Money Creates Taste

By Jenny Holzer
Found via Design Observer

RIP

What a strange week: three celebrities passed away, at least two of whom were famous, and/or notorious for financial issues.


Ed McMahon, of course, was famous for delivering those big Publishers Clearinghouse prize checks, as well as his later battles with foreclosure and bankruptcy.


Michael Jackson made bazillions, but spent them all and struggled with debt in recent years-- the perfect illustration of the lesson that living beyond your means will get you in trouble no matter how large or small your means happen to be.


And then there's Farrah Fawcett. Of the three, her death somehow saddened me the most, and I know a lot of my old grade school friends felt the same way. I think it may have been that she was the most famous icon of beauty when we hit the age at which little girls suddenly become conscious of beauty as something to which they aspire-- so of course we all wanted to look like her. My attempt at the hair was a voluminous disaster, but I did at least get my mom to buy me the sneakers she's wearing above. And as far as I know, Farrah managed her millions well enough to stay out of debt.

They'll all be missed.

Be Fit and Frugal with a Folding Bike!

The NY Times had a feature on folding bikes today. I bought one about 8 years ago, a Dahon that cost me about $400. It was the perfect bike for me because I was living in a tiny (cheap) studio apartment where I had limited storage space. I wish I could say I was cutting down on my commuting costs and quitting my gym because I was riding the bike to work, but for me, it's a bit too long of a haul to ride all those miles and go over the Brooklyn Bridge... or perhaps I should say I am too wimpy to ride all those miles and go over the Brooklyn Bridge. And I'd have to keep my gym membership anyway, so I could take a shower before work-- there goes one part of my savings!

Nevertheless, a folding bike is a great option for people who commute in urban areas, especially if you need to use public transportation for part of your trip-- many of these bikes can be stowed in the overhead rack on a train. Even if you don't fold them, they are smaller than other bikes and will annoy other passengers less if you're going to bring them on the subway. All the more reason I am a wimp. But if I still kept buying Metrocards for the subway, there goes the rest of my savings.

Not all these bikes are as cheap as the Dahons. The Brompton pictured above will set you back almost $1,200, but I think you get what you pay for-- from what I've seen, these have a much easier folding mechanism than the bike I have. And since I've just determined that I can't actually save any money by riding a folding bike to work, I'm even less willing to invest in quality!

Oh well-- I will probably continue to let my bike gather dust in the basement in between my occasional recreational rides. But don't let that stop YOU from becoming a frugal, fit and fabulous bike-folder!

Rich Kids on TV: NYC Prep

Yesterday, I was reading about a new TV show called NYC Prep. It's supposed to be a sort of real world Gossip Girl, looking behind the scenes at the lives of wealthy New York teenagers:

These six swaggering rich kids — four girls and two boys — dutifully spend and text their way around the Upper East Side like their fictional counterparts on “Gossip Girl,” only they do it haltingly. Like real-life adolescents, their arrogance is dotted with hesitation, nervous laughter and assertions put in question form.

“Everything in New York City is about pulling connections,” PC, an 18-year-old who is cast as the spoiled, manipulative Chuck Bass figure, explains. “It’s who you know, and how much money you have. And it’s really sad? And I’m not saying I’m like that? But that’s what New York is: money is power.”

All the money in the world cannot change the sexual politics of high school or the pull of the herd. The show doesn’t name the schools, but Web sites found out fast. Taylor, 15, who goes to the highly selective Stuyvesant, a public high school, worries that wealthier students from places like Nightingale-Bamford and Dwight could look down on her. To improve her status, she decides to throw a party at a chic Japanese restaurant downtown....

As I always do when reading about reality TV shows, I found myself wondering why anyone would agree to participate in something that is designed to make them look ridiculous. Even if the kids didn't realize how obnoxious they'd appear, you'd think the parents would. Robert Frank at The Wealth Report apparently wondered the same thing, and unlike me, he could just call up the producer of the show and ask him!

RF: What did you say to get the parents to agree?
[Lenid Rolov, executive producer]: We used an honest approach. We had two producers who came from this world and we said we wanted to present these kids as they really are. These kids are dealing with the same issues that other kids are dealing with, but maybe they’re growing up a little faster. These kids don’t flaunt their wealth and they want to be seen as everyone else. The parents want to have their kids work for their money and have the same opportunities as everyone else.

I guess this tells me two things: that people in the upper echelons of wealth really have no idea how the rest of the world live, and that parents are easily blinded by the idea of anyone paying attention to their very special, very wonderful children.

Has anyone actually watched the show? What did you think of it?

Don't Read the Car Reviews

Here's something I stumbled on while browsing the New York Times website, which kind of just made me groan:

TESTED 2009 Mercedes-Benz SL63 AMG

WHAT IS IT? Mercedes and AMG have taken the V-8 version of the SL luxury sports car in a more aggressive direction.

HOW MUCH? $138,475 including the $2,600 gas guzzler tax, which is a third more than the basic SL550 ($99,375) or about half the price of an SL65 AMG Black Series ($299,000).

WHAT MAKES IT RUN? 6.2-liter V-8; 7-speed automatic transmission with manual shift mode.

IS IT THIRSTY? The E.P.A. thinks so, rating its consumption at 12 m.p.g. in town and 19 on the highway.

THERE is good news for anyone who has $135,000 to spend on a sporty luxury car. First of all, you’re rich, so congratulations on that. Second, it’s hard to find a bad car for $135,000.

Perhaps your tastes run toward an Aston Martin V8 Vantage, an Audi R8 or a Maserati GranTurismo. Or maybe you’re more of a Porsche 911 Turbo person. For $135,000, you could surely find the keys to a gently used Bentley Continental. In any case, you’d have a fast, flashy testament to your personal success (or at least, that of your ancestors).

But there’s another car in this price class that is aimed at the quietly wealthy, the kind of people who can spend a lot on a toy but don’t much care if every valet at Chez Pretentious can rattle off the sticker price. The Mercedes SL63 AMG, oddly enough, is a 518-horsepower retractable-roof two-seater for people who don’t need to show off....

