The Legacy of the Gray Hoodie

Do you remember your first credit card purchase? I don’t think most people do, and until yesterday I didn’t remember mine. Yesterday, it came back to me quite vividly.

I was standing in line at Babies-R-Us buying a new car seat for my suddenly huge infant son. I was admiring the homeless man qualities of the hoodie I was wearing. The kangaroo-style pouch pocket is hanging on by just a few wash-worn threads. The hood’s drawstrings that once matched the fabric of the garment have faded into a dusty purple, and the once luxuriously thick and soft charcoal gray fabric is now rough and thin like ancient burlap.

I laughed to myself thinking how ratty I must look as I tried to remember where I bought this pathetic excuse for clothing. I searched the depths of my memory and finally extracted the event. It was the fall of 1993. I was a freshman and the University of Kansas with my very first brand-spanking-new credit card. I remember it had a modest limit of $300, which wasn’t much, but enough to start me down a path of overuse and abuse of borrowed money.

I was in a mall on the banks of the Kansas river at the JCrew outlet store that was directly across from the shoe store I worked at part-time. I remember perusing the racks of overpriced clothing and making my way to the sale rack, where I found the gray hoodie marked down to $30. For some reason, that hoodie sparked something in my lust for stuff. Feeling quite like the grownup I wasn’t but thought I was, I plucked that hoodie off the rack and treated myself to a purchase I couldn’t afford for something I didn’t really need.

I didn’t know it then, and I really didn’t care, but I just invited the vampire into my house. And everyone knows, you never, ever invite a vampire into your house. That started my spree of full-on consumer greed. Why should I have to go without stuff just because I’m in college? One $300 limit card led to two, which led to three, and once I maxed them out the creditfolk earnestly fed my stufflust and bumped my limit up to $500, then $1,000, all the while I bought my livelihood on borrowed money. The vampire was quite content.

Standing in line at Babie-R-Us, I felt rage. Not at the creditfolk, but at myself. How naieve I was, and how little I knew about money and the importance of fiscal purity. I wanted to rip the hoodie off my back and throw it in the trashcan as I left the store.

But I didn’t do that. As I was getting ready for bed, I gingerly took off the hoodie and placed it on a hanger. I looked at the tattered seams and counted the years I’ve been wearing it. Fifteen years. I’ve been under the thumb of credit cards for 15 years, and this one piece of clothing represents the self-imposed oppression and dependence I’ve come to know so intimately. I’m on track to be under that thumb for another five years until I pay off my last remaining debt.  Then what of the hoodie?

That hoodie is the artifact that represents my stupidity and consumer-driven greed. It represents every bad financial decision I ever made, and when I’m out of debt I will have closed the door on a 20-year era. What of the hoodie? I thought about burning it, like George Michael burned his leather jacket from the Faith era to show that he’s reinventing his image. Cleanse with fire. I’m not sure what to do, but I’m open to suggestions.

Until then, I’m going to continue to wear the gray hoodie on cool, crisp days. If it deteriorates to the point that I can no longer wear it, I’m going to keep it in the back of my closet until the Era of Debt is passed.

The Happily Employed’s Guide to Layoff Survival and Planning

I heard on the radio the other day that unemployment is at a 14 year high. I suspect that with the new administration’s plan for income redistribution and tax hikes for corporations we’re going to see unemployment get worse before it gets better.

But what if you’re in a seemingly cushy job? Or perhaps your company is still experiencing growth? Don’t be fooled to think that layoffs only happen to other people. If you’re currently employed, now is the time to put some layoff preventative action into motion and have a contingency plan should the layoff gremlins come knocking at your door.

I learned a very valuable lesson when I was laid off just before 9/11 in the midst of the dot-com burst. I was working as a software consultant for a small firm that had been around since the early 1980s. Looking back now, the warning signs were everywhere that the company wasn’t going to make it, but I was blind to it at the time. Just a couple of weeks after I got my walking papers the entire firm closed their doors. I was unemployed for four months until I landed another gig.

Those four months were dehumanizing. I started to believe that I had nothing to contribute to society and that’s why I was unable to find a job. I vowed to never be caught in that situation again. I created the following prevention and contingency plan that I maintain to this day. The idea is that if another layoff is in my future, I can move into action immediately, rather than sit dizzily on the floor wondering what happened and what I should do next.

