New Financial Plan

This article is about discussing money with your partner.  The points in it are pretty basic but I disagree with some of it.  I thought it would be worth sharing my opinion.  I think my idea of handling finances and relationships are pretty easy.  Basically to me it comes down to the fact that if you want a real relationship, or a real financial plan, you have to be grown up about it.  The five points in the article are: 1. Ignore right and wrong beliefs, 2. No $ as a weapon, 3. Goals as a couple, 4. Commit to goals, 5. Keep some for yourselves.

I don’t like ignoring things.  People have feelings and emotions.  The trick is getting past those, being accountable and responsible, and doing things right even if it isn’t easy.  With that said, my thoughts on the article are as follows:

1. While there may not be right and wrong there are some attitudes and actions that are better than others.  The key is to base this comparison on your situation and goals.  If you cannot take criticism or be corrected than you will have trouble in a real relationship or making your own financial plan.
2. Don’t use anything as a weapon.  You are partners.  Work together.  If you have to fight then do everything you can to fight fair.
3. Great point, especially planning for how things will change in order to get there.  Understand together what you want, what it takes, what risks and tradeoffs are involved.
4. Commit to it and track progress.  This is key in working toward any goal.
5. Hmm.  I have two thoughts here.  First I don’t like having set amounts.  Strict limits or budgets like that are too generic for me.  We each spend little bits of money on our own.  When it seems a bit too much we discuss it.  Second, I disagree with point 1 and have the same thought here.  Some things are bad moves, there are better ways to use money, and you are in it together.  If I was taking money and burning it I would hope my partner would stop me.

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With all of the problems the economy has been struggling with there are many plans floating around for a quick fix.  Lately I have been hearing about proposals for new tax rebates.  This got me thinking about how people handle unexpected cash.  What do you do if you unexpectedly get $250?  Government officials and economists hope that the money is spent right back into the economy after it is sent.  That is why they plan to do it.  They have studied the issue, and used this tactic in the past, and many people will spend all of the extra money that they find.

For me the money goes right into the bank and that is that.  We don’t have a strict budget.  If we did, I guess the money would be divided up into a couple of categories.  We do plan our purchases.  We are lucky enough that an extra $250 isn’t a big impact on our situation, so it doesn’t have any effect on our purchases.  I think of it as an extra cushion in our emergency fund.

Companies also use rebates, but they do it to sell products.  They have studied the redemption rates and decide where rebates will drive up sales enough to make more money than the rebates will pay back.  Many times the rebates are not submitted, or not submitted correctly.  People do not follow through with them.  What if you do follow through?  When a rebate check comes in for $50 what do you do with it?  I dump mine in the savings account with my other money.  In my mind that money was already factored in when the purchase was made.

I do have a few places where I will spend that kind of money.  A few years back there were tons of rebates on office supplies and electronics.  At that time I would roll rebates over to buy new products with rebate offers.  It seemed like every few weeks I was cashing rebate checks, buying more stuff, and submitting new forms.  Those types of offers slowly disappeared and I stopped doing that.  The other rebate type money I do spend is credit card rewards.  That is mostly the case because I have cards that give me gift card rewards.  When we get those we start watching for things worth buying at those stores.

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Yes, this is a personal finance blog.  No, television and the way it is transmitted is not a personal finance issue.  But spending money on a new TV, buying a converter box, and signing up for converter box coupons are spending issues which are part of personal finance.  Are those things in your budget?  Are you planning on what changes you might need to make?  Using coupons and taking advantage of programs available to you are personal finance issues.  It is good to know what is available and appropriate to use.

The government has a program where you can sign up now for coupons for $40 off a digital converter box.  If you have any TVs hooked up to antennas you will put the converter box between the antenna and the TV and it will convert the new digital signals to work with old TVs.  Or you can change the hookup on back of newer TVs and have the antenna go straight into the digital input if your TV has a converter in it.  Or you can buy a new TV.  With new converter boxes and TVs come new features.  With those come higher prices.

