Frank the Financially Savvy Atheist - The F.S.A.

Wow, what a day. We had major stock market indices off 700 bps or more as the house failed to pass the bailout bill. Truly an ugly day wasn't it? As one headline put it, $700B bailout failed, stocks lose $1.2 Trillion in value. Maybe there was something about that "we have to do this or it could be worse" thing after all.

In either case, I am not looking forward to whatever bailout that will be passed. Why? Well, let me count the reasons:
- Bigger government balance sheet. We are already on track for a massive deficit. Any kind of bailout would just add to it.

- Large deficits will choke off our economic growth. We're going to start to think that 1-2% annual GDP is great.

- Higher inflation. Deficits mean more borrowing at higher rates, higher rates lead to higher inflation. Inevitable, and will erode all those dollars we're trying to save. Instead of 3% inflation, think 4-5%.

- All this combined with our retiring baby boomers mean lower asset prices (i.e. stock market returns). I don't know if the rest of the world is going to be attracted to our economy given those other factors as well. 10% annualized stock market return, think more like 6-8% if we are lucky.

So that means that we will have to do more with less because you are going to have higher inflation and lower asset prices. In order to maintain the same purchasing power in the future, you need to save more today.

Those are the long-term implications I'm worried about with this bailout. And there will be some form of bailout coming, now that lawmakers have seen the decimation of the stock market, it's just a matter of time.

I know others have been howling about this as well, but one thing I'm not particularly worried about is the government "over-paying" for any kind of distressed asset. In the long-run, we have plenty else to worry about. Besides, it could simply be the discount rate they use to value these securities and/or loans.

Think about it this way, we could agree that home prices are going to fall by X%, and that Y number of people are going to stop paying on their mortgage, and so on and so forth. This leads to a cash-flow on the security of Z.

You are trying to make a return of 15-20% when you buy this security, so you would then pay say $50 for cash-flow Z.

The government, on the other hand, would say only require a 5% return, and presto-chango the price of the security goes up to call it $70.

It's simple bond math, required yield goes down, so price goes up. Moreover, the US government can borrow at really low rates (for now) and they could make a substantial profit out of this. They would be the largest hedge fund...ever.

Of course, it's not that simple, but given everything else that is likely to happen because of this bail-out, the ultimate price of the securities is the least of my concerns.

What are others concerns about this bailout? Do you agree with my short list of long-term implications?

I updated the financial calculator spreadsheet to include a credit card debt payoff tool. This tool helps answer the question "how long will it take me to pay off my credit card debt?"

You start by entering your Balance, Interest Rate, and Monthly Payment.

It will then calculate the number of months it will take to pay off your balance. Moreover, it calculates the total interest paid.

Then, the tool has a Repayment Matrix which shows how paying more on your card on a monthly basis will dramatically shorten the number of months it takes and decrease the amount of interest paid.

Lastly, there is a summary section which contains the text of everything I just said :).


In the example above, the credit card balance is $5,000 with an interest rate of 15%. The monthly payment right now is $120. The summary section text reads:

If you continue making $120 a month on your credit card balance, then it will take you approximately 59 months to pay off your balance.

However, if you started making monthly payments of $159 a month, then you would pay off your credit card debt in approximately 40 months, saving about $712 in total interest.

The updated calculator can be downloaded here.

...Of the Anti-Bush Market



I love the new onion news network, absolutely hilarious.

I have been having some issues with blogger draft. I'm using it to post on a scheduled basis but that seems to be affecting the rss feed. I'm not showing up on pfblogs.org at a timely basis. That kind of bites. The scheduled posting was a really nice feature.

I'm going to be putting together a compendium of financial calculators in excel. I've finally found a good and free file hosting site (filesavr) so I can post things there. This first file is called financial calculators beta 1.xls. Right now it includes two different calculators.

1. Comparing a 15 year and a 30 year mortgage. This allows you to compare a 15 year mortgage vs. a 30 year mortgage to see how much interest you save vs. how much more your monthly payment will be. It also includes a yearly and monthly amortization schedule for each mortgage.

2. Making Extra payments on a loan. See how making extra monthly or yearly payments will affect how quickly you pay off your loan. This will show you the amount of interest you save my prepaying your loan.

Please download and let me know what you think. My plan is to continually add to this suite of calculators with the ultimate goal to incorporate a retirement calculator with a mini monte-carlo simulation built in! But, before that I think I will add some credit card related calculators next.

