Gift cards have become very popular gifts for Christmas, birthdays, and other special occasions. They have also become another profit center for retailers because many are lost or never redeemed for one reason or the other. To put this in perspective, read this eye-opening story from the New York Times, which sums this point up very well:
http://www.nytimes.com/2007/01/07/magazi...
It goes beyond merely misplacing or forgetting about the gift cards given to you though:
You may have received a gift card to Simon Malls in the past. If you have and didn't immediately spend it, you know that Simon takes making a profit from them to a whole new level. They charge a $2.50 fee for each month it is held after six months, while voiding the entire balance after 12 months. This is on top of charging an initial fee to purchase the card and a fee to check the card's balance.
Does this even seem legal? Well, several states didn't think so and have sued them over the past few years. In any event, they're pretty proud of their gift cards to be charging what they do. Why people still buy them is anyone's guess.
So, if you're thinking of giving gift cards this Christmas, it just may be a gift to the retailer instead… even though their name isn't on the gift tag, it's on the card.
Thursday, November 29, 2007
Friday, November 23, 2007
What It Costs To Live In Greene County: Part Four
It's been a little while since the last "What It Costs To Live In Greene County" post, so here's another installment, but let's first recap the previous three posts:
In Part One, I said that I was originally part of a group discussion where the topic was how everyone was tired of reading about how they should put away so much in an emergency savings account every month, allocate a percentage of their wages into a retirement account, earmark funds for that special summer vacation or getaway, and the list goes on and on. In the end, though, it just couldn't be done.
Of course, if you pick up any personal finance magazine off the news rack these days, they are packed with tons of supposed sage advice, penny-wise wisdom, and general financial rules of thumb, but the question is: How practical is it to do these great, glorious things anyway? An even better question I think is: can the "average" person or household do this in Greene County, Indiana?
To help answer these questions -- at least theoretically -- I started putting together an Excel template with the notion that if all of those things you're "supposed to do" couldn't be done on paper then the real-life version would be nearly impossible. So, to put "pen to paper" per se, I looked up some average incomes for the area on the U.S. Census Bureau website and got started.
The median family income in Greene County, Indiana in 1999, which was the most current census information I found, was $41,523.
When I was working more on this template, it dawned on me that I should use these monthly amounts to "back out" into an amount of the original mortgage loan, for example. The thought process being is that a $100 per month mortgage payment sounds spectacular, but what does a $100 per month mortgage payment actually buy you? Say, the area's median home price is $50,000 -- which is the average value for Linton according to the census and another independent housing study in 2005 -- and a normal loan-to-value is 80%, a person must then figure out how much it would take per month to finance a $40,000 loan (80% of $50,000) just so they can own the supposed "average" home in the community.
I tried to estimate true taxes to be paid, not what a person's W-4 tells the employer to take out each pay. This is especially insightful for those who get a large tax refund check at the end of the year -- because basically they've overpaid their taxes for the year to the detriment to their bi-weekly paycheck amount. (Moral of the story: if you get a large tax refund check each year and have lots of high-interest rate debt on credit cards, payday loans, and various loans, get a W-4 form from your employer and change it so you can have extra money each month to pay them.)
It also became apparent rather quickly that there's a lot to think about when defining "average" because it's not as simple as it first seems. Does this include a single-income or dual-income household? How many kids live in the "average" home"? With regard to having children, is it more expensive to raise girls than boys? Does everyone in the house have a cell phone? Will having cable, internet, and other electronic gadgets around the house be considered "average" or not?
Even a family's faith and values can determine where -- and how much -- of their income goes to a church, various charities, sports and leagues, eating out, etc.
To keep moving forward, it really boiled down to the fact that assumptions must be made. Here were some of them from Part Two:
We'll assume the household includes two people, but how the income is split among the two doesn't really matter. It could be that both make $9.98 per hour and work a forty-hour workweek throughout the year, it could be that only one of them brings in $19.98 per hour, or some other combination thereof. The main point is two people live in the household, and the annual household brings in $41,523 -- well, actually, I calculated these hourly salaries of $9.98 each will bring in $41,517, but close enough.
Another assumption will be that there are no children in the household. Yes, I know, it's not likely -- or maybe even "average" -- but kids will complicate this way too much. Their ages alone can greatly sway things; for example, will we be buying diapers or prom dresses? So, let's just argue that they're clearly more expensive and leave it at that. (Some studies have stated it costs more than two hundred thousand dollars to raise the "average" child from cradle through college, so I'll just leave it to those experts to come up with the figures on raising kids.)
We'll also assume that the employer of this "average" couple offers a 401(k) retirement plan and will match 50% of their contributions up to 6% of their pay. This average couple takes advantage of this benefit by contributing 6% of their pay. The employer will also offer health, life, and disability insurance for an assumed rate of $100 per pay period.
Now, back to the calculations:
To start the calculations, the median family income in Greene County in 1999, which was the most current U.S. Census information found, was $41,523. From this, we calculate that if each earns $9.98 per hour, they will earn a combined $41,517 for the year. Like I said before, there's some rounding error here, but it is close enough. Dividing this by the twenty-six two-week pay periods in the year, this amounts to gross combined compensation of $1,596.80 per two-week pay period.
If 6% is contributed to the employees' 401(k) retirement account, a total of $95.81 per pay is removed from this amount before income taxes. Combining this amount with an $8,000 IRA contribution each year (this will be talked about in another part of the series), the retirement deduction for tax purposes should be $10,491.06. On the couple's 2007 tax return, taxable income is further reduced by the standard deduction of $10,700 and personal exemptions of $6,800; therefore, taxable income will be $13,526 for the year. Taxed at the 2007 percentage of 10% for this tax bracket (up to $15,600 per year for those married & filing jointly), total federal income tax should be $1,353 or $52.02 per pay period. The employees' share of Social Security will be 6.2% or $99 per pay. Medicare is 1.45% or $23.15 per pay. Of course, the Governor will want his share, too, which amounts to 3.4% for the State of Indiana or $17.69. The county will get 1.1%, or $5.72, as well.
This leaves $1,203.41 net per pay period, which was calculated as summarized below:
$1,596.80
Gross Pay ($41,517 / 26 pay periods per year)
<95.81>
401(k) Deduction
<52.02>
Federal Income Tax
<17.69>
State Income Tax
<99.00>
Social Security
<23.15>
Medicare
<5.72>
County Tax
<100.00>
Estimated Employer Health, Life, & Disability Insurance
$1,203
Net "Take-Home" Pay (Rounded)
Yearly, of course, this amounts to $31,288.52 "brought home" to spend as needed -- or $2,607.38 per month.
