October 1, 2018

Ripples from the Great Recession – ten years later

I’ve been thinking about this a lot. Obviously. Even as I gear up for the next recession, whenever that may be, it’s obvious how heavily my thoughts and feelings on our financial security are influenced by the last one. Sometimes I’m levelheaded about it and make action plans. Sometimes I’m weighed down by anxiety and worries.

The first question is always: are we over-committed financially? If we aren’t, then it shouldn’t be a problem, right? We’d just tighten our belts for a while and ride it out with our cash in hand.

Answer: not with two jobs. Also true: to my disaster brain this means yes, we are over-committed. We should be able to handle all our expenses on one income. That’s one area I’m extremely sensitive to – this mortgage really messes with our financial position. I’ve reduced it by nearly 1/3 and recast so that our monthly commitment is several hundred dollars less but it’s still not anywhere in the neighborhood of low and low is what we’d need for me to feel like we weren’t over-committed. Mortgage aside, having children is a serious financial commitment between basic childcare and saving for college for them. If we wanted to add to our family, that’s a huge expense we’d be adding and I hate that we have to look first at the price tag and second at the joy (and pain) of having children.

The second question is: are we prepared for expensive life events and emergencies? In my previous experience, one spot of bad luck is absolutely manageable. We’ve absolutely got that covered. My previous experience also says that bad luck doesn’t tend to happen in ones, they tend to be a streak. I’ve planned just fine for a limited series of bad luck but not beyond more crap than two job losses. Compound that and we won’t be able to hold out as long as I projected. So that’s another sensitive area these fears keep prodding with a sharp stick. See, that’s what fed my cash hoarding. This fear that says putting lots of cash into the stock market now “right before” (except hah, who knows when “right before”really is) a market correction or crash makes us vulnerable to financial ruin and that cash hoarding will fend off financial ruin.

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September 26, 2018

Thinking about money

Parental responsibility paradox

I’ve always been responsible enough to cover at least two adults, if not three, and my condition hasn’t gotten better since becoming a parent. It’s led to some weird perspectives on money so I’m never quite sure of the etiquette.

If a friend was ill and you sent them food for a week, would you let them pay you back?

If you visit chosen family every year, they always feed you, and don’t let you contribute, would you engage in a long, probably losing, battle over it? Or is this a thing that family does and you’re supposed to sit down and shut it?

Income and savings

Once upon a time, at least ten years ago, I told a friend “I can’t wait until I make $100,000 a year. Can you imagine how much I could save???”

Answer: Not as much as I had originally planned. But still a healthy amount!

How much could you save on a $100,000 salary and do you have a single income, dual income, and/or any dependents?

Skills

“You know, I lied before. I didn’t really learn to play guitar. I just kinda … gave myself the ability. I did the same when I learned French.” – Chuck, Supernatural

If you could, would you just give yourself talents (musical, lingual, or athletic)? What would you pick?

Massive loans

We’re whittling away at the redwood that is our mortgage and I periodically check to see whether we should refinance for a lower interest rate. Now is really not the time – interest rates are approaching 5%! Our rate is a not great but not horrible 3.875%. I miss our previously pretty great rate that was a full percentage point lower.

What’s the best interest you’ve ever had on a loan?

September 17, 2018

How are you recession-proofing?

The anniversary of the Lehman Brother’s collapse is coming up. I keep hearing about the ten year recession cycle and that anniversary is symbolically looming large in my mind.

That was my first recession as an adult and I didn’t really know anything about recession cycles or how the market functions – nothing! All I knew was the financial world had come crashing down, my favorite bank (WAMU) had been eaten, the banks were dropping like flies, and that I didn’t know enough about stocks to make smart picks during the tumult. I did know enough to buy BRK-B at the first buying opportunity but I had so little money at that time I bought less than ten shares. Still I bought them and they’ve doubled in value so that was one good decision made in near total ignorance.

I’ve been thinking a lot about how to “recession proof” our lives and our portfolios. This time around, we’re incredibly lucky to have been able to build up a solid foundation already. I’ve still got a bit to learn but the basic outlines are relatively clear to me. We’re personally at least a decade or more away from FIRE even with a bull market so overall we need to stay aggressively invested to build up our wealth. We added some bond funds for stability recently but I’m still thinking about how much we need in bonds to endure a bear market in good health.

Several scenarios come to mind:
(A) a recession with an extended bear market but no job loss,
(B) a bear market + recession + 1 job loss,
and (C) a bear market + recession + both jobs lost.

In scenario A, in theory, I want to have cash on hand to buy more stocks / stock funds as their prices drop. This is assuming that we’re still making decent incomes and expenses stay the same – our savings would remain intact and we’d have cash flow to invest with.

In practice, I need to think about where my purchases should be made (individual stocks that bear dividends vs stock funds) ahead of time so when the prices are dropping during a stressful time, I won’t be irrational and go ostrich. With a buying plan, I’ll actually buy. Without one, I’d hunker down and miss out on good pricing.

