Money Musings - Personal Finance Blog

Gas Price Stress

2008-05-07T08:38:00.001-05:00

I haven't spent much time talking about gas prices on this blog, mostly because I'm fairly tired of hearing about them 24/7. But Tuesday I came across an article on which I'd like to comment:

UPI: "Gas price stress lowers work productivity"

Some quick points:

Wayne Hochwarter of the Florida State University's College of Business surveyed more than 800 full-time employees this spring when gas prices hovered at about $3.50 per gallon and found employees are simply unable to detach themselves from the stress caused by escalating gas prices.

The people surveyed work in a wide range of occupations, primarily in the southeastern United States, and drive personal vehicles to work with an average commute of 15 miles each way.

"People concerned with the effects of gas prices were significantly less attentive on the job, less excited about going to work, less passionate and conscientious and more tense," Hochwarter says in a statement. "These people also reported more 'blues' on the job."

A few more stats from the article:

[Due to rising fuel costs] 52 percent [of respondents] have reconsidered taking vacations.

— 45 percent have had to cut back on debt-reduction payments, such as credit card payments.

— Nearly 30 percent considered the consequences of going without basics, including food, clothing and medicine.

— 45 percent report the escalating gas prices have "caused them to fall behind financially."

What this article seems to tell us — aside from the fact that this country has too many researchers — is that lots of households apparently have a tough time coping when any one expense increases $125 per month. Not a surprise, of course, but a telling point nonetheless. The paycheck-to-paycheck crowd is alive and well. Or alive and suffering, as the case may be.

Where'd I get that $125 number?

Easy. I was just playin' with Excel:

Using the survey's 30-mile-per-commute-per-day average, and factoring for some other assumptions (2 drivers per household; 17mpg average from vehicles; and so on) I estimated that having gas prices at $3.50 per gallon (where they are in my town) costs our Average Survey Family roughly $125 per month more than does $2 per gallon gas.

If you'd like to see the (very basic) spreadsheet I used, and perhaps play with the numbers a bit, you can get it here:

Spreadsheet: Cooking with Gas Prices

I enjoyed changing the variables (like commute distance and mpg) and watching the effect these changes had on monthly fuel costs. Makes me glad my household owns two four-cylinder, decent-mileage vehicles (Nissan truck and Honda Accord). However, it also makes me wish I had my '95 Accord back. That little scooter had a five-speed standard transmission, and got FANTASTIC mileage (upper 20s to lower 30s mpg) all around.

Bothered By Higher Fuel Prices?

Am I bothered by higher fuel prices? At this point, not so much. Certainly it doesn't interfere with my workday — except for that part about having to listen to coworkers b*#&h and moan about $80/tank fill-ups.

Now, I don't like spending $40 or $45 to fill up our tanks, but the increased fuel cost hasn't destroyed my budget. In fact, at the end of the month, I don't notice it too much at all. My commute is less than 20 miles per day, and my wife's (stay-at-home mom) driving is largely "to-school-and-back" or "to-store-and-back." We're terribly lucky in this regard.

If you're a paycheck-to-paycheck family, however, whose monthly cash flow is already redlining, then current fuel prices could be a zinger. Throw higher food costs on top of that, and yes, you're talking significant stress.

Simple Budget Spreadsheet

2008-05-06T09:04:00.000-05:00

In case anyone's interested, I'm offering a second budgeting spreadsheet over at the main site:

IYM: SimpleBudget Spreadsheet

This one's (hopefully) a simpler alternative to my Spending Plan spreadsheet.

Review: Trillion Dollar Meltdown

2008-05-05T08:10:00.000-05:00

As a general rule, only the very smartest people can make truly catastrophic mistakes.

— Charles R. Morris, The Trillion Dollar Meltdown

Well well well ... look at the fine mess we've created.

I picked up Charles R. Morris' 2008 book The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash a few weeks ago not because I think our entire financial system is on the brink of implosion (though I wouldn't automatically discount anything at this point). Rather, I simply wanted to learn more about our current economic situation.

Let's face it: As good a book as Naked Economics is, when circuses like Bear Stearns and You Walk Away splatter the headlines, well, standard macroeconomics can take a curious soul only so far.

How'd We Get Here?

Morris spends the first five chapters (106 pages or so) of Trillion Dollar Meltdown enlightening readers with a brief retelling of the last thirty-five years of American economics and finance. From Nixon to GWB, Morris revisits the missteps and miracles concocted by politicians, investment bankers, economists, and other zoo animals over the last generation or so.

Here's my attempt to sum it up in three words:

Credit.
Quants.
Deregulation.

Peering Over the Edge

It's in Chapter 4, "A Wall of Money," that things start getting good. Join me, won't you, for a quick jaunt through the three- and four-letter jungle of financial Scrabble:

The floodgates were opened. So long as you did the gritty, credit-by-credit documentation work with the rating agencies, you could securitize anything. Companies started selling asset-backed securities (ABS) to finance equipment, transportation fleets, or anything else investors could value. GE was an early and creative ABS issuer. Investment banks created collateralized bond obligations (CBOs), while commercial banks experimented with collateralized loan obligations (CLOs). (CDOs, or collateralized debt obligations, became the generic name for all types of securitized assets, including mortgages.) In almost all cases, a trust, or special-purpose entity (SPE), technically independent of the parent, would be created to purchase the assets. The purchase would be financed by selling securitized paper, usually with a tranched structure to broaden investor appeal. For banks, selling assets and liabilities off their balance sheets reduces strain on regulatory capital; for companies, it lowers apparent debt.

Then it got more complicated.

Of course it did! Can't have all those Harvard MBAs sitting around all day playing Yahtzee, can we?

About the same time as the securitized, or structured, finance industry was evolving at a breakneck pace, some brilliant financial engineers introduced new families of credit derivatives, the most important of which is the credit default swap.

Oh goodie. This new toy has the "D" word in it!

To take a simple case: Suppose US Bank decides it is underexposed to credits in southeast Asia. The old way to fix that was to buy some Asian bank branches or partner with a local bank. A credit default swap short-circuits the process. For a fee, US Bank will guarantee against any losses on a loan portfolio held by Asia Bank and will receive the interest and fees on those loans. Asia Bank will continue to service those loans, so its local customers will see no change, but Asia Bank, in Street jargon, will have purchased insurance for its risk portfolio, freeing up regulatory capital for business expansion. Credit default swaps became one of the fastest-growing new financial instruments ever. The notional value of credit default swaps — that is, the size of portfolios covered by credit default agreements — grew from $1 trillion in 2001 to $45 trillion by mid-2007.

So pretty soon everyone was credit-default-swapping with everyone else. You have parties, counter-parties, and counter-counter-parties. And no one involved, of course, thinks his firm will be The One Left Holding The Bag. You could always sell the shaky stuff to the next guy in line, right?

