Why this Recession will be Different

Since World War II, the U.S. has recovered relatively quickly from recessions. However, this time, it appears this recession will be much worse because consumers are the main cause of the economic decline.

In From Bubble to Depression in The Wall Street Journal authors Steven Gjerstand and Vernon L. Smith hypothesize the difference is the cause. They conclude that this recession, like the Great Depression, was due a financial crisis that originated from consumer debt, which quickly transmitted in to the financial system. Recoveries from such an economic downturn tend to be long and drawn out.

The Great Recession: A Downturn Sized Up by Justin Lahart of The Walls Street Journal offers that the cause of the recession, a collapse of housing and credit, has made Fed interest cuts less effective and eliminated more consumer wealth than previous recession. Thus, consumers are saving much more than previously to make up for the loss of wealth, which will likely slow down this economic recovery.

If the conclusions from these articles are correct, then the recovery from this recession will likely be long and drawn out, and making it harder to achieve our personal finance goals.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Was Early Retirement a Good (or Bad) Idea?

"Retirement is underrated." ~ comment by an early retiree

I've been in early retirement since October, 2007. For a while, reactions ranged from disbelief to shock. Most people couldn't believe that I was actually going to retire. Typical questions were about what I was doing next, for work that is. However, after 22 months, most people have figured out that I am in it for the long run. Now the questions are about whether I miss my company or working:-)

Here's my assessment of the great, good and bad aspects of early retirement:

	Great, Good, or Bad?
Category	Rating	Reason
Lifestyle	Great	Less stress and more fun. I have 50 to 70 additional hours each week, if I include commuting. That's 2500 to 3500 hours per year, or 104 to 146 day equivalents, to spend on the activities of my choosing.
Health	Great	Just before retiring, I was under exercising and drinking eight cups of caffeinated coffee each day. As a result, I was overweight, feet hurt, and my heart had an irregular beat. Since retiring in October, 2007, my weight is down 8% (vs. target of 10%), my feet no longer hurt, and my heartbeat is more normal. In addition, I'm exercising 6-7 times a week, eating health, sleeping 7-8 hours a night, and drink 3-4 cups of coffee a week.
Family Time	Great	I no longer have to juggle work with family events such as vacations, extended family visits, and our daughter's activities. We take regular vacations, visit my in-laws a couple times a month, and I attend the majority of my daughter's presentations/recitals/games.
Income	Bad	Our annual income was down over 80% in 2008. Not surprisingly, the stock market collapse was the main cause :-( Fortunately, we had sufficient funds in cash, bonds and CDs to wait 3-4 years for the stock market to recover.

Except for the income, retirement has been great. Of course, early retirement isn't about making more money. Also, since we planned on living with 35% lower income during retirement, we were prepare a little for the actual decline.

Net, my overall rating is that early retirement was a pretty good idea. We've had to make some adjustments, but I'm glad we were able to do it in 2007. I would have been scared to do it by the end of 2008.

For more on Reaping the Rewards, check back every Friday for a new segment.

This is not financial or retirement advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Successfully Teaching our Daughter to Swim

We've had our daughter in swim lessons since she was 18 months old in 2006. Her first lessons were getting in the pool with mom and, most recently, she has been taking group and individual lessons. She had learned some basic skills, such as holding her breath, floating, and kicking her legs. However, when we tried to get her to swim from one parent to another, she didn't want to do it. It was frustrating since I was pretty sure she had the ability to swim short distances.

To help the situation, I thought about when I was learning to swim. To the best of my recollection, it only took one summer for me to become a swimmer. The only difference was that I was a bit older, perhaps five to seven years old. As a result, I was able to stand up in the shallow section of the pool, which our daughter is still not tall enough to do. Thus, she worried about taking a mouth full of water if she failed to swim. Perhaps, I thought, she would learn to swim in the section of the pool where she could stand on her own.

I tested my hypothesis a couple weeks ago by taking her to a section of the pool that was only 2-1/2 feet deep. Because she could stand on the bottom, she was swimming the 7 foot distancewithin a few minutes. After a while, I took her to the 3-1/2 section and she continued to swim reaching distances of about 10 to 15 feet. I then taught her how to jump off the bottom to get air and she practice for a few minutes. Within a couple days, she was swimming across the 3-1/2 pool, which was about 20 feet long.

I was pleased to have figured out that fear of the deeper water was the factor that kept our daughter from learning to swim. Although she still has a lot to learn, I feel we've made great progress, at a much lower effort and cost :-), with the insight I had about water depth.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or swimming advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Recession Deals Make It Harder to be Frugal

As the recession continues, restaurants, retailers, and the government is making it harder to be frugal. The cost of many items are coming down, sometimes to a level I find unbelievable. I've been tempted many times, and occasionally give in. Here are some examples of great prices that I've been seeing:

Meal and Happy Hour Deals. I recently wrote about Happy Hour Deals, where beer was cheaper than retail, and Restaurant Meal Deals , with $5 and $7 menu entrees. The discounts continue and are expanding.

