The Coin Jar: A personal finance blog

Move from NJ because of taxes? Were it that easy...

2009-04-22T23:00:00.000-07:00

Next Wednesday, April 29, is Tax Freedom Day in New Jersey. That's the day state residents have earned enough money to pay their total tax bill for the year.

Forgive M and me if we don’t celebrate.

Several times in the past, we’ve discussed getting out of New Jersey because of the tax burden—the biggest in the country. According to the Tax Foundation, Garden State taxpayers give an estimated 11.8% of income, $6,610 per person, to state and local governments.

Stiff price for a back yard
For us, high taxes hit home—literally. We’ve been looking for a while to move up from our three-bedroom townhouse to a four-bedroom, single-family house (“with a back yard,” as my 4-year-old son likes to point out). Higher property taxes mean less house that we can comfortably afford.

Obviously, we’re not alone in our frustration. On Tax Day this year, pseudo-“Boston tea parties” were reportedly held in all 50 states, with participants criticizing the federal government’s proposed tax increases and rash of recent spending. Emotions ran high enough that, at some gatherings, the word “secession” was facetiously hinted at.

Our home, for better or worse
M and I would love to “secede” on a more personal level by moving to lower-tax neighbor Pennsylvania (where I commute to and from for two hours each day). But in reality, we’re not going anywhere soon. New Jersey, whether we like it or not, is home.

The first and foremost reason is that we’re surrounded by family. My stepdaughter’s father lives and works within an easy drive of our house. My parents are five minutes away, M’s father and stepmother perhaps 10 minutes. My brother moved in literally down the street, after spending several years in Boston. Life is (most days) better and easier with family close by.

Second, M worked as a teacher for more than a decade in the New Jersey public school system. In a few years, she’ll go back to work and eventually be eligible for a nice state pension (paid for by those state taxes, and as long as it still exists). Since our only other source of retirement security is a 401(k) plan—which has been slammed in the past several months like everyone else’s—that’s a big incentive to stay put.

Accept what you can't control
We’ve talked round and round about other options, such as moving to one of the Pennsylvania towns just across the Delaware River. In the end, though, we always come back to the same conclusion: The best option is where we are.

It’s easy to get worked up over things you can’t control, like high taxes or the direction of the stock market. But after weighing the pros and cons, both financial and non-financial, you may find you’ve already made the right decision. The next step is to accept it, and move on.

To make it work, make money management personal

2009-03-26T06:24:00.000-07:00

A couple posts related to money and behavior stood out in this week's Carnival of Personal Finance at Four Pillars. As JT at The Smarter Wallet and NCN at No Credit Needed point out, the first step to changing poor financial habits is learning what works for you.

JT tried different budgeting software with lots of categories, which worked okay. In the end, though, he found his own three-category system more effective for living within his means.

NCN, on the other hand, realized just seeing his credit cards increased his temptation to overspend. Simply moving his cards from the front of his wallet to the back increased his willpower and curbed his spending appetite.

Our "checkbook register" system
M and I struggled to manage our money until we went "old school"--using a paper checkbook register to track expenses. The register has no connection to our checking account (which I balance using Quicken). Instead, M simply uses it to log our non-fixed expenditures (groceries, gas, eating out, etc.) each month, which were the biggest culprit in getting us off track.

The register works well because it's the same method M used to manage her money years ago as a single mom. Back then she didn't necessarily balance her checkbook, but she used her register to figure exactly how much "extra money" she had beyond her rent, utilities, etc. to spend.

To M's credit, when we got married, she had little credit card debt and had even started saving for her daughter's college. And today our non-fixed expenses are far less than we ever thought they could be, helping us as we save toward our goal of someday buying a larger home.

The right method will stick
If your previous attempts at money management have crashed and burned, don't give up hope. You just haven't found the right method yet. Keep trying. If spreadsheets or software don't work, try paper, or vice versa. Experiment with different methods. Think "out of the box." An effective money management system is as personal as you are. When you find the right one, it will stick.

Scaring Wall Street straight

2009-03-20T13:23:00.000-07:00

Wall Street is "shuddering" as Congress moves to change the tax law and "claw back" those big bonuses to AIG employees. And they're not the only ones.

"If the government decides they don't like a guy, all of sudden they are going to tax you, and, boom, and it passes, that's seems a little scary," said Jay Leno while interviewing President Obama late night on Thursday.

It is scary, Jay. That's precisely the point. If you're a CEO, trader, or broker of a bank or insurance company in the "too big to fail" category, the message is loud and clear:

You DO NOT want the government involved in your business. So mind your risk exposure.

Some pundits have called all the outrage and Washington hoopla over the AIG bonuses shameful. And to be sure, there's plenty of political grandstanding going on for the constituents back home. Don't lawmakers have bigger things to worry about right now?

But turns out it's not such a waste. Congress is doing a fair job of, as one of my financial planning colleagues put it, "scaring Wall Street straight."

A big risk of government intervention is creating what's called "moral hazard." That's when a company has no incentive to guard against risk when the company is protected against it. For "too big to fail" institutions, that's understanding the government could step in to pick up the pieces if a high-risk venture they've embarked upon leaves their balance sheet and the financial system a mess.

