Financial Emergencies Happen!

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Strange, But Real: Financial Emergencies

Accidents happen.

Sometimes saving for a rainy day is not enough, which is why financial planning requires more than just smart money management. Even companies with automated billing systems can make mistakes that could cost you if you don’t keep track of your bills. These accidents are a bit far-fetched, but things like this happen to everyone.

leaning tower of pisa

That Time The Power Company Mistakenly Billed You

Nelson Mandela received an apology after South Africa mistakenly sent him a notice for non-payment of his power bill. The amount due was a staggering $660 US, but the notice was meant for a different home. Mandela, aged 95, is actually recovering in a hospital from a lung infection and has not been home for the past two months. The company makes this mistake frequently but felt the need to issue an apology after the embarrassing mistake about the President’s account.

The Lesson

In the mortgage mishap of this last decade, there has been a lot of alleged foul play with big banks “forgetting” paperwork that homeowners sent in. Keep detailed records of all of the paperwork you send to banks, including dates and contact information for the agents you work with, and create a system of storing paid bills so that you can provide proof of payment if that is ever called into question.

That Time You Had to Pay a $20,000 Bond

A man from Eastern Missouri is facing a $20,000 cash-only bond for his alleged attack of a 13-year-old boy and two friends. He forced the boys to drink a shot of vodka before getting into fisticuffs with them, and when police showed up he brought the fight to them too. Bizarre, but true. The boys had wanted to mow the man’s lawn for a total of $20. He now sits accused of disarming a police officer and two counts of misdemeanor assault.

The Lesson

Ok, so you hopefully don’t go beating up kids but anyone can be pushed to the brink with the right choice of words. Even if you are a law-abiding citizen, mistakes can happen. Retain an attorney for you and your family, which will help in other matters too. Look for lawyers who offer free legal advice, and be wary of anyone who charges by the hour for phone calls and other menial visits. Knowledge of resources like ExpertBail.com is also nice to have around as a backup in case the judge orders a hefty bail for your court appearance.

That Time You Left $10,000 in a Hotel Room

When Cody Schaefer’s son walked into their Kansas City hotel room, Schaefer thought the kid was just playing around when he started rifling through the contents of their room. It turns out that his son uncovered $10,000 in neatly stacked bills. The boy, a cub scout, turned the money into the police. Police are unable to track down all of the guests at the hotel, and the money remains unclaimed. According to Missouri state law, that money may go back to the Schaefers if no one can prove ownership.

The Lesson

You probably shouldn’t walk around with your life savings in a suitcase. It makes for a nice effect in movies, but holding your money in an interest-bearing bank account is a much better plan. If you plan to conduct a large transaction with cash, like purchasing a car, do it with a cashier’s check made out to the payee. If you need to travel across state or country lines with more than $10,000 in cash, you will need to declare that money and be prepared to give reasons why you have that much.

In general, try to find safer ways to manage your money wherever possible!

(I’d like to thank Ryan for this entertaining guest post!  -MR).

Upper Middle Class Online Test

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Just for kicks, I decided to take the Murray “Do you live in a bubble” test.  Basically the test tries to determine which class you are aligned up with the most closely, and whether you’re a 1st or 2nd gen in that particular class.  Try this link: ( “Do you live in a bubble”) to try the online test out!

Okay below are my results and I have to say that the categories that the site test projected is pretty close to where I would put myself within the spectrum.

UpperMiddleClassResults

I think particularly interesting in my case is the fact that my family has shifted out of middle class too, but when I was growing up, we were definitely just middle class.  In fact, I refer to myself as “Lower Upper Middle Class” whereas my family (parents and sister’s family) are both solidly Upper Middle Class.

While this test worked for me, I don’t put a lot of merit in such tests, and while the test is designed by a true professor that did some leg work to put together a decent test, one size does not fit all.  Upper Middle Class has different meanings depending upon where you live, and your culture.

Try the link above, it may be amusing for you too…

Bests,

Don

What It Means To Be Lower Upper Middle Class

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Yeah, I know, it a funny title “Lower Upper Middle Class“, but it’s the closest representation to a socioeconomic class that I could come up with to represent my current state.

So what does it mean to be “Lower Upper Middle Class”?

I like to think of it as being at a party where there are two connected but different rooms.  Room 1 is where my middle-class friends are talking, and I’m mostly in this room.  Room 2 is where some of my Upper Middle-Class friends and even family members are talking about topics I want to hear.  While I want to join the conversations with my friends in Room 2, my friends in room 1 and room 2 don’t get along.  So I’m standing in the doorway of rooms 1 and 2 acknowledging some of my friends in room 2 and desperately trying to listen to what they are saying while hanging out talking to my friends in Room 1 at the same time.

I guess in some ways, I don’t belong to either room.  You see, I’m still in a metamorphose phase where I’m trying to grow my money to a level that I can participate in more Upper Middle-Class Activities without decreasing my net worth, while at the same time trying to resist spending money and time on some of the things that my middle-class friends are spending money on.  I’m pretty much in the proverbial “Catch-22” stage in my financial life right now.

LowerMiddleUpperClass

Okay, now that I explained the feeling of “Lower Upper Middle Class“, what are the other points of interest that I perceive about my current stage?

