Well, Friday is here once more and with it, the last work week of 2007 is over! Time flies, eh? Anyway, here are some of my favorite posts from the holiday-shortened week.

• At The Simple Dollar, Trent has a great list of 6 great financial education resources. Knowledge is the key to success with money (as with anything else) and I don’t think anyone can claim to know everything they could ever need to regarding personal finance and investing.
• Free Money Finance had a good article on how to make sure your boss thinks you’re doing a great job. For most of us, our job is the main source of the income we’re so concerned with saving and investing, so it is definitely wise to make sure the boss lets you keep it!
• Continuing the “what is your time worth” theme from the last FLH, Jim at Blueprint for Financial Prosperity wrote about one easy way to calculate the value of your time, assuming you think your job pays you what you’re worth!
• In some sad but really not surprising news, Jeremy at Generation X Finance wrote about a study showing that teenagers are not saving for retirement. This part seems blindingly obvious, but what I found really interesting was that the study also estimated that 35% of today’s teenagers will never put money into a 401(k) or similar account, due to a combination of ignorance and not having the option in their jobs. It amazes me that will all the uncertainty over social security and the loss of employer pensions so many people in my generation will not take action to help themselves. This just begs for some kind of basic finance class in middle or high schools!
• And on a social security related note, Jonathan at My Money Blog had a story about what it takes to live exclusively on Social Security, with a variety of quotes from people in that unfortunate situation. The fact that they can even come close to getting by with so little really makes it hard to sympathize with those poor schmucks who can’t save even on $250,000 a year, doesn’t it?
• One of the (great) non-financial blogs I read is by Seth Godin. He had a great post asking what have you been doing with your time so far in the 2000’s? I thought it was a great call to action. If you’ve been waiting (like me) for the right moment of inspiration and circumstances to try starting a business, changing careers, or pursuing a dream in any form, it’s time to start taking action. Understanding that the world is constantly changing, you can’t wait for the right moment, you have to start moving and make that moment!
• And finally, with New Year’s Eve fast approaching wine lovers should check out the money saving advice from Lazy Man & Money and Blueprint for Financial Prosperity for help finding the perfect vintage to ring in the new year without breaking the bank.

Have a great weekend!

Miscellaneous | No Comments »

Over on Get Rich Slowly yesterday, Daiko posted about how you can often get fees waived, interest rates adjusted, prices reduced and more just by asking. Since banks figure prominently in the list of places to ask for favors and I work at a bank on the receiving end of such requests all day long, a few ways to increase the potency of your requests and likelihood of your success came to mind. My examples are mostly bank related, but apply anywhere!

1. The importance of “Nice”

This should go without saying, but based on the people I deal with daily, apparently it needs to be said. Repeatedly. You absolutely will have more success with any request you make just by smiling and using a friendly tone. Shocking, isn’t it?

Now, this doesn’t mean be a pushover and take the first “no” you hear. It is perfectly possible to be both pleasant and persistent, but most people aren’t. Use that to your advantage. Personally, and the same is true for everyone else I’ve know in a service position, I will do absolutely all I can to help a nice person. The rude, demanding @#$%’s are the ones that get turned down if at all possible.

 2. Plan first, ask later

Before you ask for something, make a plan. Have a specific goal and a reason for your request. Don’t just ask if the bank/insurance company/store can “do something” about that fee, rate, or price. Be specific, aim high but be willing to compromise.

Specific requests help me as the representative, because I know right away whether I am personally authorized to do what you want. If so, I can do it immediately and you can be on your way. If I can’t, I’ll need to talk to a manager, who’s first question will be, “What do they want done?” When I have a specific request, they can either say yes or counter offer, again saving time and hassle for me and you. And of course, starting high gives you room to negotiate if I can’t do exactly what you wanted. But with that in mind…

3. Be reasonable

Feel free to ask me for the stars on a necklace, but don’t be surprised or upset when I propose something a bit more down to earth. And know this right up front: reasonable is relative. If you are a customer who’s been with the bank for 20 years and has $50,000 in 6 accounts, it might be reasonable for me to refund the full $150 in overdraft fees they incurred due to some freak coincidence. On the other hand, if you’ve been a customer for 8 months with $50.00 in a single account, refunding that $150 in fees you racked up for the third time is not a reasonable request. Have an idea of where you are negotiating from!