The drastic step of instituting a 90% tax on bonuses for individuals in companies that take taxpayer money to get above water is a good one. That should at least provide some incentive for CEOs and CFOs to look at their business risks more prudently. "Too big to fail" companies are, and should be, more responsible to the public interest, not less.

I don't want Washington running private businesses. Washington doesn't want Washington running private businesses. ("Generally, government historically hasn't done that very well," President Obama said on "Meet the Press.") Now Wall Street has realized that it really, really doesn't want that either.

Hopefully in the future, that will help financial companies executives think just as much about the extent of their risks, as the size of their potential rewards. And we can avoid getting ourselves in this mess again.

Physical and fiscal fitness: More alike than you think

2009-03-16T10:23:00.000-07:00

I don’t like exercise. Many people get a lot of satisfaction from jogging or lifting weights. I'm not one of them. In fact, I hate exercising just to exercise. It’s boring.

I understand the importance of exercise, especially the long-term benefits. But that doesn’t motivate me much to hit the gym or the track.

You may face the same issue managing your money. You dislike budgeting. You think investing is boring. You even understand their importance and long-term benefits. Still, you haven’t been able to build your savings, reduce debt, or make much progress on your financial goals.

Habits and goals go hand-in-hand
Being physically or fiscally fit is about developing good habits that last. That’s most likely to happen if you tie those habits to a specific goal or purpose.

A couple years ago, I set my sights on summiting 14,410-foot Mt. Rainier. For six months prior to my climb, I strength-trained in the gym three times a week. I hated just about every minute of it, but I rarely missed a workout. Every leg press and stomach crunch gave me a better chance of checking Rainier off my “bucket list.”

I’ve noticed the same thing when it comes to our household budget. M and I are aggressively saving to build up a large down payment so we can move up from our townhouse to a single-family home. We’ve cut our discretionary expenses by about a third, and things feel pretty tight. But we’ve stuck to our plan—as painful as it has been. We know that every extra dollar we spend takes away from our larger goal.

“Good for you” isn’t good enough
If good money habits haven’t stuck for you, get specific. Instead of “paying off the credit cards,” for example, identify a direct, tangible benefit of reducing your debt. Maybe it will give you the cash to go on that trip to Italy you’ve always talked about. Or to get the mountain bike you’ve been eyeing. Or help get you and your spouse out of marital counseling.

Whatever the benefit, go beyond just dollars-and-cents logic. The more personal, the better. Good exercise and financial habits are tough beasts to master and maintain, even for those who do them well. If you struggle, find an emotional connection. That will turn your initial steps into ongoing habits that you’ll stick with when the going gets tough.

Focus more on the personal in your finances

2009-03-04T12:39:00.000-08:00

It took me 10 years to make the leap from financial writer to financial planner. Why? I thought it was all about numbers.

But that was a big misperception. And it's one that I find many people falling into when making their own financial decisions.

More personal than finance
As a writer, I’ve always been more comfortable with touchy-feely words than cold, hard math. I’m eternally scarred by failing to get higher than a C in Mrs. Kuperstein’s accelerated Algebra II class my junior year of high school.

But a funny thing happened on the way to my current career choice. I learned financial planning isn’t just calculating returns and complicated formulas. Personal finance, it turns out, is 80% personal, 20% finance. In other words, it's about how people behave in relation to their money. The choices you make and the actions you take—which often fly in the face of what’s smart or sensible—will have more impact on your financial success than anything else.

Ask the right questions
Don’t get me wrong. Math plays a big role in financial decisions. However, it's just as critical to focus on your behavior, and how that behavior hurts or helps in the pursuit of your goals.

Not surprisingly, I find that many investors see financial planning as I used to. They ask questions like, "Which fund earned the highest return last year?" "What company is earning the most?" "Which stock pays the highest dividend?" These are far less important than touchy-feely questions they don't always ask, like "What exactly is the financial goal I'm trying to achieve?" "How much risk am I willing to take?" And "How soon will I need the money?"

To make wiser financial decisions, learn just as much about yourself as stocks, bonds, and IRAs. It’s not enough to read Barrons or watch CNBC to be a good investor. Get a keen sense of who you are, how you do things, and why. Give a lot of weight to how those traits and qualities tie in to the investments or financial vehicles you choose. That will have more impact on your success than you probably realize.

Do you think like the middle class or the wealthy?

2009-02-24T03:31:00.000-08:00

Among this week's Carnival of Personal Finance at Broke Grad Student is a short, yet impactful blog post. Blogger Moneymonk compares the thoughts of the middle class with the thoughts of the wealthy. And all four points related to the middle-class mindset apply to (gulp!) me.

In essence, Moneymonk (and one of the post commenters, Finance Girl) highlights that the middle class focus primarily on financial security. Those who build wealth successfully focus on financial prosperity.

