Sushi Money

“Out with the old, in with the new” as the saying goes.  Timely words for welcoming a new year that will hopefully be a far cry from last year, at least financially speaking.    For many of us the new year also means a new commitment to getting rid of debt and increasing savings.  In short, through circumstance or necessity, many of our priorities have changed.  

Jim Citrin looks at Getting Back to Basics in 2009, describing how changing priorities have affected business perspectives:

“The era of unchecked consumerism and financial excess had the insidious effect of devaluing everything. Why save money when you could borrow to get whatever you wanted? Why hang on to clothes and appliances when you could just go to the store and buy new ones? Why make structural improvements to your business operations or deepen customer relationships when you could push more stuff to get the growth that Wall Street demanded?”

“In one fell swoop, these attitudes have ground to a halt. They’ve been replaced by millions of healthier conversations in conference rooms and around kitchen tables about how to save, conserve, and prioritize.”

The article looks for a silver lining, examining how we can reconnect and make the best of the difficult times we live in.  I appreciate his views because it makes the simple point that we have a choice with how to respond to the current economic environment.  Sit around and wring our hands?  No. We need to get up and do something about our situation, and work to improve our lives and fortunes.

Admittedly the really tough part of the economic challenge we face is how far it has reached into people’s lives.  Between housing, the stock market and the credit crunch, the financial challenges have touched every level of the socio-economic spectrum.   For those who have lived too long on debt and excessive borrowing, the money faucet has been turned off.  Now they’re struggling to save, get by and get rid of that debt.  Others are struggling with layoffs and trying to find a job.  And even for those who saved and invested diligently through the years, the stock market’s downward spiral has demoralized investors into wondering why they ever invested in the first place.

A lot of frugal and industrious folks today are wondering if they should have just spent more of their money when they had it, instead of scrimping and saving through the years only to watch it disappear in a few months.

Most of all it’s just hard to feel confident about our choices right now.  And we’re shocked when reading about financial scandals and corruption.  It’s no surprise that many people have moved their assets to cash in CDs and savings accounts, deciding that something is better than nothing.   Nothing wrong with that, especially if you need the money in 3-5 years, or you are already retired and may need that money for healthcare or living expenses.   But the rate of return on those accounts is really low, and most planners will still target a growth or dividend component in the overall allocation mix if possible. 

Dividends are also king right now for investors, and there’s nothing like getting paid to hold a good company in stock.  Fixed income investments also may offer some of the best opportunities in the next few years.  Cash-wise I’m at least putting some money into a good quality high-yield savings account such as with ING, and money market accounts such as Vanguard Prime.  If you want treasuries (who doesn’t!?), Vanguard also has several treasury mutual funds.

And I’m certainly still investing in mutual funds and selective stocks, taking advantage of low prices and increasing savings and investments where I can afford it.  Is that a gamble?  Not for me, since I don’t plan to need the money for 10+ years.  If you feel like it’s gambling, then that should tell you something about your risk tolerance, and you should look for a more conservative asset mix. 

But if you’ve got decades until retirement, there’s no better time than right now to accumulate investment shares.  As long as your financial life is in order of course.  I call it my Big Three, and they remain the central focus of our financial lives:  Cut Spending, Pay down Debt, and Increase Savings.  After the first two are under control, then I think about investing.

If you’re feeling bad about your mutual fund losses, most of us can be glad we didn’t join the Dubious 60% Club, and that’s not 60% up…  Bill Miller was a high-flyer for about 15 years as a leading mutual fund manager, but for the past few years- well mostly last year- he has crashed and burned.   It just goes to show that anyone can make poor choices and lose money in the market.  Does that mean he’s sulking in some corner office, licking his wounds?  Absolutely not.  He’s still in their fighting and even managed to beat the S&P 500 for December 2008.   

As we ring in the new year, there’s a host of excellent pracitical advice out there.  Here’s a rundown on some of my favorites:

• The Wall Street Journal offers an eclectic mix of insight for How to Fix Your Life in 2009.  “Exuberance and excess have made way for prudence and pragmatism. Frugality is, once again, a virtue. To help you settle into this strange new world, our reporters have dug deep into their beats…”

• SmartMoney.com shows us 7 Ways to Save in 2009.   “Reducing monthly expenses and saving more money is the must-make resolution for 2009.”

