn’t grow that much based on number of rooms (5.8 vs. 6.1). I wonder if this would hold true if it was based on square footage, however, as my research on that indicates a big increase in size.
  • 74% more for health insurance, even adjusted for healthy family with employer-sponsored health plans.
  • 52% more for cars, since now we have more cars per household. We gotta get to work, right?
  • Infinite% more for childcare
  • 25% more in effective tax rates, due to higher income

In 1970, credit card debt was 1.4% of annual income for the median household. In 2005, it is 15%.

Education
Finally, we spend a lot more on education. In 1970, you needed a high school diploma to get a good job, which took 12 years of government-provided schooling. Nowadays, the average family pays for 2 more years of pre-school, plus 4 more years of college, all out of pocket.

Net Result: Not Good
Note that the cheaper things are the smaller, more flexible expenses… while the more expensive things are the larger, more fixed expenses. So a family now earns a bit more, but also spends a much, much larger percentage of their income. So much, in fact, that now we need both of those incomes to afford everything we buy. If either spouse loses a job, the family falls behind. Studies show that a family with children has between double and triple the bankruptcy rate of childless households.

I was kind of hoping for some solutions at the end… but none came!

Filed Under: Family, Frugal Living //

New Series I Bonds Fixed Rate is… ZERO

Posted on May 1, 2008 // 34 Comments

Wow, harsh. No wonder they finally started to enforce the buying limits recently. Hope people bought what they could in April.

Filed Under: Savings Bonds //

Good Credit Can’t Protect You From Ignorance

Posted on May 1, 2008 // 48 Comments

Maybe I just didn’t get enough sleep last night, but the media really has to do a better job to find people with problems that I can sympathize with. The title of this Fortune article is Good credit can’t protect borrowers from bad loans – “More and more home owners with high credit scores are falling behind on their mortgage payments. Here’s why.”

Trish Phillips had enough income to pay about $1,300, perhaps $1,400 a month for her home, which cost $279,900. The minimum payment on her option ARM was $1,276, but she was incurring interest of more than $2,000 a month. The difference of about $800 was added to her mortgage balance every month. […]

According to Phillips, who was making the minimum payments, that meant her monthly bill would jump to $2,300 after just a couple of years and then to more than $3,000 a year after that. She knew she couldn’t afford it and went for help.

Phillips admits that she didn’t clearly understand the loan terms before she closed on the house and says her mortgage broker didn’t explain them. She had misgivings but, “I was afraid of losing the down payment,” she said.

Okay, so why are people with good credit falling behind? Because they are also buying $300,000 homes without even understanding the basics of how their mortgage works. Even if you assume you can refinance, how are you going to do so if you can’t even afford the payment on an interest-only loan? She was actually increasing her loan amount each month.

As for Phillips, she managed to get her loan modified, with Sichenzia’s help. Her payment is now frozen for three years at $1,281 a month and her balance will not increase during that time.

Pretty nice. Wish I could freeze my loan balance for three 3 years while paying less than the interest accruing.

I have nothing personal against Trish Philips. If I were her, I’d be happy to save a ton of interest and have frozen payments for 3 years. Score for her, the crazy lenders should share the pain. But seriously, is this the best you can do? Aren’t there stories out there of people overcoming real problems which weren’t self-imposed? (Although it has since been removed, the original article showed her posing by her Harley Davidson.)

My problem with these stories is that if the house had appreciated in value, these homeowners would be perfectly happy with their risky loans. I don’t like that they get the upside, but no downside.

Question… If I sell you a Hummer and don’t tell you it only gets 10 miles per gallon, and shortly after buying it you can’t afford the gas to drive the Hummer anymore, is that my fault or yours?

Filed Under: Real Estate //

Zecco Switches To Electronic Statements and Trade Confirmations

Posted on May 1, 2008 // 13 Comments

For those of you who have been using Zecco and their free stock trades, no longer will you have to endure a paper trade confirmation being mailed to your home for every single trade. Here’s how to switch:

How do I sign up for Paperless?
Just sign into the trading center with your trading key. Select the “Account Statements” link in the “Account Records” section on the left-hand menu. Then click on the corresponding button for electronic confirmations or statements (or both). When signing up for Paperless, please check “myInfo” in your account to make sure you have a valid email address in our records. Click on “Submit” and you’re done! Your next account statement and/or trade confirmation will be available for viewing online. You will be notified of new documents available for viewing via email.

Even if you aren’t as excited about this as I am, be sure to switch over to electronic statements anyway by May 30th. Because after that, they are going to start charging $1.50 per paper trade confirmation and $2 per paper statement mailed to you.

Active Trading Confessions…
Why do I care? Well, despite my belief in passive investing for the vast part of my portfolio, I’ve continued to dink around with my free trades from Zecco for the last several months, and have actually been “beating the market” and am currently up over 10% this year – ha! Of course, I’ve also been down as much as -20%. Let me tell you, this sadly generated a lot of paper!

But don’t worry, we’re only talking about $500 worth of stocks or so – I don’t consider this really part of my investing portfolio. Instead, I consider it entertainment that is cheaper than buying video games or playing online poker. I’m looking to learn more about options trading next.

For those unfamiliar with Zecco, here’s the quick rundown. You can get 10 free trades per month if you reach $2,500 in account equity. Otherwise, it is $4.50 per trade. “Account equity” means value of stocks + cash. So $1,500 in cash and $1,000 in stock positions would qualify. As long as you reach $2,500 total any time during the month, you will get 10 free trades for the rest of that month.

Although they have improved their customer service (toll-free phone number, shorter hold times) and stock quote systems since their beginnings, at the heart this is still a discount brokerage firm. (Duh.) Don’t expect too much hand-holding. No minimum balances or account fees for regular taxable accounts. $30 annual fee for IRAs. For more details, see my Zecco Review.

Filed Under: Investing //
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