I was the ant

In Aesop's fable, the Ant and the Grasshopper, I have played the role of the ant. Winter arrived, and it's been long and brutal.

Although the ant is a bit of a son-of-a-bitch, in that he won't help out the misguided grasshopper, I wouldn't expect help in this environment, had I not prepared. Wise choice, as we now know who would receive the bailouts, and who would not.

Unfortunately, we don't live in a "sharing and caring" society. It's every man for himself. If you like to believe otherwise, you need not walk far from your house to see reality first hand. The only people you can count on are your family and very close friends. Lots of times you can't even rely on them.

In addition to being prepared, I've been lucky.

I didn't receive a raise last year. My take home pay went down, as of 2010, because my insurance costs went up. Many of my everyday expenses went up.

MUNI increased the cost of a bus ride from $1.50 to $2. The FastPass went up from $45 to $55. And now to $70 for those of us who like to use it for both MUNI and BART. They're talking about raising the fares again. I started driving, and parking on the street last April.

Our half price lunch after 2pm program ended. Too many of us were waiting until 2 to eat. I started brown bagging it a couple weeks ago.

The City marked a bunch of squares on my sidewalk that it's my responsibilty to repair within 30 days. The cost: $3,750 + permit fees. I got an extension to have it fixed by March 25, because it's been raining practically everyday since I received it a week or so ago.

It's that time of year to pay property taxes. Of course mine went up the standard 2%, as they have every year since I bought my house in 2000. I paid my first installment last month. I'll pay the 2nd installment in March.

They're increasing the toll to cross the bridges on July 1. I don't drive across the bridge, but it's just another attack on those who kept their jobs. Even those who took advantage of the free pass, by car pooling, will have to pony up $2.50. All of these things chip away at us.

I've continued to be my frugal self, and so despite these and many other setbacks, I've continued to save substantially more than I needed.

I was lucky to have a job that didn't hand out pink slips, and that I don't absolutely hate working for. One of the lessons I learned last year is that in times like these, changing jobs is taking a risk more likely to work against you. If you can, it's probably better to keep the job you have. Suck it up and swallow your pride, if you need to. Things are likely to improve, giving you better opportunities to move on. Easier said than done, I know, but don't punish yourself now because someone else is making you miserable.

Another aspect of keeping your job is to "keep it as long as you can". Because the longer you are able to keep it, the closer we will be to a recovery. The people who lose their jobs right now are in much better shape than those who lost theirs a year or more ago, and are still looking.

With so much bad news, I'm much better financially positioned now, compared to a couple years ago when all this mess was just getting started.

This is going to end, and once it does, we can all take a deep breath, and move on with our lives!

Refinancing

My financial status remains relatively strong.

Looking an my change in net worth through 2008, I've seen a net gain of $38191.30. This does not account for any change in the value of my house, but does account for changes in my investments, including my 401(k) account, over that period - because that's tracked continously, and I never know what my house is worth on any given day - however I do know that its value has dropped dramatically over the past year, by somewhere between 20 and 30 percent.

What I notice is that my peak net worth was in August, and there was a trough, which bottomed out in October. At this very moment, my net worth is $30 more than it was at the peak last August. So, in effect, I had a setback of about 6 months, which came in the form of investment related losses. My net worth, excluding the equity I have in my house, is currently at its highest ever.

Last summer I strongly considered "trading up". I figured I might take advantage of selling my house and moving to a more desirable neighborhood. I actually went through the entire process up to the point of having my house listed on MLS. I bought a new oven (I call it my flat top) and a flat screen 46" TV and some new faucets. I painted just about every room, and packed away all my junk, so the house would look as clean and tidy as possible. Then I decided to back out.

The reason: houses seemed to be dropping in value more precipitously in my neighborhood than they were in the neighborhoods I considered moving too, which were already astronomically expensive. There was no way for me to justify taking such a "leap of faith" as the real estate agent referred to it, during times that were becoming more and more uncertain. So, I decided to stay put.

