Well Heeled Blog > 2009 > January

Person vs. people

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Pay day was Friday, which that made Freedom Fund reach $28,500. I also went out to eat a couple of times because a friend was in town, but overall, I’m spending way less in the dining out department compared to a few months ago (which, granted, was the holiday season).

If I felt more secure about the job situation or the economic news wasn’t so doom and gloom all the time, I’d TOTALLY spend more. Totally. But like so many others, I am now watching every dollar.

Isn’t it funny how something that’s great for the individual (saving money) can be so bad for the economy if everyone starts doing it? Lack of consumer spending = lack of business spending = economic activity kaput.

In the long-run, all this saving will be great because it’ll turn into investments in the economy, but in the short-run?

It’s a painful adjustment.

Just how excited am I to get my paycheck?

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VERY. Very excited.

This Friday is pay day. I’m going to take that bad boy and dump it in my Freedom Fund so that if I am caught up in this imploding economy, my head won’t explode.

And as a note of my nerd-ism, I spent 40 minutes last night scrap-booking FINANCIAL NEWS in my personal journal.

That way, in 20 years, not only will I be able to recall the ups and downs of my relationship and the daily question of “how do I find a job I love?”, I will also be able to read, in exquisite detail, Fortune and WSJ coverage of this whole economic mess.

Nerd, I am.

Tweet, Tweet

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Yes, I’ve succumbed. I have joined… Twitter!

You can follow my tweets here: http://twitter.com/wellheeledblog

I must confess, I don’t have a razzle-dazzle new phone that I can make updates from anywhere, but Twitter will be useful for short ramblings musings, in contrast to long(er) musings here. icon biggrin Tweet, Tweet

I'm turning into my mother

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I’ve realized that I spend WAY too much time idly surfing the web when I’m home – which is a little ridiculous, given that I spend all day staring at a computer at work.

So, like my mother did during my middle school and high school days, I’m imposing a Internet Time Limit on myself during weekday nights – 30 minutes (45 minutes MAX).

It’s time to use my evenings for more productive pursuits, such as, oh, I don’t know, studying for the GMAT.

Okay.. my time today is up!

Categories: Mom

Me vs. the market: Do I know what I'm doing?

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One reader, CD, left this comment on my previous post on the market:

Hey smart alec,

Stay away from stocks, funds, bonds, unlesss you know what you are doing. In the sense spending at least 20 hours/week on investing and constantly monitoring the markets.

Otherwise, this is not your ordinary market, and believe me it will suck your money out of your little purse, faster than you would think. icon smile Me vs. the market: Do I know what I'm doing?

Sell every freaking fund and put them into money market account, preferably a t-bill only.

Having said that if you still would like to go long and invest, here is my advice for you:

- Never ever buy a single stock, especially nowadays. It is simply too risky.

- Always be a trend investor on indexes. Think about what will happen in the next two to six months. For instance, bank stocks may go up a little due to more “free” money thrown at them.

- Understand put/call options and how they work. How you can utilize them to set your selling and buying points.

- Understand the bond market. It is ten times larger than the stock market and usually a good indicator of the overall economy.

- Watch CNBC, Bloomberg, even Cramer. But never ever buy or sell based on their advice. They are always providing you what is already priced into the market and usually do not give you the full picture.

Good luck.

I disagreed with certain points of this comment, namely, that I would need to spend 20 hours a week monitoring the market before I put money in stocks or funds. However, CD’s words gave me a lot of food for thought… in that, do I really know what I’m doing?

I have an understanding of general macroeconomic conditions and the workings of stocks and bonds. I also have an academic knowledge of calls and puts, but I certainly don’t’ follow the market as closely as CD suggests, nor do I engage in call or put options.

So, given all of the above, am I ready to invest in this market?

I think so.

There are two types of investors that should do well:

  1. Investors who can sucessfully market-time over long periods of time (and there ARE those who can do this), or
  2. Investors who acknowledge that they do not have the skills to select high-performing stocks or funds consistently, over the long-term, and instead engage in a buy-and-hold / index strategy.

I think some of CD’s advice works for Investor Type #1. I, however, am Investor Type #2. I am a buy-and-holder. I DON’T have 20 hours a week to study the markets. And even if I did, I don’t think I can select the winners, year in, year out. This means that I am content with market returns.

