M is for Money

MSN Money writer MP Dunleavy is a financial dunce. While there is some value in sharing your money issues with the world, her articles contain enough misinformation to make her dangerous. I just read an article detailing her retirement planning failures in which she misleads her readers about index funds. It’s time to clear up some of that confusion.

Mrs. Dunleavy has decided to dump her target date retirement funds in lieu of index funds, nothing wrong with that. Index funds have plenty of advantages over actively managed funds, lower fees for example. The problem is with her description of index funds:

“They simply track a broad sector of the market, by buying every stock in the sector”

Index funds do track various sectors of the market, some track the entire S&P 500 while others focus more narrowly on oil stocks or gold stocks. They don’t all track broad portions of the market. More importantly, they don’t necessarily buy every stock in that sector! Index funds attempt to mimic the returns of the market sector they track, but they have different ways of accomplishing that. Many buy a fraction of the stocks in an index, a subset that is close enough to represent the whole. For that reason many index funds come close to, but don’t exactly match, the underlying market they track.

There are good reasons not to own every single stock in an index, total stock market funds would need to own literally thousands of different stocks. Rebalancing thousands of stocks to keep them in line with the index would be costly, eliminating the benefit of low fees.

Index funds are an important part of the investing puzzle, but you should understand how each works. Different funds use different methods to achieve their returns. Don’t get the idea that by buying an S&P 500 index fund that you are buying each and every S&P 500 stock, most likely the fund uses a subset of the S&P 500 and weights those stocks in order to mimic the index’s return. Understanding these differences is key to understanding how index funds work. I hate misinformation!

Stepping into my kitchen is like taking a stroll back in time, and it’s not because my kitchen was built in the 1920’s. Rather, when I open the cupboards I find the dishes I grew up using. Open the utensil drawer and you will find the forks I first ate with. I have the pyrex baking dishes and corning ware my grandmother used to make meals back in the 1950’s. Buried in the back is a pie tin of unknown origin, but I do know it’s been around a very long time. At holidays I break out the fine china, 12 place settings of porcelain that belonged to my great-grandmother. Each of these pieces holds special memories and each of them is a hand me down.

This past weekend I was shopping with my mom, discussing her upcoming move to the suburbs. When she moved to California after the divorce she initially left her stuff behind. That meant she needed to buy new dishes and utensils for her apartment. Eventually she went back to Virginia and packed everything up, it’s still in boxes awaiting her final move into her new house. But apparently she has decided she no longer wants much of her old stuff, bad memories perhaps. She said she was ditching her old dishes and oh, did I want them?

Of course I want them, we have plenty of dishes but none of them match. Over the years much of the set from my childhood has disappeared or been broken (the NBC prop department must have a few, they made an appearance on a My Name is Earl flashback). Her dishes are not at all my style and not what I would choose for myself, but I’m not going to argue with free. It’s a very nice set of Lennox that was very expensive at the time, there is no way I would spend that much on plates myself.

Hand me downs are often viewed with derision, why would you want someone else’s cast-offs? But usually these objects have usable life left in them, in the case of dishes and utensils they could last indefinitely. I can’t explain why many of us believe it is better when you buy it yourself. I have no problem with getting something for free and I will show off my hand me down dishes with pride.

I don’t know what to do about bridesmaids. I don’t have many close friends and zero female relatives so I wasn’t planning on having any. I didn’t want a traditional ceremony anyway. But my mom and some friends were aghast at the idea. So I resolved to have just one and planned to ask one of my oldest friends, who at the time was away on a long vacation. But I’m starting to have second thoughts, while she was once my best friend we have drifted apart as of late. She is married with kids and in a different phase of her life. Most of all, she never returns my calls and rarely responds to emails.

I am bad about keeping in touch, so I don’t fault her for being the same. But I’m trying to be better, which brings me to friend number 2. Since making more of an effort to keep up my social contacts, I have rekindled another old friendship. She is recently divorced with no kids, so a lot more available. Most of all, she seems truly excited and happy to see me. We get together once or twice a month, compared to once or twice a year. Now I am thinking about asking Friend #2 instead. Of course I’m worried that will hurt Friend #1’s feelings, there was a time I couldn’t imagine having anyone but her.

