Physical and fiscal fitness: More alike than you think

I don’t like exercise. Many people get a lot of satisfaction from jogging or lifting weights. I'm not one of them. In fact, I hate exercising just to exercise. It’s boring.

I understand the importance of exercise, especially the long-term benefits. But that doesn’t motivate me much to hit the gym or the track.

You may face the same issue managing your money. You dislike budgeting. You think investing is boring. You even understand their importance and long-term benefits. Still, you haven’t been able to build your savings, reduce debt, or make much progress on your financial goals.

Habits and goals go hand-in-hand
Being physically or fiscally fit is about developing good habits that last. That’s most likely to happen if you tie those habits to a specific goal or purpose.

A couple years ago, I set my sights on summiting 14,410-foot Mt. Rainier. For six months prior to my climb, I strength-trained in the gym three times a week. I hated just about every minute of it, but I rarely missed a workout. Every leg press and stomach crunch gave me a better chance of checking Rainier off my “bucket list.”

I’ve noticed the same thing when it comes to our household budget. M and I are aggressively saving to build up a large down payment so we can move up from our townhouse to a single-family home. We’ve cut our discretionary expenses by about a third, and things feel pretty tight. But we’ve stuck to our plan—as painful as it has been. We know that every extra dollar we spend takes away from our larger goal.

“Good for you” isn’t good enough
If good money habits haven’t stuck for you, get specific. Instead of “paying off the credit cards,” for example, identify a direct, tangible benefit of reducing your debt. Maybe it will give you the cash to go on that trip to Italy you’ve always talked about. Or to get the mountain bike you’ve been eyeing. Or help get you and your spouse out of marital counseling.

Whatever the benefit, go beyond just dollars-and-cents logic. The more personal, the better. Good exercise and financial habits are tough beasts to master and maintain, even for those who do them well. If you struggle, find an emotional connection. That will turn your initial steps into ongoing habits that you’ll stick with when the going gets tough.

A breakthrough: We're staying in our townhouse

The past three years haven’t been easy for M and I when it’s come to discussing our housing situation. We’ve struggled with whether we should stay in our 3-bedroom townhouse or move up to a larger house. Finally, last weekend, we had a breakthrough: We’re staying in the townhouse.

That might seem odd, given all the reports that housing prices are on the decline. But I think it’s the right decision, and most importantly, both M and I do. For the first time, we are on the same page regarding a topic that has been a steady source of conflict. And really, the credit belongs to M, for whom letting go the idea of a bigger house—at least for the time being—was emotional and difficult.

Still a big stretch
The decision is hard for me, too, but for different reasons. It is a good time to buy, or at least better than it was a few years ago. M’s regular monitoring of websites like Realtor.com indicates that single-family home prices in the Burlington County, New Jersey, area have fallen anywhere from 10% to 15% from their highs in 2006.

However, they still ain’t cheap. While we have a fair amount of equity in our townhouse, it would be a financial stretch to buy the kind of home we really want—a contemporary four-bedroom house that we envision living in for the next 20 years or longer.

We toyed with the idea of killing ourselves with extra jobs and belt-tightening over the next 12 months to save for a bigger down payment. But with M juggling full-time mommy duties for a toddler, an infant, and a teenage daughter, and my daily two-hour work commute, our schedules are already tight. And our $500 per month grocery budget is considered “thrifty” by many standards.

A focus on other goals
So instead, we’re going to concentrate on modestly improving our townhouse more to our liking, and saving for our kids’ college. For instance, our 3-year-old son’s basement play area is half-finished (our friends half-kiddingly call it “the dungeon”) and too close to sharp tools and old paint cans for comfort. Plus, my stepdaughter graduates high school in 2012, and we are far short of having the money we’ve agreed to provide for her college (the actual amount requires some explanation; I’ll get into that in another post sometime).

Without the specter of a new house looming in the back of our minds, we can focus on achieving those goals.

Can’t do it all
I asked M what the turning point was for her in deciding it was best to stay where we are. Her personal sacrifice is enormous, on multiple levels: As a young girl, she always envisioned marriage and family life with having a house and a yard in a neighborhood—a far cry from our multi-unit, parking lot-covered townhouse complex. She also knows we could afford that house if she returned to full-time teaching, a job she loves, is good at and well-paid for, and finds much more appealing than cooking and cleaning.

