JLP has the 59th Carnival of Personal Finance available!

Flexo has the 46th Carnival of Debt Reduction available!

If you search back, I’ve pulled some of these articles already for Articles I’ve liked This/Last Week. I’m not participating myself since I often forget to submit before leaving for the weekend. But please check out these articles and leave a comment!

First of all, this post is filled with spoilers. But I’m guessing that Flaubert is not on the summer reading list of most PF Bloggers. Or else you’ve suffered through reading it once already for school. This is not the Cliff Notes. If you’re looking for that, go somewhere else.

1) Ennui - Boredom is not a good reason to spend money. And basically she has affairs out of boredom, which leads to her spending money.

2) Poor financial management - She runs a tab at the haberdashers and doesn’t concern herself with paying the bill in a timely fashion.

3) Lavish gift giving - The objects of her affections receive elaborate gifts (from said haberdasher). One of them attempts to refuse them, but accepts them anyway.

4) Signing financial documents she doesn’t understand - Her biggest mistake in the end is signing to debt instruments she doesn’t comprehend. In fact, in reading this part, I wasn’t sure how it worked either. She should have just settle the debts and wised up.

5) Tragedy - Debtor’s prision doesn’t exist anymore, but how many folks contemplate suicide or bankruptcy over the slow inexorable process of paying down the bills? Rather it seems an inexorable process if you keep running up the credit cards. Truly you can pay off your debts if you try to curb your spending and diligently pay stuff off.

I read this book when I was 12. It was the Holt, Rinehart translation from 1949, hardback. I got it used for $2.95 from a secondhand bookstore. I never really understood it when I was 12, but now that I’m a good deal older than that, I thought I should give it another try. It was a much shorter read than before. (1 day vs 2 weeks) I still don’t understand Emma Bovary very well, but I get the story a lot more.

I don’t think Flaubert set out to write a book that was a cautionary tale of financial mismanagement, but I sure got that message out of it this weekend. (Ironically, I was reading it out of boredom and a curiosity about what I’d missed when I was younger.)

Did you know that a lot of banks have free notary services if you have an account with them? Wachovia does and I’m kicking myself.

I called a UPS/FedEX type store and it was $5.00 a signature. I needed three. I called my old company because they have a notary on staff. Her services are free to employees of my old firm. For outsiders, ex-employees and the world at large, she charges $2.00. Not bad. However for all the time I spent in traffic during a rainstorm, I might have been better off going to the nearest UPS store and paying extra. However, I’m feeling cheap and didn’t do that.

Instead, I got a nice gossipy session with my former co-worker. Really juicy stuff. I forgot to give her 6 bucks and had to mail her a check. My three signatures are costing $6.39. (Stamps are 39 cents now right? Because I swear they are 37 cents still, and the stamps I have don’t say anything but First Class.)

Long and short? If you need a notary, check for three things.

1) Does your bank offer the service to you for free?
2) Does your company have a legal office or a notary public on staff who will provide services for free?
3) How much do they charge per signature if they charge you a fee.

I was really surprised to find out that charges were at the discretion of the notary. For some reason I recall notary services used to be some crazy amount of money, like $15 apiece. I am so very glad go get it for $2 with dishy gossip, but not when I could have gotten it for free without the hassle of traffic.

Risk? We all take risks. We like to leave the house and get out and about don’t we? But how do we measure our risk? Generally we can balance our risk in driving a car by getting automobile insurance. I wish I could say the same about investments.

We all take on risk when we invest. The question is how much and what can we tolerate?

If you read the fine print on all investment prospecti, you will see that there is always risk involved with investment and that there is risk that your money will decrease by investing. I encourage everyone to read those statements and repeat them in your sleep. Investing is not for the faint of heart. If you can’t tolerate risk, buy US Treasury Bonds and sleep better at night.

I know that international stocks are more risky than domestic stocks. I know that small- and mid-capitalization stocks are more riskly than large-capitalization stocks. And stocks are more risky investments than bonds. I know that municipal and government bonds are less risky that corporate bonds. And Cash is King. That’s all I need to know about risk as a lay person. How so?