The writer at least seems to have a healthy sense of irony about people's motivations for buying such vehicles.
It's hard for me to imagine spending $138k on a car, even if I did have money to burn. Expensive things like this often make me wish I could just try them out once, though. Cars, wine, food, etc-- up to a point, it's understandable that you get what you pay for, but after a point, does it really make a difference? $40k or $50k will buy you a very nice car, so how much better is one that costs $138k? Or more to the point, perhaps, how will you manage to enjoy what's so much better about it without getting speeding tickets all the time?

Links I Liked

A few recent fun and useful links:

Get Rich Slowly has a nice roundup of online bank interest rates

My Money Blog on how to build a balance portfolio using ETFs

Moneyapolis shows off the crazy colors of her not-yet-renovated mansion.

Advice for making the switch to self-employment from The Simple Dollar.

The Wealth Report on "The Rise of the Poorgeosie"

And just had to update this to add Single Ma's post Father's Day Without a Father, which will bring a smile to every face and a lump to every throat.

Overdue Library Books

I was quite impressed that a two-week amnesty period actually got people to return all these library books. I would have thought laziness was a much bigger factor than racking up fees, especially since the average fee due per book was less than $2.

The San Francisco Public Library received back nearly 30,000 overdue books during a two-week amnesty period last month, the library announced Thursday.

The library estimated the total value of the 29,228 returned books at $730,000.

One of the oldest books returned was a 1947 copy of George Bernard Shaw's "Man and Superman." It had a due date of Jan. 29, 1964 and was borrowed from the Presidio Branch Library.

The returnees saved themselves a total of $55,165 in overdue fees, the library reported. Along with the returned books, they were also asked to submit "excuses" for their lateness.

One apologetic library patron, known only as "Antonio," blamed his tardiness on a two-month abduction by aliens, the library said.

Read more here.

Little Finances on the Prairie

Did you ever read Laura Ingalls Wilder's Little House books? (Watching the goofy 70s TV show show does NOT count.) I loved all these books as a kid and read all of them repeatedly. A year or two ago, I re-read some of them when I was home for a visit and still found them fascinating, and I became newly aware of the thread of money-consciousness that runs through the entire series.

The books go into an enormous amount of detail on what life was like for a pioneer family in the late 1800s. The first book introduces us to 5 year old Laura when the family lives in the woods in Wisconsin. Later volumes trace the family's move westward to the Dakota territory. We learn how Pa makes his own bullets, builds his own cabin and has some of his hair chewed off by a mouse. We learn how Ma makes all the family's clothes, makes the broom they sweep with and cooks meals with the most basic ingredients. As a kid, it just rocked my world that white sugar was something special they only used for company, that an orange in your Christmas stocking was an unheard-of treat, and that anything bought in a store, as opposed to made at home, was a great luxury, a touch of class that made you feel a little less rough-edged, a little more civilized, like the people back East. The idea of living this way will inspire today's DIY-ers.

As for other personal finance themes, Pa's money management consists of keeping family's life savings in a box and maybe on some momentous occasion, doling out a penny or a dime for some little treat. But throughout the book, Laura's anxieties about money are a major theme. When Laura is only a teenager, she starts taking small jobs-- she is acutely conscious of the family's need to scrape together enough money to send her blind sister Mary to college, and then to buy an organ for Mary to play when she's home. Laura is not even 16 years old when she quits school to become a teacher-- although she deeply yearns to graduate from high school, she tells herself that making money comes first. Laura denies herself any little pleasures-- it's not that she doesn't yearn for the nice things that other girls have, but she believes that they are luxuries the family can't afford. But Pa, knowing he's got a budding young lady on his hands, kindly gives her ten cents to buy calling cards engraved with her name when that becomes all the rage among Laura's peers, who are starting to go a-courting.

And of course, Laura's courting goes spectacularly well: she marries the glamorous Almanzo Wilder, an ambitious young homesteader who has the best horses in town. After their very simple wedding, they suddenly seem to be living the life of pioneer yuppies: he builds her a charming little house full of snazzy touches like customized kitchen drawers. He plants trees outside. Meanwhile, he's trying to grow profitable crops on their farm, using some new-fangled machines. And all of it is paid for on credit. Laura seems to worry about this, but Almanzo is the eternal optimist, always certain that the crops he'll sell tomorrow will pay for all he's buying today. Unfortunately, they don't.

Whether or not you read the Little House books as a child, I highly recommend reading them today as an adult, or sharing them with your children. There are many things in the books that were not written for today's sensibilities and will be offensive to many readers, but I think they can inspire discussion and awareness in a way that is ultimately constructive, and a good history lesson. And the rest of the content is fascinating and inspiring-- a reminder of how easy our lives are compared to those of our ancestors, and a lesson in true frugality and sacrifice.

How Much Does a NYC Bike Messenger Make (And Owe in Hospital Bills)?

Here's an interesting tidbit from a profile of a bike messenger in the New York Times.

Current ride: I have to ride my girlfriend’s bike because last week my bike got run over by an 18-wheeler. I was on 57th and Sixth, going way too fast. I was on my way to Oprah Magazine to drop off candles.

What happened? I hitched onto a car — you get tired, so you have to grab on to buses and cars and they, you know, pull you. Basically, they slingshot you. I ended up alongside the 18-wheeler. He decided to turn up Sixth, which he’s not supposed to do. I had to make a choice. I kind of clipped a parked car and jumped off the bike to get away from the truck. He ran over my handlebars and rim, the whole front of the bike. I wound up on the sidewalk, and a nice tourist wouldn’t let me leave. The ambulance came but I didn’t want to go. I owe a lot of money to the hospital already from bike accidents. Like, five grand.

Weekly haul: It’s dead now. My paycheck used to be $500 to $550 a week, but now it’s like $280 to $300. It’s all by commission and started to go down a year and a half ago. We never go to Wall Street now. It’s all basically the fashion industry. We risk our lives for models basically, bringing clothes and books to models. It’s all garment bags. Models’ portfolios. And candles.

This guy was pretty young, and I'll bet the pay could have been even better before he got into the business, back in the dark ages when there were no fax machines!