Then in late November I started receiving emails from a mortgage broker whom I'd contacted earlier, when I wanted to move. He told me about how rates had dropped to historically low levels. Not wanting to be bothered, I asked him what rate I could get. He told me 4.75%, and so I told him that if he could promise me 4.25% - with reasonable closing costs and no points, over the holidays, to give me a call - otherwise I'd get back with him in January or Feburary. I was pretty sure that would be impossible, but it gave me something to think about: how I could potentially benefit by refinancing.

I'll skip all the boring details. On Friday February 6th, I closed on my refinancing with my credit union. I voluntarily paid out an extra $50,000 against my mortgage. My interest rate on a 30 year fixed loan is now 4.625%, and my monthly payment is $1250 less.

The closing costs were $2600, altogether. So, in a couple months, the amount I save on my mortgage payment will just about pay for that. True, I was out the $50,000 up front. But that was a compromise on my part. See, I have been paying an extra $20,000 per year against the principal, for the past two or three years. I figured I'd just pay the $50k, get the nice low payments set in stone for myself, and then not pay extra for a couple years, while building back up that extra payment. Also, I have a hefty amount of cash savings that has just been sitting there collecting dust, since I sold the bulk of my investments in late 2007.

Here's what's funny: my total March 1 payment will be exactly $300 less than what I would have paid in interest, alone, if I had not refinanced.

I've looked at it from many different angles, and one day I'll look back at this as one of the smartest financial decisions I've ever made.

$100,000 @ 6.5%

I don't know what to do. I'm not ready to go back into the stock market, and the interest rates are so low, it's not worthwhile buying safe, short-term CDs.

I have a 6.5% mortgage which I plan to have paid off in about 6 1/2 years. There's this voice inside my head telling me to pay it off faster. If I pay an additional $100,000 on my house this year, I could manage to have the loan paid off in just 4 years.

I don't plan to live in this house forever, and if I do stay long enough to pay it off - which, in this climate, I do - I'll have to pay that amount anyway. And won't I have to pay an additional $26,000 in interest along with it? Of course I would write off about $6500 in taxes, but the loan is still costing me thousands.

The icing on the cake is that I will be only 44 years old, and own a paid-off house - at least for a little while. Ten years ago I would never have imagined having a house in San Francisco paid off by 44. I know it sounds funny, but I don't really need that $100,000 right now. I have enough additional rainy-day savings. It feels like the right thing to do.

Bad Times on Wall Street

$20000. That's how much less I would have, had I not sold all my stocks and mutual funds last November. I'm just going to leave it at that. This market is crazy. I bought a 5.2% 3 month CD today, that was an Ameritrade promotional.

My dishwasher broke, for good, yesterday, so I'm forced to replace it. I say 'for good' because I tend to patch up things, and get them to sort of work. My refrigerator has been quasi-broke for several years.

It couldn't have happened at a better time. I have an office chair I bought at the height of the dot-com bust. It cost me $80, at Staples. I went to Staples just before Christmas, and saw the same chair selling for about $250. Exactly the same chair.

Do you see where I'm going? It's surprising how much lower prices can go, when businesses have trouble moving their merchandise. I smell cheap appliances. I think this year will be a good one for replacing worn out appliances.

So, this may very well be the year that I catch up with the Joneses.

Rebalanced Portfolio

I dumped everything on November 13. I couldn't take the heat, and panicked. In retrospect, that wasn't such a bad decision, at least in the short term.

In less than 2 months, all but one of my holdings have fallen in value, some substantially.