So, I invest in index funds with very low expenses, and I intend to hold these funds for a VERY long time. My time horizon is 40+ years, so I think it IS okay (in fact, it might be beneficial) not to follow the market every single day (even though I do, though I never act on it). I don’t want to be an emotional investor.

This market has scared me, because I AM afraid that “this time it’s different,” that all the things we’ve learned from the past no longer holds true. This is my first real bear market, and it’s not fun watching my “little purse” shrink even further.

But to sell everything and put all my money into T-bills would be a reaction motivated by FEAR – and truth be told, I am just NOT that afraid right now. It might be naivete, or the lack of responsiblity for anyone but myself, but I’m feeling okay about the current market right now. (I probably won’t be if the Dow is still at 8,000 in ten years… but for now? I’m good).

And my purse might be little now, but I believe that with a diversified portfolio and consistent savings (and a couple pieces of cash-flow positive real estate holdings in the future), I will have a good chance of achieving my financial goals. I might be petite, but don’t be fooled – one day, I’m going to carry a big purse.

Are you feeling lucky? Or scared?

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Goal #1 accomplished. icon smile Are you feeling lucky? Or scared?

Now, for the really fun part… let’s see how fast and how far the $5K falls! Muahahahah <evil laughter>

Some questions for everyone out there:

(a) do you feel lucky that the stock market drop has made stocks so much cheaper, thereby making increasing the chances you’ll get a sizeable gain when you sell in a couple of decades? Or,

(b) are you scared off by volatility and have stopped investing in stocks (but have kept your stock holdings relatively constant)? Or,

(c) are you pulling out of the stock market faster than a bankrobber’s getaway car after the big heist? Or,

(d) are you like me, crossing your fingers and keeping the faith (scared but still investing)?

I love you Trader Joe's!

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One of my greatest indulgences is smoked salmon. I always order the smoked salmon omelet at restaurants. It can get expensive, though, at $10-$12 per dish. Add on tax and tip and I’m at $15 per omelet brunch.

Well, tonight I made a salmon omelet (breakfast for dinner is the best). I used Trader Joe’s Wild Coho smoked salmon – so delicious. I’d heartily recommend this smoked salmon to anyone.

The cost of this omelet was a fraction of what I’d be charged at a restaurant.

2 eggs ($0.50, $3 for a dozen)
1 bell pepper ($1.20)
1 onion (free! It was given to me. I have no idea how long it sat in the fridge. But it looked okay…)
1 oz. smoked salmon ($1, $3.99 for 4 oz. package)
Total: $2.70

Result: my wallet, as well as my stomach, is full.

Oh, I’ve never really paid attention to this before, but groceries are sales tax-free! How great is that?

Goal #7 for 2009

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In December I listed my six (mostly financial) goals for 2009, but then I realized, I forgot about Freedom Fund! So here’s one more goal:

7. Increase my Freedom Fund by $5,000, from the 2008 year-end balance of $27,000 to $32,000

So, overall, I am aiming to save $15,000 this year – $5,000 each to Roth IRA, 401(k), and Freedom Fund. If I remain gainfully emloyed through all of 2009, I will have the opportunity to save more. We shall see…

The $5K Freedom Fund goal will be iffy if I go on a vacation AND if I lose my job. Maybe I will try extra hard to cut back on eating out costs to compensate…

Can I afford a vacation? Suze Orman would say NO!

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Some college friends and I have been planning a vacation with just-us-girls (~$1,000 per person) for 2009. After all, who knows if we’ll be able to do something similar in the future?

But the worsening economy and job market, combined with doubts about my own job security, made me hesitant to spend a substantial sum on a luxury item – a vacation. (By hesitant, I mean, a tiny voice inside my head is yelling “it’s ridiculous to spend $1K on fun when none of your peers who have been laid off can find a job!”

On the other hand, I really want to go. I have saved up a healthy emergency fund. I don’t spend extravagantly. I’m only young once. Who knows how long before my friends and I are tied to family, children, graduate school, or other financial obligations? But maybe, all these reasons are just excuses for being dishonest about my financial situation.

Suze Orman has a show where she answers viewer’s questions on “can I afford a vacation (or any other expense)?” Most of the time, she says NO. That’s what I think she’d say if I ask her about the vacation.

