I wouldn't ordinarily tell anyone this, but I'll tell you.
Get sick. Get really, really sick. Get so sick that you can't get off the sofa excecpt to go to the bathroom. It's even better if you have a massive deliverable for work on Monday that involves a five-page workflow diagram.
If you can throw in a huge, screeching argument over email with a significant other who is out of the country, that makes the whole thing just about perfect.
I can't get any food down, but all of that together was enough to make me break out the three buck Chuck - on the grounds, of course, that sick people need plenty of fluids.
This is one of those few occasions in which living alone is a total bugger.
I'll be back when I can sit up all the way, folks. Enjoy the rest of your weekend.
Saturday, September 29, 2007
I wouldn't ordinarily tell anyone this, but I'll tell you.
Thursday, September 27, 2007
Hustler $$$ Blog put together a list of personal finance blogs ranked by traffic and graded by letter. The f.z. is pleased to have skated by on little more than her good looks for a passing grade of C.
Shouldn't someone be thinking about rewarding me with a car or something? Just a thought.
(Seriously, read the list. There's a wealth of knowledge just a click or two away.)
Wednesday, September 26, 2007
Barbara Stanny, author of Prince Charming Isn't Coming, Secrets of Six-Figure Women, and Overcoming Underearning, has very graciously agreed to an interview with the f.z. I'm spending the weekend reading through her most recent two books for background preparation. In the meantime, if you have any PF questions you'd like her to address, post them in the comments and I'll pass them along.
You can check out some of the book reviews here, here, and here.
Monday, September 24, 2007
It's true. Dude and I hadn't been getting along for a while. He thought I was demanding, critical, and picky; I thought he didn't really know or care about what it would take to make me happy.
Our last date was supposed to be last Friday. Dude contacted me on Thursday and explained that something had come up and that he was really sorry, but he promised to make it up to me. Dude then sent me a calendar invitation for Wednesday, which I have completely blocked off for an all-day meeting.
Dude is so transparent sometimes. You see, he can see my calendar. He deliberately picked a day that I was totally unavailable and suggested that we have our date that day. It reminds me of my ex-husband, who elevated the art of volunteering for chores and then doing such a piss-poor job of execution that he knew he'd never have to do said chores again - all while getting credit for having done them in the first place! - to dizzying new heights.
That's when I knew it was over between me and Dude.
I went through the farce of declining his invitation, noting that I had an all-day meeting, but I didn't suggest an alternative time to get together. A dumped woman has to keep whatever shreds of dignity she can muster. I figured that if Dude had a sudden pang of regret for the way he treated me throughout our relationship, he'd feel remorseful enough to end the thing properly.
Alas, no such luck. Dude seems to have ridden off into the sunset, spreadsheets at his side.
Goodbye, Dude. I'll always remember the valuable truths you taught me, namely that no one will ever look out for my best interests better or more passionately than I will. I'm sorry it had to end this way, but we both know that we weren't right for each other.
Remember me once in a while, Dude. I'll certainly remember you.
That's a promise.
Saturday, September 22, 2007
Lately, I've been lurking on Prosper.com from time to time. At first, I was simply trying to figure out how the whole thing works. It's been described as the E-bay of loans: People who want to borrow money set up profiles, and lenders bid on the loans that look like good bets. Each bid drives the interest rate for the loan down just a little bit more, and once the borrower's requested loan figure has been fulfilled, the lowest bidders up to the amount of the loan are locked in. These bids are combined into a single three-year loan for the borrower, and payments are deducted from the borrower's bank account on a monthly basis so that lenders can be repaid. The verification statuses of home ownership and bank account information for each borrower are visible, as are the borrower's A through HR credit rating and debt-to-income ratio. Only registered lenders (disclaimer: I'm not registered) can see the borrower's actual credit score. Go to the website yourself or Google it for more information on how it works.
