Every now and again a rainbow-like day comes along, one of those phenomena that reminds us of what real wealth is all about.
The choir did a lot of singing this morning—the whole chivaree was quite a songfest, lots of Rutter and some rather challenging chant. Very fun.
Escaping from the church, I met M’hijito for lunch. We went to an old stand-by, a place that bills itself as a “bistro” but which is really salad, sandwich, and pizza joint. The food is always good there.
His roommate having announced, at last, that he is moving on, M’hijito grows more interested in getting a dog. We dropped by the Humane Society, where we saw nothing that interested him, but a dog that I thought was enchanting. The keepers there, who tend to the imaginative in designating breeds, claimed he was a bloodhound. Well, I’ve seen bloodhounds, and fer sure that was not one of them. He looked like he might have some hound in him, not a sight-hound, but I’d say he was more lab than hound. Probably Heinz 57 is the right brand name for this guy. He was mellow and sweet and handsome. If I had been in the market for a medium-sized to large dog, I’d have grabbed him in an instant.
But M’hijito is the one who has to live with this proposed animal.
At my house, M’hijito noticed to his amazement that the Christmas cactus is blooming. It’s the first Christmas cactus plant I’ve ever managed to keep alive—I bought it about five years ago as part of the “staging” of the house I sold then. Astonishingly, it has not only survived my ministrations but has blossomed three times since then. He took photos of the amazing ornament-like flowers:
Later, I grabbed the camera and climbed under the plant, backlighting the blossoms with the sun pouring in through the skylight:
He had to go to the office, unfortunately—not the best of all possible things to do with a spectacular Sunday afternoon.
And spectacular it was. After M’hijito left, Cassie the Corgi and I headed for the North Mountain Preserve. No flowers yet, but the hillsides are green with alien grasses brought to the Southwest by generations of Europeans, the seeds blown evenly across the terrain by the wind. Any good rain, such as the recent products of El Niño that have visited us, will green up the desert mountains and eventually produce poppies and mallow and lupine and vast numbers of yellow things. The air still crystalline after the rains, the mountains to the south stood like violet paper cutouts behind the downtown cityscape.
Funny about Money went down yesterday afternoon while I was gadding about town. It remained down into the evening, when Mrs. Micah contrived to rescue it. Turns out the problem was a corrupted plug-in.
Anyway, the site is back up, and I hope it will stay up. Welcome back, dear readers!
Frugal Scholar, who must read everything of value on the entire Internet, stumbled upon an amazing remark in, of all places, the Wall Street Journal. In one article, Seventh Generation founder Jeffrey Hollender remarks that it’s surprising most people use laundry detergent at all: “You don’t even need soap to wash most loads,” he says. The truth is, it’s the action of the agitator, not the chemicals, that gets most clothes clean.
Uhmmm… Say what, my Captain of Industry?
Most of us have figured out that we need only a fraction of the amount we were brought up to pour into the washer, partly because newer detergents are far more efficient and partly because you don’t really need even the recommended amount. But…no detergent at all?
Well, of course, the gantlet was down.
Straightaway to the garage, stately home of the washer and dryer! Mustering all my nerve, I laundered two small loads with zero detergent, one of whites and one of coloreds. The whites load included a few pieces of underwear; the colored, a shirt I’d worn for a day of gardening.
The result? Pretty interesting.
Everything came out looking clean. Minor stains that I thought would come through unscathed actually washed out. This pair of fluffy cotton socks, which I wear around the house and patio as slippers, was pretty grimy when I put them in the washer. They came out looking exactly the same as they do when they’re washed with detergent.
These socks, which are three or four years old, always have a little gray on the bottom—no amount of detergent or bleach gets it out. If anything, they actually look a little better than the last time I ran them through the washer.
Peeking into the machine during the “wash” cycle, I found the water looked exactly as dirty as it does when I’ve added detergent, only without the suds:
The “rinse” cycle ran clear as tapwater.