I remember reading one of her books (forgot which one… she has so many!) where she highlights the perils of “financial dishonesty.” Basically, the story goes:

Joe X is laid off. He had already put a hefty deposit on an island vacation with his buddies. Instead of acknowledging his new financial reality (i.e. no job, no income) and forfeiting his deposit, Joe decided to go on vacation anyway by using his credit card.

When he came back, he found that a prospective employer had called him for an interview and that his house was flooded. If he had stayed home, he would’ve known about the interview and perhaps gotten a new job, and he would’ve noticed the water leak and prevented it from becoming a flood that destroyed his house.

Suze’s conclusion? Joe going on a vacation that he couldn’t afford = financial dishonesty = increased debt + continued unemployment + water-damaged home.

Obviously, Suze Orman is of the Financial-Karma-Takes-No-Prisoners school of thought.

I really would prefer not to end up like Joe X. So, though it pains me, the girls’ vacation of 2009 will have to be downgraded. Instead of a $1,000/person on a cruise or Mexico, maybe we will settle for a $300/person long weekend in Vegas.

What do you think? Can I (or, should I) take a $1,000 vacation this year?

Shares, not dollars

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Shares, not dollars: this is my way mantra to cope with Mr. Market’s relentless assault on my retirement portfolio.

Looking at the value of my retirement holdings is an exercise in self-inflicted pain. I don’t plan to decrease my investments OR to adjust my overall fairly aggressive asset allocation, but that doesn’t mean I don’t grimace a little over a 30% drop in the value of my contributions.

But – if I just change my perspective a bit, and turn my focus from dollars to number of shares, this downturn has been great! I’m picking up shares at all kinds of discounts. At the beginning of 2008, $5,000 bought maybe ~170 shares in my funds. Now, $5,000 can buy ~240 shares. 170 vs. 240 = HUGE difference.

The expectation, of course, is that these shares will (over the long run) grow in value. Capitalism is the essential exercise in optimism – the optimism that things will keep getting better, that productivity will increase, that people will prosper. That’s why I buy into America (literally, I buy America – well, the U.S. market index, anyway).

Of course, shares can lose most -or all- of its value (exhibits A, B, and C). But I don’t hold any individual stocks. In addition to the U.S. market index, I hold an international index and a bond index.

So, if my shares become worthless, the world has probably gone to hell in a hand basket. At that point, retirement will be the least of my worries. I’ll probably be foraging for berries and hunting small rodents for sustenance.

The write stuff

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One more goal for 2009.

This is a personal one, for me. I want to write. And get paid for it (or.. not.. but preferably paid).

Writing – I guess it’s a holdover from writing commentary pieces for the high school newspaper. One of the reasons I write this blog is to exercise my writing muscles, however slightly and imperfectly. I don’t have aspirations to write The Next Great American Novel or to become the next Danielle Steel. But with hard work, a great topic, and lots of revisions, might I not become a fairly engaging and enjoyable writer? I want to try.

And mind you, I’m not making a career change here. But this is something I’d like to do, just for me. Of course, later on I shall have the chance to write, (and write plenty!) for graduate school essays…

But right now, I want to write for pleasure. I want to write the type of articles (and maybe, even, a book in the future?) that I enjoy reading – articles on lifestyle and personal finance and essay pieces on the relationship between women and well, anything.

So, my goal in 2009 is to get published. Somewhere, anywhere. It could be the 3-page local paper for all I care. I want to start getting clips. And send out queries. And learn how to pitch an idea.

This endeavor could be fun (or a complete and utter disaster… of which I can then write about!). I will keep you guys posted.

If any freelance writers out there have advice for a newbie like me, please do share your insights!

Question: How to use your time unproductively

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Answer: Watch Momma’s Boys

Whatever happened to good old-fashioned boy meets girl?

Oh well. Back to studying adverbial modifiers for me!

P.S. I went to the gym for 30 minutes today! Originally I was aiming for 20 minutes, but then a good song came on and I was inspired to jog for a bit more. Now if only I can get my studying motivation…

One of My Biggest Personal Finance Pet Peeves

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Here’s one of my biggest personal finance pet peeves: one of the biggest source of tax deferral for the middle class, the 401(K), is utterly dependent on the employer.

Doesn’t this arrangement feel a little anachronistic in an age where careers may be characterized by frequent job changes and/or stints at self-employment?

