Your Two Bits

I think that this post’s title may have also been a phrase used in Jim Collins’ book, Good to Great, but it’s appropriate for some thoughts I’ve had about our current economy. Good is the enemy to great, because we tend to become complacent and content as long things are good. In general, work and life don’t have to be great; and as long as they aren’t bad, we chug along fat, dumb, and happy. Actually we may not even be all that happy. We’re content to ride along with a bur in our saddle; however, if our bicycle seat is missing, most of us will take action. That’s why good is the enemy to great. Unless the fire gets unbearably hot, we’re not inclined to move.

The current economy may be enough to spur people into action. Even though—contrary to popular opinion—our nation’s and the world’s economy hasn’t completely collapsed, leaving everyone destitute and about to die of starvation, it has unsettled many. Most of us know people who have lost their jobs or been affected in some way. Most of the companies we work for have been affected in some way (for some companies, the effect has been increased business).

The silver lining in all this seems to be the opportunity for change. It may not be the kind of change people were looking for when they voted for President Obama, and it likely isn’t what he intended. But it is an opportunity for change. At my work, we have experienced some slowing, which has caused the company to take a look at itself and see if there are any opportunities it is missing. The result has been some great brainstorming sessions, and we are now working on an interesting project that we probably never would have considered previously.

This economic dip could be a proverbial blessing in disguise for many. People who have been laid off may be able to pursue a change in life and career that they were considering for a long time but never had sufficient motivation to shake them from their adequately content stupor. That doesn’t mean it will be easy. For most people, it will likely still be very difficult but extremely rewarding.

For example, a few years back, my brother and brother-in-law worked for a steel detailing company. One day both of them along with most the rest of the company were laid off.  This created a very stressful time for both of them and their families. Both of them intended to find work in the same field but ultimately decided to partner and create their own steel detailing business rather than hire on somewhere else. The endeavor was a little uncertain at first, not because they couldn’t find projects but because getting paid tended to take up to 90 days after completing the project. As long as they could make their money last until they got paid for the first few projects, they thought they would be okay. They just weren’t sure the money would last. Fortunately it did. Owning their own business has not been easy, but it has been very rewarding. My brother told me, “After owning my own business, there is no way I could go back to working for someone else.” The business, Freedom Steel Detailing, has done very well. What began as a crisis, turned into a blessing.

Likewise, as long as there isn’t too much meddling and stimulating to keep the credit bubble artificially inflated, this economic situation could be a great blessing, allowing us to reset, readjust, and refocus our national, corporate, and personal economies—or better yet, our lives.

What do you think? Do you see opportunity?

Related Posts:

• Happy New Year!
• The Prodigal Principle
• Haiku
• Hot Chocolate Story

I don’t think AIG execs should be the scapegoats that Congress has turned them into. Of course, I also strongly disagree with how AIG has handled the bonuses. It doesn’t make sense to me that you would give people bonuses, when those people have not saved the company from bankruptcy; that’s where the company would be, if it weren’t for the bailout. And I think that’s where it should be. Our economy was in a credit bubble that collapsed. Why are we trying to sustain a bubble? Doesn’t that make for a very shaky foundation?

One of my biggest concerns with this situation is how riled up people have been about $1.65 million dollars worth of bonuses, which amount to about 1% of the total that the government (representing we the people) gave to AIG. Do we really think this is the only misuse and waste of taxpayer dollars that this and other bailout companies will cause? I think there’s a bit of blame that could be shared with our elected officials for so hastily passing such massive debt spending, without spelling out the stipulations. Interestingly there was some language about using the bailout money for bonuses, but that was removed before passing the bill.

Also, I don’t like the idea of coming up with ways to retroactively punish the company and its employees. I particularly don’t like that the House passed a bill trying to impose a tax on those employees. A lot of people will say, “But we can’t have them stealing our money.” I’m quite irritated by that as well; however, I’m quite concerned when I see our elected officials rousing the people into a mob-like fury against a small group of people.  The laws of our lands should be equitable for all. If we target this group this time, it sets a bad precedent. Then the next time somebody is doing something we don’t like, we just rile up the people and impose taxes or other forms of punishment on that group.

Rather than being so quick to punish these people who were not acting illegally (Irresponsibly? Yes, but not illegally), and implementing taxes that we would find extremely unfair if aimed at ourselves or other minority groups, we should make a ruckus and simply clarify how bailout money is to be handled going forward.

What’s interesting is that we are stuck with this company. In normal conditions, our disgust could be demonstrated by not buying the company’s product, causing it to fail or severely stumble. That would be a strong lesson to the company and other company leaders, helping them to avoid such poor decisions. However, in this case with AIG, because we have bailed them out and won’t allow them to fail, it will only cost us more as the government has to pump more money—our money— into the company to make up for people not wanting to do business with them. That means we end up paying twice for a product we don’t want.

There are problems all around with this AIG case specifically and plenty of blame to be shared, but my biggest concern is that we allow ourselves to become so focused on this one instance that we lose sight of the bigger long-term implications. Wouldn’t we be in much better shape, if we, including our representative government, behaved more responsibly with our money and kept in mind the defense of our fellow citizens, recognizing that allowing one group to be targeted makes defending another group more difficult?

All that being said, two good pieces of news are emerging: 1) at least a third of the bonus money is being returned, and 2) the tax bill that passed the House last week seems to be losing steam and likely won’t make it past the Senate.

I’ll readily admit that while I have followed this pretty closely I may have missed some important details and am open to additional insights others may have. Please share your two bits, so that we can learn and potentially avoid making such huge mistakes at the federal, state, and personal financial levels.

