The Social Marginal

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.

When your full-time workplace is your home, you can still “leave your work at work” at the end of the day and come home for some relaxation, you just need to adopt the right mentality to be able to do it effectively.

Since moving across the country to support my fiancee in a new job position and now working full time self-employed, my workplace is my home.  To be specific, my workplace is a ‘granny loft’ upstairs in my home, and I do my best to make sure it stays there.  I’m fortunate to have a ‘granny loft’ to make into a nice sized office that has a door at the bottom of the stairs leading to it in our home, but if you don’t, any room can act as your office if you make sure that’s all it is, at the very least for a specific time period during the day.  Set up this room as a true office and make a point not to clutter it with anything else that may distract you.  The point is to make you feel like you’re truly ‘at work’ when you’re there.  Doing this also has tax advantages, consult a CPA or research yourself for further information on that.

The most important part is to set a schedule.  If possible set a schedule of hours every day where you will be working in that office and only working, shut the door to your personal life.  If you have children, this means looking into daycare for during those hours so that you can shut the door and work undistracted.  In my case, I work from 7-5pm every day, however, due to the nature of my contracts, there are times when I have to work outside of those hours due to emergencies and such, but I make a point to not allow that to effect me being back in my ‘office’ at 7am the next morning.

Finally, if you are self-employed and dictate your own work hours, give yourself vacation time and actually take it.  If you are serious about it and stick to a strict work schedule, you’ll need it, as will your family.  Be reasonable but generous, it will allow your work environment to truly become one and make it easier to become accepted as one by your family.

I’m by no means an expert at this, I’m still relatively new to it, but that’s what has worked for me and hopefully it can work for you as well.  You can be very successful in a home office if you treat it properly and you stick to a strict work schedule.  If you have ideas of your own, please comment on this post and let everyone know what they are.

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.

I know it seems like common sense and that you probably believe that you already are aware of your overall financial future, but are you really?  With this post I aim to pose that question to you, not necessarily give you a formula for an answer or a full plan to implement, but rather to motivate you to research and create such a plan should you not already have one.  I will assume that you’ve already dealt with all irresponsible debt before moving forward.

A good number of the members of the Baby Boomer generation are heading towards retirement age without retirement funds to support them in retirement, thinking they are going to just have to work the rest of their lives (see increased IRA contributions with age, etc. and consult a financial planner if you’re one of these people, there might still be a way ‘out’).  Then we have the GenXers who are hitting their thirties and for the most part (at least ones which work in the corporate world or are self-employed, which is the demographic I would be refering to) which have been contributing to 401ks, IRAs, and various other retirement programs for almost a decade now and if they continue responsibly to be on track to retire whether or not social security payouts are around when they hit 55 (or 59 if you plan on living a nice, long life).  And between both groups we have the issues with Debt to Asset ratios.

If you currently contribute to your 401k, IRA, have an emergency fund, and your assets equal a higher dollar value than your debt, then you are on a fairly good path and keep it up.  But the majority are not, and these people need to look into these options.  Whether you are working and 25 or 55, if your employer matches 401k or IRA contributions, take them, it’s free money.  If you don’t have an emergency savings fund for events that may come up, regardless of how great your credit available is, build one, I like to use six months of total expenses as a general rule of thumb in a high yield savings account.  Do you even have a high yield savings account?  If not, create one, send me a message at cinder@socialmarginal.com with your name and email and I’ll be happy to send you a code that will allow you to get a free $25 with a minimum of $250 opening deposit (ING is where I keep my personal savings and have had no problems with it), but there are many other banks and do research regarding the entire company rather than just the rate they offer before you decide on one to utilize.

Not many younger people realize how much money they’ll accrue over 20-50 years if they can just afford to contribute $25-$50 a week or even month to a high yield savings account with compound interest and all, do the math, you’d be surprised.  So if you’re still relatively young, you still have plenty of time to start building that future, but don’t wait (the earlier you start, the more you’ll have), do your research and do it now.  If you’re around 55 and still working, you still have opportunities to contribute to that will augment your social  security as well. 

If you’re 59+ and living off social security and no other auxilary income, well, hopefully you’re making it work, if not, try and find some alternate income that doesn’t add a lot of stress to you, like jobs working from home, and get at it (Sorry, not much advice on that one).

Not all that helpful, but there are a thousand articles (Google is your friend) that will explain what you ’should’ do and different opinions on it, this is just a reminder that if you’re not seriously planning for your future, you need to get off your butt and do it.  If you have a financial planning blog or article that you’d like to reference pertaining to this situation, please do submit it to the comments on this post for others to use.