The stories on Prosper.com interest me. They run the gamut from go-go business owners looking to expand their enterprises to people looking for a last-ditch salvation from insolvency. I thought it would be interesting to see a sample of what kind of loan requests are out there, so I did a little experiment. First, I pulled up the full list of loan requests. Then I sorted it by credit rating. I decided to look at five profiles from each credit rating. I wanted to use some sort of quasi-scientific methodology so that I didn't just look at profiles with catchy titles or photos, so I decided to go to the first item listed for that credit rating, count down to the twelfth item, and look at the details for that profile only. I looked at every twelfth profile within each credit rating until I had a total of five for each credit rating; at that point, no matter how many profiles were left for that credit grade, I moved to the next credit grade. I also counted AA and A as one category, since I ran out of AA's quickly.
I made some notes on each profile. While doing this, I tried to keep them generic enough to make the profiles I reviewed not altogether easy for blog readers to find. I also decided to take the full contents of every profile at face value, since I have no way of personally validating any of the claims.
My notes are below, and after that you'll find a writeup of some of the interesting things that jumped out at me upon reading them.
AA: Loaned money to brother to go back to school and consolidate revolving and charge accounts; legal contract in which interest rate is tied to grades. Wants to borrow $10K to fill up cash void; expects to benefit from the spread (seems to expect brother to do poorly in school). Also looking for $10K to invest in rental real estate.
AA: Expand and upgrade profitable side business. Prefers to borrow rather than spend own money because of interest rate spread between loan and investments.
AA: Borrow money to buy fitness equpment for personal training. Director of a fitness and nutrition website; seems to be opening own business, although not explicitly stated.
A: Borrow money to finish remodeling home in preparation for sale (moving out of state for a new job).
A: Repair money to flip a house. "Automatic money" coming in every month (no further explanation).
B: Pay doctor's bills. Homeowner either has cancer or a family member has cancer; not all medical bills covered by insurance.
B: Borrowing to pay credit cards. Gross income of over $100K annually; two-earner household. Borrower has student loans. Homeowners with additional land and 401(k); borrower plans to attend medical school at unspecififed date.
B: Pay off debt (type not specified) other than car loan. Career military; long-term goal is to open a restaurant/bar in Okinawa, Japan.
B: Consolidate bills: student loan, medical, dental, hard money loan. Several years out from bankruptcy, which was caused by spouse's heart attack and subsequent medical bills.
B: Complete home improvements. Borrower says s/he is a good candidate for repayment because s/he has never been late on making payments on mortgage.
C: Wants to borrow money to become a yoga instructor. Paid off over $25K in credit cards in six years; current debt is a small (< $1000) school loan and a car loan.
C: Pay off high interest loans. Source of income is SSDI. (No other information.)
C: Pay off high interest loans; avoid foreclosure. Borrower was previously employed but became disabled; receives disability payments. Went bankrupt because of divorce. Started working in a different field [NOTE: what about disability?? New job has similar physical requirements to old job]; developed a chronic illness and is no longer able to be around the chemicals used at the new job. Husband required partial amputation; developed severe infection and was unemployed for five months. Husband has returned to work full-time.
C: Purpose of loan unspecified other than that bill-paying has become tough since the arrival of triplets.
C: New business opening in a few weeks; business funded with credit cards. Loan is to pay off credit cards, buy more inventory, and build up cash reserves. Business is a retail storefront; before investing in a brick and mortar location, borrower sold inventory at flea markets.
D: Consolidate credit cards and student loans. Two-earner household; debt incurred when one adult member of household went back to school to make a career change.
D: Wants to buy a stove off of Craig's List to reduce home heating bills. Already has money in savings, but it is earmarked for Christmas; doesn't want to touch retirement acounts. Two-earner household; has never made late payments.
D: Wants to pay off two loans (sources not specified). String of bad luck: dog died, father died, ex-husband wrecked vehicle and departed. Has a stable job; honest and dependable.
D: Consolidate debt (sources not specified). Self-employed; stable industry, but there are general and unexpected expenses from time to time.