Unfortunately I can’t go back to plan A, as Mr. M has already asked his friend and mentor to be a groomsman. Poor guy doesn’t know yet that his job is to walk the best man up the aisle - on a leash. Yep Mr. M is insisting that C be his best man. The other two dogs aren’t good in public, so they’ll probably stay home for the day. So Mr. M has a man and a dog, while I have no one.

Sounds like one of those ads you see on TV doesn't it. Last week I wrote about our auto insurance suddenly skyrocketing and our need to shop for better rates. Our first phone call was to our current insurer to see what they could do for us. Mr. M let them know there was no way we would pay that high a rate, despite several claims we know they have made a profit from having us as a customer. If they wanted to keep us they would need to work with us.

At first he encountered some resistance, but after enough threats to take our business elsewhere the agent decided to take him seriously. It took some tweaking but they were able to keep our coverage the same while reducing our rate. In fact, Mr. M ended the phone call with us paying less than we were before the increase! Instead of paying $55 more per month we will be paying $30 less, over the course of a year this would save $1000. We will still collect a few comparison quotes, but already one phone call has saved us serious money. It just goes to show, it never hurts to ask for a better price. The worst they can do is say no, in which case you take your business elsewhere. If they care enough to keep you as a customer, they will find a way to work with you.

Back at Christmas I did a lot of internet shopping, I hate the crowded malls and crazed shoppers looking for a parking spot. But before hitting the online shops, I first made a stop at Ebates. I’m sure you already know about the site (heck even my mom does) but in case you don’t, here is the scoop.

Ebates pays you back a rebate for your online shopping, it’s as simple as that. Each retailer in the program offers a different cash back percentage, sometimes over 10%. All you have to do is start your shopping at the ebates site, this allows them to track your purchase. They send you on to the retailer’s normal website to make your purchases, the rest of the magic happens in the background. Ebates receives a commission for sending the retailer your business, they in turn pass some of that money back to you. Once a quarter they pay out your accrued rebates, recently I received a check for my Christmas shopping.

Not all of my favorite shops participate in Ebates, but what I did buy through the site netted me $20. I’ll add it to the snowflake savings, where little bits of money combine and grow. Why not earn a little money back when buying gifts?


Thanks for reading. If you enjoyed this post consider subscribing for updates.

We’ve carried the same auto policy around for years, despite what experts say about comparison shopping every time you renew. I wasn’t that motivated to collect a bunch of quotes and over those many years the rate our insurer offered stayed the exactly same. That was until a few days ago, when I received the policy renewal papers. Suddenly they want 20% more for the exact same policy!

Of course I should have seen this coming, we’ve had a few claims over the years (though none of them were our fault). A few months ago I discovered someone in a yellow car had smashed in the side of my subie while I was at work. A few years ago a teenaged, uninsured driver turned left in front of us. But despite several claims, our insurer has still made money by having us as customers. Over five and a half years we’ve paid more in monthly premiums than they have collectively paid out over several claims. I also know they sued the owner of the uninsured car for their losses, presumably they recouped some of that money as well (owner was the dad of the teenaged driver).

By my calculations, they have collected $5000 to $10,000 more in premiums from us than they paid out. But apparently that is not enough for them. Now we will take our business elsewhere, because paying $300 a month for auto insurance is ridiculous.


Thanks for reading. If you enjoyed this post consider subscribing for updates.

Being underwater on a house gets tiring, especially when there is nothing you can do about the situation. So I decided to do a little calculation on how soon we might be right side up as opposed to upside down. The news wasn’t encouraging.

First I had to make a few assumptions, such as how much is our house worth right now and is this the bottom of the housing bust? I doubt it is the bottom, but for analysis sake let’s say it is. As for value, let’s pick a nice round number - $250,000. There are a few houses for sale in the neighborhood for that amount. Next comes the issue of future appreciation. Since we know the huge annual appreciation of the bubble years is not realistic, we’ll choose a more modest 3% annual gain. From there it’s a pretty simple comparison, one line going up showing current price appreciating at 3% per year and one line going down showing the current mortgage balance minus annual principal payments. The point where those two lines cross is the point where we’ll no longer be underwater, unfortunately under this scenario that point is still 6 years away. Even worse, if we wanted to sell in 6 years we would still need to bring money to the table to pay the realtor and other fees. Plus the house would be worth $60,000 less than what we paid for it, 11 years earlier!