It's a subtle but important difference. Wealth-builders are more willing to take on greater risks, such as starting their own businesses or buying investment properties. Those in the middle-class take on less risk, by working for someone else (which, admittedly, doesn't seem that less risky in these days of mass layoffs and rising unemployment) or putting their money in a tangible, relatively low-risk asset, such as their home.

I work at a large company, and M and I are diligently saving to move up from our townhouse into a single-family home. The one place where we are taking greater risk is in our 401(k), which is invested 80% in broadly diversified stock funds. Essentially, we have a middle-class mindset, with just a pinch of wealth-building. This realization isn't quite enough to make me want to change what we're doing. But it does get me thinking.

What's a wise mix of stocks and bonds? It's no secret

2009-02-18T17:02:00.000-08:00

One thing I love about investing is its paradoxical wisdom. Buy stocks when returns are stinking up the joint. Sell bonds when their interest rates go down (which causes bond prices to go up). At face value, wise investment decisions don’t sound very wise.

These days, many people are questioning the wisdom of owning too much stocks in their portfolios. “What’s a 'normal' mix of stocks and bonds to have for someone my age, in my tax bracket, with my income, etc.?” they often ask. They perceive there is some cut-and-dried, black-and-white mix out there, appropriate for people like them, that would have prevented the stomach-dropping losses they’ve just experienced.

A guideline, not law
The truth is, no single mix of stocks and bonds is right for everyone, or even for a category of investors. In fact, as a professional financial advisor, I could potentially lose my license by recommending a specific mix to a group of clients based just on their ages or incomes (see the “Know Your Customer” rule).

A commonly quoted asset mix rule of thumb is the one espoused by Vanguard Group founder Jack Bogle: Hold a percentage of bonds equal to your age. That’s a great place to start, but keep in mind it’s a guideline, not a law. Forty percent bonds can be appropriate in your 70s. Fifty percent can be appropriate in your 40s. The decision ultimately depends on you: the goal you’re trying to achieve, how comfortable you are with risk, and how long you have to invest.

Gut-check time
How can you tell if you’ve got a “wise” asset mix? It feels very comfortable, in both good markets and bad. You're satisfied with the ups and can live with inevitable downs without being tempted to make “dumb” decisions—such as buying what’s doing well at the given moment (i.e., at higher prices) or selling what’s doing poorly (i.e., at lower prices). Like a good pair of pajamas, it always give you a good night’s sleep (pardon the corny analogy).

Rough markets like these are great as a gut-check for how well your asset mix fits you. If you’re freaked about how much your stock portion has dropped, you probably held too much and it’s time to make a change, losses be damned. Find the balance that you can maintain over the long haul, then make buy and sell decisions that keep the balance in line. That’s smart.

Personal finance served family style

2009-02-17T03:37:00.000-08:00

Canadian Personal Finance Blog serves up this edition of the Carnival of Personal Finance. It was Family Day in Canada this week, so his blog is themed accordingly: advice that might come from a member of your family. My three fave posts:

What we learn from tragedy. Jason of MyMoneyMinute offers some heartfelt "practical applications" and "fundamentals" to think about. I'd add that make sure you also have powers of attorney in place.
A macroeconomic look at credit cards, by David of Davidonfinance. Read the post, and the first few comments. David initially characterizes credit cards as "inherently evil," but then seems to be persuaded otherwise by some readers.
Valentine Day flowers a rip-off? by MoneySmartLife. Valentine's Day flowers are worth the gouging by flower shops because" they perform a valuable service," according to the unnamed blogger. It made me wish I'd spent a little more on the flowers I got M, which I gave her a few days ahead of Valentine's Day. After her initial surprise and gratitude, she said knowingly, "Were they on sale?" Guilty as charged.

When having a land line and cell phone makes sense

2009-02-12T16:59:00.000-08:00

I used to think M and I paid too much for our phone usage. Not anymore. I discovered the costs—largely non-financial—of moving to a cheaper plan actually outweigh the benefits.

We pay how much??
For the past five years, we’ve resented paying more than $100 a month for a cell phone plan and unlimited long distance on our home phone. We’d go back and forth about getting rid of either service to reduce our costs, but honestly, we're hooked on the convenience.

I use the cell during my two hours of commuting time to catch up with family or do “chores,” such as scheduling appointments. M uses the land line while at home with the kids to keep in touch with her mother and best friend, both who live out of state. She also likes not having to keep track of her minutes to avoid overage charges, or having to call late in the evening or on weekends.

But last November, we took a first step and went with a pay-as-you-go land line plan. We expected some small savings, maybe $10-$20 per month, as we better utilized the unused minutes we had each month in our current cell plan to make long distance calls, and took more advantage of the ability to make free calls to each other. Maybe we’d even get rid of the home phone altogether.

Old habits die hard
This week, we went back to unlimited long distance. In the three months, we spent more—not a lot, but still more—for phone calls instead of less. Changing our behavior was not quite as easy as changing our calling plan.

We tried hard to break the habit of reaching for the home phone. At one point, M stuck a “Use cell phone” Post-It on the cordless handset as a reminder.

But obstacles stood in our way. We have phones on three of our townhouse’s four levels, so the temptation to simply make a call, especially a quick one, from the land line was great. M also wasn’t keen on always having to remember to keep the cell phone at her side.