D: Buy laptop to pursue accounting degree. No late payments; one ding on credit report was put on by accident and is in the process of being disputed and resolved.
E: Pay off payday loans. First incurred payday loans when helping father with medical costs. Employed full-time; also starting part-time job soon.
E: Fix up home purchased for investment. Does most of the work personally. Previously had excellent credit; business went under after 9/11. $10,000 in savings; spouse is employed full-time.
E: Pay off payday loans and credit cards. Spouse had sa troke while borrower and spouse were overseas (unclear why or how long couple was abroad); borrower was not working at the time. Debt is not specifcally described as medical debt.
E: Pay off credit card debt. Debt became overwhelming when spouse experienced a career change.
E: Clean up credit report and pay off payday loans. Spouse became catastrophically ill; borrower used credit cards to pay medical bills. Filed for bankruptcy to save home; cannot get credit now. Borrower also used payday loans for child's college education because borrower was ineligible for student loans because of negative credit.
HR: Become a certified RV tech to offer affordable RV repair to retirees. Borrower is retired; borrower and spouse live and travel in an RV. Both receive retirement income (type unspecified).
HR: Fix or replace vehicle for lawnmoving/snow removal business. Additional income comes from military retirement.
HR: Buy laptop for school. Borrower works when not in class. Borrower has student loan; payments are deferred until graduation.
HR: Reduce lower-balance credit debt. Borrower has worked consistently for eighteen years. (No other information.)
HR: Pay airfare and funeral costs for deceased father. Borrower is executor of father's estate; expected to pay for funeral through the sale of father's house, but the sale fell through.
Here are a few observations that jumped out at me right away.
1. Borrowing to pay consumer debt
Two of the E requests specifically referenced payday loans. One of the HR requests, two of the E requests, two of the D requests, one of the C requests, and one of the B requests specifically referenced credit cards.
2. Borrowing to make money
One of the HR requests, one of the E requests, one of the D requests, one of the C requests, and all five of the AA/A requests are geared towards starting a business or increasing the income stream of an existing business.
3. Borrowing for education
Two of the HR requests, two of the D requests and one of the C requests are to fund education, special training, or equipment for educational purposes.
4. Borrowing for medical bills
One (possibly two) of the E requests, one of the C requests, and one (possibly two) of the B requests represent borrowing for medical bills. (There is overlap with 1. Borrowing to pay consumer debt because in a couple of cases it's unclear how much of the credit cards/payday loan debt was caused by medical bills.)
Take this analysis with about a pound of salt, folks. Five sort-of-random samples of each credit grade is not enough to prove statistical significance, so there's not enough evidence to identify genuine positive correlations of trends by credit rating, or even overall trends. It's possible to make a few general statements based on this sample, though. These are the ones that come to mind:
1. Credit cards are useful, but only when used wisely.
Relying on consumer credit is a dangerous game. If you live too close to the edge of your means, one major injury, illness, or unexpected income loss can knock you into the consumer debt canyon.
2. Payday loans are downright dangerous.
I don't think payday loans are inherently bad, but they're a bad choice for a lot of people. Interest rates on payday loans are beyond ridiculous. In many cases, the loans are made with the expectation that the borrower won't be able to repay them and will instead roll them over into new loans, incurring all kinds of high-interest finance charges in the process.
3. Insurance is a need, not a want
All it takes is one not-so-major illness or injury, and uninsured or underinsured people can find themselves in bankruptcy court. This is a problem that's getting worse almost by the day. Regardless of how the next presidential election plays out, I'm not optimistic that universal health care in the US will happen. Insufficient health care is bad for everyone: inadequate care for the uninsured or underinsured has a ripple effect across the entire public health spectrum because it puts all of us at greater risk for communicable diseases.
4. Debt is a good thing in the right circumstances
Debt is good if it leads to an improved future income stream (like education or expanding a business). Debt is good if it leads to an ROI that wouldn't otherwise be possible to get. Home ownership is a good example: real estate usually appreciates over the long term, but very few people can afford to buy a home without financing. Bad debt is debt that doesn't lead to financial gain.
