Why don’t we save?

I caught the New Hampshire debate on Saturday night in between watching the Pittsburgh and Jacksonville game. (Note to the NFL, enough already with the Jeep Liberty commercial with the singing animals.) Where was I? Oh yeah, the debate. While watching the debate I heard the politicians speak about the American Dream becoming harder and harder. They said that health care costs are rising. They said that gas prices are out of control. They said that it’s harder to feed a family today than ever before.

Not once did any of them mention that saving money is no longer a priority in America especially at the government level.

Why don’t we save? Saving is simply a habit. Just like watching television, eating healthy and exercise. Most people just don’t think about saving. Today while checking out my rss feeder, I came across 7 ways to save :

  • Look for discounted dinner entrees
      Don’t throw out the Valpak or Money Mailer they’re chock full of coupons for local restaurants. Skip the appetizers and the desserts while you’re at it skip the booze, the alcohol is always over priced and you shouldn’t drink and drive anyway.
  • Return unopened, unused items
      Lowes and Home Depot don’t even require a receipt if you bought it in the last 90 days or something like that and they automatically credit your credit card.
  • Look for extra grocery savings
      Cutting coupon sucks, ok it sucks big time, but if the coupon says $2 off 5 Lean Cuisine Panini sandwiches and you were planning on buying 5 Panini Sandwiches, go ahead and pick up a 6th, your wallet won’t know the difference.
  • Check out materials from the library
      If you live in , our library system has the most unreal DVD collection in the world. Sure you wait a few more weeks for new releases and the mailman doesn’t drop it off or picks it up at your house but it gets you out of your house and you might run into an old friend who looks really good in wingtips but really bad in birkenstocks.
  • Bundle cable, phone and Internet services
      Get rid off cable and your phone altogether. Television is just more noise in an already noisy world. Sure you’ll miss watching Family Guy at 1 AM on Cartoon Network but you won’t miss spending $50 each month. To entertain yourself learn how to juggle or get DVD’s at the library. As for your telephone, it will only serve one purpose in 2008 - for politicians start calling you to ask for your support.
  • Negotiate with monthly service providers
      Sure the cleaning people clean great the first time. Sure the landscapers mow your lawn great the first time. Wait till they “forget” to show up or when they’re on the 3rd go around, you’ll be less than thrilled with their service and you’ll end up doing it yourself.
  • Stash money for easier savings next year
      Money will double in 7 years. I deposited $250 in a mutual fund in 2000 and it turned into $500 by 2007. The money even withstood the dot com and stock market drop off in the early 2000’s. I couldn’t buy a laptop for $250 in 2000 but I can definitely buy one for $500 today.

No more excuses.

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Your mortgage changed your lifestyle or did it?

Here’s an interesting article on how adjustments have changed lifestyles. A few years ago people were using their homes as ATM’s; taking out cash at will to buy things. I was never a big proponent of racking up at the expense of your home’s equity. Here’s why: Mortgage market hangover could choke holiday sales

However, I doubt a lack of equity will really curb the appetite to purchase “stuff.” To put things in perspective on Saturday I ventured to Best Buy to check out flat screen (LCD/PLASMA) televisions. The ones with $1000 up to $5000 price tags. The section was full of people all wanting to buy this high ticket item including myself. While I was enamored with the “kick ass” picture quality and slick design, I opted against buying a new television. It’s basic logic, whenever I buy something I feel the need to use it to justify the . As it stands, other than sports I rarely watch television so buying a television would force me to watch television.

Visa wasn’t happy with my decision, but I’ll bet that he was happy with this past weekends results. Visa should change their marketing slogan, “It’s everywhere you want to be” to “No equity, we’ve got you covered.”

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Option Arms are in the news again

File this under: Unsuspecting borrower duped into getting a difficult loan to comprehend.

From Sunday’s Post: Crushing ARMs squeeze homeowners

In 2003, 1.1 percent of mortgages originated for a or in were option-ARMs and another 2.5 percent were interest- only loans that didn’t pay down principal, according to First American LoanPerformance, a San Francisco research firm.