I didn’t have a 401K for 2008. I should have a 401K in the next several months. All that TAXES that’s being taken out of every paycheck is enough to make me see red. I know, I know, public goods and all that jazz… but please.

Why can’t the government set up a portable tax-deferal vehicle that allows an individual to defer W2 earnings? It’d just look like the IRA, with the contribution limits as a 401K. Let’s call it a “private 401K” here.

In essense, instead of the company administering the 401K plan, the individual can choose any provider such as Fidelity, Vanguard, Scottrade, ING, etc. Then, if the employer decides to do so, it can contribute a “match” in the private 401K.

Under this scenario, ANYONE with an earned income would be eligible to contribute $21,500 in tax-advantaged accounts for 2009: $16,500 in a private 401K, and $5,000 in an IRA. The government is worried about people saving adequately for retirement. Wouldn’t this be a step in the right direction?

I can’t imagine that this idea hasn’t been proposed before. On another note, I really think that healthcare insurance should be de-coupled from employers as well.

$17,500 Roth contributions = $12,800 current value

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Goal #1 of 2009 is right on schedule. I am on track to max out the Roth IRA by the end of next week with $500 fom the upcoming paycheck. Currently, my contribution stands at $4,500, partially thanks a small bonus I received at work.

Maxing out the Roth every year is probably one of my proudest financial achievements. Since I’ve started a Roth IRA, I’ve contributed $17,500. $4,000 in 2006 and 2007, $5,000 in 2008, and $4,500 (soon to be $5,000) in 2009.

But is the current value of the Roth IRA anywhere near that figure? Noooooo. Nope. Not a chance in hell. My Roth is worth about 70% of what I put in.  That’s all money I saved, dollar by dollar. So, OUCH.

At least the shares are cheap right now.

Try

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Things have been… a little stressful.

A big reason why I am saving so aggressively is because I am worried about my job. In my line of work, the billable hour is key (I don’t work in law, but the concept is similar). If you don’t bill, you don’t generate revenue, and if you don’t generate revenue, the firm has no reason to keep you.

Some weeks I’d work past midnight and have 8AM Saturday calls, etc., but some weeks I’d bill 2 hours for the entire week. Averaged out, my billing is below target. That means I am not producing enough revenue to make my position worthwhile. I’m going to have to be a lot more aggressive about getting on projects.

I’ve approached a manager about an upcoming project. If it turns into a long-term engagement, that’d be a really good development. In addition, there are areas of improvement that I really want to hit in terms of improving my technical modeling skills, seeing the “bigger picture”, etc. There are two managers who will likely write my business school recommendations, so that’s an added incentive to perform extra well for them (in addition to, you know, not get laid off).

So that’s the reason why I’m looking at 2009 with a sense of trepidation. The economy sucks. Unemployment is up. California is broke (IOUs for tax refunds, seriously?!). Graduate school applications are skyrocketing. I have to retake the GMAT and do better than the 88th percentile I scored the first time.

I’ve always been one of those people who overachieved. Who had a PLAN. Who did well. I’m trying to get that spark back.

I look around and try not to feel like a failure because everyone around me seems to be loving their jobs, winning promotions, going on cool trips, scoring 750+ on the GMAT, getting engaged, running marathons, and buying real estate.

I try to pray and be thankful for what I have.

I try not to mind that I don’t have life figured out.

What do YOU want to see in this blog?

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A big reason why I’ve kept writing is because of YOU, my funny, encouraging, informational readers.

Sometimes I feel like this blog has gotten a little stale – I talk about going on a shopping hiatus, saving some money to reach some goal, buying a bunch of stuff, then saving some money for another goal, then going on a shopping hiatus… Rinse, and repeat. As much as I hate to admit it, maybe personal finance (at least here) has gotten a little boring.

So I’d like to ask for your suggestions – what would you like to read about? Please let me know in the comments. Thank you! icon smile What do YOU want to see in this blog?

  • Are there specific personal finance topics you want me to visit?
  • Did you read an article / book that was especially compelling and you’re curious about what I thought?
  • Commentary on current events related to money & society?
  • Do you want to see a continuation of the 20Something Money Series?
  • Interviews with other bloggers (and nonbloggers)?
  • Product reviews? (I am a little too enamoured with organic skincare and makeup products, and probably have way too many).
  • Budget decorating / going out / entertainment ideas that I’ve found helpful?

