JoeTaxpayer

You’d had two weeks to write everything down. Every cent you spent, right?
Even two weeks is enough for some things to stand out. How much did you spend on coffee or other drinks bought by the cup or can? Author David Bach refers to this as the Latte Factor, the fact that even $5/day invested at 10% will grow to a million dollars over 40 years. Ok, maybe we need to lower expectations, you may not earn 10% per year, but that $5 per day is just the beginning. When my 10 year old took an interest in a particular magazine, I saw that one issue was $4, but 10 issues/yr cost $14 for the subscription, less than the cost of 4 issues. Ever read a book a second time? Most people don’t. And many libraries will let you place a hold on a book and notify you when it comes in. Movies fall into a similar category, how much did the last theater visit cost you? $50? $100? It’s easy for the dollars to add up, the tickets, popcorn, drinks, and then a meal out. Our library system let you reserve DVDs by title as well, I often get a new release within days of release.
As you keep a daily journal of spending, what pops out will be unique to you, and only you can decide what you are willing to give up. If you are currently paying interest on your credit cards, think about that daily coffee as $1250 per year on which you are paying $200 interest. David Bach’s million may seems too far away, but the $200 is here and now. Until next week
Joe

Last week, Adam of Your Money Relationship posted “Money Genie: I Grant You 3 Financial Do-Overs” in which he offers the three things he’d do differently if he could go back in time. Never signing up for credit cards, funding his Roth every year, and not taking on student debt are his three. Somer excellent dialog surrounding each wish and the invitation that others take on the same exercise, discussing what they’d change. The bloggers taking on this gedanken experiment included Mrs. Micah, Budgets are Sexy, and Free Money Finance. Drop a note if you’re a PF blogger and want to be added to this list.

First, what I don’t regret – the loans I racked up during college. In the early 80’s, the minimum wage was $3/hr. I did work a bit, but still needed to balance work, study and play. Anticipating a decent wage, I figured my older self would be able to pay the loans back with far fewer hours worked and I wanted to give that guy some memories he’d enjoy. That bet went my way, no regrets there.

Mistake/Do-over #1 – In college I somehow convinced myself (such authors as Robert Allen of “No Money Down” fame) that I was going to make my fortune in rental property. I bought into the 86-89 upturn, and then the crash came. Ouch. At one point I owed nearly $70K on a property worth only $20K. I worked my way out of this mess, selling 3 of the 4 properties I owned over the years, and still have one condo I rent out. Anyone looking to get into rentals should get a copy of the movie “Pacific Heights.”

Mistake/Do-over #2 – The Tech Bubble of 2000. I had learned enough about finance (got my MBA in ’93) to understand some sophisticated financial instruments. I hadn’t yet heard of the Black Swan, but I did have a keen sense of things that blow up, financially. So I developed a strategy that started with a small investment, less than 2% of our worth, in options. Long story short, I came out better in the end than going in, but had a ride I wish I got off mid cycle. Think 1987, times 10. That was the tech bubble for me. (Lest anyone forget, the Dow ended up about 5% including dividends for the year, but during the year it was up over 40% at one point.)

Mistake/Do-over #3 – I was having a Denny Crane/ Alan Shore moment with a friend of mine about two and a half years back, the interest rates had bottomed and were on the rise. We were discussing the very topic of ARMs and option ARMs. Yup, a few beers and we get pretty crazy. Had we given more thought to this, there was a lot of money to be had, not that I’d have sold my main investments, I am a Stocks for the Long Run believer, but I had learned enough from the options trading and success of 2000 that I’d be happier today. I should have gone with my gut.

What are YOUR three financial do-over wishes?

Joe

Yesterday, GM filed for bankruptcy. No surprise, and Flexo on Consumerism Commentary offered a great post titled “What General Motors’ Bankruptcy Means For You” which was well organized and addressed the employees and retirees, vehicle owners, and stock and bondholders.

I’d like to dig a bit into two aspects of this bankruptcy. First, the creditors, which includes supliers. I found a copy of the General Motors’ Creditors List, and it made for interesting reading. No, really. This list contains the top 50 creditors, starting with Wilmington Trust, at $22.7B, and the UAW at $20B. But by the time we get to position number 16, we are looking at only $26.7M for American Axle, one of their subcontractors. Remember, much of the content of a car are componants which are purchased from Tier 1 suppliers. (The phrase Tier 1 refers to the vendors who sell to GM and other car manufacturers. These include many of the creditors listed as trade debt on the list. Tier 2 are subcontractors or vendors to the Tier 1 vendors.) Banks will feel the impact for sure, but as GM morphs into the new company ahead, those Tier 1 vendors will be impacted as well, and that ripple effect should not be ignored.

The retirees – I’ve read some unsubstantiated remarks about auto workers, and I find these remarks misguided. I’m not talking about management, I mean the line workers, those who put in a day’s work for a day’s pay, and have done this all their lives. The Pension Benefit Guarantee Corp does guarantee a worker’s pension, but only to a certain limit. It will give a retired 65 year old an annual guarantee of $54,000. This may seem like a lot of money, but consider, for most of these people, working all their life at GM, they expected their pension to be guaranteed, and worked with that expectation. So the 40 year employee who worked his way up to the top of his pay scale and accrued a benefit of, say $75,000, now has to look over his shoulder for fear that his pension is cut by nearly one third.

I try not to choose political sides, and don’t label myself pro or anti union. But I am anti ‘having the financial well being of a 70 year old retiree ripped out from under him’. Disclosure – when I bought my current car I was choosing between a Ford Taurus, built in Canada, or a Toyota, built in Kentucky. Talk about an odd decision. I chose the car built in the US.

I wish the workers and their families well.
Joe

A few good articles I read this past week: The first article, on 401(k) planning is titled,”Should You Stop 401k Contributions When There’s No Match?” The author (there’s no byline) offers a nice chart comparing the long term (35 year) results with a 6% deposit and 3% company match vs no match. In the past, I’ve suggested that one should take advantage of that pretax match even ahead of paying down high interest debt, as the match is an immediate 50-100% return, tough to get even paying off that 15% credit card. But with no match, the decision changes a bit.

In Track Your Spending: The First Battle In The War On Debt, Adam Baker goes into far more detail than I did in my first Frugal Friday post on why you should track every cent for some time. Adam suggests a 30 day run at this. In my post, I suggest that since many expenses aren’t monthly, that those who are serious about creating a budget should take this process seriously and let it run 6 months or even a full year. That will capture the seasonal items, semi-annual property tax, holidays, etc. On a personal note, Adam is leaving the good ol’ US of A to move to Australia soon. I wish him a safe journey and look forward to his first posts from down under. Remember, Adam, Vegemite is an acquired taste.

As I mentioned last month, Pinyo of Moolanomy fame launched Greatnexus an excellent compilation of sites ranging from personal finance to automotive, gaming, science, etc. I am proud to be listed there. Quite the project. Now, he’s added an ‘Answers‘ section on his Moolanomy site where visitors and regular posters can post questions or respond to open ones.. A bit like the Yahoo offering only without the 10 yr old kids. Nice addition to his site.

And last, is 5 Reasons to Use Your Credit Instead of Your Debit Card, a guest post on Mrs Micah’s Finance for a Freelance Life blog. The post title says it all, and the content is a good rebuttal to the Dave Ramsey “there’s no such thing as responsible credit card use.”

Joe