Most importantly, phone calls became a source of friction. I tired of reminding M to call me back on the cell instead of the land line, and she tired of me reminding her. We may have eventually ended up with a lower phone bill by not speaking to each other, but that hardly seems the point.

If we’d stuck with it, we probably would have developed phone habits that could have saved the few bucks each month. But for us, it’s just not worth it. We can find other, less wearisome, ways to trim the budget. And our once “high-cost” phone bill now seems like a pretty good value.

There's no place like...the Carnival of Personal Finance #191

2009-02-10T18:15:00.000-08:00

Dollar Frugal hosts this week's Carnival, with a Wizard of Oz theme. So follow the yellow brick road to these cool posts:

Being married seven years has taught Mighty Bargain Hunter seven lessons about money. Nothing real surprising here, but some good reminders, such as listening to your spouse is key and don't keep secrets!

Bible Money Matters shares why good financial decisions don't always make financial sense. Amen, brother!

Michael James offers an interesting analogy between playing poker and successful saving. Deal me in, Michael!

A coin jar adds up to more than just saved pennies

2009-02-06T04:48:00.000-08:00

Given my new mission, I was mulling over changing the name of this blog to better reflect my goal of linking behavior and spirit to building wealth. Then as I thought about it, I realized that a coin jar is actually a pretty good example of that alignment. Here’s why:

It’s easy to start. You can use just about any container you find hanging around the house to hold your coins, which removes a big barrier to saving and building wealth: Just getting started. I use a medium-sized white porcelain bowl we got as a Christmas gift one year, and I’m not even sure how it ended up being my container. But I need something bigger because it's overflowing.

It’s habitual. Many people keep their containers close to the place where they empty their pockets each day, so they can toss coins in automatically. My bowl is in my nightstand, where I put my cell phone, Ipod, and employer security badge each night after work. When you make saving part of your normal routine, you give yourself a great chance of being a successful saver.

It builds up over time. Coin jars teach a valuable lesson: Wealth-building requires action and patience. You won’t get rich quick by saving pennies a day, but you'll be surprised at just how much your spare change adds up to over a long period of time. And that’s true for any type of saving, whether it’s a down payment on a house or your 401(k). Little things mean a lot.

So nothing's changing: The Coin Jar is here to stay. (Good thing, too, otherwise I’d have to write off as a loss all those Coin Jar t-shirts I printed up…just kidding. ; )

How much money have you saved using a coin jar? Have you ever used the savings to purchase a big-ticket item, like a TV or computer? E-mail me your story and make The Coin Jar Honor Roll.

Carnival of Personal Finance offers good reading

2009-02-03T12:49:00.001-08:00

The Carnival of Personal Finance for the week is up at Funny-about-Money. A few favorites related to behavior and money:

Financial lessons learned from my younger self at Monogamoney.
Why I never budget (though he does in a way) at Bret Frolich.com
Biggest financial lesson learned from the bear market at personalfinancestartup.com.

Check 'em out!

Pay off your mortgage? Look at more than just numbers

2009-01-28T12:09:00.000-08:00

In financial planning, the first answer to most questions is, “It depends.” And as frustrating as it is for folks to hear, it’s the truest initial answer for most situations. It’s not the final answer—ultimately there is a "Yes" or "No" that makes sense for the individual. But when it comes to money questions, there's usually a lot more gray in the answers than black-and-white. And much of that gray is created by an individual's financial spirit, as well as situation.

Logic versus spirit
For example, you might come to me for advice and ask, “Should I pay off my mortgage?” Personally, I'd like to be able to spend money on something else other than a mortgage payment and have the security of a paid-off home. I’m willing to forego other things in the near-term, such as replacing an out-of-fashion suit for work or enjoying a night out with my wife, to pay additional principal on the mortgage balance each month.

But we’re not talking about me, we’re talking about you. You go on to tell me that your mortgage has a fairly low interest rate of 6%. Wouldn’t it make sense, you ask, to pay the minimum amount of principal on the mortgage each month, and use any additional money to invest in the stock market, which over the long term has grown on average 10% per year?

At face value, your question is financial and logical: If you borrow money at 6% and invest it at 10%, aren’t you making 4%? On a deeper level, though, it’s spiritual: Should you pay off cheap debt when you can conceivably make more money over the long run by investing it?

Align your strategy and goals
Naturally, my initial answer would be, "It depends." But it doesn't depend on whether stocks will earn more than your 6% interest rate, which may be what you want me to focus on. It depends on why you're asking the question in the first place.

For example, you might want a wealthier lifestyle in retirement that requires you to save a substantial amount between now and then. In that case, directing extra money to the stock mutual funds in your 401(k) plan or IRA can make sense. Or being completely debt-free might be extremely important to you, in which case paying extra on the mortgage would be a good approach.

Stop thinking the right answer has to do with just numbers, where the stock market is going or not going. The right answer is the one that best aligns your strategy with your goals and values--essentially, your financial spirit. Get in the habit of answering questions that way, and you'll improve the odds of having financial success.