Gap is back! (Or, I went a little too buy-happy and now need a 6-month shopping hiatus)

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Financially, GAP Inc., like many retailers, isn’t doing so hot. The WSJ says it will report a 10.5% decline in sales. But in terms of style? I think the Gap brand is this year’s Retail Comeback Kid.

Way back in the day, I remember wanting a pair of my very own Gap khakis (if only because I was slightly smitten with the hat-wearing, line-dancing cowboys in the TV spots). One of my favorite pieces is a tweed trumpet skirt from the Gap that I purchased in 2005.

For the past couple of years, however, Gap’s designs have been lackluster and uninspired. It’s a brand for the basics, yes, but basic doesn’t mean boring. I can get a plain white tee for $10 at Old Navy – why would I pay $10 or $15 extra at Gap?

Still, I always held out hope that Gap will come back. After seeing the clothes, I think it has. Under the direction of a new head designer, the clothing seem so much nicer – I was happy to see more details (ribbons, bell sleeves, ruffles, etc.), bright colors, and a wider selection of petite sizes (so important!). Then there are the deals of up to 60% off.

The combination of better design, suitable sizing, and consistant quality led me to make my first Gap purchase in more than 3 years:

  • 3 pairs of pants (including a pair of khaki’s) $30 each – I had originally ordered one pair. As soon as I tried it on, I knew I had to buy more. The fit is slimming but not skin-tight. I promptly ordered 2 more pairs. I’d purchase these pants at the full $54.50 price, but the discounts just means that I can stock up. icon smile Gap is back! (Or, I went a little too buy happy and now need a 6 month shopping hiatus)
  • a party dress $25: Red? Is my weakness. Fortunately, I managed to refrain from also ordering the other color. I shall wear this to my anniversary dinner in February. Must keep the magic alive, no? icon wink Gap is back! (Or, I went a little too buy happy and now need a 6 month shopping hiatus)
  • a sweater $22: It’s a not-so-basic sweater in basic black. Love the 3-quarter sleeves and the grosgrain ribbon keyhole in the back. See what I mean about Gap bringing back the details?
  • The total came out to around $145.*
  • For the entire holiday season I think I spent around $250 (including the Gap purchases above).

After a full weekend of shopping, I’m DONE for the next SIX MONTHS. Now that I’m all stocked up on basics and beyond, I’m going on a much-needed shopping hiatus.

Besides, the torrents of deals will taper off – it’s just not sustainable marking things at 60%-70% off. After all the Fall & Winter inventories are cleared off, retailers are likely to be conservative on Spring merchandise. Maybe this is my way of rationalizing my purchases… but still. I don’t think we’ll see comparable sales come March.

*If you sign up for a Gap newsletter, you will receive a $15 off $75 code until Jan 31, 2009. Unfortunately, I couldn’t find a free shipping code for non-Gap card users, so I had to pony up for the $7 shipping.

Healthy, wealthy, and wise

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I’m sloooowly chugging along on the “wealthy” path, and I suppose that wisdom comes with age. That leaves “healthy” – an area that I NEED to improve on, if only for the sake of my, well, health.

At the end of 2009, I’ll be 25. I’ve always coasted along on my relatively manageable weight and reasonable metabolism, but that’s not going to last forever. Besides, just because I LOOK healthy doesn’t mean that I am… a combination of a lackluster diet and minimal exercise is bound to catch up with me.

Like many Americans, I’ve always wanted to be healthier. Unfortunately, I’ve never put action to the words. I was inspired after reading Debt Hater’s post on investing in herself. I’ve invested in my financial future, but I want to be alive and kickin’ to enjoy it!

2009 = time for me to finally get off my duff and get in shape. It’s time to invest money, time, and effort in my health.

To that end, I’m making a set of “health goals” for 2009, and I’d appreciate it if you can all keep me IN CHECK! icon smile Healthy, wealthy, and wise

  • Take at least one dance class ($85 per 6-class session)
  • Go to the gym OR jog for 20 minutes ONCE a week (better to make realistic goals, I say)
  • Use the stairs instead of the elevator at home
  • Complete a organized 5K race by the end of 2009

Not super ambitious, as you can see, but I want to make some permanent lifestyle changes, and avoid drastic resolutions that I know I won’t keep.

Do you have health goals for 2009?