You can download the beta here.

HT: Friendly Atheist

Havens Corners Church in Ohio has a marquee sign reacting to Katy Perry's new song, "I Kissed A Girl"

Well, that pretty much sums it up for several religions doesn't it? It's pretty blunt, but essentially that's what it boils down to. As the good pastor himself points out in an eloquent syllogism (paraphrasing here):
Homosexuality is a sin
Sinning leads to hell
Therefore, homosexuality leads to hell

It really is that simple. If you really and truly believe that homosexuality is a sin, then you should agree with the church's marquee. Maybe you would have phrased it a different way or shaded it a bit with more nuanced/sophisticated language, but if you boil it down, that is ultimately what you are saying.

And frankly, it is ridiculous.

As part of my job (and many others) it's important to network and meet with others in your company and industry. Mapgirl reminded me of this with her recent post on working it at work. I have to admit, talking to people have never been my strong point. I am a shy person and I don't really drink that much, so I can't really hob-knob in bars or anything like that. Despite this weakness, I do have a network of individuals who I can call in case I would need something job-related or otherwise. This is one benefit of having been in a fraternity during college. It was something that I've heard about and it was pitched to me as a benefit at the time, but I didn't really have a good appreciation of this benefit until now.

However, fortuitous happenstance aside, I do need to work on my networking skills. One thing that I have had moderate success with is trying to prod the person into speaking more about themselves by asking questions. I feel more comfortable doing the listening, rather than the talking, and I find that people like to talk about themselves.

Does anyone else have suggestions on how to network when you are a shy person like myself?

It's the new retirement section of the CNN Money! I was perusing the site and noticed that there is a new section. Looks pretty snazzy. They have a suggested time-lines for each age bracket and assorted calculators. I like it.

Try it out here. Screenshot below:

Since I've been incognito in the blogging world, I missed one of the most recent brouhahas, this one coming from JLP again. What is it with this guy? :P.

The issue here is a pretty good question: Should there be limits on what can be purchased with food stamps? I think that is a completely valid question. I could have done without the previous paragraph of faux outrage which I thought was unnecessary, but let's concentrate on the question itself.

Since food stamps are funded by taxpayers, then I think it does make sense to place limits on the things people buy with it, similar to the WIC program that JLP mentioned. I think that it would have to be tweaked though. Let's say that we wanted to limit the types of food to only "healthy" foods, then I would expect that benefits would have to be increased because any way you cut it, healthier foods costs more. Not only that, but how do we make the determination that something is healthy as well? Would we allow them to buy organics which would be quite expensive? How about fruits and vegetables? Would they have to be in-season (thus cheaper) or just any ‘ol fruits and vegetables?

But limiting food choices could also lead to other issues. How about this hypothetical scenario: you are a devout follower of some subset of Christianity which requires you to eat Doritos on Friday. Let's also suppose that you are on food stamps and these changes have been initiated which prohibit you from buying Doritos. Because you rely solely on food stamps for all foodstuff, could you sue because you are being discriminated against or would there be some mechanism in place to allow for certain exemptions? Obviously this example was pretty nonsensical, but it raises some potentially thorny issues. And since this blog is supposed to be the intersection of personal finance and atheism, I had to throw that example in there.

What might work a bit better is to change the system so that people can get food from the same place that they go to obtain their food stamps debit card. Now you can just provide a limited selection of healthy items that they can "buy" at the same place.

An interesting question that could have sparked an interesting discussion if people didn't get lost in the first few paragraphs of the post, oh well.

As I mentioned in my previous post, I have successfully completed all three levels of the CFA exam. I am glad that I was able to do it in three years, and I can finally have my Memorial Day Weekend back. I know that some people will want to know my "secret" for success, but unfortunately I don't have any. I do however, have some general tips that might prove useful to those of you who are either thinking about taking the test or have already started. These tips are very subjective and are based on my own experience so please keep that in mind. What works for me, might not work for you. With that, I do hope that this information will help someone else pass the CFA in three years (go three-for-three) and reclaim their summer.