But really, just pay it off
In actuality, the answer to the money aspect of mortgage question is fairly black-and-white: Pay it off. Financially speaking, the amount you could gain from the excess return of investing in stocks doesn’t justify the high risk, when compared with the certainty of having a paid-off home.

If you’re making good progress on other financial goals, like retirement or college savings, and still have money left over, paying down your mortgage is a smart choice. The real question to ask yourself is, do you think it’s smart, given what you're trying to achieve?

Back with a new mission

2009-01-23T03:53:00.000-08:00

I'm back. Did you miss me? Or maybe even more telling, did you even realize I was gone? (Don't answer that.)

It's been nearly a year since my last post, but I've used the time away well. In fact, by the grace of God, my life's gone through a big change. Instead of writing blog posts this past year, I used the time studying to get my Series 7 and Series 66 licenses, and to pass the very tough CERTIFIED FINANCIAL PLANNER (tm) comprehensive exam. Today, I'm no longer writing about personal finance and investing; I'm working with individual clients and advising them as an official financial planner.

I've been three months on the job and I love it, which is saying something given the financial state of mind of people today. I started advising on October 7, less than a week before the Dow Jones plummeted 11% in a single day. If I can love this job after advising clients in what's been the worst financial meltdown in 80 years, I'm guessing it was a pretty good career choice.

A cool revelation
And this brief time in my new role has helped confirm something in my mind. Financial success comes down to this: You are how you manage your money.

Plenty of books, blogs, videos, etc. exist on how to build an investment portfolio, how to save, how to spend wisely, what vehicles to invest in to reach your financial goals. But I'm realizing more and more that you can know everything there is about stocks and bonds, savings accounts and 401(k)s, and still make poor decisions that leave you poorer.

When it comes to money, the most important thing to understand is you. How you act. How you think. What motivates you, what deflates you. Only by discerning the inner-workings of your own mind, and particularly your spirit, can you effectively create a sensible financial plan. You have to know what fits, what doesn’t, and then what that means in the financial vehicles and strategies you use to pursue your own goals.

It's really what I love about my job, getting to know people, helping them to know themselves, and then applying those findings to their investments . Much to my surprise (and thrill!), being a financial planner is as much about helping people understand themselves as it is about understanding correlation coefficients, betas, and other complex math formulas (which make me say yuck! as much as any non-financial person).

My new mission
And that's what I'm hoping to bring you here at The Coin Jar: Ways to help you think about who you are, how you relate to money, and how you can use those findings to achieve success. It'll be a journey we go on together, because I'm applying these ways in my own life today, as I've written about in the past, and will continue to do so.

So please forgive the lengthy absence. I hope we both find it ultimately rewarding.

Posts in the Carnival of Personal Finance

2008-03-11T12:31:00.001-07:00

This week's Carnival is up at the Quest for Four Pillars, a Canadian blog, eh? So don't be a hoser...check it out, especially these posts:

Ten financial lessons I learned from my dog, at squawkfox.
How to make a budget work, at beingfrugal.net.
How Wide Open Wallet teaches her kids about money.

A breakthrough: We're staying in our townhouse

2008-03-07T06:00:00.000-08:00

The past three years haven’t been easy for M and I when it’s come to discussing our housing situation. We’ve struggled with whether we should stay in our 3-bedroom townhouse or move up to a larger house. Finally, last weekend, we had a breakthrough: We’re staying in the townhouse.

That might seem odd, given all the reports that housing prices are on the decline. But I think it’s the right decision, and most importantly, both M and I do. For the first time, we are on the same page regarding a topic that has been a steady source of conflict. And really, the credit belongs to M, for whom letting go the idea of a bigger house—at least for the time being—was emotional and difficult.

Still a big stretch
The decision is hard for me, too, but for different reasons. It is a good time to buy, or at least better than it was a few years ago. M’s regular monitoring of websites like Realtor.com indicates that single-family home prices in the Burlington County, New Jersey, area have fallen anywhere from 10% to 15% from their highs in 2006.

However, they still ain’t cheap. While we have a fair amount of equity in our townhouse, it would be a financial stretch to buy the kind of home we really want—a contemporary four-bedroom house that we envision living in for the next 20 years or longer.

We toyed with the idea of killing ourselves with extra jobs and belt-tightening over the next 12 months to save for a bigger down payment. But with M juggling full-time mommy duties for a toddler, an infant, and a teenage daughter, and my daily two-hour work commute, our schedules are already tight. And our $500 per month grocery budget is considered “thrifty” by many standards.

A focus on other goals
So instead, we’re going to concentrate on modestly improving our townhouse more to our liking, and saving for our kids’ college. For instance, our 3-year-old son’s basement play area is half-finished (our friends half-kiddingly call it “the dungeon”) and too close to sharp tools and old paint cans for comfort. Plus, my stepdaughter graduates high school in 2012, and we are far short of having the money we’ve agreed to provide for her college (the actual amount requires some explanation; I’ll get into that in another post sometime).

Without the specter of a new house looming in the back of our minds, we can focus on achieving those goals.

