M is for Money

Most people have a rosy view of homeownership – the pride of having a place to call your own or the freedom to create your own unique space. But there is a huge downside you don’t see in the glossy magazine spreads, how much it costs to keep and maintain your property. Here is my latest saga in the non-stop expense adventure known as home ownership.

After spending $15,000 on a few necessary repairs this winter my home improvement budget is beyond overdrawn, unfortunately that doesn’t mean new expenses won’t turn up. Two weeks ago I came home to a notice from the city, we’d been caught and it was time to clean up our act or face some fines. Let me explain.

I live on a hillside near downtown Los Angeles. Even though I’m in the heart of the city, my neighborhood is designated as a high wildfire area. The city imposes extra restrictions on me and my neighbors and how we maintain our properties. This means no grass and weeds higher than 4 inches, trees must be thinned and bushes cut down, amongst other requirements. While this has been the policy for years, we’ve never gotten in trouble before. Mr. M and I grabbed our pruners and went to work, but after a few days we came to realize the task was more than we could handle.

My house is one of the oldest in the neighborhood being built back in the 1920’s. That means we have more trees, bushes and brush than our “younger” neighbors. Cutting down the branches and brush is not a problem, but hauling it to the top of the rugged and steep hillside definitely is! There are some trees too high for us to trim and taking all of our debris to the dump would be impossible for us, so I broke down and hired someone to do the work. For $1400 they will clear the whole hillside, remove the rotted remnants of an old deck and haul everything away. We’re also having them do some work to the front yard, simply because it will cost more to have them come back later. I don’t like how much this is going to cost, but I’m hoping this will keep the city off of our backs for a few years. Plus now I can go back to watching TV and surfing the internet, clearing a brushy hillside is no fun for a pasty, lazy office worker like me!

Just as I was starting to get over my hatred of my neighborhood, along comes a fresh annoyance to amp up my drive to move. The owners of the large house to our left moved out about two months ago. It turns out they bought a new place with the intention of renting out the old one. This weekend was move-in day for their first tenants and I can already tell there will be trouble.

The new residents are a loud, raucous group of 20-somethings. I haven’t figured out who exactly lives there, and who is just crashing there, since there were so many people coming and going all weekend. Unfortunately since it is a very large house, they might all live there! The very first night found Mr. M outside at 1 am, yelling at them to quiet down. Then they all have muscle cars which rattle the house like an earthquake, causing the dogs to go crazy barking whenever one of them comes or goes (about every 10 minutes). Oh, and I believe I’ve mentioned the neighborhood’s parking problems before. I have no idea where a bunch of new residents, each with cars, are going to fit into an already crowded neighborhood.

A few weeks ago I talked about my desire to move, and how unbelievably stuck we are since we are underwater. I crunched the numbers and gave up on the dream, even with forgoing all of our other goals our desired neighborhood is out of reach. Of course this latest turn of events will have me questioning those numbers, maybe I can make it work! Hopefully it won’t be as bad as I fear cause right now, I have no way out.

Earlier this week I had after work plans for dinner and drinks with a friend. I suggested a nearby Mexican restaurant that has the most amazing potato tacos along with some pretty good happy hour specials. Imagine my embarrassment when we show up to the eatery only to discover that it had gone out of business!

I swear the place was open only a few weeks ago, they must have closed sometime in May. We ended up going to another nearby Mexican place that cost 3 times as much and tasted one tenth as good. Sometimes it’s hard to fathom why one eatery survives while another one fails.

Unfortunately I’ve seen an uptick in the number of businesses closing the last few months, primarily restaurants and bars around my work. It might be a saturation problem, a few years ago downtown was a dining wasteland. Now there are more great places to eat than there is time, some close down before I’ve even had a chance to try them Of course restaurants tend to come and go even in the best of times, but the continued recession (local unemployment is well above the national average) is making a tough business even more difficult. Next time I have plans to dine out, I’ll call first just to make sure they are still in business!

I finally pulled the plug on our FNBO Direct savings account. I joined the bank several years ago when they offered an unheard of 6% promo rate, but oh how times have changed. After years as a rate leader FNBO has slowly fallen back in with the crowd, recently they lowered their rate once again- it now stands at a paltry 1.1%. This puts them on par with ING, who still has a better website and interface. So my money is off to greener pastures – Everbank.

Unfortunately there are no great places to stash your cash these days, even 5 year CDs only pay 3%. There is no sense in locking up money for years at those rates, so I was looking specifically for a short term home for our savings. Currently, most online banks are paying between 1% and 1.3% for high yield savings accounts. Everbank’s rate on their Yield Pledge Money Market falls within that range, but they also offer a promotional rate for new customers. For the first 3 months, new customers receive 2.25%. The rate then falls to 1.5% for the next 9 months before reverting to their standard MMA rates (1.25% currently). This gives Everbank an edge over the competition in the short term, but no long term benefit. Since this is a Money Market, as opposed to a CD, I can pull out my money at any time if I find a better offer.

Of course there are some drawbacks to Everbank compared to an ING or FNBO, namely their balance requirements. Most online banks pride themselves on having no minimum balance along with no or low fees. Everbank, on the other hand, has a $1500 minimum initial investment and a $5000 minimum balance to avoid their $9 per month account fee. On the other side of the spectrum, their bonus rates are only available on the first $50,000 you invest, so high rollers are out of luck. I don’t think Everbank’s MMA is the right account for everyone at all times, but I think it’s the right account for us right now.

The explosion of student loan debt in this country is becoming a big financial concern, so it comes as no surprise that pundits are eager to cast blame for this disaster in the making - “Placing the blame as students are buried in debt”. To humanize this tale, the writer picks one young woman to represent the woes of student debt laden Americans. Over the course of the article the author points fingers at everyone from parents to financial loan officers, but leaves out a critical detail about our heroine until the end.