I can take a list of investment options, i.e. mutual funds, in my 401K plan and use it to figure out where I should “allocate my assets”. Asset allocation is a huge part of portfolio planning. When you “re-balance” your portfolio, you are changing your asset allocation, generally to meet some targeted level of risk. You’re selling off one asset to buy another, but keeping it all in your portfolio.

For instance, I am in my early 30’s. I keep about 99% of my money invested in US stock funds. I only recently started buying a US government bond fund when interest rates started to rise. I pretty much stayed pegged to a large cap index fund like the S&P 500 funds because I was a lazy investor back in the day.

Now that I’m a little more savvy about international markets, I have added an international fund into my mix of stocks and bonds. Not too much, but about 15%. Taking on that risk means I have access to greater rewards, and it’s true. I have seen my best fund performance in the last 6 months in my international fund, while my domestic stock funds have been flat or slightly negative. Hooray for asset allocation and balanced risk!

So how do I know what is the right mix to have? Study the charts of ‘targeted retirement funds’. Mutual Fund companies publish their asset mix for these funds on their website so that you can understand how they are allocating assets and balancing risk. Every once in a while, you should ‘re-balance’ your portfolio and try to match the mix represented by the targeted fund you’ve selected.

In writing my prior post, I took a look at Fidelity’s 2035 targeted fund. It has about 17% international funds, 66% domestic stocks, 9% “investment grade fixed income”, 8% “high yield fixed income”. uh what? Fixed Income? Those are fancy code words for bonds. Bonds pay a fixed income of interest, hence the name. Truthfully, I’m guessing that “investment grade fixed income” means corporate bonds, and “high yield fixed income” means US Treasury bonds, but I don’t know that for sure.

I see that I’m holding the right amount of international funds, but not enough bonds. That’s actually kind of scary. But I really, *REALLY* like risk. I hold about 3% in cash and US bonds. Over time, I should probably buy more bonds, slowing down risk and making my portfolio more conservative. Imagine that. That’s what I need to do anyway as I grow older and wish to preserve the gains I’ve made in the market over 20 years.

In fact, study the pie charts on this page very carefully. You’ll see that their target retirement funds closer to 2006 have significantly fewer stocks, more bonds, and more short-term instruments (code word for cash or cash equivalents). As you move further away from 2006 towards 2040, you’ll see that nearly all the funds get rid of the short-term instruments and high yield fixed income instruments disappear from the asset mix.

I hope this post makes sense. It’s a bit stream of consciousness about how I think about my asset allocation and the amount of risk I take on. I feel as a younger person, I can tolerate lots of risk since the rewards are great. I also know that I have a lot of time to make up for any losses I bear with the risk. At the same time, I balance my risk by having a mix of investments so that I’m unlikely to lose absolutely everything. Investing isn’t a zero sum game, everything in my portfolio could fall at once, but in balancing risk, I am not likely to lose all my money at once (unless something else very catastrophic happens).

If you’re still very confused by all this. TALK TO AN INVESTMENT PROFESSIONAL. And read. Read a lot. There is a lot of good, free information out there available to people who invest in 401K’s. There’s good investment in books by gurus too, I am sure. Take the time to educate yourself. Empower yourself through knowledge. I know I sound like a PSA, but I’m nobody special. I’m not a CPA, CFA, or CFP. I’m just a person who reads a lot. Take what I say with a grain of salt, re-read my disclaimer, and talk to a professional.

Recently a friend of mine approached me about planning for retirement. My friend definitely knows that she’s got to do some planning, but her head is a bit in the clouds. Fortunately, she knows this about herself, and while she feels at a loss, I’m really proud of her for recognizing that she needs to take control of her future and have something for herself that is not in the control of her spouse.

She’s not a numbers person and she doesn’t want to think too much about it. The main thing I told her is that she will probably want to talk to an investment professional since she really does need professional grade advice and I’m not a professional. We’re close friends, but maybe not *this* close. Knowing that she is a regular saver when she has money, but has erratic income, I mentioned that she might like target retirement date funds from places like Vanguard or Fidelity.

Here is a listing of the target date retirement funds at Vanguard.

