January 8, 2008 - by J2R
Most of us in the personal finance blogosphere know that we should be really, really careful with our checking account numbers. It’s just too easy for someone to withdraw all our money once they have our checking info.
Top Gear (a british show) presenter Jeremy Clarkson should read more personal finance blogs. He branded the scandal of lost CDs containing personal information of Britons a “storm in a teacup”.
The prove his point, he printed his bank details in a newspaper. Not very smart.
However, in a rare moment of humility Clarkson has now revealed the stunt backfired and his details were used to set up a £500 direct debit payable from his account to the British Diabetic Association.
After his enlightment, he added:
Contrary to what I said at the time, we must go after the idiots who lost the discs and stick cocktail sticks in their eyes until they beg for mercy.
Posted in Finances 
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January 2, 2008 - by J2R
The 133th edition of the Carnival of Personal Finance is up at “We’re in Debt”.
Don’t forget to check it out.
Posted in Carnivals, Finances No Comments »
December 27, 2007 - by J2R
So Christmas is over and the expenses are finally sinking in. You probably went over budget on food, decorations and specially gifts. It’s hard to keep things under budget. I blame it on the Xmas spirit. 
We always hear that it’s not really the value of the gift that’s important, but the thought behind it, but we always end up buying “nice” (more expensive than we should) gifts for the ones we love. We subconsciously think that the more we spend on a gift, the more the person will like it.
This Christmas, I learned (the hard way) that we don’t really have to spend a lot of money on a gift for someone to love it.
My parents helped us throughout the year by babysitting our kids every time we needed. So I decided to give them a really nice “gift” this year. I gave them $700 in cash (besides other smaller gifts). I was expecting that to be their favorite gift. (It’s frigging $700!!!!)
My brother then “sabotages” me by giving them a calendar with family pictures. It was a really nice calendar. Really thought out. He probably spent several hours going through hundreds of pictures, selecting the ones he liked, editing them and composing the calendar. It probably cost him around $40 (besides his time).
I think you can guess which gift my parents loved the most. If you need a hint, it wasn’t mine.
I’m not complaining. The $700 will be a big help with their bills. But my dad couldn’t stop saying how much he loved the calendar and that the true value of a gift wasn’t attached to the price tag. I was actually quite jealous.
It is really true when people say that the true value of a gift isn’t associated to its price tag. It’s how much thought and time you put into it. The numerous hours and thought he spent on that gift made that calendar a memorable gift for my parents. It will be something they’ll cherish for a while (at least a year).
This is important for everyone to keep in their minds, but more so to those trying to save money. Start spending more time thinking about the ones you want to give gifts to instead of spending more money.
Happy belated Xmas.
Posted in Family, Finances, Lifestyle No Comments »
December 26, 2007 - by J2R
I took a hiatus in posting in this blog.
A couple of months ago, my son was diagnosed with autism. As you can imagine, it was really heart breaking, and I really didn’t feel like blogging anymore.
But things are better now (I’ll post about his progress later), and I think it’s time for me to start blogging again.
A belated Merry Xmas to you all.
You can expect more posts from me in 2008.
Posted in Family, Finances 3 Comments »
August 29, 2007 - by J2R
Found this at CNNMoney.com through one of the comments in Dr Housing Bubble blog and thought it was funny.
But seriously…
I’ve been looking at houses for a while, but when you have a house that can be rented for $2500/mo going for $800k, which translates to a $3600 mortgage (considering a 200k downpayment and a 600k loan @ 6% fixed for 30yrs), you can call it a bubble.
House prices have been dropping and they will probably keep dropping for a few years.
2008 will be a bad, bad year for housing with a lot of those suprime mortgages defaulting and thus increasing the number of foreclosures.
From CNNMoney
The company predicts that 2.5 million first mortgages will default this year, with little chance for improvement soon - Economy.com expects delinquencies to peak in the summer of 2008 at 3.6 percent of all outstanding mortgage debt, up from 2.9 percent during the first three months of 2007.
The worst-hit loan category will be subprime adjustable-rate mortgages (ARMs). Economy.com expects foreclosures for those loans to hit 10 percent of that group by mid-2008. The foreclosure rate for that group is currently 4 percent and was as low as 2.5 percent in 2005.