  1. Vacations:  I can afford to go on better and more vacations, including vacations overseas, but I don’t.  I want to establish a more secure financial footing before I take that leap.  For me, I mustn’t spend money, which in effect will decrease my wealth.  This is where a dividend strategy comes into play.  Read how I’m doing such a strategy for my lunches at work via my article about the Dividend Lunch Experiment.  So for the time being, all my vacations are local to the US.
  2. Community Activities:  We do community activities now, especially my wife where she volunteers and does charity work for the Schools and community in general.  I hope to expand my role in this area too, but for now, I continually try to think of ways to better my financial picture.
  3. Paying for College for the Kids:  This is one of the many drains I have on my paycheck.  I want to fully fund my kid’s college costs.  This will give them a huge head start in life.  Both of my kids are doing great in school, and I’m hoping they get scholarships of some sort.
  4. House Hunting:  Currently I’m mortgage-free, but I want to upgrade to a larger house. Since I’m deal-oriented and picky, I’ll be looking for a long time.  I hope the rates stay low for a long time too.  It’s funny, I can afford a more expensive house, but I choose not to.  Perhaps if I had just a bit more money I would take the plunge and buy a dream home…
  5. Eating Out:  This is one area in which we splurge.  We go out 2 or 3 times a week to a decent restaurant, but usually, it’s a chain restaurant like Olive Garden, Red Lobster, Chinese or Mexican restaurants too.  But by a large margin, we go to Panera restaurant the most.  Healthy food, but affordable for the most part. (Healthy, in that I usually get the Chicken Cobb Salad with Avocado, yum!).
  6. Cashflow constrained:  Although my house is paid off, I redirect the freed-up money to my 401k, Roth IRA, and ESPP options.  All three are great, but my take-home pay doesn’t go very far.  I’m especially proud that I participate in the ESPP plan at work because it’s a great money hack that makes me a few extra thousand in free money, and is a forced saving mechanism.  How cool is that!  Read this clever way that I’m using my ESPP to fund my Roth IRA.
  7. Fashion:  The entire house buys better clothes, except me.  I don’t mind though, I need to polish my look by losing extra weight anyway.
  8. Entertainment:  We do go to the movies to see interesting-looking movies, but mostly we just wait until the movies come out on DVD.  We do other things too, and this will continue to expand as I develop a strategy (more than likely dividends) to fund more adventures in entertainment.

Okay, I’ve just scratched the surface of what it’s like to be “Lower Upper Middle Class”, but it’s already past midnight, so I’m going to say good night!

Bests,

Don

Why You Should Still Invest In The Stock Market!

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Okay, I’ve noticed a belief going around for the past few years that I feel that I have to write about to dispel the notion that the stock market is broke and not worth participating in!

Both an individual I know, and the media in general has called the past 10 or so years a “lost decade” from an investment standpoint. This is not true, and I’ve been able to achieve over an 8% annual return during the time that the media gurus kept stating that the market has disappointed for the past 10+ years.

Before I start my explanation as to why they are wrong, let me present the S&P 500 chart for the past 10+ years…

SP500_upto2013

Not pretty huh!

Why You Should Still Invest In The Stock Market

You can see why the media is calling it the “lost decade”…  If one were invest all their money all at once (this is called a lump sum) in either year 2000 or at the end of 2007, and not invest any other money, then it’s true, it would have been a lost decade.

But more than likely, you had a 401k plan that would dollar cost average out your contributions during the year.  And these stock market dips created an opportunity instead of a flat “lost decade” period of time.

To be honest, my conviction in this “opportunity” was so strong that I increased my contribution amount during the dips that started back in 2008.  The amount I increased my contributions was only a few extra percentage points though, so I don’t attribute my over 8% gain to it.

My buddy at work even did better.  He’s a young guy and started investing in 2007, and when the 2008 stock market dropped like the bottom fell out, he was discouraged and said he was thinking about stopping his contributions and even pulling his existing money in his 401k (this would have been a huge mistake if he did).  I explained to him, the advantages of staying in and told him that I was increasing my contribution amount.  Then I explained to him how I was jealous because he was just starting and was going to be able to buy shares of stocks at a huge discount.  I even called it a once in a lifetime opportunity.  He said I wear rose-colored glasses, and perhaps he’s right, but he didn’t stop contributing and didn’t pull out his money (whew!).

The article on “dollar cost averaging” that I linked to above explains how dollar cost average works, but in case you don’t want to click on it, I’m going to do a quick explanation here.

With an investment instrument like a 401k plan, you buy a set dollar amount of shares of stocks (or really mutual funds) on a repeating periodic basis.  In my case that repeating period is every 2 weeks.  So when the price of shares of an investment drop in value, I’m able to buy more shares of that investment.  This is the magic that enabled me to have an over 8% annual return during the past 10+ years.

To the person not in the know, the past 10+ years in the stock market seem like a tragedy and huge disappointment (aka lost years), but really those dips were great opportunities to buy cheap shares of stocks and mutual funds.

So you will hear people use the chart above to make it sound like the past 10+ years was a huge loss, but really it was a pretty good term, at least in my 401k plan and other stock market investments.

Hope this clears up some confusion as to why it’s still wise to invest in the stock market via a 401k plan.

Don