5. An emergency fund is critical
I noticed more than a few instances of people going into high-interest debt because of unplanned events. The most powerful way I know of avoiding the credit card/payday loan trap in emergencies is to build up a cushion of money to respond to the unexpected. It takes discipline and time, but when you consider the alternatives, making sacrifices for a rainy-day fund sounds a whole lot better.
I don't know if Prosper.com is a good investment vehicle for lenders or a good source of funds for borrowers; I haven't spent enough time with it to get a good feel for the upside (or downside) potential. If you've had experience with it one way or another, I'd love to hear how it went.
Tuesday, September 18, 2007
A while ago, I wrote about asking for a raise. In that post, I mentioned that I wouldn't find out the end result until October, but that I had a good feeling about it.
Got the news today. Between the annual merit raise and the salary adjustment I asked for, I got bumped up by 11.15%. Whee ha!
Thursday, September 13, 2007
Yesterday was Wednesday, the date of the long-awaited portfolio analysis discussion. I ended up having a conflict because I usually have tons of meetings on Wednesdays. (This is why I originally asked to meet on Thursday). I sent a calendar invitation requesting a reschedule. Didn't get an answer, so I phoned an hour before our initial scheduled meeting and asked one of the other analysts to let Dude know about the reschedule. He never did accept the reschedule request.
Anyway, we met today. Our new meeting time was scheduled for noon EST. At 11:58 a.m., I received revised Asset Allocation and Retirement Analysis PDF files. At 12:01, Dude called.
Dude opened by thanking me for my feedback and asking me if I had had a chance to review the revised documents. I said I hadn't. Sounding surprised, Dude asked Oh really? You haven't read them yet?
Well, no, I answered. You sent them at 11:56. That's five minutes ago.
Well, I guess you probably didn't have time.
That pretty much set the tone of the discussion. He didn't encrypt the email again, either.
Since I hadn't read the revised documents, Dude suggested that we go through my questions, one by one. He preferred to start from the end, so that's where I'll start with you.
Problem 8 (or possibly Clarification 1):
This one was about weird-ass pension figures. Dude explained that the first number in the year on year series showed only eleven months as opposed to twelve, since he's assuming that I'd retire on the day I was eligible for pension payments to start. (Dude assumed correctly on this one.) Okay, I said. But how are those numbers calculated?
Dude explained that he was using the base figure I gave him for today's value and incrementing it by 4% every year. That's not how our pension scheme works, and I told him that: it's derived from the average of the last five years of salary, and I had already given him my salary and assumed incremental increase; it wouldn't have been hard to figure that out.
Oh, he said. Well, I don't have access to your company's pension system, so that was just my best guess.
Catch-up contributions to IRA and 401(k) from age 50 not factored in:
Whoops. Good catch.
2010 conversion of IRA's to Roth not factored in:
We don't normally recommend that, because you never know if the government will change that provision before you get there.
Well, look at it like this: Baby boomers are heading for retirement, right? They're the largest voting segment of the population, right? Do you really think taking away the elimination of income restrictions for the Roth when a whole bunch of the electorate is about to retire will fly politically?
Oh. I didn't think of that. I guess it makes sense. Okay, if you want me to change that, I will.
Problem 5 and Problem 4:
Problem 5 is a seriously wrong rate of return. Problem 4 is either another (even more seriously) wrong rate of return or inaccurately reflects the mortgage payoff/subsequent investment strategy we discussed.
I'm not the one who put those numbers in, and I haven't really looked at it. I don't know what rate of return the inputter used or why. I'll have to get back to you on those two.
Finger-pointing is a serious pet peeve of mine. I don't let my team at work get away with it; they know it's the best way to get dinged on their annual review. I expect people to do their homework and own their mistakes. Imagine the next part of this conversation in a fairly icy tone of voice on my end:
Okay. So what I'm hearing is that these numbers weren't checked, so they weren't fixed in the revised documents. Is that correct?