• Kiplinger.com offers a classic article from a few years go reviewing 8 Keys to Financial Security. “Pay yourself first. Protect your loved ones. Borrow sparingly. And don’t go for the home run…”  What a great, timeless article.

• Laura Rowley takes an heady look at the psychology of Understanding Money Behavior in a Financial Crisis.  “One of the keys to surviving the economic crisis, at least from a psychological perspective, is recognizing what you can and can’t control. And not doing destructive things while you’re powerless.”

I wish you a healthy and prosperous new year for 2009.  Sushi Money is two years old this month, and it’s been a grand experiment in the personal finance blogging world.  I don’t how long I’ll continue to write here, and I may look for a different financial niche.  But its been a lot of fun.  One of my goals includes are greater focus on philanthropy.  I’m in little position personally to make significant philantrophic gifts, but I am very thankful for the time and resources I do have available. Maybe there’s some kind of venture in the making.  

In times like these it’s important not to forget those who are struggling.  The economy will gain traction slowly, but there will be many who are left behind.  As we strengthen our own financial lives, it seems a good time to try and help a few others along the way.

It’s been a busy month with the holidays, and equally busy keeping up with the economic news, most of which isn’t very good.  But at the pump we’re all smiles these days with gas prices hitting five year lows.  Believe it or not I saw gas selling for $1.29 yesterday.  That is amazing, and to think of how much money Americans have wasted over the past couple of years in terms of fuel is even more amazing. 

Maybe wasted is a poor choice of words, but at least we’re not giving billions to third-world crazies anymore while the global recession has reduced demand (and speculation) incredibly.  The good news is how much we’re now saving here at home, and ”Tom Kloza of the Oil Price Information Service says Americans are paying about a billion dollars per day less than in July.”

At least that’s money people can use for other needs during one of the greatest recessions in decades.  But oil prices won’t stay this low forever, and some analysts see prices recovering later in 2009 or 2010 based on greatly reduced oil refinining capacity.  I hope that’s not the case- seems to me we got into the mess partly due to the fact that we didn’t have enough refineries or production capacity.  The big oil companies have little incentive at this point to expand their capacity however, so eventually demand and speculation will increase again.

Maybe we’ll be helped by better mileage cars and alternative energy?  Maybe.  I wouldn’t count on it, but every little bit helps.  That’s especially true in today’s economy, where many people are finding it difficult to juggle income against debt.  I hope you’re doing well at the end of such a tumultuous year, and that 2009 will be a whole lot better for all of us.

So much going on lately it’s hard to keep up with.   Staying too busy and not looking at the market gyrations each day.  It’s almost like a financial soap opera at times with the spin on the financial crisis.  Yesterday some of the headlines read that consumer prices fell by over 1.7%, which is nearly the greatest amount since 1932.  Yet core inflation was unchanged.  There’s always a story to be found somewhere in the financial news.

So now we’ll be reading about deflation as a grave concern by the Fed and others.  Maybe it is.  But energy prices have fallen so far, so fast that it influences the greater part of the drop in consumer price data.  Based on the past years CPI data, Social Security recipients are getting one of the largest Cola (cost-of-living-allowance) increases since the early 1980’s- 5.8%.  But don’t spend it all at once! Over the last couple of months the drop in consumer prices might indicate a meager Cola in 2010.  So it’s like getting next year’s increase now. 

The bigger news yesterday was the Fed’s lowering of the Fed Funds Rate to nearly zero percent.  That should ultimately influence some interest rate direction, but it’s not all good news.  It might ultimately influence mortgage rates, but it also means lower rates on savings accounts and CD’s. The Fed is really trying to do all it can to stimulate the economy and the business cycle.   Business growth produces jobs, and we know the employment news hasn’t been good lately.

