Counter Intuitive Way of Lowering Your Spending

by David@MoneyNing.com · 11 comments

It’s not that I don’t like saving money (yes I do), but when weeks go by without me splurging, that wallet of mine seems to vibrate by itself. The urge is always to press snooze by buying something, but the silence only lasts for a short while.

It’s amazing to me how this works but it seems like the less I spend, the less I want to spend. I used to want to go out for lunches all the time. But now that I work at home and haven’t eaten out for a while, I don’t feel the need to go out and grab a bite.

I used to have a bowl of ice-cream every night when I was a teenager, and boy would I want one if the sugar rush haven’t started by 9 pm. I still love that sweet taste, but I don’t feel like life is crashing down nowadays when I don’t have a bowl. I think smoking works the same way, but there’s no nicotine in ice-cream I don’t think (at least that’s what the product label tell me).

It even works with diets I think. The less I eat, I less I want to eat. If I continue eating big meals, the more hungrier I get in the days following. It’s as if my stomach can expand and shrunk on minutes notice, but it’s more my desire bubble that does the inflating and deflating.

Reducing your spending this way is not for the faith of heart though. The beginning days are just awful as you have to endure that stupid vibrating wallet. The telepathic vibration is so strong that no matter how well hidden your wallet, it will know how to call for you.

If you can continue to ignore it, the vibration will then become less frequent. Each time, it will have less strength until one day, you don’t feel it vibrating anymore.

If your wallet is vibrating right now, maybe it’s better to let it be so it runs out of batteries by itself.

How I Look at My Money in Big Picture Fashion

by David@MoneyNing.com · 7 comments

What would happen if you were forced to spend a couple hundred bucks? Last weekend we had a flat tire on our way to Palm Springs. Actually, it was two flat tires. There was many emotions going through our heads and most of it was frustration as we were wondering whether we can still get to our destination while helplessly waiting in the rain for the tow truck to come. As minutes turned into hours, we finally realized that at least we are still alive and the only thing we really lost was money and time.

Time we have, and good thing we have funds for emergencies like these.

Speaking of emergencies… Oh emergency fund… Thank you for allowing me to feel secured in times like these.

Lots of readers always ask me emergency funds but so many people just don’t have one setup. Some of the reasons I hear are:

  1. Not Enough Money to Start One – Haven’t we heard this one before.
  2. Savings Offer Low Returns – 2% at an online savings account just doesn’t cut it (Actually, one of the minor benefits of this stock market crash is that many people now think anything positive is a decent return)
  3. How Much is Enough? – Then there are others who always want to know how much is really enough, and when they cannot find out (there is really no right answer to this question), they end up not even starting one.

Torpedo the Account Nicknames

Let me tell you something that’s helped me. Forget about naming accounts based on what they are for. I don’t try to name accounts bill pay and another emergency fund and another spending. What I have are:

  1. Checking
  2. Taxable Investment Accounts (Savings, Index funds, ETFs, Stocks etc)
  3. Retirement Accounts (I used to have a 401k too but that’s been rolled over)

Some of the categories might contain several accounts, but the main point is that I group them based on time horizon. For example, checking is used for bill paying and day to day operations, investments are to grow my money mid-term and retirement accounts are for long term.

Where’s the Emergency Funds Then?

Well, it should be obvious that my emergency funds are mainly in my taxable investment accounts. How much do I need for emergencies are irrelevant because how much I have in the accounts are strictly based on my savings goals and how well the investments do.

What if I Wanted a New Office Chair Fund

Many people have great success by setting up funds for what they want to buy. I used to do that, but I have since stopped because I don’t want to deal with so many different accounts. In order to accomplish this, all I do is setup metrics for me to hit. For example, say I have $5,000 in all my taxable investment accounts. I might say that I will buy that office chair when the total gets to $7,500.

Two Main Benefits of the Time Horizon based Classification

  1. Big Picture – One of the advantages of doing this is visibility. At all times, I can see how I’m doing long term without the short and mid term goals convoluting the picture.
  2. Simplification – This might be the best part because it’s so much simpler thinking about my money this way. No more emergency funds, vacation trips accounts, money to buy TVs, shoes and the like. It’s all really your money anyway right?

A Little End Note

If you think about it, this doesn’t say anything about how many accounts you have or how you will use the money. The visibility of my progress helps me achieve my goals.

Do what works best for you, but always remember the big picture.

7 Facts You May Not Know About the TARP Capital Purchase Program

by David@MoneyNing.com · 8 comments

I was reading an article by Fortune magazine about the TARP funds and one fact caught my eye.  Did you know that the TARP application is only 2 pages?  I mean, is it 2 separate pages with fields on the front and page of each page?  Then I found the official TARP form, and all was clear.  It is 2 pages with 20 fields to fill out, half of which are things like company name, signatures and contact information.

This got me to research a little more and here are 7 interesting facts about the beloved TARP.

