Posts Tagged Personal Finance

Gambling the night away

Whirr, click, jangle jingle jangle, that’s the sound the new slots make that’s so much like the real thing that you actually look down to see if the tray is filling with quarters.  Luckily for us, within an hour’s drive from where we live there are eight casinos to choose from if you want to just spend the night gambling.  Five of them provide hotels if you can afford to stay over and vacate.  One is just a large but very popular card room.  And all of them have benefited from the new slot machines the voters have just installed. 

Of course, you have heard about the fabulous buffet, right?  Billboards show and celebrities extol the qualities that make all you can eat a suitable reward for taking a chance.  Instant winners, cash, cash, cash, and, oh yeah, the roll call of headline attractions coming to a stage near you.  Not to sound cynical but who are they kidding?  But on the other hand, if you are talking addiction then fat people and their gambling habits is not a bad place to start.

But all of that aside, I didn’t begin this post to berate the gambler within us, nor to make fun of the gazillions of seniors who live for the bus ride.  I am really just happy that the gambling industry has become the be all and end all of our nation’s retirement community.  As far as I know, Vegas and Florida now officially employ the most seniors per capita.  So, when it is time to take a break around here, there is nothing like heading out to our local (see the above) gambling den to remove the stresses and strains of ordinary living.

I don’t know how to say this so I’ll just say it okay.  Some people are just addicted.  Others apparently have too much time on their hands.  A few are just interested in the spectacle.  And one or two, like me, just tag along because that’s where their significant other likes to go.

When I first met my partner, we worked all the time.  As independent contractors, we filled the hours with multiple jobs since we both had put ourselves in debt for various reasons and now we were hard at work digging our way out.  So it was with some surprise, when we finally got a break, it was T’s birthday, that I discovered she had booked us rooms in Laughlin.  I was amazed.  She knew all the games, and really liked to play the roulette table.  Well, you know what they say, party hardy.  Only, when we got back home to go to work, she was more than a little depressed.  The fact that I don’t gamble had sort of acted as ballast but still she had lost all the extra money it had taken her weeks to earn in just three short days.

As she explained it to me, it was a family thing.  Everyone in her family; grandma, dad, mom, sisters, brother, cousins, aunts and uncles, all gambled.  They played puzzles, worked out sudokus, and couldn’t wait to think of another excuse to hit the nearest casino.  She even told me stories about how her grandmother taught her to read the tote board and pick six. 

But a funny thing has happened on the way to today.  T who used to need to gamble now can only handle it in very short doses.  Not because she isn’t still addicted, you know, once an alcoholic always an alcoholic.  But because she has replaced that need with something even more powerful.  She wants to be free from debt and semi-retired like me.  And I should say, she wants to stay free from debt because by dint of paying off her credit card debt, and starting her own business, she has been debt free for two years now.  So when we go vacationing at our local casino now, she may gamble a bit, but her need to keep her money makes it easy for her to get up and walk away.  We have even gone there and just spent our time at the pool, and dancing at night, and seeing a show, without once dropping even a penny in a slot.   These days, instead of gambling, it’s more likely we’ll be gamboling the night away.

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Found Money

No, I’m not talking about that “stimulus check”.  Nor do I mean those pennies, sometimes nickles or dimes, that you find spilled out of someone’s pocket in front of the 7/11.  I am talking about real found money.  You are going through the pockets of an old jacket, and there inside the inside vest pocket, folded up nice and neat, is a sort of crisp $50 bill.  A quick memory search reveals that a  couple of years or so ago, you don’t wear jackets that much, you put the bill there in anticipation of needing it to pay your share of some trip you and T were taking.  But that is all history now.

So what do I do with it?  Back in those spendthrift days, $50 was a night out dancing, or the movies for two, or dinner before a Laker game.  It was pocket money.  But that was before the plan.  And the monthly budget that developed from the plan.  I am semi-retired (more on that another time) and the plan is that T join me in that state as quickly as possible.  Hence the budget.

Budget for T

Monthly income less monthly expenses less minimal entertainment costs less coincidental repair or replacement expenses less automatic savings deduction to ING account and Ameritrade Save Yourself account less $10 pocket money = semi-retirement in three years.

