Advice for 01/15/09

Advice of the Day: Don't sneeze when you've got a mouth full of shredded wheat.

Follow-up advice: If you do sneeze with a mouth full of shredded wheat, don't try to contain it with your hand. It just ends up all over your face, including your eyes, beard and nose.

Follow-up to the follow-up advice: If you do sneeze with a mouth full of shredded wheat, and you do try to contain it with your hand, make sure you check yourself out in a mirror before heading to a meeting. Partially-chewed shredded wheat in your goatee is not professional.

YFNN

In Defense of Sound Personal Finance

June 13th, 2008: My lovely bride and I find out that we're expecting our first child.
June 23rd, 2008: I find out that my company is closing the facility in which I work. I will be out of work in only 90 days.
September 26, 2008: I lose my job.
October 20, 2008: MLB loses her job.
Summary: In just 120 days, both breadwinners lose their jobs and they find out that a new, expensive first baby is on the way.

The last several months could have been the financial downfall of our family. In fact, with the way many people live in this country, it would be for most. But, because of the way we've decided to handle debt, income, and spending, we're in fine shape regardless of the recent shakeups.

Today, my family lost a significant portion of our earning power. My lovely wife was laid off from her place of employment. She'll receive a few weeks of severance, but then nothing (well, unemployment, maybe). Now, at first, it sounds awful, horrible, and a devastating blow to our financial objectives and plans, especially after some major life changes already. But, for us, it's not really that bad.

First, my wife is currently almost six months pregnant with our first child, due on February 14th, 2009. My wife, bless her heart, does not handle stress well. At all. Not even a little bit. Even she will readily admit that small things become big things and big things become absolutely overwhelming. Add in some pregnancy hormones, and well, you get the idea. Work was a constant source of stress for her, and under advice of our OB, she was to try to reduce her stress levels. And, since work was a large source (nearly sole source) of her stress right now, that meant reducing its impact.

We had planned on her taking leave from work (and likely not returning) around Christmas this year. We're fortunate in that her severance pays through that time period, essentially mimicking our finances as though she had been working. But, she gets the added benefit of not actually having to work until late December. Add the possibility of unemployment benefits after the severance payments run out, and we may actually be better off with her being laid off.

The only monkey wrench in the whole situation is that she carried the insurance for our family. But, even that's not a huge ordeal. My new place of employment carries the same insurance (albeit slightly more expensively), so that's not a huge hassle.

However, even if circumstances had not been what they are, I firmly believe that we'd still be fine, due to the way we've been able to handle our finances. As I've stated in the past, we maintain a rather substantial emergency fund, carry very little debt (essentially, just the house) and keep a good tab on our spending. While we certainly haven't lived a painfully frugal lifestyle, we haven't been wasteful and frivolous with our spending either.

There's definitely a lot to be said for keeping a solid financial foundation. With a well-funded emergency savings, solid debt-management, and some good career choices, you can roll with nearly any punch that life may give you.

That said, you never know what cards you may be dealt in life, so ditch that debt, cut out some frivolous expenses and save some cash!

YFNN

Today's 401(k) Conversation

I had a conversation this afternoon with a former co-worker about his 401(k), the current economy, and his future. He's a bright guy, but not exactly money-savvy, and is pretty darned impulsive. Here's how it went:

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Him: My 401(k) has plummetted recently. I've lost about $35,000 just in the last several weeks.

YFNN: I'm sure. Everybody's getting hit hard.

Him: It's ridiculous. I can't stand losing that much. I'm thinking about pulling it all out and buying a rental property.

YFNN: WHAT?!? Are you crazy?

Him: At this rate, I won't have anything left in a couple months. Why not? I can try to find a foreclosure or something.

YFNN: First of all, you buying a foreclosure is a disaster. Second, pulling out of the market now is crazy. The rule about making money in the stock market is simple: Buy low, sell high. If you sell out now, you're doing the exact OPPOSITE.

Him: I just don't like it.

YFNN: So don't look at your account for a while, like six months or so. In the meantime, keep on making contributions.

Him: That's stupid. I've already stopped adding more. Why would I put money in it just to lose it?

YFNN: Because the market is LOW. Stocks, mutual funds, ETFs, they're all basically on sale for 30% off! If you continue to contribute, you're lowering your cost basis. You're buying things low, to sell them high. You've got decades to recover from this. Do you honestly think that the market won't recover by 2040 when you retire? Please.

