The Social Marginal

Last month I wrote about the basics of getting started with planning for your future sans Social Security if you’re getting started at a young age.  Now I’m going to touch on a couple additional issues that are applicable if you’re getting into the game a bit later in life, primarily targeted at individuals who are between thirty and fifty years old and are just “waking up” to their financial future and their need to plan for it.

Depending on what end of that thirty to fifty year old age range you’re at, this can be a very stressful revelation, and as such, if you are experiencing a great deal of financial stress without an appropriate plan for your future, I highly suggest seeing a professional financial advisor and getting their help to lay out a plan appropriate for where you are in life and what your plans are for the future.  With that said, all of the initial steps I wrote about in my first post on this topic still apply, some just need further elaboration if you’re getting started later in life.

Debt becomes a more important factor.

Yes, the older you are, the closer to retirement you get, and as such, debt becomes a more important factor in your financial plan.  Often when people don’t save until they are over thirty, then they also have bad habits with debt.  If you don’t, more power to you and you can breathe easy as you likely won’t have any issue accruing enough wealth to be able to retire at a reasonable age if you buckle down and start saving now.  However, if you are carrying a load of debt, you need to evaluate the difference between your smart debt and not-so-smart debt and work out a repayment plan to follow closely (there are millions of resources covering how to do this, so I won’t bother regurgitating the topic here).

When you retire, you ideally want no debt going into it as the more debt you have, the more you have to have saved to be able to cover the payments; sort of counterproductive towards saving for your retirement in the first place.  Younger individuals have the luxury of time to repay their debt and then start on their retirement savings, you don’t.  To fully maximize long term growth and benefits of your available retirement programs (Whether than be an IRA, 401k, etc), you’re going to need to be putting something into them consistently if you’re in this age range, you can’t afford not to.  Of course more should be going towards paying off your debt still than towards your retirement, but you at least need to be putting in enough to cover any employer matches on a 401k/IRA program and/or to maximize your personal IRA contribution for the year (which is currently $5,000/year for individuals 49 and below for a Roth IRA).

Basically, be very aware of your debt, get it under control and once you have it under control, start diverting that money you were putting towards your debts towards your retirement instead.

Invest with long term taxability and stability in mind

By this point in your life, you should have a good idea what your tax bracket currently is and what it should be when you are planning on retiring.  That means that you need to start making decisions based on that data.  This is where issues such as a traditional vs. Roth IRA/401k are important (whether you’re going to pay taxes on your principle at your current tax rate or on your dividends when you decide to withdraw them at your tax rate at that point).  A larger percentage of your overall investment portfolio should also start to focus on stable, guaranteed yields rather than higher risk growth oriented stocks/funds; basically you need to start looking more towards bonds, etc at this point.  Attempting to play ‘catch up’ by making high risk investments with what money you do have is not a good idea.

Family matters

If you are over thirty years old, have any relatives or loved ones you care about and don’t have an up-to-date will or testament, you need to get off your ass and create one or have one created for you by an attorney.  Make sure to entrust a copy of it with a trusted friend/family member, or, ever better, your lawyer.  It will relieve a great deal of stress and confusion that could otherwise occur during an already very stressful time for your family.

Don’t give up

As I said earlier, just getting started with your “financial life” when you’re already over thirty, and even more so when you’re getting towards fifty, can be an extremely stressful situation.  If you’re determined, educate yourself, and stick to your guns it is most likely that you will be capable of putting together a plan that will still have you retiring by the time you’re fifty five to sixty years old.  Depending on your debt load, you may have to work until you’re a bit older or take on a second job in the meantime, but in the end it’ll pay off in financial freedom during your retirement years, allowing you to truly enjoy them.  Don’t let yourself be discouraged by the path in front of you, just take one step at a time and do what needs to be done and you’ll find that things will start falling into place more and more often as you proceed towards your goal.

The third, and final part of this series of posts will be discussing financial planning for individuals who are only getting started when they are fifty years or older.  It’s going to be a bit more involved and in my opinion the hardest challenge to tackle, but where there’s a will there’s a way, and one can realistically save enough for their retirement in under ten years if they are dedicated to doing so and are over fifty (some fun new options come into play).  Until then, I wish everyone the best of luck on their financial path.