I have to say, though, that bike messengers are one of my pet peeves about living in NYC. I'm sure some of them are well-behaved when it comes to following traffic rules, but I can't tell you how often I see them riding the wrong way on one way streets, which is illegal and incredibly dangerous! As a pedestrian, I do tend to look both ways even when crossing a one-way street, but I shouldn't have to!

Questions from Readers: Expense Tracking

Here's a question from my May expense wrap-up post:

Nobrainerdeals said...

What kind of program do you use for tracking of your bills? Do you input ur receipts daily? I use quicken and should breakdown my dinning even further like yours so I can know exactly when and what I am spending on.

For many years now, I have been using Quicken on my Mac at home, and synchronizing it with the Pocket Quicken for Palm OS, which is on my Treo phone.

The desktop Quicken has almost all the features I need-- I can download my credit card transactions and update security prices with single click. I used to be able to download my 401k transactions too, but my provider currently doesn't support that for Macs, so I have to enter them manually. I set up expense categories and budgets, editing the categories and subcategories to things that are meaningful to me. Every month, I use desktop Quicken to run reports on my net worth, how my spending breaks out into categories and how I'm measuring up against my budget.

For daily cash transactions or ATM withdrawals, I enter them in Pocket Quicken as they happen. This is a great way to capture every single penny I spend and minimize the cash that somehow disappears. About once a week, I synchronize my Treo with my Mac so all the handheld transactions appear on the desktop. This also keeps all my balances and transactions on the handheld up to date, so I can run basic reports on my spending vs. budget even when I don't have desktop Quicken handy.

I can't emphasize enough how important the PDA integration has been for me. I've always been a huge fan of Palm devices, and being able to use a neat-o tech toy has made it fun to track my finances religiously. I don't have to worry about jotting down spending on paper, or keeping receipts for everything. Occasionally I'll forget to enter something in the Treo and then be annoyed when my balance is off, but when I'm good, I literally account for every dollar I spend, no matter how minor the expense. I'm worried about the future of this method-- Palm OS seems to be getting phased out, and there doesn't seem to be a Pocket Quicken app for Blackberry. They've recently introduced an iPhone app that syncs with the free online version of Quicken, but that lacks many features of the desktop version. It also seems to be annoyingly focused on younger users who are focused on living paycheck-to-paycheck. I don't want an app that tells me how much I have left to spend before I get paid again, and I don't think that approach should be encouraged! (I realize that living paycheck-to-paycheck is a true necessity rather than a choice for some people, but those people probably aren't splurging on iPhones.) I also find it annoying that the crucial feature of PDA integration would only be available for a stripped-down free version of a program but not the deluxe/premier versions they expect you to pay money for! I hope someone at Quicken is listening and that other PDA/smartphone apps are planned that will work with the desktop Mac version of Quicken.

My method won't be right for everyone, but there are various options you can try. I think everyone should start with some program that at least lets you download or monitor your bank and credit card transactions-- you could use Mint, Geezeo, or Quicken, all of which are free. And then you should find your favorite way to keep track of day to day cash expenses-- if you love using your iPhone or some other device, use that. If you have a favorite kind of notebook, such as a Moleskine (the extra-small Volants are perfect) or the handy little Field Notes books, use that. Someone will likely point out that these name brand notebooks can be expensive and a cheapo drugstore notebook would serve the same purpose-- true, but if the feel of writing on nice paper is pleasurable to you, it will encourage you to jot down every expense, and to me that is worth a few dollars. The point is to do whatever you can to help you form this habit.

Tracking expenses isn't just about compiling a lot of data. I firmly believe that when you see where your money's going, it helps you control your spending and focus on attaining savings goals, and it doesn't have to involve a lot of time or effort. Anyone else have any tips to share on how you track your spending?

More Stories of Scary Financial Ignorance

This one from the NY Times Modern Love column is a doozy: When Bliss is a Mutual Fund

MY husband of 12 years, Pat, was supporting our little family of three with a series of acting and temp jobs that barely covered expenses or simply didn’t, which meant we were relying on credit cards. This was in 2003, when running oneself deeply into debt was fashionable and even considered by some (not us) to be downright patriotic.

The absurdity of meeting with a financial adviser when we had no extra income to invest, or even save, was not lost on me. But the adviser, Mark, had called us. We were among 10 names on a list given to him by a friend who had used his services. In other words, we were hot leads.

Ok, this couple has just told the entry-level, ink-still-drying-on-his-certificate financial adviser that they have over $150,000 in debt between the two of them. He asks if they've checked their credit score, and says they might be pleasantly surprised by it if they've kept up with their payments:

“Oh, we do,” Pat said proudly. “We keep up with the payments.”

Pat was answering all the questions because I didn’t have a clue how much we owed on the credit cards. Pat had been the sole bill-payer for the last four years, and I had found that I was a much calmer person when I didn’t look at bills or bank statements. All I knew was that Pat had recently switched to Quicken and loved the pie charts.

“The first thing you should do is find out your credit score,” Mark said.

“Doesn’t it cost money to find out?” Pat said.

“Generally. But it’s a good thing to know.”

“I figured I’d find out when I needed to. When we have some money.”

Nice job, Mr. Financial Adviser. I guess you didn't hear credit scores can be obtained for free?

“Let’s move on,” Mark said. “What are your assets?”

“Pat has a coin collection, and we have a couple of antiques,” I said. This was something Pat and I had actually thought about. Occasionally, we spent an evening walking around our apartment, glasses of wine in hand, adding up how much we thought we could get for everything.

“I was talking more about a savings account: stocks, bonds. What’s your income?”

“Our income varies,” Pat said. “Right now, Brett isn’t making anything, and I make anywhere from $2,000 a month, as a stand-in, to $1,200 a month on unemployment. So far, the stand-in work is holding. Sometimes I get a commercial. In January I made $15,000 on a Six Flags spot. It’s up and down.”

Mark scribbled. “Savings?”

“No savings.”

“And no stocks and bonds, I’m guessing.”

“Right.”

“Well, here’s something I can tell you about saving,” Mark said. He proceeded to tell us what stocks and bonds were. What C.D.’s were. And what mutual funds were.