Can’t do it all
I asked M what the turning point was for her in deciding it was best to stay where we are. Her personal sacrifice is enormous, on multiple levels: As a young girl, she always envisioned marriage and family life with having a house and a yard in a neighborhood—a far cry from our multi-unit, parking lot-covered townhouse complex. She also knows we could afford that house if she returned to full-time teaching, a job she loves, is good at and well-paid for, and finds much more appealing than cooking and cleaning.

I imagine many women today, balancing work and family, can relate to her response (which I’ve paraphrased).

“It was a combination of things,” she said. “The kids being sick so much this winter. Trying to keep up with doctor and orthodontist appointments and cheerleading practice, while also tutoring just a few hours a week on the side. It’s overwhelming.

“I think God has been showing me that I can’t do it all, that I have to decide what’s really important. And I want to be there for my kids when they need me. I don’t want someone else raising them. If that means waiting to have the bigger house, so be it.”

Peace in exchange for a bedroom
I’m confident we will someday have the house of our desires, probably in about five or six years, when M does return to work. And we are still passively “in the market” if an opportunity arises. We’ll take any miracles God wishes to send our way.

But we’re not counting on a miracle to make us happy. We are hopefully putting to rest our discontent with the blessings He’s already provided, removing it as a flashpoint in our marriage. I’ll trade an extra bedroom for marital peace any day.

A good week to jump on the saving bandwagon

2008-02-27T05:12:00.000-08:00

Need a reason to start saving? Here's one: It's America Saves Week, which started February 24 and runs through March 2.

America Saves Week is a national campaign organized by various nonprofit, corporations, and government groups aimed at reaching increasing awareness that people need to save money and reduce debt. Its primary focus: encourage people to act by making a commitment to save, invest, and build wealth.

"This year, the focus is on making saving automatic," said Nancy Register, associate director of the Consumer Federation of America in Washington, D.C., and national director of the America Saves campaign. Here are three ways to do that:

Sign up for or increase the amount you’re putting into your employer’s tax-deferred retirement plan (commonly called a 401(k) or 403(b)). The money comes right out of your paycheck, so after the first one or two pay periods, you’ll never even notice that you’re putting it away.

Open an individual retirement account (IRA) and set up regular deposits from your checking or savings account. The maximum amount you can contribute to an IRA in 2008 is $5,000, which comes to $96 a week.

Build an emergency fund by setting up automatic deposits into a money market mutual fund or savings account. A well-funded emergency savings account has three to six months of living expenses.

If you still need a little encouragement, visit America Saves.org. You can sign up for monthly saving “pep talks,” get tips on how to save, and see how others have turned their lives around by becoming “Savers.” You can even connect with Savers in your local area.

Check out Carnival of Personal Finance #140

2008-02-20T06:15:00.000-08:00

Lots of great personal finance articles in this week's Carnival of Personal Finance, hosted by The Financial Blogger. My favorites:

Emotions and money: Thanks to Suze Orman's new book, A Dollar a Day discovers if she's going to be generous, she also needs boundaries.
11 ways to save money: The first one is using a coin jar; how could it not be one of my favorites?
What is a Certified Financial Planner?: If you don't know, you should. Hint: It's different than a CPA.

Consumers' credit card pain may be a long-term gain

2008-02-15T06:00:00.000-08:00

One positive coming out of the current credit crunch: people may be thinking twice about using their credit cards.

The Associated Press recently reported that growth in consumer borrowing slowed sharply in December (holiday shopping season, even!) and was at its weakest level since last April. Meanwhile, credit-card delinquencies and defaults in December were up substantially from a year earlier, The Wall Street Journal noted.

To some, that’s a bad sign. The drop in credit-card use shows that consumers are "in trouble," according to one gloomy investment firm executive quoted by MarketWatch. "It reinforces the view that consumers are struggling with the bad housing market and tight credit. It doesn't bode well for the economy."

Maybe in the short run. But long-term, more consumers paying cash and being more cautious about debt is a good thing. How truly healthy can our nation be financially if the economy tanks because consumers stop buying things they can’t afford?

Not that I am completely anti-credit card. M and I still use a Chase Travel Rewards card for non-impulse items, such as gasoline, and planned purchases we fund with cash from our savings accounts (for which we don’t have a debit card).

But it’s a big change from more than a year ago, when we used our rewards card to buy just about everything, then paid off the full balance each month. I haven’t done any hard calculations, but I do believe that using a debit card connected to our checking account causes us to spend less in general and helps us stay within our means.

No doubt, a lot of people with overdue credit card and mortgage payments will experience a lot of pain in the months ahead, pain which will continue spreading to the economy and financial markets overall. But if that pain also teaches us something, maybe we’ll all be the better for it.

Have you cut your credit card spending recently because you are struggling financially? E-mail me your story at coinjar@yahoo.com.

Thanks, Washington, but the economy doesn't need your help

2008-01-19T07:30:00.000-08:00

I have a few cherished Philadelphia Phillies bobblehead dolls on a bookshelf in my basement. When M and I aren't looking, our 3-year-old son likes to play with them. So not surprisingly, one day I came home to find Mike Schmidt with his arms snapped off.