Aw, what the heck. It's not like there'll ever be any "shaky stuff" anyway.

In the boom years of 2005 and 2006, probably 80 percent of the securities in CDOs were mortgage-backeds, possibly 70 percent of those were below top-grade, and at least half were subprime or second-lien home equity lines — and these were the same years the industry was pumping out some of the most egregiously irresponsible loans in history. By assuming a permanent new era of very low defaults, it was possible to build families of bonds such that 80 percent of the issued bonds had triple-A and double-A ratings, even though 70 percent of the supporting assets were subprime.

Nope. No shakiness there.

To complicate matters, CDO managers often freely mix instrument types, so any bond might be backed by a grab bag of subordinated claims on a mélange of risky assets. Leverage is compounded further with "CDO²s," or CDOs of CDOs. You collect the risky tranches of a number of CDOs, which can sometimes be the hardest to place, and use them to support a new CDO, with a range of high-to-low risk-rated tranches. Highly rated bonds magically materialize out of a witches' soup of very smoky stuff. There is even a smattering of "CDO³s" out there, or CDOs built from the leftover tranches of CDO²s.

All of which Mr. Morris sums up succinctly:

Very big, very complex, very opaque structures built on extremely rickety foundations are a recipe for collapse.

And off to the races, we are.

Summary

I found The Trillion Dollar Meltdown to be a fun read — well, as "fun" as reading about your country's systemic financial collapse can be. I came to it, though, looking more for information — looking to pull together a better understanding of just where the weaknesses are in our credit- and debt-centric system.

The book's delivery is a bit jerky in places; its progression, just a tad disjointed. This suggests to me that TDM was rushed into publication. Given recent events, that wouldn't be a surprise, would it?

At 169 pages, the book is a fast read. But then we're back to that "rushed" thing again. Often I felt as if I were being pushed through it too quickly — as if there were more that Morris could divulge and clarify regarding certain topics, but which a fast-track-to-press caused to be omitted.

Too bad.

For what it's worth: I came in expecting a fair amount of fear-mongering from TDM. I suppose it's there to some degree. But folks who steadfastly believe that there's JUST NO WAY our financial system COULD EVER collapse, or that there's JUST NO WAY we could see another Great Depression (or a Greater Depression), will come to the book with that view locked-in. So every word of TDM will seem to them like fear-mongering dribble.

Just so you know, I'm not in that camp. While I appreciate all the safety valves in place with our system, I also totally respect the ability of greedy bankers, brokers, and politicians (and oh yeah — dumb-as-broken-rocks consumers) to really muck things up beyond all repair.

Who's to say what could happen? We Americans sure seem to let a lot of our "very smartest" run amuck in the financial sandbox...

Financial Ed In Oklahoma

2008-04-29T09:50:00.000-05:00

A couple of years ago I first mentioned that my state of Oklahoma was considering implementing financial education into the public-school curriculum.

Last year, our governor signed into law the Passport to Financial Literacy Act (related PDF), which I'm quite happy to see. Topics to be covered include:

Understanding interest, credit card debt, and online commerce;

Rights and responsibilities of renting or buying a home;

Savings and investing;

Planning for retirement;

Bankruptcy;

Banking and financial services;

Balancing a checkbook;

Understanding loans and borrowing money, including predatory lending and payday loans;

Understanding insurance;

Identity fraud and theft;

Charitable giving;

Understanding the financial impact and consequences of gambling;

Earning an income;

Understanding state and federal taxes.

'Tis a nice start, in my opinion. Now we'll see how seriously the school systems take it. As the parent of a pre-K daughter in our public schools, I'm sure I'll get to find out ... in about eight years. (Per the Act, personal-finance curriculum begins in the 7^th grade.)

Oklahoma Hoovervilles

2008-04-28T09:14:00.000-05:00

Those of you with an interest in history — and in particular, the Great Depression — may be interested in viewing these Powerpoint slides compiled at the Oklahoma Council on Economic Education's website:

OCEE: Oklahoma Hoovervilles

If you're like me, you'll find that the 48 slides of Hooverville families do wonders for renewing your appreciation of our current economic landscape ... recession or no. And there are a few more related slideshows on this OCEE Teacher Resource page.

(NOTE: Microsoft makes available a free Powerpoint viewer for folks who don't have Powerpoint or the Office suite.)

Didn't Make Your Prosper Payment? Rut Ro.

2008-04-24T10:32:00.002-05:00

There's not much redeeming value to this post, but goshdarnit, this message-board quote made me laugh. Someone asked what happens if you borrow money via Prosper (related posts), and then at some point, you can't make payments. The tongue-in-cheek response:

If you don't pay they send you an e-mail. If you don't pay after that they send you a stern e-mail. After that comes a very, very stern e-mail. As a last resort they send an email with an attached picture of a sad puppy.

Which, I'm told, is not all that different from what happens when you stop making your mortgage payment in some parts of the country these days.

Perhaps a Bundle of Money Would Be More Appropriate

2008-04-17T10:24:00.003-05:00

Apparently ABC's World News Tonight is undertaking a series called "America's Kitchen Table" or some such thing. As best I can tell, the idea (can you guess it?) is to show us how Actual Real Americans (read: financial skills = questionable) are making it from day to day.

A recent episode cast ABC's spotlight on the Cramers, of Palmyra, PA.

"If Lisa Cramer had her choice, she would be a full-time stay-at-home mom to daughters Kate and Lindsey," ABC tells us. "Her husband Michael, a manager at an auto glass store, would be the breadwinner. But for now, the only way this Palmyra, Pa., family can make ends meet is for Lisa to work three part-time jobs."

ABC News Video: The Cramer's Kitchen Table

For once I'm going to withhold much commentary on the Cramers' situation, and just let the video speak for itself.

One thing we know: The Cramers don't do the Baby Steps.

You'll want to check out the comments, too. As I write this, apparently Ms. Cramer has responded (04-16-08 @ 8:22am) to all those folks posting "negative feed back" and such. (I've saved her purported comment here, in case it gets yanked; more on this below.)

I find it interesting that yesterday morning, when my wife and I first saw this video, there was a comment posted by someone who seemed to indicate that he/she knew the Cramers, and that ABC had conveniently left out a lot of details regarding the story — details that were fairly unflattering to both ABC and the Cramers. That comment, however, was greatly edited sometime during the day, removing the vast bulk of the derogatory info. Then, last night, it was eliminated entirely.

Oh, how I wish I'd have screenshotted it.

Who "edited for content" that comment? The original poster? ABC editors? I dunno. Was it even true? Don't know about that, either. I just find it very, very interesting that a comment like that — specific, detailed, and unflattering as it was — somehow disappeared.

