I have come to the conclusion that most people know nothing about "saving". I have made the assumption that it is axiomatic that the concept of savings is understood by everyone. I'm finding that is not true.
Saving is a required for financial success. It means the discipline to put money aside for your future.
Savings should become a habit. Setting money aside on a regular basis is the engine for accumulating wealth. You can't invest until you've saved some money.
Savings should remain essentially untouched. If you tap into your savings account it should be for something that you've planned for or possibly for an emergency. Some people have a goal of a larger home. Sometimes emergencies occur and when your basement is flooding with water, you don't quibble with the plumber about how much he charges. There are legitimate uses of savings.
You can save regardless of your level of income. You can always set money aside, even if it is $5 per week.
Saving never stops. It is like breathing. Pay yourself first. Who is the most important person in your life? The answer is "you are".
Saving can be an account at your local bank, credit union, or savings & loan. Saving can be a 401(k) at work where you authorize putting your pre-tax earnings into a deferred account. Saving can be the equity in your home that builds up after years of paying off the principal while simultaneously your home is growing in value.
Saving is usually slow. It can be weekly, semi-monthly or monthly or annually. It comes with discipline.
Savings give you choices. If you have money in the bank, you can choose alternate services or products. Your are in control. Money gives you access to lawyers (when necessary), doctors of choice and decisions on where you want to live your life.
The way to grow your personal savings account is to spend less or earn more. Earning more allows more dollars to be set aside and as your income grows, the amount of money set aside should grow. As your careers progress, you should be able to accumulate more.
Save people. It is important. It is necessay. It should become a way of life.
SAVE, SAVE, SAVE. Why is the concept so hard?
Love,
Dad
Maintaining medical insurance coverage has been a saga. Primary insurance through Medicare, supplemental insurance through another company and additional insurance for drugs. Then there is dental insurance (which we don't have). Eye visions costs are not in the insurance. What have I missed? You get the idea, medical coverage is expensive and complicated.
So I wonder, how did things get so complicated? Growing up in Plymouth, our family doctor was Dr. Dietsch. He was kind of gruff but very caring. He knew most of the families personally and his motivation was not money.
Dr. Dietsch had an office in the building "kitty corner" from the City Club. You could not schedule an appointment with Dietsch. He posted the hours that he would be in the office and you would sit in the waiting room until it was your turn. Sometimes you could walk into the office and he could see you immediately. Sometimes people would be standing in the second floor hallway waiting to get into the "waiting room". No exceptions. You waited your turn.
Dr. Dietsch had a side entrance to his office and sometimes while you were waiting, he would sneak out to have a sandwich at the City Club or to run an errand. So it would get frustrating as you sat in the waiting room anticipating your turn and he wasn't even in the office. Living downtown like we did, we knew where his car was parked and we knew of the places he might go if he snuck out. So we planned our visits knowing his "where-abouts".
Dr. Dietsch hardly ever wrote things down. I remember that a penicillin shot was $2.00. If you didn't have the cash to pay, he supposedly wrote down the amount and would bill you later. He never billed later.
Dr. Dietsch would make house calls. If you were sick in bed, he'd swing by, treat you and be on his way. What doctor makes house calls today?
Dr. Dietsch was the family doctor for both the Andrews family and the Steger family. So when mom was expecting Debs in 1960, Dr. Dietsch was the physician of record (I think Dr. Steffan actually performed the delivery because Dietsch was out of town). I remember the doctor bill for her birth being $75. Compare that to today. I think today a doctors care for a pregnancy is over $3,000. Kelly's delivery was also under the care of Dietsch.
Somehow we've evolved into a world of specialists, expensive testing machines and medications. I guess we've improved as attested by the age that people live. The average age of men and women today is over 80. Back in the 60's it was around 65. So we are living longer because of medical improvements.
I miss Dr. Dietsch. He was part of the "community family" and you knew he cared. He wasn't driven by the money and he treated people the same, young and old, rich or poor.
Alas, I have adapted to the new world of medicine. It is cold. You are a number. You will get treated when the doctors are ready. Have your insurance card ready. Hope you don't run into a financial disaster.
Somewhere up above, Dr. Dietsch is looking down and shaking his head in disbelief. I shake my head in disbelief.
Maybe I'm just getting old!