Ms. Munna

The protagonist of this tale is young Ms Munna, 26 years old and currently living in San Francisco. She is in denial, via deferral, about her nearly $100,000 student loan debt. The total sounds impressively high, until you learn that comes from 4 years at NYU. It’s a pricey private school in the most expensive city in America, I’m amazed she didn’t emerge further in the red. But her choice of school only paints part of the picture, the reason why she has so much debt. It doesn’t explain her inability to repay the loan, those details are buried further in the story.

The Numbers are Frightening

The growing burden of student debt is a real problem, many young Americans are leaving school with mortgage sized loans to pay off. This debt is practically inescapable, it can’t be discharged via bankruptcy and can follow you into retirement. The weight of this debt will hold back young Americans trying to establish careers and families. This debt will limit their options for careers, their ability to take out loans for things like houses and cars and will crimp the consumer spending which drives the economy. But the amount of debt is only part of this story.

Maybe It’s Your Major

The field of study is relevant to any discussion of student loan debt, after all the ability to pay back that loan is dependent on the student’s future earnings. For example, doctors have been taking on enormous student loans for years without anyone being concerned. Their prospect of a high income and steady employment means taking on those loans is less of a gamble. But what about taking on med school sized loans for a degree with low earning potential?

Apparently for $100,000 Ms. Munna emerged with a degree in Interdisciplinary Studies, I have no idea what that even means. Her two focus subjects, religion and women’s studies, have value, but not one that translates into high earning power. With a degree like hers you can expect employment in social work or at a non-profit, where the average salary is rather low. It is unreasonable to expect to pay back $100,000 in student loans with her choice of majors. As a quick rule of thumb, you should never take on more debt than you expect to earn in your first year of employment. That means Ms. Munna should have limited herself to a more reasonable $30k-$40k of debt or switched to a more lucrative major like finance or engineering.

A Degree at Any Cost

Too many people have come to believe that a degree is worth any price and that it will ultimately pay for itself. But student loan debt isn’t that simple, you have to weigh the cost of the degree against the income potential of that degree. You still have the freedom to pursue whatever field of study interests you, as long as you are mindful of the cost. There are always cheaper options, like public schools, for careers that are more personally fulfilling than potentially lucrative. Unfortunately the choice to spotlight Ms. Munna, whose own choices created her precarious situation, detracts from the issue the author is trying to highlight. There are many people out there who are struggling with student loan debt despite making sensible choices. Ms. Munna’s is a cautionary tale, not an example of a systemic problem with our educational system.

When you think home improvement what comes to mind, is it a new gourmet kitchen or relaxing master suite? Last winter we spent over $15,000 replacing the electrical and plumbing systems in our house, however home improvement projects don’t have to cost big bucks. Right now I’m focusing on a series of small projects that will improve the aesthetics and function of our home, all on a $100 a month budget.

This long holiday weekend we undertook the first task, updating the entrance to our home. The stairs to our front porch are flanked by two potted trees, unfortunately their green plastic pots had degraded in the sun and were starting to fall apart. I needed to find two new pots that would stand the tests of time, weather and three dogs as well as fit my $100 budget. After considering a pair of half whiskey barrels I settled on two huge, beautifully glazed clay pots from Costco, they were $40 a piece. We then spent $20 for irrigation fittings to put the trees and their front yard brethren on drippers. For $100 we have an attractive front entry and I no longer have to water those trees. Even better the pots I bought will last forever, unlike the plastic.

I already have a few other projects planned for the coming months, like installing shelving in one of the closets and adding garden tool storage to the front yard. Improving the storage in your home usually costs very little and you can enjoy the benefits immediately. There are a whole lot of other small home improvements in the $100 range, you can buy some colorful flowers to update your landscaping or replace an ugly light fixture. A gallon of paint will quickly transform a room at little cost, or you can focus on the details like new wall plates for your switches and outlets.

You’re not going to transform an entire house for $100, start by focusing on just one room or one area of your home. Over a year you could completely transform your yard or replace all of your light fixtures on a $100 a month home improvement budget. Throw in some elbow grease and you’re on your way to creating the home you want to live in along with a budget you can live with.

Given my experience with Lending Club it is probably time to pull out my money and run far, far away. According to their own stats, I have one of the lowest returns of any investor, around 3%. Some of my low return can be explained in positive terms, several borrowers repaid their loans ahead of schedule. But the biggest drag on my investment has been defaults, borrowers not repaying their loans.

So far I’ve had two loans get charged off , neither had repaid much at the time they skipped town. Now a third borrower is struggling, again after only a few months. In all three cases, these borrowers had good credit according to Lending Club. The two charge offs were “B” rated borrowers, the one now struggling is an “A” loan. According to Lending Club data on defaults, this shouldn’t be happening! The default rates I am experiencing are much higher than they report. So am I extraordinarily bad in choosing my borrowers or is the actual rate of default higher than Lending Club will admit?

I’ve been less than satisfied with my Lending Club experience for awhile now. Once a few borrowers started missing payments, I stopped adding new money to my account. I haven’t withdrawn my money yet, but if the situation doesn’t improve soon I will. I can earn a similar return in savings bonds, with zero risk. I think the more personal nature of Lending Club (since lenders pick and choose their borrowers) makes defaults personal as well. It makes me angry that right now, someone out there is enjoying my hard earned money. And when a borrower does default, Lending Club’s collection efforts seem limited to asking the borrower “pretty please” to pay back the money. I wish there was a way for them to be more vigorous in their efforts, emails and voicemails don’t seem to have much effect. I know many people have had great success with peer to peer lending, but it appears that I am a Lending Club failure.