Curiouser and curiouser...

Well, That Makes Me Feel Better

2008-04-15T09:09:00.000-05:00

And the best part is: Most of the damage, you can't even see!

— Local Chrysler dealership radio ad

Yes. That's what OKC listeners are told by a local car dealership's current radio advertisement. The dealer just received a "huge" shipment of storm- and hail-damaged vehicles. Insurance has already paid hefty claims on the cars, so Dealer XYZ is passing the savings on to You, The Customer.

Gotta wonder what ad agency came up with that line.

2007 Effective Tax Rate

2008-04-14T09:47:00.000-05:00

Now that my taxes have been done and filed for a couple of weeks, I've taken the lead from a Fatwallet thread and calculated my household's (very simple) effective tax rate for 2007. It looked like so:

Ours is a three-person (one child; single income) household, by the way.

I'm not including use tax in there, or property taxes. Social Security taxes paid at my Day Job are not included. Self-employment taxes on my website income are included.

Any readers feel like sharing their effective tax rates?

Say Hello to the Middle-Class Collapse

2008-04-09T10:40:00.000-05:00

No, really. It's coming.

Elizabeth Warren says so.

Hyperlink to the video:

YouTube: Elizabeth Warren Video

Set aside some time for this video lecture; it's almost an hour long.

FWIW, I haven't yet had time to watch much of the video, so I can't offer an opinion on it. Just figured I'd post it for those of you who are, like me, sick enough to be interested in such things.

Liquidity Constrained? Take a Vacation!

2008-04-07T10:46:00.000-05:00

Now that we American consumers are all frothy and anxious to get our hands on this summer's Special Tax Unwinding and Preplanned Income reDistribution (STUPID) tax rebates, it's time for every business niche under the sun to urge us to SPEND OUR NEWFOUND CASH WITH THEM.

For example, here's an AP story:

AP: "Tax Rebates Could Be Ticket to Vacation"

Ah yes ... vacations. Exactly what we liquidity-challenged (read: debt-burdened) folks need to get ourselves back on track. It's not what Suze Orman suggested, of course. But what does she know, anyway?

Not nearly as much as the tourism folks, apparently.

"But we have seen some behavior that even when they are pinched, vacations are a right of life," [economist and director of the Tourism Institute at the University of Tennessee] Morse said. "People will borrow money to take a vacation; it is that important to them."

But what about polls suggesting that folks will put their chunks of STUPID money toward debt and savings?

The research suggests that consumers will say "one thing before they get the money in their hand but after they get it, they actually spend more than they got in the rebate," he [Morse] said.

Morse cites a November study by three economists from the Federal Reserve Bank, the University of Nevada-Reno and the University of Pennsylvania's Wharton School examining consumer habits from a similar though smaller rebate in 2001. The researchers tracked activity of 75,000 credit card accounts.

The study found that many consumers used the rebates to pay down credit card debt, just as pre-rebate surveys suggested they would do. But three to nine months later, they used their newly freed-up credit to buy even more. On average, they spent 40 percent more than the original amount of their rebate.

"If consumers use the 2008 tax rebate in a similar fashion as the 2001 rebate study suggests, consumers will spend more of the (2008) rebate than originally planned, generating opportunities for boosting 2008 travel demand," Morse's report says.

"We are sure hoping that he is right," said Leon Downey, chairman of the Southeast Tourism Society and executive director of tourism in the Smokies tourism community of Pigeon Forge.

Morse's report created a buzz last week at a Southeast Tourism Society meeting in Asheville, N.C. Hotel and travel destination professionals from 12 states — from Little Rock, Ark., to St. Augustine, Fla. — left with plans to order up ad campaigns and design getaway packages aimed at the rebate audience.

Here's that Fed study, for those of you who are sick enough (as I am) to actually be interested in this stuff:

Federal Reserve: Let's Save $10 ... Then Go Spend $14

Well, They Could Live in the Suburban...

2008-04-01T09:09:00.001-05:00

Unbelievable.

CNN/Money: "Careers Vanish After Subprime Freefall"

I'd say I have no words ... but we all know that would be a lie. So here goes.

"We're still both in shock that it could go from something so good to so bad so quick," said Kent, 59. "New Century in 60 days went from top of the heap to out of business."

Yeah? Well, you should've watched The Smartest Guys in the Room. That whole Enron thing? It's all about smart people who got greedy. Then they figured they could never fail. And then they got stupid.

You could've learned something.

The two didn't say exactly how much money they made at their last jobs but Kent admitted they each had six-figure incomes.

Today, they're trying to get by on his unemployment benefits of about $450 a week, which covers only about an eighth of the basic payments they owe every month.

Darn those payments, anyway. You mean they don't stop when the income does?

Their home equity line, mortgage, health and life insurance premiums alone cost about $10,000 a month. Still, they are trying to hang onto what they call their dream home with a view of the Pacific Ocean where they live with Mysti's 11-year old son.

Income of $1,800. Expenses of $10k plus.

That, friends, is some nasty math. So what's their roadmap from here?

"We've used up most of our reserves, cashed in her 401K," said Kent. "We're going Mach 1 into a wall. When we run into it, then we've got to decide what to do next."

Sounds like a hell of a plan to me. Let me know how that works out.

Despite their financial problems, the Copes have worked hard to protect their credit rating, staying current on bills. And they've made cutbacks: trading in Kent's Corvette for a Suburban and getting rid of the gardener, for example.

My gosh! What subhuman straits have we reduced these people to? Have we no decency?

Next we'll hear that the Copes won't be able to participate in Orange County's new rotating nozzles rebate program.

Someone. Anyone. Please.

Stop the madness.

Since he lost his job, Kent has gotten a real estate license and is trying to start a business selling the rapidly increasing inventory of foreclosed homes...

As a stock-trading mentor of mine used to say, "Lessons are repeated until they are learned." Apparently Mr. Cope didn't pay attention the first time, when Mysti lost her New Century job in May.

Or the second time, when he was sliced from First NLC Financial.

Or the third time, which is RIGHT FREAKIN' NOW. We're told that he watched as:

...former colleagues found jobs with other lenders, only to get laid off again when those firms closed up. Kent said some of the sales people he knows who still have jobs are actually the worst off.

"They may be employed by a company for months and months, but they can't close a deal," he said. "They've got the borrowers, but unless that thing is pure gold, it isn't made. It's a commission business. They're to the point frankly where they would rather get laid-off so they can go collect unemployment than be employed and make no money."

And still Our Hero wants to sell houses.

Take your seats again, please, Mr. and Mrs. Cope. Class is in session.

"You can't run into someone who isn't impacted by what's going on," said Kent. "It's very expensive to live in Orange County, and you pay a lot for your home and you can't get what it's worth now."