Love,
Dad
Retirement accounts have ungone fundamental changes over the last 25 years. Historically companies promised a pension to long time loyal employees. Unfortunately there have been too many company failures and employees have lost their pension plans.
The popular vehicle of choice, is the 401(k) plan. It allows you to set aside pre-tax dollars of your own until you retire and most companies participate by matching your contribution. Companies are required to place the money in a trust which means that if the company should fail, your money is protected.
Each company allows you to invest money within your 401(k) in different ways with different degrees of risk.
The money coming from your paycheck is 100% yours and vested immediately. The company contributions usually aren't totally vested until after 5 years.
If you leave a company (i.e. move on), the 401(k) belongs to you. Every company must write a master plan that determines how your 401(k) plan is handled should you leave. Some companies will allow you to remain in their
401(k) plan even after you leave but no further contributions can be made to the plan. Why would you remain in an old plan? Usually because your money has been invested in really good options and you are happy to leave it where it is. Most companies force you to move your 401(k) somewhere else because they don't want to have any administrative fees in managing your money. So plan on having to move your 401(k).
The best option is to move your 401(k) to an IRA (Individual Retirement Account) administered by a bank, brokerage or mutual fund family. You can transfer without every taking posession of the money. If you take the money from the 401(k) yourself and transfer it to an IRA, you have 60 days to complete the transaction. Don't do that! If you fail to get the money transfered properly in 60 days, you pay a 10% penalty to Uncle Same and you pay all federal and state taxes on the total sum. Once your money is transfered to an IRA, you decide how the money is invested. Some people are not comfortable making investment decisions for their IRA but there are some real simple options. Contact your free financial advisor to get some ideas.
Another option is to roll your 401(k) of the "old" company into the 401(k) plan of the "new" company. Some companies allow this option, some do not. Again the reason for rolling the money into a new company plan is they give you investment options that you perceive as really good and you feel comfortable doing it.
Every situation is different Grasshoppers but the Queen of Wisconsin Vision and the Princess of Minneapolis Web Designs both face decisions.
Unless there were truly exceptionally difficult personal situations, the option of cashing out the money should be avoided. My personal choice is a rollover to an IRA run by a reputable mutual fund company.
It is your money. You worked hard for it. Don't lose control of it.
Love,
Dad
I have had several requests to blog about selling a house. Boring! But wait, Kelly just sold her home, Chris and Shelby unsuccessfully tried to sell their house and Debs is thinking about selling her place. Paul is on a five year plan to move up to a house with more amenities. And Margaret? Who knows but I would bet a dwelling is in her future. So here goes. My intent is to just "frame" the sales real estate transaction. You can get "Real Estate for Dummies" to tell you how to go about the sale.
First, it is your house. You get to decide the parameters of the sale.
Second, it is probably your biggest asset and it is important that you realize the maximum return from it's sale.
Third, it is your money! You decide how it is managed.
I am not going to deal with selling a house yourself. Kelly did it in a good Madison market but it takes research and special efforts. The payoff is that you save 6% commission. The risk is that you don't price it properly so you lose potential sales dollars or you make costly financial mistakes. And then there are the potential legal entanglements that could arise from selling yourself.
Most people sell through a real estate broker. Appleton is dominated by Coldwell Banker and Sheboygan is ShoreWest. When you sell through a real estate broker you sign a legal document giving them the right to represent you in the sales/marketing effort and such things as a 6% sales commission (which is negotiable) and the length of time they represent you. Usually they want a contract for 6-12 months. I prefer 120 days because it creates urgency on their part. You can always renew.
A licensed real estate agent is obligated by law to represent your interests. That means they work for you and if they compromise that representation in any way, you can sue them. They should do what you want.
The real estate agent is a licensed professional hired to perform sales/marketing functions as it relates to your home. Generally they bear all the costs associated with advertising and marketing efforts. The term professional is important because they should be above reproach on integrity. Now that you are done laughing, we will proceed.
You should get at least two and possibly three quotations on the sale of your house. A professional will do comparative sales analysis, examine recent sales in your area and make recommendations about the salient features of your home. The highest price projection may just be a sales ploy to get you to sign a contract hoping that you will accept lesser offers. My rule of thumb is to get a fair price for your property and then move on with your life. If you hold out for an exhorbant price, you might be waiting a long time. Use common sense.