Prevention

In my experience as an IT manager, there were two occasions when the director over me requested a list of the bottom 5% performers on my team. The company I worked for often threatened that they cut loose the bottom 5% of the company to remain lean and competitive. I’ve seen them do this only once, but the list was always available.

Not all companies work this way. Thank God. But if your company has to tighten its belt, you want to decrease the probability that you won’t make the bad list, and here’s how to do it:

• Know your boss. Some bosses are hands-on and in the trenches and others like to observe from their ivory towers. I’ve had both and both have their good points. What’s important is to get to know your boss on a personal level. This is easier to do with bosses in the trenches. For the ivory tower bosses, this is more challenging. Either way, put yourself in their shoes. Would you rather cut someone loose who is just another name on the team, or someone you know, have had lunch with, and perhaps have met their family?
• Setting expectations. While you’re getting to know your boss, find out how they measure success and what’s important to them. Here is a clue: Your boss wants to look good to his or her boss, and they achieve that through the success of the team they run. Find out what the hot projects are, or the key assignments and request involvement in those areas. While you’re at it, make sure your boss knows what skills you have that are unique to the team. Be an asset your boss isn’t willing to lose.
• Quantify and track results. Here is a scary thought: You get an email from your boss asking you to quantify your contributions to the team and the organization, and he needs it by the end of the day. It could happen; would you be prepared? Or what about your annual review? How do you prepare for that? Sounds like a lot of work, but it really isn’t. Keep a spreadsheet, and when you complete a project, assignment, or some other significant milestone, put all the critical information in the spreadsheet, like: date completed, duration, your role, problem you resolved, how you resolved it, what the quantifiable results are, who you worked with, and so on.

Contingency Planning

I typically do contingency planning on a quarterly basis, but if layoffs are alive and well in your company or industry, you should do this on a monthly basis. The idea is that should you be met with bad news about the longevity of your business relationship with your employer, you’ll be able to spring into action and get back on your feet.

• Calculate your critical expenses. Dave Ramsey calls these your four walls. They are the expenses you need to survive and nothing else: Food, Shelter, Clothing, and Transportation. What’s not on this list? Credit card payments, dining out, haircuts, gym memberships, you get the idea. You need to know this amount because you need to know how long your emergency fund will last, and if you don’t land a permanent job you need to know how much you need to bring in through part-time work in the meantime.
• Maintain your resume. You’re already tracking your work so you can wow your boss. Take that information and plug it into your resume monthly or quarterly to keep it fresh so you can send out your resume at the drop of a hat.
• Monitor channels. Permanent employment isn’t your only option. Depending on your line of work, you likely have several other channels of employment open to you, such as freelance work, temporary employment, and contract work.
• Join a professional organization. Yeah, they’re boring, but they might offer the networking opportunity you need to land your next job. Stay in contact with your profession’s organization, and if you can stomach it, get involved and make a name for yourself. Many professional organizations even offer job boards for members.
• Identify references. Keep a list of people you work well with along with their contact information. I don’t recommend telling them they’re on this list, it’s just a little creepy to say, “Hey, if I lose my job I’d like you to be my reference.” But know who you’d like to choose so that if you need to contact them you’ll be able to quickly.

What about you? Have you ever been laid off?  How did you survive? What would you have done differently, or how has it changed how you do things now?

Posts Worth Mentioning: What Just Happened? Edition

Here’s some stuff you might enjoy. I sure did:

• Like many others, I’ve been thinking that what the world needs now is an Obama survival guide. The best one by far is published on RedState.com. Notice that #8 is Watch your budget, “We’re all going to have to prepare for tougher economic times, plus the burden of Obama’s tax hikes. Don’t overextend your own finances.” Very sound advice, indeed. The other 11 in the list are worth reading as well.
• When times are uncertain and just generally suck, it’s always a good idea to ground yourself into your beliefs to reconnect with your values. For me, that means The Good Book. ChristianPF has a great list of Five Bible verses about money every Christian should know, and a good list it is indeed. I’m a sucker for lists, what can I say?
• “Stuff” is such a great word. It’s so grunt-like in its monosyllabic nature, much like crap, leech, and junk. On Simplicity has a funny and truthful list of 20 hidden ways your stuff screws you over that we should all print out and carry in our wallets to reference before making any non-essential purchases of “stuff” that leeches our resources and becomes crap that just ends up with all the other junk we own.