Him: I guess. The news just drive me nuts though.

YFNN: If we were close to retirement it'd be different, but we've both got plenty of time to see some real gains. I've even stepped my contributions up in the last couple of weeks. You've just got to hang in there, regardless of what that airhead Katie Couric says to try to scare you.

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This has got to be the overall attitude from most folks around me, and I can certainly understand why since the "sky-is-falling" media is playing the market woes up for all their worth. But, if you're 50 or younger, you've got to remember to be a long-term investor. That money you're pumping into your IRAs and 401(k)s and such is meant to be for retirement, not for next year. Continue to invest now, while prices are low, and be well-positioned for the recovery!

YFNN

The Itch to Learn

Okay, so it's been almost a week since I wrote a post here. Where have I been? Why haven't I written? Frankly, it's not really any of your darn business, but it's mostly because I'm a lazy oaf. I've been busy with work, the motorcycle, and lots and lots of unadulterated, self-indulgent laziness. Regardless...

The last 59 months have officially been longest stretch of my life away from an educational facility. Be it college, high school, or kindergarten, I've never been so far removed from schooling. Add that to the fact that my little brother just graduated from college, my little sister will be receiving her Master's degree in a short couple of weeks, and my mother is nearing completion of her Doctorate degree, and I'm starting to feel like the most uneducated moron to don the family name.

So what does this actually mean? It means that I've got the itch to do something educational. Likely, that'll mean my getting my MBA.

I'm fortunate in that TCFWIW will pay for a good portion of my schooling, if I so choose. They probably won't cover the entire bill, but anything is better than nothing. In fact, they'll even foot the bill up-front, which seems to be a bit of a rarity.

Also, time is something that is now available to me, for the most part. I've settled into my position at work a little better, so the hours are shorter, MLB's and my wedding is over and done with, and the household in general is pretty stablized.

It seems the stars are aligning for YFNN's higher education. I'll keep you informed.

YFNN

New Graduates and Focusing on Finances, Part Five - The Final One!

Finally, the last two foci on my list! I apologize for the long delay; the weather here has been beautiful lately, and I spent a lot of time in the garage putzing and working on the '75 Yamaha. I even took a half-day of vacation on Monday so that I could best use the great weather and continue my progress on the restoration. More on that later. Regardless, here's #9 and #10!

Focus #9: Create and maintain a budget.
This document is going to be your rock. It will guide you, help you make good, sound decisions, and keep you focused on your financial goals. It will keep you grounded and set you free at the same time.

It is absolutely imperative that you learn to work with a household budget. There's lots of good websites out there to help you get started, but here are my main points:

1) Know where you money is going. Track each dollar that you spend. You'll quickly realize where the leaks in your spending are, and where you can save some money. Once you know where it's going, you can make better decisions regarding where it should be going.
2) Give each dollar a job. Make sure that each dollar you receive in income is given a job. Make sure each income dollar is either put towards an expense, saved, or invested. Once each dollar has a task to perform, it's much more difficult to waste them. Idle dollars are easily blown on frivolous things.
3) Most importantly, spend less than you earn. That is the ONLY way to get ahead. If you're consistently spending more money than you have coming in, you're in a downward spiral into financial disaster.

I used to have a very elaborate spreadsheet that performed all the calculations, did all the tracking, and reminded me of bills. But, it got to be very big and clumsy. Now, I use a small program called YNAB Pro (available at www.youneedabudget.com). It works beautifully.

Focus #10: The time to invest is now!
Compound interest is a beautiful thing. The earlier you start investing, the more time you have for it to work for you. More than any one mutual fund or stock selection, the age you start investing will determine how much wealth you actually build. This may be difficult for some to grasp, so here's a real-world illustration:

Employee A, we'll call him Dave, starts putting away $100 a month when he's 22 years old, right after he graduates. Dave's money grows at a conservative 8% a year, and after ten years on his 32nd birthday, he decides to stop contributing and just let the money grow. Employee B, we'll call him Phil, graduates at age 22 but waits until he's 32 to start investing for retirement. He sets aside the same $100 a month, gets the same 8% return, but continues investing until he's 64 years old. So, who's got more money at retirement?

Dave does. When they both retire at 64, Dave will have $234,600 and Phil will only have $177,400. Even after only contributing 1/3 of the money that Phil did, Dave's way ahead. If Dave had just continued to contribute the same measly $100 a month until 64, he'd have $412,000! That's over $175,000 more than Phil, just by starting ten years earlier.