Lastly, you will sign several legal documents that determine all conditions of sale. They hold up in court. Verbal commitments mean nothing. Understand everything in writing. Get everything in writing. A good real estate professional will insist on everything in writing. Read the "sales listing agreement" with the agent very carefully to be sure it is what you want. When someone decides to make an offer to buy your house, they will fill out a "offer to purchase" contract. Read it very carefully before signing it. You will be bound to it when your house sells. I have always used a lawyer to draft my offers to purchase a property (even with my real estate brokers license). I have also have used a lawyer to review someone's offer to purchase a property from me. The legal documents are key to the sale. Sometimes, lawyers can save you money.
Of course you have to deal with the inconvenience of vacating your home for showings, open houses and quickly arranged "walk throughs". Are we having fun yet? And oh yeah, a real estate agent will tell you the things that you should do to improve the appeal of your home. Things like paint, furniture arrangements or upgrades of things that are important to buyers. You decide what you will do but I'd suggest you listen to the real estate agent. Selling is what they do!
Then you sell your house. You take the huge profit that is left after paying off your mortgage loan and apply it to the purchase of a bigger house and you wait on average 5-7 years to do this exercise again.
Love,
Dad
Grasshopper Number 3 has been inundating me with "boat" information. He thinks I am not listening. You know, a boat is this seasonal investment that gets used 3-4 months out of the year that you pay for 12 months out of the year.
Part of CCA's passion for boats comes from the cottage experience. The first little red boat was a "trainer". It was something that you can make mistakes with and it doesn't cost a lot of money. The little red boat had a quality Mercury (65HP) engine.
Then by luck, we bought a glastron (I think it was a GT150?). I know it was 15 feet long. lt was built by people familiar building rugged boats. The gold fleck color was the best I've seen. We tried to make it go faster with an Evinrude 85 HP engine. I don't think total speed changed much (55mph). It still was one of the faster boats on Crystal Lake. It seemed to go faster when no one was riding with CCA.
Paul and I conspired to purchase a classic CSS glastron 17 foot speedboat with a deeper "V" hull. We moved up to a 115 HP Mercury but alas, it performed at about the same speed as the first glastron. Even CCA riding alone and trimming it out at maximum angles couldn't make the boat go faster. I think 60 mph was about the top.
Once the cottage life ended, so did the need for boats. So guess what! CCA buys his own. Did he buy a glastron? Nope he bought a Concord with a 240 Hp engine. A 17 footer that could go 75 mph with lots of gadgets. Gas Pedals. Jack plates. Modified Reeds. So look out Winnebago and Shawno Lake and the Wolf river. Finally the ultimate machine. Actually I think he "fryed" the engine by pushing it too hard.
Was he satisfied? Noooo! He moved up to a 21 foot Checkmate with a 270 HP Mercury engine. Bigger. Faster. Modified stainless steel props. Oooo, Oooo, Oooo. Tim the Toolman would love that. Somehow the bigger boat with the larger engine didn't go much faster that previous combinations but the Checkmate handles better.
So where does this saga go? Well we keep the 21 foot Checkmate with sleeper accomodations but we hook up a 300 HP Mercury. Then we take the boat on Little Lake Butte De Morts on a quiet day (no waves). We get up to speed and then we move the jack plate into the perfect postion and trim out that throbbing 300 Hp engine and we check the speedometer. Whoa! Supersonic speed.
Then we start over. Different boat. Different engine. Different modifications and we spend 8 months getting ready for 3-4 months of enjoyment. Does it get any better.
It seems like an expensive passion even though it always used equipment. Do they have any openings at Calnin Goss? Hey, what is life without a passion.
Love,
Dad
Our country is obsessed with tapping into home equity for "stuff". Stuff is vacations, cars, and paying off credit cards. What follows is a dis-jointed collection of thoughts regarding the tapping of home equity.
First, your home is usually a bad investment. Yes it appreciates in value but if you keep track of all the money you pour into it over the years with furnaces, carpets, furniture and remodeling, you probably would be lucky to get your money back. Yes, some people in hot markets like California, Arizonia, Florida and New Jersey have enjoyed rapid appreciation of property but that is the exception. Midwest values don't move like that.