Common sense, I know; but after a couple discussions today, I was again reminded that many individuals don’t think of it that way.

Regardless, the most important financial asset you have is your Job (or retirement/pension/disability income).  That means you need to treat it like a financial asset, or more specifically, an investment.   It means that appropriate time, attention and care needs to be put into it to fully realize the potential of it, and just as importantly, like an investment, if it’s going down hill, you need to know when to throw in your cards, cash out, and move onto another.  Holding onto a bad job can be extremely detrimental to your growth and overall long term financial success; sure, you’ll forfeit short term dividends, but they’ll generally pay off in the increased long term gains from a change of jobs.

And like an investment, proper diversification is key to long term success and weathering down times; for example, diversification of your client portfolio by industry if you run or manage a business.  By applying appropriate financial management/investment logic to your career, you can often ‘depersonalize’ the evaluation process a bit and help yourself decide what the best move is for you with a minimal amount of stress affecting your decision.

So I encourage everyone to step back and look at their current job as it was an investment.  If it looks like a bad investment, maybe it’s time to start making plans to move on to a better one.

It’s one of my four favorite days of the year, that magical day when money seems to mysteriously hop out of my piggy bank and dance over to the piggy bank of the IRS and state taxing agencies, it’s April 15th and your Q1 Estimated Taxes are due today if you are on a standard year fiscal calendar.

Whether or not you have 1099′d or other self employment income to document, remember that paying estimated taxes is often the best way to bring your tax liability as well as your return next April as close to Zero as possible (what everyone should strive for).  If you don’t pay enough, you’ll pay penalties next April, and if you pay too much, you’ve lost the dividends that would have been earned on that money if it were in your own control.  So talk to your tax professional or consult online resources to figure out your tax rate and what your employer will be pulling out at this time, revise your W4 if necessary so that you’ll come up short on the taxable amount for the year (but as close as possible), and then file your 1040ES and whatever your state form is for estimated taxes each quarter along with your payment to make up the difference.

Remember, not paying and not getting anything back on your annual filings should be your goal.  A refund is just a zero interest savings account for the irresponsible, especially if you rely on it every year as many Americans seem to these days.  If you’re intelligent enough to be browsing blogs on the Internet, you’re intelligent enough to manage your money now rather than letting the government hold onto it for a year for you.

I think this is going to be my only post on this topic, and though I wanted to avoid it in the first place, I figure it might give some a bit more perspective.  I could go on about this for pages, but I’ll do my best to keep it brief and summarized as possible, hopefully it isn’t too condensed to express the viewpoint.

For the past five years I’ve worked in positions with Residential Development companies that required me to be knowledgeable and exposed to information for pretty much every facet of the industry for said companies as they owned their own Mortgage, Resale, and even Lending fronts.  I’ve been fortunate enough to work for privately owned companies that were owned and ran by responsible individuals that actually cared about quality and customer service, even as they grew larger.  Still, since 2003 I’ve seen so many things that has made me wince that I’ve become a bit desensitized to the whole situation.

In 2003, it was a seller’s market where I was located, big time.  Prices were skyrocketing, projects were pre-sold before they were even finished (A bank’s dream), and buyers weren’t picky.  Of course, with this came the advent of the widespread usage of interest only loans, irresponsible ARMs, and people buying and just assuming that their house would increase in value and that they could use it as an equity piggy bank consequence free.  I often met with homeowners prior to them purchasing the homes, knowing what loan package they were going into (and them often bragging about it), and always asked them (in a caring way, not sarcastically) if they understood what would happen if the market took a dip; this was usually greeted with a laugh of disbelief that it would ever happened and shrugging off the notion that it even could.  The 115% LTV tricks and such, well, they were frequent and it just made me shake my head in disbelief.