The lesson here is to start saving early!

To review my Ten Financial Foci:

Focus #1: Get a good, low-fee checking account and know how it works.
Focus #2: Use direct-deposit.
Focus #3: Get a high-interest savings account.
Focus #4: Start an emergency fund and feed it automatically.
Focus #5: Don't fall into the lifestyle trap.
Focus #6: Ditch your debt.
Focus #7: Make sure you're covered.
Focus #8: Take inventory.
Focus #9: Create and maintain a budget.
Focus #10: The time to invest is now.

I hope the foci I outlined over the last couple days have been insightful and inspiring to new graduates or future graduates. Getting a focus on your finances now, when you're still young is immensely beneficial later on. So, pass these lessons on to any graduates you might know!

YFNN

New Graduates and Focusing on Finances, Part Four

Numbers seven and eight!

Focus #7: Make sure you're covered.
You may not have thought much about health insurance as a student, but ignoring insurance now could be a pricey mistake. If you decide to go uninsured, you could wind up with expensive medical bills, not to mention poor health. You've got to make sure that you're covered in case of an emergency. At this stage in your life, you're likely pretty healthy, in decent shape, and unlikely to need regular prescriptions, but you've got to have insurance to cover the emergency situations. You're probably no longer able to be pulled along with your parents' insurance, so you need to find your own.

You likely have several options. First, your employer may provide insurance (at a reduced cost) to you. This is probably going to be your least expensive alternative, but many companies won't provide you with insurance until you've been employed for three or six months. Buying your own health insurance is an option, but it's expensive. The average annual cost for a traditional insurance plan is around $4,000,

I also recently learned that college grads are eligible for COBRA when they're no longer considered a dependent. College students who are on their parents’ health plans can sign up remain covered for up to 36 months after graduation. But, you must notify your parent’s insurer that you would like a COBRA extension within 60 days of graduation.

A COBRA extension certainly does have costs, though. You may be required to pay the entire premium for coverage up to 102 percent of the plan’s costs. In other words, you will be responsible for 100 percent of what your parents paid, plus what their employer paid along a 2 percent fee. Ouch.

Finally, you can get some short-term health insurance for relatively low cost. This type of policy is designed for folks without pre-existing medical conditions, and only offer coverage for 12 months. But, they're typically bought in one-month increments, which makes it easy to drop when you get an employer-sponsored insurance plan. One big drawback is that short-term insurance does not typically cover routine preventative care, like physical exams.

Your insurance coverages don't stop at just health insurance. Consider renter's insurance to protect your sweet autographed guitar and other valuables you've already acquired. It's relatively cheap protection, even if you don't have a lot of stuff. You definitely need to be covered in case of fire, theft, or other event.

Focus #8: Take inventory.
If your apartment or house burned down or was robbed tomorrow while you're at work, would you be able to remember exactly what was in it, down to the value of any jewelry or what kind of appliances you had? Me neither. That's why an up-to-date home inventory is something you should spend an afternoon putting together. This list of items will help you get any insurance claims settled faster (with better accuracy), verify your losses for your income tax return, and help you assess how much insurance you need to carry.

Putting it together is simple, especially if you're just setting up a household. Make a list of your possessions, describing each item and estimating its value. Also try to include where you bought it, and its make and model if at all possible. A spreadsheet is the perfect tool. At a bare minimum, include your big ticket items. If you've got the time and ability snap some photographs of your stuff, too. Scanned receipts would also be smart.

Then, store a copy of your inventory someplace safe, AWAY from your home. A relative's house or a safe deposit box is a good choice. MLB and I burn a copy of the photos and our list to a CD and keep a copy in our safe, and I keep a copy locked up in my desk at work. This way, if our home is ever damaged, our inventory isn't.

The final two tomorrow!

YFNN

New Graduates and Focusing on Finances, Part Three

Continuing the previous couple of posts, here are foci five and six.

Focus #5: Don't fall into the lifestyle trap (not yet, anyway).
It's all so appealing. You worked hard for the last several years and it finally paid off. You're out in the real world, making the big bucks. Surely you deserve that high-end apartment or that shiny new car, right?