Whittling away at that debt didn't seem to be the kind of advice this guy wanted to give. Despite the fact that they rarely have a penny left after paying their bills, the husband actually gets all gung-ho about putting $50 a month into investments:

“Got it,” Pat said. “So mutual funds are what we want, right?”

“I think so,” Mark said.

I interrupted, “Shouldn’t we be sure that we can get the money back out?”

“What I’m thinking,” Mark said, “is that you wouldn’t be taking the money out until retirement.”

“Retirement?” I asked.

“Sure. Right now you’re going to have nothing when you retire. What will you live on? Have you thought about that?”

The truth was we hadn’t. I mean, what would we be retiring from? Artsy people, without real jobs, don’t retire. They keep on doing their artsy thing until they die, preferably in the midst of doing their said artsy thing.

This whole story was just frightening on so many levels. Read it and weep.

The Personal Finance Novel: A New Genre?

I was intrigued by the review of this book in Publisher's Weekly: The Penny Pinchers Club, by Sarah Strohmeyer.

Strohmeyer's bubbly farce finds a shopaholic New Jersey wife worried about hanging onto her husband and trying to curb her lavish lifestyle. Katarina "Kat" Griffiths, a 40-something interior designer, joins the eccentric supersavers of the Rocky River Penny Pinchers Club to get out of debt, put her daughter, Laura, through college and save her marriage to Emerly College economics professor Griff Griffiths....

[Strohmeyer] finds ample humor in her family-centric story and the list of Top 15 Dos and Don'ts from the Penny Pincher's Club is spot-on.

Who knows, with today's economic climate, maybe a lot of authors will start weaving helpful personal finance tips into their fiction!

Three Names on the Doorbell

I guess you could sing that to the tune of "Three Coins in the Fountain," but it's not a song. To me, it was an economic indicator. I noticed that two apartments in my building, both two-bedrooms occupied by roommates, have gone from having two names on the mailbox and doorbell to three.

These are not large apartments but I guess they are trying to make ends meet by squeezing in a third roommate. It's interesting to see these small signs of tough times. Have you noticed people around you making money-saving changes in their lifestyles? In what ways?

May 2009 Spending

Here are my May expenses, to complete the monthly wrap-up I started the other day.

Outflows
Business expense		$ 19.45
Clothing		$ 890.79	*
Dining:
Breakfast	$ 36.52
Dinner	$ 272.70
Groceries	$ 109.69
Liquor	$ 132.65
Lunch	$ 113.36
Total Dining		$ 664.92
Entertainment:
Movies	$ 5.41
Entertainment - Other	$ 40.00
Total Entertainment		$ 45.41
Gifts Given		$ 78.77
Household:
Laundry	$ 23.50
Household - Other	$ 52.00
Total Household		$ 75.50
Housing		$ 4,074.17	**
Investment Exp		$ (19.99)	***
Medical:
Dental	$ 5.56
Doctor	$ 60.00
Flex spend	$ 41.66
Health Insurance	$ 74.20
Total Medical		$ 181.42
Misc:
Personal care	$ 100.00
Misc - Other	$ 73.17
Total Misc		$ 173.17
Taxes:
Federal	$ 891.14
Medicare	$ 113.74
NYC tax	$ 207.78
SDI	$ 2.60
Soc Sec	$ 486.31
State	$ 354.12
Total Taxes		$ 2,055.69
Subscriptions:
Internet Access	$ 29.95
Magazines	$ 49.95
Newspapers	$ 42.40
Total Subscriptions		$ 122.30
Travel:
Commute	$ 76.00
Total Travel		$ 76.00
Utilities:
Gas & Electric	$ 61.48
Telephone	$ 76.64
Total Utilities		$ 138.12
Total Outflows		$ 8,575.72

Nothing too weird this month. Clothing was high because A) it's just that time of year when I want to buy new clothes, B) I bought 3 pairs of shoes from Zappos which have already been returned and C) I bought Sweetie $300 worth of stuff for which I'm being reimbursed here and there via meals, groceries, and miscellaneous stuff like plants. Housing is a whopper this month because I sent an extra payment of $2,000 towards the principal of my mortgage. The negative amount for investment expense was a refund of a trade fee from E*Trade.

My salary for the month was $8,017, and I had a couple hundred dollars additional income from interest and dividends. That makes it look like I'm in the red for the month, but that $2,000 to the mortgage wasn't really a true expense, as it goes into home equity and contributes to my overall net worth. I also contributed over $1,400 to my 401k this month.

Next month I'm planning to do a 6-month recap of my expenses vs. my budget, as well as a comparison to my expenses in past years. Should be fun!

Starbucks Overcharged People for Espresso

Just saw this little news tidbit:

A Double Charge for a Double Espresso

Because of a computer glitch, Starbucks accidentally charged about 1 million customers double for their coffee purchases on May 22 and part of May 23.

This revealed two things: Starbucks needs to maintain its computer systems better, and way too many people are using debit and credit cards to make tiny purchases.

The glitch occurred in the United States and Canada. Starbucks is working to reimburse all overcharged customers.

The problem was made much worse by the fact that receipts showed that the proper amount had been charged. Consumers saw the error, if they saw it at all, only when they looked at their statements after the transactions were processed. Starbucks is crediting the accounts.

But, really, people: I know Starbucks can be pricey, but it's not that pricey. You don't carry enough cash with you to pay for a cup of coffee?

Well, I'm sure David Bach ("The Latte Factor ™") will have a field day with this! But why the hating on credit cards?? Coffee is one of the few things I actually do pay cash for, but if I wasn't always hurrying in the morning, I'd probably use a credit card too!



More details on the Starbucks snafu available at MSNBC.

Now With Less! (On Twitter.)

For those of you who are interested, I've just joined Twitter. Follow me there @myopenwallet for updates on new blog posts, brief money thoughts, and whatever else I can manage to say in 140 characters.

What, Me Worry?