40 years from now is 2046, which is about my friend’s time horizon for retirement. So she’ll probably look at the fund for 2045. If she wants more risk, go with a fund targeted for a retirement date of 2050. If she wants to be more conservative, she ought to try the 2035 or 2040 funds.

Fidelity has some great retirement planning resources if you’re just starting to look at retirement planning. I highly recommend people take the risk tolerance quizzes so they realize just how much risk/loss they are willing to bear. (I am thinking of the newbie investor who Jonathan wrote about last week. He obviously can’t tolerate much risk.)

Fidelity also has target funds called Freedom Funds.

In the interest of full disclosure, I have had, or currently have a relationship with both of these firms, which is why I feel comfortable recommending them. I hear that T. Rowe Price has similar products, but I don’t know them and can’t say anything about them. I will say that I have never bought into any of these target funds because I run my own portfolio of mutual funds based on the risk I like to take on. If you want to know more, read about Modern Portfolio Theory, Jeremy Siegel’s work, and finally take a A Random Walk Down Wall Street. I’m no math smarty. I took AP Calculus and ended up with a D for the year. As long as you can understand the base concepts of risk, you can understand portfolio balancing. I promise I’ll write more on this.

Hey look! There’s a podcast! It’s from Vanguard, but the music isn’t nearly as nice as Scott’s over at Money Blogger Podcast. His is *WAY* better! And he probably doesn’t have nearly the same budget.

This story makes me want to cry.

Brooke Astor or not. No elderly person deserves to be treated this way. Maybe it’s the conservative old-school Asian in me, but I am horrified that Anthony Marshall does not respect his elders. I am completely disgusted by his treatment of his mother.

This just goes to show you that not even money can protect you from elder abuse. I don’t know about you, but saving for retirement is to provide for yourself so hopefully you can avoid a situation like this. And at the same time, no amount of money can save you from it when the people around you are snakes.

Choose your caretakers wisely. I’m sure if you talk to a good estate planning lawyer about living wills, trusts, etc, they can help reduce the likelihood of your being abused by those who are taking care of you.

The main reason all these wedding expenses get me all cranky is that I have a major medical expense to undertake this year. It’s not like doctors publish out their price lists. I guessed that I would need to save and so I socked away a few extra thousand in my Medical FSA account last year knowing I would incur some expenses. Little did I know how much.

So I have this emergency fund, which I will probably liquidate a portion of it to cover expenses. Then there is the medical insurance which doesn’t cover enough. What then? Well, the one saving grace of all this spending is that I will be able to deduct these costs from my taxes. I make X dollars and after insurance and FSA, I’ll still be spending over 7% of my taxable income on this stuff so I can take it as a deduction.

That’s the only saving grace of it all. I am going to have to run some numbers soon and see if I can change my federal withholding to put more cash towards my expenses.

Desperate people get creative. I’ve never brainstormed quite this much to make something happen. Well, ok. That’s not true. I got creative like this when I wanted to buy a house.

I’ll never forget when I learned why companies operated at a loss. I was in a microeconomic theory class when we were drawing graphs on operating costs and profitability. There came a point (on a curve, naturally) where your operating costs were as low as they were going to get, but you were still not profitable. However, the company needed to keep going and manufacturing at an operating loss in hopes that conditions would change. All of the sudden I understood the automotive industry and it’s decline domestically. I understood why it was economically rational to keep on going when a firm was losing money instead of abandon all hope and close up shop.

What is Treasury Management? It’s a practice of handling your operational cash, cash investments, etc, i.e. the stuff that makes up your corporate treasury. It entails managing your cash float, receivables, payables, etc. Read the linked Wikipedia entry. I can’t really say it much better than that. (I’m amazed that people let me get away with these crazy plain English definitions I make up when blogging.)

When it comes to the debate on paying down debt vs building an emergency fund, I think it combines these two concepts. When you have debt, you’re operating at a loss because of interest on your debt. But that doesn’t mean you have to quit and fold, i.e. declare bankruptcy. If you manage your personal treasury, you can operate at a loss for some time without complete collapse.