Pretty soon it will be cheaper to eat out than to cook at home :-)

Electronics. The main example is wide screen TVs. I saw a brand name 32" LCD HDTV for $437 at Best Buy. Costco had a brand name LCD HDTV for about $450. When I looked at wide screen TVs 5 years ago, the cost was about $2500 for a similar sized model. The same price reductions are happening for digital cameras. I haven't seen any super sales in computers yet, but maybe one is coming soon.

A fully loaded laptop for under $300 might entice me to spend :-)

Cash for Clunkers. It's no surprise that paying someone $4,500 for a $1,000 car might encourage them to buy a new car. A friend of mine in turning in a perfectly good 1997 vehicle for a $4,500 credit towards a new car.

My spouse's car does not qualify for the program. Although my truck qualifies, it is still worth more than $4,500 in a private sale and therefore, I would be losing money on the deal. Besides, we both planned to drive our vehicles at least 4 more years.

Clothing. Although I'm cutting way back on clothing purchases, I still can't help noticing the deep discount prices. Golf shirts on sale are going for under $10, less than what I paid at sales 20 years ago. My spouse just found some dress buys on the 65% off rack, and then received another 20% savings for opening a charge card.

OK, I gave in and bought a specialized running top and shorts, but only for $7 each

While the offers are enticing, I have mainly resisted by sticking with the principle of buying only what we need. So still no wide screen TV or new car for us. However, with the cost of eating out continuing to decline, we may take advantage of dining deals more often.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Bitten by a Non-Poisonous Snake

Whenever something unexpected happens to me, I get to learn something new. Last week, while doing some volunteer work with animals, I was bitten by a non-poisonous water snake. It was a minor bite, barely breaking the skin, but still worth medical attention.

Here's what I did:

Cleaned the wound. I used soap and water to wash the bite site. Then, I used alcohol wipes to clean the area before putting on a band-aid.

Reported the bite to a supervisor. I learned that I needed to fill out a animal bite report for the county. It was also recommended that I make sure my tetanus booster was up to date.

Called insurance help line. My insurance has a nurse help line to assist in medical decisions. After reviewing my case, the nurse recommended that I determine if my tetanus booster was up to date or to get a booster shot as soon as possible. Since it was after 5PM, I couldn't check with my primary care physician. I thought I had received a booster prior to a trip to China, but was not able to confirm.

Urgent care. It was 7:30PM. I called two nearby urgent care facilities and discovered one closed at 8PM and one closed at 10PM. I decided to go to the one that closed at 8PM. There was no wait. I received a shot and was back home by 8:30PM.

Supplemental insurance. While my primary insurance covered the visit, the volunteer organization had supplemental insurance to cover my co-pay. I will send them the information once I receive the statement from my insurance company.

Overall, getting treated went fairly smoothly. The organization for which I volunteered was trained to handle animal bites, my insurance company was helpful, and the medical facilities were very good. Based on brief discussions, I expect 100% of treatment costs to be covered also.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or medical advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Links To Carnivals From July 28 to August 3, 2009

Here are the links to the Carnivals in which My Wealth Builder participated from July 28 to August 3, 2009:

Festival of Frugality #188

Money Hacks Carnival #75

Carnival of Financial Planning #100

Carnival of Family Life

Carnival of Twenty-Something Finances

Festival of Stocks #152

For some interesting articles from the blogosphere, check out these Carnivals and give the hosts some recognition for their hard work.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Reviewing Strategies

The current bear market and economic crisis have been a humbling experience. The events have led me to review and rethink my financial strategies. Here are the questions I have been asking myself:

Is what we're doing working? Specifically, are our actions helping to make progress against our financial goals?

Is what we did the reason it worked? Did our specific actions lead to a result or would it have happened anyway?

Should we do something different? Is it time to change or should we continue with the same strategy?

These are tough questions, with no easy answers. I will be thinking about these questions over the next month and will revise our financial strategies based on my conclusions.

For more on Strategies and Plans, check back every Monday Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Wealth Builder Ratios - Q2 2009 Update

Here is our Q2 2009 Wealth Builder Ratio update. 2009 continues to be brutal for our financial plans and goals. Through June 30, 2009, the Dow was off 3.8%. The Nasdaq rose 16.4% and the S&P 500 was up 1.8%. Due to the leverage of company stock options and paying off our mortgage, our retirement savings are down 22.6% this year.

For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.