That's because YOU, Kent, don't get to determine what it's worth. What you PAID for the place has NO bearing on "what it's worth." One of those weird "market" things. Try reading Why Smart People Make Big Money Mistakes if you're fuzzy on this.

And yes, you can pick it up from your local library. It's a jaunt that'll be worth more than the cost of the gas for your Suburban.

Well ... maybe.

You know what I wonder? I wonder just when it is that a wonderful view of the Pacific Ocean becomes not quite so wonderful at all.

One Decision

2008-03-31T09:15:00.001-05:00

Never gamble what you can't afford to lose.

— Traditional gambers' axiom

One of the things I've tried to convey in all the writing I've done at It's Your Money is that sometimes, all it takes is one bad decision to bring the roof down.

CNN/Money: "From $70k to Food Bank"

As we see in the CNN article, when that "one bad decision" has to do with your mortgage, you're pretty much doomed. Signing on to a dubious mortgage and assuming that things will "work themselves out" as a matter of course gets folks into a world of hurt.

In the article above, Ms. Guerrero (the focus of the story) found herself in that exact neighborhood — 101 World of Hurt Way, if you will. As a single mom with two kids, a $70k annual income, and a modest mortgage, she would probably have been okay ... if.

But that "if" didn't happen.

Here's the "if" that did: Change "modest mortgage" to a $2,500-per-month, interest-only variety, and throw in a job loss. Now you've got fireworks.

What we aren't told is whether or not Ms. Guerrero took on that mortgage while she was still married. A second income to help make those payments would be ... well, vital. Obviously.

Still, here is my humble opinion: With or without a second income, that mortgage should've never even been an option.

It's easy to say in hindsight, but Ms. Guerrero — married or not at the time — was insane to take on an obligation like that. And the bank, as best I can tell, was insane for writing the note.

Good thing real estate only goes up. (The premise this whole mess was built on, of course.)

Ahem.

Daryl Brock, the executive director of Second Harvest Food Bank in California's San Bernardino and Riverside counties, said his organization supplies food to more than 400 charities in metro Los Angeles, from homeless shelters to soup kitchens to an array of food banks. While the majority of people they help are working poor families, he said they have seen some major changes.

In the last 12 to 18 months, Brock said, the agencies he supplies have begun seeing more middle-class families coming to their doors.

"Our agencies have said there is an increasing number of people coming to them for help," Brock told CNN by phone. "Their impression was that these were not people they normally would have seen before. They seemed to be better dressed. They seemed to have better cars and yet they seemed to be in crisis mode."

Courtesy, I'm sure, of can't-miss real-estate purchases and the ever-popular Home ATM.

What makes Ms. Guerrero's mortgage particularly gruesome is that Ms. Guerrero was herself a loan processor. Talk about drinking the Kool-Aid.

A former loan processor, Guerrero knows all about that [subprime meltdown], although so far she has been able keep her house.

She used her tax refund to help pay many of her bills for the first two months, but now that money's gone.

She says she's now in a middle-class "no-man's-land."

"It just happened so fast. It happened in a matter of — what — two months," she said.

Yep. That's what happens when you have a $2,500 mortgage payment and your job — which itself was dependent upon a real-estate bubble continuing to inflate — goes bye-bye.

Whocudanode, indeed.

She's eager to get back to work and to hold onto her home until the market turns.

Ah, Californians. Ever the optimists. I wonder what happens if the market hasn't turned before her I/O loan recasts?

I'm certain that none of this — bubble going pop, job loss, and so on — was even a consideration on the day Ms. Guerrero closed on her home. But it should have been.

Rather than "Expect the best, but plan for the worst," what I see here was "Plan for the best because nothing bad ever happens with California real estate."

One more case of Life doling out a mighty harsh backhand.

Ten Bucks Matters. Two Grand? Not So Much

2008-03-26T09:38:00.001-05:00

So a customer came in today. For the sake of ridiculousness — you'll see why shortly — we'll call her "Ms. Moneybags."

We were changing the oil on her 2005 Cadillac DeVille. The normal price for this service would be $29.95. Ms. Moneybags, though, wasn't feeling that. She took it upon herself to hit up the service manager: Did we have any coupons she could use? Thirty dollars was high. Too high for an oil change.

"Oh, I think we can find something for you," Service Manager said. "I have a $19.95 coupon about to go out in the mail. I'll let you have your service at that price."

"Oh, thank you so much!" Ms. Moneybags said. She headed for our waiting room.

Fast-forward about thirty minutes. Her car's service was almost done. Ms. Moneybags was now speaking with her service advisor about purchasing a new vehicle — she just wanted his input on things. You know — a view from the service side of it. What cars don't suck? What cars won't leave her stranded on the side of the highway?

You know ... small details like that.

So he suggested a certain car, or perhaps another. She inquired as to the price on the first car.

"Oh, I don't know," our Advisor said. "I'm not in sales, obviously. But you're probably looking at about twenty-three thousand. Maybe twenty-four."

Ms. Moneybags eyes went wide. "Wow!" she said. "That's all? I wonder if — I mean, I wish I knew what the payment would be on that."

At this point, of course, Service Advisor (probably sensing an exit ramp to the conversation) deferred to me.

"Let's ask Michael," he said. "He can probably give us an idea on that."

Of course. Certainly I could. I may be The Warranty Guy, but everyone I work with also knows me as The Money Guy.

Also, they know I have spreadsheets.

So Service Advisor pointed the way. Ms. Moneybags ambled over to my desk.

"Suppose I buy a car for twenty-three thousand," she said. "I put down ten thousand. What will my payments be?"

"I'll need a bit more info than that," I said. "What interest rate do you think you'll be paying? For how long do you want to finance the car?"

"I'm sure I don't know," she huffed. "Just put in some numbers. Can't you do that? Just put in some numbers and see what the payment is?"

"I can, but I have no idea what interest rate you can get. Here — I'll just plug in a rate of six percent. I'll set the term at three years."

"No, I want five years. Do five years."

"Ummm ... okay." I found a suitable spreadsheet and began typing. "Five years it is."

Within moments Excel had churned out fresh-whipped, number-crunched goodness. "Financing thirteen thousand, at an interest rate of 6 percent, for 5 years ... your payment would be around $252 per month. Ballpark."

"WOW!" she said again. "That's all? That's great!"

I shrugged. Conscience, I guess, got the best of me. Remember: I'm not in sales.

"Care to know how much you'll be paying in interest?" I asked.

"No, no," she said. "It's not important."

And off she went.

I blinked. And sat there. And sat there some more.

She was serious.

Again I say: SHE WAS SERIOUS.

THE INTEREST WAS NOT IMPORTANT.