Second, the home is usually an emotional investment. It is where your family spends its time and everyone is looking for something. Recreation rooms, computer rooms, individual bedrooms for all the kids and other things. Yes you have money invested but it is necessary to create your lifestyle.
When interest rates go low like they have in the last few years, people are tempted to refinance home loans. This is good because you get to pay off your home loan with less dollars. Your cash flow improves month to month and if inflation sets in, you pay back your loan with "cheaper dollars". On top of that you get to deduct you mortgage interest on your income tax. The genius of refinancing at the lower rate is to lock in the lower rate for the life of the loan. You don't want to get caught with a loan that rises as interest rates rise. By the way, interest rates are rising.
If you extract money from the equity in your home, it is gone. I have found that it is very nice when it comes time to move to a different house, a build up in equity over years of mortgage payments makes it easy to move up to a better house because you have more equity to put into the new mortgage.
There is a diffference between assessed value, appraised value and market value.
The assessed value is what the city you live in uses to calculate your property tax bill. It is generally close to what houses in your area are selling for in your area.
The appraised value is what a professional (I use that term lightly) estimates your house is worth. Sometimes appraisals are slanted to the high side in an effort to create artificial value so that a "loan or mortgage company" can extend you a loan at high rates. Some people get appraisals to determine what their home might sell for. Real Estate companies have a tendancy to appraise your house high to encourage you to sell.
Then there is market value. That is the value your house will sell for. It is the real value. Once the deal is done, that is how much money you actually get for your house. It is the most important value. It is the only value!
The worst case scenerio is that your house is assessed to high so you have unrealistic property taxes, your house is appraised to high so that you take out loans using the additional equity, and the market value is really quite low so that if you sold, you might end up with "0" equity (or even negative equity).
Having said all of that, tapping home equity is a personal decision. It has to be factored into a family's total financial situation. If someone is drowning in 23% credit card debt, tight monthly expenses and an unexpected medical costs, home equity is one of the potential sources of cash.
I guess Grasshoppers my final opinion would be to avoid "tapping home equity if you can". It is not the best financial decision but most of us do not have the discipline to manage the "tapped equity" well. Only you can decide!
Love,
Dad
I finished my "retirement planning course". It was administered by financial sharks. The course was a good refresher.
Because I am a suspicious soul, I was determined to find out more about the financial services of the company doing the presenting. They were obviously looking for "leads" to make money. So here is my take!
A company named Morgan Stanley which provides broker/dealer services headquartered in New York is always looking for clients to buy financial services, trade stocks and bonds and conclude sale of mutual funds. I don't know what their total fees amount to but last year their top officials received bonuses of over $10 million. So they are making a buck.
In an effort to reach the "little guy" like me, other mom and pops, and grandma and grandpa's, Morgan Stanley franchised a branch office (broker and dealer) in Green Bay named Batus. They pay Morgan Stanley some fees and channel financial transactions through "big daddy". This branch dealership was the group doing the presentation of the course materials. Their goal was to find new clients and provide financial services. They make money offering advice to clients and handling their transactions.
Batus major selling point was that they could find 3rd party unbiased financial groups to watch your investments and move them quickly if negative things were happening in the market. The third party made about 2% of the value of your investments. By the way, you had to give power of attorney to the 3rd party to buy and sell mutual funds for you. Yeah, right!
Most of the investments that the 3rd party watched were stock mutual funds. Stock mutual funds normally have fees in the 1% range but if you buy certain mutual funds, 5% charges can be incurred. So the mutual fund companies are making big bucks.
So if you were following carefully, Morgan Stanley (a big shark) created a branch office called Batus (a smaller shark) to help widows and orphans manage their money. Batus hired a 3rd party financial group (a rogue shark) to watch your investments and move them around if necessary. The unbiased 3rd party worked with mutual funds groups (parasites to sharks) to suck transaction fees out of you. By my count you have a chain of 4 groups, each sucking off 1%-3% for a total of 8%-10% in fees. They get their 10% in fees before you make a dime. Just a note. The stock market was up 2% last year. That is not a good situation.
My guess is that there were some pretty smart people in the finance class. I think a lot of small business families attended. They didn't accumulate money by being stupid. They recognized a shark for what it is. If it looks like a shark, swims like a shark and feeds like a shark, it is a shark.
You work too hard to earn your money. Don't swim with the sharks.