Yet even with interest rates falling, this financial crisis is unlike others in the past.  Instead of falling credit card rates for example, many consumers are receiving notices of increases to their credit card rates, as well as reductions of their credit limits available.  Financial institutions such as Citigroup are citing a “difficult market environment” as their justification for raising rates.  This is a huge problem, especially on the eve of Congress’ new laws regarding consumer protections with credit cards.   

My opinion?  That’s why these companies are raising rates… because they’re not going to be able to after Congress tackles the issue.  Federal regulators are poised to make huge, sweeping changes to the credit card industry- and much strong consumer protections.  So the credit card companies are changing the game to their own benefit now while they can, and it’s not helping consumers.  

Even one of the most customer-friendly financial institutions in the country- USAA Federal Savings Bank- has notified customers that it’s raising rates 2% or more above current rates as a minimum!  You don’t have any choice with this other than to “opt out” after which the card/account will be closed.  Personally I think it’s a disgrace- but these companies are in business to make money, and if they can’t make profit at a certain level, they will raise rates to do so.  As it stands now, they’re concerned about losing money in light of low Prime and variable card interest rates. 

One would think these same companies shouldn’t be able to do this, especially if they’re receiving federal bailout money.  Maybe that’s an indicator of just how bad things have been.

So paying down (or staying out of) debt is more important than ever.  And don’t look for those zero-percent balance transfers to help out either.  They’ve disappeared like a lot of other things, and we just won’t be able to play the ‘ole credit card shell game as much anymore. 

Otherwise everyone’s busy!   It seems like we’re making progress from a macro perspective with the financial challenges we face.  The Fed’s doing all it can to move money around the economy, and maybe the banks will start to lend more in the months ahead.  I’m not a market prognositicator, but I still believe valuations are incredible and offer some of the best investment opportunities we’ll see in our lifetimes.   I’m not chasing stocks or the next big thing, but just trying to stay patient, and focus on long term goals.    Have a great holiday week.

*** Update ***  Apparently the Treasury Secretary’s plan does NOT include plans for current homeowners to refinance their loans.  So while many of us may sit on mortgage loans at greater than 6% or 7%, this plan would allow neighbors to move in to their house with a new mortgage loan with much lower payments.   This seems wrong… it may be a temporary fix, but how will it help millions of current homeowners who are having trouble making payments on their current mortgage loans? 

This week we found out we’re officially in a recession, and have been since around December, 2007.  The market has been wallowing at multi-year lows and layoffs have been increasing.  In light of so many economic challenges, it’s hard to see any bright spots that can move us forward.  But what about a lower mortgage payment?  Would a couple hundred extra bucks each month really make a difference, or help people purchase a house?

For many of us, it just might.  That’s the focus area of the government recently- mortgage loans and the possibility that a U.S. sponsored wave of mortgage activity and refinancing could bolster both the housing market and the economy as a whole. 

“The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full point lower than prevailing rates for standard 30-year fixed-rate mortgages.”

“The plan is very similar to an idea floated in October by R. Glenn Hubbard and Christopher Mayer, academics at Columbia University’s Business School. “I think a program to substantially bring down rates for homebuyers would be an incredibly valuable program, and I think it captures a real part of solving what has been an incredibly challenging dislocation in the credit markets,” Mr. Mayer said in an interview. He estimated the idea under consideration could quickly help 1.5 million to 2.5 million people buy homes, giving a major boost to the housing market and broader economy.”

Certainly people would still need to qualify for the mortgage and have decent credit ratings to do so.  But a 30-year loan at 4.5% ?  Sign me up… not only would the monthly payment for many of us decrease, we would be able to focus more on reducing debt levels and increasing consumer spending.  *** Not for current homeowners! ***

“…Treasury Secretary Henry Paulson views lowering mortgage rates as key to fixing the housing crisis; hence the mortgage-security-buying program announced last week.  The most important thing we can do to mitigate foreclosures and progress through the housing correction,” Mr. Paulson said in a speech Monday, “is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages.”

I have to agree (for once) with Secretary Paulson- making homeownership more affordable for credit-worthy families sounds like a great idea.  As long as we aren’t handing out loans to people that can’t repay them… hopefully we’ve learned that lesson already. 

