money doesn't determine my worth

As the stock market hit crazy lows today, I feel like it's a good time to finally post about this terrible economy.  I wish I could say that I thought things were going to get better soon, but the truth is, I think things are going to get a lot worse. This economy brings uncertainty to so many of us regarding our jobs, our homes, our retirement and our savings. 

I think it's safe to say that we've all felt the pinch, right?  No one's exempt.  Our jobs might have slowed down or maybe you've lost yours, our 401Ks look a lot smaller than they did and our homes have decreased in value.  Money is tight. My parent's says that the I'm too young to let this worry me, but how do I just get over seeing the value of my mutual funds down $12K, my 401K down $8K and (according to the zestimate) the value of my home down 25%? How can we, as young adults, not be worried when it seems like everyone my age is "under water" (owing more than the house can sell for) with their mortgage? Our church is struggling to pay the bills as well as our favorite charities/ministries and it doesn't seem fair. It seems like there's a lot to keep us up at night.

I wish I could say that the uncertainty of this time doesn't worry me a little. I'm nervous for myself, my friends and my fam. 

I do find comfort in knowing that God is in full control of my job- my promotions and as well as my demotions.  He's in control of Wall Street and he's in control of the housing market.   He's in control of the stimulus plan and he's in control of the national deficit. He's in control of it all.  He just asks that we trust him with that. After all, my worth isn't determined by my pocketbook, it's found in Christ.

Financial Tricks & Treats

While reading Kiplinger today, I came across a great article full of practical advice for all of us who are financially struggling right now.  I thought I'd summarize the points (and add my 2 cents) so you don't have to read the entire thing.

Trick #1 Give up your daily latte

-"Forgoing your $4 latte every day, for example, would save you about $120 a month. Investing that money every month for ten years into an account earning 10% annually would net you nearly $25,000. Keep it up until retirement, and you'd have more than $765,000 in 40 years."

(think big picture and long term the next time you drive by a Starbucks....is this really worth forgoing $700k?)

Trick #2 Put your credit card on ice-- literally.

You can pay down your debt a ton faster if you don't add to the balance with daily use.  Seems simple, huh? Hide your card so that you won't be tempted to use it. 

Trick #3 Use cash for all your expenses.

Once you've hidden your credit card, you won't be able to spend more that you have when you don't have the cash in your wallet.  

(I would save a lot of $$ if I applied this concept to my bimonthly Target trips.)

Trick #4 Pay your bills automatically.

You won't forget to pay a bill if the payment is setup to withdrawal from your checking account each month. 

(This saves me so much time and worries during the month.  I can sleep easier knowing that my bills are taken care of for me.)

Trick #5 Ask for a lower interest rate on your credit card

Did you know this was possible? "A five-minute call to your lender could save you hundreds of dollars on interest charges and help you pay off your debts sooner."

If you  have a large balance on your credit card, this could save you mucho bucks as you try to pay down then off the balance.

Trick #6 Put your savings on autopilot.

Many companies (like mine) give employees the option of depositing their paycheck into multiple checking accounts.  Each month just have a fixed amount deposited into a separate account used for savings.  Before you know it, you'll be RICH.

(Similarly, I'm able to buy mutual funds automatically each paycheck...a portion of my check is sent to a Vanguard account which purchases more shares of my special funds.)

Trick #7 Save regularly for recurring expenses, too.

"If you automatically save a little money on a regular basis, it doesn't take much to build up a good stash for when your big expenses come due. For example, if you arrange for a mere $25 a month to transfer from your checking account into your holiday gift fund each month, that's much easier to manage than coming up with $300 all at once come December."

(That reminds me...I need to start saving for Christmas)+

Trick #8 Set long-term goals with a buddy.

This will help you keep long-term goals in focus.  In christian circles we might call this a money accountability partner.  

Trick #9 Ignore your annual raise or year-end bonus.

"Expecting a raise this year? Pretend you're not. By keeping your standard of living the same and not increasing your spending with each bump in pay, you can pocket the extra money and use it to reach your goals."

(Brilliant!)

President Bush's Stimulus Package and Me

The best part (CA$H MONEY) of President Bush’s stimulus package will be sent out to us (US taxpayers, that is) sometime between May and July. The theory behind the stimulus package is that when the taxpayers receive their check in the mail, they will spend it. The sum of millions of taxpayers spending their stimulus package checks will spur the economy out of the recession. We will see if that works.