Now, we'll look at "average" monthly expenses from Part Three, which are certainly the most interesting -- and the more subjective -- part of the series. To take out as much subjectivity as possible, we'll use general rules-of-thumb or "supposed to" amounts first. If none were found or exist, we'll use national averages. If no national averages are found, we'll use "guess-timates."
First, let's deduct $260.74 per month for tithing and charity. Now, some argue that this figure should be 10% of gross income, while others say 10% of take-home pay. Still others say that 10% should go to your church, and various charities are on top of that amount. Of course, some do not attend a church nor give to charity at all, so they have no expenditures in this category. All arguments aside, we'll use 10% of take-home pay for church and charities.
Second, let's deduct $8,000 per year or $666.7 per month for IRA contributions for this "average" couple. This fits under the "supposed to" category, as many do not do this, but we're all supposed to be. After all, if you're not looking out for your own retirement, who is?
Third, we'll deduct $180 per month for a home phone, internet access, satellite or cable subscription, and a cell phone plan. This is based on $60 for phone and internet, $60 for cable or satellite, and $60 for a cellular plan. Sure, some plans and subscriptions are cheaper, some are more expensive. In any event, there are a number of access fees and charges, as well as various taxes, on each, so we shouldn't forget those. (Remember buying that cellular plan that was supposed to be $39.99 a month, but your first bill was more like $60 with all the extra fees and charges? Funny how that works, isn't it?) While this $180 is not completely necessary -- people do actually live without these conveniences -- we'll include them.
Fourth, we have to eat. This one falls under "subjective" and a "guess-timate" because no rules-of-thumb were found. It all depends on your appetite, likes and dislikes, where you shop, etc., etc. For groceries, let's plug in $300 per month. Dining out, while not necessary, we will still include an occasional trip to a casual dining restaurant or some fast food along the way by using $100 per month. For those not spending time in a restaurant, chalk this expense up as for entertainment too, say, a movie out or the like.
Fifth, we need a roof over our heads. In fact, that probably should have come closer to first in the list, but we didn't forget nonetheless. Sure, you can rent, but in Greene County there's a very high percentage of home ownership. Looking at the 2000 U.S. census data and a recent housing assessment completed in 2005, we note that the median home value in Linton is approximately $50,000. Typically, a bank will loan 80% loan-to-value against that home, so our mortgage will be about $40,000. Current rates on a 30-year loan are 6.5% or so. So, based on this data, our mortgage payment each month will be almost $260.
Utilities to heat and cool the home, as well as provide light, water, sewage, and trash pick up will be estimated at $175 per month on average. Of course, winter and summer bills tend to be the highest, but we'll just use an average among all months.
Along with home ownership comes the pleasure of paying property taxes, casualty insurance, and maintenance. Since this is our primary residence and we have a mortgage, though, we can apply for a homestead exemption and a mortgage exemption at the Courthouse. Both will cut our property tax bill significantly, which by my calculations will be $434 per year or $36.14 per month. This is based on the old rate in the City of Linton of 3.6140%. (Look at my older posts to see what the new, higher rate will be: http://gcdailyworld.com/blogs/chriswathe... ) Insurance against fire, tornado, and other disasters is estimated at $400 per year or $33.33 per month. Again, this depends on a lot of circumstances, including the age and condition of the home, the credit score of the homeowner, the amount of the deductible, etc. Along with routine maintenance, which we will estimate costing $500 per year, we'll need to replace some more costly aspects too. For example, although it's far from a daily expense, we will eventually need to replace the roof, exterior siding or paint, floor coverings, the furnace & air conditioning, and various other miscellaneous items. We'll estimate the costs of replacing these, as well as their useful lives, as follows:
Roof
$4,000
20years
Exterior
$2,500
25 years
Floor Coverings
$2,000
12 years
HVAC unit
$3,000
20 years
Misc.
$1,000
20 years
True, all of these items can have widely varying prices and useful lives, but these are the assumptions. Combined with our estimate of $500 for maintenance per year, these will all total $1,166.67 per year or $97.22 per month.
Sixth, we need to get to work. So, we need to look at vehicle loans. Although the "sky is the limit" on prices paid for a set of wheels, we'll use a fairly conservative amount, such as $13,500 as a loan amount. This may buy a smaller car or a larger one with a decent down payment. Based on a 6% interest rate and a 60 month loan term, our payment will be about $260. (There's just something about having a car payment higher than a mortgage payment; hence, they're equal here.) Insurance is of course required by law, but again depending on the company, coverage, deductible, and credit score of the applicant, prices can vary widely. We'll use $500 per year, which is $41.67 per month. License plates figure into the mix, too, and these are estimated at $250 per year (20.83 per month). Lastly, we need to put gasoline in the tank. According to national data, the average person puts about $1,000 into their tank each year.
Most of us in Greene County observe Christmas, although national studies indicate a wide range of what we spend during the holidays. National Public Radio reported a figure of only $466, while other studies said $700 to $1,000. At the risk of being called Scrooge, we will use the NPR figure because we're running out of money quickly. Using the $466 per year, that equates to $38.83 being set aside each month. (Christmas accounts are nice ways to set aside for this, as they pay a little more interest than typical savings accounts. They also "earmark" funds for a specific purpose, so you're not as tempted to spend them throughout the year on something else.)
Seventh, we consume a lot of things that will be simply thrown away, but necessary nonetheless. Such items include toilet paper, paper towels, floss, tooth paste, soap and shampoo, etc. Having not a clue what all this stuff costs the average couple, we'll use $25 per month, so at least we acknowledged it.
Eighth, we'll put a measly 1% of our income into savings each month, which is $34.60.
There. We did it! We have $1.97 left each month to our name!
But wait! The average consumer has $10,000 of credit card debt. At a typical 2% of the balance minimum required payment ($200), we're now $198.03 in the hole every month.
How can this be? (Now you also know why I didn't even add in kids to the situation. I knew we'd already be in the hole because I had the spreadsheet in front on me. OK, I admit that wasn't fair…)
But before we discuss some likely scenarios of how this can be and what assumptions we may have gotten all wrong, let's talk about some things that were possibly left out:
One item is a second vehicle. Since both persons in this household work, they will likely both need a vehicle. This potentially adds another payment to the budget, but it certainly adds additional maintenance and repair expenses, as well as money needed for insurance and license plates.
Another criticism was nothing was allowed for clothing. Now, this is really a subjective topic, as I know some people who would not think to wear anything but higher-end, name-brand clothes, while I've also seen some pretty good garage sale & Goodwill ensembles, costing only a few bucks.
While a payroll deduction was made for employer-provided medical insurance, it was also brought up that no allowances were made for co-pays on doctor visits and prescriptions. Guilty! Of course, this is also highly variable depending on family health. Some may never go to the doctor or go for merely an annual check-up, while others may be in-and-out of the hospital regularly.
