Consumerism Commentary: A Personal Finance Blog

Most Popular on Consumerism Commentary: November 2008

Flexo — Wed, 03 Dec 2008 15:01:30 +0000

One of the best methods of reading Consumerism Commentary and staying up-to-date with the latest articles and posts is through RSS subscription. By subscribing to the Consumerism Commentary RSS feed with feed-reading software such as Google Reader or aggregators such as My Yahoo, you’ll always be aware of new content here.

If you prefer to have daily updates emailed directly to you, simply enter your address below.

Your email address will be used for nothing other than daily updates generated by Consumerism Commentary. I won’t sell your email address to any third party and I won’t send you any junk mail.

Social media

Please feel free to follow me on Twitter, a social media services based on short personal updates. My updates tend to be somewhat random non sequiturs but occasionally I might write about something pertaining to personal finance. I don’t simply duplicate my RSS feed.

If you do, however, prefer to receive notifications of new Consumerism Commentary articles on twitter, follow ConsumerismComm as well.

If you’re a member of Facebook, visit the page for Consumerism Commentary and become a “fan.” Also, feel free to view my own profile and add me as a “friend.”

Personal Income Statement, November 2008 (Net Income: $22,787)

Flexo — Wed, 03 Dec 2008 13:00:10 +0000

Along with the monthly personal balance sheet, which I use to track my net worth from month to month, I publish a report that outlines my income and expenses. The two reports together help me focus on the total picture.

My “extracurricular” income—money I’m earning outside of my day job through writing for Consumerism Commentary and a few other online endeavors—would have been lower this month if it weren’t for a surprise client at the end of the month. This push has propelled me beyond a six-figure income for blogging and writing.

Continue reading for the details, with numbers and explanations. You can zoom in by clicking on the report.

The above report is made with Intuit Quicken and Microsoft Excel. Here’s an income and expense report Excel template.

Income

The “Salary and Benefits” category includes everything I earn from my day job, including a 4% salary match for my 401(k). 50% of my salary, the highest percentage allowed, is diverted into my 401(k). Half of the contribution is designated before tax, while the other half is invested in a Roth 401(k). It’s too late to fully max out my 401(k) contribution this year, but I should be able to better plan my contributions next year.

“Other Earned Income” is the line on which I record income from blogging, advertising, and writing. Basically, anything I do to earn income outside of my employment are included here. When people learn that I am earning twice as much from alternative income than I am from my day job, they ask why I don’t just quit the day job and work for myself full-time. This is the goal, and I’m getting closer. I see some trends right now pointing to lower income opportunities in 2009, so I’m going to hold onto my day job, including its benefits and relative security, for a while longer.

If the trend reverses in the first few months of next year, I may decide to reduce my hours at my day job with the intent of making blogging (and everything that goes along with it) my “day job.”

“Dividends and Interest” is my first “passive” income category. Through savings accounts and investments, I’m heading towards $2,500 earned this year by doing nothing than letting my money earn more of itself.

Expenses

My vacation helped me keep my expenses low this month. I only stopped for fuel twice and managed without a trip to the grocery store. The “Interest and Fees” category is decreasing as my student loan winds down. December should be the last month with a value in this category unless I make any money management mistakes.

Expectations for December

The holiday season is here, and I have more gifts to buy. That will most likely be my main expense for December. It will probably not be my largest expense, however. I am faced with making decisions about charitable contributions this month, like I was at the same time last year. I don’t expect my alternative income to remain this high. In fact, December might be this year’s lowest month.

In December, I will continue my November Cash Experiment. For years I’ve been using credit cards for almost all expenses, earning cash back rebates along the way. The rebates are harder to earn now, and paying cash or using checks and debit cards might subconsciously encourage me to spend less. My progress in this experiment so far has been inconclusive, but it’s not a scientific experiment anyway. After another several months, I may have enough data to determine whether I should continue using cash or allow myself the conveniences of a credit card.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

News and Blogs: Tuesday, December 2, 2008

Flexo — Tue, 02 Dec 2008 23:15:47 +0000

JPMorgan Chase to Cut 9,200 Washington Mutual Jobs Nationwide. Chase notified thousands of WaMu employees yesterday that their jobs will be eliminated by the end of next year, many much sooner. 3,400 of the jobs will be cut from the Seattle headquarters and 1,600 more from California.

Self-Employes are Frozen Out of Mortgages. If I choose to leave my day job, I will have to pay attention to this. Self-employed individuals work to reduce their income for tax purposes, but that can have an unintended negative effect if they need to shop for a mortgage. Now that banks have tightened up lending, it’s harder for legitimate self-employed borrowers to find comparable mortgage offers.