Oxford’s List of Irritating Phrases is Literally Ironic

Oxford released its fairly unique list of top ten irritating phrases.

I personally believe it’s a nightmare that so many of us speak so colloquially. With all due respect, if you uses these phrases when you shouldn’t of then you absolutely need to get yourself a dictionary, or a thesaurus or something. I mean, as a society we talk like blooming idiots 24/7. At this moment in time, there is probably someone right next to you speaking like a fool. At the end of the day, there is absolutely no reason you shouldn’t strive to sound less irritating. It’s not rocket science, ya know.

Here is Oxford’s list of irritating phrases:

1 - At the end of the day

2 - Fairly unique

3 - I personally

4 - At this moment in time

5 - With all due respect

6 - Absolutely

7 - It’s a nightmare

8 - Shouldn’t of

9 - 24/7

10 - It’s not rocket science

Wal-Mart: Now Available on Credit!

Wal-Mart is poised to start offering their own credit cards, as told by this BuisnessWeek article. From a business point of view, this is a very smart move.

Remember who started Discover? It was Sears. Their credit card company kept them afloat when people weren’t shopping at Sears. They likely would’ve gone under had they not had revenue from Discover to help them along.

What about the consumer? Just one more piece of plastic to fatten your wallet. You’re looking at rates of around 25% to use this card. Let the unwise spend their money foolishly.

How to Overcome Empty Hope

I was perusing YouTube recently when I came across this seemingly innocent clip of a woman who is expressing her excitement over Obama.

What really surprised me was how she really expects Obama to swoop in and save her from her obligations:

I won’t have to worry about putting gas in my car, I won’t have to worry about paying my mortgage.

There is something seriously wrong with this picture. This apathy, this lack of personal pride one should have in honoring one’s commitments, is lost on this person. I would like to assume this isn’t the prevailing attitude that got Obama into office, but considering conversations I’ve had with those who voted for him it does seem to be one of the bases of “hope” they’re clinging onto. A sad, helpless “hope” that someone will step in and take care of them so they no longer have to care for themselves.

How can we move beyond this? How can we step up to the plate and take honor and pride in what we do?

1. Don’t buy into the “hope”. You think putting the right guy into office will take away all your obligations and you’ll get to live in a Utopian society where everything is provided for you? I have some advice: Grow Up. Take a step into reality where you are responsible for where you are in life, where you are going, and how you’re going to get there.
2. Know your pride. Pride can be bad. So bad, in fact, it can be a sin. If I wronged you, but I don’t apologize and ask your forgiveness because I don’t want to look foolish, that’s the bad kind of pride. Borrowing money from someone and doing everything you can (i.e. taking on multiple jobs, selling crap you own, reducing your standard of living) to pay that debt is honorable. You know what else it is? It’s the basis of personal pride. The good kind. Don’t be one of those people who are so weak willed and without honor that you don’t honor your obligations.
3. Set up accountability. One of the most valuable assets missing in this “progressive” society is accountability. Every mistake we make from childhood to adulthood can be dismissed through maligned psychological diagnoses or circumstantial social ails. No one is responsible for their actions, and that’s dumbassery at its finest. Decide that you and you alone are responsible for your lot in life. Did your Mom call your stupid when you were a child? Forgive her and move on. You’re an adult now and holding onto your past as an excuse for being a failure is as weak and foolish as expecting your President to pay for your gas and mortgage. If you can’t be accountable to yourself, be accountable to others. If you’re employed, be accountable to your employer by working to your fullest potential every day. If your married be accountable to your spouse by treating him or her how you want to be treated, and be accountable for your children by teaching them to be accountable yourself. Furthermore, turn off that stupid TV and spend time with your kids.
4. Count every dollar because every dollar counts. This stupid, poor soul in the video above probably drives a car she can’t afford. I say this because it’s obvious that she’s also in a house she can’t afford, and it’s probably stocked with goods she purchased at full price on credit. She’s sold her soul for the ability to consume beyond her means, and now she’s without pride and full of this false “hope” Obama is selling that she’ll be rescued from her own stupidity. Money is amoral. If you use it for stupid-ness, it brings you stupidity. If you’re careful with it and spend it and SAVE it wisely, it brings you to wisdom.