Income stream = monthly paycheck + stoozed money market, CD, saving accounts, loan to the corportation interest earnings + off the book cash bonuses + 5 real estate rental property rents + part time real estate jobs.

Expenses = Share of  monthly rent + $25 towards weekly food + difference between monthly rental income and mortgage/insurance/repairs + medical bills for recent gall bladder surgery + ING savings + Save Yourself Ameritrade auto deduct + self-directed IRA + $ for occasional eat out/movie out/trip to casino out (more on this later too)

 So the first question is when should I share the news and let her decide about her half?  Because that’s the way it is now.  We share everything 50/50.  So now the question is what do I do with my $25?   Boy, I can tell you I am suddenly a lot less excited.  $25 is half a tank of gas, it’s a week worth of groceries, it’s my weekly expensed money, it’s the bill for two weeks worth of dry cleaning, it’s . . . not much in other words.  Wait I know where I can use it.  I’ll put into my newly formed freedom account, thanks JD.

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AARP is . . .

the sound that Garp made when tossed into the air.  Not.  It was the sound that Garp’s father made because he couldn’t talk.  Or AARP is the funny sounding title for the American Association of Retired Persons organization.  It might also be known to you as that group that starts sending you mail around your fiftieth birthday and doesn’t let up until you die.  Yes, they are relentless but in a good way.  I know when you first get the mailer it can be a shock.  Retired, old, me – Nooooo!  But then you get over it when you see almost immediately how being a member of such a large organization brings you benefits.  Hotel costs go down, lower auto insurance, health insurance, free financial advice, and after you start claiming Social Security benefits, medicare/AARP works to keep those medical and drug costs down.  They wield a fair amount of political clout, too.

I am thinking about this this morning because yesterday while strolling through my local Border’s Book Store I came across another benefit from AARP.   The little kiosk stood right there next to the main information desk.  It was one of those kind that you can turn so that you can stand in one place and see all the items on it.  This one had a variety of AARP pamphlets on it that covered the specific information a person might need to understand about topics as diverse as Health Insurance, Home Improvement, Consumer Protection, Social Security, Baby sitting as grandparents, and Money Matters.

As you might guess, it was this last one that caught my eye.  But before I go ahead with a review let me plugin this caveat.  The advice is for financial planning first, seniors second, and anyone who needs the information no matter what their age last. 

Money Matters Your Guide to Financial Security, the AARP version:

The Nutshell

  •  Start with a plan:  It can be a plan for the week, the month, or forever, just so it’s a plan.
  • Set goals:  What do you want and when do you want it, and how much do you think it will cost in time and money and in life energy to get it
  • Evaluate your cash flow:  What is coming in now, what will be coming in later, and how much of it do you spend
  • Calculate your net worth:  Add up the assets (things that you own that make you money) and subtract the liabilities (things that you have that cost you money) and remember debts are not assets until the cash flow from them is positive
  • Make assumptions about the future:  What will happen in the economy, in politics, in your employment or retirement, with your health, and with those within your immediate family
  • And as a last step, adopt a financial strategy:  Decide what is most important, decide how to use your information to get that done

The rest of the pamphlet is filled with reference material and contact info to help you realize your plan and, as I said above, whether you’re ten or ten times ten this collection of materials should be a great starting place to get you thinking about your money matters.

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Credit Card Chronicles

My first credit card wasn’t really a credit card.  It seems strange to say it that way but it’s true.  This was back in the mid-1970’s and I’m not sure that credit cards had even been created.  This card wasn’t even a card really.  The situation was this.  In those days I was living lean so I have a hard time imaging how it all happened.  But for some reason, the main one being that I really hadn’t learned how to balance my check book, I was bouncing checks about twice a pay period.  As I recall those days, it’s really difficult to know how that could have been happening except for the fact that I rarely paid attention to where my money went.  Hell, I didn’t own a car.  My house payment was small and I had money in savings.  But there I was, standing at the bank counter explaining how it just couldn’t be.  So the bank, being my friend, offered me a service called a check guarantee.  My checking account would be backed up by their funds which I could then pay back. 

