Freezing in NH

I saw an interesting article in the NYTimes today (okay, it’s a week old, but I found it today).  It basically talks about whether we’re giving our children a realistic picture of what life will be like.  I think this is important, and not just in terms of combining having children with a career.  Sometimes I think kids are getting an unrealistic picture of how easy life will be.  It’s better to explain that some things will require hard work.

After my talk at the Lincoln School, mothers came up to tell me that this was the first time they had ever thought to talk to their girls about the challenges of combining work and parenting. Do any of us think to have those talks?

When we talk to our children about sex, about alcohol and drugs, or about the dangers of the Internet, we give them limitations and warnings. But when it comes to the subject of work, we tell them that they can be whatever they aspire to be; that they should aim high, work hard and dream big.

What we rarely do is tell them how hard some days are. Or that along the road, they might have to compromise, or detour, or backtrack. To warn them would be to discourage them. Or so our thinking goes.  

Today Vanguard announced it will drop account fees under certain circumstances:

Beginning in June, Vanguard will implement a much simpler, single-fee approach under which a $20 yearly fee will be assessed on all fund accounts with a balance below $10,000.

Under the new approach, shareholders have three options to invest fee-free with Vanguard: 1) establishing account access on Vanguard.com and choosing electronic delivery of statements, reports, and prospectuses; 2) maintaining total Vanguard® fund assets of $100,000 or more; or 3) consolidating accounts or investing additional assets to bring all account balances to $10,000 or more. 

For small investors who don’t choose e-delivery, it may be a fee increase depending on where they’re invested.  But for those of us who have a balance that could be over 10k per fund but want to diversify, this is great news.  No more choosing between a fee and diversity!  (Of course you have to be comfortable getting things online, but given the sea of papers on my desk right now, I’d rather have things online where I can find them.)

BusinessWeek has a nice small business section http://www.businessweek.com/smallbiz/. 

The article She Did it Her Way is interesting (and the women very inspiring) but it seems a bit patronizing.  The lead question is “Why are women bailing from Corporate America?” and the answer seems to be “because they wanted to do things their own way”.  If this were an article about men, would it be phrased the same way?  I think it would say “because they want to be in charge” or “because they want to make more money” or even “because they want to be in control”.  I don’t think the motivations are that much different, just that the media slants things certain ways based either on the preconceptions of the writer, or because the writer thinks it’s what the audience wants to hear.

 Anyway, it’s not a bad article, go read it.

An article in yesterday’s NYTimes talks about buying vs renting.

After the last big run-up in house prices, in the 1980s, a long slump followed. In the New York area, prices peaked in early 1989 and then fell 9 percent over the next three years, according to government data. (Adjusted for inflation, the drop was much bigger.) Not until 1998 did prices pass their earlier peak.

Keep in mind that the 2000-5 boom was even bigger than the ’80s boom and that house prices on the coasts, according to the official numbers at least, have fallen only slightly so far. So it is hard to imagine that prices will rise 5 percent a year, or another 28 percent in all, over the next five years.

They even provide a calculator so you can find the break-even point.  It factors in rent, home price, taxes, home price appreciation (which you can set to -10% if you like) and annual rent increase/decrease. 

In the long run, it’s almost always better to buy, but that “long run” could easily be ten or more years if rent is cheap and appreciation low.  It claims to include both the opportunity cost of what you could have been doing with your deposit money as well as operating costs such as maintenance.  The details are a bit sketchy, but it seems thorough.

An article in Money today: Have less than $25K in savings? Get in line

Nearly half of all workers saving for retirement have savings that fall short of the $25,000 mark, according to the 2007 Retirement Confidence Survey by the Employee Benefit Research Institute and Matthew Greenwald & Associates.

Predictably, the youngest workers (ages 25-34) dominate this group - 68 percent of them have less than $25,000 earmarked for their later years. But so do half of workers age 35 to 44 and a third of workers age 45 to 55 and over. 

[…]

While financial pressures can play a big role in how much one saves, so, too, may your expectations: 30 percent of workers said they thought they would need to have a nest egg worth less than five times their current income to live in retirement, while 27 percent thought they needed between five and 10 times their income in savings.

All but the lowest earning men should have 12 times their income just before retirement, estimates EBRI. That’s $900,000 for a man earning $75,000. A woman, because of higher life expectancies, should have 14 times.  

Wow, it makes my paltry retirement savings look good.  These are just rules of thumb, your needs/wants may differ.  If you’re currently saving 50% of your income, (and like living that way) you only need to replace 50% of your income with social security and retirement savings when you retire.  On the other hand, if you have big plans for travel after retirement, you might spend more than you currently do for the first few years.

