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12 Ways to Save for a Down Payment on a House
08.26.08 | Money Management | 0 Comments | by junger
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We've been saving pretty aggresively to build up a down payment for a house, as hard as it may be.

Thankfully, our automated finances force us to put the money away, so we don't have to wait until the end of the month to see what we have left over to contribute.

MSN Money has a new article up, "How to come up with a down payment," that offers 12 ways to save money for house purchase.
While some of these make great sense — an automatic savings plan, setting aside a bonus and allocating your income tax refund — do they really expect someone looking for a downpayment to have a boat to sell?

I'd also warn against taking money from your 401(k); not only will you have to pay taxes or interest on what you take out, but you'll be losing out on any compound interest you'd otherwise be making.

What tips do you have for saving for a down payment?
These Are Odd Times for Savers
08.10.08 | Money Management | 0 Comments | by Fred Siegmund

America has relatively low interest rates at a time when banks and credit intermediaries are curtailing loans and cutting bank lending. Low interest rates do not normally go with less borrowing. Low interest rates, or falling interest rates, should increase borrowing and lending whereas higher interest rates decrease borrowing and lending.

Low interest rates are part of the Federal Reserve Bank's current policy to keep up spending and avoid a recession at the same time home mortgage foreclosures help limit lending since defaulters restrict the banking sector's loanable funds.

As savers, we need borrowers or interest rates would be zero. In general, the fewer the borrowers the lower the interest rate, but we should worry too about the new mix of loans.

Banks are having trouble finding enough business and industry borrowers. In the search for new borrowers they keep turning to more consumer lending and promote the use of consumer spending and consumer debt with heavy advertising.

A recent New York Times article entitled "Given a Shovel, Americans Dig Deeper Into Debt" quotes an advertising executive. "One of the tricks in the credit card business is that people have an inherent guilt with spending." … "What you want is to have people feel good about their purchasing."

The article also reported from Federal Reserve Bank data showing the percentage of disposable income used to pay debt keeps going up year by year reaching 14.5 percent in 2007. That is one piece of data and one sign of the rising consumer debt among many signs including personal bankruptcies.

The growing reliance on consumer debt and consumption spending makes it harder for the Federal Reserve Bank to maintain the economy. Sure, they can lower interest rates, but credit card interest rates continue above 20 percent for millions of consumers.

The lower interest rate policy applies primarily to business loans, but essential consumer spending depends more on people's income rather than interest rates.

America must keep up consumption spending to prevent a recession but threats to continued consumption grow with the numbers who earn stagnate wages, or who are unable to pay credit card debts, or file for bankruptcy, or have reached credit limits. Defaults limited new loans.

Government spending and tax cuts will stimulate consumer spending, but government, especially the federal government, are already running big deficits.

These are tough times for savers with interest rates low and limited ability for the Federal Reserve Bank to stimulate the economy. As savers we are in the awkward position of hoping others will go on buying, buying, buying so that we can save.

As savers, we can't change the rest of the world, but we can avoid get rich schemes, pay our monthly credit card balance and do our best to avoid paying interest and fees even as we earn less from our savings.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
Why I Love the End of the Month
08.01.08 | Money Management | 0 Comments | by junger

The last day of the month is almost always my favorite day. Seriously.

It's the day that I get to calculate how well we did with our finances for that month and, most of the time, see how much we have left over to move around into our various savings accounts.

I know. Totally geeky, right? But it's true. I even started calculating our expenses a couple days early this week, adding up categories I knew we wouldn't add to (like rent and phone payments) just to see where we'd come out.

The best part about adding up the totals is that it automatically includes money saved for our housing fund and for retirement. So when our expenses are totaled, we've already socked away 25% of what we've "spent" — and that doesn't even include my 401(k).

So when we have "extra" money at the end of the month, it's exciting to know that we saved even more money beyond our autopilot contributions. Deciding where to stash that money is the most exciting game we get to play all month (well, besides Bananagrams).

This month, our spending (including the 25% auto-savings) totaled only about 89% of our take-home pay, so we've got a nice 11% difference to use.

It's a great feeling to have. That's why I love the end of the month.

Are you giving yourself something to look forward to for next month?
If Service Jobs Fail, Then We're In Trouble
07.31.08 | Work | 0 Comments | by Fred Siegmund

The Wall Street Journal recently published an article entitled U.S. Consumers Trade Down as Economic Angst Grows, which says that Americans are saving money by choosing less expensive brands and models of products. Wholesalers and retailers are cutting back offerings of designer brands for the less expensive "plain Jane" products.

