We are Responsible for our Financial Well-being

[southsidesignmaker]

Parting advice: It is your job to watch your finances

By Humberto Cruz, Tribune Media Services

www.chicagotribune.com/business/sc-cons-cruz-1223-20101224,0,4611431.story

December 24, 2010


I remember it vividly from last summer's news coverage of legislation that Congress passed regulating overdraft fees by banks: A woman, one of several irate bank customers interviewed on television, complained about the high fees.

"When you're busy trying to make a living and raising a family," she said passionately, "who has time to keep track of the balance on your bank account?"

My reply, more passionate still: Make time. It is our job, particularly when raising a family, to manage our money responsibly.

It is our job to keep track of our bank balance so we don't bounce checks, use a debit card or make automated teller machine withdrawals for money we don't have.

It is our job to educate ourselves about money so we don't waste it on overdraft fees or lose it in risky and inappropriate investments.
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It is our job. As I retire from this column, I leave you with those four key words.

Over the course of 1,028 weekly columns, dating to April 1991, I have emphasized basic principles for financial success. They all entail personal responsibility:

Spend less than you make.

Save and invest the difference wisely for the goals most important to you.

Identify those goals clearly. Calculate how much you have to save and the investment returns you need so you don't take more risks than necessary.

And never forget that money is only a tool. True happiness comes from commitment and relationships, not material wealth.

All this is very simple but not necessarily easy to accomplish.

Human nature conspires against us, tempting us to blow our money on useless "stuff" or on fleeting pleasures with no lasting value. Or we succumb to the siren song of promised fat and fast profits and gamble our money in high-risk, complex and questionable, if not fraudulent, investments.

Without financial discipline and common sense, we can be our own worst enemies, worse than any "fat bankers" on Wall Street, "evil" credit card companies or unscrupulous "advisers" pitching unsuitable high-commission products.

We do need to watch out for excessive bank and credit card fees and reject inappropriate, self-serving or downright fraudulent investment pitches. Over the years, rules and laws have been necessary, and always will be, to rein in abusive practices.

But we are still in charge. We, not the government, our employer or anybody else, are responsible for our financial well-being. Even if we hire a professional adviser, we are ultimately responsible for accepting and following any recommendations.

Responsibility brings rewards. The most inspiring letters I've received came from readers who never earned much money but saved regularly and invested with discipline to reach a comfortable, worry-free lifestyle. Part of taking responsibility is learning to play with the cards we are dealt, while looking to draw better cards in the future with smart and honest play.

You could say my wife, Georgina, and I weren't dealt great cards. Not wanting us to grow up in a communist country, our parents made the sacrifice to leave our native Cuba in 1960, along with their homes and possessions, while we were teenagers.

To afford college, Georgina and I had to work. After we were married, we lived in a rented one-bedroom apartment. It took six years to save for a down payment on a starter two-bedroom home. Today we own a beachside home free and clear and enjoy a secure retirement we built through steady savings and investments. We'll continue to manage our money to make sure it lasts as long as we live.

After all, it is our job. I wish you much success with yours.

[southsidesignmaker]

Kudo's to Humberto, his outlook and perspective have been refreshing, this is especially true when one lives in such a self absorbed era and geographic region.

[rew]

You are entitled to your opinion about others, SSSM, but I wonder what you mean when you say "self absorbed era and geographic region"?

Are you saying that people on either coast are less self absorbed than the midwest? Or are you refering to someone in Germany vs the USA?

When you say era do you mean compared to the "gilded age", the "roaring twenties" , the "if it feels good do it"60's or Gordon Geko's "greed" 80's?

I do agree with Mr Humberto. I have enjoyed many of his columns for years and his sound advice will be missed.