See that? It would be almost $2,100.

Welcome to the Brave New American Car Buyer. Same as the Old American Car Buyer.

Truly, it is all about the payments.

Oh well. As the bankers say on the internets:

All your cash flow are belong to us.

Quicken and Use Tax

2008-03-24T08:46:00.000-05:00

My wonderful state of Oklahoma requires that residents pay use tax. For those unfamiliar, use tax is my (and quite possibly your) state's way of collecting sales tax on items that were (1) sold outside of Oklahoma, (2) used inside of Oklahoma, and (3) went without sales tax of any kind being collected at the point of sale.

Consider online shopping. It's rampant today, right? I mean, I purchase more than my fair share of books from Amazon.com, who are based in Washington state. Not once has Amazon charged me sales tax. What a windfall for me.

Enter use tax. Oklahoma isn't about to let sneaky residents like me get away sales-tax-free on such purchases — the laws, at least, dictate that use tax kicks in to make sure my wallet opens up just as far as it would had I purchased the books inside Oklahoma.

I am quite sure that a vast majority of e-buying Oklahomans are ignorant (or, perhaps, "ignore it") of our state's use tax laws. The tax commission doesn't publicize the law (or lawbreakers, for that matter). So if you just casually checkmark that little box on Line 21 of Oklahoma's Tax Form 511...

... then I suppose you can just skip on down the road, eyes bright and purse plump, confident in your pretense that you're too small a fish for Mr. Tax Man's net to snag.

Call Me Crazy

My household, however, dutifully pays its use tax each April 15. We've paid it every year since the mid-1990s, when I first began doing our taxes myself. The absolute last thing I need is Mr. Tax Man sweepin' down the plain to land at my door.

I learned early on that my comrade Quicken could be of great assistance in this regard. What a pain it would be to collect all use-tax related receipts during the year, and then have to tally them up at tax time. Bah.

No, there are better ways. And a handful of them are delineated in my latest tutorial:

IYM Tutorial: Handling Use Tax in Quicken

It's my hope that this tutorial keeps at least one or two readers out of hot tax water somewhere down the line.

My suspicion is that going forward, state tax agencies will only look harder and harder for the revenue that's due them by Joe and Janet Sixpack.

Small fish ignore use tax at their own peril.

Review: The Smartest Guys in the Room

2008-03-19T14:48:00.000-05:00

For too many executives, the easy riches to be made were hugely tempting, and the moral (and sometimes legal) niceties easily ignored. All too often, the people who ran the companies that were the darlings of the bull market saw nothing wrong with taking a seat at the casino, selling high, and cashing out their chips. To put it another way, they got greedy.

— Mark Gimein, “You Bought, They Sold,” Fortune magazine (09-02-2002)

Let’s be honest: It’s difficult to watch the 2005 documentary movie Enron: The Smartest Guys in the Room (IMDB / Wikipedia) without forfeiting huge chunks of trust in corporate America and Wall Street. But I found it even harder to watch the show and NOT find staggering similarities to what’s going on right now with the Mortgage Mess and our body-blown financial system.

Directed by Alex Gibney, The Smartest Guys in the Room is based upon a 2003 book of the same name (coauthored by Fortune writers Bethany McLean and Peter Elkind). As documentaries go, I thoroughly enjoyed The Smartest Guys in the Room. In fact, though I was watching at 2am and was gosh-darn tired, I simply could not shut down the video until the ending credits took liftoff.

Quick Recap

At one point, Enron was the seventh-largest corporation in America; its market value tagged the $70 billion mark. Wall Street — and investors of all types — were, of course, enamored. Until ... they weren’t.

“It had taken Enron about sixteen years to go from about ten billion in assets to sixty-five billion in assets,” says John Olson, a stock analyst who took a skeptical view of Enron well before it was trendy (or even wise, on a job-security basis) to do so. “It took them twenty-four days to go bankrupt.”

In a dervish of greed, arrogance, and accounting shenanigans, Enron's multi-faceted energy-trading business became a big force in the 1990s business world. It didn't last, of course. Names like Ken Lay, Jeffrey Skilling, and Andrew Fastow became infamous as the truth seeped out, while thousands of investors and hundreds of Enron employees watched their investments and retirements crater to nothing.

(Curious souls might wish to read my article regarding a videotaped session of CNBC in early 2000. In it, the ridiculous spoutings of stock analysts focused mostly on tech stocks ... but Enron squeezed in there, too.)

The Movie Itself

Enron: The Smartest Guys in the Room was, in my opinion, exceptionally well-done. Lots of footage — both video and audio — from inside Enron (company meetings; trader-to-trader audio conversations) make for a very stinging exposé.

I was particularly mesmerized by the recorded headset-talk from Enron's trading floor; verbal exchanges between traders during the California "rolling blackout" crisis (during which Enron was booking scary-big profits, all at Californians' expense) volcanoed my blood pressure. On their own, these intimate glimpses of Enron's corporate culture make the movie worth watching.

If you have any interest at all in Wall Street goings-on, or in corporate America in general, then I highly recommend watching The Smartest Guys in the Room.

Card Companies Get Tough(er)

2008-03-12T09:10:00.001-05:00

Several credit-card companies have now decided that when it comes to helping out folks who are working through debt problems with credit counselors, well ... all bets are off. Here's the BusinessWeek story:

BusinessWeek: Too Much Debt? Too Bad

The stinger is right here:

Until recently issuers often agreed to ratchet down interest rates permanently, to as low as 0%, for those working with credit counselors. That has been a critical concession, says the industry, since it makes monthly payments more affordable and helps ensure the principal is getting paid down. But now some credit-card companies are balking. Discover Financial Services, (DFS) counselors contend, won't cut rates below 17.9% for clients, while Capital One Financial (COF) is holding firm at 15.9%. At least 5 of the 13 largest issuers are offering smaller breaks on rates than they did five years ago, according to a study by the Consumer Federation of America.

So there's a couple of companies to avoid, or balance-transfer away from, if at all possible. But I think the overriding moral of the story is this: "When banks get squeezed, you lose."

Hat-tip for pointing out the article goes to Elizabeth Warren and her post at:

Credit Slips: Credit Squeeze

On an additional note, I find it interesting that Steve Rhode, president of Myvesta.org and sometime radio host, in commenting on Warren's article above, says that:

The reality is that creditors call the shots when you get into debt, they change the terms with little notice and then control access to what solutions you have access to if you should fall on hard times.

I'd say that upwards of 70%-80% of DMPs [debt management plans] do not lead to full payments and satisfaction of debt. Many people just pack it in along the way and go bankrupt and other just wander off.

Wow. A failure rate of seventy percent or more? That's downright nasty.

