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Archive for October, 2008

After several months of consistent saving, my little Freedom Fund has finally grown up.

Finally, I have $21,200 stashed away in the Freedom Fund, which will last me just about 12 months, assuming a monthly expenditure of $1,700 (my financial restructing plan).

I still have around $1,000+ lying in various accounts (I should really consolidate them), which will add another 1/2 month if need be. I can move back home. I also can withdraw up to $10,000+ in Roth IRA contributions as an absolutely last ditch method.

So, as I stare down the road at what is likely a prolonged and painful recession, I worry about a lot of things, such as job security and surging applications to graduate schools.

But I know that this too, shall pass (how long it’ll take to pass is anyone’s guess). In the meantime, then, I have adequate cash on hand (experts recommend 6 months of living expenses, though I imagine a job search can easily take longer than that in the current market) and I have a supportive network of loved ones. I am blessed, and I am grateful.

Knowing that I’m blessed, however, doesn’t mean I don’t worry! So even though I achieved my goal of saving 12 months of living expenses, extraordinary times call for extraordinary measures. I plan on continuing to grow the Freedom Fund, so that I am as prepared financially as I can be.

Given these trying times, how many months of living expenses do you aim to save?

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Bitten by the J. Crew bug

If the economy wasn’t so bad, I just might.

Let me just say thank you for the parade of “oh no you didn’t!” comments that would’ve rained down on me were I to actually admit on this blog that I contributed to the economy via gorgeous footwear.

You keep me in check. 😉

What’s your favorite pair? Mine is the pink ones with the rosette – I imagine it’d be perfect with a tweed jacket and a trumpet skirt.

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The market has had a brutal stretch, and there’s no guarantee that things won’t get worse before they get better.

BUT – there are many companies with strong balance sheets and cash flows that have fallen dramatically in value as investors shun equities and corporate bonds to flee to the safety of Treasuries, even with the bounce-back of Dow’s 900+ point rally today. Wall Street, the saying goes, is driven by fear and greed. Now, the fear has taken over. By historical standards, many companies are cheap. So, is now a good time to buy?

If I were to buy equities right now, I’d be either (1) buying an index fund through a taxable account (mostly likely Vanguard’s Total Stock Market Index Fund), or (2) buying some select companies for long-term investment (Procter & Gamble, Newell Rubbermaid, etc.) also through a taxable account. I’m looking at consumer staples that have smaller exposure to the credit crisis (though it affects everyone) and pay a good dividend.

So, I haven’t decided what to do yet. Chasing a false bottom is a real danger and any money I put into the stock market right now I’m expecting not to touch for at least 15 years. Can I afford this loss of liquidity if I were to be laid off in this dismal job market? If I decide to invest in individual stocks, I’ll also have to research the best discount online brokers to use, and draft an investing plan to make sure that I don’t let my emotions (fear OR greed) take over.

Maybe I will just wait until January, when I can begin funding the 2009 Roth IRA.

*** Please note that I am NOT a financial expert / stock analyst and PLEASE do not make your decisions to buy, sell, or hold equities based on anything in this blog.

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Momspiration, momspectations

I talked to my mom tonight – she is planning to buy another house next spring and rent out the condo that my parents currently live in. Prices have depressed to around 2004 levels in the area they are looking ($500K for a house). I wonder how long it will take me to buy my own place…

Every time I talk to my mom, I either (1) feel a jolt of inspiration because she has just done so many amazing things, and I’m so proud to be my mother’s daughter, or (2) feel chagrined and inadequate because I don’t think I’m acting enough like my mother’s daughter.

I love my mom, but there’s a whole lot of living-up to do when your mom was the smartest girl in her class, built a life from scratch in a foreign country, and is always right. Some times I don’t want to admit it, but she is right 99% of the time. It’s scary! Fortunately, tonight’s conversation was definitely more (1) than (2).

We talked about the economy, and my parent’s financial plans, and how difficult frugality can be. I told her I’m saving $2,000 a month. She thought I was only saving $1,000+ a month, which means, score! I’m exceeding her expectations in this area. 😉 (But of course her saving prowess puts me to shame.)

I told Mom that it’s hard to save $2,000 a month. I know I’m fortunate enough to be in a position to save that much, but it’s hard not to spend just a little more. (For example, there were a pair of darling Nine West Mary Jane’s on sale at the nearby DSW. Don’t worry, I resisted. Barely.)

She told me that I’m to take care of all my parents’ finances when they become older. It’s a good thing I’m learning about all this money stuff now, right?