I've been blogging for almost 4 years now--during that time, I've not always been the most productive blogger, but I've gone through phases where I was full of ideas and I have well over 100 draft posts in various stages of completion, some dating back to the first month I started this site. Below is a post I wrote in January 2006. I'm not sure why I never published it. At the time, I'd just signed a contract on an unfinished new-construction condo priced at over $300,000. My salary was $82,000. My net worth was about $256,000. It was definitely a turning point in my life, and I was thinking about the idea of worry:

Everyone worries about money, right? Well, yes and no. There are different kinds of worry. Poor people worry about money, for obvious reasons. Rich people also worry about money, in different ways. And so does almost everyone in between.
I'm trying to think back (without actually reading everything) about how much of this blog has been me "worrying" about money. I've talked about my concerns about retirement, I've anguished over what kind of home I could afford to buy, I've obsessed over saving money, interest rates, the stock market, and picking up change. But over these past 7 months or so, and even over the past few years, I have never really worried about money. I've had some anxious moments when I had a little cash flow crisis, and even one when my wallet was stolen in a foreign country and I temporarily had hardly any cash, but under all that, I have had a sense of security.

Why this blithe lack of concern? It's simple: I've had cash in the bank, and I've known, as well as it's possible to know, that my expenses were under control. Of course I sometimes wondered what I'd do if my home burned down or something, but hey, I have insurance. If I lost my job? Hey, I have a lot of contacts in my industry and a lot to offer as an employee. Sure, nothing in life is guaranteed, but beyond protecting yourself to a reasonable level, why lose sleep over it?

But the other day, I realized that I was worried about money in a way I haven't been in a really long time, if ever. I keep looking at bank balances, adding them up, and trying to make sure I haven't made some horrible mistake. I am pretty sure I will be fine, but there is this edge of uncertainty that makes me nervous. Quite a lot of my net worth has been in cash. I've already taken a big chunk out of that with the 10% deposit on my condo. Soon, I'll be paying another 10%, and a slew of closing costs including various taxes and attorney fees. And I'm doing all of this on my own, with no help, no safety net.

I have enough money for all these things right now, if I count my stock and mutual fund holdings. And I'll have a little more money over the coming months as I get my tax refunds and bonus, hopefully. And then I will have some bonds and CDs that I could cash in case of an emergency. According to my trusty spreadsheets, I will have at least 5 months worth of living expenses on hand after I close on my new place. But at first very little of it will be liquid.

I know I've been sort of spoiled-- this is nothing compared to the way I would feel if I had a lot of debt and had lost my job, etc. But I can't help it-- it makes me a little nervous to have comparatively little cash, especially since I know I'll be entering a phase where I won't have as much of a positive cash flow each month. If I don't have any expensive disasters and keep getting at least small raises at my job, I should be ok, but I won't have the same feeling of security for a few years to come. But still, I am trying not to lose any sleep over it!

OK, fast forward to 3 1/2 years later. There's been a housing bust and a massive stock market crash and unemployment is close to 10%, all part of an economic crisis unrivaled by anything since the Great Depression. Has my attitude towards worrying changed?

Fundamentally, no. Global crises aside, my life went on: I bought the condo without it being a total disaster and I love living there. I got a promotion and a couple of raises and bonuses. I even splurged on a big vacation, which is another long-overdue post in draft form! I kept contributing to my retirement funds and got my cash flow back under control after all the new home expenses. My net worth took a big dip, but it's still quite a bit higher than it was in January 2006.
I am not a blind optimist: I think a false sense of security is dangerous, and I certainly don't mean to sound smug. But I still feel like I am relatively well-positioned to live the way I want to live, or to make adjustments as needed in order to get by in a crisis. "Worry" is a flexible word-- if you read it as meaning "taking care of" or "thinking ahead about" my finances, then yes, I worry. But otherwise, I'm still sleeping pretty well. It's a good feeling, and one I hope I can hold onto for many years to come.

Obama Read That Health Care Article Too!

Apparently President Obama was just as struck as I was by Atul Gawande's New Yorker article about health care costs, which I posted about yesterday. According to today's New York Times:

President Obama recently summoned aides to the Oval Office to discuss a magazine article investigating why the border town of McAllen, Tex., was the country’s most expensive place for health care. The article became required reading in the White House, with Mr. Obama even citing it at a meeting last week with two dozen Democratic senators.

“He came into the meeting with that article having affected his thinking dramatically,” said Senator Ron Wyden, Democrat of Oregon. “He, in effect, took that article and put it in front of a big group of senators and said, ‘This is what we’ve got to fix.’ ”

Unfortunately, it sounds like everyone kind of missed the point! If I understand Gawande correctly, he sees the problem as arising from the culture of the doctors in certain areas, which has been influenced by the hospital administration and its compensation structure. Members of Congress are considering capping Medicare payments in high-spending areas, but with the current system in these areas, that would just lead these doctors to do even more unnecessary procedures so they can make up in volume what they're losing in margin.

So how do you solve this problem? Can government pass laws that would require all hospitals to emulate the culture and structure at the Mayo Clinic, where all the doctors and staff are paid from pooled revenues rather than per procedure performed, so decisions can be made on the sole basis of what is right for the patient? The Mayo Clinic is renowned for great care, and their staff physicians seem to make between $200-300,000 in salary, or more as those numbers were for the Minnesota and Wisconsin locations as of 9/06 to 6/08. (Their salaries are supposed to be in line with "marketplace salaries for physicians in comparable large group practices.") That may seem like less when you consider that a doctor may rack up $300,000 in educational loans, as a commenter pointed out on the last post, but it's still quite a lot of money. This comes back to the problem of culture. How many of these doctors are comparing themselves to lawyers and investment bankers who make millions a year-- or at least did until recently. Maybe if the good old days on Wall Street are over, doctors won't have to feel quite so much like they're missing out!

The other thing that has to change for this problem to be fixed is patient expectations. We are all told nowadays to take control of our own health care, to get second opinions and do our own research, to demand the treatments we feel we need, and to ask our doctors if Medicine XYZ we saw on TV is right for us. And that is a tough one. Who wants to be told they can't have something that might work if they've run out of other options, even when a study has shown that that treatment is 99% likely to fail? I mean, if my dad's doctors had said there was a very expensive brain tumor treatment available but that they weren't going to try it because people like him had a 99% chance of not being helped by it anyway, I'd have had a pretty hard time agreeing that it wasn't "worth it" and just letting him die. (He had an experimental treatment and is doing very well now, by the way.) But there are probably plenty of cases that aren't life and death, where doctors provide unnecessary treatment just to shut patients up!