One thing's certain: If you're a consumer who's carrying wheelbarrows of debt, the pressures of repayment can mount quickly. And if you turn to them, debt-management plans may not be able to offer the amount of help that they once could.

Quicken and Funding Your FSA

2008-03-06T09:02:00.000-06:00

Where I work, it's that time of year again. Over the next few days we'll be having our annual health insurance meetings.

I suspect most readers know the drill at these things: Gather the employees in cramped quarters. Make them listen to hour-long spiels from insurance reps. Tell them how much health and dental insurance premiums will be doing up this year. Pass out packets full of glossy brochures and small-print forms to fill out.

Such a party.

It's at these meetings that we employees get to determine how much we want to set aside in our Flexible Spending Accounts (FSAs) over the next twelve months. I use the FSA to save up pretax dollars for expected medical expenses; if child-care expenses were an issue for us (they're not, as my beloved Battleaxe is a Stay-at-Home Battleaxe), I'd darn sure use it for that, too.

Planning Your FSA Contributions

If you're a Quicken user like I am, then knowing how much to contribute to your FSA each year is a cinch. Here, for example, is my Quicken spending report for the "Medical" category for 2007:

I put $1,150 into my FSA, but by the time the year was over, we'd spent another $800+ in medical expenses. There wasn't much out-of-the-ordinary in there; a few prescription costs increased, and our daughter (now in school) certainly made her share of doctor visits.

So this report is Quicken telling me, quite clearly, that for 2008, my FSA paycheck deductions need to increase. Will I bump it all the way to $2k? Probably not. But I'll be sure to get a lot closer.

FSA funding: Yet another reason for me to love the heck out of Quicken.

When Your 80-20 Mortgage Blows Up

2008-03-04T09:12:00.000-06:00

A significant number of my personal acquaintances purchased homes (newer, larger) within the last several years. Inevitably, they were also convinced that financing via an 80/20 first/second mortgage setup was the way to go. Doing so is "financially smart," because it allows them to avoid paying private mortgage insurance.

It's an idea that works ... until it doesn't. Consider this Baltimore resident's story, for instance:

Baltimore Sun: "Some Lenders Block Refi Ability"

He needs to refi out of his nasty ARM first mortgage — he's lucky, in that he does have decent equity in his home — but his second-mortgage holder won't agree to a re-subordination.

Under any circumstances.

Rut ro.

Playing Stash the Stimulus

2008-02-28T08:03:00.000-06:00

Go figure: No sooner does Suze Orman admonish us Americans against spending our upcoming tax rebates than does Bloomberg plop out a survey which suggests that many folks were listening to her:

Bloomberg: Americans Plan to Save Rebate Checks

Well ... either that, or they were drunk.

As we know, Americans have "planned" to do lots of well-intentioned things before — like saving money — but it just never seems to work out. They're always interrupted by unforeseen emergencies, like Christmas. Or 10%-Off sales at Best Buy. Or Toyota's twice-per-year Annual Sales Event.

What Bloomberg's survey tells us is that:

Only 18 percent of respondents said they will spend their rebate on purchases, while slightly more than three in 10 said they prefer to use the money to pay off debt, and a third said they'll pocket it.

Sixty percent of folks say they'll either use it to pay off debt, or save it outright?

Hmmmm. I'll take the under.

A majority — 57 percent — said Bush hasn't taken sufficient steps to aid the housing industry and help holders of subprime mortgages, a growing number of whom face foreclosure because of rising monthly payments. Among households with annual incomes below $40,000, almost seven in 10 said the president hasn't done enough.

Now that's more like it: Let's be sure to complain about how much more hand-holding the government should be doing for us. And, just for good measure, let's do the complaining in a survey that asks how we plan to spend the $168 billion that Uncle Sam is about to dole out.

It's pretty sickening, really.

Overdrafting Again

2008-02-27T08:40:00.003-06:00

My post regarding my disdain for Overdraft Whiners has garnered a fair string of comments — more than any other recent post on this blog, to be sure.

Readers who consider me to be on the wrong side of this issue ("You're an a#&hole!") will no doubt be up in arms against The System when they get a load of a recent post at the credit- and bankruptcy-related blog, Credit Slips:

Credit Slips: Ripped Off by the Banking Industry

Here's a no-doc, no-income-verification rundown of the Credit Slips article:

Thanks to her participation in the Consumer Bankruptcy Project of 2007, a woman named Erica (not really) was nominated for an additional $100 payout due to her particularly inspirational story.

Erica looks past her own misfortune and sees the positive things in life and others. She is very brave and strong and creative and incredibly unselfish. She takes in stray kittens, cooks home-made soup for her elderly neighbors, rolls pennies to buy gas for her husband's truck, and even gets her antibiotics from her veterinarian if she can, so she doesn't have to spend money on a doctor's visit.

We're told that Erica is 46 years old, a previous BK filer, and afflicted with multiple sclerosis; to her credit, she has already outlived her doctor's initial prognosis by five years. Most of us can only imagine the physical and financial struggles Erica must contend with on a daily basis.

So what happened when Erica got the CBP award check?

She [Erica] got her check a couple of days ago and had her husband deposit it in the bank. They barely cover expenses each week so she was thrilled to encourage him to put more than $10 gas in his truck, pick up some milk and bread at the grocery store, pay a little bit on a bill they owed, and buy another item they needed. Then when she checked their balance at the bank yesterday, they had over $100 in overdraft charges, something like $33 for each of the items he had bought. She called the bank and they said they were holding the Harvard check for 5 days, so it wasn't available for them to spend when he made the purchases.

Well, that's fun. But there's more.

She asked to talk to a supervisor and was transferred here and there and finally she said she was hooked up with someone she was sure was in India, because she could barely understand her. When she insisted that they had never held any other checks on their account, the lady told her that they often do that for checks from out of the country. Erica asked her where the hell she thought Harvard was and then just gave up.

Here We Go...

Once more, Credit Slips author Debb Thorne tells us, greedy banks have seriously overstepped their bounds by charging Erica three separate $33 overdraft fees. Know what I think?

I think: Given what I've read about this, I have great sympathy for Erica's physical and financial situation. However, the overdraft fees — all of them — were valid. (Caveat: This is unless the bank has somehow violated Reg CC. This was noted as a possibility by Adam Levitin, who commented on the post at Credit Slips. But we don't have enough info to know whether this is the case or not.)

"HOW CAN YOU SAY THE CHARGES ARE VALID?" readers will scream. "HAVE YOU NO HEART?"

Hold on. If I were the bank manager, I'd look into the matter. At the very least, I'd educate Erica and her husband on bank policies. And then I'd refund the overdraft fees.

Once.

