How i got interested Personal Finance
As so many people, i haven't got a clue about personal finance. And as so many people this is not good, not good at all.
We're not in a bad shape, despite a study debt; we have quite some savings now and a bright future with more than adequate income. I also have a fairly good but global idea of our recurring expenses.
However, we don't have any emergency backup plan, nor a retirement plan, no idea of all other non-regular expenses and no system in saving.
No retirement plan and no emergency fund
I'm close to 40 and so far build up a retirement of €125,- per year after i'm 65. Ouch.
Becoming self-employed in 2001, i was advised not to bother too much, first build up the business and secure income in a number of years and then start investing in retirement plans. Sounds great, though implies a reasonably successful business which actually makes enough money. The first years we barely managed to stay afloat, using up whatever we had saved and even taking out a loan. After the .com crisis, things picked up and my income rose enough to plug the holes. Then - of course - a conflict originated with my top customer resulting in loosing 2/3 of my regular income.
Luckily, as we already had decided to move to a rental house, we coped using the profit of selling our home.
In short, no money for any retirement plan whatsoever and no backup in case of an emergency (of which i only became aware after reading a lot of blogs and articles on personal finance).
No overview
Last year we had some extra income. And then all of a sudden we realised it was gone, € 2.500. We spent it and we don't know where it went. Some here, some there; a gadget, a book, CD, magazines, bills?
Though a lot of money, not a panic situation as we had a decent income and savings. Still, that much money gone in three months? That's not good. At least we should know where it went, shouldn't we?
No clue
Also last year both out of utter boredom and seeing the savings go down, i started with contract work. Initially i planned a couple of months just to stop us spending our savings, but i enjoyed it much more than anticipated and ended up working a good six months, spread over a nine month period. And the money kept coming in, increasing our savings.
But it's 'just' a savings account. I had (and still have) this nagging feeling the money was just sitting there and very slowly growing. There must be better alternatives. But which? I had (have) no idea.
Becoming aware
So, i started looking for alternatives with better returns...and all of a sudden ended up at Zenhabits:
The 10 Key Actions That Finally Got Me Out of Debt. Debt? No, that's not what i'm looking for. Next Google result please.
Hold just a second! ...why living frugally... What frugally? I don't know that word (i'm not a native english speaker). Curious, i started reading the entry. Interesting. Hey, what is he talking about? What on earth is an Emergency Fund? Simplify your budget? What budget?
And i started reading, following the links in that article. And i read some more, other blogs, other articles. And then i understood what it all is about:
Personal Finance
Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save and spend monetary resources over time, taking into account various financial risks and future life events. Wikipedia: Personal Finance
Now, that's what we need to avoid the above, to get a grip on things: understanding of Personal Finance. Complete and total insight in OUR Personal Finances.
So here i am, becoming aware and soon applying. At the moment my main focus is on educating myself and less towards implementing, as Nina is in the final stages of her education and simply doesn't have the time to discuss our finances in depth. Besides, when she's done and finds a job, a lot of things will change and making a detailed plan now is just wasted time.
This is the first entry in what i hope will become a nice collection on how we try to get total control over our finances.
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#2 - 8 april 2012, 09:35
1)Do you think you'll have enough money for a comfortable retirement?Does not apply. I love my career as an artist and hope to die with the tools of the trade in my hands.2) Do you plan on receiving the social security benefits that have been promised to you?Sure, I'm a boomer. I plan to tap in at 62. But my intent is to pass it along every month to someone in one of the following generations. There's some delicious irony there.3) What % of your income do you save today for retirement?When I work my savings rate is usually around 40-50%. But let me say that life so far has been like a long summer vacation. I have taken as much as a year to enjoy myself and recharge my batteries several times in my adult life. I rarely reject an offer to go river rafting or fishing (which are very low cost and high enjoyment activities). On the financial side, I sold my suburban home four years ago and rent a small farm now. The cash is well invested (I hope) since it has more than doubled in that time. To buy in my locale would cost me at least triple what I now pay in rent. 4) Where would you like to retire?I'm an avid, no, really I'm a compulsive food gardener and tree grower. Soil, water, four real seasons and open spaces blow my skirt up. I'll stay in the USA and take my chances with the coming times since my tribe is here. 5) How old are you, and what age do you plan on retiring?The answer to part one is that I'm just about to turn 61. For part B see the above.A little rambling: The real goal is to have a good life. Keep it simple and full of heart. Be joyful doing vigorous work. Eat healthy food not poisonous crap. My key to having enough money has been to tighten down the outflow spigot rather than exert myself in the mind numbing quest for big bucks. Oh yeah, exchange goods and services with others because the return is much greater (though a bit difficult to quantify). You have all seen pictures of some ancient and very wrinkled peasant in bib overalls holding a bunch of grapes with a twinkle in his eye and a wise smile on his face. This is not a bad goal. Finally, it is better to die deservedly well loved than rich.