I signed up for coupons right away so I wouldn’t forget.  I figured there would be a little processing time.  I have also heard that there might be a limit on how many coupons you can get, and that after so many are issued or used they will stop issuing them.  After signing up I know a little bit more about it.  Unfortunately it does not work like I expected it would.  I’ll list here a few things I learned about the program, and share how I believe they relate to personal finance.

1. The website to sign up is at www.dtv2009.gov.  You have to enter your name, address, and whether or not you subscribe to any pay TV services.  You can request 1 or 2 coupons.
2. Coupons will not be processed or sent out until converter boxes are readily available, probably late February at the earliest.  Processing, mailing, and delivery time estimates are not provided.  Coupons will be valid only at participating retailers.
3. Coupons expire 90 days from when they are mailed.  They are not transferable, have no cash value, are not replaceable if lost or expired.
4. 22 million coupons are available first come first served, and an additional 11 million are available to households with no subscription TV services.
5. Coupons cannot be used for “upgrade” devices such as converters with DVRs in them.

My two cents and personal finance perspective on each of those points:

1. The website is quick and easy.  I filled out the info and requested coupons.  The FAQ section is also easy and has details about all of these points and more.
   As with anything, it’s nice to use a quick and easy tool to get something done.
2. I didn’t know what I was getting into here, and even know I don’t know when I’ll have my coupons or details.  I’m guessing that different companies will be making different types of boxes.  I’m guessing that different stores will carry different boxes.  At some point I’ll have coupons valid somewhere for something.  Will it be a good box, or a market trial, or an early version?
   Just like your finances, make sure you know as much as you can BEFORE you take action.  These details weren’t brought to my attention until after I signed up.  Learn from my experience.
3. This is frustrating.  I don’t know when these coupons will be here, where I can use them, or what options will be available during the time they are valid.  Will these boxes come down in price after I buy them, or be on sale some time, or be cheap and basic the first year until there is really a need to compete to get people to buy one?
   Watch out for limitations and exceptions.  Even after signing up I hadn’t thought about some of these things until now.  Know the risks.  Understand what you expect and what you are able to tolerate.
4. There are limits.  Understand what is available.  We don’t know how many people are signing up for this or how long supplies will last.  There is an artificial pressure here to take action to lessen the risk that they will run out before you sign up.
   Understand the limits and risks.  Interest rates change, application criteria change, and markets move.  Consider your tradeoffs and opportunity costs.  What is it worth to take action now?  When is it worth taking time to learn more, to consider more options and wait for better ones, or to time a market?
5. More limits.  One big point some people are highlighting is that going digital will be good for the consumer.  Unfortunately certain consumer “upgrades” appear to be too good to be supported.
   Different purchases have different fees and costs.  Free consultations will give you basic information but nothing too detailed.  Understand the value to know what the upgrade is really worth, and when it is worth paying for.

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As I gather information for putting together a formal financial plan I am wary of the advice and pitches that seem to be everywhere.  I want information.  I want impartial information.  I don’t want to just make something happen, but want to understand what it is that I am doing and why I am doing it.  This article gets it right.  It’s good to read up on personal finance, to ask questions, and to pull in information.  Sometimes it is good to get advice or work with a “real” planner.  It is always, no matter what it is you are doing with your finances, good to stop and think before you act.

I am considering several financial moves where I need a bit more information and thought before I take action.  We are considering taking a home equity loan.  We are planning the timing of our retirement contributions and charitable donations for the year.  I have been watching Zecco to see if an account there makes sense.  I have new options in my retirement plan at work this year.  We are reviewing our insurance needs and might change our coverage this year.

All of these things take time, thought, and planning.  I have tons of information available on each of those.  I have crunched numbers, compared options, considered risks, and balanced tradeoffs.  That is the planner part of the decision.  Now we are looking at the family part.  We are reviewing our options and sleeping on them.  I am also a bit of a perfectionist, and by giving it a bit of time I might come up with some “better” ideas to consider.

I’m trying to do the same with this site.  I have information I could throw at the site.  I could dump postings up many times a day.  I could comment on all kinds of stuff I read, respond to other blogs, and spew opinions and advice.  Instead I will be taking my time and trying to make sense, to build up a bit of order, and keep information here reasonable.  I want to get a feel for how this will grow.  I want you to get a feel for how I present information.  Take some time with me.  Understand what is going on.  Use what you can, when you can, and hopefully we can all learn and get something out of this.

