A Finance Blog for the Young and Stupid

I’ll start off by saying that I apologize for not posting in here for so long. My head has been full of so many things over the last several months that I literally haven’t had the free thought power available to come here and update my blog. Plus, I’ve been waiting for a few things to develop in my life so that things wouldn’t seem so hectic when I did come back!

New Job – Financial Analyst at Alliant Energy

Yes, I’ve finally found a job in the field that I went to school for. I graduated at the end of October, interviewed for this job in the middle of December, and had my first day on January 5th. I feel incredibly lucky, especially since this was my first finance/accounting-related interview.

The duties of the job are difficult to explain in my own words, so I’ll give you a few bullet points from the job description:

• Using established procedures and methodology, performs economic research and studies.
• Participates in generating long-term forecasts and analyzes trends in finance.
• Under direction, create financial models to help with business planning decisions.
• Assist in capital management and long-term finance.

I’ve been in this job for three weeks now, and I am enjoying almost every minute of it. The coworkers and managers are great people, the work is challenging and gives me a high level of satisfaction on a daily basis, and the company as a whole is just extremely good to its employees. Whether or not I’d enjoy actually working in finance/accounting was a great source of stress for me as I neared the end of my college career (as well as the stress of not knowing if I’d be able to find a good job in the field), and I am very excited that I chose a career that has turned out to be enjoyable for me.

Emergency Savings Update

A big part of the reason I’ve been neglecting my blog has been the decisions I’ve made in the last couple months regarding our emergency savings fund. As I started to look for a job in finance (and thus would have to leave my job where I was able to carpool to work with my fiance who worked at the same place), I decided that I needed a new vehicle. We only had one reliable vehicle between the two of us, and I knew that if I got a new job, it would likely be too big of a hassle for us to continue to carpool every day.

I looked at many vehicles in my car search, but I decided that it would be smarter for us to use the cash we had on hand to purchase a car in cash. This would avoid the need for loan and interest payments, and also avoid the need for full-coverage insurance on the vehicle. I found a used 2001 Ford Explorer Sport for about $5,000 that I decided to buy.

In addition to the SUV, I also bought a new bed (ours was nearly 20 years old) and spent $1,500 in maintenance work to the new SUV (new tires and a necessary repair). So, suffice it to say that I was waiting for this “storm” of spending to be over before I could assess my financial situation and re-focus on the emergency savings.

Of course I’d usually advise against using your emergency savings for these types of things, but sometimes you’ve got to make tough financial decisions that don’t follow the beaten path. My hope is that this new SUV that is already paid off will last me at least 5-7 years, thus allowing me to save the money I’d otherwise have put towards an auto loan, and theoretically allow me to pay for my next car in cash as well. For the bed, we took an opportunity from my parents who had a spare king-size bed frame and box-springs that they were willing to give to us, so we saved a little bit of money by buying a new bed now.

Like I’ve told Ashley: Long-term financial decisions are like a game of chess. You meticulously put the pieces in place now in order to win the game later.

Happy Saving!

Hello all,

It’s been about two months since I’ve posted on here. I figured I would pop in and let you know what I’ve been up to for the last couple months.

First of all, I graduated college a few weeks ago with my bachelor’s degree in Finance. It took me five long years but I’m finally done! I haven’t decided yet if or when I’ll be going back to get my masters degree. I’d like to take at least a little bit of time off and see what happens on the interim. I’d like to go back and get my masters, but I believe it’s important to spend some time after completing an undergraduate degree to get into the workforce and focus on being a quality employee before you figure out where and how you’re going to take your education further. I got my undergraduate in Finance, but I might decide to get my masters in Accounting. That’s why you spend some time in the workforce. You might find out that you want to go in a different direction for your masters.

In my spare time, I’ve just started to work with Big Brothers/Big Sisters. I’m currently in the process of being matched with a “little.” I should hear back from them shortly. Why did I want to do this? Well I did some similar work when I was in high school. We had a program at my school where a junior or a senior student could visit the elementary school during their free time and work with kids in need of a mentor. I enjoyed it and I think it would be a fun and fulfilling way to spend some of my spare time.

Our emergency fund has grown a lot since the last time I updated. I don’t have my spreadsheet with me right now, but I believe the last time I checked, it was around 90%. I will post an update on Friday when we get our paychecks. We are very excited because the emergency fund should be complete sometime in late December or January. Once it is complete, we’re booking another trip to Disney (and giving ourselves enough time to save up for it). We’ll still add a couple hundred dollars per month into the emergency fund to keep it growing, but most of the heavy lifting will be done.

Other than that, I really don’t have an excuse for not having posted anything in two months. My final term at school was a very busy time, and I’m just starting to round the corner where I’ve enjoyed my free time enough that I’m ready to do more constructive things!

Zac Fields

Not much new to report this week. We are now 6% closer to that 6-month goal. This puts our total at $7,766.27 out of the total of $10,700 needed to complete the six month emergency fund.

As you may remember, last month we had a lot of extra unbudgeted expenses (about $920 worth). It’s slightly depressing to know that, without those expenses, we’d be at 81% rather than 73%, but that’s just the way it goes sometimes! Every month can’t be perfect.

This month, we have to pay the insurance for our two cars and my motorcycle. The insurance is semi-annual for the cars, and annual for the motorcycle. The total bill is $520 for both, but there will be some off-setting of this expense in the form of a few hundred dollars worth of extra income.

Happy Saving!