FCC to Vote on Free Broadband Internet Across USA. We are already almost one decade into the twenty-first century, but we’re only just now beginning to live in the future.

Your Financial Network Map. This is a great way to visualize the way money flows in and out of your hands and bank accounts. As Jim points out, this network visualization can help to identify problems and create efficiencies.

Announcing My First Book: 365 Ways to Live Cheap. Trent from The Simple Dollar is selling his first book on Amazon.com. He says: “It’s a compilation of 365 of my best tips on personal finance and frugal living. Virtually all of the tips, if applied, can save you more than the price of the book itself.”

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

Personal Balance Sheet, November 2008 ($180,926, +6.5%)

Flexo — Tue, 02 Dec 2008 16:30:59 +0000

It doesn’t look like I’m going to meet the goal I set for myself last year. A net worth of $210,000 is out of the question unless the stock market experiences a miraculous recovery. All things considered, my finances are still in good shape.

Every month, I review my account balances and income vs. expenses to keep myself accountable for my financial situation. I’ve been posting my financial reports online for about five years.

Despite further slips in the stock market, my “modified net worth” increased in November. This is attributed to my alternative income, which will be outlined in a post later today or tomorrow. But keep reading this article to see the breakdown of my net worth.

The above report is made with Intuit Quicken and Microsoft Excel. Here’s a balance sheet Excel template. If you don’t want to go through all the trouble I do every month, but you still want to post your financial reports online, I suggest checking out NetworthIQ.

Current Assets

Current Assets includes cash in bank and investment accounts, like savings, checking, and money market funds. It also includes “Accounts Receivable,” invoices I send to clients and advertisers. Accounts Receivable is increasing, which is good for business.

Long-Term Assets

Any assets other than cash are included in Long-Term Assets, even if I plan to use the money in a few years. This is primarily my retirement funds, but I also include the value of my car and my other investments. Surprisingly, my car has been the best “investment” over the past year. According to edmunds.com, my car’s value has actually increased to $9,059.

I don’t plan on reflecting that in Quicken because it doesn’t make much sense.

I’m trying not to focus on my investments. My strategy right now is to keep my head down and continue the process that should pay off in the long run: continue bi-weekly investments in my 401(k) with the same asset allocation I determined last year, invest in an SEP IRA once a year, and buy the stock market on the dips at a rate of about $500 per month.

Current Liabilities

Thanks to my November cash experiment, I have hardly used my credit card over the past month. As long as I keep this experiment going, I my current liabilities will continue to be low.

Long-Term Liabilities

I have only one long-term liability remaining, my student loan. That’s not for long, however. I’ve already scheduled my final loan payment for December 15. At that point, I will be fully debt-free for the first time since I’ve been an independent, income-earning individual.

That won’t last long. Society dictates I join the home ownership club, and that is the plan for when I feel I’m ready to “settle down.”

How was November for you, financially?

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

45% Less Credit in Americans’ Wallets

Smithee — Tue, 02 Dec 2008 13:03:38 +0000

Meredith Whitney, an analyst with Oppenheimer & Co. is predicting that credit card issuers may cut as much as $2 trillion worth of available credit in the near future, representing about 45% of today’s levels.

The Motley Fool has decided to call this The Death of Credit Cards, but we’ll be co-existing with them for as long as people want to borrow from their future selves. (That, or you’re clever like my man Flexo, who only uses them for the rewards. I’m not that clever, but I’m working on it.)

Here’s the crux of the story:

Closing millions of accounts, cutting credit lines and raising interest rates are just some of the moves credit card issuers are using to try to inoculate themselves from a tsunami of expected consumer defaults.

We’ve already seen Citigroup raising rates for nearly all customers across the board (even though the national average credit card interest rate continues to decline).

Citigroup said it would be raising rates 2 to 3 percent, but from the comments we received on the story a couple of weeks ago, the average seemed to be about 7 to 10 percent. And this seemed to be happening even to people with good FICO scores and payment histories.

Now Citigroup, as well as Bank of America and JPMorgan Chase, are considering closing accounts, as well as lowering credit limits. Given Citigroup’s recent history, what are the chances that these actions will only be taken on customers with poor histories? If you’ve delicately balanced your available credit in order to keep a high FICO score, this could have serious repercussions.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

WTDirect Offering Account Opening Bonuses Up to $250

Flexo — Mon, 01 Dec 2008 23:54:08 +0000

WTDirect, the online banking arm of Wilmington Trust, is looking to attract customers with a good interest rate (currently 3.06% APY for accounts with a balance of $10,000 or more) and a bonus for new account holders. If you open a new account at WTDirect and maintain an average balance of at least $10,000, you can earn a bonus between $50 and $250.