"I've told you before: DO NOT TOUCH," I admonished my son while super-gluing Schmidty's limbs back into place. "It's not your toy to play with. Now leave it alone because you'll break it even more."

The "broken" economy
I find myself saying the same things today--except directed at President Bush, Bernard Bernanke, Nancy Pelosi, and all the others in Washington scrambling to "fix" the economy. The stock market is swooning, economic growth is slowing, and people--make that voters--are screaming: "The economy stinks and Washington doesn't care!"

So to show they have a heart, our government officials will offer up what many want: $150 billion to spend in the form of tax rebates, and lowered interest rates for borrowing money "more affordably." But isn't spending and borrowing how we got here in the first place?

As I see it, economic and investing forces aren't broken; they're working quite well. For example, when demand exceeds supply, prices drop (as with the housing market today). And with high risk can come punishing losses instead of soaring gains (as banks and mortgage companies have had to relearn).

No short-term fixes
What is broken is general perception: that Washington must do something to fix the economy. No, it shouldn't. Tax rebates while fighting a multibillion dollar war fought on two fronts and running up a monstrous federal deficit is a bad idea. Making borrowing more attractive while more people are struggling to pay the debt they already have is a bad idea.

No doubt, things look bleak right now. They will likely get worse in the months ahead. Unwinding the housing bubble of the last few years will take some time and involve some pain. Believe me, I don't enjoy seeing that M's and my 401(k) is down about $13,000 since the end of the year alone, and that our townhome has lost about $15,000 in value over the last several months.

But I have little faith that Washington's short-term fiscal band-aids will make things better in the long term. They won't change $90-$100 per barrel oil or fast-rising health care and education costs. Or Americans' general tendency to spend more than they earn.

Instead, the President and Congress should just leave the economy alone. "Don't touch it. It's not your toy to play with. You'll just end up breaking it even more."

Then again, those warnings don't really work with my son, either.

A dose of humility on a Sunday morning

2008-01-13T05:02:00.000-08:00

I was just lamenting this morning to M about our disposal income--or lack of it. After paying all our fixed bills, accounting for groceries and household expenses, there isn't much breathing room left each month for for additional saving, such as for a down payment on a new house or our kids' college (we're pretty well-covered for retirement, primarily thanks to generous contributions from my employer).

And then I came across this headline in today's Philadelphia Inquirer:

Donor built millions on $11 an hour

Paul Navone is a retired mill factory worker from Vineland who made a fraction of what most people make today. Yet he just gave $2 million to a community college and a prep school.

Granted, Navone has never been married, is childless, doesn't own a TV, and shops in thrift stores for his clothes--a lifestyle that isn't exactly appealing and has definitely contributed to his stored-up wealth. It's a tradeoff I'd never want to make.

But it's still humbling to think about. I'm fortunate to have a stable job that produces a good income--well-above $11 an hour. Why the heck am I complaining? And what could I be doing differently to change the situation?

Is it better to save, or invest in your business?

2007-12-27T06:00:00.000-08:00

A reader recently sent me this e-mail:

"My daughter-in-law wants to save, but cannot convince my son. He thinks that every dollar she tries to save would be better off going straight into his business.

She and I have talked about the importance of saving. I would love to show her the plan to save $1 million by the time she is a certain age. She is 34 now. How much per month will she need to save to reach $1 million by age 50 or 60?"

Figuring out how much to save per month to reach $1 million can be a good motivational tool, especially if someone is young. (In fact, I recently used it with my daughter.) But to get the reader's son onboard with a plan to put away some money for the future, it may work better to focus less on the potential reward of saving and investing, and focus on the potential risk of small businesses instead.

Not much motivation

The sacrifice required to reach $1 million by age 50 won't sway the son (or encourage his wife) to start saving. To reach that goal, the couple would have to sock away nearly $2,300 per month for the next 15-1/2 years (assuming a 10% average annual return, which you can get with a well-mixed portfolio of stock and bond mutual funds).

Waiting a decade or so makes the amount more palatable, but still tough to swallow: $725/month to reach a million by age 60, and $427/month to get there by age 65 (such is the magic of compounding). Doable, but still unlikely to convince Sonny Boy that the money is better off invested in stocks and bonds than in his own business-building skills.

Offsetting a huge risk

Which is where risk comes in. Investing solely in one's own business is a lot like investing in the stock of an individual company--except, if you're just starting out, even riskier. Many small businesses fail within the first five years (depending on the source, between 50% and 80%). The son may invent the next Google, but he may not. Saving money for the future to offset this huge risk isn't a comment on his business idea or abilities; it's good financial sense.

Come together on a plan

That said, my e-mail friend should encourage her son and his wife to sit down together and establish a concrete plan. It should have room for both saving for tomorrow and investing in the business, with well-defined and mutually agreed upon goals and definitions of success.