I imagine many women today, balancing work and family, can relate to her response (which I’ve paraphrased).

“It was a combination of things,” she said. “The kids being sick so much this winter. Trying to keep up with doctor and orthodontist appointments and cheerleading practice, while also tutoring just a few hours a week on the side. It’s overwhelming.

“I think God has been showing me that I can’t do it all, that I have to decide what’s really important. And I want to be there for my kids when they need me. I don’t want someone else raising them. If that means waiting to have the bigger house, so be it.”

Peace in exchange for a bedroom
I’m confident we will someday have the house of our desires, probably in about five or six years, when M does return to work. And we are still passively “in the market” if an opportunity arises. We’ll take any miracles God wishes to send our way.

But we’re not counting on a miracle to make us happy. We are hopefully putting to rest our discontent with the blessings He’s already provided, removing it as a flashpoint in our marriage. I’ll trade an extra bedroom for marital peace any day.

Is it better to save, or invest in your business?

A reader recently sent me this e-mail:

"My daughter-in-law wants to save, but cannot convince my son. He thinks that every dollar she tries to save would be better off going straight into his business.

She and I have talked about the importance of saving. I would love to show her the plan to save $1 million by the time she is a certain age. She is 34 now. How much per month will she need to save to reach $1 million by age 50 or 60?"

Figuring out how much to save per month to reach $1 million can be a good motivational tool, especially if someone is young. (In fact, I recently used it with my daughter.) But to get the reader's son onboard with a plan to put away some money for the future, it may work better to focus less on the potential reward of saving and investing, and focus on the potential risk of small businesses instead.

Not much motivation

The sacrifice required to reach $1 million by age 50 won't sway the son (or encourage his wife) to start saving. To reach that goal, the couple would have to sock away nearly $2,300 per month for the next 15-1/2 years (assuming a 10% average annual return, which you can get with a well-mixed portfolio of stock and bond mutual funds).

Waiting a decade or so makes the amount more palatable, but still tough to swallow: $725/month to reach a million by age 60, and $427/month to get there by age 65 (such is the magic of compounding). Doable, but still unlikely to convince Sonny Boy that the money is better off invested in stocks and bonds than in his own business-building skills.

Offsetting a huge risk

Which is where risk comes in. Investing solely in one's own business is a lot like investing in the stock of an individual company--except, if you're just starting out, even riskier. Many small businesses fail within the first five years (depending on the source, between 50% and 80%). The son may invent the next Google, but he may not. Saving money for the future to offset this huge risk isn't a comment on his business idea or abilities; it's good financial sense.

Come together on a plan

That said, my e-mail friend should encourage her son and his wife to sit down together and establish a concrete plan. It should have room for both saving for tomorrow and investing in the business, with well-defined and mutually agreed upon goals and definitions of success.

Since they are relatively young, the couple could put more money toward the business initially, with the caveat that they evaluate the return on their investment in a year or so. If the business is showing signs of progress, they may even be able to increase the amount they're putting toward both goals. If not, they could evaluate whether it's time to shut the operation down. Either way, the decision should be theirs--not his or hers.

Potential reward is the aspect many people consider first about investing, but don't forget about risk. Understanding your own comfort with it--as well as that of your spouse--can go a long way toward making you a wise investor.

Mortgage bailout is the object of my ire

Ok, I know it's been a while--more than three months since my last post. In that time, I've welcomed a new daughter into the world, passed another test on my way to a Chartered Financial Consultant designation, and scrambled to find and buy a replacement car for my Sentra, which unexpectedly died on the Pa. Turnpike. So I've been busy.

What prompted me to write today? Outrage. The culprit? The Bush mortgage bailout plan. It's even made me do something that I've never done before: write to my congressman and senators. (That would be Jim Saxton, Frank Lautenberg, and Bob Menendez--and you didn't even think I knew who they were, did you, Dad?)

Wish I had the government in step in to freeze the rate on the ARM I took out on my first house back in 1999, when I didn't know any better. Would have been nice to pay the low initial rate I got for an extra five years.