Anyway, greater minds than mine will have to figure out the answers on this one! For more reading on this topic, here's a book that has been on my radar ever since it was called the "best economics book of the year" by David Leonhardt of the New York Times: Overtreated: Why Too Much Medicine Is Making Us Sicker and Poorer.

A Fascinating Look at Health Care Costs

I just read a great article in the June 1 issue of the New Yorker: The Cost Conundrum: What a Texas Town Can Teach Us About Health Care. Atul Gawande looks at health care costs by focusing on McAllen, Texas, a small border town which happens to have the highest health care costs in the country. The question is, why? How did this happen in this particular location?
Not to spoil the buildup, but here's the answer: it all comes down to the doctors themselves, and what sort of money culture exists among them:

One morning, I met with a hospital administrator who had extensive experience managing for-profit hospitals along the border. He offered a different possible explanation [for the difference in health care costs between McAllen and El Paso]: the culture of money.

“In El Paso, if you took a random doctor and looked at his tax returns eighty-five per cent of his income would come from the usual practice of medicine,” he said. But in McAllen, the administrator thought, that percentage would be a lot less.

He knew of doctors who owned strip malls, orange groves, apartment complexes—or imaging centers, surgery centers, or another part of the hospital they directed patients to. They had “entrepreneurial spirit,” he said. They were innovative and aggressive in finding ways to increase revenues from patient care. “There’s no lack of work ethic,” he said. But he had often seen financial considerations drive the decisions doctors made for patients—the tests they ordered, the doctors and hospitals they recommended—and it bothered him. Several doctors who were unhappy about the direction medicine had taken in McAllen told me the same thing. “It’s a machine, my friend,” one surgeon explained.

No one teaches you how to think about money in medical school or residency. Yet, from the moment you start practicing, you must think about it. You must consider what is covered for a patient and what is not. You must pay attention to insurance rejections and government-reimbursement rules. You must think about having enough money for the secretary and the nurse and the rent and the malpractice insurance.

Beyond the basics, however, many physicians are remarkably oblivious to the financial implications of their decisions. They see their patients. They make their recommendations. They send out the bills. And, as long as the numbers come out all right at the end of each month, they put the money out of their minds.

Others think of the money as a means of improving what they do. They think about how to use the insurance money to maybe install electronic health records with colleagues, or provide easier phone and e-mail access, or offer expanded hours. They hire an extra nurse to monitor diabetic patients more closely, and to make sure that patients don’t miss their mammograms and pap smears and colonoscopies.

Then there are the physicians who see their practice primarily as a revenue stream. They instruct their secretary to have patients who call with follow-up questions schedule an appointment, because insurers don’t pay for phone calls, only office visits. They consider providing Botox injections for cash. They take a Doppler ultrasound course, buy a machine, and start doing their patients’ scans themselves, so that the insurance payments go to them rather than to the hospital. They figure out ways to increase their high-margin work and decrease their low-margin work. This is a business, after all.

Fortunately, some areas have developed very different cultures. Gawande talks about the Mayo Clinic, which has some of the lowest health care costs in the country:

The core tenet of the Mayo Clinic is “The needs of the patient come first”—not the convenience of the doctors, not their revenues. The doctors and nurses, and even the janitors, sat in meetings almost weekly, working on ideas to make the service and the care better, not to get more money out of patients. I asked Cortese how the Mayo Clinic made this possible.

“It’s not easy,” he said. But decades ago Mayo recognized that the first thing it needed to do was eliminate the financial barriers. It pooled all the money the doctors and the hospital system received and began paying everyone a salary, so that the doctors’ goal in patient care couldn’t be increasing their income. Mayo promoted leaders who focussed first on what was best for patients, and then on how to make this financially possible.

Most importantly, Gawande notes that this problem is not related to who actually pays the doctors' bills, whether it be the government, private insurers, or individuals out of pocket:

Providing health care is like building a house. The task requires experts, expensive equipment and materials, and a huge amount of coördination. Imagine that, instead of paying a contractor to pull a team together and keep them on track, you paid an electrician for every outlet he recommends, a plumber for every faucet, and a carpenter for every cabinet. Would you be surprised if you got a house with a thousand outlets, faucets, and cabinets, at three times the cost you expected, and the whole thing fell apart a couple of years later? Getting the country’s best electrician on the job (he trained at Harvard, somebody tells you) isn’t going to solve this problem. Nor will changing the person who writes him the check.

This last point is vital. Activists and policymakers spend an inordinate amount of time arguing about whether the solution to high medical costs is to have government or private insurance companies write the checks. Here’s how this whole debate goes. Advocates of a public option say government financing would save the most money by having leaner administrative costs and forcing doctors and hospitals to take lower payments than they get from private insurance. Opponents say doctors would skimp, quit, or game the system, and make us wait in line for our care; they maintain that private insurers are better at policing doctors. No, the skeptics say: all insurance companies do is reject applicants who need health care and stall on paying their bills. Then we have the economists who say that the people who should pay the doctors are the ones who use them. Have consumers pay with their own dollars, make sure that they have some “skin in the game,” and then they’ll get the care they deserve. These arguments miss the main issue. When it comes to making care better and cheaper, changing who pays the doctor will make no more difference than changing who pays the electrician. The lesson of the high-quality, low-cost communities is that someone has to be accountable for the totality of care.

I used to want to be a doctor myself, until I almost flunked chemistry freshman year of college. I was idealistic about helping people, fascinated by the science of medicine, and also knew that doctors made a good living. I suppose most people who become doctors are driven by similar factors, but I've always thought that the barriers to entry were so high that they'd weed out anyone who wasn't driven most by wanting to be a heroic lifesaver-- there are easier ways for smart, driven people to make a doctor's salary, after all. But I guess being heroic isn't enough for some doctors nowadays, at least not without a lot of reinforcement of that ethic from one's peers. Sad.

