Jumat, 28 Agustus 2009
Jumat, 21 Agustus 2009
Jumat, 14 Agustus 2009
Selasa, 11 Agustus 2009
“We broke the budget,” my wife M said to me recently with a sigh. “This system isn’t working.”
She gave me a frustrated glance as she scribbled in the checkbook register we use to track our expenses. June and early July are heavy spending months in our household, with birthdays, Father’s Day, and trips to the beach all in the mix. Plus, with all the additional fun-n’-sun activities, the little pile of receipts on our kitchen counter grew relatively big before we got around to logging them. Who wants keep track of your budget when a nice, hot summer day beckons?
As a result, we’d overspent our monthly spending plan to the tune of about $150. And consequently we had less to save toward the down payment we’ve been building to buy a new home.
“Maybe we should try something different.” M said. “This is becoming a habit.”
It’s not broke because it does work
She had me there. It wasn’t the first time we’d “broke the budget.” In truth, our budget is fairly “fluid;” we may overspend one month, and catch up (or almost) in another. August, for example, is a great month for us, with no family birthdays or holidays with gifts we have to wedge into our spending plan.
But our system isn’t broken. In fact, I think it’s working quite well. Here’s why.
- We aren’t overspending with credit cards. Our discretionary spending budget—how much we plan to spend on gas, groceries, gifts, entertainment, etc.—is fairly low, while our goal to save each month for our house down payment is fairly high. So any overspending simply reduces our savings amount that month. If our overspending resulted in racking up credit card debt, I’d be very worried.
(My sister commented to me that it may actually be harder to spend less if you’re saving more, and, ironically, she may be right. I find it easier to agree about to going out to dinner or to the movies when I know we have the money on hand to do so.)
- We know when we’re overspending. Since we’ve been on this tighter discretionary spending budget for several months now, we have a good feel for when we’re exceeding our limit—even before we log in the receipts. And our spending behavior naturally slows down and causes us to question additional purchases when we think we’ve gone over. That’s the whole point of having a budget, to keep our spending under control, and our system is helping us do that.
- We know why we’re overspending. A budget is about making choices, deciding what dollar goes where. In times that we spend more, we save less, and that’s not necessarily a bad thing; neither M nor I want to be so focused on saving that we become misers. Plus, we’re still making steady progress in building up our down payment, so it feels like we have a good balance between the two.
Doubts in the back of my mind
One thing about our overspending does gnaw at me a little; if, for some reason, we had to strictly follow a tight budget, would we have the discipline to do it? I’m not sure. Our record says we wouldn’t, but it doesn’t take into account a big change in mindset. It’s one thing to spend money you have. It's quite another to spend money you don’t.
We could find out soon. Some of the houses we’re seriously considering purchasing will stretch our budget even more and put our discipline to the test. If anything, it could make for some interesting blog posts.
So am I fooling myself that our budget system is working? I’d love to hear from you. Leave a comment and let me know.
Jumat, 07 Agustus 2009
For starters, homeowners will be eligible to receive up to a $1,500 tax credit (one-time only) for energy efficiency improvements to their home. Prior to the stimulus bill’s passage, the limit was $500 and many of the previous credits were only allowed through 2007.
Still, like any purchase, homeowners need to put the pencil to the paper, in the context of their expected residency and the potential value of the additions to the next owner, to make the correct choice. A quick primer on the program:
As an example, assume you’re an average 2007 Missourian spending $86.22 per month on electricity. You purchase a new air conditioner for $1,700, netting you a tax credit of 30% of the purchase price, or $510. Each month, we’ll assume you’ll save 20% on your electric bill, or $17.24. If we assume a time value of money of 5%, it will take 82 months, or 6.8 years, for you to fully recoup your costs. Every month you live in the house, past 82 months, you’ll be “paid” for the home improvement. At a 0% time value of money (much closer to today’s APYs!), you would only need to live in the home for 69 months (5.75 years) to begin to profit from your expenditure. Of course, these figures ignore any increase in the resale value of your home or the smug satisfaction you feel by being “greener” than your neighbor.
While this may seem complicated, the point of the above should be reiterated. Your family is like a business. You need to work to reduce costs, while maximizing revenues. Of course, this is always done in the context of what brings you the greatest satisfaction – which is what makes your family different than a business. Regardless, consideration of the financial impact of expenditures, as well as your expected residency in a home and how the improvement is valued at resale, are key inputs to decisions in support of your financial success.
- Robert O. Weagley, Ph.D., CFP(r)
Chair, Personal Financial Planning
University of Missouri
Columbia, MO 65211
Kamis, 06 Agustus 2009
Ally Bank, if you haven’t heard, is the new name of the old GMAC. That’s right, that GMAC, the former financing unit of General Motors. Ally is not owned directly by the troubled car company. Instead, it’s held by parent bank holding company GMAC Financial Services, of which GM still owns a large piece.
Ally caught my eye with its recent marketing campaign. Suddenly, I saw its ads popping up everywhere; on The Wall Street Journal’s website, during The British Open broadcast a few weeks ago. The TV ads were particularly catchy, with a schmarmy salesperson representing the “typical” bank using fine print and broken promises to hoodwink young kids out of a toy truck and a real pony. Ally, in contrast to other banks, “values integrity as much as deposits,” according to its website.
A good story
Sounds pretty good, especially today when consumer trust in financial institutions is pretty low. But make no mistake; Ally does value deposits pretty highly. It’s looking to grow, and grow fast, by offering very attractive interest rates on its products—among the highest around. Its online savings account, for instance, has a 1.75% rate, better even than traditional market leader, ING Direct (1.40% for its Orange Savings Account).
More competition is a good thing, but it’s also good to question just how real higher rates are, or how long they will continue. One thing Ally doesn’t highlight in ads or currently on its website is that parent GMAC Financial was one of the institutions to receive government bailout money for being undercapitalized. The institution is secure now, but that wasn’t necessarily the case at the end of last year.
And in recent weeks, the American Bankers’ Association cried foul to the Federal Deposit Insurance Company (FDIC) about Ally’s high-growth through high-deposit tactics, which it alluded to as “unsafe and unsound.” Like any bank, Ally loans out depositors’ money and if they depart the bank en masse for higher rates elsewhere, it could conceivably be caught short-handed. An unlikely scenario, but it’s why banks have to have a certain amount of capital on hand in the first place.
The FDIC also required Ally to get written approval to issue debt secured by bank deposits, as well as to keep the regulator informed on just how high above the market average its product rates are. Ally reduced the rates on its savings products from some much higher initial levels it started with in May.
Moral of the story
With savings accounts, like anything, an old rule still applies: If it sounds too good to be true, it often is. Chasing interest rates from one bank to another requires a lot of time and effort for what can often be very little gain. No one’s going to build wealth by getting an extra .25% interest on their emergency cash.
And despite the banking industry’s woes, another old rule also applies: Marketing prevails over common sense. “Valuing integrity” sounds great in a TV commercial. But it’s how actions demonstrate that integrity that really counts.