Here is what you have to do:

Open an account at WTDirect and link your existing bank account while applying. Before December 22, fund the account with an online transfer from your linked bank account. Maintain an average balance of at least $10,000 between January 1 and February 28, 2009. If you’ve done this much, you will receive your bonus in March, and it will be available for withdrawal immediately.

Here is how to determine the amount of your bonus, based on your average balance throughout January and February.

If your average balance is at least $10,000, you will receive a $50 bonus.
If your average balance is at least $20,000, you will receive a $100 bonus.
If your average balance is at least $30,000, you will receive a $150 bonus.
If your average balance is at least $40,000, you will receive a $200 bonus.
If your average balance is at least $50,000, you will receive a $250 bonus.

WTDirect does not charge any fees nor does it have a minimum balance requirement (other than for the bonus and the interest rate).

When you apply for the bank account, use the promotion code WTG3DNC. This code will be automatically applied if you visit WTDirect using this link.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

News and Blogs: Monday, December 1, 2008

Flexo — Mon, 01 Dec 2008 16:15:12 +0000

More ING Direct $25 bonus links are now available. I’ve posted more referral codes received from Consumerism Commentary readers on the waiting list. In a few weeks, I plan on opening the waiting list again, so subscribe to the RSS feed so you can respond quickly to add your name before the list is closed again.

Holiday Shopping Bargains Reel in Big Sales. The National Retail Foundation says that despite low expectations for Black Friday, retail sales were up this year. According to NRF’s figures, shoppers spent an average of $372.57, up 7.2% from last year, and 172.9 million consumers visited stores, purchased items online, or through catalogs, up 17% from last year.

If Dad Can Do It Himself, Maybe He Shouldn’t. In the Wall Street Journal, a dad teaches his son about the role and responsibility banks hold when they manage your money. Watch out for invalid fees, and complain enough to get their mistakes reversed.

Stocks are Less of Your Net Worth Than You Think. If you are 65 and expect to receive $2,000 a month from Social Security, add $327,000—the amount that converts to a lifetime monthly distribution of $2,000—to your bond position. Taking this phantom inflation-adjusted bond into account, your stocks represent a lower percentage of your income-generating portfolio for retirement. Stay invested in stocks.

Carnival of Personal Finance, Cyber Monday 2008 Edition. Check out the latest edition of the Carnival. Some of the more interesting articles include What Should a Privatized Social Security System Look Like?, 3 Rules to Giving the Good Gift, and 6 Ways to Argue Less About Money.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

November Cash Experiment: Successful, Perhaps

Flexo — Mon, 01 Dec 2008 15:23:35 +0000

Early last month, I decided to leave my credit card in my wallet throughout November. Over the last few years, I’ve been using a rewards credit card to pay almost all of my day-to-day expenses. I never pay interest charges because I always pay my credit card in full before the due date. I buy what I buy, and the form of payment is irrelevant. If I spend $30 on music with my credit card, I would spend just as much with cash. The bonus cash back provided by the credit card would effectively leave me with more money once the points are cashed in.

I spent less in November than I have since October 2006. Before October 2006, the most recent month in which I spent less was January 2005, the earliest date for which I have data in Quicken.

My biggest concern when starting this experiment was my ability to track everything spent with cash. I was careful to collect my receipts and record transactions in Quicken within a few days.

The use of cash was not the only aspect of my spending that resulted in a month with low expenses. I spent a week with my family in California, and I had very few expenses during that time. Without working during this week of vacation, I did not purchase my lunch every day, nor did I need groceries for other meals. I also had no restaurant expenses during that time.

With an entire week of practically no expenses, I can’t completely call the experiment a success. I left a few recurring expenses, such as a monthly charitable contribution and my cable television payment, on the credit card. It would have been a hassle to change my settings. In these cases with set expenses, there is no opportunity for me to automatically spend less just by using a check or a debit card rather than a credit card.

Since November was mostly inconclusive, I will continue this experiment through the end of the year. December should be a month with more expenses, particularly due to holiday gift giving.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

Thanks to This Week’s Guest Authors

Flexo — Mon, 01 Dec 2008 01:21:19 +0000

While I visited with family on the opposite side of the country this past week for Thanksgiving, I offered the opportunity to feature a few guest authors at Consumerism Commentary. The guests provided a number of excellent articles to keep this website going strong while I was away, and I thank them for doing so. If you missed any of the articles, please read them now.

Criminal Charges: Volume XVII. Jeremy M. Simon from Taking Charge presented commentary on recent acts of money-related crime.

The Battle Royale: You versus Yourself. Matt Wallaert, lead scientist at Thrive, explains several ways to overcome the psychological barriers that prevent people from making sound financial decisions.

8 Tips for Talking About Money With Your Significant Other. Margaret from love God, not money shares what she has learned from her experiences with communication in a relationship.