The Sniff Test: By and large, all of the freshly washed clothing came out with an odor: it smelled of clean water! Because I didn’t want to heat-set any residual stains into the whites, I line-dried those; the coloreds went into the dryer. When fully dry, most of the pieces were fresh-smelling and free of either body odor or yukky commercial factory perfume. I use a perfume-free detergent, anyway, so there was no way the clothes would have retained any scent from previous launderings.
A couple of pairs of undies retained a very slight odor. I ran one of these through again with the colored clothing, and after a second drubbing in the washer, it came out completely odor-free.
Isn’t that something!
Conclusion: Because I’m not willing to consume the amount of water needed to run my underwear through the wash twice each week, I would put a small amount of detergent in with those. But apparently most outer clothes that have not absorbed much B.O. and that are not excessively dirty can indeed be washed in plain, clean water, without benefit of factory chemicals.
Just realized I didn’t write a post this morning and then, whilst frolicking with bureaucrats, didn’t get to it this afternoon, either.
Another fine exercise in jumping through hoops and tearing around the Maypole today.
Not having heard anything more from the COBRA administrators over the past 15 days, despite having been told that a notice and a statement would be sent out, I called again to inquire.
Today’s bureaucrat harked back to the original claim that I needed to have sent them money a month BEFORE I was laid off my job. I explained that Arizona State University’s Human Resources people said that I was not supposed to send money while I was still employed there. She said well, then I wasn’t covered.
So I’ve now spent the last month without any health coverage at all, if you believe this one’s version.
She wants me to present myself in person on Monday—when I’ll be teaching until 2:00 in the afternoon about 25 miles from their office—with a check for $334 in hand. This, she says, will cover me through February.
Of course, that doesn’t make any sense, because the one who told me I’d been approved for the ARRAS discount said my premiums would be $185. Two times $185 is $370. So… who knows what this is about.
Entertaining, isn’t it?
First ASU’s HR people told me I would be not qualified for the ARRAS discount because my last day of work was December 31. Then the Arizona Department of Administration, which administers COBRA, told me I would be qualified for the ARRAS discount because my last day of work was December 31. I sent an application and was told I was approved.
Next, ADOA said I should send a chunk of money to the state no later than the first week in December. Then ASU’s HR department told me this demand was incomprehensible, that I most certainly did not need to send money for COBRA while I was still employed by ASU, and that COBRA would send me a statement after I was terminated, saying how much and when to pay.
In mid-January, ADOA informed me that I was not terminated and as far as they could tell I was still employed by ASU. Then ASU told me I most certainly was terminated and ADOA did not know what they were talking about. Then ADOA told me I was not terminated and was still a state employee.
After I spoke with my ex-husband’s former law partner, who is now Arizona State University’s general counsel, I was told the mess was cleaned up. At that point, I was informed that I had actually been canned not on December 31 but on January 10, but nevertheless because the Obama Administration had extended the ARRAS discount into February, I still would be able to get coverage I could sort of pay for.
On January 14, I spoke to one Connie at ADOA, who said I did not have to send a check but that I would receive a letter telling me of my eligibility and letting me know where and when to send a premium payment. And by the way, no, I did not need to make a COBRA payment a month before my job ended. That was 15 days ago. No such communication has appeared.
Now I am told I need to pony up $334.04, which is supposed to cover me “through February.” Three hundred and thirty-four dollars is slightly more than twice the earned income I have received this month.
So, this afternoon I called the Feds.
There I learned that while COBRA is indeed a federal law, the federal government’s regulatory oversight is limited to private employers. If you work for a state university or government office, you’re on your own! I asked the woman who shared this gem with me if she thought I should call a lawyer. She said not yet…it’ll be another week or so before they’re actually in violation of the law. She recommended going back to HR (hah! words from a lady who’s never had to deal with ASU’s HR department!) and nagging some more.
I am nagged out. On Monday I will trudge down to ADOA in person, hand over $334, and demand a receipt that states exactly what the money is for, and not only that, ask that they produce a policy or a contract describing what I get and when. After that, I give up. If I get in a car wreck or have a heart attack before Medicare kicks in, I guess I’ll just have to drain my savings to pay the bills and then declare bankruptcy.