Posted in Finances, Real State 1 Comment »
August 26, 2007 - by J2R
When I joined my current company, I simply rolled over the funds from my previous company’s 401k into the new one’s.
Big mistake.
I did that before checking what investment choices were available in the plan. At the time I thought that all 401k plans were “good” plans.
After looking at my funds more carefully, I noticed one thing: they’re crap. They’re all class C funds, meaning that I’ll be paying a fee every year. In addition to that, all the funds are expensive (cheapest one is 1.4%) and several of the funds have a fairly new manager (less than 2 years managing the fund), which makes me not want to put my money in it.
I would’ve done a much better job if I had kept my previous 401k plan at the same place or simply rolled them into an IRA.
There are a few, but important, things that you must keep in mind when choosing a fund:
The class:
If all the funds have the same class, then it’s a moot point, but you should still be aware of the fees you’re paying.
Class A - you pay fees up front
Class B - you pay fees when you sell them
Class C - you pay fees forever !!!!!!
Fore more detail, you can check BankRate.
You generally want to look for NO LOAD funds, but if you can’t find them, I would then choose class A funds. As long as you keep the funds for a long time (5+ years), you’re get more money out of the fees you pay.
The manager:
The fund’s performance is directly correlated to the manager. Pick a good manager, and most likely you’ll have a good fund. But this requires a lot of research and knowledge of the investors. This is a difficult thing to do because you need to live and breath funds to know what the good managers are. One tip for the average investor like you and me is to use other services’s tips.
I pay for a newsletter to give me mutual fund tips. But you can find useful tips on the big PF sites, like Kiplinger and Money (at CNN). They all have a list of top funds.
The manager tenure:
When looking at the fund’s performance, you have to make sure you’re looking at the performance for the current manager’s tenure. If the fund have performed well for 10 years, but the manager have recently retired, it’s likely that the new manager will have a different investing strategy and thus, different returns.
The fund’s performance:
Past performance does not indicate future results. But it’s a good place to look at. A fund that has consistently beat the SP500 (with the same manager), has a good chance of keeping at it.
The fund’s fees:
Only 25% of the funds outperform the market, so why pay high fees for someone to under perform? There are several well managed funds with really low fees (like Vanguard), so keep a close eye on the fees.
Posted in Investment 3 Comments »
August 24, 2007 - by J2R
The Carnival of Personal Finance #114 is up at the Simple Dollar, one of the most famous PF blogs around.
Don’t forget to check it out.
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August 19, 2007 - by J2R
There’s a very interesting article from John Mauldin at investor insight.
I’m going to be honest. I didn’t understand 100% of what he said, but even without all the details, I could better understand what happened to the market and how it was affected by the problems with the subprime loans and how it affected even Retirement Plans in Japan.
Unlike what I had originally (and simplistically) thought, it’s not simply a problem of liquidity, but more of a problem of credibility.
I’m going to try to summarize (as best as I can) his article.
Credit agencies can package their loans and resell them to minimize their risk. These include mortgages, car loans, commercial mortgages or bank loans. These packages are divided into 5-7 (or more) groups called tranches.
Who would buy these loans? Investment institutions. However, they need a way to assess risk, so they go to a rating agency and pays them a fee to rate that tranche in terms of risk (AAA for the best rating, AA for the second best, and so on). The lower the grade, the higher the rate. Similar to corporate bonds.
Now insurance companies, pension funds and other investment institutions can buy this security that has a higher yield than regular government bonds.
However, the problem lies with suprime-rated paper. In 2004, loan practices began to change. Loans had teaser rates that didn’t even require proof of income. We all know that the sub prime market all jumped into adjustable rate loans.
In 2005-6, about 80% of subprime mortgages were adjustable-rate mortgages, or ARMs, also called “exploding ARMs.” These loans are so-named because they carry low teaser rates that often reset dramatically higher, increasing the borrower’s monthly mortgage payments by 25% or more.
In addition to these bad loan types, mortgage companies were not even checking applicant’s income. They would trust whatever value they filled in the form.