Don't fall into that trap. Think about it. You've been living like a college student the last several years, and you've fallen into a routine. You're used to not eating out very often, pinching pennies on expenses, and putting off expensive purchases. You don't mind eating store-brand macaroni and generic cereal. When will it ever be easier to keep expenses so low and put back tons of cash? The answer is never. Once you find yourself financially able to enter the world of fine dining, fancy cable packages, and a shiny new car payment, it's darn near impossible to get out. Use this time to put back some money and pay off your debts. A little bit of painless scrimping now will pay off big in the future.

Focus #6: Ditch your debt.
If you're like the vast majority of the graduates in this country, you're probably graduating with some credit card debt, and maybe even some student loan debt. Now is the time to eliminate it for good! Debt is going to do absolutely nothing but hold you back for the next several years. Call up your student loan lenders and inquire about consolidating your loans at a lower interest rate. Call up your credit cards and talk down their rates. Do everything you can to minimize interest's impact.

As I said above, you're probably used to living the meager college life right now, and it's not that hard to continue living that life for a few months or a year. Now is the perfect time to pay down your debts with that extra cash.

Numbers seven and eight still to come!

YFNN

New Graduates and Focusing on Finances, Part Two

On Friday, I wrote about the first two foci I think a graduating college student should have as they begin their new life in the working world. Today, I'll continue with the next two. (Yeah, I know I technically said "tomorrow" on Friday, but I had a hectic weekend of dog-sitting. Trust me, they're monsters.)

Focus #3: Get a high-interest savings account.
I've already spoken at length of the benefits of the high-interest savings accounts like ING Direct and HSBC available on the internet. They provide security, flexibility, and an interest rate that actually makes you some money. In order to have a place to stash some cash for both short and long-term savings, you need a high-interest savings account. My favorite, for a plethora of reasons, is ING Direct. So, get an account, transfer your first dollars, and familiarize yourself with their functionality.

Focus #4: Start an emergency fund, and fund it automatically.
It's absolutely critical that you have an amount of money easily available to you for emergency situations. Things go awry in the real world: roofs leak, cars break down, and ambulance trips are required. In order to keep on track for your long term financial goals, you've got to have an emergency fund to cover these unexpected events. Ideally, you should have about six months of living expenses, but for most graduates (in fact, most people in general), that's a pretty tall order. At a bare minimum, keep at least $1000 earmarked for emergencies.

You've also got to fund it automatically. It doesn't have to be much (MLB and I only put in $40 a month), but it does need to be regular. This helps to avoid excuses like "I'll put some money in next week," and, "I just forgot last month.", and keep you on track. Finally, you need to completely forget that you even have an emergency fund exist, right up until you need to tap into it. No using it for TVs or guitars!

Numbers five and six will continue tomorrow.

YFNN

New Graduates and Focusing on Finances, Part One

My little brother graduated from college last weekend (congrats Dave!), moving into the real world: a world that can be frustrating, confusing, and certainly financially challenging, especially when you're first starting out. So, that got me thinking: What do I wish I would have known when I first graduated? What information would have helped me get off to a great start? I think I've come up with a pretty good list, and, since I'm a bit of a money fanatic, I think it makes sense to focus primarily on finances.

So, over the next couple of days, I'm going to write a few short posts about how to really get off to a good start financially if you're a new graduate. I'll try to focus on the financial decision-making, but I can't promise that my mind (and writing) won't wander into other areas. I'm going to try to keep it to two main points each day.

Focus #1: Get a good, low-fee, checking account, and know how it works.
Your checking account is going to be your main pipeline for all things financial. Most of your expenses will be paid from it, and your paychecks will likely be deposited into it. Make sure that there's not a high minimum balance ($100 or less is good), and that there are minimal fees. Many banks offer "free checking" accounts that have no fees, no minimum balances and online banking. The downside is that they offer zero or very low interest rates. But, since I think your checking account shouldn't be a long-term storage area for your money, I wouldn't be too concerned about the rate. Try to find an account that provides a debit card or check card. I'm a big fan of debit cards because you don't need to carry cash, they're almost universally accepted nowadays, and the amounts are immediately deducted from your checking account.

It's also absolutely imperative that you understand how the checking account, as well as your debit card, works. Even in the era of 24-hour online access to your accounts, it's important that you understand debits, credits, and how they affect your account balance. Also, make sure you understand that your debit card IS NOT a credit card: you can't spend money you don't already have in the account. Keep tabs on your checking account balances frequently, so that you're always aware of how much money is available to you and so that you can spot any errors quickly.