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#3 - 12 april 2012, 02:39
Wife and I retired at age 50, now both age 52 and temporarily living in Arizona SF rental, after selling our paid off home 2 1/2 yrs ago.Both receive total of appx 90k per annum in corporate pensions with excellent, (virtually no cost), health and dental plan. Liquid assets of slightly more than $2 mil, actually cash with no tax liability, bringing income, along with our part-time mickey-mouse fun jobs, at almost 225k per year. Also own a debt free small mixed use building in the Chelsea neighborhood of Manhattan, where I spent first 40 years of my life.Social Security never was a factor in our retirement plans, but if we live long enough, will take it at 62.Spent over a year traveling overseas and USA extensively to finalize a new home base/retirement spot. Florida,Carolinas,Hawaii,New Mexico and few other warm spots were explored in detail,and decided no way. California which we know well, still has appeal in certain parts (SoCal). Probably can swing something in our favorite spot, town of Rancho Santa Fe, (north San Diego),if motivated enough but would pin us down in one house with maybe a 500k mortgage and other high carrying costs which is counter to my "pay cash for everything" lifestyle. Was thinking a two-home solution for retirement would maybe work for us by paying about 500k cash for each, and shuttling between two locations. Not quite sure yet, still want to visit the other half of the world and the last 5 US states that are on my list.Living overseas is starting to sound better and better.
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#4 - 18 april 2012, 05:44
Honestly, … try this.Visit swisscash.netI am an investor with them and have a US$50K portfolio there. I’m getting paid every month on time as promised and guaranteed. The average returns are 20% per MONTH!You can recover your initial investment amount within 8 months and then it’s profits on the run from there.Read the details…it’s easy to understand.It’s not an MLM…nothing to ‘market’. You can just be an investor and reap ur returns which are guaranteed as stipulated.You can visit my financial site provided by them atThere are alot of negative blogs and people tagging it as a scam.I know what has happened. There were reports that SC investors scammed others…but I wonder why the corrected newspaper reports are not being circulated. It was never a SC involvement but some clowns scamming others by encouraging them to invest with some Swiss Union Bank. Anyway, hell with others. SO far there has been no complaint from a single SC investor that he/she did not get paid as guaranteed.By the way, I am in touch with some senior consultants of Swisscash and I must say, they are serious dynamic professionals and I’m confident they will be profitable for at least the next few years.I started with $1K initially and then after my confidence with them, I have now increased to $50,000.Best regards…Kaz
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#5 - 25 april 2012, 08:01
Saying all else equal, China is just dumping bonds.Looking at the after-market bond exchanges. That's where the real change in value would happen, initially. The after market cost of the bond would drop significantly. That would push the yield higher. They are issued a par 100 with a 5% coupon for simple math, 2 coupon payments a year of $2.50 per $100 in bonds. The par comes down to 80 that bond still pays that exact same coupon. Now your getting $5 in coupon payments for an $80 bond. The new yield is 6.25%.Now when the government goes to issue new bonds, they would have to be pretty close to the market yield. If I can buy a 29 ytm bond with 6.25%. Why would I buy a 5% yield bond with the full 30 ytm?If your buying these bonds with the intention of holding them to expiration you get the face value back. You could come in after China dumped all of its bonds, buy them for 80, hold them, collect the coupon then cash out for 100.The money supply and things like that, typically do not have a big impact on long term bond rates. That's more your O/N, 1, 3, 6 month type stuff. Hope that helped. Difficult to explain question feel free to email me if you are more confused than you were before.Additional response: If your going a little further in to it. You can go to treasurydirect.gov. They have a lot of links that really break down the maturities, total outstanding, new supply, etc.I don't know that your going to be able to pull up "China's Bond Holdings" exactly. There should a total of Indirect ownership, that represents foreign holdings. China owns about $730B last check, don't quote me on that number. Not counting the intragovernmental holdings like SS, Medicare, Va holdings, DoD, etc. There are about $7.5T in outstanding bonds. So, China theoretically holds about 10% of all outstanding US Bonds. I don't know that you can really gauge the markets appetite for for that type of excess supply. There could be some bond funds that like China being out of the equation and some that don't like it. If the stock market is down you get a little "flight to safety" in the form of bond purchasing.Then at the same time inflation expectations might increase, the bid-to-cover on the auctions might be down. I guess I'm saying I would personally stay on the sideline, have some cash ready to deploy. If the bond market takes a turn down in price, up in yield, in some type of knee jerk fashion like a 25BP in a day, then I'd jump in.If you into fixed income some really high quality firms are issueing some A and AA paper with 5, 6, 7% coupons. I think some of the firms are at that lower tier because the rating agencies are affraid to make anything AAA anymore, like the MBS, CMBS, ABS, CDO, etc…I'm not a bond trader or financial advisor. I have a personal interest in monetary policy, government and debt management. So I do a lot of research, more on the academic side.This is a commercial link, but it might answer some further questions…And investopedia's takes a shot at it…As an after market play there would some immediate impact. on the face value or purchase price. So if you did believe that China was going