4. Choose the right target

A well planned, eminently reasonable request asked in the nicest manner possible will get nowhere if you’re asking the wrong person. Whether you’re talking in person or over the phone, be specific about what you want to discuss with the first person you speak to. Ask them to direct you to someone with the authority to help you. Trying to keep your business secret from the receptionist or service representative will only waste your time and mine when it turns out I’m not the person you need to see.

These are a few things that would make me (or anyone!) more likely to give you what you ask for. What other tactics have you used to get a “yes” instead of a ”no”?

Tips | 2 Comments »

So I went to see “I Am Legend” last week with my brother and the wife. I’d been looking forward to it pretty much since the first trailer and while the ending didn’t have quite the same weight as the book, I definitely liked it.

(I don’t think I mention anything below that isn’t shown in the trailers, and it’s been out for two weeks now, but consider this your spoiler warning, just in case!)

If I had to summarize the lesson taught by the movie, I might say, “Watch out for vampire zombies spawned from cancer curing viruses run amok.” However, being the money geek that I am, I also noticed a few good financial points tucked in between firefights and eerie shots of the long grass in Times Square being grazed by deer.

1. Watch out for vampires

No, I don’t mean the blood sucking, brain eating varieties. (If those are a real concern for you, money is not your main problem!) Financial vampires are the costs that suck the returns from your investments and drain the balance in your checking account. Things like mutual fund loads, bank fees, and finance charges.

Get away from these money monsters before your finances end up as a pale, lifeless shell of what they could be!

2. Diversify

Ok, if a global cataclysm leaves you as the sole survivor of the human race, no amount of diversification will help you (and you won’t care anyway). But to ride out smaller disturbances (like a sub-prime loan crisis that pounds the stock market perhaps?), diversity in your investments is key.

Now, I don’t mean diversity as in “owning more than one mutual fund”, “having exposure to different industry sectors”, or even “having stocks, bonds and cash in your portfolio.” No, I mean really diversifying. That means diversifying across asset classes and global markets (as much as possible). Ideally, your millions would be spread globally across stocks, bonds, real estate, and commodities like timber, oil and gold. Of course if you’re like me, “millions” is better read as “thousands” and you don’t exactly have the available funds to buy enough different stocks, bonds, investment properties, oil futures, gold bullion, and timberland.

For those of us who are faced with such financial restrictions, there is still hope! There are numerous funds that invest in various asset classes, both directly and indirectly. Shares in these funds give you exposure to more exotic investments without actually needing a safe full of gold and a partnership in an oil field in Alaska. Check out some different model portfolios for more details on how to prepare your portfolio to weather (almost) any crisis.

3. Financial security is not total security

There’s a scene in the movie that takes place in a ruined bank. Money is piled everywhere, but the camera (and Will Smith) barely notices. Millions of dollars in cash, enough for a lifetime of luxury, are not nearly as useful as a loaded M-4 and a degree in molecular biology.

“Great,” you say, “but the point is…?” Don’t spend all of your time learning money skills. Yes, knowing how to balance your checkbook, analyze a stock, and maintain a well diversified portfolio are important. But staying healthy and knowing some basic self defense, first aid, and survival in different circumstances are at least as important. Preparing and learning to take care of yourself and your family in difficult situations isn’t being paranoid, it’s being prudent. After all, what good is a healthy bank account if you can’t enjoy it (or live to use it)?

So what do you think? Is Robert Neville as much financial adviser as action hero, or do I need to stop thinking so darn much and just enjoy the movie?

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I was reading an article on Market Watch today which made and interesting argument for why housing prices will continue to fall at least 20%. Basically, he argues that prices will fall until median home prices are a smaller multiple of the median family income.

Today, median home prices are 3.5 times the size of median annual family incomes. This may be down from the recent peak of 4.2 times incomes reached last year, but it’s way above the 2.8 times that home prices averaged during 1984-2000, when lots of homes were bought, sold and built.

And if you think 2.8 is low, check out the early 1970s. That was when home prices were only 2.3 times median family incomes, and housing was selling like gangbusters.

He goes on to say that for prices to get back to 2.8 times the median income they would have to fall another 20%, and to reach the 2.3 multiple would require a price drop of 38%, which he doesn’t think is out of the question.

Definite food for thought, but I have a couple of problems with the conclusions overall.