…

Many borrowers don’t understand , how their payments are rising, and why the loans they expected to rescue them are dragging them into , he said.

The brokers who sold these loans were (most of them are out of the industry) dumber than dirt yet were great at selling these products. If you went with a mortgage broker because they sold you on a loan products, who’s really to blame?

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What does your Nest Egg look like?

Nest egg is an idiom referring to accumulated wealth, generally liquid investments, earmarked for some future purpose. The term is used most commonly to refer to retirement savings.

Does it look like this:

egg2.jpg

or this:

egg1.jpg

Here’s one quick way to find out: Nest Egg Score Estimator

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Federal debt ceiling running out of room

Is there any wonder where Americans learn about :

Treasury Secretary Henry Paulson told Congress on Wednesday that the government will hit the current ceiling Oct. 1.

Read the full article: Federal debt ceiling running out of room

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Fannie, Freddie mortgage caps rise

Mortgage article from the Post:

The government on Wednesday nudged higher the investment caps for home-loan finance companies Fannie Mae and Freddie Mac in an effort to alleviate strain in the market.

Read the full article: Fannie, Freddie mortgage caps rise

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Fed Funds Rate down .5%

Fed Funds down .5%

WASHINGTON (Reuters) - The U.S. Federal Reserve on Tuesday slashed the benchmark federal funds by a half-percentage point in a bold bid to buffer the economy from a housing slump and related financial market turbulence.
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The decision by the central bank’s Federal Open Market Committee took the overnight rate down to 4.75 percent, its lowest level since May of last year. It was the first cut in the interbank — the Fed’s main tool to influence the economy — since June 2003 and the first half-point reduction since November 2002.

Financial markets had widely expected the Fed to lower overnight borrowing costs, but were split over whether the move would be a quarter-point or more-aggressive half-point.

In a related move, the Fed also lowered the discount it charges for direct loans to banks by a half-point to 5.25 percent.

What does this mean?

According to Marketwatch:

Here’s what consumers can expect:

  • If a consumer is paying 8.25% interest on a $100,000 loan that is based on the rate — such as a home-equity line — a reset to 7.75% is likely. That’s the difference of about $500 a year, or roughly $41.66 a month in interest charges.
  • Resets on some adjustable-rate mortgages will be slightly better. Many ARM interest rates are based on an average of Treasury note yields coupled with a fixed margin, now at about 2.75 percentage points. At Tuesday’s 10-year yield of 4.49%, the is 7.24%. In July, it was at 7.77%. That makes the monthly payment on a $200,000 $1,363, about $73 less than it was in July. But Treasurys could head even lower following the Fed action.
  • Rates on credit cards, which have taken on a bigger role in consumer financing in recent months, are likely to dip a bit too, lowering minimum monthly payments.
  • Savings-deposit rates will go down, meaning that your bank balances won’t appreciate at the same rates you’ve seen all year.
  • Ditto on money market rates, hurting those on fixed incomes — generally the elderly — who rely on cash generated from such safe investments.
  • Interest rates on new loans for cars will fall, though it won’t have any effect on loans already in place. But Brian Bethune, the U.S. economist with Global Insight, urges consumers to wait until contract negotiations between autoworkers and their bosses are done this month. “They could pull out all the stops,” he said about automakers’ desire to unload inventory. And if the Fed lowers rates again next month, all the better.
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    60 Minutes of Fedspeak

    60.jpg You may not know what exactly Fedspeak is but you probably know its originator, former Federal Reserve Chairman, Alan Greeenspan. Last night on 60 Minutes, Alan Greenspan gave an “exclusive interview” on 60 minutes.

    Fedspeak on Suprime :

    “While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late. I didn’t really get it until very late in 2005 and 2006.”

    Greenspan also discussed what it was like to work under 6 presidents. Baseball and jazz were among other topics of discussion along with his upcoming book “The Age of Turbulence: Adventures in a New World.”

    During the interview, Greenspan, comes across as articulate and sanguine. However, as Fed Chairman, the way Greenspan talked was so cryptic that they dubbed it “Fedspeak.”