  1. Application for banks to receive tax payers money (TARP funds) is only 2 pages while we mail 30+ (at least) page packages each year to pay taxes.
  2. No banks provided specific answers to where the TARP money was spent when Associated Press asked 21 banks that got at least $1 billion in TARP money.  Some banks just say “I don’t know” (according to wikipedia)
  3. Ken Lewis (CEO of Bank of America) wanted to back out of the Merrill Lynch deal and was told by Bernanke and Paulson that BofA had to close the deal.  Those two even told Lewis that renegotiating a better price for BofA is not an option (according to Fortune magazine)
  4. NY Times is keeping tabs on who is getting TARP funds, while the government doesn’t have a list publicly.  (The government does sent out notices, but not when funds are committed.  They just let the public know in batches.)
  5. Before the Obama administration ever took office, $379.8 billion of the whole TARP fund has already been committed. (see NY Times link)
  6. I thought any funds over the first 350 billion was supposed to be voted and approved by congress before the treasury department can use it, but for some reason I never heard of news on that.  (I could’ve missed it, so could someone point me to mentions of it?)
  7. Last week, Eizabeth Waren of the Congressional Oversight Panel said that the government paid $254 billion for assets that were worth only $176 billion in 2008.  So much for making money on these things.

Maybe we should just sit back and relax because it’s not like we can do anything about it anyway.  I wonder if they can at least streamline the unemployment application because at least more people can benefit from that.  A 2-pager would be nice.

Loan Modifications, Foreclosures Affecting Retirement Savings (IRAs and 401k)

by David@MoneyNing.com · 47 comments

house under waterWith foreclosure rates sky rocketing and no end in sight, banks are much more willing to negotiate with homeowners on the specifics of their mortgages. These days, “loan modification” have almost become an industry by itself as banks allocate more and more resources to work on this.

Sparked by all the news surround it, a reader had this question:

What happens to IRAs and other retirement accounts when someone approaches a bank asking for a loan modification? Can the bank take over those retirement savings to satisfy part of the debt (in the case of a short sale for example)?

Loan Modifications

A loan modification is basically a change to the terms of your loan. In theory, it could be lower interest rates, shorter loan terms or even completely writing off the whole mortgage.

From what I’ve read (and heard), lenders will not agree to any loan modification unless you start to show inability to repay the monthly mortgage payments. Once delayed (or missing) payments become frequent though, they might work with you on a loan modification.

The modification process is basically a negotiation where the lender will reduce your monthly payment if it believes it is better off with you paying a reduced mortgage payment. Therefore, the modification needs to be better than your house being in foreclosure (in the bank’s eyes).  In process, the retirement accounts are safe because they are still working with you to get you current with the mortgage payments.

What About Foreclosures

Think of foreclosure as a few months of non-payment.  If loan modifications weren’t enough to reduce your payment to an affordable level (or if there were no loan mods to begin with), a notice of default may be sent to your house after 90 days of missed mortgage payments.  At this point, the lender will seize your house and put it up on auction in an attempt to recoup the cost of lending you money.

If the proceeds doesn’t cover all the cost  such as mortgage, administration fees, lenders may initiate a deficiency judgment (basically, they are suing you to get their money back).  Most believe that lenders won’t even bother with this because this process is long, complicated and expensive.  The argument is that if a homeowner weren’t able to repay the mortgage in the first place, he/she probably don’t have enough funds for the legal actions to be worthwhile.

If however the lender do decide to sue and win in court, you are obligated to repay any debt that the judge grants to the lender.  At this point, it is like any other time you owe someone else money in which you try to repay it with all means possible (job, 401k withdraws etc).

If you don’t want to take money out your 401k and IRA, you can always file for bankruptcy where those types of accounts are safe from debtors.

The Shorter Answer to the Question

Basically, 401ks and IRAs are safe from all types of debtors even though other types of assets (savings, other investment properties and taxable investing accounts) could be in danger.  However, in the case of fraud (as determined by the court), nothing is safe.

Stop Thinking About True Value and Just Buy What You Need

by David@MoneyNing.com · 13 comments

Often times when we buy a product, we get confused with the purpose of the purchase. Sometimes, we buy something out of impulse, sometimes it’s based out of necessity but most of the time, it’s only because we can.

When we set out to buy, we seldom know what we are really looking for other than something general like “I need a refrigerator”. What ends up happening is something we are all familiar with. We go into the store and talk to the salesperson about fridges. Almost always, we learn some “must have” feature that now becomes the anchor of our search for our perfect refrigerator. After a while, we end up buying a nice (but way too expensive) refrigerator and we justify it by saying “This is the best value I could find”.

Confusing Necessity with True Value

The situation is even worst when I am actually somewhat familiar with the product. When I buy a computer, I end up buying a better one than I originally intended because I can understand the sales pitch about the extra features. I tell myself that “oh yeah, that faster processor is extremely important” only to forget that I was buying a laptop for my wife whom only wants to occasionally surf the web.

Expensive Doesn’t Equal Quality

More expensive equal better, or at least that’s what we think. After all, there must be a reason that it costs more, or so we though.

We think this way because we are the consumer. Let’s for a minute assume the role of the business owner. We sell a product because we want to make money. The higher the price, the more money we make because our cost is somewhat fixed. Therefore, doesn’t it make sense that we try to market the product as expensive as possible? Now think back to our perception of price and quality. Where does quality come into the price equation?

True Value is Personal

It’s not how many features you get for your dollar but how many dollars you give for the features that you need. Who cares if that iPod has a huge screen when you only wanted to listen to music?  Sure, that LCD TV has 1080p output and it’s only $150 more, but what is 1080p again?

Value is becoming a sales term and I don’t like it.  You shouldn’t either.

How to Pay Less and Be Happy

Here’s one tip that everyone should follow when they need to buy something.

Before you do any research, sit down and figure out what you specifically need the product to do and write them down first. Then, do your research and find the least expensive product that can get the job done.

Forget about the new LCD display on the side door that tells you when the ice cubes will be ready. Just say “No Thanks”.

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