With that said, now we're back to discussing some likely scenarios of how this can be. In a word: debt. In a likely scenario, credit card balances grow slowly, while balance transferring the debt from card to card until a few years have went by. At that point, a home refinance is used to consolidate it. And the cycle begins again.
Nationwide, this brings up another current event: the downturn in the housing market. If a person's home isn't worth more and more each year, what will happen to this cycle?
It obviously crumbles.
From a Greene County perspective, however, this is likely of little significance because the cost to build verses the market values seem to be so disproportionate. That is, the likely sales price of your home is far less than the actual cost to rebuild your home new. If you've had your home recently appraised, you can verify this by looking at the different approaches to value used. It's very likely that you'll see the cost to build scenario produces a much higher dollar figure until it is reduced by depreciation. On older homes, depreciation can be a rather large amount too.
Nonetheless, the real question is: how much more can the average consumer bear? It seems under the weight of rising gasoline prices, utility rates, property tax hikes, and growing grocery store bills, the "average Joe and Jane" are getting crushed further. For some time now, consumers have made it through using credit cards and the equity in their homes, but where will it come from next?
In Part One, I said that I was originally part of a group discussion where the topic was how everyone was tired of reading about how they should put away so much in an emergency savings account every month, allocate a percentage of their wages into a retirement account, earmark funds for that special summer vacation or getaway, and the list goes on and on. In the end, though, it just couldn't be done.
Of course, if you pick up any personal finance magazine off the news rack these days, they are packed with tons of supposed sage advice, penny-wise wisdom, and general financial rules of thumb, but the question is: How practical is it to do these great, glorious things anyway? An even better question I think is: can the "average" person or household do this in Greene County, Indiana?
To help answer these questions -- at least theoretically -- I started putting together an Excel template with the notion that if all of those things you're "supposed to do" couldn't be done on paper then the real-life version would be nearly impossible. So, to put "pen to paper" per se, I looked up some average incomes for the area on the U.S. Census Bureau website and got started.
The median family income in Greene County, Indiana in 1999, which was the most current census information I found, was $41,523.
When I was working more on this template, it dawned on me that I should use these monthly amounts to "back out" into an amount of the original mortgage loan, for example. The thought process being is that a $100 per month mortgage payment sounds spectacular, but what does a $100 per month mortgage payment actually buy you? Say, the area's median home price is $50,000 -- which is the average value for Linton according to the census and another independent housing study in 2005 -- and a normal loan-to-value is 80%, a person must then figure out how much it would take per month to finance a $40,000 loan (80% of $50,000) just so they can own the supposed "average" home in the community.
I tried to estimate true taxes to be paid, not what a person's W-4 tells the employer to take out each pay. This is especially insightful for those who get a large tax refund check at the end of the year -- because basically they've overpaid their taxes for the year to the detriment to their bi-weekly paycheck amount. (Moral of the story: if you get a large tax refund check each year and have lots of high-interest rate debt on credit cards, payday loans, and various loans, get a W-4 form from your employer and change it so you can have extra money each month to pay them.)
It also became apparent rather quickly that there's a lot to think about when defining "average" because it's not as simple as it first seems. Does this include a single-income or dual-income household? How many kids live in the "average" home"? With regard to having children, is it more expensive to raise girls than boys? Does everyone in the house have a cell phone? Will having cable, internet, and other electronic gadgets around the house be considered "average" or not?
Even a family's faith and values can determine where -- and how much -- of their income goes to a church, various charities, sports and leagues, eating out, etc.
To keep moving forward, it really boiled down to the fact that assumptions must be made. Here were some of them from Part Two:
We'll assume the household includes two people, but how the income is split among the two doesn't really matter. It could be that both make $9.98 per hour and work a forty-hour workweek throughout the year, it could be that only one of them brings in $19.98 per hour, or some other combination thereof. The main point is two people live in the household, and the annual household brings in $41,523 -- well, actually, I calculated these hourly salaries of $9.98 each will bring in $41,517, but close enough.
Another assumption will be that there are no children in the household. Yes, I know, it's not likely -- or maybe even "average" -- but kids will complicate this way too much. Their ages alone can greatly sway things; for example, will we be buying diapers or prom dresses? So, let's just argue that they're clearly more expensive and leave it at that. (Some studies have stated it costs more than two hundred thousand dollars to raise the "average" child from cradle through college, so I'll just leave it to those experts to come up with the figures on raising kids.)
We'll also assume that the employer of this "average" couple offers a 401(k) retirement plan and will match 50% of their contributions up to 6% of their pay. This average couple takes advantage of this benefit by contributing 6% of their pay. The employer will also offer health, life, and disability insurance for an assumed rate of $100 per pay period.
Now, back to the calculations:
To start the calculations, the median family income in Greene County in 1999, which was the most current U.S. Census information found, was $41,523. From this, we calculate that if each earns $9.98 per hour, they will earn a combined $41,517 for the year. Like I said before, there's some rounding error here, but it is close enough. Dividing this by the twenty-six two-week pay periods in the year, this amounts to gross combined compensation of $1,596.80 per two-week pay period.
If 6% is contributed to the employees' 401(k) retirement account, a total of $95.81 per pay is removed from this amount before income taxes. Combining this amount with an $8,000 IRA contribution each year (this will be talked about in another part of the series), the retirement deduction for tax purposes should be $10,491.06. On the couple's 2007 tax return, taxable income is further reduced by the standard deduction of $10,700 and personal exemptions of $6,800; therefore, taxable income will be $13,526 for the year. Taxed at the 2007 percentage of 10% for this tax bracket (up to $15,600 per year for those married & filing jointly), total federal income tax should be $1,353 or $52.02 per pay period. The employees' share of Social Security will be 6.2% or $99 per pay. Medicare is 1.45% or $23.15 per pay. Of course, the Governor will want his share, too, which amounts to 3.4% for the State of Indiana or $17.69. The county will get 1.1%, or $5.72, as well.
This leaves $1,203.41 net per pay period, which was calculated as summarized below:
$1,596.80
Gross Pay ($41,517 / 26 pay periods per year)
<95.81>
401(k) Deduction
<52.02>
Federal Income Tax
<17.69>
State Income Tax
<99.00>
Social Security
<23.15>
Medicare
<5.72>
County Tax
<100.00>
Estimated Employer Health, Life, & Disability Insurance
$1,203
Net "Take-Home" Pay (Rounded)
Yearly, of course, this amounts to $31,288.52 "brought home" to spend as needed -- or $2,607.38 per month.
Now, we'll look at "average" monthly expenses from Part Three, which are certainly the most interesting -- and the more subjective -- part of the series. To take out as much subjectivity as possible, we'll use general rules-of-thumb or "supposed to" amounts first. If none were found or exist, we'll use national averages. If no national averages are found, we'll use "guess-timates."