Better yet, wish M and I had used an ARM to buy that oh-so-nice $464,000 house we looked at a few years ago. We knew we could never afford it with a fixed-rate mortgage on our five-figure income. What were we thinking? We could still be living there, sitting pretty with an affordable rate until 2012. And who knows, by then I could have turned this blog into a money-making machine, become CEO of my company, or hit the lottery, so we could afford the payments when the rate resets then.

One anonymous poster on Real Time Economics sums up my feelings about the Bush plan pretty well, plus gave me a chuckle:

"I would like the government to help me out with my gambling debt in Vegas. The casino didn’t explain the rules very well. And I didn’t realize that the house had the advantage. I would like my life savings back. If you could just give me a little more time, I think I could win it all back. Please help me!"

Shhhh, anonymous...Don't give Washington any more bright ideas.

My daughter's millionaire dreams aren't far from reality

Our oldest daughter Jessica said she wants to be a millionaire someday. At age 19, she’s off to a good start, and that substantially increases the odds of achieving her goal.

A few weeks ago, Jess took about $1,600 she’d saved from after-school jobs and opened a Roth IRA. With a Roth IRA, Jess can save and invest for her future, such as retirement. The money she puts in will grow without being taxed, just like a traditional IRA or a 401(k) plan. However, unlike those types of retirement savings vehicles, when she starts taking money out of the Roth IRA down the road, her earnings likely will be tax-free.

$100 a month to start
Naturally Jess isn’t thinking as much right now about retiring from her career as starting it. She’s in her second year at Northeastern University in Boston, majoring in journalism and cinema studies. Part of her education includes a semester working full-time at a local newspaper, so she’s been getting a weekly paycheck since January. Her plan is to put at least $100 a month into her Roth account for the foreseeable future, and beyond.

No school debt and lots of time
Jessica’s opportunity to build substantial wealth is enormous thanks to two huge advantages she has. First, she attends Northeastern on a full scholarship. She will graduate in a few years with no school debt whatsoever, which should help to keep her plans to save on track even while pursuing a career field where starting salaries often almost feel like minimum wage.

The second advantage is time. With a savings horizon of 40-plus years, Jess’ sacrifices of trendy clothes, late-night pizzas, and morning ice coffees in these college years could mean financial freedom and security in her retirement years. I’d bet some Baby Boomers today wish they had made the same decisions when they were her age.

It sure adds up
Not that Jess needs any motivation, but I e-mailed her these numbers to show just how wise she really is to start a meaningful saving plan at age 19:

(For simplicity, I based my calculations on a 10% average annual return on the IRA investments.)

• By saving just $100 a month in a Roth IRA, Jess stands an excellent chance of being a millionaire by the time she is 63 years old.


• If she increased her savings to $168 a month, she has a great likelihood of being a millionaire by her 60th birthday.


• If she starts saving the maximum amount allowed for an IRA ($4,000/year in 2007, or $333/month), she could even have her first million by the time she turns 52 (not even “retirement” age).

Granted, $1 million in 2047 won’t get Jessica a retirement that is 100% financially secure. But unlike many kids her age, she already understands the value of saving and sacrifice to reach a long-term financial goal, and that will serve her well.

I couldn’t be prouder.

Lessons learned from buying a used van

The search is over. I wrote in January that M and I were in the market for a minivan and we finally bought one: a silver-blue 1999 Honda Odyssey EX that has just 89,000 miles. It’s already proven a nice addition to the family; on a road trip last weekend, we buckled CJ Jr. into his carseat and peeled off wet jackets while staying warm and dry within its spacious interior, as a Nor’easter raged outside our windows.

As an added benefit, we saved about $1,000 on the purchase price—money we plan to shift toward our goal of building an emergency fund of three months cash reserves.

As thrilled as M and I are with our purchase, it wasn’t easy. At times, we both longed for the convenience and security of buying brand new. But I did learn a few good lessons from our Odyssey-shopping “odyssey.”