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Except right now, it seems to be ALL take, and no give.

I am worried. The worst is yet to come, especially in the job market because unemployment rate is a lagging indicator.

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A new reader, Chantelle (welcome!) asked a question:

How do you manage to save up $2,000 a month? After spending my hard-earned $$ on utilities, food, gas, car payment, car insurance and other expenses, i’m left with half that amount! Do you have any tips? (And eating at my parents’ place is not an option, since they live 15,000 miles away!).

Here are 10 reasons I can save $2,000 a month – they have to do with spending discipline, some hard work, but also a lot of luck.

The big stuff:
1. I work in a field that has relatively high entry-level salaries. I net ~$3,800 a month. So, I have discretionary income to save. If I were to change careers, it’s unlikely I would be able to match my current salary just starting out.

2. My major fixed expenses (rent and car) are relatively low. I share an older apartment in an okay neighborhood. I drive an old car that is reliable, reasonably gas-efficient, and most importantly, paid off. My only car-related costs are insurance, gas, and repairs.

The smaller stuff:
3. I have no cable, and do not pay for any type of monthly subscriptions except for high-speed internet. Along that vein, I also have no expensive electronic items.

4. I don’t spend that much money on clothes or shoes, and recently have stopped pretty much cold-turkey. I do still have some gift cards that I expect will tide me over for a couple months.

5. I’ve started cooking at home instead of going out to eat every weekend. I almost always bring my lunch to work. I also don’t go to bars very often (when I really feel like a splurge, I buy a bottle of Godiva chocolate liqueur).

6. I write this blog. Seriously, it works for me.

But, I’ll be the first to admit that I did not get here alone – my parents helped (and continue to help) me a lot, especially with a lot of the “start-up” costs. And here’s where the luck comes in:

7. My parents paid the bulk of my college tuition so that I only had to take out ~$20K in loans.

8. Whenever I go home, I get free food and free laundry. I am still on the family plan for cell phone, which Mom pays for. Those costs add up.

9. Dad gave me his old car (and did a whole bunch of repairs beforehand), so I didn’t have to spend money to buy a used car.

10. Last, but definitely NOT least, I am healthy.

So there you have it. As for money-saving tips, I guess my biggest tip is to lower fixed expenses. Rent, car payment, credit card payments, insurance, etc. Lower them as much as you can. That’s what has helped my bottom-line the most. Not traveling would also help me save more money, but there comes a point where you gotta live a little.

Readers, what are your suggestions for Chantelle?

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I try not to.

Even though I’m following the markets pretty closely thanks to NPR and WSJ (and The Daily Show), I try not to let all the headlines of “Markets Plummet!” or “The Next Depression?” or “Stocks Plunge With No End in Sight!” unnerve me (too much).

I do know that my account balances are down around 15%-16%. Not a huge change in absolute dollars, but certainly in percentage terms. Come January 2009, though, I’ll be back in the market with the first installment of Roth IRA contributions. Can’t say I don’t have faith!

Since the financial crisis started over a year ago, I’ve developed a cursory understanding of various financial instruments from reading all the news. Below are just some of the terms I’ve learned, thanks to the impeding global recession:

  • Commercial paper (very short-term debt that businesses issue to fund their day-to-day operations)
  • Credit swaps (a type of derivative where two cash streams are exchanged, designed to reduce risk – oh, the irony).
  • CFOs (collateralized fund obligations, or securities backed by hedge funds and fund of funds)
  • CMO squared (collateralized mortgage obligations backed by more CMOs)
  • Credit crisis (the phenomena of frozen liquidity, spreading insolvency, and panicked selling before the End of Days)

The more I know, the more I know that I still only know about 1% of 1% of what I really need to know to understand all this, but even the experts don’t seem to be that in control… so, I guess I should be worried!

My obsession with following every detail of the crisis (those enabling media outlets!) doesn’t do one thing for my portfolio performance, and I’m not changing any positions because I’m not touching my retirement money for a long time. But, following all the drum beat of bad news is kind of like watching a burning building, in slow motion. It’s such a disaster that it’s difficult NOT to stop and watch. Right when the firefighters (with a $700 billion water hose) seem to have the garage contained, the roof bursts into flames.

Given the way things are going, who knows where the market will be in three months. But, perhaps we are near capitulation, or is that wishful thinking?

Readers, care to take a guess on where the Dow Jones will be come January 2009?

Do I have a 10,000? 9,000? 7,000?

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