First, let's deduct $260.74 per month for tithing and charity. Now, some argue that this figure should be 10% of gross income, while others say 10% of take-home pay. Still others say that 10% should go to your church, and various charities are on top of that amount. Of course, some do not attend a church nor give to charity at all, so they have no expenditures in this category. All arguments aside, we'll use 10% of take-home pay for church and charities.
Second, let's deduct $8,000 per year or $666.7 per month for IRA contributions for this "average" couple. This fits under the "supposed to" category, as many do not do this, but we're all supposed to be. After all, if you're not looking out for your own retirement, who is?
Third, we'll deduct $180 per month for a home phone, internet access, satellite or cable subscription, and a cell phone plan. This is based on $60 for phone and internet, $60 for cable or satellite, and $60 for a cellular plan. Sure, some plans and subscriptions are cheaper, some are more expensive. In any event, there are a number of access fees and charges, as well as various taxes, on each, so we shouldn't forget those. (Remember buying that cellular plan that was supposed to be $39.99 a month, but your first bill was more like $60 with all the extra fees and charges? Funny how that works, isn't it?) While this $180 is not completely necessary -- people do actually live without these conveniences -- we'll include them.
Fourth, we have to eat. This one falls under "subjective" and a "guess-timate" because no rules-of-thumb were found. It all depends on your appetite, likes and dislikes, where you shop, etc., etc. For groceries, let's plug in $300 per month. Dining out, while not necessary, we will still include an occasional trip to a casual dining restaurant or some fast food along the way by using $100 per month. For those not spending time in a restaurant, chalk this expense up as for entertainment too, say, a movie out or the like.
Fifth, we need a roof over our heads. In fact, that probably should have come closer to first in the list, but we didn't forget nonetheless. Sure, you can rent, but in Greene County there's a very high percentage of home ownership. Looking at the 2000 U.S. census data and a recent housing assessment completed in 2005, we note that the median home value in Linton is approximately $50,000. Typically, a bank will loan 80% loan-to-value against that home, so our mortgage will be about $40,000. Current rates on a 30-year loan are 6.5% or so. So, based on this data, our mortgage payment each month will be almost $260.
Utilities to heat and cool the home, as well as provide light, water, sewage, and trash pick up will be estimated at $175 per month on average. Of course, winter and summer bills tend to be the highest, but we'll just use an average among all months.
Along with home ownership comes the pleasure of paying property taxes, casualty insurance, and maintenance. Since this is our primary residence and we have a mortgage, though, we can apply for a homestead exemption and a mortgage exemption at the Courthouse. Both will cut our property tax bill significantly, which by my calculations will be $434 per year or $36.14 per month. This is based on the old rate in the City of Linton of 3.6140%. (Look at my older posts to see what the new, higher rate will be: http://gcdailyworld.com/blogs/chriswathe... ) Insurance against fire, tornado, and other disasters is estimated at $400 per year or $33.33 per month. Again, this depends on a lot of circumstances, including the age and condition of the home, the credit score of the homeowner, the amount of the deductible, etc. Along with routine maintenance, which we will estimate costing $500 per year, we'll need to replace some more costly aspects too. For example, although it's far from a daily expense, we will eventually need to replace the roof, exterior siding or paint, floor coverings, the furnace & air conditioning, and various other miscellaneous items. We'll estimate the costs of replacing these, as well as their useful lives, as follows:
Roof
$4,000
20years
Exterior
$2,500
25 years
Floor Coverings
$2,000
12 years
HVAC unit
$3,000
20 years
Misc.
$1,000
20 years
True, all of these items can have widely varying prices and useful lives, but these are the assumptions. Combined with our estimate of $500 for maintenance per year, these will all total $1,166.67 per year or $97.22 per month.
Sixth, we need to get to work. So, we need to look at vehicle loans. Although the "sky is the limit" on prices paid for a set of wheels, we'll use a fairly conservative amount, such as $13,500 as a loan amount. This may buy a smaller car or a larger one with a decent down payment. Based on a 6% interest rate and a 60 month loan term, our payment will be about $260. (There's just something about having a car payment higher than a mortgage payment; hence, they're equal here.) Insurance is of course required by law, but again depending on the company, coverage, deductible, and credit score of the applicant, prices can vary widely. We'll use $500 per year, which is $41.67 per month. License plates figure into the mix, too, and these are estimated at $250 per year (20.83 per month). Lastly, we need to put gasoline in the tank. According to national data, the average person puts about $1,000 into their tank each year.
Most of us in Greene County observe Christmas, although national studies indicate a wide range of what we spend during the holidays. National Public Radio reported a figure of only $466, while other studies said $700 to $1,000. At the risk of being called Scrooge, we will use the NPR figure because we're running out of money quickly. Using the $466 per year, that equates to $38.83 being set aside each month. (Christmas accounts are nice ways to set aside for this, as they pay a little more interest than typical savings accounts. They also "earmark" funds for a specific purpose, so you're not as tempted to spend them throughout the year on something else.)
Seventh, we consume a lot of things that will be simply thrown away, but necessary nonetheless. Such items include toilet paper, paper towels, floss, tooth paste, soap and shampoo, etc. Having not a clue what all this stuff costs the average couple, we'll use $25 per month, so at least we acknowledged it.
Eighth, we'll put a measly 1% of our income into savings each month, which is $34.60.
There. We did it! We have $1.97 left each month to our name!
But wait! The average consumer has $10,000 of credit card debt. At a typical 2% of the balance minimum required payment ($200), we're now $198.03 in the hole every month.
How can this be? (Now you also know why I didn't even add in kids to the situation. I knew we'd already be in the hole because I had the spreadsheet in front on me. OK, I admit that wasn't fair…)
But before we discuss some likely scenarios of how this can be and what assumptions we may have gotten all wrong, let's talk about some things that were possibly left out:
One item is a second vehicle. Since both persons in this household work, they will likely both need a vehicle. This potentially adds another payment to the budget, but it certainly adds additional maintenance and repair expenses, as well as money needed for insurance and license plates.
Another criticism was nothing was allowed for clothing. Now, this is really a subjective topic, as I know some people who would not think to wear anything but higher-end, name-brand clothes, while I've also seen some pretty good garage sale & Goodwill ensembles, costing only a few bucks.
While a payroll deduction was made for employer-provided medical insurance, it was also brought up that no allowances were made for co-pays on doctor visits and prescriptions. Guilty! Of course, this is also highly variable depending on family health. Some may never go to the doctor or go for merely an annual check-up, while others may be in-and-out of the hospital regularly.
With that said, now we're back to discussing some likely scenarios of how this can be. In a word: debt. In a likely scenario, credit card balances grow slowly, while balance transferring the debt from card to card until a few years have went by. At that point, a home refinance is used to consolidate it. And the cycle begins again.