Just for kicks I ran the numbers on the difference between the monthly payment for a 6.5% 30 year fixed-rate loan, and the same loan at 4.5%.  These numbers are for principal and interest only and don’t include taxes or insurance payments:

• 6.5% 30-year fixed-rate loan:   Monthly payment of $1,137.72
• 4.5% 30-year fixed-rate loan:   Monthly payment of $ 912.03

Okay, so we save about $225 bucks a month with the new mortgage. That’s not chump-change, and lots of folks can qualify for a 4.5% loan that would not otherwise qualify for a 6.5% loan.  Even refinancing is a great idea as long as we’re planning to stay in that house for a few years or more.   *** Not for current homeowners! ***

A Rush Into Refinancing may be just what the country needs right now however. But the new plan may not even include this option!  

I thought that’s what the Treasury Secretary was aiming for, and how they believe it can help dig out the country from the current housing mess.  Get more people into homes sitting empty out there, and make those monthly payments more affordable for all of us.  Good idea, but if they exclude current homeowners, then I don’t see how it helps the economy en masse.

By the way, what’s even more important over the long term on that interest rate scenario?  Think about how much interest you would be saving. 

• 6.5% 30-year fixed-rate loan:  Total interest paid $229,587
• 4.5% 30-year fixed-rate loan:  Total interest paid $148,336

That lower rate loan would save us over $81,000 dollars!!!

Sounds pretty good to me- that would pay for a kitchen and bath remodel, or even a few new cars over the lifetime of that mortgage loan. 

So is it time to buy that house you’ve been looking for?  Time to wade into real estate again?  Well, the real estate debate continues, and there are many opinions.   Even if a lot of us can think of several really good real estate deals out there, the money’s just not there right now.  And that’s part of the problem- with the stock market down, real income down, and folks losing their jobs, we’re running out of people that can qualify to purchase real estate.  

Maybe, just maybe, lower long term mortgage rates will help us climb out of this whirlpool?  Hard to say- that whirlpool is also a downward spiral… and deflation can take a long time to work out of.  Just ask the Japanese.

How does a well educated middle-aged registered nurse end up losing $400,000 to scam artists?  For the life of me I can hardly understand how this is possible, especially because it’s such a well known internet scam and involves the red-flag word “Nigeria”.   This otherwise intelligent (maybe not) woman emptied her husband’s retirement account, and took out loans on their house and car all to continue sending money to thieves half way across the world.

“It turned out to be a lot of money up front, but it started with just $100.  The scammers ran Spears through the whole program. They said President Bush and FBI Director “Robert Muller” (their spelling) were in on the deal and needed her help.“

Ahem… well, you see Presidents and FBI Directors don’t ask regular people for help.  Unless they’re behind in the polls for re-election perhaps… But important people have, you know- other people to do that kind of stuff for them?

“They sent official-looking documents and certificates from the Bank of Nigeria and even from the United Nations. Her payment was “guaranteed.”  Then the amount she would get jumped up to $26.6 million – if she would just send $8,300. Spears sent the money.”

“More promises and teases of multi-millions followed, with each one dependent on her sending yet more money. Most of the missives were rife with misspellings.”

Okay, I guess if someone’s going to give me a lot of money I won’t hold their spelling problems against them. 

“When Spears began to doubt the scam, she got letters from the President of Nigeria, FBI Director Mueller, and President Bush. Terrorists could get the money if she did not help, Bush’s letter said. Spears continued to send funds. All the letters were fake, of course.”

Oh boy.  Even worse, she was told it was a scam by relatives, friends and other professionals, and was advised to stop- and still she kept sending money.  No offense Ma’am, but I hope your nursing judgement is better than your everyday, ah, money handling judgement.  

