As the year winds down, this is a good time to take stock of the various events, schemes, and impulses that drive our personal finance strategies, to consider which ones worked and which failed, and to think about how we can use experience to plan next year’s financial direction.
We all had our ups and downs. As we know, it feels like the “downs” took the race. But as I look back over my 2008 personal finance adventures, I see that quite a few ideas and strategies were successful. Like everyone, I took some big hits; some of those were beyond my control, or effectively so.
My Best 2008 Financial Strategies
Bar none, building a second income stream was the smartest move I made this year. At the start of the spring 2008 semester, I agreed to teach two sections of Writing for the Professions, a.k.a. “freshman comp for juniors and seniors.” When, hours before classes were slated to begin, I learned that both sections were double-enrolled and I was actually taking on the equivalent of four sections—the workload of a full-time lecturer—I threatened to walk; backed into a corner, the dean agreed to pay me for four sections.
It was a horrible job, but the pay was as much as I hoped to earn on the side during the entire year. And because the Great Desert University canned all its part-time faculty in the fall semester, the serendipitous overload meant that I made my 2008 side-income goal in spite of the faltering economy.
Starting a side business independent of GDU seems to have been a wise move, too. Between The Copyeditor’s Desk and my own freelance work, I have made an extra $1,000 to $1,200 a month since late last summer. If I’m laid off and so forced to begin taking Social Security now instead of waiting until full retirement age, this will be about as much as I will be allowed to earn. The two income streams—editorial work and Social Security—may (with luck) cover my expenses until I can draw the full amount of Social Security income and forestall having to draw down my sadly depleted savings.
Stashing all my post-tax side income into savings instead of using it to pay down the $23,000 owing on the second mortgage I took out to renovate the Investment House seems to have been a wise move. At the outset, I was uncertain whether I would stay in my own house, given the skyrocketing crime in the depressed apartment complexes across 19th Avenue, the unholy mess across the street from me, and the growing presence of undesirable renters. If I sold, the loan would be paid from the proceeds, and I might be better off with the cash in hand from the side jobs. As the economy began to collapse in earnest and more and more credible-sounding layoff rumors circulated, I was glad I had the 23 grand to double as an emergency fund.
Moving the savings from the side jobs out of stocks and into the money market. As it started to appear likely that I would need the cash to live on, I yanked the side-job money out of Vanguard’s Wellington and Windsor II funds, which were just beginning to stumble, and put it where I figured it would be at least moderately safe. Since then, Vanguard’s funds have followed the rest of the stock market into the tank. At least I managed to hang onto that much of my savings.
Restructuring my monthly budget to put biweekly paychecks into a “pool” account from which contributions are shifted to “piggy-bank” accounts containing enough to cover monthly expenses. This strategy has trumped the wacky disjunct between biweekly pay (which allows the university to keep a chunk of its employees’ pay in its coffers, earning interest on unpaid salaries while the flunkies try to figure out how to stay solvent) and the reality of monthly billing cycles. Over time, it has the effect of accruing part of the two so-called “extra” paychecks (which are not “extra” but simply represent six months’ worth of unpaid salary disbursed out of synch) in the pool, padding the emergency fund a bit.
Continuing to set aside the $200 a month I was saving toward the Investment House Renovation Loan self-escrow account, even after enough was stashed to repay the debt.This effectively doubles my monthly after-tax savings and has restored my savings account to its former, pre-disastrous-expenses glory. That also helps plump up the emergency cushion to fall back on in the event of unemployment.
Taking time to think through how I would survive after a layoff and to build a proposed post-layoff budget. As rumors of impending layoffs intensified, the Bush economy slid into its catastrophic collapse. It became clear I will not be able to use what little remains of my life savings to support myself in retirement; not for a long time, anyway. The prospect that I might soon be out of a salary forced me to figure how I could get by on a fraction of full Social Security—$1,040 a month, as opposed to the $2,094 I would get by waiting until full retirement age—plus whatever I could scrounge by freelancing and taking on part-time teaching jobs at the community colleges.