[doctorwho]

really I hope this is not the Naperville ( and other area ) stereotyping that has worn thin and does not seem to apply any longer ( if they ever did). With an ever growing % facing foreclosure in our area, median icome down double digit %'s, many people out of work- some for good, food banks short food for people in the area, and Metea Valley HS collecting 600 gifts for kids that would have had none ( as well as coat drive)- does anyone really think characterizing this area as self absorbed fits today ?
Yet in spite of all this my kids took part in two separate efforts to aid the homeless at the holidays generated by these same 'self absorbed' area people. The kids at Benet raised $66,000 for Christmas charities in 2 weeks. I am sure there are many more similar stories from area kids I am unaware of.

[southsidesignmaker]

The era would include the baby boomers, and the geographic region would include the U.S. at large. The generation I happen to be part of has done a piss poor job, especially considering all the opportunities granted to us. I suspect we will be known as the squandering generation, a title that is not far from the truth.

Easy there Doc, it is much easier to characterize in general. As for the economic mess we find ourselves in, I agree with Humberto Cruz and his assessment.

"Over the course of 1,028 weekly columns, dating to April 1991, I have emphasized basic principles for financial success. They all entail personal responsibility:

Spend less than you make.

Save and invest the difference wisely for the goals most important to you.

Identify those goals clearly. Calculate how much you have to save and the investment returns you need so you don't take more risks than necessary.

And never forget that money is only a tool. True happiness comes from commitment and relationships, not material wealth.

All this is very simple but not necessarily easy to accomplish."


Happy New year to all.

[Arch]

Good advice. No one should care more about your own finances than you. If someone else does, you are probably already in trouble.

[doctorwho]

Dec 27, 2010 10:42:52 GMT -6 southsidesignmaker said:

The era would include the baby boomers, and the geographic region would include the U.S. at large. The generation I happen to be part of has done a piss poor job, especially considering all the opportunities granted to us. I suspect we will be known as the squandering generation, a title that is not far from the truth.

Easy there Doc, it is much easier to characterize in general. As for the economic mess we find ourselves in, I agree with Humberto Cruz and his assessment.

"Over the course of 1,028 weekly columns, dating to April 1991, I have emphasized basic principles for financial success. They all entail personal responsibility:

Spend less than you make.

Save and invest the difference wisely for the goals most important to you.

Identify those goals clearly. Calculate how much you have to save and the investment returns you need so you don't take more risks than necessary.

And never forget that money is only a tool. True happiness comes from commitment and relationships, not material wealth.

All this is very simple but not necessarily easy to accomplish."


Happy New year to all.

The generation I happen to be part of has done a piss poor job, especially considering all the opportunities granted to us. I suspect we will be known as the squandering generation, a title that is not far from the truth. "

However what you also need to include here- and neither you nor Humberto seem to make any mention of is how many Boomers had pensions taken from them after 20-25 years of employment -- losing those prime savings years to believing what should have amounted to a verbal contract but the courts only allow that leigh way to unions and government workers it seems.
-- when you are paid less than the average for your role but are told the pension you are accumulating makes up for that-- then 20-25 years in it suddenly disappears -- it's hard to tell those people they are crappy savers. Trust me I know.
I did save, but not as much as I could have- because of the pension I would have. I had my 401K and my pension and thought hey, I'll be fine. Also remember the fact these companies held back some salary compensation from us because they were investing it.. wink wink. So 'technically' we didn't pay into it- yet in reality we did by accepting lower wages with the promise of the pension-- the corporation ended up with a win-win.
--If somone had told me I had to save all my own money from day 1- I would have made the same calculations I did with the pension and 401K- but covered it myself. More than likely I would have gone to work for someone who paid more if I had to do that.

Now if I was a teacher or union worker- you SSSM and all taxpayers would have have to pay me my pension ( which btw was not based on an average return of 8.5% - nor was it going to be 75%-80% of my salary ) but sure would have helped.

