April Net Worth -- it's ugly

If you check out my net worth badge to the side, you'll see that my net worth has dropped by $20,000 this month. The primary reason is that we are selling our house, and the cold, hard fact of the matter is the housing market is down and the worth of our home has dropped $20,000.

On the bright side, our retirement accounts have gone up 70%. The accounts themselves did increase in value, but we also added $2,000 into last-minute IRAs so we wouldn't have to pay as much in taxes. We still need to come up with a fairly large chunk of money for taxes, primarily due to a miscalculation on state taxes, but the silver lining is that this has forced us to add more to our retirement accounts. Last year our retirement accounts went from $350 to $2400, primarily due to aggressive contributions on my part (my husband didn't actually have a retirement account until about a week ago), but it's still paltry compared to what we should have. Now we have passed the $5,000 mark, which is a nice feeling.

You might be wondering -- why sell our house when we were looking to rent out the guesthouse? I will address this more completely in another post but essentially we are trying to buy out the rest of the family in an estate settlement and had to make the choice to sell our property. I just wish this had all happened two years ago when the housing market was hot, but oh well...we won't lose money on the deal because we didn't go crazy during the refinance rush and get a variable APR or max out our equity. In fact, except for a small home equity loan that we used to fix some major problems, we haven't touched our equity at all. It was hard to do -- everyone pushed us to refinance and take out our equity to get rid of other debts, but now I am glad we stuck it out and paid things down. We've finished paying off both vehicles and although we clearly still haven't gotten a good grip on our credit card debt, the only other debt we have are student loans.

Kiva

One of the most amazing ideas I've seen in a long time, Kiva is a microloan program for the world's poor. Basically, you choose to give $25 to someone to help fund their start-up business, and then you get repaid with interest. While there is some risk that the business will go under, Kiva says that fully funded loans (most loans are around $1500) have had 100% repayment since they began.

What a wonderful way to invest in humanity and help people to "pull themselves up by their bootstraps."

Risk versus Return: why stocks are less risky than bonds

This great article from the author of Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market talks about how bonds, over time, are actually riskier than stocks.

I have a few financial quirks. One is, whatever my college roommate does -- do the same thing. This was someone who saved money while paying for private school. This was someone who turned around and paid off $30,000 in student loans in 3 years. If she decides to invest, I invest. If she saves with PayPal, I save with PayPal. You get the picture.

The other thing is, whatever my parents do -- do the opposite. This is because my parents have perpetual bad luck with financial ventures of all kinds. They buy cars that blow up, die, depreciate madly, lose their paintjobs, etc. They currently own four cars between the two of them. They invest in stocks and the moment the stocks tank, they pull out their money and reinvest in bonds without waiting for their stocks to recover. My dad bought gold low and now that gold is high, he refuses to sell. The list goes on and on...

Anyway, my dad thinks bonds are the greatest thing since sliced bread. I have always thought bonds are a rip-off, and this confirms it. I love the risk of the stock market, to tell you the truth. And I especially love the fact that -- hey, I'm 31 years old! If my stocks tank, I have another 34 years to let them recover, or to remake that money, or whatever. I don't understand people in their 20s who are terrified of losing money in investments. Did you drink a latte this morning? You just threw $3 down the drain. Go to parties? Impulse shop? Drink alcohol? All these things cause you to lose money. So why the hell do you care if you lose a few hundred in stocks? I lost several thousand investing in a private college education, and I'm losing thousands more on interest from my student loans. The nice part about stocks (as well as the education, as it were) is that I actually stand to get money back. What could be more fabulous?

Here's the graphic. I love hard facts that go against people's general ideas. It makes me feel all warm and gooey inside. :) As you can see, treasury bonds and stocks carry the same risk of 6.9, but the rate of return on the stocks is 2.575 times higher than the rate of return on bonds. Inflation-protected bonds carry slighly less risk but the rate of return is even less than regular bonds and rate of return is 68% less than that of the stocks. Ouch!

I'll pick the stocks, thank you.

From credit cards to identity theft

From the Boston Globe (and thanks to BostonGal):

One day you're an average citizen, managing the monthly bills, doing the 9-to-5 thing. The next day you stop for gas, scrape away a silver circle on a card, and become a millionaire. Or you call a phone 10 states away and learn a stranger is claiming to be you. What's it like to always leave home without the plastic? Or dream about opening your own cafe -- and then actually doing it? Or take time off and refocus your priorities by listening to a lama? Meet five folks who've encountered financial situations the rest of us only fantasize -- or fret -- about.