Then there's really no point in us reviewing those documents, is there?
I guess we will.
Entire 401(k)treated as Roth instead of split between Roth and Pretax.
Dude said this was a limitation of the software. He said this at great length. I think he was somewhat surprised when I accepted that explanation and suggested that we move on.
I miscategorized three investments as Foreign instead of US Large Cap Equity and neither of us caught it. This really was my mistake, so I was planning to let Dude off the hook:
I have to apologize for miscategorizing like that. It's time out of your day, and I'm sure it's an inconvenience.
No problem at all. Actually, I should have caught this.
Privately, I thought he should have as well. Then he proceeded to really put his foot in it.
I mean, look at this one, **** ***** ***** Fund. It's one of the best funds out there, and of course it's US Equity, not foreign. I mean, I used to work for **** *****.
Whoa. Dude used to work for the company that manages one of the funds I own (a very, very well-known fund) and he still didn't catch that I had miscategorized it? That's even worse than not noticing that I had similarly miscategorized Microsoft.
He fixed the miscategorization in this analysis, but if most of the base numbers are wrong (which he confirmed in Problem 3 and Problem 4), it doesn't help much.
Another mistake of mine: I made a typo and put a 7 instead of a 1 in an important place. I caught it before the analysis was finished and asked Dude to fix it. He didn't.
Yeah, I'm sorry. The inputter didn't fix this even though I told her to.
I see. And you didn't catch it when you reviewed the output?
I guess not.
We agreed on a time to meet next week to go through yet a third set of numbers. Dude asked me how to send a calendar invitation, and I talked him through it. He seemed positively delighted to get rid of me, and actually I can't blame him for that. I know I was being a hardass. I have every reason to be, though: this is my retirement. Projections are only as good as the input, and in this case it was garbage in, garbage out.
The moral of this story is this:
Dude is lazy. Dude is sloppy. Dude does not take responsibility for his own actions. If Dude was interviewing for a job with me, I wouldn't give him a call-back, much less an offer. How many people do you think just accept what he tells them? Of those people, how many do you think got truly good advice? I'd be willing to bet that that number is pretty low, and that translates into lost dollars and cents.
No one cares more about your finances than you do. It's not enough to hand over some base data to a financial planner and look at the output. If you don't know enough or care enough to make sure that your financial planner does his or her job right, what are the chances that you'll make bad decisions based on bad advice?
Think about it. After all, your next financial planner just might be Dude.
Tuesday, September 11, 2007
Dude sent me his analysis of my portfolio, and it ain't pretty.
He did two things that annoyed me before I even opened the documentation. First, after confirming via email correspondence that we'd meet on Thursday, he scheduled a meeting for Wednesday. Second, he sent an Asset Allocation PDF and two different Retirement Funding analysis PDF's to me through the internal email system. . .
. . . without encrypting the email.
Encryption is a big, big deal, folks. Public key-private key encryption is the only way to make sure that private information truly stays private over email. If you're in the habit of sending confidential information over insecure channels like unencrypted corporate email (hopefully protected from intruders but accessible to sys admins) or non-SSL interweb connections, I have one suggestion for you: DON'T.
Moving on to Dude's analysis.
I don't think I mentioned it in my last entry about Dude, but during our brief conversation last week, I found a typo in which I put a "7" instead of a "1" in an important place. Totally my fault. I flagged it to Dude for correction at that time. Unfortunately, it never got fixed in the analysis. As a result, my base numbers are way off.
Another mistake of mine. I miscategorized three investments as Foreign instead of Large Cap Equity. Again, totally my fault; I should have caught that before I sent the questionnaire in. I would submit, however, that Dude should have caught them as well. (Hint: one of the misclassified entries begins with Micro and ends with soft. All three of them were that obvious.) End result: asset allocation is also way off.