This type of “Nigerian” scam is a called “advance-fee fraud” and it has been around for a long time.  Even worse, it’s reaching an epidemic level and people keep falling for it!   What’s the best way to avoid it?  Just don’t reply to any email or letter than has anything do with Nigeria for one…  more importantly think about these words from the Federal Trade Commission:

If You Receive an Offer

• If you’re tempted to respond to an offer, the FTC suggests you stop and ask yourself two important questions: Why would a perfect stranger pick you — also a perfect stranger — to share a fortune with, and why would you share your personal or business information, including your bank account numbers or your company letterhead, with someone you don’t know?
• And the U.S. Department of State cautions against traveling to the destination mentioned in the letters. According to State Department reports, people who have responded to these “advance-fee” solicitations have been beaten, subjected to threats and extortion, and in some cases, murdered.
• If you receive an offer via email from someone claiming to need your help getting money out of Nigeria — or any other country, for that matter — forward it to the FTC at spam@uce.gov.
• If you have lost money to one of these schemes, call your local Secret Service field office. Local field offices are listed in the Blue Pages of your telephone directory.(I never knew that!?).

Admittedly some people get involved in a scam and it becomes an obsession to fix it, get their money back or it becomes some type of self-denial.  That’s such a shame, and it must border on psychological issues sometimes.  But apparently the woman in the article above would like other people to know her story so maybe it can prevent someone else from falling into this trap.  Good for you lady, and thanks for sharing it.  It’s too bad you couldn’t have done so earlier without losing so much money.   

It also upsets me that our government, and the governments of Nigeria or other countries cannot do something to prevent or remedy this type of situation.   It’s bad enough when we’ve lost 36% over the course of a year in the markets- but to just give our life savings away to scam artists?   Don’t fall for it!

For More Information

More information about Nigerian Advance-Fee Loan scams is available from the U.S. Secret Service (www.secretservice.gov/alert419.shtml).

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. 

That’s pantry fellas, okay?  You know, that closet or cupboard where you keep your food and canned goods?  I looked around ours recently and discovered we’ve got a lot more food on hand than we realized.  Maybe not fresh foods like milk and eggs, but if push came to shove we could probably go a month without a major shopping trip.  That’s not even counting what’s in the freezer.   With thoughts like these it’s no wonder we’re reading about consumer spending taking a huge dive last month:

“The Commerce Department reported Friday that retail sales fell by 2.8 percent last month, the biggest drop on record, surpassing the old mark of a 2.65 percent plunge in November 2001 that occurred after the terrorist attacks. The October sales decline was led by a huge fall in auto purchases, but sales of all types of products suffered as consumers, worried about their jobs and the market turbulence, cut back sharply on spending.”

“The dismal report on retail sales was worse than the 2 percent decline that analysts expected. It marked the fourth straight decrease, the longest stretch of weakness on record. Retailers are braced for what could be the worst holiday shopping season in decades with economists forecasting a recession that could turn out to be the steepest since the 1981-82 downturn.”

“A survey of the nation’s big chain retail stores found that retailers suffered through the weakest October in at least 39 years even though they tried to gin up more sales by a frenzied round of price cutting.”

Of course there’s a bright side to a retail downturn…  discounts and sales everywhere.   Now retail doesn’t usually include grocery stores, but I know folks are cutting back there too.  The stores are quieter and emptier.  Except for Wal-Mart.  I made the mistake of going to Wal-Mart on a Friday a week ago- holy cow!

Having grown up through the ‘81-’82 downturn, I’m not sure I learned anything of significance either, especially because I was young and single, and didn’t have a family or home to support.  But we scrambled with multiple jobs and did what we had to do… worked, saved and pinched pennies.  I do remember running out of gas a few times… that was embarassing, but more a reflection of my lack of foresight than anything else.   You know what else was lack of foresight?  Not investing on a disciplined basis each year at the time- I probably gave up a decade or more of investment returns over the length of the 1980’s bull market.   But that’s another story.

As I ponder the current state of affairs it strikes me that most of us have a lot more resources at hand than we may realize.  And that’s also because most of us plan ahead a little bit, and try to stay prepared for whatever might come.  If I look in the pantry, the garage and a few other places, I realize we have a lot of stuff.  Some of it is even useful.  If things get really tough, we’ll be fine for a while.  We’ve already cut back, and we have room to cut back more if we need to.  Admittedly lots of other folks may not, and we’ll need to help them where we can. 