My favorite story -- the man who won a million dollars and celebrated by ordering take-out.

March Money

Well, if you look to the sidebar to my networth, you can see it -- the line pointing down. Yes, I did our March financials and the prognosis is not good. Primarily this is because we spent $1500 on childcare for January and another $800 for February. There was some crossover as I went part-time before the end of February and so we still had to pay a lot but with reduced income. That resulted in a $2400 leap in my credit card bill, so that is my goal for this month -- to start paying that down. Otherwise our debt is slowly but surely retreating, and I hope that a few months of level-headed spending will have us on our way.

My life has been super stressful of late, mainly due to my job. I don't tend to write about work at all; even though this blog is anonymous, I am a little paranoid. Many people have lost their jobs for blogging about work! That being said, there was a personnel issue at work, and a fellow co-worker was accusing me of various things that were not true. I think it was a case of out-the-door-itis. By this I mean that, since I was nearly out the door, I was a convenient scapegoat for everything that went wrong or didn't get done. However, I said my piece and now I'm laying low and waiting for things to blow over. I think this is how it frequently happens, anyway -- there are good times and there are bad times, but things work out in the end.

Regardless, the stress meant I haven't posted much on this blog and so I'm ready to get started again. I am hoping we can get a better handle on our finances this year. The daycare situation really knocked us for a loop, but now that I am part-time I think we can get on track again. My oldest is going to school in the fall, too, and so long as we don't pay for private school I think it will be a relief not to have to pay for preschool or daycare anymore.

Here's to hoping for a better month in March.

Reality versus Appearances

Something that I am personally interested in as a prospective investor are socially responsible funds, or "green" funds. I want to support new technologies, particularly clean fuel initiatives, as well as support companies that treat their workers well. It matters to me what my money does; the return isn't the only thing I care about. This article about green funds digs into what I think is a problem in U.S. society a lot these days -- what is real versus what just looks good.

"As these funds measure how good these companies are, they measure them in terms of whether they have procedures, departments and appointed executives who are responsible for ensuring good behavior," Donaldson says. "But the problem with that is that having all of the offices and departments doesn't ensure good behavior will come out of the process. It just means you have the process."

I think a lot of good ideas have fallen prey to this mentality -- for example, if there is EEO person in an interview, it stops prejudice in hiring. Does this work? Of course not. It doesn't really affect what the interviewers believe or whether or not they hire because of someone's skin color or gender. It just provides a "process" and keeps people from asking blatantly racist/sexist/anything else -ist questions. Take the women's movement: we show women as being powerful on television. But does this change real life? Unfortunately, it doesn't; it gives no answer to the problems that prevent women from being successful either at home or in the workplace. I don't want to get political about this but it looks like the green movement is heading the same way -- paying for "green credits" rather than riding a bike or buying a less polluting vehicle is just one example.

It's difficult to find what is true in life and even harder to fulfill the adage of "first, do no harm." I want truth, not just rhetoric -- and I don't think I'm alone.

Tax Hell

Six years ago, June and Ron Speltz got caught by the alternative minimum tax, which triggered a tax bill of more than $260,000 on income they'd never see. Their fight to change the law finally paid off. This article talks about what they did to change the law. Luckily for them, they had $141,000 to pay against the tax credit, although some of that had to be borrowed. How tragic for them! I have never heard of the alternative minimum tax, but I have to say -- it sounds scary. Tax law is quirky and hard to decipher.

Here's more information on AMT
and here are top ten things that cause AMT liability.

Speaking of taxes, the Miami Herald put up a nice list of tax changes and how it affects taxpayers, particularly parents.

Make less than $52,000? You may qualify for free filing. Check out the IRS website on companies that provide free tax preparation (generally through software like TaxAct, Liberty Tax Online and TurboTax Freedom Edition) and e-file for free if your adjusted gross income is low enough. Not sure of your adjusted gross income? At TaxAct you can fill out the tax forms first and at the end, you pay $7.95 to e-file ($12.95 for state). Since I just saw the same package at Target for $52, I think this is a great deal.