Nationwide, this brings up another current event: the downturn in the housing market. If a person's home isn't worth more and more each year, what will happen to this cycle?
It obviously crumbles.
From a Greene County perspective, however, this is likely of little significance because the cost to build verses the market values seem to be so disproportionate. That is, the likely sales price of your home is far less than the actual cost to rebuild your home new. If you've had your home recently appraised, you can verify this by looking at the different approaches to value used. It's very likely that you'll see the cost to build scenario produces a much higher dollar figure until it is reduced by depreciation. On older homes, depreciation can be a rather large amount too.
Nonetheless, the real question is: how much more can the average consumer bear? It seems under the weight of rising gasoline prices, utility rates, property tax hikes, and growing grocery store bills, the "average Joe and Jane" are getting crushed further. For some time now, consumers have made it through using credit cards and the equity in their homes, but where will it come from next?
Monday, November 19, 2007
Cosigning Considerations
Many people reading this post have been -- or will be -- asked by a relative or friend to "cosign" a loan, a lease or rental agreement, or other financial obligation. Even though we all like to help others, there are several considerations before you sign on the dotted line. Although you may feel obligated to cosign for a relative or friend, you should know the associated risks.
First, don't deny the obvious: If you have been asked to cosign, it is very likely that your friend or relative has credit issues. Sure, first-time credit users or those with short credit histories can be good risks, such as your son or daughter buying his or her first car, but be sure you know what you're getting into beforehand. A friend with credit issues may share more than laughs with you; they may just be sharing their financial troubles with you too. After all, if the person met all of the normal credit criteria, there wouldn't be a need for a cosigner.
Second, realize what is being asked of you: If the other person doesn't pay, YOU do! Sure, in some situations, the creditor must try first to collect from the primary debtor before trying to collect from the cosigner, but in many situations this is not the case. The creditor can collect from either of you at any time. So, be sure you understand what happens if the payments are not made by the other person, who needs the cosigner.
Third, understand the notification process: If the loan or agreement is not paid as agreed, will the cosigner receive separate notification? In many cases, a notification to one of the parties may constitute notification to all. This is especially important to know if the person you are cosigning for maintains a separate residence or a separate mail box.
Lastly, collateral may be lost: If you pledge your own possessions as collateral, such as a vehicle or real estate, you may lose your property if payments are not paid. So, make sure you can afford to make the required payments on your own, or you may risk losing what you pledged for the other person.
As you can see, cosigning financial obligations doesn't come without risk. In some cases, it may be much more risk than you care to expose yourself to.
First, don't deny the obvious: If you have been asked to cosign, it is very likely that your friend or relative has credit issues. Sure, first-time credit users or those with short credit histories can be good risks, such as your son or daughter buying his or her first car, but be sure you know what you're getting into beforehand. A friend with credit issues may share more than laughs with you; they may just be sharing their financial troubles with you too. After all, if the person met all of the normal credit criteria, there wouldn't be a need for a cosigner.
Second, realize what is being asked of you: If the other person doesn't pay, YOU do! Sure, in some situations, the creditor must try first to collect from the primary debtor before trying to collect from the cosigner, but in many situations this is not the case. The creditor can collect from either of you at any time. So, be sure you understand what happens if the payments are not made by the other person, who needs the cosigner.
Third, understand the notification process: If the loan or agreement is not paid as agreed, will the cosigner receive separate notification? In many cases, a notification to one of the parties may constitute notification to all. This is especially important to know if the person you are cosigning for maintains a separate residence or a separate mail box.
Lastly, collateral may be lost: If you pledge your own possessions as collateral, such as a vehicle or real estate, you may lose your property if payments are not paid. So, make sure you can afford to make the required payments on your own, or you may risk losing what you pledged for the other person.
As you can see, cosigning financial obligations doesn't come without risk. In some cases, it may be much more risk than you care to expose yourself to.
Friday, November 16, 2007
New Small Businesses in Greene County
Several discussions about starting small businesses have been happening here-and-there in the area recently, and I'd like to encapsulate some of those here. I would also like to expand that discussion here with the readers' help and suggestions.
First, it's a common misconception that economic growth has to come at the price of disrupting the rural environment here. Many businesses simply better utilize the resources and assets we have here now as a community with little to no change to our way of life, save more organization, better planning, and added income.
Take a wooded area of several acres. We do not necessarily have to bulldoze the scenery to develop it economically. For example, one business that has become popular across the United States is fee-based hunting and fishing.
With a little organization, a website, brochure, lease, some liability insurance, and maybe even a small cabin or two, you can transform a woodland area producing no income into a sought-after hunting destination.
Along similar lines, a well-stocked lake with a family-friendly aspect could become a great place for children of city slickers to catch their first fish. It also becomes a fun, fee-based recreational business for a Greene County property owner.
Corn mazes, U-pick farms, roadside produce stands, farmer's markets, specialty food growers, paint ball courses, and rural retreat centers are also ideas.
But here is where the readers' suggestions will help the local area. What other ideas do YOU have, using local assets, resources, and talent? And what needs are not currently being met, which force you to shop elsewhere?
First, it's a common misconception that economic growth has to come at the price of disrupting the rural environment here. Many businesses simply better utilize the resources and assets we have here now as a community with little to no change to our way of life, save more organization, better planning, and added income.
Take a wooded area of several acres. We do not necessarily have to bulldoze the scenery to develop it economically. For example, one business that has become popular across the United States is fee-based hunting and fishing.
With a little organization, a website, brochure, lease, some liability insurance, and maybe even a small cabin or two, you can transform a woodland area producing no income into a sought-after hunting destination.
Along similar lines, a well-stocked lake with a family-friendly aspect could become a great place for children of city slickers to catch their first fish. It also becomes a fun, fee-based recreational business for a Greene County property owner.
Corn mazes, U-pick farms, roadside produce stands, farmer's markets, specialty food growers, paint ball courses, and rural retreat centers are also ideas.
But here is where the readers' suggestions will help the local area. What other ideas do YOU have, using local assets, resources, and talent? And what needs are not currently being met, which force you to shop elsewhere?
Thursday, November 15, 2007
Quick Tip: Personal Finance
There are many methods of keeping track of bills and payments, but here's one suggestion:
Get a calendar and mark monthly payments on the day they are due for the whole year. If you know the amount, or that the bill is consistently a certain amount, write that figure down for each month too. If not, just write in the name of the bill. Don't forget quarterly, semiannual, or annual payments, such as income taxes, IRA fundings, property taxes, homeowner's insurance, car insurance, license plates, life insurance, and any subscriptions you may have. Noting paydays with a "P" or a "$" or the like can also be helpful.
When payments are mailed or otherwise paid, you can cross them off the calendar.