to dump all of it's bonds and you were buying bonds in front of that you would lose money on the initial investment. I don't know if you can short bonds or not, but you would want to short bonds ahead of that. That would be borrowing bonds from a large institution, selling them at the market price now which has been pretty close to par. You borrow one bond at $100 you sell it, China dumps the bonds, the market value is now $90 then you buy it back and replace the borrowed bond with that same bond.Again, there are a lot of factors that affect the market. Your really looking at real interest rate, on a very generic measure is the 52-week yeild + projected inflation. New recession concerns flatten the yield curve by increasing face value of the long end bonds.A final final note. Looking at the stock market comared to the bond to the bond market. When the stock market is up bond traders are selling bonds and chasing a higher return in the market, there is your excess supply, lower face value, higher yield. The stock market turns lower, people shift to capital preservation mode and safety, increasing the demand for a safe haven like US bonds, the price goes up, yield goes down because there is an increase in demand.Excess supply causes bonds to sell at a discount.Excess supply, lower price, higher yield. Higher yields at the long end of the yield curve typically increase mortgage rates. An increase in yield on the 10-year typically directly causes an increase in mortgage rates % for %.Credit cards are typically attached to LIBOR or Prime rate. LIBOR is almost an international Fed Funds rate. That is the rate that banks lend money to each other to smooth the balance sheet out. LIBOR + 8% means that they are paying LIBOR or Fed Funds rate to fund the cash for your card, then the 8% is based on your credit score. They pool all the people with your credit rating and say we expect 5% defaults at this score, we change 8%, and have a 3% typical or expected profit.Then prime rate I THINK is the 90 dayA1/P1 commercial paper rate. That's also a short term liquidity issue. If that credit company is tapping the commercial paper market then they are paying 3.25% (I think thats prime right now) to have the capital to fund your credit card. So they pay 3.25% for the money, then based on credit the 8%…Anything 2 years or longer should be coupons, so they would not compound unless you re-invested the dispersement into more bonds.
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#6 - 1 may 2012, 05:58
1) Do you think you'll have enough money for a comfortable retirement?Yes, in today's dollars, but inflation could make comfortable into miserable. Current retirees will be pinched by inflation which will greatly reduce the buying power of Social inSecurity and other pensions that will get a dismal cost of living adjustment.2) Do you plan on receiving the social security benefits that have been promised to you?Although I am 44, I am not yet vested in Social inSecurity. I plan to work a J.O.B., just over broke, to earn 9 more quarters so I qualify, even if SS is only enough to visit Starbucks monthly.3) What % of your income do you save today for retirement? I save about 8% over my State of California pension, which will be 90% of my last salary when I turn 50. Yes it is a good pension, but I have worked in state prisons amidst filth, stress, tb, aids, hepatitis, and toxic attitudes for 20 years. The CDCR is accepting applications, if you want to join me. Not everyone wants to run a tier, or fight HIV+ prisoners, in a cloud of pepper spray.4) Where would you like to retire?Any place that does not have harsh winters, criminals, gang problems, etc. I hope to live in a good place to raise kids.5) How old are you, and what age do you plan on retiring?I am 44, and want to retire from the state at 50, but continue to work coaching, and making a difference to our youth. I will likely continue to work another job, for fun money, and travel cash, as well as for a hedge against inflation.
Jhay
#1 - 5 april 2012, 03:33
1)Do you think you'll have enough money for a clbofrtamoe retirement?Does not apply. I love my career as an artist and hope to die with the tools of the trade in my hands.2) Do you plan on receiving the social security benefits that have been promised to you?Sure, I'm a boomer. I plan to tap in at 62. But my intent is to pass it along every month to someone in one of the following generations. There's some delicious irony there.3) What % of your income do you save today for retirement?When I work my savings rate is usually around 40-50%. But let me say that life so far has been like a long summer vacation. I have taken as much as a year to enjoy myself and recharge my batteries several times in my adult life. I rarely reject an offer to go river rafting or fishing (which are very low cost and high enjoyment activities). On the financial side, I sold my suburban home four years ago and rent a small farm now. The cash is well invested (I hope) since it has more than doubled in that time. To buy in my locale would cost me at least triple what I now pay in rent. 4) Where would you like to retire?I'm an avid, no, really I'm a compulsive food gardener and tree grower. Soil, water, four real seasons and open spaces blow my skirt up. I'll stay in the USA and take my chances with the coming times since my tribe is here. 5) How old are you, and what age do you plan on retiring?The answer to part one is that I'm just about to turn 61. For part B see the above.A little rambling: The real goal is to have a good life. Keep it simple and full of heart. Be joyful doing vigorous work. Eat healthy food not poisonous crap. My key to having enough money has been to tighten down the outflow spigot rather than exert myself in the mind numbing quest for big bucks. Oh yeah, exchange goods and services with others because the return is much greater (though a bit difficult to quantify). You have all seen pictures of some ancient and very wrinkled peasant in bib overalls holding a bunch of grapes with a twinkle in his eye and a wise smile on his face. This is not a bad goal. Finally, it is better to die deservedly well loved than rich.