There is simply no argument about this: Erica needs that $99 far, far more than the bank does. The bank can earn back that $99 quickly from someone or somewhere else. The same cannot be said for Erica and her husband.

Again, this is simply what I would do, if it were up to me. But it isn't.

Erica is likely out that money.

"But they never held her checks before, remember?" people will point out. "How is it right for them to start now?"

Well, I've never read word-for-word the deposit policies of any financial institution I've ever dealt with. Even so, I'm well aware of the likelihood that just because you desposit a check — any check — it doesn't mean you have immediate access to that money. It's standard bank operating procedure, folks.

From my end, I don't try to spend money that I just deposited that same day. Ever. It's called being conservative, and erring on the side of caution.

Admittedly, it's also a luxury that Erica probably cannot afford.

Doesn't matter, though. The bank makes the rules.

Some Questions I Wish to Answer

In the article, Ms. Thorne asks a few rhetorical questions regarding bank fees and such. I'd like to take this opportunity to answer them — from my non-expert viewpoint, of course.

Why in the world is holding a check drawn on a leading bank common practice?

Don't know; don't care. All I know is that it is. And if you don't want to shell out thirty-dollar overdraft charges, you'd better grasp the concept, too. And pronto.

$33 for a single overdraft? What the heck??? Who in their right mind thinks it is acceptable to charge that?

I do. In fact, given the rate at which people continue to not give a crap about how they manage their money, I'd go so far as to say that overdraft fees should go higher.

Banks aren't charities. They exist to make money. Account-holders take heed: If you give most banks the slightest chance, they will bend you over and apply their own special brand of Stimulus Package. The sooner you learn how to avoid this, the better off you'll be.

If my memory serves, checks I write are deducted IMMEDIATELY from my account — thanks to technology, it simply is not possible to float checks anymore. Yet deposits I make are not recognized for days. Why?

Because the banks run the show. Their game; their rules. Suck it up, buttercup, and stop whining.

And why in the world aren't our elected officials calling hogwash on this?

Oh, please. You know the answer as well as I do. Bankers and politicians get along very, very well. Cash, meet pocket.

It's unethical and it should be illegal.

Whatever. When you screw up with your money, when you can't follow your financial institution's policies, then you should pay.

Screw up repeatedly? Pay repeatedly.

The same rule should apply to bankers, of course, but it won't. (See the previous question.)

So go ahead, readers: Tell me how you feel.

When Your HELOC Is Toast

2008-02-25T08:02:00.000-06:00

The best and most satisfying reading of my weekend came from the scribes at the Washington Post:

Washington Post: Homeowners Losing Equity Lines

(Need a log-in to read it? Try BugMeNot.)

Ah, Credit Crunch, how do I love thee?

It is rather nice to see morons get their financial posteriors handed to them. In the case of the Post article above, our moron's surname is Corazzi.

The Corazzis apparently had recently opened and were enjoying the sweet fruits of a $95k home equity line of credit (HELOC) from USAA Federal Savings Bank. Alas, prolonged use of the Corazzi Home ATM 'twas not to be.

Roughly five months into the deal, the bank called to tell Ms. Corazzi that they were yanking the HELOC, and pronto. Homes in her county (they said) had skidded in value. No way was the bank going to be left holding this bag.

"I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins. "I was near tears. We needed this credit line to get us through some tough times."

Fantastic. Wouldn't want to have to rely on something as bland and passé as CASH SAVINGS, would we?

Anyone care to guess whether or not such savings are completely missing from the Corazzi household? (By the way, you can see purported pics of the Corazzi abode at the Housing Bubble Hall of Shame. Note the spruced-up kitchen.)

Banks Pull in the Reins; Corazzis Gag

Why would USAA do something so unAmerican as this, you ask?

Well, it MIGHT have something to do with the fact that second-mortgage holders have a darn tough time NOT losing their proverbial shirts when homeowners saddle up on the foreclosure trail. In such cases, once property values give way, these HEL and HELOC originators are in prime position to recoup a big fat sum of zero when all is said and done.

Now that home prices have dropped in many parts of the country, lenders are nervous that they may never collect the money that they extended to borrowers. They are responding by freezing or lowering the credit limits on home equity lines, leaving thousands of borrowers like Corazzi in the lurch.

Hmmm. Sounds like a good idea to me.

"Nearly all the top home equity lenders I know of are doing this or considering doing this," said Joe Belew, president of the Consumer Bankers Association, which represents some of the nation's largest home equity lenders. "They are all looking at how to protect themselves as real estate values go down, and it's just not good for the borrowers to get so overextended."

Overextended? Who? Us?

Corazzi initially used her line to consolidate debt. She and her husband took out the credit line in October because they thought her job was in jeopardy.

It was. In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job.

Given the slowdown in the industry, Corazzi has collected only one paycheck since then. Her husband, Ron, sells large-format copiers and printers to builders, and his salary alone cannot support them and their four children, ages 4 to 8.

Let's see: Her job? Tied to the mortgage industry. His job? Tied to the building industry.

Now add "real-estate bubble" and "pop" and "credit tightening" to the mix. See where this is going?

That's right: What a GREAT time for banks to be extending HELOCs! And what a fabulous time for families with ZERO CASH SAVINGS to use said HELOCs and take on mid-five-digit debts just to make ends meet!

By the time their lender called, the couple had $45,000 remaining unused on the credit line.

Well, that's some good news. At least they were able to tack on $50k of "secured" debt before USAA turned off the spigot.

Meanwhile, they [Corazzis] are trying to open a new home equity line elsewhere, but chances are slim given the change in Nancy Corazzi's job status and the drop in their home's value. Five months ago, the Ellicott City house was appraised at $560,000; the lender says it is now worth $469,100.

Holy heck — who did that appraisal? And can they come take a look at my place, too? My net worth could use the padding (on paper, of course).

The Comments Are Fun

Oh, and don't miss the fun and excitement happening in the hundreds of comments left at the Post story, either.

Some choice morsels of my liking:

The WP should be more selective who it chooses to depict as "victims" of today's reality. People living in half-million dollar houses and paying tuition to send twins to preschool, all on borrowed money, aren't rich, or even affluent. In truth, they are as poor as Job's turkey.

I can reasonably sympathize with this family because their job situations were out of their control. But I also agree that someone living in a half-million-dollar home, and obviously earning enough at one time to buy such a house, should have been better prepared for a downturn. That means having an emergency fund of 3 months living expenses, a LOT less debt, and more savings in general. The fact that she is being hurt by the equity freeze on a half million dollar house when they only had a 95K line of credit means they did not have a lot of equity, really, and they were already borrowing it.

In short, they were living too close to the edge when the edge moved in on them.

How about not buying your big-screen TVs and Hummers and remodeling your kitchen to look like the set of Emeril's cooking show? Tough times?
Nope.