Lean Like You’re Bowling

I’ve been AWOL for a bit, so I apologize to both of my regular readers (one of which is myself).  I’m back and have much to discuss.

Thank God that I was able to stay off the topic of politics for the most part during the election. My one post on the topic was enough to let you know where I stand, and now that the election has come and gone the challenge still remains to maintain our finances sensibly and carefully and we’ll continue to work towards that goal through this blog. The approach may have to change but the end goal is still the same, but today we woke up to a new reality.

If you’re like me, you woke up today and said, “So, now what?” Two more months of predictability and then what? Here’s our imperative: We will continue to live our lives and lean like we’re bowling. We know a differentiation between right and wrong exists, and in everything we do we have to lean to what’s right. Lean to the right. The balance that keeps our country afloat is askew and it takes each of us to lean to the right to maintain some semblance of balance.

Through all the uncertainty of the nebulous promise of “change”, lean lean lean. When “change” does occur, or even if it occurs, maintain your lean so you know what is right and will act accordingly. Rest assured these four years will be over before we know it.

Capitalism v. Socialism - Which Do You Choose?

If you’ve noticed, the country is divided. Some Americans want to move to a more socialistic, government-controlled country under Obama’s leadership, and others want to remain a capitalist state that relies less on government control and more on individual rights under McCain’s leadership. There are many differences between the two, and volumes of books have been written about both. Being a PF blog, I’m going to focus on the difference it makes to your financial situation.

What does it all mean?

Capitalism, according to Wikipedia, is the economic system in which the means of production are distributed to openly competing profit-seeking private persons and where investments, distribution, income, production and pricing of goods and services are predominantly determined through the operation of a market economy.

Meriam-Webster defines it as an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

The opposite of capitalism is statism, or as it’s better know, socialism.

Wikipedia offers three descriptions of statism: 1) Specific instances of state intervention in personal, social or economic matters; 2) A form of government or economic system that involves significant state intervention in personal, social or economic matters; and 3) The belief that a political group should maintain a monopoly on the use of force in a given geographical area.

Meriam-Webster defines statism as concentration of economic controls and planning in the hands of a highly centralized government often extending to government ownership of industry.

What’s the difference?

The fundamental differences are risk, motivation, and control.

In capitalism, motivation to excel professionally and fiscally is strictly up to the individual. You can be as broke or as wealthy as you want to be, and that’s because control is placed in the hands of the individual. Each individual controls his or her own destiny and is only held back or propelled by his or her own motivation. To succeed, one is expected to overcome inabilities, prejudices, and personal situations. Because you control your own destiny, risk is a major issue. You risk losing everything you ever worked for through poor decisions or a panic-driven reaction (think current market).

In socialism, control is placed in the hands of the government. Because individuals lack control, motivation is a non-issue. Private property does not exist. Equality is artificially forced into the masses, so no matter how hard you work or how lazy you are, you get what the government considers your “fair share”. Because you get the same lot in life regardless of how motivated or unmotivated you are, risk is virtually nil. But at the loss of risk, individual rights and the ability to excel go with it. So we’re all put on what the government defines a “level playing field”, but it hardly matters because you’re ability to excel is severely limited.

I want to be rich, how come I’m not?

That’s the trade-off. In our capitalistic society, you can have the ability to make choices that may be bad for you. In other words, you are given the right to make mistakes and learn from them.

Is capitalism perfect? No, of course not, and an honest capitalist will tell you this. What about socialism? Socialists believe that following a socialistic paradigm will ultimately lead to a Utopian society. It’s a major flaw to think your social stance is perfect. It didn’t work for Nazi Germany, Fascist Italy, and Soviet Russia. Socialism is far from perfect, but no socialist will tell you that.

Is it unfair that, for example, all three of Bill Gates’ kids do not have to worry about their future, that their college, house, cars, and retirement are all paid for before they’re even out of high school? If you answered no, then you must know that Gates was one part of a group of people who built a company from the ground-up and earned his billions and it’s his right to set up his kids’ futures. If you answered yes, then I can say two things about you with great certainty: 1) You think rich people are either evil or greedy, and 2) You think that if you had just a little more money, just a break, then you could solve all sorts of your problems.