All across America starting this weekend the Boy Scouts and Cub Scouts have their annual food drive to gather donations and help people.  So many of the local food pantry and shelters really need the donations.  Looking at our household pantry I know we have a lot of cans we can give to help another family with Thanskgiving this month.

But if you’ve read Sushi Money at all before, you know I’m not one who believes we’re falling into another Great Depression.  Heck they haven’t even called it a recession formally yet.  But when they do (oh, they most assuredly will!), the recession will probably have started around the middle of 2008. 

We don’t know when this recession will end.  We don’t know how deep it will be, or what will help trigger the turnaround.  But to get the nation moving and growing again means we’ve got to foster business and public works.  And James Stewart’s approach to How Obama Can Fix the Economy makes as much sense as anything I’ve heard from Congress or the Treasury Secretary.  The new President will have a full plate, and a lot of motivation for changing the economic course we’re on right now.   I don’t envy his job, but is there a better time to be a new President than with the economy on the ropes?  Looks like opportunity to me.  

It’s an amazing day as President-elect Obama sweeps to victory, winning both the largest and the key states in the nation.  The electoral vote signaled a huge margin even as the nation still faces the red-blue popular split that divides much of America.   Yet winning the Presidency is an historic moment filled with change and promise as never before.  His victory speech was positive, hopeful and strong.

“I just received a very gracious call from Senator McCain. He fought long and hard in this campaign, and he’s fought even longer and harder for the country he loves. He has endured sacrifices for America that most of us cannot begin to imagine, and we are better off for the service rendered by this brave and selfless leader. I congratulate him and Governor Palin for all they have achieved, and I look forward to working with them to renew this nation’s promise in the months ahead.”

President-elect Obama framed his victory describing his vision for the future in bright, hopeful words.

“What began twenty-one months ago in the depths of winter must not end on this autumn night. This victory alone is not the change we seek – it is only the chance for us to make that change. And that cannot happen if we go back to the way things were. It cannot happen without you.”

“So let us summon a new spirit of patriotism; of service and responsibility where each of us resolves to pitch in and work harder and look after not only ourselves, but each other. Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers – in this country, we rise or fall as one nation; as one people.”

We don’t know where the nation is headed, but for many voters, change is the key, and the new President has called for a great new direction.

“…This is our chance to answer that call. This is our moment. This is our time – to put our people back to work and open doors of opportunity for our kids; to restore prosperity and promote the cause of peace; to reclaim the American Dream and reaffirm that fundamental truth – that out of many, we are one; that while we breathe, we hope, and where we are met with cynicism, and doubt, and those who tell us that we can’t, we will respond with that timeless creed that sums up the spirit of a people:”

“Yes We Can. Thank you, God bless you, and may God Bless the United States of America.”

There is much to be proud of in America. Not only the wonder and strength of our democracy and the free electoral process, but for the hopes and dreams of so many, for so long. Regardless of our disagreements, we must continue trying to work together for a better future. Congratulations President-elect Obama!

If it’s not apparent to many people by now, the frugal living style is becoming the “in thing” these days.  No surprise considering the challenges Americans face with a tigtening economy and job market.   While consumers have cut back on spending more than any time in the last 28 years, the Fed has lowered interest rates to levels not seen since the days of Eisenhower.  It’s no wonder we’re spending like we lived in the days of Eisenhower over fifty years ago.

Of course the government is doing all it can to stimulate the economy, but consumers have awakened to the reality that money only goes so far.  And taking on more debt to support lifestyle needs is just not a good idea for long term financial security. 

But what is surprising is that being “frugal” is becoming fashionable throughout all levels of the socio-economic spectrum. Even the more affluent families are now looking for ways to cut back, and busy executives are wearing bargain shirts.  It just makes sense.  Why does “dressing for success” have to mean $1200 suits and $80 shirts? 

I believe we’ve entered a new period of practicality and frugal living.  Even if it’s simply a response to challenging financial times, people are becoming aware that spending money they don’t have just digs a deeper hole of indebtedness.  Living a simpler lifestyle is healthier, more stress-free and saves a lot of money over time.

