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Why I Love the End of the Month
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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?
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If Service Jobs Fail, Then We're In Trouble
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
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Milton Friedman vs. Your Wife: Who Gives Better Financial Advice?
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.
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Savers Beware: What Are Your Underlying Assets?
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
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Real Savers Don't Gamble
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
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How Saving Fuel is Costing Jobs
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
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What Are You Doing With Your Tax Rebate?
We're not getting much of a tax rebate this year — which is a good thing, by the way — so the $132 will either go toward our upcoming vacation or housing fund.
MSNBC.com recently polled some of its readers, asking them what they plan to do with their tax rebates.
In a sign of either a slowing economy or a return to personal finance best practices (unfortunately, I think it's the former), nearly all of the published responses focused on paying bills or adding to savings funds.
A few of the responses:
I should just sign the check over to Exxon Mobil. It’s all going to cover higher gas prices anyway.
Jim Smith, Sebastian, Fla.Spend? You must be kidding! No way! It is going in my savings account.
Alex deCastro, Klawock, AlaskaIf I get a rebate, I will add it to my grandkids’ college funds. They will have to have a good education to exist, much less thrive.
Sue North, Howell, Mich.I am putting it aside to use on my family's summer vacation.
Martha Davidson, Mechanicsville, Va.I am paying down my credit cards. It is useless to do what the president says in regards to spending the money. He obviously does not know how money-strapped the working class is.
Chez Escudero, Virginia Beach, Va.If you're getting a tax rebate this year, we want to know: what are you doing with it?
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We're Going On Vacation: How We're Saving For It
For the first time since we've been married, Debbie and I are no longer on school vacation schedules. Debbie's new job, while in a preschool, is technically more of a daycare-type position, so she works year-round without spring/winter/summer breaks.
It's different for her, since she has always worked on school schedules — but now she actually accrues vacation days. So, we've been looking to head out of town for a vacation for awhile now, and we finally settled.
At the end of May, we'll be flying across the country to Los Angeles and driving up the California coast.
We love California, so it'll be exciting — but could also get expensive. We got a great deal of flights via Airtran, but we still need places to stay, a rental car, and things to see.
Yahoo! Finance has a great article on last-minute ways to save for vacations — we'll be heeding many of these tips.
1. Start with a spending plan
2. Sacrifice now for fun later
3. Build cash with a 'Pantry Week'
4. Eat out less, save big
5. Make a savings wall chart
6. Sell your stuff
7. Use your tax refund — now
8. Let credit cards pay you backThe biggest thing we'll be doing is cutting back on our spending in April in preparation and trying to put that money aside for the trip. We're also on the lookout for great deals, including hotel stays with included tickets to attractions and cheap rental cars.
It helps that May is one of the two months I'll receive a third paycheck (thanks to three Fridays), but we don't want to count on that entirely for paying for the trip.
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