First, let me start this off by saying that you shouldn’t be lending money to anyone unless it’s completely disposable income, as in, the sort of income you’d use to buy a video game or some such thing, not the income you’d use to feed yourself or pay your mortgage.  Regardless of the situation they are in, only give the shirt off your back if you can afford to buy another one for yourself, no matter how badly you feel for them.  If there is a friend or family member that ‘just needs to make rent for this month’ when you care barely afford to pay yours, help them out by researching their options and giving them valuable advice instead of the money from your pocket.

With that said, I have little reserve in lending money to friends or family, providing the right conditions are met, and that they have a financial plan set forth (which I am often happy to help them set up) to not get themselves in the situation again where they will need to borrow money.  Of course you also need to document the loan as you would any other, including reasonable (check with your state, but you shouldn’t be near the max anyways if you like your friends or family) late fees for missed payments on whatever payment schedule you have set forth to teach them that credit isn’t something to be taken lightly.  If you want to charge interest, do so, if you do so reasonably they will often be very happy with you (I’ll give a good example in a moment), charging Prime is usually a good benchmark, it’s more than you’d make in a high yield savings account and it’s a better rate than they’d get from any creditor, so you’re helping them out.  Ultimately though, along with your judgement, trust your gut when deciding whether to lend to them or not, it’s Ok to say No, even if they know you have the money, if you think they’ll pull something; just use that old line, “Sorry, never lend to friends or family.”

Next, know their financial situation and be realistic with the payback schedule and only loan to them if you can provide one reasonable to it.  If they need to set up monthly payments for a year to payback a $300 loan because they’re still putting away money for an emergency fund (go back to helping them with a financial plan) and that’s a reasonable payment their disposable income will allow, do so, you’ll have a high likelihood of getting it back.  And if they decide to stop making payments, don’t jump on them demanding collections, talk with them about why it’s happening and be reasonable, sometimes you may need to lower the payments and stretch them out over a longer period of time, and sometimes your loan has just become a gift (which goes back to only loaning disposable income).  Money is replaceable, good friends and family are not. 

However, if in a situation where they just decide not to pay you back per the terms of the contract when they are able to, don’t make threats, don’t play the drama game, just spend a couple bucks and file a small claims suit against them on day 61 (or whatever your contract stipulates).  Any friend who has such an attitude isn’t a friend, and any family member needs to be taught a lesson (family should act like family, and while I’m sure some will disagree, filing against them is the lesser of these two ‘transgressions’ concerning family).  Now, if you documented the loan, you’re pretty much guaranteed to get a settlement against them, the problem then with collecting on it varies by State, and perhaps you won’t even want to or care to.  The fact is that you taught them a lesson.  Maybe in time a friendship or the family relationship will heal, and maybe not, but that is a risk you take, fortunately my family would never do such a thing and I don’t make friends with people who wouldn’t do whatever they could to pay me back, so it would never be an issue (Thank God).

Now a good story to end this all.  One day I was walking in a Best Buy with a business associate and good friend of mine (we’re both self employed and I’d actually been helping him get his finance straight and such) and there was a laptop on sale that could benefit him for business, point being it wasn’t frivolous.  He says he’s going to buy it and pulls out a 24.99% interest credit card (eck, long story short, all of his credit cards are now locked in my safe).  I stop him rather abrubtly, knowing his finances that he could afford to pay it over a six month period, but also knowing the APR on that card.  So I offer to loan him the money at current prime (simple interest) under a six month repayment schedule, basically forcing him not to get into more irresponsible debt.  I buy the laptop, we head back to my place, I type up a contract with repayment terms, we both signs, and I hand him the laptop.  I even made a repayment schedule for him as well with due dates and the amount due in an easy to read spreadsheet.  Needless to say every due date there was a deposit in my bank account for the amount which he owed.  He paid it off, was thankful for the loan, I made more than I would of with the money sitting in a high yield savings account, and all are happy (by chance, he’s also going to be the Best Man at my wedding).  Ok, end of happy bunny rabbit example.  It wasn’t a “need” loan, but it wasn’t a frivolous one either and the same principles applied.

So, to sum it up, I think it’s Ok to loan to Friends and Family.  Just make sure you are only loaning disposable income of yours, you get everything in writing signed by both parties, you help them make sure they’ll not need a loan like that again and make sure that they’re on a repayment schedule they can actually afford without sacrificing too much, and, of course, that you truly trust them.  Chances are it’ll turn out Ok, whether or not you actually get your money back.