I must confess that I have a huge fear of being laid off or losing my job in some sudden and catastrophic manner. I work in an industry with a lot of bankruptcies so it’s not like I’m being overly paranoid about this. I really believe that one day I’ll be the victim of a corporate layoff. I’ve been severely underemployed before and I’ve had to drain my 401k plan before I was 30 just to make ends meet. I’ve also watched several friends go through prolonged unemployment after a layoff (measured in years) even though we all live in a hot tech market around the DC Beltway. You just never know. Sometimes you can see the writing on the wall and get out (which I did once and got lucky), but I don’t want to take the risk of being blindsided.

I know that as long as a company has cash, it can keep operating till that cash is gone. That means I can keep paying my credit card minimums, mortgage, living expenses, etc. as long as I have some cash. What bugs me about people who say pay off your debt first is that should a catastrophic employment event occur, being without any emergency fund means late payments and defaulting right away. If you keep a treasury (emergency basket of cash), then at least you can operate at a loss for some time before really scary stuff happens.

I think I’ve repeated myself, but I hope that one of these explanations makes sense to someone who needs the help. My emergency fund is about half of what it really needs to be, but I’d rather have it than not have it. I’ve thought about pillaging my emergency fund to kill off half my consumer debt, but I just can’t do it. I’m not prepared to be unemployed for 12 months, or be underemployed again for the same amount of time.

If I had to do it again, would have drained out my 401k back when I was in my 20’s? Yes, I think so. I was lucky that my plan didn’t penalize me for the early withdrawl, and the cash resource gave me a lot of flexibility to face my bleak future with some optimism. I was able to keep paying my minimums and arrange some major life changes by pillaging my 401k and using the cash. The one thing I would change about my post-college employment is I would have been more disciplined about saving an emergency fund. If I had done that, I might not have had to kill my 401K later on.

I know it’s kind of weird to think of yourself as a corporation. But I’d be an irresponsible company officer at Mapgirl, Inc. if I didn’t take into consideration shareholder value, which happens to be held by Mapgirl, individual shareholder.

Normally I do this in chronological order as I find something new I add it to the bottom of the post, however, I was really compelled by Five Cent Nickel’s post about his mortgage being sold and how you should handle the transfer. It’s very good advice aimed at protecting your information and I recommend it to anyone who owns a financial instrument which can be sold to another institution. (Primarily, but I imagine not limited to mortgages.)

Jane Dough finds us an article about money market accounts and CD’s. Apparently, PF Bloggers are leading a trend.

Jeffrey reminds us to buy freedom, not things.

JD’s got the get out of debt pep talk that I need.

Kira on getting great financial advice from her family. It’s a really fantastic post that begs the question, what did you learn from your family? I learned not to pay retail if I can help it. Haggle. Save in my 401K plan. Pay an extra month’s payment towards my student loans every year.

Tricia hits a debt reduction milestone. Congratulations!

Laceshawl on the size of your income. I’ll have to try this out. Problem is sussing out what my friends make.

Ricemutt on negotiating. Pretty good reading. Combine it with Single Ma’s post on negotiating for a new car. Two perspectives on the subject. Compare. Contrast. Discuss.

A friend of mine in SoCal has cooled her house to 82 degrees inside with a swamp cooler. It’s 104 outside and she consistently gets about 20 degrees cooler using it. It costs her about $2.50 a day to run it, though she says her arm sticks to the table a little. I guess that’s why it’s primarily used in low humidity climates. Per this news article from Palm Springs, CA dewpoint is the key measure. Read on for more pros and cons.

Still, my friend is getting pretty amazing cost savings as long as the power stays on. Otherwise, she might be out of luck. I’ve seen swamp coolers on my desert camping trip. They’re kind of neat. Not really my thing since I deal ok with the heat, but it seems like it might be an economical, CFC/toxic-coolant-free way to cool down a home.

If you read the Wikipedia link, you’ll see that power generation cooling towers are essentially the same thing.

If you’re sweating it out in CA, I’m sorry. Last week the heat finally broke in DC and for the first time after work I was able to drive home with the windows down and the AC completely off.