Lessons Learned from Losing a Quarter Million Dollars. Debtkid had a rocky start with investing. Day trading is like gambling, and here is a reformed addict sharing advice gleaned from the recovery.

Predatory Bank Fees Could Lead to the End of Banks. Karney Hatch, writing and director of the documentary Overdrawn!, has a few suggestions for cutting institutional banks out of the financing equation.

The Mythical Demise of Social Security. Mr. ToughMoneyLove from his eponymous blog comments on the media’s over-hype of the stability of Social Security, and offers a few controversial points that may show that like today’s financial institutions, Social Security may be too big to fail.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

One Life: The Cost of Extreme Consumerism

Flexo — Sat, 29 Nov 2008 17:07:45 +0000

When the doors opened early for Black Friday sales at a Wal-Mart store on Long Island, the frenzied shoppers stormed in, determined to be the first to grab the bargains before they were depleted. The maniacs trampled the unfortunate Wal-Mart worker whose job was to open the door. The shoppers continued to run in, ignoring the man on the ground. The New York Times described the scene:

The throng of Wal-Mart shoppers had been building all night, filling sidewalks and stretching across a vast parking lot at the Green Acres Mall in Valley Stream, N.Y. At 3:30 a.m., the Nassau County police had to be called in for crowd control, and an officer with a bullhorn pleaded for order…

By 4:55, with no police officers in sight, the crowd of more than 2,000 had become a rabble, and could be held back no longer. Fists banged and shoulders pressed on the sliding-glass double doors, which bowed in with the weight of the assault. Six to 10 workers inside tried to push back, but it was hopeless. Suddenly, witnesses and the police said, the doors shattered, and the shrieking mob surged through in a blind rush for holiday bargains.

At this point, Jdimytai Damour was trampled in the stampede and died, without shoppers stopping to help. When the police shut down the store, shoppers refused to leave.

Is shopping, while possibly saving a few dollars on a highly-publicized sale day, so important that it forces otherwise normal people to act like savages, literally killing each other to be first in line for the bargains? It sounds like this Wal-Mart location was inadequately protected with security appropriate for a mob scene, but it’s just a sale. This was not an angry mob, marching for a cause, ready to defend their movement to the death. Those who trampled this poor individual without any thought to his well-being should be arrested and charges with second degree manslaughter.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

Does Penny-Pinching Encourage Economic Decline?

Flexo — Sat, 29 Nov 2008 14:00:07 +0000

About the author: This is a guest post by Carson Brackney, writer for Personal Finance Analyst. Personal Finance Analyst is an online community of bloggers dedicated to taking the mystery out of money and helping you to live a happier, more successful life with the money you have.

In the wake of 9/11, President Bush encouraged Americans to keep shopping. He was worried that fears associated with the attack would slow the economic engine as concerned citizens might opt to “sit on” their money instead of spending it in a way that would keep the economy chugging along.

Apparently, Americans responded. We spent. We shopped. We felt that changing our behavior in response the tragedy would represent a victory for the enemy. In some weird way, we seemed to have felt a patriotic duty to maintain our spending habits.

Those of us who embrace sound personal financial management concepts never really bought into the “shop until the terrorists drop” line of thinking. Others, however did. And many of those others are actively encouraging the same kind of behavior in the face of current economic problems.

A recent piece of proposed legislation is a perfect example. In a rare show of bipartisanship, Republican Senator Kit Bond and Democratic Senator Barbara Mikulski are proposing a tax rebate to encourage the purchase of new automobiles. Their goal? To get some cash headed in Detroit’s direction.

Those of us who recognize the poor quality (in financial terms) of the decision to buy new cars know that the tax rebate won’t make things any different. We won’t buy that new car, even if it would give Detroit a boost.

Sometimes, it really seems like those of us interested in better personal finance decisions are doing our best to strangle an already-choking larger economy by reducing our own spending and consumption. Although that really isn’t the case (we’ll see why smart money management is a net plus for the economy as we work through this), there is a certain face-value irony in economizing during a time of wider economic turmoil.

As I write this, the heads of America’s three automotive giants are huddling together in Washington, trying to perfect a sales pitch for a multi-billion dollar bridge loan/bailout. Detroit is in trouble. People aren’t buying new cars and Big Auto claims that we’re only months away from an industry collapse that’s going to destroy hundreds of thousands of jobs and lives…

Meanwhile, Mint is telling us that cars are one of the eight things we should never buy new. Dave Ramsey is chastising someone for financing a new car. People are opting to stick with their old beaters in an effort to save money.