I’m not going to lie; I’m pretty excited for it. It’s not often that the government sends you a $1,200 check. In fact, I’m not sure when the last time something like this happened. (Maybe I’m too young to remember though.) There a couple of different factors that determine how much you will be receiving for the government. Use this calculator to see how much you can expect.

The IRS will be sending out the checks starting May 2nd with the last of the checks mailed in July. The checks will be sent out numerically based on the last two digits of the taxpayer’s SSN. Taxpayers who opt to have their 2007 tax refunds electronically deposited in their bank accounts will move to the front of the rebate line. (We have our refund electronically deposited but I’m not sure what Dusty’s SSN is so I will be keeping my eye on the bank account in May to see when our check arrives)


I want to encourage all of you to go out there and spend those stimulus checks. Think of it like a Christmas gift card to be used wherever you want. Do your part in helping the economy rebound from the bear market- spend that check! Dusty and I are planning on spending our check on a new tv for our bedroom…Thanks Uncle Sam!

Darn Market!

If you haven't heard, the market hasn't been doing so hot in the last 3 months. Investors are fearing a recession brought on by credit worries, weak dollar and rising inflation and have sold massive amount of stock as a reaction. The US economic recession worries have also caused the international markets to tank. (Almost all of my unrealized gains are gone. BOO!)

With all this said, it's a great time to start investing! Buy low and sell high. Well, since the market hasn't been this low in a few years, why not buy now? Think of it as buying investments on sale. Who doesn't love bargain? Although the market could slide further, most analysts do not believe that the market is over valued so the "buying on sale" mentality might be a good way of looking at it.

Housing

Real estate is not a subject I know a lot about but I'm learning more as the days go by since it's been in the news a lot and since most of our friends (including us) own homes. Also, my parents are selling their house so I'm learning a ton about that process too.

Here's some things I've learned recently:

• Housing market is at an 8 year low. In the Puget sound that may mean that it takes 5 times longer to sell that same (overvalued) property.
• When buying a home (in today's market), expect to own it for at least 5 years before moving in order to keep the equity you put in it or you may lose $$ if you didn't use a down payment.
• In order to sell your home, it probably requires a lot of cosmetic work and a quick talking sales person (aka RE agent) which can cause many people to rethink selling their homes.
• Closing costs- what a rip off. Let's say closing costs are 6% of the price of the home ($300k) which equals $18,000! If you only had $50k worth of equity in home to begin with then you'll only be left with $32k for a down payment on the new home.

With all this said, is real estate really a good investment? It kills cash flow and requires a lot physically...two things I hate.

Google

So Google closed at $615.19 today people. Let me say it again $615! If you were lucky or smart enough to get in on Google's IPO 3 years ago at $85, then you have would have earned over 720%. Isn't that crazy? Even with Google at all time highs, most analysts are still recommending that potential investors buy this stock (not hold, or sell).

I'm assuming that no one reading this got in on that initial IPO, but my question is: Would you have invested in it had you been offered? I probably wouldn't of. Too risky for my blood especially since the dot-com bubble bust a was just couple years prior. (Also, I didn't have any money 3 years ago...not like I have a lot now...and investing was the last thing on my mind then.)

Lesson learned: the next time a hot company starts selling shares to the public, I'm in! (Only if they can promise over 600% in 3 years though)

My Mutual Fundimony

My path to mutual funds came my senior year of college in my Investments class. In that class, we explored various ways to invest in the stock market. My professor also recommended that first time investors start by using mutual funds due to the small start up costs and instant diversification. As he explained, there are many types of mutual funds with various fee structures. He added that fund managers (the smarties who buy and sell the various investments of you specific mutual fund) are considered successful if they “beat the market” (get a better rate of return than the S&P 500 or the Dow Industrial Average). Apparently, it’s actually hard for a mutual fund to beat the market due to the fee structure.

For that reason I decided to go with Index mutual funds. If I (via my fund manager) couldn’t beat the market, I’d join it. My first big expenditure after college wasn’t a new car (Lord knows I need one) or a house…it was the Vanguard S&P 500 index mutual fund. Index funds basically follow exactly the things they are indexing. And S&P 500 index fund will go up and down as the S&P 500 goes up and down as days pass. Another reason why I picked the S&P 500 index was that the fee structure was sooo low. I don’t know if there are mutual funds out there that have lower fees since the managers don’t really manage much; they just adjust the fund to whatever is happening with the S&P 500. Also, you can buy directly from Vanguard and don't need to use a broker which saves me even more money.