Be patient
The search was slow, lasting six weeks start to finish. Along the way, I visited nine dealerships within a 50-mile radius of our home. I responded to four private ads, even test driving one vehicle while on the way to a family function (for which we ended up being late). And I spent many evening and weekend hours hunting for prospects on cars.com, kbb.com, and phillycars.com.

Even more maddening than the time spent was the time wasted, checking out vehicles that didn’t live up to their billing. Opening the hood of an Odyssey at one small dealer revealed what looked like actual tumbleweeds lodged in a grime-covered engine. A 2001 Nissan Quest advertised as “well-maintained” vibrated unnervingly as M eased it out of the driveway on a test drive.

Was the time and effort worth the ultimate benefit? It didn’t always feel like it. More than once we considered throwing in the towel and diving deeper into savings to increase the $10,000 maximum pricetag we wanted to pay. Now, as we enjoy the extra space and the automatic sliding doors (which CJ Jr. opens with an enthusiastic “Abracadabra!”)—all within our original budget and requirements—I’m glad we patiently stuck to our plan.

Be skeptical
I’m smart enough to raise an eyebrow when a vehicle’s seller says the emergency brake-indicator that continually stays on during my test drive “doesn’t mean anything.” But I almost gave in on one of my key buying criteria—having my own mechanic inspect the vehicle I wanted to buy—because I wasn’t skeptical enough.

Several used car dealers told me I couldn’t drive their vehicle to my mechanic before buying it. The reason? Insurance wouldn’t cover it (my mechanic is near my home, so it usually meant a trip of several miles). After the first few dealers threw up the same roadblock, I was almost ready to concede the point.

But my father, an attorney with lots of experience suing car dealerships, said the dealers’ rationale was nonsense. It was unlikely the vehicles weren’t insured, and even if that was the case, I had coverage as a driver. Most likely, the dealers didn’t want to take the chance that my mechanic would find something wrong.

Sure enough, the dealership that eventually won my business had no problem with me driving the Odyssey the 25-plus miles to my mechanic before I paid a cent. Jason, the salesperson, didn’t ask for a deposit or even the keys to my car. “We’re confident that our guys found everything and anything, so have at it,” he said. My mechanic gave the van a nice thumbs-up (“It’s got a lot of life left in it,” he said) and I had some much-needed peace of mind.

Make an offer
Like many people, I don’t like haggling over a car’s price. But I know that haggling can mean money in my pocket, and I am cheap by nature. So I haggle.

And it works. In buying our Odyssey, I made an initial offer of $8,000, 20% below the dealer’s $10,000 advertised price. I thought it absurdly low for one of the best vans I’d seen, and Jason seemed to confirm it by quickly shaking his head.

“No way,” he said. “There might be some wiggle room, but not that much. We don’t price our cars artificially high and then discount them thousand of dollars during the sale to make buyers think they got a great deal. We advertise what we feel is our best price.”

I took a breath. The Odyssey’s price was certainly in line with others I’d seen advertised for similar vans, I said. But it wasn’t the lowest either, and besides, we had no real idea what other vans were actually selling for. It was probably less than $10,000, I concluded.

“Let me take it to my sales manager and see what we can do,” Jason said.

Five minutes later, he came back with a $9,000 offer. I shook his hand and sealed the deal. Looking back, I wonder if I my “absurdly low” offer was really too high.

The path to wealth is usually a slow one

There are no shortcuts to financial success, but you wouldn’t know it by the Internet. Just Google the phrase “get rich quick” and you get advertisements like these:

“Bring in $100,000 a month: I can teach you how!”

“Turn $600 into $39,000 with the Forgotten Commodity!”

“Earn money fast and LEGALLY!”

Seeking quick riches can spell trouble
The absurdity of the ads’ claims is worth a chuckle. And maybe you've never felt tempted to click one just to “see what it’s all about.” But someone is clicking, and buying into the ads’ promises—otherwise they wouldn’t exist.

“Quick and easy” is a good description for making a box of Mac n' Cheese, not building wealth. After all, “The trustworthy person will get a rich reward, but a person who wants quick riches will get into trouble.” (Psalms 28:20)

Overnight wealth, or lasting peace?
In their research for the bestselling book, The Millionaire Next Door, Drs. Thomas Stanley and William Danko found that “building wealth takes sacrifice, discipline, and hard work”—hardly the stuff offered by the Internet ads above. But chances are most folks wouldn’t click on ads like these:

“Learn the secret to financial success: Spend less, save more!”