May 2009 Net Worth

I was planning to do a full net worth and expense wrap-up, but discovered that I somehow didn't paste my expense info into the spreadsheet I emailed myself at work, so that will have to wait until tomorrow. Today we'll just do the net worth.

And the net worth news is pretty good: up 3.85% in May, to about $347,209. (As always, a reminder that my home equity is somewhat in question. I've seen many stats that suggest that the value I use is not inflated, but to be on the safe side, my net worth could be $325-$347,000. Or maybe more! Or maybe less! Who knows... it's not the piece of my net worth I'm focusing on most these days, and it never hurts to be openminded.)

Cash and Bank Accounts $47,072, down 1.59%
Stocks/Mutual Funds (not incl. retirement) $14,008, up 10.29%
Bonds $4,860 (unchanged as I haven't checked the value in a few months-- actually the number would be higher.)
Retirement $189,382, up 6.21%
Home equity approx. $93,980, up 2.54% as I made an extra principal payment this month.
Credit card $2,093 balance at month end, but always paid in full when the bill comes.

Given the amount I have in cash/bank accounts right now, I'm starting to think I might want to shift a little of that back into the stock market. I still want to have a good emergency fund, given the somewhat shaky state of the industry in which I'm employed (publishing), but I have more than a year's cushion in cash right now, which I don't think is really necessary.

All in all, it's just nice to see things going in a positive direction again for the last few months. Let's hope we don't have another big crash... but at least I know I'm running a fairly tight ship! Onwards and upwards!

Expense wrap-up to come soon...

Big Money

I just found this image on my cellphone, which I took months ago and forgot about. I never actually went into the store to see how much a gigantic dollar bill would cost!

A Weekend in the D.C. Suburbs

Not long ago, I spent a weekend down in the Washington, D.C. area. (Unfortunately I didn't get to say hello to SingleMa and Mapgirl.) Let's just introduce the family I was visiting, who are related to Sweetie:

Greg, a lawyer
Beatrix, who has a master's degree in international relations, but is now mainly a stay-at-home mom with a part-time job.
Flopsy (12) and Mopsy (10), their two daughters
Peter (8), a neighborhood friend who came over to play

The family lives in a nice suburban area not too far from downtown D.C.-- and when I say nice, I mean really nice-- large, beautifully manicured lawns surrounding what you'd have to call McMansions, most in brick with a vaguely Colonial look. The nearby public schools are good, but most of the kids go to private schools-- Flopsy and Mopsy already do, and Peter will transfer to one next year. The whole neighborhood gives an impression of upper-upper-middle-class security and it's hard to imagine these kids not remembering their childhood as idyllic-- and the kids themselves are smart and sweet and polite, with a certain pre-teen innocence that is refreshing and charming. I know this all sounds a bit too nauseatingly sweet to be true, but it kind of is! I think Beatrix is a really good mom and the girls don't seem at all spoiled-- at least, not yet!

But of course anything that seems so perfect really isn't. It's not that there's anything terribly dark to report, but Greg is constantly at work, and despite that, apparently doesn't have great career prospects because he's not billing enough hours or landing new clients. This has led to some anxiety about the family budget. Of course this is all relative: they have a great house with a pool, and two high-end cars, and take the kids on vacations to fun places. But those private school bills are a killer-- $30,000 a year each for the two girls. So they've postponed doing some renovations to the house for the moment until things stabilize.

One of Greg's ideas to make things stabilize was that Beatrix must get a full-time job that makes at least $100,000. He apparently doesn't realize that such jobs can't just be had with the snap of a finger! (He also refused to make any accommodations in his own schedule to help keep the household managed if she started to work full time.) Beatrix is highly educated and capable, but like many moms, her jobs have been steadily declining in prestige and challenge since she has prioritized taking care of her kids. At this point, she is trying to land a totally administrative job at their private school-- their education is her top priority, and she wants the discount on the tuition. Anyway, that is all I really know about the family finances, but of course I found it interesting!

Back to the details of my visit:
I have visited the family on several occasions and was quite a hit with Flopsy and Mopsy. They are really into art, and once they found out I could draw, they kept requesting pictures of various animals, girls in ballgowns, and fairies. They also seem to just like the fact that I'll meet them more than halfway in various sorts of imaginative play, unlike some of the other adults around, who don't really want to get that involved. If they want to play charades, I'll ham it up. If they want to play teacher, I'm a very silly student. And this time, they wanted to play "Town," a game which involved paper wallets full of play money-- little squares of green paper were $5 bills, and pink squares were $1 bills-- and we'd each run a business in the town and buy things from each other.
They immediately wanted me to run the "art store," which was fine with me. Flopsy set herself up with the town printing business, so I asked for some signage for my art store. Mopsy was running the post office, so I sent out invitations to my gallery opening. Peter was assigned to run a supply store, where I could purchase additional sheets of paper and avail myself of his pencil-sharpening service. I started cutting up small pieces of paper and doing small drawings on them. I created a price list for these beautiful works, as well as gift certificates for art lessons. And business was booming!
Then I decided to work in some financial education. I asked the stationery store to print up invoices and a sales and expense ledger for my art store, so I could keep proper accounting. I suggested that Mopsy run a bank as well as the post office, where we could deposit our hard-earned pink and green paper. Flopsy was assigned to print up bank books, and I had to explain that banks didn't always have electronic machines that would spit out a record of how much money you had! Then I got Mopsy to start lending out the deposits so Flopsy and Peter would have more money to spend at my art store. Playing town became more like playing "economy," and I think the kids got a kick out of all these new elements I'd introduced to their game.

One final note on the visit: we went out to dinner one night in the downtown area of their suburb. It was hopping! I was impressed that the downtown area seemed to be thriving and all the restaurants and stores were busy. Sweetie pointed out that it's probably because D.C. hasn't lost all the finance jobs that New York has. It's not like all the restaurants here are empty, but what's really noticeable in New York these days is all the empty retail space-- the difference was striking.

Well, that's my report from the trenches! It will be interesting to see how things go for this family over the next few years...