1. First and foremost, I can’t get behind any arguments based on nationwide medians. The housing market is just too granular for nationwide statistics to be meaningful. A 40% drop in an expensive market like Florida will push prices down even if less inflated areas, like Texas, continue to appreciate. A nationwide statistic is useless to buyers and sellers in both markets.

2. For better or for worse, people want more in a home now than in the 1970’s, and they are willing to pay for that. According to the National Association of Homebuilders, the average home size in the US increased from 1,400 square feet in 1970 to 2,330 square feet in 2004. (Yes, I know what I just said about nationwide averages, but I would argue the trend towards more size in housing is basically universal, it’s the price you pay that varies.) So while the median house currently costs 3.5 times the median income, an increase of about 52% from the 2.3 multiple in 1970, the median home size has increased about 66% in that time!

3. Remember that in the 70’s and 80’s inflation was much higher than today, and interest rates were consequently higher as well. For example, the National Average Contract Mortgage Rate Index (an average of rates for purchasing a single family home) in October 2007 was 6.5%. In October 1981, that rate was 15.47% (source). On a 30 year $100,000 mortgage the payment at 6.5% is $632.07, and the payment at 15.4% is $1,296.49. If you could afford a $100,000 mortgage at 15.4%, you could afford a $205,000 mortgage at 6.5% (disregarding the likely higher taxes and insurance). Focusing on the housing cost/mortgage balance misses the point that the monthly payment is what really determines affordability.

4. In the same vein as #3, there are a lot more financing options available today than in the 70’s and 80’s. Because those high interest rates made payments unaffordable (even with a median price only 2.3 times the median income!), new products were developed and mortgage bankers began appearing to offer them at competitive rates. These new products and increased competition contributed to making a home purchase affordable for more people. This eventually was taken to extreme and led to the current sub-prime meltdown, but the overall increase in accessibility remains.

All this is not to say that I don’t think prices will continue to fall in overheated markets like California, Florida, and the East Coast. But saying that a 20%+ nationwide price correction makes sense based on historic figures just isn’t realistic.

What do you think? Is a nationwide crash still in the offing, does it depend on your neighborhood, or is the worst already over?

Real Estate | 3 Comments »

I’ve added Mrs. Micah and My Dollar Plan to the blogroll. Both are recent additions to my subscription list as well. Check them out!

Miscellaneous | 2 Comments »

Better late than never, that’s what I say. So, on to the weekly recap!

• Probably my favorite post of the week was a guest post by Millionaire Mommy Next Door  on Get Rich Slowly called How I Became a Millionaire While Working in my Pajamas. She talks about how she and her husband started young with a small income and achieved financial security by starting a business. Talking about saving money and cutting spending has it’s place, but stories like this one show why I believe that entrepreneurship and increased income are the real key.
• On a related note, Mrs. Micah wrote about determining what your time is worth when it comes to different ways of making money, particularly online. She mentions things like paid surveys, which can seem like good money but often work out to a very low hourly rate. I do like surveys for a little spare time cash, but her point of knowing how to focus on profitable use of your time is well taken.
• Continuing the income theme, No Credit Needed wrote about how just $10 a day can add up to $750,000 over a 50 year period with only a 5% return. Two points here: 1-Even a small investment really adds up over time, and 2-time is the most important factor, so procrastination is costly.
• Shifting gears, My Dollar Plan has a good list of 10 tips for holiday shopping online. I know that the convenience and lack of crowds has converted me to shopping online almost exclusively, and this list has some good tips to get the most out of it.

Finishing on a holiday note: 10 days till Christmas, are you ready?

Miscellaneous | 3 Comments »

The last few months have not exactly been kind to bank stocks. Sub-prime mortgage losses have hammered banks that made such loans, and even brought down banks with no direct exposure. Analyst downgrades and investor pessimism have been the rule.

While the past week has brought a small reprieve with rumors of another Fed rate cut on the way, many banks are still hovering near their 52 week (or longer) lows. While analysts are mostly saying “sell” or “hold”, I am looking to buy.

Why?

In a word - dividends. Banks tend to have high dividends, and plunging stock prices have pushed yields to almost ridiculous levels. Citigroup is currently yielding over 6%. Bank of America - 5.6%, Wachovia - 5.8%, US Bank - 4.8%, Key Corp - 5.7%.