“Retire a multimillionaire—in just 30 years!”

“Be content with what you have. Find out how!”

Living below your means, using a monthly spending plan (budget), setting aside money for the future, and avoiding debt won’t you get rich overnight. But they can vastly improve your chances of accumulating wealth in the long run. More importantly, they offer the promise of something much better: lasting peace and contentment.

Woman's good financial sense leads to windfall

Making wise personal finance decisions can be hard because they often require short-term sacrifices for long-term benefits. But they do pay off--and as one California woman found--even quite handsomely.

Hoping to help pay for her oldest daughter's tuition to the University of California, Berkeley, the woman decided to auction off a painting that once belonged to her grandmother, according to an Associated Press report. Instead of the few thousand dollars the woman was expecting the painting to fetch, she was stunned at the picture's final bid: a whopping $620,900.

A possibly difficult choice

Not having the needed funds for her child to attend a terrific school like Berkeley, Mom could have easily required the daughter to load up on student loans. As colleges go, Berkeley is a nice value; in-state undergraduate tuition for 2006-2007 averages only $7,800. Commuting to school from home, the daughter could conceivably graduate in four years with a "reasonable" $70,000 in debt.

But Mom faced head-on what may have been an emotionally difficult choice: Part with a painting that hung on the wall for years in her grandmother's home in Italy? Or strap her child (or the family overall) with a debt-load that might take years and years to pay off?

By choosing to sell the painting, the family can now afford to provide all of their children with higher educations without putting themselves behind the financial eight-ball. Maybe they can even have a more secure retirement.

The wisdom of avoiding debt

To be sure, the woman's experience is rare. The sold painting was unsigned, rumored to be the lost work of 17th-century Italian art master Pier Francesco Mola. Who knows if it is worth the price that the unnamed art dealer paid for it.

I won't be searching my parents' basement anytime soon for family heirlooms that could help pay our kids' college costs. But, like the mother in this story, I will do whatever I can to avoid overloading our family and our children with substantial student loan debt. That approach may not get us a cool $600,000, but I know that it, too, will have its rewards.

Want that bank fee waived? Then ask

The ATM receipt I held gave me a sickening feeling. A negative sign showed next to the balance amount.

M’s and my checking account was overdrawn, and I knew exactly why. I’d forgotten to deposit a check I had put in my wallet earlier in the week, which was why I had gone to the ATM in the first place.

The good news is that I didn’t have to pay an overdraft fee, and not because Commerce Bank didn’t charge one (a nice, hefty $35). In fact, it was because I asked them not to.

A benefit of competition
You might be surprised to know that fees at banks, credit card companies, and other financial institutions are often negotiable. Many times—but not every time—you can avoid paying a charge that’s been levied on you for whatever reason simply by contacting the company and asking them to waive it.

Over the years I’ve saved by having the annual fee on my credit card waived, as well as charges for making a payment by phone (when I’ve been a little late mailing the check). Buying my first house, my father encouraged me to push the mortgage companies competing for my business to remove the many extraneous charges ($35 for courier services, $25 for faxing paperwork, etc.) that they like to tack on to provide the loan. Not every company waived every fee, but some did.

The reason financial companies are willing to let you keep your money? Competition. Losing your business to another bank or credit card company costs them much more than losing the revenue from a one-time $20 or $30 fee. Besides, for every person who asks to have a charge removed, there are many more who simply pay it, no questions asked.

Good financial habits help
That said, financial companies are only willing to go so far. If you make a habit of bouncing checks or paying your credit card late, you have little chance of avoiding the resulting penalty charges, no matter how nicely you ask.

In the years M and I have been customers at Commerce, I can’t recall being overdrawn any other time. We also were never late with a payment on M’s car loan, which they financed, and paid it off several months in advance. So the tedious chores associated with being a good financial steward—balancing the checking account, tracking where our money goes—do have their rewards.