Knowing our mortgage brokers and seeing the loans, meeting with the individuals buying the homes since 2003, I can confidently say that in over 1,000 homes sold, a single home buyer was never ‘pushed’ into a irresponsible mortgage package by them, though I have seen many, many insist on them.  I know there are some deadbeat brokers out there, but it is certainly not the ‘norm’, however, overconfident buyers at many times in the market trend certainly were.  And that’s the nature of the beast when you take a gamble like that, you take a chance at getting bitten, and many did.  I recently drove through a development in an area that ‘we’ sold in late 2003 as a developer and saw nearly 30% of the homes in foreclosure.  The thing is, these homes are still worth more than they were bought for, which leaves three likely options: The first, that the buyer was irresponsible in what they could really afford in the first place and insisted on a stated income loan to squeeze into the development; the second, the home has been resold since, likely at the peak of the market, and the again the new owners were irresponsible in what they could really afford; and the third, the most likely in this particular development given the doubling of price in a one year period after sale by developer, that the individuals used their newly found equity in their homes as credit cards and lived like millionaires until they realized that their piggy bank broke.

The biggest problem during the whole housing boom, in my opinion, were individuals using their rising equity as a piggy bank.  The constant refis, HELOCs, the initial 115% LTVs - they were just absurd.  While there were some people that were mildly ‘victimized’ in this whole debacle, individuals who were trying hard at the American dream and got hit by medical problems followed by a loan reset or individuals who truly were uneducated and really were lied to by their broker and such, the majority of home buyers were not, they were just bad investors trying to get rich quick without working for it or individuals spending way more than they could afford because they felt they ‘deserved’ it.  A lot of people seem to be ignoring this aspect these days and just focusing on the irresponsible mortgages, not that many of these mortgages were actually refis to cash out all that new equity for people that could have originally afforded their mortgage before they decided to do so.

And now the Fed wants to bail many of these individuals out.  Maybe I’m just too desensitized to it all, but I say let them lie in the bed they made and deal with the consequences.  This market, just as it has many times in the past when it took a steep dip, will again stabilize and uptick, and hopefully this time around people will have learned from past mistakes of themselves and others and be a bit more responsible with their home purchasing…

I doubt it, though.

It’s a principle that I’ve always held close in my personal and business relationships, though even the best laid plans can often come to ruin.

Uncertainty about your financial future can drive one’s sanity to the brink of destruction, whether that uncertainty is artificial or not.  That same uncertainty can cause you to work hundred hour weeks, start ventures which have always been looming in the back of your mind in an attempt to offset a potential loss of income, and cut back your spending to the bare essentials; basically it can turn you into a money obsessed Zombie, but at the same time it can also lead to new opportunities and financial freedom as a result.

What am I getting at?  I’m still trying to figure it out really, but I do know that I’ve been there before and I’m at that point again in my life.  Two of my larger personal contracts which account for the majority of my income are in an industry in a region of the country right now that is, for the lack of a better word, lacking.  Seeing employee numbers cut from fifty to under ten in any one company in an effort to ’stay afloat’ over less than a six month period can be a stressful experience for a contractor on the other side of the US to go through.

Last time I had this feeling was approximately seven years ago when I was getting out of the military after spending two years in various hospitals recovering from a parachuting accident that left me with some life altering injuries.  I knew that in a few months from that point, the paychecks would stop coming and be replaced with a pension check that could only be described as supplementary income that wouldn’t cover the bills.  I had to find a new profession.  After brooding and stressing for a couple weeks, I decided to do something about it and within a couple days, I had a nice corporate job lined up where I made plenty of money, my stress was relieved.  It isn’t as simple this time though, as the checks haven’t stopped coming (and I don’t know for sure if they will or not to be honest) but I do now have a mortgage to pay and a financial future to continue working towards.  I guess it was a lot easier with a relatively blank slate.

It’s not adversity in your financial situation that will cause you such anxiety, it’s the uncertainty of whether or not that adversity will be coming around the corner in the near future and the inability to fully plan for it.  So while I can continue to try and create contingency plans, work on new ventures and cut back my spending as much as possible, all I can really do in addition at this point is to let go of the anxiety for the time being and hope for the best.  History has taught me that it is the most important ingredient in getting through these situations.

If only it were as easy to actually do as it is to tell yourself to do.  Ok, enough brooding, back to work for me.