——-

After publishing this post, I ran across a post on the  Weakonomics blog that covered this same topic, with some additional interesting points. “AIG Bonuses Have You Pointing the Finger in the Wrong Direction.”

Related Posts:

• Do You Know How Tax Brackets Work?
• Haiku
• Capital Gains Tax Rates
• Good is the Enemy to Great

Since last week’s post regarding whether to keep contributing to a 401(k) if your employer drops the match, I have had a few discussions with people on this topic. Last week’s post was written assuming that you are going to keep contributing to some form of retirement investment; however some people have asked, if they should stop contributing to all investments. The short answer is “No.” The longer is answer is “It depends, and here’s why.”

In general, you really don’t want to lose any of that retirement savings momentum. That’s why the short answer is “No.” However, there may be exceptions. One person asked if they should stop contributing to the 401(k) so that they could build up their emergency savings. My gut reaction was to say to keep contributing; however, as I pondered the issue, I changed my mind a bit.

First of all, if a company is freezing its 401(k) match, that is most likely because they are struggling financially to some extent. If the company is struggling financially, you may have reason to worry about your job. Depending on your debts and amount of emergency savings, you may want to build your cash reserves in the short term. In this case, I am more open (albeit still very nervous) to stopping contributions to the 401(k) and not investing anywhere else. However, my openness comes with some caveats.

Create a Plan
Do not stop making contributions until you have a plan of action in place. This plan should include a few critical elements:

1. Determine how much money you are going to save. In other words, at what point will you be ready to begin contributing again? Write down an actual dollar value.
2. Once you reach your desired dollar value, are you going to begin contributions to your 401(k) or invest in something else? If something else, have that something else already selected. I would suggest even going so far as filling out the application with all but the signature and date.
3. Determine an alternate investment, in case re-investing in your company’s 401(k) plan is not an option, either because the company no longer exists, or your position no longer exists, or you have to wait for open enrollment.
4. Save every penny that was going to your 401(k) when you stop making contributions.
5. To help you save every penny, at a minimum save the money in a savings account that is separate from your general checking account—even better would be an account in a completely different bank. I would look for something like a money market account; it might give an interest rate that helps you keep up with inflation.

Hopefully, you aren’t in a position where you feel the need to stop all contributions; however, if you are, at least have your “exit strategy” in place.

That’s my two bit’s worth. I’m interested to hear what thoughts others have.

Related Posts:

• Why Ride a Loser?
• Should I Change My 401(k) or Retirement Investments?
• Should I Pay Off Debt or Invest?
• If My Employer Drops the 401(k) Match, Should I Still Contribute?

With business tending to be slower for many right now, I have heard of cases where employers stopped matching employee 401(k) contributions. Along with the market’s downturn, this leaves people wondering what to do. What would you do if your employer stopped matching your 401(k) contributions? Here’s my two bits.

Did the employer drop the match temporarily or permanently? If permanently, unless I really liked the investment options in the 401(k) or the contributions lowered my income in a way that had significant tax implications, I would stop contributing. However, I would continue to invest essentially that same portion of my income to mutual funds I like, which I would set up as Roth IRAs to be automatically withdrawn from my checking account each month. That way it would still feel like I never have the option to spend that money.

If the employer dropped the match temporarily, it’s not as clear. If there is a decent chance they will begin matching again within a year, I would keep contributing to the 401(k). The reason being that it’s a little less hassle to keep it going and you don’t risk the possibility of failing to invest the money somewhere else. There may also be tax implications to your paycheck. However, if the employer won’t be matching contributions again for at least a year, or you really dislike your investment options, I would probably stop contributing.

Hopefully that situation doesn’t arise, for both your sake and your employer’s. If it does, just be sure to continue to invest the money somewhere either by contributing to the 401(k) or in other investments, such as mutual funds. In fact if you don’t trust yourself to be sufficiently disciplined to continue to invest that money, I would recommend that you simply stick with the 401(k).

Those are my two bits. What are yours?

Related Posts:

• If My Employer Drops the 401(k) Match, Should I Still Contribute (Part II)?
• Winning the Lottery
• Should I Pay Off Debt or Invest?
• Capital Gains Tax Rates

Following up on last week’s post about gold being a safe investment, you may ask yourself, “Should I invest in gold?” My thought is probably not.

I’m sure that many people who read this will be screaming, “Aaah, you’re completely nuts! Everybody should own gold.” I’m open to being dissuaded from my current views; however, while gold has done well over the last 10 years, historically, the stock market has performed better.

I ran across this statement on Wikipedia that sums up my thoughts quite eloquently: “Gold is regarded by some as a store of value (without growth) whereas stocks are regarded as a return on value (i.e. growth due to anticipated real price increase plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil,” (http://en.wikipedia.org/wiki/Gold_as_an_investment).
We have seen a fair amount of turmoil over the last few years, with the “War on Terror” and related efforts, which have likely contributed to gold’s increase value.

Ultimately, if you believe that the political structure is going to crumble or the economy will collapse, gold is a better option than the stock market—of course, you may also want to include some food storage, a gun, a port-a-potty, and cigarettes in that event (those cigarettes could become your most valuable asset). Nothing in life is risk-free. The political system could change to a communal form of government and you might have all of your property taken away from you. My bet is that those disasters won’t happen, so I’m keeping my money in the market.

I know this topic has some passionate people on both sides of the issue. I’d love to hear your two bits on the matter.

Related Posts:

• Is Gold a Safe Investment?
• Winning the Lottery
• Should I Pay Off Debt or Invest?
• Capital Gains Tax Rates