Preparing to write the next installment in a series on achieving financial freedom, I ran some figures to compare the result of paying down a mortgage with extra monthly payments toward principal with investing the same amount monthly in a mutual fund. What I discovered runs against my theory that you’re well served to pay off a mortgage as fast as you can.
I still think that’s true if you’re getting close to retirement. In retirement, every debt should be wiped off your books, because you will need all your cash flow to live on. However, if you’re younger—say, anywhere between 20 and 45—and your mortgage rate is low compared to returns on equity investments, it would be to your advantage to invest extra dollars in a mutual fund earning around 8 percent. At today’s rates, this strategy allow you to accrue enough to pay off the principal faster than will throwing a monthly amount at the loan principal. Here’s how this shakes down:
M’hijito and I have a 30/15 mortgage at 4.3 percent. This means that for the first 15 years, we make payments at the 30-year amortization rate, but after the 15 years have passed, we either have to pay off the loan or we have to refinance it. The loan’s principal is $211,000.
We chose this mortgage because, at the time we bought the house, we believed the real estate market was nearing the bottom. We believed the house would drop in value another $4,000 or $5,000 and then begin to rise, probably at around 3 percent p/a. We figured that in five to ten years we could sell or rent the house and either break even or make a small profit. As everyone now knows, this was dead wrong: in fact, real estate was in free-fall, and the house is now worth at best $170,000, but more realistically around $150,000. This turns the loan into a real albatross. One strategy we are considering is to try to pay down principal with whatever extra monthly payment we can make (which ain’t much!), so that in 15 years, the amount to refinance might at least be no more than the house is actually worth, possibly allowing us to sell the house at that time.
In 15 years, with no extra payment toward principal, the loan balance will be $138,338. Monthly principal and interest payments are $1044; PITI comes to something over $1200.
Note that the projected loan balance is less than the most pessimistic present-day valuation. If the market finally has bottomed out and housing increases in value at 3% a year (a figure that is now being bandied about), in 15 years the house will be worth $233,695. That is less than we paid for it, but at least if we sold the house at that time we would walk away with a little cash in our pockets.
With me out of work, about the most we can afford to pay extra toward loan principal is about $100 a month.
Using Excel’s full value (=FV…) formula, I calculated the the return on a $100/month investment in a mutual fund earning 8% per annum. (Over at Vanguard, a number of stock funds and even a few bond funds are returning at this rate; one of them is Windsor II, in which I happen to already have a little cash.) I then used Quicken to run an amortization schedule, and compared the amount a $100/month investment would be worth in 15 years with the amount an extra $100/month principal payment would reduce the loan balance.
Assuming that our mutual fund investment averaged an 8 percent return, if we sent Vanguard $100 a month, in 15 years we would accrue $34,604 (full value =(.08/12,15*12,-100). If we paid an extra $100 a month toward the loan principal, in 15 years we would have paid the balance down by an extra $18,000 ($100 x 180 pay periods). According to Quicken, we would still owe $113,116.
With no extra payments, remember, we would still owe $138,338.
$138,338 – 113,116 = $25,220
Compare that with the $34,604 we would have earned in the mutual fund. Clearly, we would be ahead—by over $9,000!—by investing the money in a mutual fund with low overhead, such as Vanguard and Fidelity offer.
Well, now. Suppose you were not out of work, and so had plenty of cash to throw at the principal. Let’s suppose you really have plenty of cash and you decide to pay the equivalent of an entire P&I payment toward principal. Then what?
If you put $1,044 into a mutual fund every month, in 15 years you would have $361,264. If you paid $1044/month toward principal (in addition to your regular payment) on a $211,000 loan, you would pay off the loan in 10 years.
But by putting the cash into a mutual fund returning 8 percent, in 10 years you’d earn $190,995. Since in 10 years, with no extra payments, your loan balance would have dropped to $167,901, you’d still come out ahead:
$190,995 – $167,901 = $23,094
In other words, if you put the amount of an extra loan payment in an 8% investment, in ten years you would have enough to pay off the mortgage and still leave $23,000 in your pocket. If you used the same amount to pay toward the loan once a month, you would pay off the debt but would have no cash left over.
