I have not yet written about the downturn in the stock market. This has been intentional; partly, I did not want to add to the panic, and partly (mostly), I didn’t have anything helpful to say about it. I don’t have advise to offer and frankly I’m a bit skeptical of anybody’s advise these days. I read, watch, and listen to quite of few market analysts and experts and have seen clearly how even amongst themselves they disagree and suggest a full spectrum of varying advice. Everything from sell your assets, to hold your assets, to trade the daily volatility. The bottom line? Nobody knows.
From a personal standpoint, the timing of this market downturn could have probably been a little better. I retired at the end of September 2007, and basically the market has been on a downward trajectory from that time. Sure, I have a reasonably well balanced portfolio, but like anyone who has anything in stocks, I’ve taken a big and painful hit. But, like Retired Syd said so well, I seriously doubt I would have gone through with my retirement if this had happened before I left full-time employment. As long as this had to happen, it’s just as well it happened after I retired since now I just have to make it work. I have no intention of returning to the workforce.
I have been trying to find the silver lining in all this and I read an article today that uncovered at least one good idea for me. This is an excellent strategy for anyone who has an IRA and has been thinking of converting to a Roth IRA.
I’ll admit that I’ve been kind of bummed when I think about what an opportunity the current market presents for anyone who is in “saving and investing” mode, and that I can’t really take advantage of this. However, this article reminded me that there is still something I can do - I can convert some or all of my IRA funds to a Roth IRA. Yes, I’ll incur some tax liability this year, but it won’t be so bad since, without a fulltime income, I’m now in a much lower tax bracket. And as the article points out, when and if the market recovers and the equities in that account hopefully recover, the money earned in the Roth IRA will never be taxed. How beautiful is that?
In the end all any of us can do is try to make the best of the situation. We may all be at different points in our lives, but if we look for it, we may each be able to find something positive. For young investors, this would be a wonderful opportunity to start or continue investing in a retirement account, possibly picking up some quality stocks or funds at bargain-basement prices. For anyone looking to purchase their first home, they may be able to find something they could not have afforded a couple of years ago. For those of us who are past our earning peaks and looking to our investments to fund our futures, strategies such as converting an IRA to a Roth IRA can help ease the pain. For anyone who has enjoyed short-term stock trading in the past, the current market volatility may be a once-in-a-lifetime opportunity.
I’m sure there are more opportunities to make lemonade out of the basket of lemons our economy has turned into. Are there other strategies you are considering? What have you done to try to make the best of the current downturn in the stock market and housing market?
Tags: assets, money management, saving
Last week I wrote about a major defining moment in my life - making the decision to retire early. Today I want to write about a more subtle defining moment, but something that has had a positive impact on my finances - breaking the pattern of impulse buying.
I wish I could remember where I originally read this pearl of widom so I could give credit: if you feel your heartbeat quicken, if you are excited with the prospect of a purchase, you are probably engaging in an impulse buy. Purchases that are planned rarely bring on the same level of excitement. Start to notice your own patterns and see if you find it is true; it certainly is for me. I noticed when I purchased a car a few years ago that I didn’t feel a flush of excitement. This was a very large purchase for me, so I had spent a considerable amount of time reading and researching before I made a decision. You would think that the purchase of something as significant as a car would have thrilled and excited me, but when I finally took the plunge, I felt more of a sense of control, that I knew what I wanted and how much I could spend. I carefully shopped and spent within those parameters. That’s not to say that I’m not happy with the car; in fact, I’ve been surprised how much joy this car brings me (I drove my last one for 19 years, so needless to say there are many new, nice features that now come standard on a car). But the thrill of an impulse purchase has a whole different feeling for me.
In the past I’ve been as guilty as anyone falling into the trap of the impulse buy. I’d see something I maybe never even knew existed, and suddenly I felt excited that this was something I wanted, needed, and it would probably make my life better. As long as I wasn’t going into debt to purchase it, I figured I could afford it and after all I worked hard, didn’t I deserve it? I’m sure I made many such purchases in my life, but the last one I recall really put an end to it. I’m a little embarrassed to tell this story, but here it is:
Years ago I started collecting a few teddy bears. At first they were the kind you could buy at the store, but I “graduated” into artist-made bears. They are made from high-quality materials like mohair, alpaca, and wool and can have the most wonderful expressions. I would pose a couple here and there around the house, and they give it a nice, warm feeling. These bears are normally purchased directly from the artist online, by mailorder, or at a show. One day I attended a high-end show, not planning to make a purchase, when I came to the booth of one of my favorite artists. She makes magnificent, large teddy bears that come with a hefty price tag. Then I spotted the centerpiece of her booth - an enormous (think several feet tall) off-white gorgeous bear with the most endearing expression. The price tag? $900. And suddenly that feeling of excitement came over me: this bear was meant to be mine. I was working hard at a good-paying job, I hadn’t treated myself to anything lately, so I figured I even deserved such a treat. Excitedly I plunked down my credit card and this incredible bear was mine.
Well, when I got home, I felt almost sick to my stomach. What was I thinking? I had just spent $900 on a TEDDY BEAR! As beautiful and well-made as he was, I could not look at him experiencing a sinking feeling in the pit of my stomach. I gave it a couple of months, but couldn’t get past that bad feeling so I ultimately sold the bear and took about a $200 loss. Surprisingly, I don’t regret the loss as much as you might think, because that purchase cured me of impulse buying. Period. It simply does not happen to me anymore. Because now, anytime I feel myself getting excited over a possible purchase, I remember the teddy bear.
How about you, have you experienced something that stopped or slowed your impulse buying? If you still have a problem with containing the urge to buy, I invite you to recall my $900 teddy bear the next time you feel the thrill of the purchase come over you. It might save you a few bucks.