Remember the discussion Dude and I had in which I realized that I had misclassified my 401(k) as being totally Pretax when a proportion of it is Roth? I suspected that Dude reclassified all of my 401(k) as Roth and sent a clarification email detailing the split.
Didn't happen. The whole 401(k) is treated as a Roth, including my employer's contributions (which are always Pretax).
To be fair to Dude, each of these problems stemmed from a screw-up I made, so I can't completely blame him in these instances. The next set of errors, however, are Dude all the way.
We went through my two-year plan in some detail in our last conversation, and I explained to Dude at that time that I'm currently maxing out my 401(k) and IRA, but that I'm dumping all other investment cash into the mortgage. After paying off the mortgage next year, I'm taking a couple of months to shore up my emergency fund and then redirecting the cash flow into taxable investments at the rate of x dollars per year, increasing by x percent annually.
According to the figures I got back, I've been investing x dollars per year, increasing by x percent annually for all of 2007 and will be doing the same thing again throughout 2008; either that, or my year-on-year return for 2008 will be 28% (in which case I will radically shift my investment strategy!) The delta between 2008 and 2009 is similarly skewed. Between that and Problem 3, both Retirement Funding Analysis documents are so far off in fantasyland as to be useless.
But, just to keep it interesting:
I backed out all possible inputs that could drive the delta between the consolidated Roth 401(k) (remember, this is already wrong) and IRA's. These inputs are max contributions to my 401(k), plus max contributions to my IRA, plus my employer's contributions to my 401(k). Dude's rate of return comes back as 12.5%. That's not as outrageous as 28%, but it's still a very risky assumption to make for investment purposes.
I didn't extrapolate more than the first couple of years for any of my evaluation. That's because if those numbers are wrong, the whole thing is worthless.
From this point, the problems become much more picayune. Most of them are only problems because they're all things we talked about that Dude didn't do, and because I'm already irritated.
Asked Dude to factor in a 2010 conversion of IRA's to Roth, since income restrictions go away at that point. Didn't happen.
Asked Dude to factor in catch-up contributions to IRA and 401(k) from age 50. Nope.
Problem 8 (or possibly Clarification 1)
I'm not sure if this is a problem or a clarification point, but there are some weird-ass numbers showing up in the pension distribution section.
I documented all of these issues and sent them off to Dude, suggesting that we discuss them when we meet tomorrow.
I also asked him to encrypt his fricken email from now on.
I'll endeavor to post a brief closure post about the meeting tomorrow, but no promises. It's going to be an busy day and evening, and then I have a house guest until Monday.
Monday, September 10, 2007
How very, very cool. Madame X tagged me for the Frugal Subversive award. Coming from one of the grande dames of PF blogging, that really means something.
The Frugal Subversive award was created by Rhonda Jean at the Down To Earth blog to honor, as she so eloquently puts it, three bloggers who consistently turn their backs on consumerism to live frugally in a creative and authentic way. There are a great many truly inspiring frugal blogs out there, and picking just three is really difficult. Here are my picks for the Frugal Subversive award:
The first goes back to Madame X. As most of you know, she is a smart, savvy, well-rounded, and inspiring woman. She's goal-oriented and clear about her priorities, and she lets nothing stop her from achieving her dreams.
The second award goes to golbguru at The Tao of Making Money. golbguru has a good head for money and a clear sense of the difference between needs, wants, and balancing both with friends, family, and everyday life.
The third and final award goes to Cap at Stop Buying Crap. Cap made some mistakes and got into debt early, but he turned his life around and made some lasting changes. He learned before he could vote what many people take years to learn - if ever.
If you haven't looked at any of these blogs, be sure to give them a visit. You'll find it time well spent.
(Got another Dude story for you; this is the best one yet. Check back here on Tuesday to read all about it.)
Saturday, September 8, 2007
The Frugal Zeitgeist had a drive-by drop-in from personal finance author Barbara Stanny, who responded to a post I made about Galina Serin. In that post, I referenced Stanny's book, Prince Charming Isn't Coming. Stanny's comment can be found hither.