So off I went, my problem solved I thought.  That was in the spring.  But by then I had reached a point in my life where I didn’t work in the summer.  Three months of waiting for the waves and pounding the sand playing beach volleyball, and travelling up the coast to Santa Barbara to visit friends were my summer tasks.  I rented a studio in Encinitas and did a lot of journal writing.  You could call it therapy or escapism but I just lived for the moment.  I didn’t get any mail.  Had no phone.  I was free and alone.

Then summer ended and I went back to my house and a stack of mail and three months of bank statements that showed that gradually but surely I had accumulated a $1251.00 debit against my check guarantee.  I don’t recall if there were interest charges, probably there were.  I only know that this was my first real experience with how living on credit can get out of control.  During the summer, if I needed to pay for dinners, or trips, or a new board I wrote a check.  It was guaranteed.

Of course, I cancelled the service immediately.  Pulled the money from my savings and then sat down with my check book and bank statement and taught myself how to reconcile.  I’d like to say that I had learned a valuable lesson but that wouldn’t be true.  I did get better at tracking my expenditures but I didn’t grasp the real meaning behind what had happened.  I learned to keep track but not how to control which we will see as this story continues was my main mistake.

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To spend or save

that is the question.  And a horny dilemma it is.  We, in the US, are the world’s worst savers if you look at the stats that tell us we save less than negative 1% of our income as opposed to China where the savings rate is a plus 20%.  We are the world’s best consumers, too.  We are so good at spending that our President told us to use our skill as a defence after 9/11.  The government is so confident of our inability to save that it is willing give us money that it just knows we will spend to stimulate the economy

Meanwhile, our common sense and our personal finance education has taught us that in order to be in safe territory financially we need to set aside funds for emergencies and put our money to work in a variety of ways so that it earns returns for us and the economy.

That is why this situation is so frustratingly confusing.  What is good for one should be good for all.  But in a consumerist economy that is credit based like ours, the opposite appears to be true.  Our savings and investing should be good for the economy because savings make us less and less vulnerable to hard times while the money invested supports businesses and growth.  But the hard times come because our economy is seven eigths consume and one eighth save.  In order to keep up with this imbalance we have dipped deeper and deeper into a credit future to pay for it.  Not just we the consumer but theythe corporations that produce the goods.  Instead of being secure and wealthy we are shakey and awaiting a recession.

Strangely enough the news though daunting is not all bad.  The apparent settlement of the long term dispute over oil production along the Santa Barbara, California coastline is one sign that economics and ecology are finally reaching some agreement.  My recent post on Real Estate brought this interesting corroboration from a realtor in Illinois that that market may be seeing some welcome change from the bottom up.

” the National Assoc of Realtors have actually been running an ad lately that makes a very accurate statement, “real estate is local.” In our market (northern IL), there are homes available for sale to any income level. I’ve worked with people who live on disability income, but they have practiced living within their means, kept their credit in good condition, and have purchased homes successfully. We work with employers who provide down payment assistance to their employees (and get tax credits in return), and we work with the state to provide matching funds. People are walking into $50,000 homes with $10,000 in assistance. Just because some ideas don’t fit in your market doesn’t mean that they don’t apply elsewhere.”

We are, after all is said and done to us, all about challenge and survival.  Our greatest improvements, most important inventions, and best performances come under stress and during duress.  I don’t see how this time around it will be any different.

 

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Credit cards, the good, the bad and the uglier it gets

These are the times to take care.  As prices inflate and salaries stagnate and unemployment hovers above the 5% rate, it would be easy to return to your use of credit cards and lines of credit (if you can obtain them since the lenders did their reassessment resets) for supplemental funds.  It would be easy and oh so greasy to slide back into the cocoon and weather the storm.  But don’t do it.  Stay lean, and mean if you have to, but don’t let this bubble burst economy bring back the mind set upon which credit used to be based.  For one thing you should note that even though the FED has lowered its rate and the banks are showing lower interest rate earnings on your money, the credit card industry has not responded in kind.  As a matter of fact they are all beefing up their rules and warning anyone who defaults in one area that the info may/will affect them elsewhere.  For another thing, this is a time when we need to remember why we chose, needed to choose, to be frugal in the first place.  In times of stress, it is easier to fall back, without noticing, into the old addiction. 