I was hoping this little scenario would lift me up, the light at the end of the tunnel effect. But really this just depresses me more because even way off in the future, we’ll still be stuck in a bad financial situation. Can one financial decision ruin your entire life? I’m starting to feel like the answer is yes.

I recently went shopping for some new work pants. I work in a rather conservative office environment, so I needed some tailored slacks rather than casual clothes or jeans. Since these are not the type of clothes I like to wear outside of work, I loathe spending a lot of money on them. Fortunately Macy’s was having a sale and I was able to pick up a few pairs at half off. Full price these pants run $70-$100, definitely not cheap clothing. But after one wear one of the pairs is already falling apart! The material is starting to pill and I fear soon they will look like a ragged pair of sweat pants rather than the $100 pair of slacks I paid for. I would be livid if I had paid full price.

Typically you think higher price equals higher quality, but not in the case of these pants. They are obviously made from cheap material and sold at a premium. Needless to say I won’t be buying that brand again. Any suggestions on quality work clothing that will last, but that also won’t break the bank?

After burning the candle at both the ends the last few weeks, I was in need of a little extra motivation Wednesday morning. I decided to stop in the local Coffee Bean and Tea Leaf on my way to work for coffee and a muffin. I was surprised to see a rather long line, something I haven’t seen at all in the last year. For a long time now the signs of a slowdown we’re all around downtown LA, empty eateries led to empty storefronts. Many businesses simply closed shop, there wasn’t enough revenue to stay open. But I’ve noticed a change, once again the eateries are full at lunch time. New businesses are opening, a rarity over the last year or two. But is this a signal that the economy is on the mend or simply a sign that people are tired of being frugal? Since a lot of consumer sentiment is psychological, as opposed to being based on reality, I have a feeling it’s the latter. Unemployment numbers are still high and I just saw a study about the growing poverty numbers in LA. Whatever it is, lattes are making a comeback.

My company has delayed raises for the time being, but it’s not because of the economy. Under the old system, everyone had their annual review and salary adjustment once a year, around their date of hire. Mine is January 29th, but just as I was about to receive my “salary adjustment”, they changed the system. Now everyone will have their review and raises at the same time each year, around March. People who just had a raise in December will get another one in March. People like me will have theirs delayed for a few more months. Supposedly they will prorate the raises to level the playing field, but I doubt it will be done equitably.

I wasn’t banking on a raise, I had heard from co-workers that they are only handing out token raises anyway (1% or so). But it still hurts a bit to be told to wait, while others will get two raises in a row. I know, quit my moaning. Many people would be happy just to have a job.

The good news is that my moonlighting gig will come to an end this Friday. Once again I will have a few free moments to spare for myself. I will be able to sleep, eat, relax and enjoy the long weekend. I will be able to watch the opening of the Olympics, yay! But this means I have very little time to get a whole lot of work done. The job they hired us for would normally take 6 months to a year, they gave us three and a half weeks. I’m definitely stressed about getting the project to a complete enough state in that time. Then there is the money.

I was hoping the project would last a little longer, in 3 ½ weeks of working on the side there simply aren’t enough hours to bill. I probably won’t make enough to fund all of my goals - retirement, honeymoon and slush fund. Actually I will make more than enough, but much of that money must be set aside for taxes. All I can hope is that they decide to bring us back for longer. I’ve already put together a list of the unfinished business, it’s 7 pages long!

Monday morning I walked into work and opened my bag to fetch my building pass. I work in one of those high rise office towers with a bevy of security where passes are needed to get into the building and to get onto the floor where you work. Unfortunately, my pass was nowhere to be seen and if I didn’t find it soon, it was going to cost me money.

The problem with being overworked and overstressed is that it makes me forgetful. The last time I remember having my pass was Friday and it was in my jacket pocket. That is not where it belongs. I searched my bag inside and out, no pass. When I got home that evening I searched the house, to no avail. I checked the center console of the car, still no pass. It was now Thursday morning and if I didn’t find my pass soon, I was going to have to suck it up and pay to have it replaced. I decided to check the car a bit more thoroughly.

My side project has me spending a lot of time in the car and I admit it’s gotten a bit cluttered with stray coffee cups, food wrappers and the odd paper and pencils. As I sifted through the stuff on the floor of the passenger side, out pops my pass. It was hiding in the mounds of junk in the car, maybe it’s time I cleaned it out. This is just another case of how clutter, could end up costing you money.