Focus #2: When you've got that job, set your paycheck up to directly deposit into your checking account.
Direct deposit makes getting your paycheck fast, easy, and error-free. You don't need to drive across town to make a deposit, you don't need to worry about making sure you get to the bank by six, you don't need to worry about misplacing your check (and your money!). It makes getting your money into your account completely painless. Since your checking account is going to be your main money pipeline, the easier and more error-free it is to deposit your money, the less headaches you're going to have.

The next two foci will come tomorrow.

YFNN

Achieving Slide Enlightenment

I've been in the post-college working world for several years now, nearly all of them in the engineering and management realm. So, it's fair to say that I've choked down my fair share of PowerPoint presentations. The vast majority of them are awful. Yes, including the ones from the wonderful employees at TCFWIW. Apparently, many people think they can animate or bullet-point their way to good communication. Boy oh boy, are they wrong.

Think about the last PowerPoint presentation you were forced to absorb. Was it full of distracting animations like text swirling around and star wipes? Of course it was. Was the text so tiny that you had to tune out the presenter just to concentrate on reading it? You bet it was. Did the presenter basically just read the slides to you? Without question. Admit it, you began reading their PowerPoint slide the moment it appeared in front of you, probably before the presenter even began presenting it. And more often than not, you were finished reading the slide before you even thought about paying attention to what the presenter was actually saying. It's okay, I've done it, too. So what do all these bad presentations actually mean to you, the presenter? When PowerPoint is used incorrectly, your audience will leave confused, uninformed and mentally exhausted. Not exactly your goal, is it?

But don't fret. Here are Your Friendly Neighborhood Nerd's tips to complete PowerPoint enlightenment.

Tip #1: Supplement, don't replace.
We've all done it. We've put together an elaborate PowerPoint presentation and to prepare, we just printed off a copy of the slides for our notes. Then, we read the slides to our audience, boring them to death. This is really, really bad, because as soon as that happens, PowerPoint is giving the presentation, not you. You've been replaced by a forty-dollar piece of software and an overhead projector. That, as the Germans say, is "nicht gut."

What's the remedy? Use the slides only for emphasis and highlighting points. Check out the presentation that Steve Jobs (CEO of Apple) gave this past September. At a minimum, watch the first 7-10 minutes. Notice how the slides behind him merely supplement the words he's saying. Notice how they only become important when he turns and makes them important.

Tip #2: Like a good steak, you've got to trim the fat.
In PowerPoint presentations, less is definitely more. More specifically, less text is more. Most PowerPoint audience zombies can only store four to six things in their short-term memory banks. Take a bunch of items on a slide, add in the fact that your audience will read them before you speak, and you've got a recipe for mass-confusion. The solution is simple - simplify. Start by drastically reducing the amount of text on your slides; especially, avoid bulleted lists at all costs. Aim for two to three word thoughts, avoiding complete sentences. A good goal that I shoot for is no more than six thoughts and no more than twelve words per slide. This simplicity has the added benefit of forcing the audience to pay attention to you and what you have to say, not the slides themselves.

Tip #3: Think about bunnies and Snuggle the dryer sheet bear.
Soft, soft, soft. Bright white backgrounds, with sharp, serif fonts are straining on the eyes, especially when presented on a big screen. Use an easy-to-read, sans serif font (what the heck is a "sans serif font"?) on a dark background to reduce eye strain as much as possible. Soft fonts with a non-distracting, dark background will keep your audience from going blind and subsequently tuning you out. Use some simple but illustrative images to enhance your presentation and keep your audience's attention. Again, reference Mr. Job's presentation above.

Tip #4: Ditch the animations.
Seriously. Step away from the animations. And don't try to sneak in any embedded video or sound effects, either. I know, I know. There's so many to pick from, and they're all so enticing, but they really distract from your message. If you absolutely must use an animation, use the fade in or fade out, but that's it. The rest are really un-sexy. I'm not joking. Leave the flashing text off your slides.

Tip #5: Remember the Boy Scouts.
Once you've reached true PowerPoint enlightenment, you quickly realize that your presentation will not stand on its own; it's now up to you. So, you've got to prepare and practice until you've got it down pat. Memorize what you need to say, know how to interact with your slides and be ready to roll with the punches.

So there you go. It's certainly not a step-by-step, but it'll get you going in the right direction. Now, no more fly-ins and fly-outs!

YFNN