The Digerati Life

How will your money fare after the presidential elections? Let’s review where Obama and McCain stand on some financial issues.

With elections around the corner, I thought I’d chime in on a well-worn financial topic — the one that pits our presidential candidates against each other on the subject of money. It’s about time too, since I’m receiving more and more (unsolicited) political messages and notices from my old friends via email; clearly, our political climate is heating up as we approach election day. So I’d like to take a break from the usual harping we’ve been doing here about the weak stock market and the unrelenting economic crisis to do a quick run through on where the candidates sit on some issues.

Obama vs McCain, Which One?

I’m seeing that Barack Obama offers us ordinary citizens more services, for a price. John McCain, while applauding the Federal Government move to rescue the economy, wants to cut our taxes even more, especially for the richest 10%. He intends to pay for the government’s needs by limiting the war in Iraq, cutting “pork” from Congress, reducing the military budget, and by hoping that the tax cuts will result in more business nationwide.

Our Mass Transit System Is Pitiful

Obama wants to spend more than 60 billion on fast Internet services (we are way behind Europe in this area), better education (though he refrains from offering vouchers), on rebuilding our nation’s infrastructure such as high-speed rail (again we are way behind Europe), and on research on alternate fuels. He plans on raising taxes for those who earn more than $250,000 a year.

The Trickle Down Economy: Do You Hear The Tinkling?

Meanwhile, McCain is apparently favoring the trickle down economy trumpeted by Ronald Reagan. It means that when rich people and companies are doing well, the financial fruits will come trickling down to the average Joe. And for rich folks to do well, he plans on lowering their taxes too, hoping they will invest their excess money into new industries and new jobs (hoping doesn’t cost anything).

Welfare State?

Conversely, Obama would like to emphasize plans to help the less favored by lowering taxes for seniors, students, low income workers and mortgage owners (we lost quite a few of those in the last 12 months). According to Roger Lowenstein, “McCain would continue his non-interventionist approach.” In other words, he favors letting the markets decide who wins and who loses. Or said another way: he prefers to let the markets do as they will, with the government not intervening so much.

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This tough economy getting you down? Here are some frugal steps you can take to survive this rough financial period.

There is nothing that ordinary citizens like you and I can do to solve the mess on Wall Street. Calling your congressperson every day won’t change his/her vote, because they have to follow the party line in most cases. The only weapon we have is to vote on election day for changes at the House and Senate. The presidential candidates haven’t shown much to convince us; the choice is really to vote for the less “bad” of the two.

Despite all this talk of financial bailouts and government intervention, we regular folk need to fend for ourselves in the midst of the chaos. We may be mere spectators to what goes on in the big, wide world of finance, while some of us have already become unsuspecting casualties to the sweeping economic events of the past couple of years, but we don’t have to feel so helpless (even though it may seem that way). I’d like to investigate the things we can do to limit the negative effects of this difficult economy on our financial status and well-being.

How Can We Prepare For A Tough Economy?

When it comes to your family, it’s time to circle the wagons and consider extreme measures to survive the economic crisis. You should act as if you were about to lose your job. Prepare for the possibility just in case it happens, because some banks are failing and the others are afraid to loan money to small businesses. If large companies are cutting their workforce by the thousands, imagine how difficult it is for small businesses to survive.

Don’t Emulate The Joneses

I see some of my neighbors still buying expensive and gas consuming cars and trucks, probably because they have stellar credit. This is not the time to buy anything costly, be it a car or a house, unless you are overflowing with excess cash. Even if you enjoy a good financial position, with little debt, things could turn around in a hurry. I know, because I went through it 20 years ago. I was laid off suddenly from a software company with 140 employees. I still had to come up with the mortgage and the car payments and every other expense a family has to live with.

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Was this the inevitable? WaMu gets its emergency bailout with a buyout from J.P. Morgan.

Image by Mike Keefe, the Denver Post

What do you know? The virtual ink has barely dried off my post about the WaMu free checking account rate increase to 4.0% when the other shoe finally dropped. In fact, WaMu just made this rate increase effective this week….then their ratings were downgraded, and finally, this — all in a span of a few days. Things are really becoming volatile in the financial front with WaMu getting absorbed by J. P. Morgan. If you’re curious about “what happens now”, then I’ve offered some thoughts on this subject when I wrote about the case of having savings accounts in problem banks.

This may be the best case scenario for WaMu, but its employees and stockholders are experiencing the brunt of its downfall. Here’s what’s in store for you if you’ve got WaMu connections. I found this information from the Seattle Times:

What happens if I’m a WaMu …

Depositor: Your new bank is JPMorgan Chase, and your money is safe. Deposit interest rates and account numbers might change, but it could take months. Banks typically give plenty of notice about such changes.