Thanks for reading. If you enjoyed this post consider subscribing for updates.

I have a little bit of money invested with Lending Club, it seemed a great way to earn a better return than the stock market. But if you think Wall St is fickle, you should see borrowers when it comes to paying back your money.

Last year I had two loans go into default, one skipped town immediately after taking out the loan. It still hasn’t been written off by Lending Club, though I already wrote it off in my books. The other got behind but then turned it around and paid off the entire balance immediately. After that, all was quiet for several months. My confidence was once again growing in Lending Club and its model, month after month borrowers were making their payments on time. That is until last month, when yet another borrower fell behind.

Like the other unpaid loan, this was a good borrower. They earned a “B” ranking from Lending Club, which means they had decent credit and qualified for a lower rate. Unfortunately there is no way to know what is going on in this borrower’s life and whether they will turn things around. I had been planning to inject new money into Lending Club, but not now. As much as I distrust Wall St, individuals seem to be worse. As someone who always paid their debts on time, I can’t imagine skipping out on my obligations. Borrowers at Lending Club know that their “investors” are individuals, not some faceless corporation. But that doesn’t stop them from stiffing everyday people like myself. I won’t be pulling my money out of Lending Club, but I won’t be adding new money either.


Thanks for reading. If you enjoyed this post consider subscribing for updates.

If idle hands do the devil’s work, what does idle money do?

I believe in putting every dollar to work, either as spending or savings. If you allow money to sit in your bank account without a clear purpose it is likely to get lost. No it won’t pull a vanishing act, but rather it will walk out the door a few dollars at a time in the form of coffee or a new pair of shoes. You probably won’t even notice the money is missing since it happens in bits and pieces and the money didn’t have another home to go to anyway. I prefer to have a plan in place, a use for each dollar. I’ve already starting strategizing what to do with the extra cash I am earning on the side.

Honeymoon - $3500

My first goal for this side project is to earn enough for our honeymoon. I’ve done an estimate of what we’ll need to enjoy ourselves, $3500 should cover our food, fun and transportation costs in Hawaii.

Expense Fund - $500

We’ve been scraping the bottom of the barrel with our irregular expense fund for months now, I want to use this opportunity to boost our balance.

Roth IRA - $1100

With the wedding I had to scale back some of our early retirement plans, namely the amount I am contributing to my Roth IRA. This side job will help me top off the account for the year.

If the project drags on beyond its February 12th deadline, which may happen, I’ll have even more money to play with. Don’t worry, I have plenty of ways to put that extra cash to work!


Thanks for reading. If you enjoyed this post consider subscribing for updates.

It seems like the only wedding planning I’m getting done right now is honeymoon planning. After hearing many opinions and doing some more research of my own, I too am leaning towards Kauai for our second honeymoon stop. I happen to like both nature and night life, but I think a few days in Waikiki will satisfy my need for the bright lights. But this leads me to the next decision, where to stay on Kauai? It turns out we have more choices than I thought.

There are actually three Starwood hotels on the island, although the St Regis is most definitely out of our price range! That leaves two hotels to chose from, the Sheraton on the south side of the island and a Westin on the north side. The Westin is a higher category hotel, meaning it will require more points for our stay. But it has one advantage, all of the accommodations include kitchens. That means we could prepare meals and not have to eat out every day. As a vegetarian, dining out every day can be a drag and often restaurants will have absolutely nothing I can eat. On the other hand, do I really want to spend my honeymoon cooking and cleaning! If this were any other trip I’d definitely go for the option with the kitchen, it’s healthier and cheaper. But I want to be pampered and lazy this time around, so I’m leaning towards the traditional hotel. Any opinions?


Thanks for reading. If you enjoyed this post consider subscribing for updates.

I don’t have time to do my usual detailed recap of the month and our financial progress/setbacks. This is good news actually, it means I am busy making money. Unfortunately the blog is bearing the brunt of my busyness, poor thing is feeling neglected. The last month was a bit painful with hints of January 2009. Again the stock market is feeling cranky even with all the money I keep feeding it. The only reason our net worth creeped up this month is because I finally received my employer’s 2009 401(k) match. Instead of matching our contributions throughout the year, they wait until January of the next year and dump it all in at once. I guess they’ve never heard of dollar cost averaging. Sadly we still haven’t topped 2009’s high, maybe next month. Here is my usual spreadsheet to reveal the pain and promise.