However, with all that said, I’d much rather give the money as a gift if the person is truly in need rather than a loan, providing they are willing to open up ‘their books’ and let me help them with their financial planning and getting on the right track.  I just think it’s a better choice and you’re giving them a much more valuable gift by helping them set their finances straight, and as it’s all disposable income, you can afford it.

I’m not one of those Ron Paul zealots (though he does have a lot of great ideas, I just don’t believe he’d ever be a viable President), nor am I a Bernanke “hater”, but in this address to the Fed Chairman, Ron Paul really summed up what’s been bugging me about his current actions.  Sorry for the YouTube link, I’m not a big fan of video links in blogs either.

I try to keep everything here on a lighter and more personal mood (though this is very personal and directly affects your finances), but I am known to be a closet economist at times. So ok, I’m done now, I’ll go back to my normal blogging topics, heh. Well, at least once I can think of something to write about that are ON topic.

It’s an age-old adage, but one that is often forgotten in these days of instant credit and zero percent financing.  People on low salaries constantly running up bills that they can not afford to pay off and end up needing to be bailed out in one way or another in the end.  Before you read this brief excerpt, realize that I am no Ramseyite.  I don’t believe that one must strive to live without debt (though it is, of course, nice), what I do believe is that people should strive to live only with responsible debt.

Responsible debt is a hard thing to define, and something that, of course, differs from person to person, if there is a set formula for figuring it out then please feel free to comment and share it.  However, I loosely classify it as being able to pay off all your debt sans mortgage within a one-year period under normal circumstances and without the need to drain your emergency cash reserves, retirement, or standard savings.  Of course this means that you should always take advantage of products such as zero percent financing deals and the like that ultimately benefit you, as they are very often purely responsible debt if handled correctly.  Say you purchase a $4,000 television and they offer 12 months interest free.  Well, you can buy the television on their credit and then bank the $4,000 in a C.D. or whatever and then cash out the C.D., pay for the television and pocket the interest earned on the “holding” account.  That extra 3.4% or so that you can earn on that money over the year (or hopefully multiple years) adds up, just as long as you have a plan to pay off that debt before the promotion expires and you’re suddenly hit with all the retroactive financing charges.  Play the system, but play it responsibly. Read the fine print, ask questions, be sure you understand the terms of the deferred interest “0%” interest plan that is being talked-up to you. You must keep in mind that it is the goal of the seller to move his product and make as much money doing it as is possible.

Responsible debt requires responsible financial planning, and if you don’t have it, you can’t afford any debt.

I know it has nothing to do with the scope of this blog, but I had to post about it because I’ve just fallen in love with it.  A couple days ago I was shopping at target for some CFLs and my fiancee spotted this pad on an end-isle display and pointed it out to me.  My laptop has an extended battery that generally gets a little hot and sits unevenly on my lap, so this thing is just a godsend.  Thirty well spent dollars later I had a Belkin Cushtop.  Sure, it might only cost them less than a dollar to make and you could probably make your own for dirt cheap, but this thing just is so comfortable and fits so perfectly for me, I’m truly in love with it, enough that I wanted to take a break from the regularly scheduled programming and share it here.  And go figure, Amazon has it cheaper and if you buy it via the link below, you help to support this site (I would never link and recommend it if I didn’t use it myself and support it).  I highly recommend this product for anyone that constantly has a laptop sitting on their lap (as I do when I’m writing, managing finances, or just trading securities).

As I posted yesterday, I’m in the process of paying off all my credit cards, especially the ones that Rate Jacked me for no reason at all.  Well Bank of America seems to have Rate Jacked over a million people with perfect payment histories for no reason at all.  I’m proud to say that the balance is now zero and they are now forever sock drawered. I also have an emergency checking account that I keep with them that I will be closing thanks to their rate jacking decision.

In other news, I’m working on an article about not spending more than you can afford (duh, huh?) but trying not to make it cliche and giving some good example and alternatives.  Look for it in the next couple days.  I also removed the AdSense ads as they’re pointless right now and they take away credibility as to why I’m writing at the moment.  (Not saying that ad money or referals are bad, you can shop via the Amazon link in the Blog Roll and earn me money to support the blog with your regular Amazon purchases, heh heh)