Borrower: Your new lender is JPMorgan Chase. Continue to make payments as usual.

Stockholder: JPMorgan Chase bought WaMu from the FDIC, not from its shareholders. When a bank fails, shareholders are the last to be paid; they will receive nothing.

Employee: Branch employees could be the safest, because there is so little overlap between the banks’ branches. Headquarters employees are not as secure, because JPMorgan already has many of those functions. It’s too soon to know how many of those jobs will be lost.

How this event bodes for the rest of the financial industry and the economy, remains to be seen.

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With the economy making headline news, what do you think of the way the media is handling the financial crisis? Is it just me or does it smack of drama and hyperbole?

Financial panic. Distressing scenarios. The market is not functioning properly. Widespread loss of confidence. We cannot risk an economic catastrophe. Long and painful recession. Our entire economy is in danger.

Disturbing words from Dubya and it all sounds critical and precarious.

Tell us again how we’re this close to financial collapse unless we succumb to a bailout. How we’re on the verge of ruin.

Times like these, I want to put my head in the sand, or fingers in my ears while I sing “Lalala, I can’t hear you”. No, I’m not going nuts here just yet, but I’m beginning to approach “financial crisis overload” from the stuff I’ve been reading and hearing about lately. As I digest each day’s financial events, I’m not sure what to make of all the media madness trumpeting how everything is falling apart in our economy.

How much of this should I believe in? How much should I take with a grain of salt? Is it all overplayed or overhyped? I know it’s “bad” but I wonder just how bad. Should I be so afraid that I become motivated to take out all my money and hide it in my kid’s toy chest in the closet? (Of course that’s just a hyperbole ).

So I frequent the CNN Business section and all I’m seeing there right now are gratuitous expressions of gloom and doom, news to frighten us out of our britches and stoke us into panic. Yet so far, my empirical observations aren’t in line with what I’m reading as I haven’t personally felt the consequences of this economic malaise, except perhaps when I look upon my somewhat ravaged long-term stock portfolio. It makes me uncomfortable some, but occasional slumps in my portfolio are nothing new to me, and for the most part, I’ve (wisely?) shrugged off these occurrences each time.

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The combination WaMu free checking and high yield savings account undergoes a rate increase to 4.00% APY.

It’s been pretty exciting (bordering on wild and not in a good way) tracking the markets and the banks these days. One of the latest updates I can provide you on the online banks we’ve been monitoring here is that Washington Mutual has now increased the interest rate of their WaMu free checking and savings account from 3.75% to 4.00%. In the span of a few months, the hike in APY has been from 3.30% to 4.00%, which is quite a noticeable jump.

I’ve been following the bank rates for a while, and all this time, WaMu has been leading the APY numbers with one of the highest interest rate offerings I’ve seen among online banks. Just to compare, here are some other online banks with their interest rates:

• The FNBO Direct Online Savings Account currently offers 3.50% APY.
• The will now give you a 3.31% APY for the first 60 days. After the first 60 days, you’ll need to retain a balance above $10,000 or your APY will be reduced to 0.50%.
• HSBC’s Online Savings Account will earn you 3.25% APY.
• ING DIRECT’s Orange Savings Account will earn you 2.75% variable APY.

As per Bankrate.com’s figures, WaMu’s rates are beating the average 6 month CD rate of 3.19% and average 1 year CD rate of 3.69%. And they now pretty much match the current average rate for a 5 year CD (4.16%)!

Please don’t take this as an endorsement of WaMu, but I’m here to report updates on financial products I’ve found of interest. This series of rate hikes tells me that WaMu wants to attract depositors to their fold by setting the bar and working to stay competitive in the marketplace. Keeping in mind that an account with any bank will be FDIC insured, I wonder whether it’s a good idea to pursue higher rates at banks that offer them, despite “exogenous factors”.

Free checking at 4.00% is an extremely attractive rate, but like with any other offer, it’s something to take into account as part of the bigger picture (which would include the account’s other features, the bank’s strength, and the state of the financial industry today). Of course, it goes without saying that we should always take note of the current financial climate as we make decisions about where to place our money.

What do you think? I’d be interested to know how high you’d want rates to go before you override inertia and think of switching or putting money into a particular bank regardless of current financial circumstances. How do you feel about these rate offerings in the midst of stock market instability and economic bailouts, and by financial institutions in the news?

Update: Because of changes in WaMu’s recent situation (e.g. the buyout), I can no longer provide you with links to WaMu’s financial products.

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Is the economy affecting your spending patterns? How much effect does the economy have on how you save money?

Things must be bad when the wealthy start to tighten their belts. It appears that a lot of the rich have decided that their normal spending habits can no longer go on unchecked. With the market having sliced their asset base in a big way, some of these rich folks are having to make adjustments.