The unemployment rate reacted very similarly to how I thought it might act in my last blog about the July unemployment data. I had mentioned that it is possible that the unexpected drop in the unemployment rate for July might cause a small spike in August due to more workers entering the workforce as a result of the “good news” about unemployment. I think I will make this a monthly summary of the unemployment situation, since it seems to be a popular topic. Each month, I will dig through the various unemployment information from the BLS, and summarize them in the form of “quick facts” about the unemployment situation.

Quick Facts

• The average hourly earnings increased in June, July, and August from $18.54 to $18.59 to $18.65 respectively.
• The average hourly work week in the private sector held steady on the July number of 33.1 hours. The same is true for the manufacturing work week, which held steady at 39.8 hours.
• The total number of unemployed persons increased by 466,000 people to 14.9 million total, but the amount of jobs lost was only 216,000. This would indicate that approximately 250,000 individuals entered or re-entered the workforce in August.
• The amount of jobs lost in August (216,000) was fewer than the amount of jobs lost in July (276,000) by 60,000.
• The median amount of time most people have been unemployed dropped in August to 15.4 weeks from 15.7 weeks in July. This is significantly off its’ peak of 17.9 weeks in June.

Situation-Specific Unemployment Rates

• The unemployment rate for adult men was 10.1% in August versus 7.6% for women, rising from their rates in July of 9.8% and 7.5% respectively.
• The unemployment rate for teenagers rose from 23.8% in July to 25.5% in August.
• The unemployment rate for white (males and females) rose from 8.6% in July to 8.9% in August.
• The unemployment rate for black (males and females) rose from 14.5% in July to 15.1% in August.
• The unemployment rate for hispanic (males and females) rose from 12.3$ in July to 13% in August.
• The unemployment rate (seasonally adjusted) for an individual holding a Bachelor’s degree or higher remained steady between July and August at 4.7%. The unemployment rate for high school graduates and those with Associate’s degrees or “some college” rose to 9.7% and 8.2% respectively.
• The worst industry for unemployment in August was ‘Construction’ at 16.5%, while the best industry was ‘Government’ at 5.1%. ‘Education’ and ‘Financial Activities’ were also impressive, as both were at 6% for August.

Overall

It’s hard to be impressed by most of the numbers from the BLS reports, but it is worth noting that the numbers are getting better. By all indications, I would be surprised if unemployment doesn’t peak before February or March of 2010, and I really think 10.5% or 10.6% will be the peak rate. The decline in the unemployment rate will probably be a slow decline, because as we saw in July, if the unemployment rate starts to decline, more people tend to enter the market. This causes the actual unemployment rate to fluctuate even if the amount of jobs lost is shrinking or the economy begins to add jobs.

I’ll post up another update next month shortly after the numbers come out.

One common misconception about emergency funds is that you’re safe if you’ve got a lot of unused credit. Some people say that credit cards are a poor emergency fund, but if you’ve got a HELOC (Home Equity Line of Credit), then you are perfectly fine using that as your emergency fund. After all, you’re borrowing from your own equity and the interest is tax-deductible.

Credit Cards

Let’s tackle using credit cards as an emergency fund in leiu of having a cash emergency savings first. The first major problem with this method is that creditors have the ability and the right to cancel or lower the limit of inactive credit card accounts. So, the $10,000 you had as a credit limit yesterday might turn into $2,000 by the time you actually need to use it. Creditors are pretty good about letting you know when they’ve adjusted your limit, but that doesn’t make it any easier.

The second major problem with using credit as an emergency fund is that you risk turning one emergency into a different emergency. These days, a 15% interest rate on a credit card is a fairly average rate for someone with decent credit. Let’s say you need that entire credit limit of $10,000 for an emergency this year. After you’ve paid off your emergency, you go to a loan calculator website and you want to figure out what the payments would be if you wanted to have the entire $10,000 paid off in five years. You find out that you’ll be paying $237.90 per month, every month, for an entire five years before you’re debt free again. And keep in mind, this entire time, your “emergency fund” is only as large as the balance you’ve paid off on your credit card. To top it all off, you do the math and realize that once you’ve paid this debt off in five years, you’ve paid a total of $14,273.96! Add in another emergency or two during that five years, and you end up spending seven or eight years paying off your credit card, and paying enormous amounts of money in interest.

Do keep a credit card on hand for emergencies, folks, but use the credit card AFTER you’ve exhausted your cash emergency fund that you’ve built up. Say you are forced to spend your entire cash emergency savings, and then before you’ve built your savings back up completely, you suffer another emergency. That would be a more reasonable time to pull out the plastic.

Home Equity Line of Credit (HELOC)

I really don’t like the idea of using a HELOC as an emergency fund. In fact, I think it’s a worse idea than using a credit card. HELOCs should be reserved for people who have developed a significant amount of equity in their homes, and would like to cash in some of their equity to make improvements to the home itself. That way, if you run into a situation where you’re having trouble making payments and need to sell the home, you’ll recoup most of the money you borrowed in the HELOC with the added sale value to your home.

What’s the biggest risk? Well the biggest risk is foreclosure, of course. A HELOC has such a good interest rate because you are essentially putting your home up as collateral for the loan. That is what makes a HELOC different than an unsecured line of credit. Let’s review the risks of a HELOC versus credit cards versus cash emergency savings:

• Credit Cards: If you can’t make the payments, it hurts your credit.
• HELOC: If you can’t make the payments, you could lose your home.
• Cash: There are no payments to make at all!

Overview

If you consider your credit cards or a HELOC to be part or all of your emergency savings, please reconsider. If you’re put in an emergency situation, you have already been through enough. Why risk your home or risk putting yourself deep in debt in addition to your emergency? The emergency fund, by nature, is meant to ease your mind and give you a greater sense of financial security. Keep that in mind when you’re deciding how to formulate your emergency fund.