I'm not going to start an inquiry with Barbara Stanny's media reps, but if she happens to swing by this neighborhood again, I'd be quite interested in doing a blog interview with her. I'm sure my
eighteen seventeen sixteen subscribers would agree.
ETA: Okay, maybe they won't agree. Happy?
Thursday, September 6, 2007
Managed to get myself in a slightly uncomfortable position the other day.
I mentioned once before that my dad is unwell. He's 82 and slowly dying; this is no secret. The only surprise around here is that he's still alive, and that just goes to show what the will to live is worth. At any rate, I've worked out a deal with my employer that allows me to travel West to see my family every eight weeks for as long as needed each visit.
October through December are peak travel months, so I figured I'd better get my plans in place as early as possible. I found two good deals through CheapTickets.com, a round-trip flight for $357 in October and the same schedule for $377 in late December, including Christmas. Each ticket has a service charge of $5.99, so that works out to just under $750 in total.
My cash inflow and outflow are calculated pretty carefully and I put as much as possible on my credit card since I get 1% cash back. I figured out that as long as I kept my expenses low for the rest of the billing cycle, I'd be able to cover the credit card bill in full without tapping my emergency fund (which I didn't want to do, since this isn't an emergency) and still have with a few dollars left to last until payday.
Although I knew I was cutting it close, in truth it turned out to be a bit closer than I had planned. My billing cycle ends today and I don't want to be in the really ugly situation of having my credit card bill exceed my cash on hand, so I was careful to do this week's grocery shopping by planning the menu around items I already had in the house, like rice, beans, and frozen chicken.
So far, so good - until the unexpected hit.
My sibling's visiting New York next week. Our parents want to give us Broadway musical tickets as a gift, which is very kind of them. (I don't like Broadway musicals, but I'd never tell them that.) There's a $15 service charge if they order them from TicketBastard, so my sibling got the bright idea of asking me to go to the box office to buy them instead, and our parents would send me a check to reimburse me.
Ordinarily this would be fine, but not when I'm dealing with a one-off $750 charge for plane tickets.
I ended up having to explain to each member of the family in turn that I was cutting it very close with my cash on hand and my credit card bill this month, and the only way I could do it would be if they could give me a check that would clear by today (Thursday).
This, by the way, would have been unrealistic at best.
I know what they all were thinking. What if there was a real emergency? Why would she take such a stupid risk?
It was less a risk than a challenge given that I'd accounted for everything I could possibly account for; in a truly dire scenario I could get an urgent wire from my emergency fund. I did it mostly to prove to myself that I could practice the kind of discipline I'd need to pull it off.
Just try explaining that to your parents and a sibling that makes the frugal you look utterly profligate with money. I'm sure you could do it better, because you certainly couldn't do it worse than I did.
Sunday, September 2, 2007
We left last week's story with a less-than-impressive conversation with a financial planner and a huge-ass questionnaire that missed some really important information about home ownership, debt-to-income ratio, and other things that seem fairly significant in figuring out a client's financial profile. Here's what happened next:
I filled out the questionnaire as requested, including some caveats (e.g. my pension - yes, I have one of those - will be this much if I stay with the firm for thirty years, but you should note that it's calculated on my current salary and doesn't take future salary increases into account, and it'll be this much if I get my ass canned or otherwise lose my shit and stalk out before the end of the year). Other than those few caveats, it wasn't anything more complicated than pulling numbers out of my investment accounts and plugging them in. I submitted the questionnaire on Sunday and blocked out an hour in my calendar on Tuesday for our in-depth consultation.
The consultation was. . . interesting.
The first thing the planner guy (I'll call him Dude going forward) said after the usual how-are-you-great-fine pleasantries was First of all, this is the most complete questionnaire I've ever seen.
Whoa. Red flag.