Since that time, I have also started indexing internationally using a Vanguard international index mutual fund. Last year I got a little nervous about the U.S. dollar and our trade deficit so I decided to diversify to other counties and currencies.

Let’s talk Vanguard.

I have had nothing but good experiences investing with this company. I chose this company because they are the rockstars of indexing. They invented it, they specialize in it, and they have the absolute lowest fees (I’ve found) when it comes to index funds.

I say all this stuff never having any contact with a real person at Vanguard. In fact, that’s one of my favorite parts. Once I decided to buy from them I never needed to talk to them. I sent a wire transfer (although could be done with a check) and bought some shares. Since then, I buy more shares each paycheck (via direct deposit that they set up) and never have to worry about if they got my check or if I sent a check or any of that stuff.

It’s so easy. If I can do it…anyone can, seriously.

Other recommendations…My Dad uses and recommends using Charles Schwab to buy mutual funds and ETF’s and keep track of his investments. I couldn’t afford that service though since I didn’t have much to invest. As for specific funds, Dodge & Cox has great mutual funds that perform really well. In fact, I tried to buy into some of they funds but they were closed to new investors. I hate it when that happens.

My (not so) secret investing tips

I haven’t divulged my investing secrets to many because, well, no one has asked. So, I must volunteer them. I won’t share why you should invest in the stock market. I’m going to assume that everyone reading is aware of the historical average of the stock market ( roughly 12%).

It’s never too late to start investing and I want to encourage everyone to not only participate in your company’s 401k plan but also to invest outside of that. I don’t think that most 20 something’s know how easy and simple investing can be.

Here’s some rules to live by for those starting out investing (some are personal rules and some are generally accepted rules):

-Don’t invest anything you can’t afford to lose. It’s not the best idea to invest all you savings into the stock market. That would cause me so much stress (especially during a bear market). Also, to go along with that, don’t invest in anything you don’t understand…maybe that goes w/o saying though.

-Think longterm. The stock market probably won’t make you a lot of money if you take out your money a year later. Also, the only way to make tons of money in the long-term is to not touch your money once it’s in the stock market. The market will go up and down as the months go on and studies have shown that people who buy and sell as the market fluctuates don’t actually earn the same returns as people who just let their money stay for the ride. *Of course there are good reason to sell at times but I won’t get into that today.

-Be regular. I have found that making investing a regular habit (via direct deposit from paycheck) has helped me invest tons more than I though I’d be able to afford. It seems much more affordable to invest say $200 a paycheck then $5K at the end of the year.

-Use mutual funds. Unless you have tons of money, it’s hard to get tons of diversification when you first start investing. That’s why I recommend investing in mutual funds. They provide instant diversification. You can buy mutual funds that invest in big US businesses, just tech stocks, businesses in other countries, small business and the list goes on. Plus, when you invest in mutual funds, you don’t have to pay a broker each time you buy or sell.

Is it Bear or is it Bull?

Has the stock market started to scare anyone else lately? Let me explain the situation we are in for those who don't read Money mag or Yahoo! finance. During the housing boom over the past few years, home loans were being offered to people with poor credit and with little to no down payment with variable interest rates. While these people might have been able to afford a $1,200 monthly payment for a couple years, they were unable to afford the $2,700 a month house payment once their 5 year fixed rate was up. Thousands and thousands of people defaulted on their loans and had their homes foreclosed on. Thousands more are also expected to default soon. These sub-prime mortgages have reeked havoc on the economy. Not only is the US affected but the worldwide stock markets are also affected since portfolios everywhere contain some of these investments. Yikes.

In the last three months, the market (DJ IA) almost gone down 7%. That's not to bad considering it's still up for 2007. However, investors are very cautious and hesitant about the future of this market and the full affect of the credit chaos. Don't go selling your stock though. Remember buy low and sell high...not the opposite. Actually, it might be a good time to be buying.

Well, if you thought you could afford a home last year for the first time with no money down, you might want to talk to a loan officer...fast! You may want to try to clean up your credit first. There are fast and simple ways to do that to make a difference. Also, try to save some money for a down payment. Traditionally it's been suggested to put down 20% but if that sounds like too much, try saving for 10%. Buying a home is rewarding but it also is a lot of responsibility. Make sure you know the terms of you home loan so that you are aware of what you are getting yourself into.

Words from a woman who has never bought a home.