I found a rather amusing story in the Wall Street Journal about the rich deciding to economize because the economy’s been on shaky ground. Here are examples of how the rich are economizing right now:

• Postponing a nose job for a child.
• Cutting down on nanny costs from $1,200 a week down to $750 a week.
• Having second thoughts about purchasing a $25 million megayacht.
• Deciding to go with a cheaper $1,200 Botox treatment in place of a planned facelift.
• Slashing the jewelry budget in half, from $50,000 to $25,000 for an anniversary present.
• High end jewelry stores needing to offer storewide sales, with discounts of 25% off.
• Greater interest in selling off trinkets like jewelry and gold watches.
• Chasing down discounts for Armani pin stripe suits because of “shaky” finances: $500 is a superb deal at 80% off!

Is this for real? Because I don’t see this as economizing at all, at least from the vantage point that I have. Well, it’s all relative, after all; even after downsizing and cutting back, a lucky few are still living a life that is way beyond anything we can imagine having.

This story made me reflect on a few things. One thing it made me realize was the effect of wealth on most people. It’s human nature to expand our appetites along with the expansion of our incomes or net worth. If you used to make $100,000 and live on $50,000 a year, but find yourself one day making $400,000, would it be any surprise if you’ve gradually expanded your budget accordingly? How many people would actually still live on $50,000 a year even after reaching incomes that may be quadruple what they originally earn?

A lot of true frugalists will say that no matter how much their income or asset base has increased, they wouldn’t change their ways. Their spending and saving philosophy is quite conservative, which you’d label as the approach taken by “The Millionaire Next Door”.

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Before I launch into my rather massive linkfest this week, I’d like to cover an interesting discussion I’ve come across at the Wesabe forums lately, which I’ve been visiting in my spare time. This particular discussion is about dealing with spousal debt.

What do you do if your spouse has a spending addiction and is irresponsible about their finances? The consensus: don’t rely on a financial rescue package like the one the government has been using on our economy. Executing a bailout won’t resolve the problem behavior (and in fact may encourage it).

It gets pretty dicey when your partner racks up the credit card debt, and just doesn’t know how to stop spending. Here’s how the Wesabe community responds to this issue:

How To Handle Your Partner’s Credit Card Debt and Spending Addiction

#1 Don’t convert credit card debt into home equity debt. It’ll just free up your spouse’s cards so that he or she can do more damage. Unless you freeze or cut up those cards and commit to paying down debt, any loan modification efforts will only lead to increased spending temptations and additional debt.

#2 Encourage your spouse to seek debt and psychological counseling. This can be tricky. Have you ever seen the show on television called “Intervention”? You can only instigate change if you desire to. Unfortunately, many people don’t see their debt as a problem and continue to be in denial.

#3 Don’t bail your spouse out. Discuss the possibility of separating your finances with your partner who cannot manage their debt. See if you can work out an agreement wherein you keep separate financial accounts.

#4 Approach the issue with sensitivity. Be supportive and provide a positive attitude and loving approach to your spouse’s problems.

#5 Become your household’s main financial manager and give your spouse a spending allowance. Can you make your spouse agree to a financial plan? You’ll have to work as a team on this. You’re basically imposing strict limits on your household spending.

#6 Help your spouse gain more of a financial education. Provide your partner with financial resources such as books and articles on how to manage one’s money.

#7 Visit a financial professional: a debt counselor or a financial planner can help straighten out your financial issues and provide valuable input, third party observations and expertise to address your concerns.

As I mentioned, I picked up these situational pointers from the Wesabe community groups, where you can find more helpful discussions of the financial sort. It’s definitely a great place to visit!

Now on to some more discussions around the blogosphere….

Recommended Personal Finance Reads

• Five Cent Nickel discusses the government’s “Rescue Package” for the economy.
• Blueprint For Financial Prosperity talks about how long time Lehman employees have been wiped out by their company’s bankruptcy. Lesson? Diversify! But while the market was tumbling last week, Jim decided to do a little day trading.
• The Simple Dollar: Trent shares 5 great ways he spends his weekends to live frugally. What DIY projects do you do?
• Mighty Bargain Hunter covers the difference between an accumulation and a collection. Case in point: a coin collection.
• No Credit Needed shows us how to calculate the average daily balance of our charges using a free spreadsheet.
• Lazy Man and Money has a guest post from Master Your Card about how to get the best deal when buying a car.
• The Smarter Wallet also has some car buying tips for the used car shopper.
• Frugal Dad has a guest post from The Writer’s Coin on how the market crisis can help your retirement.
• Money Smart Life: discusses the financial turbulence of the last week, as have I in my recent articles referencing the best places to put your money right now and your savings accounts in problem banks.
• Gen X Finance asks if you got suckered into a fake gas price hike from hurricane Ike. I’ve noticed that a few bloggers (such as JLP from All Financial Matters) were affected by hurricane Ike, as they’ve reported from the trenches.
• The Sun’s Financial Diary reports how the Chinese stock market has lost 70% of its value in less than a year. Yowza! Some bailouts went into place for the Chinese market as well, resulting in a 9.46% one day surge.
• Million Dollar Journey has a guest post from QCash on his first foray into real estate investing.
• Brip Blap talks about building wealth in an age of thieves.
• My Dollar Plan shares 29 steps she took to leave the workforce at age 29.
• Rich Credit Debt Loan suggests ways to undo the results of financial trauma.
• Money Ning reflects on the steps we take to fix our finances and offers us a great truism: disaster prevention trumps disaster recovery.

