Monday, September 22, 2008

A Look Around

Readers will forgive me, I hope, for not clogging up teh Interwebz with so much as a single post last week. It's just that each time I sat down to scribble something, that "something" always seemed to be just so much pocket lint in comparison to what was going on in the financial world around me.

I have this distinct feeling that we're watching a pivotal point in world history unfold before our eyes. And I'm not at all confident in my abilities to lay out something that rises to that level.

However, I'll start here:

Lots of bloggers (and blog commenters) around me seem to have taken this opportunity to espouse the path of "Get greedy when others are fearful" insofar as stocks and investing are concerned. "Now's the time to buy," they write. "Everyone's running scared! Bargains abound!"

Well, lots of folks ARE running scared. No denying that. But as for buying stocks hand-over-fist, well, I can't go there. I just can't.

For my part — and I've felt this way for a year, at least — I suspect that we're staring down the barrel of a pretty high-velocity poopstorm. Not one to be taken (or "bought") lightly. One regulatory or legislative misstep here or there, one really bad decision from Someone Who Matters, and that's all it'll take: Down Goes Frazier. (I'd also be the first to admit that "doing nothing" would be a monumental mistake as well.)

So have I gone all Chicken Little? Perhaps.

But I figure that my trepidation is largely a function of my watching people interact on a daily basis. Everyone — and I mean everyone — seems to want something for nothing. Or, at least, "something big" for "something negligible." And they feel they deserve it.

And for the last twenty-odd years, they've gotten it.

Most of Wall Street is guilty of this. ("Risk? Hardly. Our mathematical black-box models eliminated that.")

Generations X (mine) and Y are guilty of this. ("I deserve a mid-five-digit salary right out of college!")

Lots of Joe and Jane Sixpacks are guilty of this. ("Gimme lots of services. Lots. Oh, and a big ol' tax break.")

Underwater, nothing-down homebuyers are guilty of this. ("No, really! I'm entitled to a mid-six-digit profit on my home!")

And yes ... I, too, am guilty of this. (Sure enjoyed those zero-percent transfer offers. Easy money.)

And now the piper wants to be paid.

So the question begs: Who's going to pay?

In one way or another, we all are.

If a country is this reliant on an infinite expansion of debt and credit, and if any sizeable constriction in said credit issuance sends the financial system into convulsions, then how exactly can anyone with even a smidge of common economic sense feel good about our system going forward?

Tell me, please. I'm all ears.

— Posted by Michael @ 8:36 AM


Hi Michael:
As fifty-something’s, my wife and I have our seat belts securely fastened. Despite the doom-and-gloom economy, we’ve done our best to prepare for the storm.

As you know, our budget is framed around Mary Hunt’s 10-10-80 Plan, which recommends saving 10%, giving 10% and living off the remaining 80% (net income after all deductions and taxes). For us, we’ve been blessed to be able to save about 24%, give 8-11%, and live off the remaining 60-65%. How?
1) We consistently spend less than we make and look for the best deals or ways to stretch a buck. (Still trying to figure out how to squeeze an extra 30 miles out of a gallon of gas.)
2) We live in a very modest middle-income neighborhood with no debts other than our mortgage, with only 9 years left to go before it’s paid off.
3) We have a 5-digit Emergency Fund safely tucked away in an FDIC-insured, online savings account, which we continue to build with regular auto-deposits each payday.
4) We faithfully give to our church and several charities.
5) Our Freedom Account is funded with regular auto-deposits each payday, and is now at 60% of our goal for the year and working beautifully, turning our irregular expenses into regular monthly expenses for 15 categories.
6) We withdraw a fixed amount of cash from our checking account every two weeks for food and groceries; paying cash at the stores and limiting our shopping trips to once every 7-10 days (all kudos to my wife in this area).
7) We bag a lunch for work every day and make our coffee at home.
8) As part of our food budget, we limit our dining out to twice a month for breakfast and maybe once a month for a date-night dinner. Take out is limited to 1-2 times a month. The rest of the time we cook and eat at home.
9) We own 2 well-maintained 7-year-old cars, and have been making 2 x $300/month payments to the bank of us (his and hers online savings accounts) for the last 3 years. Our plan is to upgrade to newer-used cars by next spring/summer, paying all cash.
10) Our retirement funds appear to be well-diversified, as best recommended for our age group (wheeze) and risk tolerance by the so-called experts; with approximately 70% in small, mid and large cap stocks, 25% foreign stocks, and 5% in bonds. We considered rebalancing our portfolio with a greater share to bonds, but decided to leave it alone for now and continue to buy more shares at lower cost – planting seeds now to reap a greater harvest later, when hopefully, the market swings around. At least that is what we tell ourselves so we can sleep a little better at night.

But whatever, that’s our story and we’re sticking to it. Hopefully our little umbrella is strong enough to weather this storm. A small part of us is glad everything is hitting the fan now, while we still have a little time to recover (hopefully) before our retirement years. How we will cope with the craziness of rising health care costs in retirement is another issue. Who knows? In some-teen years, I might be one of those old guys you see in Fourbucks working for his health insurance. Nice hat. Double-mocha latte anyone? Ha-ha, not funny.


Well Michael, I for one have been eagerly waiting for you to say something. Now I know you were just struck silent by the situation at hand - which is, as you say, the time to pay the piper.

It makes me absolutely furious that our country is in the state of affairs it is in now; I guess I'm going through the obvious stages of grief. :)

I don't understand how people & corporations can be allowed to take unbridled risk, so they can reap the gains, and then the minute the house of cards falls around their ears, someone else has to bear the brunt of their loss; no, not just the brunt of it, ALL of it, by the looks of it. Some CEO runs a company into the ground & walks away with millions, meanwhile the folks who rely on his judgment lose their shirts.

It upsets me to think that people who took on absurdly risky mortgages can claim ignorance & shock, and expect the rest of us to let them stay in their houses & adjust the amount they knowingly borrowed. Outrageous!

I think everyone should pay the piper - I have been careful with my investments & spending, and yet I am suffering losses. That's fine. But if I was careful and still lost money, then those who weren't careful should feel some pain too! let them go bankrupt, get evicted, hit bottom, LEARN from their mistakes, and then let's get back to business.

My situation is such that I'll come out of this fine - I also follow Mary Hunt's plan & am not in immediate danger of anything in particular; I suspect that eventually we'll get out of this mess in plenty of time for me to recoup my losses in time for retirement, but I just wish that people had more foresight & wisdom about such things & that our failings weren't so suggestively caused by institutionalized greed.

Thanks for at least providing a forum to vent.

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]