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It seems like timing the market, if you could really do it consistently, would be the single best way to grow rich.  If you follow most mainstream personal finance resources you hear that it is virtually impossible to make that work.  If you dabble in it and test your luck you most likely will find that they are right.  Many things I have done, however, have involved a bit of timing.  It hasn’t always worked perfectly.  It hasn’t made me rich (yet).  But I do believe it has worked in my favor.  Below are a few of my financial timing experiences.

Real estate and mortgage loans.  We bought our house early on.  Housing was moving up quickly in the area and we wanted to own.  It was a stretch for us at the time that we considered worth the small risk.  Within a few years of buying we had earned a few promotions at work and the housing market had kept rising.  Then mortgage rates moved lower, bounced a bit, and moved lower again.  We refinanced and cut our rate by 2%.  Now we have a decent house with a very affordable payment.  Our timing in both buying and refinancing worked out very well.

Timing the market.  Stocks have been volatile, hitting all kinds of highs and lows over the past several years.  I remember when I starting investing in IRAs.  People told me not to put any money in stocks because they were too risky.  That was short term thinking.  Down stocks have been good to me, and I have enough time ahead that they are very likely to do well.  We try to max out our contributions by the deadline, to dollar cost average by spreading contributions out.  I also try to beat the market by buying lower.

Not to say all of our moves worked out, for example the money in a real estate fund we own, I believe is about even with where I started while the stock market is up since then.  At the same time the emerging markets we picked up a few years ago have beat the market index.  By putting more money there we missed out on having a larger portion of our investments in that winning fund.

I guess In my mind this version of market timing is really just reallocation taken a little further.  Instead of picking an allocation and sticking to it, I adjust the allocation too.  Maybe it’s along the lines of shifting the allocation of stocks vs bonds as you approach retirement.  Maybe it’s like moving to fixed income investments after you have a sum that you want to live off and protect.  Do you think in either of those cases your situation determines what the market will do?  It doesn’t.  Is it the market determining what you will do?  Then you are timing the market.  No, in either case it is risk as the deciding factor.  Those moves are simply to reduce exposure to risky investments while protecting principal or cash flow.

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It’s still time when lots of people are caught up in making resolutions, predictions, and plans for the new year.  Browsing around this morning I came across several articles along those lines that kept my attention.  Here are two I believe are worth sharing for a quick read.  Please remember that I consider all articles of basic advice and opinion the same as any other educational opinion piece.  They have value in expanding your view and prompting new thinking.  My advice is to use anything like that, including my posts, as only that when you see it.  If it has real value to you then you keep it and go back to it, otherwise move on and keep learning.

This article gives some predictions about economic growth for the year and a bit of insight into why those predictions are made.  It covers U.S. stock markets and housing.  My predictions are as follows: U.S. stocks SP500 will be up roughly 7.5%, overall housing will be up 2.5%.  I predict that there will be different rates within market segments and geographic regions.  I predict that my predictions will be no better or worse than others, and that some unforeseen factors will pop up and make some people look like geniuses and others look like fools.

My predictions are what I base my decisions on, but I update my view and make new predictions based on new information as it becomes available, which is very frequently.  My predictions and views tend to be relatively near term.  For our retirement investments I stick to broad funds using a lazy/indexed style of investing.  Big SP500 and other funds have a good bit of exposure to financials, pharmaceuticals, and global markets.  My prediction for my investing is that we will do fairly well keeping up with retirement contributions and returns, but not have enough “play” investment money to take the risks of aggressive short term investments for other goals.

After looking at some predictions, this tip is simple but powerful.  Part of 10 tips for better investing, number 5 on their list is “Know what you don’t know.”  It really ties in to what I believe is important.  In my first draft of my Keys to Success with Finances I listed build understanding as number 1, know the risks as number 4, and get help when you should as number 5.  All 3 of those are related to your knowledge and understanding.

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