So will families and children growing up these days have a new perspective on frugality and financial awareness?  Is this a new paradigm that has changed how society may interact with money?  Possibly, but you’ve got to wonder if some people are simply like that all the time anyway, or if it’s just due to the financial crisis.  A good comparison is the Nature versus Nurture debate, examined by the Wall Street Journal in The Making of a Miser.

“…people who lived through the Great Depression were often thrifty their entire lives. Since the 1930s, each successive generation has gotten to be more free-spending.”

“The current financial crisis could change that. “Right now, there are probably a lot of children who are going to be tightwads,” says Mr. Rick.”

“But our childhood isn’t the only factor. George Loewenstein, a professor of economics and psychology at Carnegie Mellon University, says people have innate tendencies. “It’s almost like people are born tightwads or cheapskates,” says Dr. Loewenstein…”

I’m not sure about being born to be thrifty.  Personally I think it has more to do with our experience, and the nurture aspect of childhood development is very important.  Yet being a tightwad is far different from simply being frugal.  And being a cheapskate, or someone who stresses out about every penny may not be all it’s cracked up to be:

“…According to Messrs. Rick and Loewenstein, being a tightwad isn’t the happiest state of being. Many cheapskates experience something akin to physical pain when they spend, and are constantly anxious about money.”

“Spendthrifts aren’t necessarily any happier. Their free-spending often causes stress in their lives and marriages. Indeed, Messrs. Rick and Loewenstein say the happiest people are frugal, which they define as people who are able to spend without suffering but take pleasure in saving.”

But what about the little things we love to buy, or gadgets like cell phones?  Are we thinking twice about those purchases as well?

One of the more expensive items I purchased this year is something most of us don’t need, but we really like.  A GPS navigation gadget, or personal navigation device (PND).   I’ve been waiting to buy one of these for a few years, and finally justified it by taking a two-week trip this summer (with sky-high gas prices to boot!).   Taking the trip was not a frugal decision by a long shot.  But it was a chance to spend time with my son, and something we will long remember.

To help with the trip I found a Garmin Nuvi 770 at a great price on Amazon, and had to have it.  And how did it perform?  Flawlessly.  In fact, the trip would not have been the same without it, and I’ll never be without it again.  This thing took us places I couldn’t have imagined, and kept us safe and sound and always aware of our location.  We did a round-robin trip in the midwest, through Michigan and the Upper Peninsula, and back down through Wisconsin, circling Lake Michigan.   Not only did the Garmin take help us find dozens of “points of interest” (POI’s) that we might otherwise not have seen, but it also found gas, shopping and dining facilities in a heartbeat. 

Crossing the Mackinac Bridge into Michigan’s Upper Peninsula

You can even see Mackinac Island in the picture’s background to the right over the water, and also on the Garmin’s screen.   This thing was just awesome to use, and really simple.  Personally I view it as a safety or security issue now- we know where we are, and how to get where we want to go.  It’s peace of mind and a whole lot more.  I even added a custom POI database that listed campgrounds, parks and other recreation facilities.  The coolest part is while driving down the highway in late afternoon, I could look up campgrounds nearby and the Garmin finds several I never heard of or even knew existed.  So we end up camping at some terrific places, without a reservation, simply by using the Garmin to find them as we travel along.

So can a Garmin be considered a frugal purchase?  Probably not, but one could make a case for saving gas by not getting lost!  It probably comes out even though, because the Garmin shows you so many new things you never knew existed, that you like driving there too. 

But a couple of months later, do I still use the Garmin very much?  Not everyday, but whenever we visit the city, go to garage sales, need directions to some new place, etc., it’s very handy to have.   I suppose of you’re a sales rep or a realtor, you can’t live without it.   But in terms of frugality it’s not an easy argument to make.  This thing is a cool gadget that makes life and travel better…but most of us don’t need one. 

I would like to think I’m usually in the frugal category, or at least working a lot harder at joining the ranks of the future frugal. I think we have entered a new age of frugality, and many people will more carefully consider how and where they spend money and the lifestyle choices it brings. 