Here's a breakdown:
XLE was 71.1/share, now it's at 76.85.
DNA was 74.18, now 70.11
DPCCX was 55.79, now 46.11
PRLAX was 57.01, now 51.93
JORNX was 12.83, now 12.16
CSCO was 28.28, now 26.24
INTC was 25.38, now 22.75
OIGAX was 32.35, now 29.72
MSIGX was 42.82, now 34.75

As you can see, my stocks were not terribly diversified, but still covered a number of sectors. In dollars, the net difference is $8087 in my favor. That's a lot of money, when you consider how little I had in the market. And what I keep asking myself is "why are people still buying stocks?" Are these people inexperienced or just forgetful? Whenever there's bad news like we keep hearing everyday, you don't supposed to buy stocks. When they use words like "Recession", "Inflation", "Meltdown", and "Sub-Prime" over and over again - the risk of buying stocks is more like the risk people take when they try to run across the train tracks in front of an oncoming train. You might make it, but if you don't, you stand to lose way more than you hoped to gain. But then again, I forget, people buy lotto tickets... I guess some of those guys dream big.

When you turn on the TV, and you watch some "expert" telling you you're in it for the long term. Remember that's what they're programmed to say. They've been saying it forever. Also remember that their livelihood, not yours, depends on you being in it for the long term. You better believe they won't do what they're telling you to do with their own money.

What happens now? My guess is right now is wait and see time, and that several months will have to pass before I will feel comfortable buying stocks again. I rebalanced my 401(k) so most of my retirement is in bonds and cash, and what money I don't have in a money market account, is in short term CDs. I feel better not having to worry about losing money, which I believe will happen to people who choose to invest in equities right now.

Oh, also, I'm considering refinancing, believe it or not!! But I think rates will go down, and we'll have more negotiating power in a, say, 4 to 9 months from now. Banks are gonna get desperate - for those of us who have solid credit. Right now I am able to get a 5.25% 15 year fixed rate loan - I'm still at 6.5% on my 30 year loan from 2001. I'm not happy with the $2200 'fees' and crap, however. The 15 year loan would cost $150 less per month than what I pay right now on my 30 year loan. That's what I'm waiting for to go way, way down. We'll see what happens with that.

New and Improved

I changed the name of my blog from "Financial Advice for Ordinary People" to "Freedom". And I also changed the description. I don't remember what it used to be, but now it's more representative of the way I think, for now.

I haven't liked the title "Financial Advice for Ordinary People" for a long time. When I came up with that name, my goal was to appeal to readers who weren't born rich, and to provide information I think helped me to be relatively well off.

Just now I understood why I never really like that title. It didn't reflect what it was intented for. It sounded like I was some know-it-all (financial advice) speaking to all you peasants (ordinary people).

So, I changed the name to "Freedom". The only complaint I have about that choice is that it's a bit too general. The description is also not as high-and-mighty sounding. So really all that's new and improved is the title and description of this blog. Everything else is pretty much the same old same old. Marketing and sales have never been my forte. So, I'm just gonna go with that for the time being.

I found out that after the feds dropped interest rates by half a point, my money-market account dropped the interest they were paying me by by more than 1%, to about 3.2%. I was disappointed, and took advantage of a promo- 3 mo 5.15% bond being offered through Ameritrade. I transferred about two-thirds of what was in my money-market account to invest in this promo-bond from 10/17/07 to 1/17/08. It's money I know I will not need for at least 3 months.

So, I'll be earning almost 2 whole percentage points more in interest over the next 3 months. It's not substantial - as if I could make a house payment with the difference. But it's money for me, and amounts to about $234 more than what I'd have, otherwise. So, let's say that's about $156 after taxes are paid. If I work about 20 to 25 days in a given month - that's easily free lunch for a month.

Recent Savings

It's been awhile since I wrote about some of my more recent basic money saving ideas. These are some of the things I've been doing to keep more of my hard earned money.

#1 - Car Insurance
My car insurance company increased my premium. I was under the impression it had been increased in the past, but looking at the chart, it wasn't. I bought my car in March 2005 and this is what I've paid over time, since:

9/05: $528.20
3/06: $528.20
9/06: $499.30
3/07: $499.30

I don't remember what the original amount was, for 9/07, except than it was over $500 - I just remember calling and complaining about it. I haven't had any accidents or made any claims. I drive th car rarely, and I don't see a reason to pay more when my car's worth less than it was in March.

So for 9/07 my bill was reduced to $454.40. Call your car insurance company the next time you get a bill and tell them you think it should be less. The worse that can happen is nothing.