Once you put this into practice, use the calendar from the previous year to fill out the next one and so on. You may also want to keep the old calendar(s) for a time to serve as a record of your overall finances.
If money is close, by keeping a separate bill calendar, you can look ahead to see if you will have the money needed until your next pay period.
It can also serve as a means to keep track of where your money is ultimately going. In other words, it can become a budgeting tool as well as a method of financial record-keeping.
This way can also alert you that a payment is coming due when you fail to receive a notice. Like it or not, the fact that you didn't receive your billing makes no difference to your creditors.
If you're not currently keeping track of bills in some way, try giving this a chance. It's quick and easy, and it will help you get a grip on your financial situation.
Get a calendar and mark monthly payments on the day they are due for the whole year. If you know the amount, or that the bill is consistently a certain amount, write that figure down for each month too. If not, just write in the name of the bill. Don't forget quarterly, semiannual, or annual payments, such as income taxes, IRA fundings, property taxes, homeowner's insurance, car insurance, license plates, life insurance, and any subscriptions you may have. Noting paydays with a "P" or a "$" or the like can also be helpful.
When payments are mailed or otherwise paid, you can cross them off the calendar.
Once you put this into practice, use the calendar from the previous year to fill out the next one and so on. You may also want to keep the old calendar(s) for a time to serve as a record of your overall finances.
If money is close, by keeping a separate bill calendar, you can look ahead to see if you will have the money needed until your next pay period.
It can also serve as a means to keep track of where your money is ultimately going. In other words, it can become a budgeting tool as well as a method of financial record-keeping.
This way can also alert you that a payment is coming due when you fail to receive a notice. Like it or not, the fact that you didn't receive your billing makes no difference to your creditors.
If you're not currently keeping track of bills in some way, try giving this a chance. It's quick and easy, and it will help you get a grip on your financial situation.
Wednesday, November 14, 2007
Even Higher Property Taxes Proposed
If you don't normally read the legal section of the newspaper, you tend to miss out on important notices that many times affect everyone, including YOU.
Recently, you may have missed out on the "Notice to Taxpayers of Greene County of Proposed Tax Rates" in the November 7, 2007 edition. Sure, it doesn't sound like exciting literature to read in your free-time for fun, but if you're a property owner, you may be quite upset at what was recently proposed. Even if you are not a property owner, but only rent property in the area, you will likely see this increase passed on to you in the form of higher rents. So, this affects YOU too.
All of the rates for the towns, cities, and townships are higher, as proposed, although Bloomfield and Newberry appear to be the two with the least amount of increase.
Let's take a look at the proposed City of Linton rates for 2007 payable 2008, which will climb from 3.614% to 5.30886%, an increase of 47%. The breakdown of where all of this money will go is as follows for each $100 of assessed value:
Out of almost $5.31 collected for each $100 of assessed value, about 2 ½ cents will go to the State of Indiana to fund the State Fair Board and State Forestry; this has remained the same since the previous year. Greene County will receive almost 76 cents, which is up from slightly less than 72 cents last year. Stockton Township will bring in 60% more, as proposed, than the previous year for a total of 6 cents. The City will see just over $1.34 to fund everything from police & firemen's pensions to streets, parks, cemeteries, and the new fire station; this marks a 54% increase year-over-year. As the biggest recipient of the property taxes, the Linton school system will receive more than $2.91; this is an increase of about $1 -- or a 53% increase -- from last year. The library will see 214% more this year or about 23 cents.
True, we can all just complain, but there are other more positive answers:
One way to combat rising property tax rates is for the area to develop a larger tax base. Essentially tax rates are determined by the total budget needed divided by the total assessed value within the area. So, if more businesses and industry locate in this area, these commercial properties share in the taxes needed to operate the local area, as well as spread the budget needed over more property value within the area. For example, the WestGate project will certainly help in the future, along with other new businesses that moved into the area already or are considering the move.
Certainly, we all don't have access to millions of dollars to build new buildings and businesses, but we can still be a part of the solution. Buying local when we can helps instead of spending money in other communities for the same goods and services. Some local entrepreneurs have gone into new lines of businesses and opened new shops, and it's important to support their efforts instead of waiting with arms crossed to see if they make it. Becoming part of the many task forces and groups now developing around the county is also a huge help. Groups have formed for economic development, tourism, planning, etc.
Taking once blighted properties up in value by remodeling and rehabbing helps, too, although tearing them down without replacing the structures actual hurts. True, it may make the neighborhood look better by comparison, but even the run-down shack had some value assigned to it from a tax perspective, which is now gone from the property tax rolls. This is not to say that they should remain "as is" or not be torn down either, but more of a suggestion that something should be build back on the property once the old is razed, such as a new home or business.
There may be many other ways, too, that don't involve tea or a harbor. It will largely be up to the citizenry to find and effectively execute those to help combat future increases.
One thing is for sure: we can always use more positive solutions.
Recently, you may have missed out on the "Notice to Taxpayers of Greene County of Proposed Tax Rates" in the November 7, 2007 edition. Sure, it doesn't sound like exciting literature to read in your free-time for fun, but if you're a property owner, you may be quite upset at what was recently proposed. Even if you are not a property owner, but only rent property in the area, you will likely see this increase passed on to you in the form of higher rents. So, this affects YOU too.
All of the rates for the towns, cities, and townships are higher, as proposed, although Bloomfield and Newberry appear to be the two with the least amount of increase.
Let's take a look at the proposed City of Linton rates for 2007 payable 2008, which will climb from 3.614% to 5.30886%, an increase of 47%. The breakdown of where all of this money will go is as follows for each $100 of assessed value:
Out of almost $5.31 collected for each $100 of assessed value, about 2 ½ cents will go to the State of Indiana to fund the State Fair Board and State Forestry; this has remained the same since the previous year. Greene County will receive almost 76 cents, which is up from slightly less than 72 cents last year. Stockton Township will bring in 60% more, as proposed, than the previous year for a total of 6 cents. The City will see just over $1.34 to fund everything from police & firemen's pensions to streets, parks, cemeteries, and the new fire station; this marks a 54% increase year-over-year. As the biggest recipient of the property taxes, the Linton school system will receive more than $2.91; this is an increase of about $1 -- or a 53% increase -- from last year. The library will see 214% more this year or about 23 cents.
True, we can all just complain, but there are other more positive answers:
One way to combat rising property tax rates is for the area to develop a larger tax base. Essentially tax rates are determined by the total budget needed divided by the total assessed value within the area. So, if more businesses and industry locate in this area, these commercial properties share in the taxes needed to operate the local area, as well as spread the budget needed over more property value within the area. For example, the WestGate project will certainly help in the future, along with other new businesses that moved into the area already or are considering the move.