While I have a couple posts in the pipeline (regarding retirement without social security and a couple other topics), I’d like to hear, given what you’ve seen me write about thus far, what you’d like me to write about in the future.  While I’m no real ‘expert’, whether it’s a question concerning a situation that you’d like my advice on in a Q&A format or just a topic you’d like to see me research and write about, send it on in.  Anything I use will be properly credited to the source, and don’t be ashamed to share your own web site or blog and I’ll be happy to plug it for providing the ideas or questions to answer.

You can reach me at cinder@socialmarginal.com.  Thanks in advance.

So I’m busy forming a new company or two and transitioning some contracts at the moment, so don’t have a lot of spare time to write, but I’ve been keeping up my normal sporadic reading throughout the day though, so here are some posts I’ve found interesting in the financial blogging spectrum…

MasterYourCard writes about recession-proofing your savings - Good layman readable overview on what is and isn’t insured in case your bank fails.

Get Rich or Die Trying writes about donating your plasma for extra money - OK, I admit, I’d never do it (they won’t take my blood anyways, not that I had any nasty diseases or anything), but I guess if you’re really scraping by some honorable extra minimal income for yourself to pick up.

Saving Savvy by a Future Millionaire writes about his learning about Passive Income - Definite lesson that all should learn and something everyone should strive to achieve.  Financial freedom is a wonderful thing.

Pinching Copper writes about how there are no victims in the housing bust - I couldn’t agree more.  I get tired of hearing everyone whine about getting suckered into something based on their own ignorance and greed.

No Debt Plan talked about his toothpaste paying him seventeen cents - There are some very frugal people out there, not that it’s a bad thing…

That’s about all that piqued my interest for one reason or another in the past couple days.  Until I’m able to dedicate time to writing again, I’ll update everyone on what’s keeping my interest at least.  Listening to the Fed hearings this morning/afternoon was interesting as well.

In the past I reminded everyone to be aware of their financial future, but I didn’t really go into how to actually plan for it.  I’ve dealt with this topic quite a few times personally while informally counseling people of various ages, from 14 to 57 on how to effectively plan for their future, and most importantly educate themselves on the topic.  One of the main points with any financial plan I help to lay out is to rule out Social Security as a viable source of income after 55/59.  Perhaps I’m a cynic for doing so, but regardless of what happens with the Social Security system in the future, it means that if you end up being able to collect on it, it’s just more money above what you already have coming in (hopefully enough to support you already) and will just make life easier and perhaps a bit more fun for you in your retirement years.

So I’m going to do my best in offering my advice for the various age groups over a series of posts to help educate them in how to best plan for their financial future.  The reason I am splitting this into age groups, three for the purpose of these posts, is because while some of the fundamentals stay the same, the process is very different depending on at what age you really become ‘financially aware’ and start planning (though all the previous posts should apply to the later).  In this post I’ll be focusing on the simplest demographic, individuals under thirty who are starting out with their financial lives and are motivated to prepare for their future from the beginning.  I won’t be touching on budgeting in general, as the topic is covered ad nauseum elsewhere and sort of just comes along with financial responsibility.

Step One - Educate Yourself

While you already are beginning to do so by reading this, I am not the best source of information for this and you really need to pick up some books on financial planning so that you understand all of the basics.  The ‘right’ books vary for each individual, and there are millions out there, I suggest simply browsing the isles at your local Barnes & Nobles or on Amazon and finding something that looks right for you and will keep your attention while reading it.  Doing so will teach you important basics such as the different between a Traditional and a Roth IRA, how to calculate the true APY of an investment product given the tax rate you’ll be paying on the dividends, etc.  The point is, even if you plan on using a financial planner to manage your assets, it’s your responsibility in this day and age to be aware of all of the aspects of what they are doing with your money so that you can be aware of how your money is really working for you.

Step Two - Pay off your Debt

Here’s another obvious one, but one that still needs attention.  You need to get rid of all of your irresponsible debt (and yes, I believe there is such a thing as responsible debt, see here) before you are able to start building wealth and preparing for your financial future.  I personally recommend the snowball method, starting by paying off the highest APR debt you have and working your way down, increasing the payments towards the next debt with each previous paid off until you’re done.  Student loan debt is a touchy subject in this area, but one that I do believe in including in your payoff and not carrying them, regardless of the interest rate.