The article concentrates on products, but has almost nothing to say about services. If Americans just cut back on designer brands, job losses should be moderate. If America cuts back on services, unemployment will spike upwards. Even though establishment employment went down by 438,000 jobs from December 2007, there is a net increase in service jobs.

Construction and manufacturing were the big losers, off more than 500,000 jobs since December 2007. Retail trade and temporary help services were the big losers in services, which were down more than 300,000 jobs. Telecommunications, finance, and real estate were down as well.

Declining industries lost 990,500 jobs, so that a net decrease of 438,000 jobs includes an increase of 552.5 thousand other jobs, all of them service jobs.

For example, new government service jobs replaced 81,500 of the 990,500 jobs — not including 44,500 new jobs in public education and 68,500 new jobs in private educational services. Government taxing, borrowing and spending is helping moderate job losses.

Despite the general decline of employment, jobs in leisure and hospitality went up 88,800 thousand from December 2007 to June 2008. Restaurants are the biggest employer in leisure and hospitality with 9.8 million jobs and nearly 78,000 new jobs since December 2007.

Cooking can be a do-it-yourself service, even though we go out more and more with restaurant jobs up 740,000 since 2005. Eating out and paying others to cook helps moderate job losses.

Other jobs in leisure pursuits are trending up faster than the national average and replacing manufacturing jobs. Combine spectator sports, amusement parks, golf and country clubs, fitness centers and gambling where jobs are up to 1.85 million nationwide.

The economic angst mentioned in the Wall Street Journal has not spread to health care services, which continue to increase, up 194,000 jobs since December 2007. Health care and social service jobs have increased every year since 1990.

Maybe the Wall Street Journal is right and more people are opting for less expensive brands, but it is trivial matter compared to America's growing reliance on services jobs. Government, restaurant, leisure and health care jobs go up in good times and bad.

If any of them start to fall, then it's time to worry.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
Milton Friedman vs. Your Wife: Who Gives Better Financial Advice?
07.01.08 | Money | 0 Comments | by junger

Freakonomics author Steven Levitt posts today about the best personal finance advice he ever received:

When I was a first-year assistant professor at the University of Chicago, my friend and department chair, Jose Scheinkman, relayed the advice Milton Friedman had given him 20 years earlier, “Don’t save too much.”

The logic was simple: An academic’s salary rises steadily over time, as do outside opportunities — like writing popular economics books! The right reason to save is so you can even out your consumption. When times are good, you should save, and when times are bad, borrow.

Most likely, I would never be as poor again as I was starting out. That meant I should have been borrowing, not saving. I didn’t follow the advice as fully as I should have, partly because my wife insisted we save — she is not quite as good an economist as Milton Friedman.

Of course, most of us would agree that saving is important all of the time, but especially when you are starting out.

The best comment to support that, posted by donw, channels another pretty smart guy:

Your wife (and Albert Einstein) - COMPOUND INTEREST!

The earlier you start, the more you'll have.

Plus, your wife always wins every argument anyway.
Savers Beware: What Are Your Underlying Assets?
06.16.08 | Money | 0 Comments | by Fred Siegmund

There was a time when it was common for corporations to create long lived assets with borrowing. It may take several years to build a steel mill or a power plant before there is something to sell, but loan or bond payments will come from revenues and the economy will have more steel, more electricity and more assets.

Banks, or financial intermediaries as they are called now, are still happy to make loans for plant and equipment. Trouble is there are more loanable funds to loan than borrowers willing and able to borrow for long lived assets.

As a result, banks make more consumer loans that support consumption spending like credit card debt. Loans that support consumption helps support jobs and the economy and provide an outlet for savers looking to earn interest income. However, credit card purchases like vacations, housewares and clothing have little value as security for credit card balances.

The home mortgage should be a secure loan because a home is a long lived asset. It used to be that Savings and Loans would make mortgage loans at 6 or 7 or 8 percent interest and the home would be the asset in case of default.

Lenders with home mortgages on their books could sell their mortgages if they needed to raise cash but they would tend to hold them to maturity, earning a steady income. In case of selling a mortgage it would usually be sold to another financial institution such as the Federal National Mortgage Association.

That changed when adventurous money managers started to buy thousands of mortgages and bundle them for resale into something like to a bond that pays interest on invested principal. They call them collateralized mortgage obligations (CMO) or collateralized debt obligations (CDO). In that way, mortgages could be resold to smaller investors who would not normally be willing or able to buy individual mortgages.

What is important to notice though is that repackaging and reselling mortgages does not create new assets. Reselling mortgage credit means more transactions that allow money managers to charge management fees and potentially make money with price fluctuations in CDO prices.