Certainly, we all don't have access to millions of dollars to build new buildings and businesses, but we can still be a part of the solution. Buying local when we can helps instead of spending money in other communities for the same goods and services. Some local entrepreneurs have gone into new lines of businesses and opened new shops, and it's important to support their efforts instead of waiting with arms crossed to see if they make it. Becoming part of the many task forces and groups now developing around the county is also a huge help. Groups have formed for economic development, tourism, planning, etc.
Taking once blighted properties up in value by remodeling and rehabbing helps, too, although tearing them down without replacing the structures actual hurts. True, it may make the neighborhood look better by comparison, but even the run-down shack had some value assigned to it from a tax perspective, which is now gone from the property tax rolls. This is not to say that they should remain "as is" or not be torn down either, but more of a suggestion that something should be build back on the property once the old is razed, such as a new home or business.
There may be many other ways, too, that don't involve tea or a harbor. It will largely be up to the citizenry to find and effectively execute those to help combat future increases.
One thing is for sure: we can always use more positive solutions.
Tuesday, November 13, 2007
Made Toxic in China
Some may accuse me of advocating protectionist policies, yet I'm simply of the opinion that "enough is enough." I'm referring to the glut of Chinese imports, which are often found later to not only be cheaply made but toxic as well. From pet food to children's toys to toothpaste, toxic chemicals have been found in all of these Chinese-made products recently.
The latest news is that toys known as "Aqua Dots" were found to be coated with a chemical that when ingested metabolizes in the body to be the "date-rape drug" known as gamma hydroxyl butyrate. It causes horrible reactions, including everything from breathing problems to comas to even death.
Aqua Dots marks the latest in a long line of Chinese products being recalled for consumer safety. In fact, I remember reading recently that Chinese-made products currently account for more than half of all product recalls, although I don't remember the source. With all of the recent publicity surrounding these cases, I really don't feel much need to substantiate the over 50% claim. After all, when its reported over several months in numerous articles among several news organization that everything from toothpaste has been made with the same chemicals used to make anti-freeze to children's toys have been coated with lead-based paint to tainted pet food produced with toxic chemicals causing severe disorders and death to our four-legged friends, I don't see much need to prove my case.
It seems only logical then to not only urge the ban of these imports with our legislators until such time the Chinese can get their act together, but to simply stop buying anything with "Made in China" or "Product of China" stamped on it.
Most certainly, buying food products from China -- and there are more of them than you may think -- should be marked off the shopping list. I've seen store-branded canned mushrooms and apple juice stamped with "Product of China" as I perused local shelves, so they're definitely out there.
Maybe an old cliché best sums this situation: "Fool me once, shame on you. Fool me twice, shame on me". But just how many consumer-safety recalls will it take for Americans to realize this and take action?
The latest news is that toys known as "Aqua Dots" were found to be coated with a chemical that when ingested metabolizes in the body to be the "date-rape drug" known as gamma hydroxyl butyrate. It causes horrible reactions, including everything from breathing problems to comas to even death.
Aqua Dots marks the latest in a long line of Chinese products being recalled for consumer safety. In fact, I remember reading recently that Chinese-made products currently account for more than half of all product recalls, although I don't remember the source. With all of the recent publicity surrounding these cases, I really don't feel much need to substantiate the over 50% claim. After all, when its reported over several months in numerous articles among several news organization that everything from toothpaste has been made with the same chemicals used to make anti-freeze to children's toys have been coated with lead-based paint to tainted pet food produced with toxic chemicals causing severe disorders and death to our four-legged friends, I don't see much need to prove my case.
It seems only logical then to not only urge the ban of these imports with our legislators until such time the Chinese can get their act together, but to simply stop buying anything with "Made in China" or "Product of China" stamped on it.
Most certainly, buying food products from China -- and there are more of them than you may think -- should be marked off the shopping list. I've seen store-branded canned mushrooms and apple juice stamped with "Product of China" as I perused local shelves, so they're definitely out there.
Maybe an old cliché best sums this situation: "Fool me once, shame on you. Fool me twice, shame on me". But just how many consumer-safety recalls will it take for Americans to realize this and take action?
Friday, November 9, 2007
The State of Our Economy
"Consumer confidence plunged in early November to the lowest level since Hurricane Katrina battered the Gulf Coast and sent oil prices soaring in 2005," wrote Martin Crutsinger, an AP Economics Writer, earlier today.
Arguably, we are in much worse financial shape now as a nation than when Katrina hit. After all, subprime lending was still the rage, stock prices on Wall Street continued to climb to new record numbers for the Dow, and we hadn't yet felt the effects of $3-plus gasoline. We were all blissfully ignorant of the perfect storm coming -- and still making its way to shore -- financially-speaking.
Often times, we hear national financial trends and macro-economic news that better serves as fodder for water cooler talk rather than as actual news that impacts us here in Greene County, Indiana. People in this area have mostly stuck with traditional practices, such as not getting involved in exotic residential financing arrangements like those have in, say, California. Out West, in fact, it seems to be very common to have an interest-only home loan. Even worse than interest-only loans, banks have doled out negatively-amortizing loans like candy. (This is when you will never pay off your loan, nor even pay all the interest you have accrued, but your loan actually gets bigger with each month gone by.) That's scary, to say the least. Imagery of a ticking time bomb also comes to mind.
What have hit rural communities of Southern Indiana are loan brokers writing subprime loans. These are loans that are written, which really never had a chance in the first place. In talking with one such broker in the Indianapolis market several months ago, he stated their loan policy was to allow up to 50% debt-to-income. That, my friends, is ridiculous -- at least in the mind of a traditional banker. Put another way: financial suicide. No wonder Indiana is in some of the top foreclosure states in the nation.
This subprime phenomenon has hit Wall Street in a big way too. Even the most proud and prestigious brand-names in finance, such as Merrill Lynch, JP Morgan Chase, and Citigroup, have recently announced things are going awry. Citigroup said recently that they have charged off over SIX BILLION dollars with analysts estimating they will ultimately write off many, many more. These financial cornerstones now have signs of strain, and hopefully they have learned their lesson, as the real moral of the story is: it doesn't matter what interest rate you are getting if you don't get your principal back. They should have read the book, The Richest Man in Babylon, which by the way, I highly recommend reading. (It's around $6 for the paperback, and the best $6 you'll ever spend.)
But how does this affect me, right?
No doubt these financial titans are a part of your investments, such as your 401(k) account. Take a look at your most-recent statement to see how it has affected you.
Even if you are not foreclosed on and you don't think this affects you, the amount of these homes on the market affects the value of your home and property. It's simple supply-and-demand economics.