This is likely the single most important aspect of financial responsibility these days.  When you have no revolving or installment debt hanging over your head (other than your mortgage and such, if it applies), you can really start making credit products work in your favor and turn them into an effective, responsible consumer tool.  In the end, your will power and ability to control your spending will dictate the decision of whether or not you should be using them at all.  Educate yourself on the topic, but when doing so, do your best to get multiple viewpoints and decide which mix of methods will work right for yourself (Please don’t blindly rely on Dave Ramsey for this one), there are numerous blogs dedicated to this topic as well, including Master Your Card that can teach you to responsibly utilize your credit.

Step Three - Start Saving

After debts are paid off, people tend to want to jump right into investment vehicles with their excess income and think that they are really ’saving’, they aren’t, they’re investing, just like the name implies.  They share similar attributes in the ability to earn you dividends on your money, but the main issue is that savings should be at least semi-liquid and accessible with no chance at losing value while those qualifications do not apply towards investments.

I suggest opening a minimum of two High Yield Savings accounts (I use and recommend ING Direct, but basically by high yield, I am not referring to the 0.15 APY savings account attached to your checking account at your local bank), an emergency fund as well as a discretionary spending fund.  The first account to build up should be your emergency fund, which I recommend being equal to a minimum of three to six months of your total monthly take home income, this account should only be accessed in the case of an emergency and only when your discretionary savings account is tapped out  (ie, you lose your job, you have a health emergency, etc).  After you’ve finished building up your emergency fund, you can move on in your financial plan.  The second account, the discretionary spending account, should be used to sock away all savings and excess money not to be immediately paid out in your checking account, this is the account that the money for that spiffy new television should be coming out of, don’t be scared to have a lot of activity in it (though hopefully the majority of it is incoming activity).  A discretionary savings account, if you really do sock away your excess money into it, also helps to curb impulse buying and encourages responsible consumer behavior.

Step Four - Invest, Invest, Invest

Now for the fun part, and the part you need to really educate yourself on before you start, investments.  Once you have an emergency fund built up, while a portion of your excess income should be going into your discretionary savings account, I recommend the majority of it be put into investment vehicles for long term growth.  Open a brokerage account so that a portion of your investments are somewhat liquid and you can have some ‘fun’ with them, as well as an IRA to prepare for your retirement and do your best to max out your contribution every year (the choice between a traditional and a Roth is a personal one and you should educate yourself on the difference and decide which is best for you).  If your employer offers a 401k or similar retirement investment plan that makes sense, definitely take advantage of it, especially up to any amount they will match your contribution (if any).

Keep a watchful eye on all of your investments, don’t be afraid to redirect (or to weather a storm, on that same thought) and adequately diversify and you’ll see your wealth grow exponentially over the years.  Investing can be a lot of fun and I really do recommend you manage your own portfolio, providing you have educated yourself properly; but if you don’t have the time then you shouldn’t be afraid to find a licensed individual to handle them for you, just make sure you find someone that’s right for you and keep them accountable, making sure that they are focused on your goals.

Wrapping it up and Keeping it up

If you follow the above steps, you’ll have a good start on preparing for your financial future.  The main issue at this point is to keep up the motivation in saving/investing, staying out of debt, and controlling your spending.  If you have a spouse, share the financial planning with them and include them in it so that you can keep each other accountable.  Remember that this is only a starting point and ultimately you should adapt a plan that is specifically appropriate for your situation.  In the end, the only person you should rely on for your financial future is yourself and you should be confident in providing for it if you budget properly and follow the above steps, regardless of your income.

Good luck on building your financial future, and if you’re in the thirty to fifty year old demographic, I’ll be addressing some unique issues regarding your options in the next post in this series.

Investing in a friend’s small business while it is either just getting started, needs additional capital to expand further, or just investing your time in helping them grow the business with your experience can be a very stressful and trying test on a friendship.  The hardest part for both parties in such a situation is to really remember that ‘business and business’ and to have the discipline to keep it that way, which includes keeping your emotions in check.  However, if you feel that it would be beneficial to both parties and you can make it work, it can be a very financially invigorating experience. 