The Economics of Opening a Bar in New York

This was in New York Magazine a couple of weeks ago and I found it interesting:

Bar-onomics

So you want to open a bar, huh? A profitable bar? We asked four experts to run the numbers on a make- believe, 1,000-square-foot neighborhood pub in the East Village.

Start-Up Costs
Rent for six months while waiting on a liquor license: $49,800 (assuming $8,300 a month)
Liquor license and fees: $9,000
Equipment, construction, and demolition: $60,000
Signage: $1,000
Décor and glassware: $21,000
Training for six employees: $858
Initial liquor order: $6,000 (45 percent on beer, 40 percent on liquor, 5 percent on wine, 10 percent on mixers)
Sound system: $1,000
Emergency funds: $50,000
Misc.: $2,000
TOTAL . . . . . . . $200,658

Ongoing Monthly Costs
Rent: $8,300
Booze: $10,000
Insurance: $500
Misc.: $1,900
Staff pay: $1,720 (assuming 100 hours a week at $4.30 an hour)
Utilities: $1,320
Taxes and fees: $1,000
TOTAL . . . . . . . . $24,740

The Markups
Draft beer: $3.59 a pint
Bottled beer: $3.85 a bottle
Well liquor: $4.65 a pour
Top-shelf liquor: $3.35 a pour
Wine: $3.48 a glass

Break-Even Point
Amount you’d have to gross in 18 months before you start turning a profit: $645,978 (monthly expenses of $24,740 for 18 months, or $445,320, plus start-up costs of $200,658)
Number of customers required per night to reach $645,978 in 18 months (assuming $5 per average drink and 1.5 drinks per person): 160

I was surprised at that very last assumption, that the average drink is only $5 and the average customer only has 1.5 drinks. It seems like drinks tend to be more expensive than that, and I would have thought more customers tend to have multiple drinks... but maybe I'm just a biased high-end lush! Either way, opening a bar is definitely one entrepreneurial effort I will never undertake!

What Should A Young Couple Invest In?

A reader writes in with this question:

My fiance and I are getting married in Oct 2009. We have been together for 8 years now and we are both students. I am 23 and he is 22. We are both working on our masters degree and have accumulated students loans from our undergrad degrees. We do not have any children and live in a condo ($750 per month).

I do not work because I am totally/perm disabled from a car accident when I was 15 years old, however my fiance works at 2 different jobs and we average about $30,000 per year. We have been looking into retirement and savings plans for a while but there are so many to choose from that it makes my head spin.

My question to you is, what should we invest in? 22 and 23 years old, getting married, both students, no children, no credit cards/loans other than student loans and our bills average us about $2000 per month?

Before I say anything, of course I have to remind everyone that I am in no way a financial professional and I can't really give investment advice. But I'll throw out a few things that I might consider if I was in your situation!

The traditional advice for young people is to invest aggressively, meaning in a mix of investments that is as much as 90% in stocks, with a few more conservative fixed-income or bond investments balancing out the portfolio. Because you have such a long time before you can retire, you can ride out the ups and downs of the market, and theoretically should get returns over time that outpace inflation. Nowadays, some of the assumptions behind this kind of investing make people more nervous-- past history does not predict future results, and the stock market has been so crazy over the last year, who knows where it will go next. We could be in a recession/depression for years and maybe people who hoard their cash will end up doing just fine if there's no inflation. But over the next 40-45 years til this couple retires, a lot could change, and it's still probably a good idea to be invested in stocks over the long term.

So I'd say that if your employer has a 401k plan, make sure you are taking advantage of it, especially if the employer matches some portion of your contributions. You can start by putting in a small percentage of your pay, but keep an eye on that over time and try to increase it later. Pick a few funds that have varying degrees of risk so you don't have all your eggs in one basket. The choices of funds are perhaps what is making your head spin, but don't let it intimidate you. Most 401k providers have information that will rank the funds according to level of risk-- pick a couple from the top, one from the middle and one from the bottom and chances are you won't go too far wrong. Just do it and then take a hands-off attitude-- don't worry about watching it too closely at first. Just let that money start slowly accumulating, and worry about things like rebalancing your portfolio a few years later. You've got plenty of time.

But aside from that, here's the other thing you might want to think about as a risk-free investment: how about trying to pay off those student loans early? I'm not sure what kind of interest rates you might be paying and whether there's any possibility of having loans forgiven, but having less debt in your life is never a bad idea. Repayment of any debt is essentially an investment that guarantees you a return of whatever interest rate you were paying (or perhaps a little less if the interest was tax deductible). And becoming debt-free will give you a feeling of satisfaction that you'll never quite attain from looking at a 401k statement!

Those are my two cents-- whatever you decide to do, best of luck to you!
Any other thoughts or suggestions from readers out there? You are always great about helping each other!

Overheard at BookExpo

As usual, I attended Book Expo America this past weekend. I didn't have a chance to do much scouting for new personal finance books, but I did manage to score a free copy of Chris Anderson's new book, appropriately titled "Free: The Future of a Radical Price."

The most interesting money-related moment of the show for me actually occurred in the bathroom. There was a very friendly attendant working there who was chatting with all of us waiting in line. Here's what she was saying while I was there, more or less:

I'm working here from 7 AM to 7 at night. No, I don't mind at all. I have another job too!
I go home after this job, I sleep for 2 hours, then I get up and go to my other job, cleaning offices at night. It's ok-- hey, my kids are all grown and out of the house.
I thank God that I have even one job in this economy. Nowadays, I laugh to see all these rich people who are scared! I see it in their faces, they're scared.
And to think, I used to feel intimidated by rich people. That's why they build all those tall buildings, so they can sit in them and look down on everybody...

Contrast this to another conversation I overheard, between two well-dressed young women who worked for publishers.They had obviously just run into each other after not seeing each other for a while:

Woman A: Hey, we have to get together! We still haven't done our Brooklyn thing!
Woman B: I know, I know! But I'm really broke again.
A: And I'm really busy...
B: Well, we have to find a time. Around the 15th of the month is a good time for me.
A: Ok, we'll find a time...

I guess Woman B was scheduling her social activities around payday. It's just fascinating how different people can be in their attitudes towards money and time!