Ratio and Target	Q1 2009	Q2 2009	Comments
Investment Income to Salary Target=0.8 2007=3.41 2008=-5.47	-3.04	-3.78	The stock market performance for the second quarter of 2009 improved our returns by a ratio of 0.70, but not enough to eliminate the loss of -3.04 of the first quarter. However, this gain was offset by paying off our mortgage which was 1.44 times my pre-retirement salary. This year's declines and mortgage payoff have caused our portfolio to lose 3.78 times my pre-retirement salary. Most of the loss occurred in my company stock which fell significantly during the first quarter. While we did sell some equities to pay off the mortgage, we do not yet need to sell any investments to cover retirement expenses. At this point, we are staying invested in the market for our tax advantage accounts, and taking the opportunity to increase our cash position during rallies.
Savings to Salary Target>20 2007=23 2008=16.7	13.6	12.9	My company stock advanced 7% during the second quarter which helped reduce the loss due to paying off our mortgage. Our total savings are still down 22.6% for the first half of 2009.
Debt to Salary Target=0 2007=1.51 2008=1.46	1.45	0	We said bye-bye to our mortgage on May 20, 2009. Eliminating a mortgage payment has reduced our expenses by 24%.

My financial goals for 2009 are:

1. Continue to maintain an Investment Income to Salary ratio > 0.8. (off track)

2. Maintain a Savings to Salary ratio of 20. (off track)

3. Reduce my Debt to Salary Ratio by 0.1 to 1.36. (met final goal of 0)

(For reference, Salary refers to gross salary just prior to early retirement in October, 2007.)

Both #1 and #2 were directly correlated with how well our stock, bond, and CD investments returns. Factoring out the mortgage pay off, our stock, bond, and CD investments have lost -3.9%. Including stock options, our investments fell -14.0%. This compares with an S&P gain of -1.8% and a Dow return of -3.8% through June 30, 2009. When the market rebounded in May, 2009, we decided to pay off our mortgage, which increased are savings losses by about 10%, only 8% if stock options are included.

It has been very challenging retiring at the beginning of a bear market. Our short term expenses (next 3-5 years) are invested in CDs, bonds and money markets. So we can wait for the stock market to resume an upward trend, hopefully in the next 1 to 2 years. At this point, I am very concerned about reducing our withdrawal rate, and am looking at possibilities of generating regular streams of income through part time employment, and if needed, full time employment.

Hopefully, this will be the rebound year, as I propose in my 2009 economic predictions, and allow our retirement investments to recover. Otherwise, it's back to work I go :-)

For more on Strategies and Plans , check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Expecting Another Bubble

As the economy recovers from this recession, I believe that we will experience another asset bubble, like the recent ones in tech stocks (late 90s) and housing (mid 00s). In both bubbles, low interest rates were the main driver. Low interest rates were used to increase liquidity prior to Y2K and low interest rates were used to mitigate the 2000-2002 recession. Today, the Fed has made interest rates even lower than the previous two times. As Yogi Berra once said, "It's déjà vu all over again."

Of course, the three important questions to answer are: 1) In what asset?; 2) When will it start?; and 3) How long will it last? My answer is I don't know. If I were to guess, my answers today would be:

1. Emerging markets and commodities.
2. Within the next year.
3. A couple of years.

Why will the bubble happen? Everyone, including governments, gains during a bubble and therefore, there is little incentive to prevent one. It isn't until after the bubble bursts that the economy suffers and people realize there was bubble.

Hopefully, by expecting another asset bubble, I think I can protect our savings better than was done during the recent housing and financial crash.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Letting Annual Memberships Expire

In 2008, we had annual membership overload, at the local museum, zoo, aquarium, water park and nature center. Currently, we have the nature center and water park memberships. After this summer, we will no longer purchase a water park membership.

Even if we plan to rejoin, we will let a membership expire, since there is usually no incentive to renew. However, the water park is offering a two for one membership for 2010, with no additional charge for the parking pass. Since there is no family membership, this special enables our family to have a membership at 1/2 the regular pass. This is a pretty good deal, since we can get an annual membership for a little more than the cost of two visits.

I've decided to let this deal pass for the following reasons:

Novelty is over. This will be our second year of having the membership. Each year will have attended 10 to 20 times and have experienced most of the attractions in which we are interested. We'll probably attend much fewer time in the future.

More flexibility. I feel some obligation to use a membership when we have one. Thus, I may sometimes choose not to pay for similar activities to those in which we have a membership. Not having a membership lets us make choices primarily on the merits of the activity.

Financial concern. In my opinion, the water park has had significantly lower attendance this year. In addition, there seem to more elements needing repair this year. I have a small concern that the park may not survive the recession and go out of business, causing advance season pass members to lose their membership payment.

Thus, in 2010, we will probably only have a nature center membership. The reason we will keep it is that the cost of summer camp is equal to the cost of a membership plus the discounted member's cost for summer camp. Since we like to have her attend this nature camp, it is cost equivalent to have the membership. Once we stop sending her to camp, we will let the nature center membership expire also.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC