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Update: Congress did not pass the bailout.. More details to follow.
The $700 billion bailout plan designed to buy toxic mortgage securities has been finalized by the lawmakers and the bush administration over the weekend. Now that the only hurdle remains a vote on congress, it seems to likely pass.
Here are some of the details that I found about the bailout plan.
$250 billion will be used to immediately buy troubled mortgage securities
An additional $100 billion is available if the president approves its use
$350 billion is set aside and can be used to buy even more troubled mortgage assets if congress approves it.
Companies that take advantage of this bailout plan has to give the government a stake of the company (via stocks) so US taxpayers can potentially profit from future growth of these companies
Top executives earning over $500,000 at companies that sell the assets to the government will have tax restrictions and executive leaving those companies would only have a limited compensation package.
Republicans wanted a way for companies to buy insurance on the troubled assets instead of selling the assets to the government. This is included in the bailout plan.
Democrats wanted the plan to allow judges the power to change loan terms to help mortgage owners in trouble and also the government to use some of the profits it makes on the purchase to help people facing defaults. This DID NOT make it on the plan.
The government will only buy investments originated on or before March 18, 2008.
If the government is losing money on the purchases of the assets in 5 years, the president needs to submit a plan to get some of the losses from the companies that sold the asset.
I’m sure more news will follow after congress votes today. Stay tuned.
I remember when we were looking at a house about 18 months ago, the real estate agent would show us a house that is $500k, then one at $550k and another at $600k. On the seller’s perspective, this is called up-sell (which I’ve covered before here).
This time around, let’s talk about the consumer’s (our) perspective.
Choices Are Not Always Good
Example #1 – It’s All About Safety As part of my wife’s new job, she was given three options for health coverage:
Cigna Network Open Access w/ Dental – $55.47
Kaiser HMO w/ Dental – $59.97
Cigna Network POS Open Access w/ Dental – $62.08
It’s easy to pick the more expensive choice. “Oh it’s only $7 more and it allows us to be covered for out of network doctors.” In the effort to be as safe as possible, we will probably choose the more expensive option. But would we be fine if we were only given the least expensive choice? Probably.
Example #2 – Evil Technological Advances Our router broke a few days ago and while I was looking for a new one, I noticed that they have this cool thing now called 802.11n (for nontechnical readers, think of faster, better and cooler). Although it’s twice as much money, I instantly wanted it. I still have no idea whether I will buy those new versions or not but would I be just as happy if I never knew they existed and bought the old ones? Yes.
Example #3 – It’s Only Three Bucks Recently, I noticed that they opened a new coffee shop along the route that I take to work. When I wanted coffee in the morning before, I would tell myself that Starbucks wasn’t on the way to work. Nowadays…. well… maybe I will just get that coffee tomorrow. It’s only $3 bucks and it’s not a big deal right?
The coffees are priced perfectly too. $2.20 for a small, $2.60 for a medium and $3.00 for a large. Only $0.40 more and you get twice the coffee so give me a large.
We Just Want The Better Choices
When we are presented with choices, we will naturally pick the the more expensive one. We tend to focus on the cost difference (often small) and try to convince ourselves that the incremental cost is worth the extras. It’s only a few bucks here and there but they add up you know.
Do You Have a Better Idea?
If saving money is one of your priorities, focus on what you are comfortable getting instead of the the cost difference of each choice. For every purchase from now on, focus on the minimal you are comfortable with and pick that choice.
A Simple Example – Picture Perfect Never mind that the Sony flat screen TV looks clearer than the Vizio when comparing them side by side. Focus on whether you would be happy with the Vizio flat screen in the living room. If the answer is yes, why are you complaining that you didn’t take the Sony home?
See what I am getting at? Focus on what’s really important, and you will save more money. Focus on the benefits, and be prepared to pay for it.
As I get ready to become a full time blogger, I’m finding more and more accounts and potential gotchas that I need to take care of before it’s too late. I’ve hence come up with a checklist to remind myself to find a solution to everything still outstanding so my finances won’t be affected unexpectedly.
401k The obvious account that I need to take care of is my 401k. I’ve decided to roll everything into a traditional IRA. Since I’m going to be self employed, I can also combine the traditional IRA into my SEP IRA (if I open one). For more options, read what to do with my 401k after I quit.
Checking Account I bank with Wells Fargo and the reason why I have a no fee checking account from them is because of direct deposit. Once I don’t get a regular paycheck, I won’t get any automatic direct deposits going to my checking account. I spoke with a representative at the branch and they say that the monthly fee will be $8. There is a workaround though, which is to open a savings account and have an automatic transfer of at least $25 from checking to savings every month.
I haven’t really decided on what I should do. I can either close my checking account or just open the savings account and leave it alone for a while. What do you suggest?
Benefits and Insurance Luckily for us, my wife will be able to add me to her plan for health, dental and vision benefits. Otherwise, I will need to get my own which could potentially cost me hundreds of dollars a month.
Last Paycheck This might not be on most people’s checklist, but my wife’s last company filed for bankruptcy and she happened to be one of the last people that got all her salary paid in full. Since I’m a salesperson and my commission won’t be until 3-4 weeks after I quit, I need to make sure that my address is correct so the check can be mailed to the right place.
So far, this is all I have remaining. Is there anything I should really look out for? I’d love to hear from you.
I recently experienced a “first” while I was in Las Vegas over the weekend. No it’s probably not what you are thinking since what I’m referring to is cooking while my wife and I are on a trip together. I never thought it was possible but the dinner actually turned out great. We had delicious food, we had fun and we saved a ton of money too.
It all started when my wife noticed that the hotel we stayed at offered a gas grill by the pool side. As our room also provided a dishwasher, plates and utensils, my wife decided to prepare some chicken wings to grill on Saturday night.
It was quite surprising to come back to the hotel room to find uncooked food on the counter but after my wife explained the plans, I was delighted to help and start our evening.
Why Cooking During Our Trip was Amazing The gas grill worked great and we had a lovely dinner outdoors while watching the stars. Here are some other reasons why it was amazing.
No Wait – Everywhere in Las Vegas is packed so it was a good change as there were no lines.
Romantic – It was just the two of us and it was peaceful and also a wonderful night.
It was different – it was surprising to say the least.
And of course, it saved us a ton of money – The night’s cost was about $8 for the two of us since everything else was provided by the hotel. Compare this with the dinner we had the night before that cost us $50.
What I Learned about Saving Money from The BBQ
Think out of the Box – There are always new ways to save money. Be creative.
Don’t be Afraid to Try New Things – If my wife didn’t decide to just prepare the food, I might not think it would be a good idea as we were in a hotel after all. As it turned out, I had a wonderful night and I will probably do it again in the future.
Turn Old Tricks in New by Changing the Environment – If I cooked while I’m on a trip, I might be able to save more money by applying what I already do with one activity and expand it to different environments. Hmm. Time to Start Brainstorming.
I accidentally overheard my coworker’s decision to sell her house as she doesn’t think that she could afford living there anymore. With the recent financial crisis and certain stocks basically going to zero, there are many people who lost a fortune (like this guy who lost $6 million because of Lehman Brothers). Luckily, she still has a job or else the situation will be even worst.
When I found out about the situation, I didn’t know how to react as I feel like we weren’t close enough for me to give her any advice without her feeling offended. However, I feel bad that something like this is happening to someone I know and I really want to help.
This post is intended to bring light to what I observed about her and her lifestyle. Along with the discussion that take place, we can all learn from one another in a real life situation and hopefully she (or someone close to her) will read this and find a way to solve her financial situation.
Money Leaks
Coffee and Sodas – $150 a month The first thing she needs to do is get rid of all her money leaks. Up until recently, she buys a cup of Starbucks coffee as well as a bottle of diet coke everyday. As we all know, $5 a day really adds up. At that rate, it’s $150 a month and we aren’t even talking about interest through the years yet.
Car Selection – $420 a month Unfortunately, she picked a pretty high end vehicle that takes $100 to fill up a tank. As she works 30 miles away from the office, she is spending $600 on gas alone every month. As a comparison, I spend $180 a month. What a big difference.
Many articles that illustrates buying a new car just to save gas is not worth it. In her case though, she should sell her car and buy another least expensive car with that money and save the difference. Once she does that, she can save money on gas, on maintenance and she will also have some leftover money to earn interest.
Utilities – $550 a month Most people seem to think they won’t survive without air conditioning, but it is simply not true. Turn off that air conditioning and open the windows. My electric bill was $13.01 last month while my mom told me theirs were $600. How much was yours?
Eating Out – $200 a month She brings lunches once in a while but if I were her, I would eat lunch and dinner with homemade food only. I regularly hear about her gatherings with friends in what sounds like a pretty high end restaurant. Say it costs $50 per meal and she goes once a week, that’s $200 a month.
Total Savings – $1320 every month. I’m sure there are many more things that she could cut back but without even trying, I just saved her $1320 per month.
Disaster Prevention is More Important than Disaster Recovery
With a little help, she can hopefully get out of her situation and start making the best financial decision moving forward. The true takeaway though is not what you can do when things go wrong but what you can do to prevent a personal financial crisis from happening.
Bad Habits Many money leaks we have are a result of our bad habits. Whether it’s smoking, buying coffee or splurging, we all do one or more of these activities. In order to prevent a financial disaster later in life, we should cut these down as much as possible.
Anything Can Happen In life, you just never know what will happen. Plan for the future and be conservative about how much money you need to retire. Don’t feel like you have to use up every penny of your nest egg before you die because no mathematical formula can ever account for the unknown. What if you live 10 years more than the expected age? Don’t turn a good thing into a bad one.
Develop Your Frugal Mindset As Soon As Possible Once you get used to living a frugal life, it really isn’t that bad. In fact, I just came back from a nice walk which is not only healthy but free. As you start spending less money, there will be more to save. It’s as straight forward as that.
Anything Else?
If you know someone in a similar situation, please share with us so my coworker doesn’t feel like she’s the only one in the world with this problem. Do you have any advices for her that you’d like to add? Share with us so we can all learn.
With all the headlines about the crisis in our financial system, it is very easy to become consumed and worry about our wealth. After all, what else are we supposed to think about when our stock holdings are tumbling in front of us?
Then in the middle of reading about all the financial articles, a tweet from Frugal Dad brings everything back to perspective. His mom is in intensive care unit at the hospital, and all he really wishes for is her to recover. I’d like to use this opportunity to wish him and his mom the best and I want to dedicate this post to her.
I’m the first to admit about the important of money, but as I mature, I discover that there are just so many things more important than how much wealth we have.
Health Without our health, nothing really matters. We all wish that we still had the energy when we were 10 years younger. However, we seldom do anything to slow down this process even though we realize our health slowly deteriorates through time.
We just found out my dad’s bones have severely deteriorated and the doctor told us there’s nothing we could do at this point. As the end result might be a need for a wheelchair, we only now wished that we could’ve done more exercises with him through all these years.
Taking care of our health should be our number one priority. This includes doing adequate exercise and maintaining a balance diet.
Family If our health is like a building, then our family is the foundation that holds the structure up. From our mother’s unconditional love to our spouse’s constant emotional support, many of us usually take it for granted.
We need to constantly tell our loved ones how much we appreciate them and let them know that we care about them. We should also go out of our way to help them, because doing so will allow the family bond to stay strong.
Happiness Some of us feel that money equates to happiness but many of us take it to the extreme and miss the point. What ends up happening is that without really thinking about it, we sacrifice our health and family for potential wealth building opportunities. This sounds illogical if I point out that a common example of this is working excessively, you probably understand why. When you work too hard, you are giving up precious family time and also your health as you spend less hours relaxing and resting trying to get ahead.
Money is only a tool to assist with our lifestyle but it is not the source of our happiness. Focus on being happy, and you will suddenly find that money is not as important as it used to be.
Final Words I want to wish Frugal Dad and his mom the best and I wish that I could do more than writing a blog post about it.
For those reading this piece, I hope that you will focus on what’s truly important. Stay healthy, be happy and let your family know how much you care about them.
What Else is More Important than Money? Let’s share and make a list.
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