Slightly smaller; National City - 8.3%, Huntington Bank - 6.5%, or if you feel brave, Washington Mutual currently is yielding 11.7% with most people betting that the dividend will be cut next quarter.

With large established banks like this paying 6-8%, it really is a tempting situation. Of course, as with any stock, the price can continue to go down, particularly if more losses show up at that bank. But on the other hand, with prices so far depressed compared to historic levels and the risk of total default so low (do you really think Citigroup will fail?) the upside just in terms of income seems pretty solid. There is also risk of dividends being cut (like WaMu is widely expected to do), but companies generally avoid this if possible, because it is a big signal of financial weakness.

Bottom line: do your homework, but as an income play, banks are worth a look!

Disclaimer: I am not a financial advisor, and I don’t recommend any particular stocks or investment strategy. The above is just my own thoughts and speculation.

Edit 12/11/07: And as expected Washington Mutual has slashed its dividend (by 70%!) Cross that one off the list…

Investing | No Comments »

Well, after a short hiatus (due mostly to a poorly timed computer failure) the Friday Link Highlights are back! I know, I’m excited too.

• JD at Get Rich Slowly has a good post on giving personal finance books as gifts, including discussion of whether such books make good gifts and some age-based recommendations.
• Jonathan at My Money Blog has a good post about setting up a Roth IRA as a gift. There are some restrictions, but if they qualify I think this is a great idea, for the same reason I like gifts of stock rather than the perennial savings bond.
• Also at My Money Blog, during my PC forced down time Jonathan wrapped up his series detailing how he re-built his retirement portfolio from scratch. Lots of information, and his thought process is well laid out.  
• For real estate folks (or stats junkies like me), Barry at Financial Page has the Third Quarter National Home Price Index. Not looking good for sellers, but the investor in me is certain there are deals to be had…
• With the end of the year fast approaching, tax time is coming soon. Jeremy at Generation X Finance has a nice post about how to tell if you will fall under the alternative minimum tax (AMT) and what to do about it if you do.
• Speaking of the AMT, KMC has an article about why your tax refund might be delayed if Congress doesn’t pass a fix for the AMT formula soon. Let’s all hope our legislators take prompt and decisive action on this topic. Ha.

Glad to be back in the saddle here (do blogs have saddles? I’ll assume they do). Have a great weekend everyone! 

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Old and Busted: Savings bond

When it comes to gifts, one that nearly everyone has received at some point is the US Savings bond. They are easy to buy and people think of them as a good “investment for the future” compared to a check.

But people are wrong.

EE Bonds sold between November 2007 and April 2008 will pay a fixed 3% interest rate. That’s hardly keeping up with inflation, much less increasing in value! Additionally, cashing the bonds in the first 5 years costs three months interest as a penalty, and the bonds won’t reach face value for 20 years!

Obviously, from a financial standpoint savings bonds don’t make much sense (or cents). But other than a check, what is a fiscally minded giver to do?

New Hotness: Shares of Stock!

Forget about savings bonds and 3% returns, consider giving shares of stock instead! Giving shares is a better option for several reasons:

• Greater growth potential. Since 1926, the average total return for the S&P 500 in a 20 year period (the time it takes a bond to mature) is almost 406%, compared to 100% for a savings bond. (Source)
• Multiple ways to grow. With a stock, you can make money through share price increases and dividends, and stock splits can compound your gains (resulting in the higher returns above.)
• Increase financial knowledge. Perhaps the biggest benefit of giving stock, particularly to young people, is that it can increase their interest in investing. Talking about money is one thing, actually owning a piece of Disney or Coke is much more interesting!

Is There a Catch?

Obviously, the return on a stock is not guaranteed like a savings bond. The figures above are based on the S&P 500 index as a whole, the performance of an individual stock may be less, or even nothing if the company goes out of business.

You can reduce the risk by buying only big blue chip companies. The risk of Disney going out of business is pretty small (though not zero)! Another way to reduce risk, though maybe at the expense of “coolness”, is to give shares of an exchange traded fund (ETF). ETF’s are basically mutual funds that trade like stocks, so you can diversify and reduce risks.

So this Christmas, ditch the bonds and give something that will really appreciate (and be appreciated.) Stocks in everyone’s stockings! 

Tips | 1 Comment »