Jonathan’s stress test, as a person looking to live off his portfolio for another 40 years, is also a useful thought process though he is far more heavily invested in bonds since he’s further along the process.

In scenario B, we would have to stop saving and investing to make up for the lost cash flow. Mind, we’d have lost half our income (at least) so we’d only be diverting savings from the remaining income. In any case, no cash flow would be available for buying but I could make an argument for diverting a bit of money to buy at low prices. Depending on which of us loses our job, we could also lose childcare which is linked to a job so that reduces one large expense in addition to creating a bit of logistical difficulty job hunting and minding JB at the same time. I’m not factoring in unemployment income specifically because I don’t know how much we could draw and how long it would last. It would simply be plugged in to cover non optional expenses if it does exist.

In scenario C, we start drawing down our savings to cover expenses and slash any optional expenses until we have a new job. We have 1 year in cash and CDs and 6 months in bond funds. Naturally, we would have to make cuts to variable / disposable income type expenses but we don’t have a ton of those. If we lost both our jobs, I would hope that 18 months would let us weather being between jobs but there’s part of me that still worries it’s not enough. I remember how long it took to get another job last time and it’s infinitely more stressful with two adults job hunting and swapping childcare. I’d still be able to do some mini gigs, probably, but that’s really minor income stacked against our expenses.

If we were in a different (better) place financially, I would take a job loss as an opportunity to take a real sabbatical but we’re not in that place yet. I keep looking at our circumstances to find ways we can do better and get to that place but we won’t be there in the next two years.

:: What are your plans for weathering a recession?

September 10, 2018

When sleep deserts you

Sometimes insomnia pricks me badly and I’m not able to sleep even after reading two or three books. I used to be really good at sleep hygiene but the combination of being tired and too tired to sleep overrides the usual tactics.

So I lay awake browsing, trying to find that last bit of something to read that will let my brain relax and say ok, sleepiness! Come in!

All the time hoping and hoping that it won’t take three, four, or five hours. A preschooler, two jobs, and two dogs have no mercy for a mom who failed at sleeping again. Who fails at sleeping?? Who wakes up with new injuries from sleeping?? Not only me, I can tell you that much.

This night I took to writing. This post, and the beginnings of ideas for some freelance work. I shake out my brain for more freelance ideas. I check on sleeping JB and give zir a quick cuddle. Pet the dogs, scratch PiC’s back gently. Finally admit that the uncertainty at our jobs that’s been gnawing away at us is getting to me. I’m worrying about pennies again. I’m worrying about bringing in some extra dollars against the lean days, worrying about wanting to grow our family when we can scarcely afford all the priorities on our plates, worrying about if we could even choose to do that if we let ourselves want it. I’m repressing even the knowledge of what I really want, again, because of money, again, and that’s telling my body it’s the bad ole times, again.

My body responds, predictably. It tightens up. It doesn’t let me sleep. It says ok, stay awake, plan your way out of this mess! (more…)

August 29, 2018

The ways I avoid spending

A friend recently asked how I control spending. That’s both a simple and complicated answer.

If we’re just talking about the literal HOW DO YOU DO IT, these are the technical steps that I take:

First up is willpower!  This is the weakest of the ways. Willpower is finite.

Depending on how challenging your days or your life feels, it can be so limited as to feel non-existent! I understand this: if you return to The Precious ten times and say no ten times, that’s 9 other times that you could have been saying no to something else or exercising better judgment.

However, it’s the most important initial set of brakes on the impulse to buy. Once I say no the first time and it pings my consciousness again, then I push it to the next step.

Sometimes I’m fresh out of willpower but I have just enough energy to pull out the credit card. Oh let’s not pretend I don’t have that card number memorized. I do.

So let’s say I don’t even have willpower or the precious little left needs to be preserved. Call in the reinforcements!

These pretty sparkly pretty (sparkly!) Star Wars flats lured me in ….

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August 22, 2018

Emergency funds: long term planning and fostering hope

One of my long-standing bastions of money irrationality has finally fallen! It’s been a long time coming and I’m very proud of making the progress, finding the emotional maturity and steadiness, needed to take it down.

This is the change in my money management that I alluded to a while ago.

I’m incredibly risk averse and conservative in my money management. This trait (habit?) goes waaaay back.

I was once a workaholic, wrapped up in building my career and scrutinizing every single move and communique like it might have hidden gold or a secret message for success because every penny mattered. Because I had to support a family even before crossing the threshold to adulthood, at age 17, any money that I earned went to paying down debt and building up a basic savings account instead of investing in a Roth IRA. I had to keep cash on hand at all times because there was always something going wrong: someone got sick, my trainwreck sibling had run up another utility bill, an endless stream of flat tires, dental emergency, or more dental issues.

Obviously, after many long, tough years of working and saving, I made it through that period. But also just as obviously, I bear the scars which translate to being even more risk averse. At this point in time, I’m highly concerned about the possibility of a recession in the next few years, as well as highly concerned about our job security. There’s always been a question mark over my job, but recently one has been hung over PiC’s job, and that brought all of my fears back to the fore.

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