“According to reports from loan counseling agencies across the nation, the main reason homeowners give for falling behind on their mortgage payments is not a change in personal circumstances (such as a job loss), but instead, they are not able to make the increased payments on their ARMs.
“The loan application and review process for ‘no-doc’ loans was so lax that such loans are referred to as ‘liar loans.’ In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.
“The newer mortgage products, such as ‘piggyback,’ ‘liar loans’ and ‘no doc loans’ accounted for 47% of total loans issued last year. At the start of the decade, they were estimated to be less than two percent of total mortgage loans. As a result, homeowners have never been more leveraged: the average amount of debt as a percentage of a property’s value has increased to 86.5 percent in 2006 from 78 percent in 2000.”
But that’s not the real problem. According to Mauldin, the real problem was bad rating practices.
In an effort to make it easier to sell the lower-rated tranches, the investment banks put together a Collateralized Debt Obligation (CDO) composed of just the BBB-rated paper. And then got the rating agencies to give 75% of that paper an AAA rating! So we have turned 75% of BBB waste into gold with the alchemy of ratings.
This caused a lot of securities rated AAA that were in reality just junk mortgages.
And how this affects Retirement Funds in Japan?
In Japan, bonds return barely 1%, so in order to maximize their yield (we know the feeling), they buy these papers.
If you are a hedge fund, you borrow massive amounts of Japanese yen at 1% and invest in higher-yielding investments and make the spread. Life is good. The trade goes on and on.
As you can see, the market is so globalized nowadays that problems in any of the major global economies will ripple throughout the world.
That was indeed a really interesting article to read.
Posted in Finances, Investment 2 Comments »
August 18, 2007 - by J2R
I have a friend/roommate that lives with us and pays me $600/mo to help out. It’s a good deal for her, because I don’t charge anything else, and she enjoys all the benefits that we do. The $600 pretty much covers my HOA and the utilities. Not really financially worth it for me to give up a room for that, but at the same time I’m helping a friend out.
She’s having some problems this month and still hasn’t paid rent. For that reason, and because I decided to clean my savings in order to invest in the market, I’m feeling like a hedge fund. With no liquidity at all. I think I have around $2500 in my checking/savings, but $2000 is already budgeted for other bills. If anything comes up, I will need to either sell some of my stocks at a loss or have to ask my mum for a small loan
That’s the problem that’s affecting the economy now. They don’t have roommates late with their payment, but they have a lot of people defaulting on their mortgages, which is causing a liquidity problem in the market. These hedge funds need cash to pay their investors, so they need to sell their stocks to do that.
I’m not a financial analyst, so I tried my best to explain the problem as I was able to understand it.
Posted in Finances, Investment No Comments »
August 17, 2007 - by J2R
I wouldn’t suggest anyone do this. You need an emergency fund and you shouldn’t touch it unless it’s a true emergency. A pair of designer shoes on sale is NOT an emergency.
Easier said than done.
I’ve been putting money in the market these past few weeks.
Given the plunge these past 2 days and the great recovery yesterday, I couldn’t resist myself.
I almost depleted my savings (At least I still have my CDs which I could access for a lower value) and bought more stocks today.
I’m the proud owner of USB (US Bancorp) and WFC (Wells Fargo). I thought about BAC (Bank of America), but I just dislike their service so much, that couldn’t make myself buying their stocks.
Was it stupid to buy more stocks using my emergency fund? Yes. But unlike buying a new pair of designer shoes, this is something I hope I won’t regret.
I trully think the market is overreacting. If you look at the volume of stocks traded yesterday and today, you can see a LOT of people jumping in the market as well.
Knowing how impulsive I am (which is bad for investing), the only way I’ll be able to build up my emergency funds will be through a CD ladder. That’s the only way I’ll be able to leave some money and not touch it.
Another note: DO NOT TAKE PF BLOGGER’S ADVICE WHEN INVESTING.
Several are selling their stocks. Others, like me, are jumping in. Don’t take any of these advices blindly. You all have different purposes and are in different stages of life. There’s also different levels of risk tollerance.
So always make your own decisions. As much as you respect them, don’t blindly follow any PF blogger’s actions.
Posted in Finances, Investment 3 Comments »
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