 Update 03-01-08:  I feel like a sell-out, but I wanted to keep the card open to decrease my total credit utilization.  I called Customer Support today and asked for a rate reduction since they rate jacked me without any real reason, other than a high utilization, and that they were just trying to profit from customers who actually had good payment records.  Last time I did this, when I had a balance, they just apologized and told me it was policy and they couldn’t lower my APR from what would soon be 27.99%  (Millions of people got jacked to these sort of rates effective in May).  This time however, explaining the situation and telling her that I wasn’t all too happy with BoA, and with a Zero balance on my card, the courteous Customer Service agent transfered me to Retention.  So I got there, told them “I don’t authorize any hard pulls” (also note that my credit report does not reflect any of the zero balance paydowns yet, they still show the high utilization across the board for the most part), and explained the whole story and asked for a lower APR.  He said “Let me see what I can offer you”, came back a couple minutes later, and told me that they could permanently decrease my APR to 12.99% ‘Fixed’ (which at least is an acceptable rate, but not one I would carry a balance on).  I immediately asked that if I ran up 90% utilization on the card and held it at that for a year or two, providing I always made payments, even minimums (worst case situation), if it would stay at that 12.99%.  He responded “Certainly”.  I’m almost tempted to try it, just to see if they were lying, but I don’t want to spend the money on interest doing so.

So, the moral of the story is that if you got Rate Jacked by BoA, whether or not you can pay to Zero balance (tell them that they’ll lose you, and your ongoing profit if you can’t, or that you’ll balance transfer, or something else), ask to get sent to Retentions and ask for a lower APR.  I’m guessing you might have a good chance at getting the Rate Jack that should have never happened reversed.  If you’re in this situation and able to try this, please do so and post a comment here with your results, I’d be very interested to hear them.

As I posted before, I have an addiction to credit (worst of all one that I can afford and that I can pay off and quit utilizing if I just buckled down and did it) and I’m finally putting an end to it.

Below is my account statement as of this morning with my Chase Credit Card.  After they purchased First USA, they rate jacked me to 24.99% for no reason other than high utilization (I had a high income, a perfect payment record, and always paid just a little over the minimum), I was basically their perfect customer, the one that made them the most money.  Too bad for them that I won’t be anymore.

Fortunately this is just one of many such posts in the near future.  That same day I sent off a check (decided to do it the old fashioned way instead of online like I always do) to Bank of America for a little over $6,000 for a card which they recently rate jacked me and over one and a half million other customers on.  Again, I had high utilization with a perfect credit and payment history on it, but they raised my rate to an outstanding 27.99% out of nowhere.  Hell, I even have an ‘emergency’ checking account with BoA (which I will be cashing out and closing soon) that has earned no interest for quite some time.  Of course, I also have a thirty year fixed mortage with Chase with a perfect payment history and that didn’t seem to effect their decision when it came to lowering my rate with them either.

After each of these rate jackings, I called the companies and asked about them, staying extremely calm and professional in my inquiries all the way through, and they both said that it was just part of a ’standard review’ and ‘due to my credit record (I check it almost daily using AMEX’s Credit Secure, it’s perfect, so it has to be the utilization) and that there was nothing they could do, have a nice day.  Well, fortunately, there is something I can do, and I’ve finally gotten around to doing to it, I’m paying them all to Zero.

Earlier this year I was accepted into Duke University’s Fuqua School of Business to participate in their MBA program.  This was a great accomplishment for me (as I have not been a student for some time) and something which I always wanted to do.  With that, I also knew that I would have to make some compromises concerning the current job positions I hold and that I would have to figure out ways to work around them to allow myself to continue bringing in an income while going to school, as one of my primary concerns was that I did not want to incur student loan debt to go back to school as I saw it fairly counter-productive (this is arguable and different for everyone and every situation, that’s not what this is about).

To switch topics briefly (don’t worry, they’ll merge momentarily), my Fiancee, ever since I first met her, has expressed her life long goal of attending Vet School and becoming a Large Animal Veterinarian though she also had a desire to finish her current path in school and move into the corporate world and felt that doing Vet School ‘on her own’ just wouldn’t be feasible.  Not to brag, but she’s a brilliant woman, she graduated with a degree in Medicinal Chemistry and landed a job at one of the world’s largest Pharmaceutical Companies that pays a nice starting salary and provides and excellent benefits package (the reason for our recent relocation across the country, as noted in previous stories).  There is no doubt whatsoever in my mind, or anyone else that knows her, that should she apply herself, she could easily be accepted into one of the top ten Vet Schools in the United States.