Additional Financial Articles I Enjoyed

• The Personal Financier: How Can They Possibly Afford That? Or Is Money In The Eye Of The Beholder?
• Nursing School Search: 100 Essential Resources to Achieve Personal Well-Being
• Sentient Money: Why Is The Financial Meltdown Happening?
• My Super-Charged Life: You Can Literally Think Your Way To Success And A Good Life
• My Family’s Money: How To Make Your Child A Millionaire!

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Some of the best places to put your money during tough stock market periods.

Should I move my money? Where should I keep my savings right now? We’re all probably thinking the same thing. With money in the stock market, I can’t help but feel sorely tested by what’s going on in the markets at the moment.

If you’re jittery about the stock market these days, we’re in the same boat. We’ve seen some of the bumpiest market sessions in recent history and I’ve got whiplash just reading the benchmark index numbers like the S&P 500 (fell 4.7 percent in one week, gained it all back in one day). So have you caught your breath lately?

From some comments I’ve received in a past article (Worried About Your Savings Accounts In Problem Banks?), I’m seeing some chicken littles and doomsayers predicting the end of our financial system, insinuating perhaps that we should be hiding our money “under the mattress” or in home safes or underground caverns in the middle of the desert.

I think we’re far from needing to do that, but as an exercise, I wanted to canvas the various places we can realistically keep our money during turbulent financial times.

Best Places To Keep Your Money During Stock Market Turmoil

#1 Where it is right now

What does this mean? If you’ve decided on a long-term investment strategy that includes equities, and have selected solid investments with fundamentally strong track records, then the emotionally charged stock market climate today shouldn’t sway you away from your current set up.

These last few days, my spouse has been engaging me with interesting evening banter (after he gets home from work) about how he believes we haven’t seen the worst of things just yet. He’s a mainstay on economics and real estate blogs that trumpet the deterioration of our economy, one financial institution at a time. But I’m here to tell him that this is the wrong time to make decisions: when emotions and worry run high. As much as possible, avoid emotional decisions when it comes to money; many have the effect of hampering your progress towards achieving your long-term financial goals.

#2 In good solid mutual funds and stocks

Here’s how I look at it: if you’re going to participate in the market at all, the “safest” places for your money are in high quality stocks and funds. If you own penny stocks, smaller stocks or more aggressive funds, you’ll experience much greater volatility than the rest of the market. So it may be wise to move away from the marginal stuff and into relatively more stable equities — particularly if you hold positions that do not fit your investment profile. Also, if you’ve got the extra cash, think about buying low — wait for the market to find its footing (or form a bottom) and add money into equities.

#3 In high yield savings accounts

If you truly want to keep your cash as safe as possible, then go for FDIC insured savings or checking accounts. Here are online banks that offer high savings rates at this time (ranked by yield):

FNBO Direct: The FNBO Direct Online Savings Account currently offers 3.50% APY. You won’t pay any monthly fees on your account and no minimum balance is required. This is a good place to park your money without the extra conditions that a lot of other banks require. Here’s where you can open an account.

WT Direct: The will now give you a 3.31% APY with some caveats: for the first 60 days, you’ll earn 3.31% on your money. But after 60 days, if your account is under $10,000, your APY will be changed to 0.50%. This just means that you need to maintain a balance of at least $10,000 to receive the 3.31% APY. Also, they have no fees and have high transfer limits. Open an account through this link: .

HSBC Direct: HSBC’s Online Savings Account will earn you 3.25% APY. They have no regular monthly or transaction fees and no minimum balance is needed to open an account, though other charges such as stop payment orders or return item fees may be incurred (which is the case for all banks anyway). Open an account through this link.

ING Direct: That ubiquitous orange ad you see on many financial sites is for the Orange Savings Account, which presently yields 2.75%. This account has no service charges or fees, and can be opened with as little as $1 (no minimums). They also provide you with the convenience of linking your ING Direct savings account to any checking account used for your initial deposit so that you may easily transfer funds between your online accounts. If interested, you can sign up for this account here.

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