The stock market isn’t treading water. It’s sinking. One of the reasons? Consumer spending is in the tank. Browsers outnumber buyers and those who are willing to open a wallet are spending less. Based on those scary consumer confidence numbers, we can expect more of the same and that’s scaring money away from Wall Street. Our 401(k) numbers are bleak and the entire economy is grinding to a halt as we watch the Dow dip.

Meanwhile, personal finance experts are advising everyone to save more. Frugal living is “in” while conspicuous spending seems like a vestige from the days when women wore shoulder pads and guys wanted to be Gordon Gecko.

New housing starts are down and property values are in a freefall. Homes are no longer the safe buy they once were. People are waking up to discover that they’re upside-down on their largest single investment. Contractors are struggling, workers are standing in unemployment lines, vendors are suffering and development projects are suspended.

Meanwhile, advisers are telling people not to try to catch a falling knife. They’re recommending against the purchase of existing properties and are laughing outright at the idea of building a new home. This isn’t the time to spend, this is the time to sit on your money.

Are you seeing a trend here?

We’re actively engaging in the very behavior that encourages a larger financial crisis in order to protect ourselves from that very same financial crisis.

If you don’t buy that car, that makes it harder for GM or Ford to stay afloat. If they flop, your neighbor loses his job on the assembly line. He falls behind on house payments. The home enters foreclosure. Your property value takes a hit in the process.

You’re studying the Economides family’s every move, trying to cut your spending down to the bare minimum. You aren’t dropping big money at the grocery store anymore. That means the store isn’t ordering as much. The company selling those green beans has to let someone go. The cannery employee can’t find another job in her neck of the woods. She has to go on unemployment and then welfare. What’s paying for the food stamps and Section 8 housing? Your tax dollars.

As the economic crisis has advanced, we’ve heard more and more about businesses and industries that are now on the very brink of collapse. We all know that the only way many of these outfits can stay open is if they continue to sell their products. Yet we’re still preaching the gospel of recession-proofing your life.

Is this the irony of economizing? By protecting our own interests with conservative money management are we actually encouraging the economic slowdown? Do our efforts at self-defense empower our enemy?

Don’t worry. You can be a good personal money manager and good for the economy. The apparent tension isn’t quite as significant as it looks at first glance.

First, it’s almost certain that those who look after their money carefully will remain in the minority. Yes, everyone seems to be cutting back these days, but I doubt that a significant percentage of that decreased consumer spending stems from intentional, voluntary “austerity measures.” The economizers and those who are smart about personal finances are the exception to the larger rule. Thus, those efforts to manage money correctly will be swamped on a macro-level by those who will continue to act without much consideration for the protection of their financial interests. That’s just an “accidental” situation, though. What’s more important is that smart money handling actually benefits the economy.

That brings us to the second reason you shouldn’t feel guilty for exercising good decision making. Smart personal financial management and decreased spending has an economic upside. Those who are in control of their money and debt are able to invest their resources while “the rest” stay on an ugly barely-making-it treadmill. Those investments provide needed capital to the most deserving and potentially valuable institutions and businesses. While we might be taking our money out of the loop on one side of the equation, we’re feeding the economy on the other.

Third, “you gotta have it to spend it.” If we’ve learned anything over the years, it’s that wild spending and bad financial management eventually come back to haunt us. Those who do economize and invest wisely are later positioned to contribute to consumer spending in a way that those who are constantly on the brink of personal financial collapse can’t. The current economic crisis is PSA for responsible spending. We’re living through the nasty hangover that comes after a weekend of binge drinking. Foolish credit purchases are the stand-in for the keg.

We didn’t really have a patriotic duty to maintain spending habits in late 2001 and we certainly don’t have a national economic obligation to go out and buy new cars and other unneeded consumer goods today.

Sometimes it seems as if we’re working at cross-purposes with our best interests. We’re watching a struggle born of reduced economic activity while intentionally reducing our own spending. If you look at it on that level, it appears as if we’re intentionally punching ourselves in the gut. If you view it from a broader perspective, however, it’s clear that there is no tension between economization and a stronger economy. If anything, more responsible personal money management is exactly what our economy needs.

If you enjoyed this article, please visit Personal Finance Analyst and subscribe to the RSS feed. We would appreciate your comments and reactions, so if you would like to contribute to the discussion, leave a comment below.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

The Penny Costs More Than One Cent: ...
Keven Federline Supports the Penny: ...
Stock Market in Sharp Decline, Stocks on Sale?: ...
Housing Boom Will Simmer: ...
The Carnival is Up!: ...

The Mythical Demise of Social Security

Flexo — Fri, 28 Nov 2008 12:30:37 +0000

About the author: This guest post comes to you from Mr. ToughMoneyLove, a baby boomer who dishes the hard truth about money and personal finance at his Tough Money Love blog.