But aren’t you anti-greed? Anti-consumerism?

I believe greed is a festering sore on the face of Western society. I think greed is the doorman to many other sins. But I think that socialism as an answer to greed is ineffective. To overcome greed, it must happen through free will. It cannot be forced. All socialism does is enhance greed of the government.

It’s your call, for now

That’s the beauty of our current capitalistic republic. If you think I’m way off base and a socialist USA is the way to go, you can vote the first socialist into office. But realize that once you give up freedoms you cannot get them back without a fight. Think American Revolution. Think Civil War. So while you vote for it this time, you might not be given the opportunity next time.

The Fool Makes Me Happy Sometimes

It’s not very often that I agree with The Motley Fool, but yesterday they published some advice they gleaned from Scott Adams, creator of Dilbert, and put it in a nice little piece called 9 Things You Should Do Instead of Buying Stocks, and they are:

1. Make a will.
2. Pay off your credit cards.
3. Get term life insurance if you have a family to support.
4. Fund your 401(k) to the maximum.
5. Fund your IRA to the maximum.
6. Buy a house if you want to live in a house and can afford it.
7. Put six months’ worth of expenses in a money market account.
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.
9. If any of this confuses you, or if you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner.

This is a good general list, but I’d add these to it:

1. Fund your childrens’ college (if applicable).
2. Start a basic emergency fund. (Do this first to cover emergency expenses so you don’t have to rely on credit cards when you need new tires or whatnot.)
3. Share the wealth. (Tithe to your church, donate to a worthy cause, or do some combination of both.)

I’d also change some of the verbage like this:

1. Make a will.
2. Pay off all your credit cards debts.
3. Get term life insurance if you have a family to support.
4. Fund your 401(k) to the maximum employer’s match.
5. Fund your IRA to the maximum.
6. Buy a Completely pay off your house if you want to live in a house and can afford it.
7. Put six months’ worth of expenses in a money market account.
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker, and never touch it until retirement.
9. If any of this confuses you, or if you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner.

Combine my additions to the edits I made to Adam’s original list and it starts to look very similar to Dave Ramsey’s Baby Steps. I guess that’s because it works!

What about you? What do you think of Adam’s advice? What’s your approach to finances?

The New Days of Layaway

I heard on the radio this morning that KMart is going to start marketing its layaway plan more aggressively now. That makes sense given the expectation credit will be more difficult to get than before. In 2006, Wal-Mart discontinued its layaway program citing decrease in demand and cost of implementation. I wouldn’t be surprised to see them change back in coming months.

So what are the benefits for the consumer of using a layaway system?

• No borrowed money. Your credit isn’t an issue because you’re spending money you have in hand each month or week.
• Low risk. If you cannot make your layaway payments, they don’t come after you demanding payment.
• No interest, low fees. With an up-front fee schedule, you know exactly what it’s going to cost you to layaway an item.
• Ensure you can get a high-demand product. The New Big Thing is released and you don’t have the money for it yet. Ensure you get yours by putting one on layaway!

Why shouldn’t you use layaway?

• You still pay more for it. At KMart, a layaway contract costs $5, plus you have to pay a $10 cancellation fee up front, so each item you place on layaway guarantees your paying $15 more for it.
• Not “No” risk. Low risk? Sure. No risk? Not close. If you are seven days late on a payment, your item will go back to the shelf. You can get a refund on the product, but you don’t get the $15 back.
• Spending future dollars. This also plays into the risk factor. You’re spending money you haven’t earned yet. Should something happen, you might need to use that money for something else.
• It’s a greed tool. You see something you want and you have to have it, regardless of if you have money for it or not. So you get it by any means necessary. Look, it’s OK to save for something, but don’t pre-pay for it!
• It’s a poverty tool. Dave Ramsey says, “If you want to be rich, do what rich people do.” I’m pretty certain that rich people don’t buy things on layaway. Why? Because buying something on layaway shows: a) You don’t have a plan; b) You don’t know how to make money work for you, and; c) You don’t have any money to begin with.

What’s the alternative?

I hope it’s obvious at this point: Save for it! That gives you pause to make sure you have the funds, as well as really think through to purchase to make sure you’re spending wisely to begin with.