Take a Frontline look here if you need reminders of what the credit card industry is like.   One step you can take that may help in keeping yourself straight is to update your budget.  Take a fresh look at your expenditures over the last couple of months.  Prices for food and goods are increasing.  So recalibrate the amounts allocated for your basic expenses.  A second step might be to think about taking a Staycation this year instead of the planned drive across country to Disneyworld.  A third step should be to pull out those ideas you had last summer (when the fuel rates were lower than they are now) for using your vehicles less.  You know carpooling, using public transportation, stacking tasks that require car use so that they happen on one trip instead of several, and parking the car on the weekends except for necessary use.  And A fourth step is the one you take every time you decide not to use that credit card.

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Buying Real Estate in today’s market

requires a change in your mind set.  It’s a buyer’s market in all but a few locations and that’s good news.  Still if you look only at the surface of today’s market, you may think not much has changed.  Developers may not have taken down the signs that offer brand new 3 and 4 bedroom homes in the low 400’s.  Or the ads offering paybacks and incentives on $500,000 tract homes may not make it any easier to imagine yourself  being able to buy them. Just the other day, I received this comment from blogger Minimum Wage:

Where I work, we live within our means but none of us can buy our own homes. Where do you get these ideas?

He started me thinking about this idea.  How does someone who has lived within their means but has found themselves priced out of yesterday’s market buy a home?  The answer for yesterday, of course, was the infamous sub-prime loan.  Use stated income techniques, look for an ARM, borrow your down from a credit card, and go for it.  What was the worst that could happen?  Oh yeah, foreclosure, loss of credit status, or even bankruptcy.   But that was then, as they say.

Today the lending market, supposedly, is on guard.  A high alert status that demands full disclosure of your financials, a two year work history, two years of tax statements, and a 30% down to lock in the low interest rate for a standard 30 years.  Of course, you have to pay for all this diligence with points (as high as 2 in some cases).  But for the person who has been living within their means these requirements should be seen as a confirmation.  Their FICO will be higher than the minimum 680 because they use their credit cards wisely by paying them off each month and by keeping the older cards active.  Though they may work at low paying jobs or are close to retirement, they have a consistent work history, and best of all, they may through their frugal ways have been putting away an emergency fund in an ING account or in laddered CD’s.  This sort of financial behavior is exactly what the nervous lender in today’s market is looking for.

Still, this may not put you over the edge.  There are two things to look at next: The market itself and your ability to partner up in a buying relationship.  First, lets look at the market.  Back in the day when I was still looking to buy rental properties, the most useful piece of advice that was available was this, you may have to look at a 100 properties and make at least 10 offers at the minimum level before you get what you want.  This advice is more relevant today than ever.  Why, because today the seller needs you.  So get on your bike and go looking.  Travel to the area that you would like to live in.  Walk the streets collecting information about how many properties are available, how many properties say BANK OWNED, and head back to your computer and Zillow to do some comparison shopping.  Remember this is a buyer’s market so whatever the seller is asking is now just dreamware on his/her part.  The seller is now in competition with all those other sellers.  The more there are the better for the buyer.

Which brings us back to you.  Suppose, that all things being equal, you with your high credit score, and sufficient employment history, still don’t qualify because of a low income or lack of sufficient down payment money.  This is the time to think about a buying partnership.  A few years ago two friends of mine who had been sharing rent for a while decided that they wanted to buy instead.  Since they had good credit, but low paying jobs, their lender suggested going in together.  Between them and their parents they came up with the 20% down and then purchased a home.  Two years after the purchase they had built enough equity to qualify for a second purchase by one of them and now they both have great homes.  They qualified for this type of a loan because they were able to demonstrate a long time relationship.  Maybe you have someone who fits this description in your life. 

 Or you can take a more formal approach and use an equity sharing mortgageBut it is very important at this point to remember your own frugal approach to finance. For every program that seems to offer what you want, you need to keep in mind that nothing is free.  Research each situation completely and use a lawyer to verify all contracts.  But that being said, your next step before anything else happens is to pre-qualify with your lender.  Lock in a rate and a time frame, and if you are still wanting to buy, then in today’s market it is time to go shopping.

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