I cannot count the number of times I have seen or heard statements proclaiming with great certainty that Social Security will “disappear” or that “it will not be there for me.” The frequency and intensity of these dogmatic statements seem to be inversely proportional to the ages of the people making them.

Social Security disappearing? It’s a myth.

Social Security may evolve and change but it’s not disappearing.

Believing in the mythical demise of Social Security is bad policy for anyone planning their financial future. Such a belief is also unfair to those generations ahead of you.

Before I explain, let me distinguish rash predictions of the end of Social Security from more level-headed proclamations that “I am not counting on Social Security.” Statements that fall in the latter category are actually beneficial because they create personal incentives to save and invest for retirement.

Why Social Security is not Going Anywhere

Baby Boomers won’t let Social Security fail. There are approximately 77 million baby boomers preparing to retire. A few have just now reached retirement age. According to numerous research studies, millions of middle class baby boomers are woefully unprepared for retirement. These millions will clearly need Social Security to have any chance at a decent standard of living in retirement. Does anyone honestly believe that Congress will stand idly by while Social Security crashes and burns, undermining the financial stability of millions of middle class baby boomers?

Even if Congress was inclined to let Social Security unravel, boomers would vote them out and replace them with AARP-friendly politicians. We boomers vote in big numbers. The AARP is a strong Social Security advocate. It has 35 million members, which is ten times the size of the National Rifle Association. The AARP has an $800 million budget, five times that of the U.S. Chamber of Commerce, the country’s largest business association. The AARP is surpassed in membership only by the Roman Catholic Church. As boomers continue to age, AARP membership and voting clout will only increase. Do you know who killed Bush’s plan to privatize part of Social Security? It wasn’t the whining Democrats. It was the AARP. Can you feel the power?

Simply put, Social Security is going to be rock solid necessary for at least the next 30-40 years, until the last of the boomers moves on to the next life.

Younger generations will need Social Security. The younger readers are still skeptical. I’m not a boomer, you say, so why should I think Social Security will be there for me? The answer is that post-baby boomers – the younger generations – are also going to need Social Security.

Let me explain with some numbers, using my wife and me as an example. If I wait until age 70 to claim Social Security retirement benefits, and when my wife reaches retirement age, we will be entitled to receive a combined monthly retirement benefit (in today’s dollars, using current calculations) of $4600. Now let’s assume that Social Security is not there and I needed to replace that $4600 with income from investments. Using a 4% rule of thumb annual retirement withdrawal rate, I would need a retirement nest egg of $1,380,000 just to replace our Social Security benefits.

How many of you are counting on having well north of $1 million (in today’s dollars) in place, just to replace the Social Security benefit that you think won’t be there? Maybe you had confidence a year ago that you would, but how about after the 40% market drop that we’ve all experienced? There has been a paradigm shift in investment confidence levels at all age groups. We are recognizing that 10%-12% annual market returns are gone indefinitely and perhaps for our collective lifetimes. We actually need to do better than that to recover from the damage of the past four months. With that recognition in place, all but the wealthiest working adults in all age groups must embrace the continued existence of a Social Security retirement system. When it comes to building multimillion dollar retirement portfolios, many are called but few are chosen.

Social Security Fixes are Doable. If I have persuaded some of you that maybe this Social Security thing isn’t so bad after all, you may still doubt whether it can be fiscally sustained even with good intentions. The reality is that although the Social Security system needs work, many experts believe that the funding crisis has been grossly overstated. (Medicare is a separate problem.) The misconceptions about the financial stability of the Social Security Trust Fund are many and are nicely summarized by the Center for Economic and Policy Research as a solution in search of a problem.

I am not going to detail all of the different options that are available to improve the actuarial health of the Social Security system. They include bumping the retirement age by a year or two or slightly increasing the limit on the Social Security wage base. Heck, even immigration reform could solve the problem by adding millions of younger workers paying into the system. The key point is that there are fixes.

What does all of this mean to you? Probably the most important take-away from what I have written is that you should not automatically write-off Social Security when formulating your retirement plan. If you do, you may end up taking excessive investing risks as you attempt to compensate for having no income stream outside of your retirement investments. That could backfire on you in a big way.

And by the way, if you younger folks decide you don’t want Social Security at all, please keep quiet about it. Otherwise, the AARP may use its clout to get some new laws passed that you won’t like one bit.

Photo credit: Fabricator of Useless Articles

If you enjoyed this article, please visit Tough Money Love and subscribe to his RSS feed. We would appreciate your comments and reactions, so if you would like to contribute to the discussion, add your comment below.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

One Black Friday Tip to Rule Them All: Buy Nothing

Flexo — Thu, 27 Nov 2008 18:00:58 +0000

For those in the United States, tradition and media influence have established today as a day for spending time with family, over-eating, and watching television. What could be more American than Thanksgiving Day?