Still, being temporarily overdrawn has shown me that I keep the cash level of our checking account lower than I should. I don’t like the idea of keeping a hundred or so “extra” dollars in the account—money that isn’t accounted for in M’s and my monthly spending plan—where it can be easily tapped. But it’s probably better than relying on my memory to make sure I always make our deposits on time.

Time to shop for a van

The CJ family is growing. M and I have just found out she’s pregnant, God bless, due in late summer.

While we still have to get through that crucial first trimester—as M cautions, she is 39, which means a greater chance of complications—I’m throwing caution to the wind and proceeding full-speed ahead to prepare for the new arrival. So this weekend I’ll start shopping for a minivan to replace M’s 2002 Honda Civic.

A new experience
I bought my last car, the slightly used 1998 Sentra I drive to this day, eight years ago. Back then I traded in my 1988 Ford Festiva, took out a five-year loan, and made all 60 payments.

This time, I’ll be putting some of the personal finance wisdom I’ve learned to the test. I’ll be selling M’s car privately instead of trading it in. I’ll be looking for a vehicle around three to five years old and between 75,000 and 100,000 miles on it, instead of just slightly used. And I’ll be paying cash instead of carrying around a car loan for half a decade of my life.

Private sale means more cash
The advantages of this approach: First, by selling M’s car privately, I should be able to get more money for it than I would as a trade-in. According to Kelley Blue Book, a good condition Civic like M's sells privately in my area for about $9,400, nearly $1,400 more than its trade-in value. It’s also paid off, so every dollar we get for it goes to us.

Sure, showing the car to buyers will probably be a hassle and it may cost a few bucks to run some ads. But will the time and money be worth another $1,400 that we can apply to the van purchase? I think so. We’ll see.

Used doesn’t mean unreliable
Second, we can in no way afford a brand new Honda Odyssey—the van M prefers—which currently has a minimum pricetag of $26,000. Even if we could, I’d have a hard time shelling out that kind of money for something that will likely worth about half that amount in a couple years.

A high-mileage Odyssey is still relatively pricey—around $9,000 to $12,000—but much of that cost should be covered by the sale of M’s Civic. And while we do run the risk of buying something with unforeseen mechanical problems, Honda and Odysseys have a great reputation for reliability. I also plan to check certified pre-owned vehicles first to see if they are in our price range.

In the end, I expect we’ll pay an additional $2,000 to $4,000 for the luxury of not having to hear my teenage stepdaughter complain about being wedged between two carseats. That’s family peace at an affordable price.

No borrowing costs, less risk
Lastly, I’m looking forward to telling a car salesperson that I want to pay by check instead of taking out a loan. Financing mostly benefits the dealer, since loans are often where auto retailers make their biggest profits.

For buyers, however, a new car’s value drops like an anvil in its first couple years on the road. Used car values still lose ground each year, though not as quickly. Having a car loan is like borrowing money to buy a stock you know is going to lose money. It doesn’t really make sense.

Plus, say M and I hit dire financial straits down the road and had to sell the van. We may owe more on it than we can sell it for—what’s known as being “upside down” in a loan. That would likely make our tough money situation only slightly better.

Paying cash might mean a dealer and salesperson are less willing to negotiate on a van’s price, since that’s where their only profits will come from. But I’m willing to take that chance. Last I checked, there were lots of used Odysseys for sale in my area.

Stash some cash for emergencies

As I mentioned in my last post, I knew the personal finance books I received for Christmas would yield some good fodder this blog. Here's the first interesting tidbit to share.

In The Wall Street Journal Complete Personal Finance Guidebook, Jeff Opdyke recommends stashing a few hundred dollars cash in a very secure spot in your home, just in case the power goes out in your area for an extended period of time. Though M and I have started using cash on a more regular basis, we get that cash from an electronic ATM. Plus, we're still pretty tied to using our debit card to pay for things.

Other than big snowstorms or the occasional flooding, natural disasters are rare in South Jersey, but having some cash around to pay for groceries in an emergency isn't a bad idea. Now I just have to find a secure place in my home to keep it (something I won't be writing about here).

By the way, the Carnival of Personal Finance is up at My Personal Finance Blog. Check it out if you have a chance.