I’ve personally done this with a friend’s business by investing both a good deal of my time and a nominal amount of money (to provide services) to help him expand and move it to that ‘next level’.  We’ve been through a lot of disagreements and trials on the business side, but in the end, as of now at least, the business continues to grow and move in the path we wanted, we still respect each other’s expertise in our respective areas and understand that they balance each other out, and most importantly, we’re still friends (he’s actually going to be best man at my wedding).

Here are a couple things which we did that worked and carried us through an expansion experience with me coming into an existing company to assist:

1. Of course, with EVERYTHING, we drew out contracts and put it all in writing, this is a must and something that I just have to remind everyone of at every chance possible.  It keeps both parties honest and keeps the transaction completely professional.  At least it should.
2. When we first started the agreement, my expertise in certain areas were needed and he couldn’t afford to pay me reasonable rates for it.  It was going to require a great deal of my time, as it had already informally at that point, and a small amount of money (not to be paid directly to him, of course) to be able to expand to provide additional services to clients.  Since a salary couldn’t reasonably be established at that time, we agreed (completely mutually and without reserve on either side, which is important for this type of thing) that he would make me a 25% partner in the company in exchange for my assistance.  This was a fair amount given the value of the company at the time and is a percentage that must be weighed carefully based on the net worth of the business and what you’re bringing into it, but it is definitely a viable option to get things started, especially in a time investment for expansion.  At a later date, the original owner could always buy back those shares at a mutually agreed upon sum.  If you don’t understand what you’re doing or the liability risks with doing so, I suggest you seek a lawyer’s advice if you decide to go this route however.
3. When coming in, aside from offering technical services to his clients, it was also necessary for me to mentor him concerning running the business more efficiently.  This is where things can get sticky, and the only way that we could insure to it went smoothly was for him to basically agree (contractually), that for a six month period I would be his ’supervisor’ and he would be accountable to me for everything; from reviewing clients and how to deal with them, to hiring employees for jobs when needed and what jobs to actually take, everything had to be run by and approved by me.  This can be hard for a business owner but ultimately extremely beneficial if they lack business experience and you have a good deal of it; it worked well for us and the company is better off due to it, as is my friend with his improved business skills.
4. As the expansion began to come together finally and we started seeing returns from it, as we had previously discussed, a new contract was drafted and I was put on a nominal monthly salary.  This was more about keeping it professional and preventing feelings of not being compensated for your time and effort than strictly about the money.  As I said, it was a nominal amount and if it is possible, I highly suggest doing it from the beginning, even if gaining a share of the company for your assistance.

Generally a time will come when you’ll be presented with a choice about whether to stay on as a partner or to ’sell out’ and leave your friend’s business in a better situation (hopefully) than you came into it in.  I came to this point and after some discussion, we decided that, given how well we worked together, I would stay on as a partner and continue to help indefinitely and draw a salary for work as ‘Operations Manager’.  It’s not my day job, but it helps augment my other income and as a partner I have additional motivation that I’m not only helping to grow my own share of value in the company with the hard work and dedication that I put into it, but also my friend’s.

In the end, we found that it actually helped both of us have more respect for each other on a personal level and it actually enhanced our friendship.  It was because we handled it right for what we were doing and planned it out so that our differences would end up augmenting each other rather than clashing.  This, of course, won’t be true for everyone and I urge anyone considering going into an existing friend’s business to carefully consider it and find a path that is right for both of you so that you can retain that friendship in the end.

Business is Business.  Friendship is Friendship.  It’s as simple as that, and if you keep it that simple, then you’ll have a much greater chance at success in both areas.

People often approach me to help them develop plans to pay off their debts, which I am always happy to provide (free of charge) as long as they’re completely honest with me about their finances.  Often after three to six months of the changed lifestyle often needed to payoff these debts, people tend to get discouraged and start to just consider alternatives to paying them off, including bankruptcy or just stop paying all together when they could continue, don’t let yourself fall into this discouragement.