Personally I enjoy spending money, yet I relish saving money on things and finding a good buy.  In reality however, I also don’t hesitate when I think I need something, and I usually pay for quality when given a choice.  But I often wonder if frugality and the enjoyment of shopping can go together?  I think the answer is yes, but it depends on the lifestyle we choose, and how much that debt is part of our lives.  It’s much easier to whip out that credit card and charge something rather than pay cash.  When we use our own hard-earned cash, I think we’re a little more careful about what we buy.

All I know is I choose not to stress out about financial choices (or debt!), and the more I provide for a secure financial future, the better my life is.   And that’s what it’s all about.

What a difference a few months can make.  I paid $2.19 per gallon to fill up a tank of gasoline today.  Is that amazing or what?

Remember all those days of $3.79 or $4.20 per gallon gas where it was just crazy silly to be paying those prices?  Looks like global demand has dropped so much that oil is falling towards $50 dollars a barrel.  We may see gasoline under $2 bucks a gallon in some states before year-end.

Meanwhile OPEC is scrambling to cut production and keep prices high around the world.  Iran and Venezuela are screaming “Higher! Higher!” while the price of oil- and their ability to prop up their regimes- keeps falling.

Realistically, I wonder how long oil prices will remain this low?

The U.S. Department of Labor released the September 2008 CPI-U, or Consumer’s Price Index data showing that the CPI was virtually unchanged since the prior month.  What does this mean?

There’s lots more data there than most of us want, but basically it indicates that inflation is lower based on overall energy and transportation costs.  More importantly it means that Social Security recipients will receive a 5.8% increase in January 2009.

“Monthly Social Security and Supplemental Security Income benefits for more than 55 million Americans will increase 5.8 percent in 2009, the Social Security Administration announced today.  The 5.8 percent increase is the largest since 1982.”

“Social Security and Supplemental Security Income benefits increase automatically each year based on the rise in the Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), from the third quarter of the prior year to the corresponding period of the current year.  This year’s increase in the CPI-W was 5.8 percent.”

“The 5.8 percent Cost-of-Living Adjustment (COLA) will begin with benefits that over 50 million Social Security beneficiaries receive in January 2009.  Increased payments to more than 7 million Supplemental Security Income beneficiaries will begin on December 31.”

That’s a healthy annual cost-of-living adjustment and many people will be happy to get it.  Unfortunately, just keeping pace with inflation doesn’t take into account all the other rising costs that people face.   Some say the 2009 5.8% cola increase will leave millions in poverty.

“… the announcement ignores the fact that the increase still badly trails inflation, will leave seniors with less buying power than they currently have, and will thrust more elderly Americans into poverty”

“Although the COLA is intended to help seniors keep up with inflation, a recent study by The Senior Citizens League (TSCL) that analyzed 15 key expenditures found that people 65 and over have lost 51 percent of their buying power since 2000. Expenses such as home heating oil and gasoline have more than doubled since the beginning of the decade, while food staples such as eggs and potatoes have increased by 137 and 97 percent, respectively.”

“In addition, the average Medicare Part D prescription drug program will increase by 24 percent next year, and home heating oil this winter is forecast to increase by 23 percent from last year.”

“A majority of the 50 million Americans who receive a Social Security check depend on it for at least 50 percent of their total income, and one in three beneficiaries relies on it for 90 percent or more of their total income.”

So what does that tell us?  It tell’s us that we don’t want Social Security to be our only source of income in retirement!  But for millions of Americans, that is the reality.  For those who are younger, we still have time to save and invest in order to establish a retirement income foundation that supports our lifestyle needs.  Social Security is then available to supplement our retirement needs.   Of course many people believe Social Security benefits may not be available at all, or may have to be reduced over time simply because of the vast number of people who will be receiving it and the government’s ability to pay for it.

However I believe Social Security will be around for a very long time, and that the government will find ways to sustain and fund the accounts (taxes…).  But the benefits may have to be reduced, and no matter how much Social Security provides, it will not be enough to provide a substantial retirement income.   The rest is up to us.  But at least for those receiving Social Security now, a 5.8% raise is a lot better than nothing.