Surprisingly, charities are also affected. Today, The Indianapolis Business Journal reported that, "Indianapolis-based Indiana Children's Wish Fund has been caught in the national subprime mortgage lending crisis. The small not-for-profit, which grants wishes to terminally ill children, has filed an arbitration claim after an investment it had in an intermediate-bond fund lost $50,000 between late June and late September on an initial investment of $222,812. The bond fund had more than half its assets in mortgage-related investments as of mid-year, according to the filing."
It will be interesting to see how everything finally shakes out nationally and locally.
In the midst of this, our dollar has become weaker and weaker against other world currencies. But how does this affect us in Greene County? Well, for one, some now say that oil has become the new world currency. With it hovering near $100 a barrel, the laws of supply-and-demand dictate that they are probably right. After all, someone has to be buying a lot of oil somewhere. Certainly, most all of the world's currencies have gotten stronger, such as the Euro, the Yen, and even the Canadian Dollar.
(Interesting side note: Take some coins into a bank to be counted. Odds are if you have a lot of change, you'll have some Canadian money in there. See if they give it back to you. Ironically, these coins are worth more than our own currency even though they'll be given back to you as "worthless" here in the US.)
Thankfully, this argument of oil becoming a new currency could be expanded to "energy" in general, and Southern Indiana is sitting on vast reserves of coal. Sadly, mostly that's all they are: reserves still in the ground. Some new mines are developing or are rumored to be starting, although rumors are always plentiful.
One other benefit to rising oil to Greene County is that ethanol and bio-diesel become more attractive. Higher demand for grain, such as corn and soy beans, mean higher prices per bushel. It also means higher prices for farm ground since the products produced from them have become more valuable.
On the downside, sitting down at the dinner table just got more expensive. Of course, filling up the tractor just took more money out of a farmer's pocket too.
Greene County has a lot of agricultural activity. With alternative fuel demand rising, it may have more. Agri-tourism will no doubt become more popular in the County, as corn mazes, pumpkin patches, rural retreat centers, birding, farmers markets, and other activities are embraced. It only makes sense to add these and make more money with the same resources. In some areas, these "side projects" have become more profitable than the original use or business.
It will be interesting to see how all of these ingredients come together and what they ultimately make. In the meantime, it's probably most prudent to not be going out on a limb with debt right now, while saving some extra cash for a rainy day.
Arguably, we are in much worse financial shape now as a nation than when Katrina hit. After all, subprime lending was still the rage, stock prices on Wall Street continued to climb to new record numbers for the Dow, and we hadn't yet felt the effects of $3-plus gasoline. We were all blissfully ignorant of the perfect storm coming -- and still making its way to shore -- financially-speaking.
Often times, we hear national financial trends and macro-economic news that better serves as fodder for water cooler talk rather than as actual news that impacts us here in Greene County, Indiana. People in this area have mostly stuck with traditional practices, such as not getting involved in exotic residential financing arrangements like those have in, say, California. Out West, in fact, it seems to be very common to have an interest-only home loan. Even worse than interest-only loans, banks have doled out negatively-amortizing loans like candy. (This is when you will never pay off your loan, nor even pay all the interest you have accrued, but your loan actually gets bigger with each month gone by.) That's scary, to say the least. Imagery of a ticking time bomb also comes to mind.
What have hit rural communities of Southern Indiana are loan brokers writing subprime loans. These are loans that are written, which really never had a chance in the first place. In talking with one such broker in the Indianapolis market several months ago, he stated their loan policy was to allow up to 50% debt-to-income. That, my friends, is ridiculous -- at least in the mind of a traditional banker. Put another way: financial suicide. No wonder Indiana is in some of the top foreclosure states in the nation.
This subprime phenomenon has hit Wall Street in a big way too. Even the most proud and prestigious brand-names in finance, such as Merrill Lynch, JP Morgan Chase, and Citigroup, have recently announced things are going awry. Citigroup said recently that they have charged off over SIX BILLION dollars with analysts estimating they will ultimately write off many, many more. These financial cornerstones now have signs of strain, and hopefully they have learned their lesson, as the real moral of the story is: it doesn't matter what interest rate you are getting if you don't get your principal back. They should have read the book, The Richest Man in Babylon, which by the way, I highly recommend reading. (It's around $6 for the paperback, and the best $6 you'll ever spend.)
But how does this affect me, right?
No doubt these financial titans are a part of your investments, such as your 401(k) account. Take a look at your most-recent statement to see how it has affected you.
Even if you are not foreclosed on and you don't think this affects you, the amount of these homes on the market affects the value of your home and property. It's simple supply-and-demand economics.
Surprisingly, charities are also affected. Today, The Indianapolis Business Journal reported that, "Indianapolis-based Indiana Children's Wish Fund has been caught in the national subprime mortgage lending crisis. The small not-for-profit, which grants wishes to terminally ill children, has filed an arbitration claim after an investment it had in an intermediate-bond fund lost $50,000 between late June and late September on an initial investment of $222,812. The bond fund had more than half its assets in mortgage-related investments as of mid-year, according to the filing."
It will be interesting to see how everything finally shakes out nationally and locally.
In the midst of this, our dollar has become weaker and weaker against other world currencies. But how does this affect us in Greene County? Well, for one, some now say that oil has become the new world currency. With it hovering near $100 a barrel, the laws of supply-and-demand dictate that they are probably right. After all, someone has to be buying a lot of oil somewhere. Certainly, most all of the world's currencies have gotten stronger, such as the Euro, the Yen, and even the Canadian Dollar.
(Interesting side note: Take some coins into a bank to be counted. Odds are if you have a lot of change, you'll have some Canadian money in there. See if they give it back to you. Ironically, these coins are worth more than our own currency even though they'll be given back to you as "worthless" here in the US.)
Thankfully, this argument of oil becoming a new currency could be expanded to "energy" in general, and Southern Indiana is sitting on vast reserves of coal. Sadly, mostly that's all they are: reserves still in the ground. Some new mines are developing or are rumored to be starting, although rumors are always plentiful.
One other benefit to rising oil to Greene County is that ethanol and bio-diesel become more attractive. Higher demand for grain, such as corn and soy beans, mean higher prices per bushel. It also means higher prices for farm ground since the products produced from them have become more valuable.
On the downside, sitting down at the dinner table just got more expensive. Of course, filling up the tractor just took more money out of a farmer's pocket too.
Greene County has a lot of agricultural activity. With alternative fuel demand rising, it may have more. Agri-tourism will no doubt become more popular in the County, as corn mazes, pumpkin patches, rural retreat centers, birding, farmers markets, and other activities are embraced. It only makes sense to add these and make more money with the same resources. In some areas, these "side projects" have become more profitable than the original use or business.
It will be interesting to see how all of these ingredients come together and what they ultimately make. In the meantime, it's probably most prudent to not be going out on a limb with debt right now, while saving some extra cash for a rainy day.
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