Remember that you somehow got yourself into this debt (I’ve rode that boat before as well), and that in most cases, you can get yourself out it the good old fashioned way, paying it off in full according to the contract you agreed to.  It may be hard, but just look forward to the day when you have no irresponsible debt and your FICO score says so.  Having credit is good, utilizing the majority of that credit, well, not so good.  During this process, always keep a spreadsheet showing your active debts and record them incrimentally by the month, allowing you to look at it and see that progress is being made in the process; this will help you ‘keep the faith’.

Most of all, trust in yourself and your ability to do it.  You made a decision to pay off your irresponsible debt for a good reason.  If you really get trapped into a situation where the struggling is so extreme to pay the debt off in a reasonable period of time that you’re sacrificing neccessities in life (these don’t include Cable or Going out to Eat, etc), then please seek a financial advisor.  Note that I said financial advisor and not a debt consolidation/relief company, they are two very different things.

Good luck and keep the faith in finishing your journey to be rid of irresponsible debt, if you need motivation or informal advice on a situation, you can feel free to email me at cinder@socialmarginal.com or comment here for others to provide their input.

I normally don’t do this type of thing (”Round ups” or just linking to other articles alone), but ‘Seb’ over at Pinching Copper wrote a wonderful open letter to Ben Bernanke that I thought was great and I thought that I should bring some more attention to it, a particular excerpt;

“Ben, I know you might not have realized this, but you’ve cut interest rates so far that they’ve fallen below the rate of inflation. This is very, very bad for all the other little boys in girls in America that are trying to save money and keep their heads above water. I know your “friends” are telling you that lower interest rates mean that it is easier for their banker buddies to lend money to each other, but it’s not going to happen. Everyone is very scared for their money right now, Ben. Banks don’t want to lend any more money, because a lot of broke and dishonest people aren’t paying back their loans. You might have heard about this, since you and your buddy Al Greenspan helped create the situation. You could drop interest rates to 0%, and it won’t change a thing.”

You can read the entire letter here.

I’ll start off by saying that I am far from a ‘rich’ man, I am certainly of average means, I do work hard though, and the amount that I make directly is proportionate to how much time and effort I put into it (and a little luck).  I reached a milestone of sorts today, that, aside from retirement, tax (I’m self employed), and emergency savings, I’ve finally reached $20,000 in my discretionary savings account.  The best part about it, to me, is that I only started it in September of last year with nothing.

It’s funny, I use to be a gadgetholic and spend my extra income on various things such as new laptops and televisions, etc.  Ever since I started that account, not by reading any article, but by my own internal guidance, I’ve started to see how frivilous such spending behavior is and it has innately made me into a better consumer.  Now my enjoyment comes from watching my savings account grow, knowing if there ever is that cool new toy or whatever, I can buy it, guilt-free; of if I’m surprised with a child, it will relieve some of the financial stress from it and allow me to enjoy the excitement as I should.  And now when I think about buying those cool toys it causes me to pause and consider if I truly do want them and whether or not I’ll really get a lot of use out of them, and if I don’t, I toss some money into ‘my’ account and I’m just as satisfied.  Don’t be mistaken, I don’t deprive myself of anything but guilt and a lot of waste, I still buy plenty of ‘gadgets’.

I urge everyone to open a discretionary savings account at a financial institution that offers High (relatively these days) Yield Savings and give it a couple months, if you can only afford to transfer $5-10 in it here or there, you’d be amazed at how fast it grows and how quickly you become addicted to it, and it’s a good addiction to have in my opinion.  I use ING Direct, because, well, at the time they had some of the best rates (they still do have good rates) and they have excellent customer service and make it easy to transfer money between accounts when needed, regardless of your needs.  Watching that little “Interest Earned this Month” total at the top of the Savings account page is certainly satisfying.

Ok, that’s all, I’m done bragging; certainly not about the amount of money saved for ‘no reason’, as it’s miniscule compared to most I’m sure, but about having the self-discipline to make my plan happen and to reach this, what I feel is an important milestone in my financial growth.  Hopefully when people see this that are knee high in debt and have no savings, they will realize that it is possible to turn it around and start living without (relative) financial stress.