#2 - Dish
I dumped cable at the end of last year. Comcast effectively doubled my payments over the past 7 years - without providing any additional features or services. I thought about dish for a while, but was afraid of reception. Comcast would always libelously slam DirecTV, in their commercials, by telling us we'd regret switching to dish, since the picture would be all fuzzy and distorted depending on the weather. Guess what: that's a lie. I live in San Francisco, and it's foggy half the time. My picture is as good as ever, and my service hasn't been interrupted any, since I first signed up. DirecTV cost about the same as what I paid for Comcast, except that I have way more channels. Some good, ones too.

I feel like I'm subsidizing Comcast's DSL customers. I think they can lower their price for their Internet customers, and remain competitive by charging their TV Cable customers more. At least that's my theory, and why I think they kept asking me to pay more. Evaluate your expenses, and make sure that if you're paying more, it not so that someone else can be paying less.

#3 No More Landline Long Distance
I cut out long distance from my AT&T bill. I have a cellphone I barely use. Skype isn't the greatest, but I do occasionally mess around with it. One day, I'm sure it'll be fantastic. But right now, people complain about not hearing me very well through Skype. Also I was getting disconnected every 5 minutes for some reason. I don't make that many long distance calls, in the first place.

Before last October, my AT&T bills ranged from $106 to $124, and now they are pretty much always about $90 per month, every month. Make sure you're not paying for something you aren't using.

#4 Commuter Checks
The company I now work for offers commuter checks. They deduct a specified amount of pre-tax money from my paycheck, and send me a voucher for the amount they deducted each month.

My Fast Pass costs $45 a month. And when I buy it using the $45 pre-tax voucher, it costs me $24.52. So my already cheap cost of trasportation is cut in half. Check out CBM to see if this might be available at the company you work for.

#5 ESPP
The company I now work for also offers an employee stock purchase plan, ESPP. I can elect to have up to 10% of my salary deducted, and in May and again in November the money that was deducted buys shares of the company I work for. The price is the 15% less than the lower of the value at the start of the 6 month period, or the value at the end of the 6 month period. If I sold the shares I bought in the last 6 month period today, I'd make a profit. If I sell those shares in May next year, I won't have to pay as much tax on that profit. It's like free money. And although I'm not guaranteed to make a profit, my chances are quite good.

#6 Flexible Spending Account
The company I now work for offers a cafeteria plan, or a Flexible Spending Account. This year I got two new crowns, which I knew my share of would be $1374. So last year I elected to contribute $1374 throughout this year. Of course it doesn't feel great having so much deducted from my check each pay period, about $57, but I needed to get those crowns anyway, and like my commuter check vouchers, the money is pre-taxed. I haven't done the math, but something tells me it's probably about half-price like with my commuter check vouchers.

What's also nice is that I got both crowns at the same time, in July, and have already been reimbursed for the $1374. That's how the plan works, and maybe something lots of people don't know about: I haven't even finished paying the $1374 to the flexible savings account, but have already been reimbursed the amount I elected to contribute throughout the year.

#7 Employee Match on 401(k)
If you've read some of my earlier posts, you know I'm not a hardcore retirement savings plan advocate. My philosophy is that they're safety nets for those of us who will fail in life - and they're pushed by banks who want to tie up our hard earned money for decades. But I do think they can be valuable, and maybe even life-savers for some of us. They also are good ways to save tax dollars.

I'm fortunate enough to work for, if I'm not mistaken, the first company I ever worked for that matches my 401(k) contribution by at least 50%. They do it for up to 6% of my earnings. So I contribute exactly 6%. So I'm not not taxed on that 6%, and really what's going into my account each pay period is 9%. Even though I can't spend any of it till I'm old, if I'm lucky enough - it's like making 3% more money.

If you're making a decent salary, can use a good tax write-off, don't see an absolute need the money in the foreseeable future, and your company matches your 401(k) contribution, contribute up to the amount they match.

Ok. That's my update for now. I'll see if I can think of any more for later.