So here’s where our stories merge.  I was planning on starting Duke in Fall and scaling back on my contracting work and relying on her job to off-set the income, a plan of which she was completely supportive of and always encouraged me to do.  As the planning went on, between what she expressed and what I observed, though she had been excelling in her position and constantly impressing her colleagues, I knew that she would not be happy in the Pharmaceutical profession in the long term.  So there came the dilemma, do I go to Duke to get my MBA, a degree that, while it would satisfy me, would not immediately advance my own career (I own my own company), or instead do I continue to work and encourage my Fiancee to finish her dream of becoming a Large Animal Veterinarian.  Well, I think the answer is pretty obvious to anyone with a heart whom loves their spouse.

I thanked Duke for their interest and consideration in me, notified them that I would not be attending, and informed my Fiancee of my decision.  At first, she was very reluctant to believe that I would give up the opportunity and even felt angry to a degree that I would throw it away ‘for her’, not wanting the guilt associated with it.  But with it came a new responsibility for her, and something I think she needed, and some of those in her family felt she needed as well, that by me doing so she would be motivated to finally move forwards towards Vet School with fervency and dedication and make her Dream a reality.

With this arrangement, I will continue to be able to work and bring in money to pay for her Vet School and she’ll be able to leave her job (after an appropriate amount of time, we don’t want her burning any bridges by leaving relatively shortly after coming on board by choice) and dedicate herself completely to Vet School.  It’s pretty much a perfect situation when everything is considered and weighed for what it truly is.  Also, as a business decision, in the end her degree in Vet Medicine will also be much more profitable than what I’d be using my MBA for (an executive resume for our corporation) and give us the freedom and flexibility to relocate where we’d like at a later point in life.

So I guess the moral of the story is, when faced with such a situation, don’t just look at it at face value and from your own selfish point of view, consider the ultimate outcome and what it really means to both parties and take your own feelings out of the equation.  You’ll end up making a rational decision that you should not regret and one that should end up being beneficial to both parties.

So I sit and ponder in my massage chair this morning (it’s where I ‘wake up’ and write from) why my Fiancee and I never fight about money or finances.  For many couples it’s a staple of their relationship and has been the downfall of many more, but I can safely say that it won’t be of ours.  Why?  Because we share everything, hide nothing, and we trust eachother completely when it comes to the finances.

It started when we moved across the US together, we didn’t have a lot of financial accounts and such in both of our names, but now that we are here, we are both on all of each others bank accounts, credit cards, etc.  You see, when we moved back here, we needed a home and a responsible loan to go with it.  I could qualify for a mortgage easily, and her, not having an established job (she was moving back here to start one), could not.  So I ended up getting the mortgage for the house we found in my name and I chose to trust her enough to put both of our names on the actual deed with survivorship rights.  This was a big step, and it opened the door to complete financial trust.  From that point on she made sure that I was named on every bank account and financial related product she had, and vice versa.  We had opened the doors to not only a new house and a new chapter in our lives, but also to complete financial trust.

 In day to day activities, I handle one hundred percent of financial activities for both of us, whether it be keeping track of the checking accounts, contributing to both of our IRAs, or just watching the savings and the stock portfolio.  My fiancee is fine with that, she trusts me with it even though a large part of it is her money, she would even if I chose to tell her nothing about what I did.  But I do tell her what I do with our money every day when I get a chance (I try to summarize it as to not make it so boring), I let her know what stocks were purchased and what money was moved to high yield savings accounts or to this or that so that she feels that she is active in the managing of our finances, and I always ask her if there is anything that she’d like me to do with the money that I haven’t already.  This method works very well for us and I suspect will last indefinitely, we’re lucky that way, we’ve already jumped the financial hurdle in our relationship.

Another thing I did, and something which I recommend all partners that are financially adept in a relationship with a less financially adept individual, is to educate them on finances.  Discuss it with them, buy them some books, magazines, whatever they’ll read.  Constantly show them articles about stocks in magazines pertaining to companies that interest them already, it’ll open them into reading and learning about that company’s business side, understanding market terms, and then wanting to expand and know about others.  No matter how stubburn the partner is (trust me, mine was stubborn to start with) about not wanting to educate themselves on the matter, with persistance, it does work.  And most of all, after they start doing so, start asking them what they’d like to do with your money (and actually do it!), make them feel as though their new knowledge is not wasted and that they’re making a difference in your finances.

So to sum it up; trust each other, share everything, be completely open about finances and discuss them often, educate your partner in business and economics if they aren’t already, and most of all include them in investment decisions.  Sounds pretty much like common sense, huh?

 There are a lot of areas of our relationship where I’d say that we aren’t the best role models, but this is one where I can safely say that we are.  I hope you apply what you’ve read to your relationship and make finances an open, exciting topic in your relationship rather than a taboo that is to be avoided.