Although it would be very difficult, it appears possible that I could get by for a year or two without having to sell my home. After that, I can raid savings to return the amount I’ve drawn from Social Security to the government, which will reset my SS payments to the full retirement figure. That should keep me going until the market improves enough to revive my savings. The benefit of this exercise is that I now feel fairly confident that I will survive the recession, come what may.
My Worst 2008 Financial Strategies
Leaving savings in the stock market as it became increasingly evident that the Bush “recession” is no ordinary recession but indeed will probably devolve into a depression. My savings are conservatively invested, about a third in stocks, a third in bonds, and a third in the money market. Bonds, as it developed, provided little or no protection in the crash, and although Vanguard’s Prime Money Market fund has not broken the buck, we’ve seen that losses in the money market can happen.
If I’d had a crystal ball, I would have yanked every penny out of the market and stuck it all in laddered CDs. Lacking any such tool, though, I followed conventional wisdom and stayed the course. This, we can now see, was probably a mistake.
Jumping the gun on refinancing the Investment House. M’hijito and I got a much improved interest rate on the mortgage refinance we took out earlier this year for the house the two of us are copurchasing. However, had we waited a few months, we might have landed a 4.5% rate.
Maybe not, too: at this point we’re upside down on that house, and it’s questionable whether the credit union would give us a loan against what the property is now worth.
The problem with the refinance is that to get the 5.3% rate we obtained, we had to take a 30/15 loan. At the time, we figured the market would turn around before 15 years passed; in the event that we had not sold the house by then, we would have no trouble refinancing the remaining principal.
I no longer think that’s true. IMHO, the real estate market will not recover for another eight to ten years. By that, I mean we will not break even on the sale of that house anytime in the next decade. If I’m right about this, we may not be able to sell the house for a profit after 15 years. This will force us to refinance or to take a bath on the sale. And if by then mortgage rates are in the double digits, as they have been historically, we may not be able to negotiate a monthly payment that would be covered by rental income. Thus the 30/15 mortgage terms could lock my son into the house at a time of his life when he’s likely to marry or find better job opportunities in other parts of the country.
I failed to contest the county’s property tax valuation. This resulted in a breathtaking tax increase on a house whose value is less than the county claims. The reasons for my lapse were a) the county’s statement is well-nigh incomprehensible and I had no way of assessing whether it was anything like accurate, nor could I tell what its effect on my taxes were going to be (tax statements arrive several months after the property revaluation statements); and b) the window for protesting lasts only a couple of weeks after the valuation statements are mailed, so that by the time you realize what those statements mean, it’s too late for you to do anything about them. Clearly, I should have protested as a knee-jerk reaction, even though I had no idea what the statement implied.
All in all…
I’m way worse off financially than I was at this time last year, that’s for sure. So, I expect, are most Americans.
On the other hand, so far I still have a job. I’ve managed to salvage some of my savings—enough to pay off the small loan against my house, if push comes to shove. Our little editorial business has a couple of regular clients, and we’re working on landing some more. At this point, every week that passes without a layoff puts me in a better position to survive without a salary.
• …starts with continuing to stash as much as possible into savings.
• That dovetails with cutting back on spending so that I’ll be accustomed to living on less, should I find myself unemployed. As long as I’m still working, savings from the spending cutbacks will go straight to the emergency fund.
• Instead of trading in my 10-year-old vehicle this year, as I would normally do, I’ll drive that car until it falls apart like the minister’s one-hoss shay.
• This spring and summer I’ll continue to try to build Copyeditor’s Desk income; if that doesn’t pan out, in the fall I’ll sign up to teach composition at the community colleges.
• And finally: Funny about Money is doing surprisingly well, considering that I don’t work very hard at it. The site’s page rank is 4, and its most trafficked post has a page rank of 2. I will try to focus Funny more sharply and develop its readership more broadly, and if it continues to draw readers, I’ll consider monetizing it.