Bear Stearns held collateralized debt obligations in their hedge fund, but apparently so many of the underlying mortgages were to people who were sub prime borrowers that defaults set off a chain reaction. Since Bear Stearns borrowed money to buy collateralized debt obligations for their investors, they defaulted on their loans and threatened the solvency of major banks.

With so many new ways for money managers to attract savers, it is more important than ever to notice the underlying assets and ability to pay.

Did Bear Stearns investors know so many of the underlying assets were sub prime loans? Savers beware!

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
Real Savers Don't Gamble
05.12.08 | Money Management | 1 Comment | by Fred Siegmund

Real savers do not gamble.

Now I'm not talking about a bet in your football pool at the office or a game of cards with friends on Saturday night — that's fun and entertainment. I'm talking about repeated bets in commercial casinos or state lotteries. Gamblers gamble by placing bets day after day, or month after month.

There is a reason why. Suppose you bet a dollar on the flip of a coin. For a head you win a dollar, for a tail you lose your dollar. You probably recognize that bet as fair; your chance of winning a dollar just equals your chance of losing a dollar.

But suppose you play the game day after day after day. Each day your chance is the same, but after 100 days you might win 56 out of a 100 to be $6 up. After another 100 days, you might win 47 and be up only $3.00.

Keep playing and the laws of large numbers take over. Play the game 10,000 times and you can only expect to win $5,000 but lose $5,000. Play the game long enough and in the parlance of chance, your expected return will be zero: nothing.

Real savers will not be happy earning nothing.

What is true for a private game of coin flipping is also true for all fair bets. Parties to a fair bet will earn nothing unless one of them stops soon after they have a stretch of good luck.

Now we all know the state lotteries and commercial gambling casinos are earning money. State lotteries and casinos earn money because they are allowed to tilt the odds in their favor and the laws of large numbers take over to earn them a return.

The state legislatures have gambling commissions to make sure the casinos and lottery boards do not get carried away and stack the game too much.

Maybe you've heard the phrase "Real women do not pump gas," or "Real men do not eat quiche." Well, "Real savers do not gamble."

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
How Saving Fuel is Costing Jobs
05.07.08 | Money, Work | 2 Comments | by Fred Siegmund

According to the Washington Post's "A Switch on the Tracks: Railroads Roar Ahead," rising fuel costs for 18-wheeled trucks has generated a rapid turnaround in rail traffic with freight rail tonnage and rail ton-miles surging ahead.

The article cites a 3 to 1 fuel advantage for rail over trucks, but the fuel advantage also means less environmental pollution in an eco-conscious society.

Using less fuel to transport a ton-mile of freight represents a physical savings of resources that potentially benefits many because fuel costs are reflected in grocery store prices and for just about everything else we buy at stores.

Savings that lower costs should always be good, but because even though a higher share of freight traffic could go on the rails, changing modes of transportation will affect jobs.

Trucks have been dominating freight traffic measured by value and tons. The latest commodity flow survey data published by the Bureau of Transportation Statistics and Federal Highway Administration compiles domestic freight shipments.

It shows that trucks haul 70 percent of freight measured by value and 60 percent of freight measured by tons.

Rail, on the other hand, has only 3 percent of freight measured by value and a little over 10 percent measure by tons. Truck traffic measured in value of shipments is bigger than rail by a ratio more than 20 to one. In tons of freight, trucks are bigger than rail by a ratio of 6 to 1.

Freight measured by ton-miles, or tons multiplied by miles, shows the relative advantage of rail as a bulk carrier. Trucks haul 34 percent of freight measure by ton-miles compared to 31 percent by rail. In ton-miles, trucks are about even with rail by a ratio barely above 1 to 1.

However, the ratio of tractor trailer and heavy truck driving jobs to locomotive engineering jobs tells a different story. Heavy and tractor trailer drivers have 1,860,000 jobs compared to 46,600 jobs as locomotive engineers and operators.

Heavy truck driving jobs outnumber rail engineer jobs almost 40 to 1. Those totals count only heavy and tractor trailer jobs. There are a million additional light and delivery service trucking jobs.

Efficiency sounds so much like something we should like, but saving energy and reducing air pollution by shifting to rail and away from trucks will eliminate thousands more jobs than it will create.

If America wants efficiency, we may need to think of some new ways to share their work.

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

« Previous Entries

12 Ways to Save for a Down Payment on a House

These Are Odd Times for Savers

Why I Love the End of the Month

If Service Jobs Fail, Then We're In Trouble

Milton Friedman vs. Your Wife: Who Gives Better Financial Advice?

Savers Beware: What Are Your Underlying Assets?

Real Savers Don't Gamble

How Saving Fuel is Costing Jobs

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