Martha Stewart (not always my favorite person, but she’s got some interesting stuff going on…) has an article called 100 Reasons to Get Rid of It.  As a packrat myself, some of these make a lot of sense:

Or Just Because…
95. It has no value, sentimental or monetary.
96. It hasn’t been used in over a year.
97. There is no logical place to keep it.
98. It doesn’t work.
99. An ex gave it to you.
100. And what’s the worst that can happen if you throw it out?

Keeping clutter can cost you…you need a bigger house or a storage unit to put it all in.  You have to dust it.  Your gas milage in the car goes down when you carry extra weight.  And sometimes you buy another one because you can’t find the first one under all the junk.  So it’s time for spring cleaning!

 I’ve sold household items and such on ebay, books on Amazon and more recently swapped books via various services.  I’m signed up to be part of a multi-family yardsale in May.  So hopefully I can weed out all of the junk before then. 

I’ve started reading “I Want That!  How We All Became Shoppers”, by Thomas Hine.

If one could look objectively at the array of stuff available at Wal-Mart—and I’m not sure that’s possible—one might conclude that there is hardly anything on sale there that a person couldn’t live without.  You don’t absolutely require a lawn sprinkler.  You don’t need Barbie.  You do need water, but you don’t need bottled water.  Nobody needs a ceramic sculpture of mother and daughter hippopotamuses, but at under eight dollars, few would label it a luxury.

[…]

The great majority of the offerings at Wal-Mart and similar mainstream, low-price retailers are goods that may be inessential, but which become necessities once you have decided to live in a certain way.  Although we sometimes assume that people consume in order to compete with one another, more often than not, we consume to belong.  We want to have what those around us have.  These objects then become defined as our necessities.   Once you buy the house with the lawn, you realize that you need to get along with your neighbors.  While a verdant lawn might, or might not, fill you with joy, a parched, brown lawn certainly will draw disapproval.  You buy the sprinkler and it feels like a a necessity.  Whether you knew it or not, you made the decision to buy the sprinkler back when you decided to buy the house, and even earlier, when you decided to live in a free-standing house rather than in an apartment or townhouse.

I think this is something that people have trouble with sometimes.  They look at the price of renting vs owning, and decide that owning makes sense for them.  But there are added costs to owning a house and not just the “fix your own water heater” part.  There’s all the stuff you have to buy: snow shovels, a lawn mower, a hose, a grill, a ladder, all those tools, etc.  Once you’ve purchased them, you now require a much larger moving truck and longer to pack, which adds up to more money for each move.  If you’ve hired a mover, it could add up to a lot more money. 

So, either choosing a smaller house/condo/etc or choosing not to conform can save you a bunch of money.  I’m an advocate of living below your means (since it allows me to travel), but you can still have the big house if you’re making the big bucks, just don’t get caught up in conforming to someone else’s standard. 

That’s the title of an article in the NYTimes Sunday magazine (and not my question).  In the article the director of the Consumer Federation of America went through some resesarch to figure out why people at the bottom of the economic spectrum don’t save. 

Poring over Caskey’s research, along with other scholarly and financial literature, Brobeck concluded that the only way to get people to save was to reverse the social pressure while trying to effect modest institutional changes. The key, he realized, was to create a network of support for saving.

He persuaded banks (starting in Cleveland) to offer low or no fee/minimum balance accounts and started groups to encourage saving.  Volunteers gave workshops about debt, budgeting, saving, etc. 

As many as two-thirds of those who attend America Saves workshops sign up, and as a group they save half of what they pledge. On average, participants manage to put away $65 a month.

This sounds like a great start.  At one point I was living in NJ and sharing an apartment with a friend.  She was working some temp jobs and cashing her paycheck at a check-cashing place.  After looking at every bank in walking distance (and there were quite a few) we discovered that it really wasn’t any cheaper for her to get a bank account.  They all had some sort of “Jersey Saves!” account, but it was limited in the number of transactions, didn’t include checking, had a $250 minimum balance and a $5 monthly fee.  And the banks weren’t open when she got home, most closed at five or six at the latest, while the check cashing places stayed open until at least nine or ten and were open on the weekends as well.

I was in a much better place financially than she was (it didn’t feel like it to me, but the luxury of having $250 to keep in the bank and being able to wait while checks cleared was something she didn’t have).  The check cashing place only charged $5/check and she got her cash right away.  So I can see how it might be difficult to get started in “normal banking” when you don’t have much to start with.  Once she had some savings (to hit a minimum balance) and could wait a couple days for checks to clear without starving, she did get a checking account and join the financial mainstream (and is now, among other things, a homeowner).