Tags: budgeting, money management, shopping, spending
Sometimes life changes creep up on us slowly, so slowly that we may not even realize the change is underway. At other time, though, we face a defining moment that shapes the rest of our life. I’ve had several of these defining moments in my life, one of the most significant being when I decided to escape the corporate rat race at a (relatively) young age.
I’ve mentioned before that I was 32 when I decided to start planning for early retirement. It might seem odd that I know exactly what age I was, but it really was something that came over me all at once and I remember where I was and what lead me to the decision.
The funny/sad thing is that prior to that point, I had given very little thought to retirement. Fortunately, I was always careful with my money and most of my big financial decisions were reasonable and sound. But retirement seemed so very far off that I just couldn’t get interested in it. I don’t think I even participated in a company retirement plan until my late 20s, and even then just wasn’t that interested in it. At that point my time was spent focusing on my needs and wants.
At age 31, I went through a couple of life-changing events: a divorce which in turn lead to the sale of my home and purchase of another house on my own. I also had a strong feeling of discontent about my job and where my career was headed, but decided that changing jobs at the same time would create too much chaos in my life, so I waited about a year until things settled down. Still unhappy at work, though, I proceeded to change jobs when I was 32. This was a fairly major event for me as I had been at my former job for 7 years and built solid relationships with co-workers and clients. But I felt strongly that the job change was needed to get me back on track, to rekindle my enthusiasm for my career and help me move forward. I was certain that a job change was all that was needed.
Instead, moving to that job felt like I had jumped out of the frying pan and into the fire. I was looking for more interesting and challenging work, and instead ended up in an environment that, although very comfortable and pleasant, had almost no work for me. I had to entertain myself for days on end, trying to look busy with nothing to do! That was when it dawned on me that continuing to search for the “perfect job” was futile; that while I needed to continue working for a number of years, the solution was geared more towards achieving financial independence. I remember sitting at my desk, bored again, realizing that I needed to find a way to pay off my mortgage, to stash away some income-producing investments, and to possibly figure out some part-time work or casual form of other income. And thus my plan was set in motion.
I did in fact change jobs one more time (I could only sit at the desk twiddling my thumbs for so long) but my mindset was different now. My career was no longer the center of my attention, but instead more of a stepping stone to help me move towards early retirement.
How about you, have you faced some defining moments in your life that pushed you towards a bigger goal? What caused the shift in your outlook and how are you going about planning your life change?
I read this book, How to Survive Without a Salary: Learning How to Live the Conserver Lifestyle
The book won me over right from the start when it talks about how to value our time and why we can’t just compute the value of our time by calculating our hourly work rate. It also emphasizes the importance of skilling ourselves for just more than just one specialized task. There is an example of a gardener who fixes his own plumbing leak, and his neighbor the plumber who takes up gardening to save money. The usual calculations are performed to determine how much money each guy saves by doing himeself, versus his normal hourly rate. Although each could have made more money in his own trade, the author points out that we can’t work non-stop at our profession, earning our hourly rate. And more importantly, who would want to, anyway? As he states in the book, “…most humans are far too complex and clever to be satisfied with the exercise of a single task, a single skill, or a single career - to the exclusion of everything else.”
I always appreciate seeing a new perspective, a new way of thinking about problems, and in the chapter on “Needs”, the author gives us a new way of evaluating a problem. He emphasizes the importance of finding the real root of a need by asking the following questions:
1. What’s the problem?
2. Who needs it?
3. What would change the need?
4. How long will it last?
5. What are the alternatives?
6. What are the costs?
For example, you may think that you need a car to get to to work. What you really need is the transportation to get to work. This transportation my in fact be a car, but for some people who research and evaluate the need, it may become a form of public transportation, possibly even eliminating the need for a car. In one example, the author’s wife complains that they need to buy a dryer (they’d done without by employing a clothesline) because the childrens’ school clothes aren’t drying fast enough in the winter. The author re-frames the problem by stating that what they really need are sufficient clean dry clothes to get through the week. The ultimate solution is to purchase more clothing for each child, so that even if they clothes don’t dry quickly, they’ll have enough to get through a week. The purchase of the clothing in their case saves significantly over the purchase of a dryer.
There is a chapter devoted to “Casual Income”, addressing possibilities for freelance opportunities and casual employment. Most of us are so programmed to think in terms of full-time careers, that this section may be enlightening to someone who could survive on less income, but never considered “casual” income before. It is particularly well suited to someone who is nearing retirement but wants the security of some part-time income.
Many of the topics are those we’ve seen before when discussing personal finance: budgeting, assessing needs, getting out of debt, buying secondhand. But most of the topics are discussed in a different light than I’m used to seeing - very practical, down-to-earth talk with real-life examples. There is even an entire chapter devoted to buying at auctions.
If you like to read about personal finance, financial independence, and new ways of looking at our relationship with money, I think you will find this book valuable. It was one of the books I read during my quest for early retirement that helped shape my thinking about expenses and income and my overall relationship with money.
Tags: budgeting, Frugality, money management, saving, spending, thrift
This week I was particularly impressed with many good articles in the personal finance arena. I’d like to highlight a few that I thought were especially good:
Accumulating Money:Use Budget Software and Avoid a Crisis
Tough Money Love:How to Get Free Education in Economics
the Financial Wellness Project:Socializing is Good for your Wealth
MoneyNing:10 Activities for the Bear Market
Joyful Days:Three Times As Good, One-Third As Much
Saving Advice:The Zen of Giving Away Your Stuff
Be sure to visit these festivals and carnivals for even more good articles:
And as always, thanks to the hosts for their time and hard work putting them together.