    For more on the interview, visit 60 Minutes. Wall Street Journal also has a great article on Greenspan’s book worth checking out as well in an article entitled Greenspan Book Criticizes Bush And Republicans.

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    My Home, My Security Blanket

    When I discuss retirement with clients the discussions either go like this….

    “well social security won’t be there for me and I’m still recovering from the dot com bust and my financial planner is a complete moron and at the I’m saving, I’ll never retire”

    or like this…

    “I plan on retiring at 55-60 depending on what happens with my investments and my home’s value”

    Your home’s equity is a solid foundation for retirement according to an article entitled Retiring on Your Home’s Equity

    A recent study commissioned by Oakland, Calif.-based Bell Investment Advisors, found that seven out of 10 60-year-olds consider their home part of their retirement plan. Of that group, almost one in five — 24% to be exact — said their home’s equity represents half or more of their total savings.

    Also included are the sources where current retirees will be drawing their retirement:

    Wealth holdings of a typical household prior to retirement*:

    Social security: 42%
    Primary house: 21% of total wealth
    Defined benefit plan: 16%
    Defined-contribution plan: 8%
    Financial assets: 7%
    Business assets: 2%
    Other nonfinancial assets: 4%

    * Households headed by individuals aged 55-64. Source: Survey of Consumer Finances 2004.

    More importantly, the article continues to discuss two ways to tap your equity when you retire including downsizing into a smaller home and keeping the profits and a reverse where you get a that pays you.

    This article brings to light the importance of mortgage planning as a key component in your wealth management. Your home is your security blanket since it can be the largest asset in your estate. Your mortgage allows you to manage this asset. Obviously I just scratched the surface of planning but if you need more information, contact me.

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    To merge or not to merge

    PRIVATE INSURANCE: If your down payment is less than 20% of the price of the home, mortgage lenders require that you take out Private Mortgage Insurance (PMI). This insurance protects the lender in the event you default on your mortgage. PMI has fallen out of favor in recent years due to the 80/10/10 (80% first mortgage, 10% second mortgage, 10% down payment), 80/15/5 (80% , 15% , 5% down payment), and 80/20 (80% , 20% second , 0% down payment).

    On the heels of the mortgage credit crisis comes word that the two bigger players in the industry may merge. However, after further deliberation, they decided against a merger.

    MGIC drops bid for rival Radian
    The insurers agree to end the deal and focus on how to survive in the industry.
    By Emily Fredrix The Associated Press

    Milwaukee - Mortgage insurer MGIC Investment Corp. abandoned its $5 billion bid to buy rival Radian Group Inc. on Wednesday, saying it was in each other’s best interest to concentrate on surviving in the faltering industry.

    Radian had vowed to see the deal through when MGIC announced in August it wanted to back out. But chief executive S.A. Ibrahim said Wednesday that Radian didn’t want to fight and instead needed to weather what he called “an industrywide scramble to survive.”

    Investors seemed hopeful for both companies after news of the agreement.

    Though Radian’s shares tumbled as much as 9 percent after the market opened Wednesday, they closed up 16 cents at $18.27. MGIC shares fell 29 cents to end at $30.05.

    MGIC, based in Milwaukee, had agreed in February to pay about $5 billion in stock for Radian, valuing its shares at $60.78. Shares of MGIC closed the day the deal was announced at $70.09.

    As problems mounted in the market, both companies saw their shares tumble and the deal’s value sink.

    MGIC said it did not believe it had to complete its of Philadelphia-based Radian because their joint interest in - investor C-Bass LLC could be worthless.

    The decision to end the deal was mutual, both companies said.

    Neither party paid the other to get out of the agreement, according to a news release. The original agreement said there would be no breakup fee if a decision was mutual.

    Both companies’ shareholders had already approved the deal, which MGIC had said would close in early October.

    But woes felt throughout the industry made the deal difficult to finish, said Michael Zimmerman, MGIC’s vice president of investor relations.

    While this is akin to splitting up, it remains to be seen what this means to the borrower. There aren’t too many PMI companies left and when the two biggest PMI companies are more concerned about surviving, especially when in 2007 PMI is tax deductible, this can’t be a good sign.

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