-- so count a fair number of Boomers in the category of 'now you see it, oops just kidding with regards to retirement savings. And no amount of savings will make up for 20-25 lost years and accumulating interest. So the calculations done were correct however , this part of Corproate America not that unlike Enron type dealings went virtually unreported - and except for some lower court wins in class actions suits- was swept away in the judicial system. No Ken Lay poster boys on this, but the effect was just as great - millions who will be missing huge portions of their living expenses in later life - while the CEO's who perpetrated this got wealthier and wealhier- ironically enough making money on stock options as shares rose due to companies ridding themselves of future expenses.



"

[doctorwho]

Dec 27, 2010 20:44:34 GMT -6 Arch said:

Good advice. No one should care more about your own finances than you. If someone else does, you are probably already in trouble.

based on my personal experience posted above, my advice to my kids follows yours Arch-- trust no one ! No one is trying to help you, when it comes to money they likely are trying to screw you over. Plan for yourself...

[asmodeus]

It's also a bit tough to swallow that property taxes have continued to go up continually thanks to profligate spending. A disturbing article came out today, showing home prices are now at 2002 levels:

chicagobreakingbusiness.com/2010/12/case-shiller-shows-continued-decline-in-home-prices.html

My property taxes in 2002 were under 9k; they are now over 13k (about a 50% increase), for a house that is worth roughly the same amount.

[southsidesignmaker]

Doc, you bring up a good point regarding pension plans that corporations can use for their own devices, or rid themselves of completely (at the expense of employees, like yourself). Personally I have not worked in the corporate world in 30 years as I found mid level managers to be a boring life at best. The fact that many of these same managers had no idea how to read a statement (and assumed employees beneath them could not read a statement), made me uncomfortable when staking my future on it. Starting a company in high school and quickly using the great advise from a CPA, I concluded early that "if something sounded too good to be true" it most likely was not going to happen. This is not to say that defined pension plans are to good to be true, just that for me it was uncomfortable to think that a corporation was going to have so much control over my future.



Doc the reality is that unlike your situation many folks used their homes as a piggybank with no intention of giving up the goodies when times got tough. For some of us the tough times began in the late 90's and were a wake up call to buckle down. When our firm was making huge signs proclaiming 105% loans.... No Money Down.... I knew it was time to cut and cut deep. I surrounded myself with very conservative advisers and still got crushed, just not buried.

Many baby boomers buried themselves with an unrealistic lifestyle that depended on unrealistic income. When the income failed to keep pace it was easier to refinance the first mortgage and/or take out HELOC . It was easy to sooth away the nagging concerns with a lower rate or longer term so the monthly notes would not become unmanageable.

The mirror only got ugly when the bank called in the HELOC, and the credit card companies cut the lines of credit. The ugliness became intolerable when the "old homestead" lost 30%, income dropped 20 points, and the kids needed to go to college (which never received proper funding because who would have thought that a state school would would be a 100 grand).

Now the old boomer is scratching his rear end and wondering how did I get into this mess.

[doctorwho]

Dec 28, 2010 16:05:28 GMT -6 southsidesignmaker said:

Doc, you bring up a good point regarding pension plans that corporations can use for their own devices, or rid themselves of completely (at the expense of employees, like yourself). Personally I have not worked in the corporate world in 30 years as I found mid level managers to be a boring life at best. The fact that many of these same managers had no idea how to read a statement (and assumed employees beneath them could not read a statement), made me uncomfortable when staking my future on it. Starting a company in high school and quickly using the great advise from a CPA, I concluded early that "if something sounded too good to be true" it most likely was not going to happen. This is not to say that defined pension plans are to good to be true, just that for me it was uncomfortable to think that a corporation was going to have so much control over my future.



Doc the reality is that unlike your situation many folks used their homes as a piggybank with no intention of giving up the goodies when times got tough. For some of us the tough times began in the late 90's and were a wake up call to buckle down. When our firm was making huge signs proclaiming 105% loans.... No Money Down.... I knew it was time to cut and cut deep. I surrounded myself with very conservative advisers and still got crushed, just not buried.

Many baby boomers buried themselves with an unrealistic lifestyle that depended on unrealistic income. When the income failed to keep pace it was easier to refinance the first mortgage and/or take out HELOC . It was easy to sooth away the nagging concerns with a lower rate or longer term so the monthly notes would not become unmanageable.