The conclusion is obvious: If your goal is to pay off your mortgage, you’re better off investing a regular payment in a decent mutual fund than paying the same amount toward principal.
This assumes your mortgage interest rate is lower than the rate of return from an equity fund. Note also that my figures do not take into consideration the small tax advantage gained by paying mortgage interest; this factor also would tend to improve the picture if you invested in the market.
Risky? Sure. But we now know that investing in real estate is wildly risky, too: more so, it develops, than the stock market. My stock investments are rapidly regaining their pre-crash value, but there’s no credible sign of any recovery in the real estate market here. Even if the value of the house starts to increase at 3% p.a. today, in 15 years it won’t be worth anything like what we paid for it. If property values remain flat for any length of time (as it appears they will), we will lose not only our shirt but our pants, socks, and underwear.
I used to think my father was crazy because he refused to buy a house until after he had saved enough to pay for it in cash. All the time I was growing up, we lived either in company housing or in rentals. His reasoning indeed was crazy—he bought into The Protocols of Zion, an irrational tract that led him to believe all mortgage lenders were part of a hallucinatory international Jewish conspiracy. However, the effect was that when he retired at the age of 53, he had enough cash to buy a house and a car and to support himself and my mother in a middle-class lifestyle without having to work.
The county community college district continues to brace for further budget cuts. Enrollment is up 11 percent, since people tend to go back to school when they’re out of work. But that notwithstanding, the state and the counties don’t have enough money to fund basic services. Like education.
By way of enlightenment, we are told by the college’s interim president:
Since FY07 sales tax collections have declined 22%, and personal income tax collections have declined 38%. And since 2004, 144,000 new students have entered the K – 12 system and 475,000 new members have joined AHCCS. On top of this, since 2007, the State has lost 280,000 jobs.
AHCSS is Arizona’s answer to Medicaid; you have to be destitute to qualify. Think of that: well over a quarter of a million jobs lost; almost half a million newly poor.
The state government lives largely on sales tax, which adds about 10 percent to every purchase you make, except for most foods. And except for gasoline and booze: those are even more heavily taxed. Income taxes here are relatively low, but when you add up all the small bites that come from all directions, taxation in general is fairly high. Thus when sales taxes drop by a fifth, that takes away a substantial part of the state’s operating budget, and the loss of almost three hundred thousand salaries since 2007 sure doesn’t help.
About $45 million of the Maricopa County Community College District’s funding comes from the state; that’s about 8 percent. At this point, no one knows what the effect on the district will be. The interim president, who has been attending talks on this issue for the past several days, reports:
Over the last three days, I’ve learned of a range of possibilities including: the district being held harmless (in terms of any reductions) for FY10 and FY11 to the other extreme that if new revenue is not generated (through the planned special election in May), MCCD’s reduction could be as much as $22.5 million.
The “planned special election” asks voters to decide whether taxes should be temporarily increased. Well…all very nice, but if no one has an income and no one’s buying anything, there’s nothing to tax. Also, of course, Arizonans like all Americans know there’s no such thing as a “temporary” tax increase. Once a new tax is in place, it will stay in place. So it’s highly unlikely that this referendum will succeed. They’re also talking about putting a sales tax on food, which apparently does not require a vote of the citizens; that will jack up everyone’s basic survival budget, a politick move, indeed, with hundreds of thousands of people out of work.
So…IMHO, it remains to be seen whether this part-time job I’ve picked up, teaching adjunct at the community colleges, is going to last. Although something like 80 percent of the district’s faculty is part-time, most full-time faculty are tenured. It’s difficult to get rid of tenured full-timers; nothing to get rid of adjuncts. A huge budget cut will result in cuts in the number of classes, increases in class size, and elimination of part-time positions.
The stock market, if no one has noticed, has entered another slow slide. We’re headed back into the 9000s, from what I can tell. If the market doesn’t stay above 10,000 and continue to climb modestly through 2010, my chances of recovering a respectable amount of the money lost in the Bush crash are nil.