And my personal favorite:

It is raining and the bankers want their umbrella back.

Death by Payments

2008-02-19T08:24:00.000-06:00

Life is hard. But it's sure great to know that the guys at Chase (who hold my mortgage) are behind me every step of the way.

How do I know this?

Well, because they tell me so.

For rock-solid proof of this, why just this weekend I received a quaint laser-printed love-letter from them. It informed me that:

As a mortgage customer, you have a special opportunity to refinance your current mortgage, fast and simple. Why refinance now? One smart reason — debt consolidation.

Tap into your home's equity for the cash you need to consolidate your high-rate monthly payments into one lower monthly payment. A debt consolidation loan from Chase can combine your credit cards, auto loans, and other high interest loans into one easy, time-saving monthly payment. Here is an example of how much you could save each month.

Below that was a chart that looked pretty much like so:

Wow! Chase loves me so much, they customized the numbers for their example by checking my credit report! Sure, the figures are old now, but they were in the ballpark at one point. (What they don't know, of course, is that any credit-card debt they see on my report is paid in full each month. So much for that "high interest" they love to guard me against.)

But what a great deal, huh?

Chase pegs my current monthly payments at $880. Because they're looking out for my wellbeing, they've created an offer that'll drop my monthly payments to $390. I'd be saving $490/month in payments just by signing up!

Are these guys pals, or what?!

Put a Spreadsheet to It

Ah, Excel, how I love thee.

One nice thing about being a Money Dork is that, unlike so many consumers, I don't think in payments. Since I work in the auto industry in my Day Job, I'm well aware of the Most Common Finance-Office Customer Declaration:

"Sure, we'll buy the new GMC Behemoth SUV. So long as the payments don't go much over [XXX] dollars per month."

Guys, that kind of thinking makes for a quick trip to Bend-Over-Ville. And it's evidenced nicely by plugging Chase's refi numbers above into an Excel amortization spreadsheet.

Neat how that works, isn't it? Chase's example has me refinancing ALL my debt — even the plastic, which I pay off every single month — into a 30-year fixed mortgage at roughly 6.25 percent.

Never mind that my current mortgage is of the 15-year fixed variety, at 5.5 percent — which is further reduced to 2.75 percent thanks to an MCC federal tax credit which I'd lose if I refinanced again.

In Chase's plan, my monthly payments would drop by $490. That'd give me "savings" of $5,880 per year ... so they say.

With Savings Like Those, Who Needs Expenses?

But over those 30 years, I'd be dropping an estimated $77k onto their balance sheet in interest charges. Which looks particularly nasty when compared to the interest charges I'll pay if I stick to the terms of my current loans (mortgage and auto):

Who's Zoomin' Who?

Let's see: With Chase's humble generosity and debt-consolidation help, I can reduce my monthly payments by $490. In the process, though, my debt-payoff period will bungee to a length of 30 years, and I'll spend over $77k in interest before the loan's paid off.

If I simply continue paying my debts according to current terms — which, by the way, ain't gonna happen; our Accord will be paid off this year, two years early — I'll fork over a "mere" $8,207 in interest.

Hmmmm. Should I pay $77k in interest ... or $8k?

Tough call, it isn't.

Come to think of it, maybe "behind me" isn't exactly where I want these Chase guys. Or any other bankers toting such "special opportunities."

Death by Payments: It truly is all around us.

Scratch Beginnings: I'm Sold

2008-02-14T08:52:00.000-06:00

I don't know this Adam Shepard guy at all. But already I like him.

Shepard was still in college when he read Barbara Ehrenreich's Nickel and Dimed: On (Not) Getting By in America, but he waited until he'd graduated to try and prove it wrong. I initially found out about his project here:

CS Monitor: "Can You Build a Life From $25?"

It's not a long interview, but there was enough there to send me right to Amazon to grab a copy of the book. Sadly, it was out of stock. Bah.

The Rundown

In Nickel and Dimed, Ehrenreich sought to show readers that surviving on minimum wage in America is darn near impossible, and that the odds of a self-guided climb up from such poverty are not much better. I read the book, and while I found it to be a well-written and thought-provoking read, I never got around to reviewing it. (Truth be told, I don't get a whole lot out of books or authors who spend the majority of their time telling me what they can't do.)

With Scratch Beginnings, Shepard set out to see what he could accomplish. His journey began with just a sleeping bag, a gym bag with some clothes, and $25 in his wallet. He hopped on a train to ... someplace where all his acquaintances and contacts wouldn't come into play. The question kicking around in his mind: Could he acquire a furnished apartment, a car, and $2,500 in savings within a year — without using his college degree, or credit cards, or any other form of debt?

He lived in a homeless shelter and received food stamps for 70 days. But ten months into the project, he'd certainly moved up: He had his own apartment, a pickup truck ... and he had saved almost $5,000.

Not very Nickel and Dimed-like, is it?

A couple of snippets from the article above:

I didn't use my college education, credit history, or contacts [while in South Carolina]. But in real life, I had these lessons that I had learned. I don't think that played to my advantage. How much of a college education do you need to budget your money to a point that you're not spending frivolously, but you're instead putting your money in the bank?

Indeed. And I also liked this tidbit from Shephard, regarding how his task might've been harder if he'd had child-care payments or probation check-ins to worry about:

The question isn't whether I would have been able to succeed. I think it's the attitude that I take in. [Suppose] I've got child care. I've got a probation officer. I've got all these bills. Now what am I going to do? Am I going to continue to go out to eat and put rims on my Cadillac? Or am I going to make some things happen in my life?

Well, yeah, I'll admit: There's a fair chunk of youthful naïveté in that answer. You'd expect that; Shepard, as I said, is fresh out of college. But that was also the point in the interview where I immediately headed for Amazon to buy the book, too.

I'm looking very forward to getting my hands on Scratch Beginnings.

Suze Orman: Stimulus Crasher

2008-02-12T15:34:00.000-06:00

Thanks to Money Crashers for pointing me toward Suze Orman's latest Yahoo article, which is sure to have hand-wringing bureaucrats and bankers up in arms:

Yahoo! Finance / Suze Orman: "Stash It, Cash It"

It's nice to see Suze take a firm stance on this. It's even nicer that I agree with her:

The rebate you're about to get should be saved, not spent. It should be used to pay down debt and build up an emergency savings account. What you need to focus on is not what your government wants you to do for the national economy, but what you can do for your personal financial security. Help yourself first.

Yes. Yes. Yes.

Will it actually happen?

Probably not, not, not.

(Actually, my Inner Devil would just love to take our Summer Stimulus Check and use it to buy puts on [Insert Bank/Financial Stock Here]. But I won't do it ... no matter how delicious the irony.)