Since they are relatively young, the couple could put more money toward the business initially, with the caveat that they evaluate the return on their investment in a year or so. If the business is showing signs of progress, they may even be able to increase the amount they're putting toward both goals. If not, they could evaluate whether it's time to shut the operation down. Either way, the decision should be theirs--not his or hers.

Potential reward is the aspect many people consider first about investing, but don't forget about risk. Understanding your own comfort with it--as well as that of your spouse--can go a long way toward making you a wise investor.

Mortgage bailout is the object of my ire

2007-12-06T18:00:00.000-08:00

Ok, I know it's been a while--more than three months since my last post. In that time, I've welcomed a new daughter into the world, passed another test on my way to a Chartered Financial Consultant designation, and scrambled to find and buy a replacement car for my Sentra, which unexpectedly died on the Pa. Turnpike. So I've been busy.

What prompted me to write today? Outrage. The culprit? The Bush mortgage bailout plan. It's even made me do something that I've never done before: write to my congressman and senators. (That would be Jim Saxton, Frank Lautenberg, and Bob Menendez--and you didn't even think I knew who they were, did you, Dad?)

Wish I had the government in step in to freeze the rate on the ARM I took out on my first house back in 1999, when I didn't know any better. Would have been nice to pay the low initial rate I got for an extra five years.

Better yet, wish M and I had used an ARM to buy that oh-so-nice $464,000 house we looked at a few years ago. We knew we could never afford it with a fixed-rate mortgage on our five-figure income. What were we thinking? We could still be living there, sitting pretty with an affordable rate until 2012. And who knows, by then I could have turned this blog into a money-making machine, become CEO of my company, or hit the lottery, so we could afford the payments when the rate resets then.

One anonymous poster on Real Time Economics sums up my feelings about the Bush plan pretty well, plus gave me a chuckle:

"I would like the government to help me out with my gambling debt in Vegas. The casino didn’t explain the rules very well. And I didn’t realize that the house had the advantage. I would like my life savings back. If you could just give me a little more time, I think I could win it all back. Please help me!"

Shhhh, anonymous...Don't give Washington any more bright ideas.

When should I get rid of my high-mileage car?

2007-08-31T05:11:00.000-07:00

I’m approaching 193,000 miles on my 1998 Nissan Sentra GXE, and I’m in a quandary. When should I buy another car with lower mileage?

My Sentra, unlike the one shown here, is in fair condition. It runs a little more sluggishly and loudly than it used to. A small dent from backing into a friend’s car is noticeable, but not terribly so. The interior is clean and tear-free, with a few minor upholstery stains that I could scrub out.

My wife and stepdaughter see my Sentra as a “junker.” I see it as a wise choice for my driving needs. I’ve logged 100,000 miles in about four-and-a-half years traveling 105 roundtrip miles daily to work and the car has required just one non-maintenance repair of over $500. It’s 30 miles-per-gallon has been nice in this era of $2.50-plus per gallon gas prices. And I could conceivably sell it for about $2,800, according to Kelly Blue Book—an amount that’s held fairly steady even as the miles have piled higher.

Sell the car now or later?
With 200,000 miles approaching, I’m actually a little excited. Just how many miles can I get? But I also know I’m living on borrowed time. If the car does die, it will be worth nothing.

I’ve been watching the market for used Nissans, Toyotas, and Hondas on phillycars.com, a local car-buying site. I could get something similar to my Sentra with less than 100,000 miles for $4,000 to $7,000. M and I have some cash saved to get another car for me, but we also dip into that reserve when our monthly cash flow gets tight. A part of me wants to use that money for the car sooner rather than later, before we drain it completely.

Going to keep driving—for now
Still, I’m tempted to keep wringing as many miles as I can out of my trusty Sentra. There’s a good chance that it will die a slow death, with steadily increasing repair bills, rather than suffer a sudden automotive cardiac arrest. Then I could keep it running until I find a car and a deal I like, which is better than being forced to take whatever cars and deals are available at the time because I need a car to drive.

What would you do?

The truth about budgeting

2007-08-27T23:00:00.000-07:00

Research has shown that about 40% of all households maintain a monthly spending plan, or budget. While they make up less than half of us, do budget-users know something non-budgeters don’t? Have they discovered a secret to make budgeting less of a chore?

Unfortunately, no. Here are three truths that I've learned about using a spending plan, and that other users would likely agree with:

Planning ahead is hard. Unexpected expenses come up every month and prices on most things (not just gas) continue to rise. Sometimes spending predictions are off—even way off.

Tracking spending is a pain. A purse or wallet stuffed with receipts is annoying. And even with budgeting software, logging all the information can be time-consuming.

Budgets are "restrictive." Yes, a budget will restrict you from buying what you want--especially if you can’t afford it.

So now you know: Budgeting isn’t fun. But that's true about many things in life that are good for us. Watching what we eat and sweating it out at the gym aren’t easy, for example. But the satisfaction you can get from a trim, healthy body makes the effort worthwhile.

Financial talk-show host Dave Ramsey likes to say that folks who get on a monthly budget often feel like they’ve gotten a raise. Such can be the power of planning and knowing where your dollars are going each month. And that can lead to some fun--that you really can afford--in the long run.