Love,
Dad
Sometimes I let you Grasshoppers into my head to watch the gerbil running on the wheel. Some subjects are not worth contemplating but I can't help myself.
Well lately I've contemplated the people in my life that I've known that have had the name Rex. It is not a long list because "Rex" has not been all that popular over the years.
My first encounter with Rex was in my childhood. During the early 1950's, cowboy flicks on Friday night were the rage at the local theater. You know! Gene Autry, Roy Rogers (the King of the Cowboys) and Hopalong Cassidy. During this orgy of westerns, Rex Allen appeared on the scene. He was a singing cowboy. He was macho. He had a great horse (I don't remember the name) and a fantastic voice. I liked Rex Allen but like all the cowboy movie heros, Rex "faded to black".
The next Rex that I remember was when I started school at UW-Oshkosh. We had six guys in our rooming house on Elmwood Avenue. One guy named Rex Joslyn was two years ahead of me in school and was majoring in psychology. He was muscular (today women would say he was chiseled) and was on the diving team. He had a annoying habit of shouting "diggy diggy dig" when he was exuberant. It was stupid. A real man would should yell "yo" or "hot damn". But no, Rex had to say that femmy "diggy diggy dig". I can still hear him leaving the house on a hot date and yelling his "cry" as he went down the steps. All in all, Rex was a good guy. That was 45 years ago.
Then in the late 1970's I met another Rex. Rex Coryell. He was the coordinator for our group of business executives (TEC). He was a good listener. He was a really classy person. His job did not pay a hugh salary. It turns out he was a Harvard graduate with a Master degree from also from Harvard. He was also a retired Naval officer and had a life pension. He was doing what he wanted to do. He was working with top people in business and he was having fun. Yeah! My kind of guy. I haven't seen Rex in 15 years.
So you see my composite of "Rex" is a cowboy with a Harvard degree riding off into the sunset screaming "diggy diggy dig".
I can't help but wonder what the next person named Rex will be like as he enters my life. If history is an predictor, he will be accomplished and he will make a lasting positive impression. Rex? Are you out there?
Love,
Dad
As mentioned, I am taking a night course at Fox Valley Technical College called "Retirement Planning Today". It is advertised as appropriate for people ages 50-70. The first session was several days ago.
I have an adversion for what Margaret calls bottom dwelling, skum suckers. The list is usually credit card companies, insurance sales people and real estate agents. When you deal with those types, put you hand on your wallet and squeeze tightly. Add financial companies offering seminars. They promise is to present unbiased retirement planning information. No sales pressure! Yeah, rigtht.
Well my financial planning course is offered by Company out of Green Bay that helps you with your financial affairs and just happens to sell annuities, mutual funds and insurance. It is owned by Mr. Nero who just bought the company. His motivation is pay off his new company. Helping him is a man who spent 29 years in the State Prison system. I assume he was a guard (at least I hope so). I think he is Nero's body guard. The third member of the teaching team spent many years in the commodity markets which is very speculative in nature. So we have a "strapped" business owner, a body guard and a gambler teaching retirement principles. Nothing to fear!
They promise at the outset to present information in a professional manner and that this would not be a sales seminar. They would however be available at the breaks and after the evening presentation. They would also be pleased to set up a one hour "one on one" session to help you review you personal retirement situation at a later date. Isn't that generous! The slick part of the "hustle" is that during the seminar, they gloss over important financial facts and spend lots of time on annuities and insurance products. I think they make most of their money on annuities.
The truth is that the 45 people attending the seminar are moms and dads, grandmas and grandpas that have spent years saving up for retirement (notice I didn't mention widows and orphans). The teaching team, namely the boss, the body guard and the gambler are there to help. It is definitely a "shark alert". It like swimming in a tank full of sharks. The predators are circling.
So as I am leaving the seminar after the first night, I make sure that other people get "button-holed" at the door and I avoid any eye contant with the sharks. Never make eye contact with a shark. I escape uscathed.
Maybe I'm paranoid. Mom says I am a suspicious soul. Maybe, but I still have my wallet.
I go back in the shark tank one more time. Since this will be their last chance to entice me into their confidence, I'll need to take along my shark repellant and a stun gun. Fear not, I shall survive.
Beware of shark attacks.
Love,
Dad