Fast becoming a tradition for consumers is Black Friday (and to a lesser extent Cyber Monday). Retailers have discovered a tendency to for consumers to use the day after Thanksgiving as the perfect time to finish shopping for the holidays. With this observation, the stores compete with each other to grab shoppers’ attention with the goal of having customers depart with as much as their own cash as possible.

Tips for saving money on this holiest of holy consumer days are plentiful. Boiling own the most typical advice, consumers should pay attention, prepare with as much information as possible, stay focused, and get out or online early. For more solid tips for shoppers who are determined to spend money, take a look at The Insider’s Guide to Black Friday Bargains, an article I wrote for PC World.

But even the best advice ensures that you will spend more money. Retailers are happy with bargain hunters because they will spend more in the long run.

There are two paths for the informed citizen:

Path 1: Accept you are one small piece of a larger economy and admit that despite finding bargains, you will spend more money this holiday season than you probably should.

Path 2: Resist the desire to spend spurred by society and spend nothing.

Buy Nothing Day is the anti-consumerist “holiday” promoted by Adbusters. While it is “celebrated” on the Friday following Thanksgiving Day, the movement encourages focus on a larger issue than fighting against retailers who market to us 24 hours a day.

In a consumption-based society, we are draining the planet of its natural resources. Simply refusing to take part in Black Friday festivities will have little effect on the companies or the world. Buy Nothing Day should offer us a chance to look at the relationship humans have with the planet and look for room for improvement.

Use this winter, with the economy deteriorating and leaving many people with less money to spend anyway, as a chance to re-evaluate the way you celebrate the holiday season. Rather than buying CDs and DVDs, plastic toys, and electronics, all which will sit in landfills for thousands of years before breaking down after their usable life has ended and sometimes contain dangerous chemicals, discover new ways to share your love with family and friends.

One tip outweighs all others for Black Friday and the holiday shopping season at large: buy less. Buy intelligently and find your bargains, but use this year as an opportunity to rethink the way you approach holidays sponsored by retailers.

While you’re at the dinner table with your family today, use the friendly atmosphere to discuss whether a new approach to the gift-giving season could apply to your holiday experience.

How to Have a Green Christmas (EarthEasy)
How to Have a Green Christmas (TIME)
A Sustaintable, Intangible Christmas With Substance
Buy Nothing Day

Photo credit: Hey Paul

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

Predatory Bank Fees Could Lead to the End of Banks

Flexo — Wed, 26 Nov 2008 18:00:46 +0000

About the author: Karney Hatch is a filmmaker whose new documentary, Overdrawn!, explores the predatory lending practices of major national banks with Ralph Nader, Joel Bakan, a loan shark, and many others.

In all the number crunching and legalese surrounding predatory fees of various sorts, it’s easy to forget the visceral reaction that they cause in people. Ask any “telephone banker” who works a call center for any of the big banks, and they’ll tell you the first reaction that these fees cause in customers: rage.

Or, sometimes, shame. Which is the way the banks want it. For the most part, only people with low balances in their accounts get overdrawn, and so one of the most common emotional reactions when the fees hit is shame, and people who are ashamed don’t tell their friends they got overdrawn, they don’t call their member of Congress and tell them something needs to be done, they don’t switch to a smaller local bank or a credit union -– they just pay the fees and go back to their lives. Until the next time they get overdrawn, and then the process repeats.

I have two things that I want to encourage people to do.

Don’t feel ashamed. Shame just makes us feel isolated and powerless. Rage is healthier and leads to actions, like those mentioned above.

I’d like to encourage people to consider an option that hasn’t quite hit the mainstream yet, at least here in the US: microlending. A relative of credit unions, sites like Lending Club and Kiva work by facilitating loans between individuals, but without any kind of bureaucracy that can lead even a well-meaning credit union in the wrong direction. No middle man, no managers, no shareholders watching the bottom line. Just people lending to people.

For now the micro- prefix fits, but there’s no reason that this framework can’t expand into home mortgages, business loans, and so on; in short, every form of lending that banks currently dominate and exploit. As Jessica Anderson, a banking consultant with over three decades in the industry, says in Overdrawn!, “Once that model gets the bugs worked out, then why do we need banks?” And how would that make me feel? Pretty damn good, I have to say.

If you enjoyed this article, please take a look at Overdrawn! The Documentary by Karney Hatch.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

Lessons Learned From Losing a Quarter Million Dollars

Flexo — Wed, 26 Nov 2008 12:30:53 +0000

About the author: This guest article is presented by Debtkid, who recently begun working part-time for LendingClub. He regularly writes at Debtkid about his journey to become debt free.