Without going into too much detail, I work for a global professional services organization. Our presence in the US is, well, considerable. Unless you live in a paper bag, you've probably heard of all of our top clients. If my questionnaire is the most complete this guy has ever seen, he's either brand-spankin'-new to his field (in which case, they probably wouldn't let him handle clients on his own), or my employer's about to go right down the crapper because none of our people who do financial work for clients actually know diddly-squat about finance (doubtful), or he's lying.
I decided to go with lying. Every word that came out of his mouth after that was suspect from my perspective.
I asked Dude why he didn't ask about debt in putting together this profile, and he had what I thought was a fairly slimy answer. He said that normally he does send out a second questionnaire about cash flow, but that he didn't think I needed it since I was so on top of things.
Well, what can I say. That's a spurious and very lazy assumption to make. First of all, existing debt isn't captured in cash flow statements, so unless the cash flow questionnaire includes a lot more than inflow and outflow, it's still not going to provide a complete picture. In other words, it's entirely possible that my cash flow looks good, but that I have a mountain of debt that I've just decided not to pay.
I don't, mind you, but Dude doesn't know that.
Besides, without a cash flow sheet, how does he know I'm not spending every cent I make and then some?
Simple. He doesn't.
Anyway, I wanted to hear what he had to say (being an investment advisor and all) about my portfolio, investment choices, and mortgage payoff strategy so I decided to let all of that go.
Dude then said something slightly redeeming: He noted that my 401(k) was all categorized as Pretax and asked if I knew about the Roth 401(k) option that was introduced last year. (You probably know this, but just for reference: a Roth 401(k) is similar to a Roth IRA in that contributions are taxed prior to investment. As a result, the current tax benefit of the standard 401(k) disappears. There is no tax on growth or distribution, though, so the Roth 401(k) is a good bet for investors who expect to have a higher tax rate in retirement than they do today.)
I answered that I do indeed know about the Roth 401(k) and that I've been directing all 401(k) contributions since October 1 of last year into the Roth 401(k). I thanked him for flagging that, since I definitely put it down incorrectly on the questionnaire. Unfortunately, I think Dude moved my entire 401(k) into the tax-free future income categorization, so he loses points for that. I had eleven years of contributing to a 401(k) before the Roth 401(k) became an option, so that's a pretty substantial mistake as far as calculating future income and tax burden goes.
Dude then asked me why I indicated that my future minimum retirement income was lower than today (about 80% of current salary), when I showed my tax bracket increasing. I pointed out that I was showing the future income in today's dollars, and in the long run, taxes only go one way. Future dollars are inflated relative to today, and that means less bang for the buck in purchasing power. By showing the figure in today's dollars, I was showing what I expect those future dollars to be able to buy if I took them to the store today. Being pretty conservative in my outlook, I bet the federal tax rate won't take inflation fully into account. Even if I have less purchasing power in future dollars than I do in today's dollars, I figure that the tax rate will be factored more heavily on the number of dollars than it will on what I can buy with them.
Did that make sense to you? It took me a couple of tries to get this through to Dude.
Finally, he got it. I see! You're being conservative! he beamed.
Well, yes. Yes, I am.
Questions answered, I sat back to hear the results of Dude's analysis.
Imagine my surprise when Dude said Okay, I'll need to take this away and get back to you in a week or two.
A week or two?
Yup, apparently that whole appointment was just to answer Dude's questions about the paperwork so he can do the real analysis. Meanwhile, he still doesn't have my debt profile figured out, including how much I have left on my mortgage and whether I have any student loans, consumer debt, or medical debt. He also doesn't have my cash flow worked out beyond I figure yours is pretty good.
To make an excessively long story even longer, I'm hugely unimpressed and I smell a sales job coming. Thank you to the concerned commenters who flagged this early; I think you're right on the money. Not being one to part with a buck without a pretty good reason, be assured that the moment Dude lands a sales pitch, he'll be on the wrong end of a scathing review of his tactics, to be completed with Thank you for your input, but this conversation is over.
Dude is supposed to "get back to me" in a week or two. I can hardly wait.