What I did

• First, I used schweser (a division of Kaplan) for my study materials for the exam. I found their summary notes as well as their practice exam volumes invaluable. Moreover, their online test bank: SchweserPro™ QBank was an immensely useful tool for drilling different types of exam questions (like ethics). One year I did opt for some CD products, but I did not find those as useful. By far the best product that I used was the weekly class they did in Boston (and various other cities). While the quality of the instructor varied for each section, at the very least it forced me to look at the material at least once a week. I know this sounds like an ad for their products (and no, I am not getting a commission for any of this stuff), but I used them and found it useful. I don't have a comparison for any of the other test providers (i.e. Stalla). Another tip, check to see if Schweser offers discounts for your company because these products do not come cheap.
• Practice, practice, practice. After you've completed substantially all of the study notes, do practice tests. I would do online tests with SchweserPro™ QBank first and save the practice exam books for the last 3-4 weeks before the test. The QBank was great to really hone in on what areas are your weakness down to the specific section. This proved very helpful near the end in determining what was key to review. Then I would do one or two practice test out of the book casually at first and then sit down for a full blown 6 hour run. It's important to do a few 6 hour runs (or as close as possible) both to get a feel for the exams and to build up stamina. I will say that I found the schweser tests challenging but in different ways than the actual test. I would guess that much of that was due to nerves during the exam more than anything else and that the test questions were pretty comparable.
  
• Take time off from work to study. My manager was good enough to give me two extra days off work to study, and I would take the week off before the exam to study as well. Obviously, this might not be feasible for some people, but do it if you can.
• The week before the exam, I would do all the CFA institute practice exams online. Each exam was $50 a pop and it was the best $200 I ever spent for study materials. Also, one year there was an exam question that was substantially similar to one of the CFA institute's practice exam questions. While it was a fairly simple question, it was still a confidence booster.

What I wished I had done

• Studied consistently. Every year I would do the same thing 4-5 months before the exam. Ok, I have X,000 pages to read. That boils down to 15-20 pages a day and leaves an entire month to practice problems. Lo and behold I would fail to do this and I would be cramming the last month or two. What I should have done is front-load much of the reading while I was still feeling motivated to do so. Then as work became hectic or I couldn't study a night or so, I would still be more or less on schedule. There is too much information that you need to study to do it all in one month. It is best to spread it out over as many months as feasible and then do practice problems at the end. The only exception to this is Level I which many people who did finance in their undergraduate are able to squeeze by, but I do not recommend doing so.
• Used my CFA class to network. I am absolutely terrible at networking and speaking to other people I don't know. I am shy by nature and doing that stuff does not come easy to me. In retrospect, this would have been a great opportunity to meet with other finance professionals around Boston, and it is a shame that I did not take advantage of it.

Other tips

• Study ethics first and last. Use the QBank to drill a ton of questions. For me it was just about practicing the questions over and over again in order to get the ethics section.
• Relax, it's not the end of the world if you don't pass. You will be disappointed, but life moves on.

I hope someone finds that helpful and if there are any questions please leave them in the comments.

Hisashiburi desu ne? Translation: it's been a while now hasn't it? I did calculate our net worth for the end of July (roughly $23K) and I have just completed the calculation for the end of August. It was a spend heavy-month as we have just returned from a family vacation. As a result, our credit card balances increased month-over-month (MoM) while our other debts went down due to their regularly scheduled payments. Assets were up as the markets were relatively well behaved (albeit volatile) and savings increased a slight bit. All told, that brings our net worth to approximately $26K. Looking ahead, I think this number will be down for the next month as our kids are starting school and we also need to pay for their piano lessons.

I would have to say that we are a mixed bag when it comes to our finances. We do certain things well (saving regularly in 401(k), funding our Roth IRAs, handling windfalls) but on the other end of the spectrum we eat out too much and we are still heavily reliant on my end-of-year bonus. This is partly due to the fact that many of our bills are "lumpy" and are not paid on a regular monthly basis. Moreover, we tend to spend a lot on the kids for supplemental ativities (private school, music lessons, other activities). We do value their education and these enrichment programs (otherwise we wouldn't be paying for them) but it does cost a pretty penny. Don't get me wrong, we've managed to do quite well with what we have and I am content with our current situation. However, if we are planning on meeting some of our more aggressive goals (in terms of early retirement, moving to a new home, traveling abroad) then we need to get a handle on these important and trivial drains on our finances.

In other news, I am now officially 25 years old. I've made it a quarter of a century thus far, here's to many more years ahead. Also, I have passed Level III of the CFA exam as well. It feels very good to have that done with and I'm looking forward to having my Memorial Day weekend back. It was also nice to go three-for-three

I know the blog has been a little stale, but I appreciate the 50 or so people who have left my on their rss readers. No promises for the future though, but I will try my best. Here's to a good September.