A few years back, I was playing poker at a bachelor party. There were about 12 guys there, and the pot was around $100. During the course of the game, I had a few large open positions in the foreign exchange market. I kept a laptop next to me during the poker game so I could watch my open trades. While I lost at poker that day, I made over $15,000 in a few hours with my laptop. I was 22 years old.

Too bad I was already down over $100,000 at that point. It would make for a much better story, huh?

I’m a recovering day trading addict. I day traded my first stock when I was 18, and continued to trade through college first with stocks, then options, then currencies. I gained access to capital from credit cards, personal loans and even family members as my trades got larger, and my risks more out of control.

I ended up with over a quarter million dollars in debt because of my losses.

I’m 25 now and have not traded for almost 2 years. I lost my home, my credit, a girlfriend, and nearly my sanity because of my addiction. I lived on the floor of my small office for two months, spending some nights in my car because it was more comfortable.

Things are going much better now. I still have a long way to go to pay off the debts I have from my addiction, but I’m making progress. I have a place to sleep, food to eat, and family and friends who care about me. I feel truly blessed.

Here are just a few of the lessons I’ve learned over the past few tumultuous years.

Invest for the right reasons
I first started day trading to make lots of money so I could impress a girl. Yes, I know. Worst reason ever. Once I started day trading, and I saw a little talent (aka beginner’s luck) in myself, I got greedy.

My trading soon became all about the money. How much could I make in a day? $1000? $5,000? $20,000? Yes. Yes. and Yes. The bigger gains I made the more confident I felt in taking out loans to cover my losses.

I was in big time denial. And yet I kept dreaming of a big house, a million dollar bank account, and impressing all my friends.

Invest for your child’s education. Invest so that you can retire in comfort. Invest so you can sleep well at night.

Don’t invest to make a quick buck. Or impress a girl.

Don’t trade what you don’t understand
I thought I knew how to trade FOREX (foreign exchange) from a technical perspective, because I had some limited success trading stocks as a technician. I was way off base.

Bottom line: If you don’t understand the investment completely, stay away from it.

Take risks based on your strengths, not blind luck
Take risks where you are in control and that involve your passions or talent.

Buying a random stock because some talking head recommended it is not taking a risk. That’s just gambling. Can you control the price of that stock? No.

Let’s look at current example of good vs. bad risk. You’re a programmer named Sam in silicon valley. You’re sitting on a nice bit of cash and you think it’s time to get into the real estate market. You read a few articles online and start looking at foreclosures to buy in Vegas and Miami.

Now let’s say there is a successful real estate agent named John in Vegas who’s made a killing the last few years and wisely stocked away a ton of cash. John knows the market well, so well in fact, he’s had a list of 5 properties on office wall the last few months he’s been just waiting for price drops on.

Who should be buying homes? The answer of course, is John, the real estate agent. Sam the programmer is much more likely to have success starting his own web startup. Risk is really a relative term. You can minimize risk and maximize your returns when you invest in where your talents lie.

You’ll never find a more motivated and trustworthy investment than you.

Don’t hide your mistakes. We’re all human.
For nearly 3 years I hid all my losses from my family, friends, everyone. I kept my secret because I thought I could still correct my errors all on my own. And that was my biggest mistake of all. Sometimes we all need a little help.

Had I shared some of my early trading mistakes with my Dad, I might have avoided the huge losses I accumulated. I could have learned my lesson after losing just 10,000, instead of after 300,000 when I hit absolute rock bottom.

Photo credits: chrischappelear, groud.zero

If you enjoyed this article, please visit Debtkid. You can follow Debtkid on twitter or subscribe to his blog.

---
Related Articles at Consumerism Commentary: A Personal Finance Blog:

Consumerism Commentary: A Personal Finance Blog

Most Popular on Consumerism Commentary: November 2008

Social media

Top November articles

Personal Income Statement, November 2008 (Net Income: $22,787)

Income

Expenses

Expectations for December

News and Blogs: Tuesday, December 2, 2008

Personal Balance Sheet, November 2008 ($180,926, +6.5%)

Current Assets

Long-Term Assets

Current Liabilities

Long-Term Liabilities

45% Less Credit in Americans’ Wallets

WTDirect Offering Account Opening Bonuses Up to $250

News and Blogs: Monday, December 1, 2008

November Cash Experiment: Successful, Perhaps

Thanks to This Week’s Guest Authors

One Life: The Cost of Extreme Consumerism

Does Penny-Pinching Encourage Economic Decline?

The Mythical Demise of Social Security

Why Social Security is not Going Anywhere

One Black Friday Tip to Rule Them All: Buy Nothing

Predatory Bank Fees Could Lead to the End of Banks

Lessons Learned From Losing a Quarter Million Dollars