The mirror only got ugly when the bank called in the HELOC, and the credit card companies cut the lines of credit. The ugliness became intolerable when the "old homestead" lost 30%, income dropped 20 points, and the kids needed to go to college (which never received proper funding because who would have thought that a state school would would be a 100 grand).

Now the old boomer is scratching his rear end and wondering how did I get into this mess.

"This is not to say that defined pension plans are to good to be true, just that for me it was uncomfortable to think that a corporation was going to have so much control over my future. "

the problem was there was absolutely no reason not to believe it. You were giving up some salary for a better pension..and at the time - especially 70's and 80's this was not viewed as a risk as it had been working just fine for quite some time. Especially not concern about trusting a Forutne 25 company for sure..because these were still the times of career paths, and employment for life. By the time reality started to poke it's hed in those of us who started in the 70's were 15-20 years in - those years never to be recovered.

For unions and government workers the pension format has not changed- in fact there are infinitely more lucrative than any private company pension plan I have ever ben aware of. Private company pension plans usually were the equivalent of 30-40% MAX of the last 5 years average salary - not the windfall the uniuons/government workers get today. The pensions were meant to help you in retirment, not move you to the oceanfront in Miami on the taxpayers dime.

I have to accept blame in the matter also, I agree...just that the vast majority of us never saw it coming. Where I worked most were very intelligent workers and management and we could read the statements - and they weren' too good to be true.. they were based on solid financials and again did not replace income at retirement, just augmented it based on deferred salary % increases. Were we stupid to follow that path - hindsight is 20-20, but the end result is totally screwed while CEO salaries continued to skyrocket.

My CEO at the time took an $8M parting gifts package, plus stock options as well as a pension for 7.5 years work...

For those who cashed their homes out - different issue entirely

[southsidesignmaker]

Doc, the actions that many corporations took regarding defined pension plans could / would/ should be considered criminal. Many committed loyal employees were hit hard when these plans evaporated.

In my case I was young and the company was a small closely held company, the attitude was, "the few at the top do well" while middle and line managers received scraps. More important was the fact that managers were paid on the bottom line rather than any incremental change the manager could provide. Upper management just changed the game rules when a line manager made more than top management felt necessary. This environment was toxic for line managers that understood a statement and who could do a little investigation to find out how the statements were manipulated. Once this SSSM brought up the inconsistencies to the middle manager, it was only days before this overzealous manager was replaced. One of the best lessons I ever learned.

This is not to say that all companies are managed this way rather I felt that the energy spent trying to find a well managed company would be better spent striking out on my own. With a good core CPA, banker, and attorney, it seemed the right move at the time.

Getting back to education pensions when investigating averages for Illinois teachers it appears that many would receive less than $40,000 per year. (note that teachers in many pension plans do not receive Social Security Benefits). Upon closer inspection based of course on averages, I am not sure that these average payouts are that out of line. Considering that for decades teachers salaries have lagged behind the private sector which could put substantial pressure on teachers ability to save towards retirement. Of course now teachers salaries are much closer to that of the public sector but mainly because the public sector has suffered much wage deteriation.

In the last 20 years private sector employees have enjoyed the ability to save through many investment vehicles and with the superior wages for the first 15 years, the private employees could get a strong jump on retirement savings. The concern I feel is that many of these private sector employees did not take advantage of these opportunities and instead lived beyond their means when the $$$$$ was flowing. This angst is only fanned with a few front page articles noting a few jack asses at the top who have padded their pensions with every trick in the book (legally of course).

The reality is that many of the rank and file public employees will receive a reasonable pension but may sometime in the future have to take substantially less as the system as a whole will indeed implode.

Asmo brings up a valid concern regarding depreciating residential and commercial values. When taxpayers open up the tax bills and notice that their residence has dropped 15-25% in assessed value with no corresponding reduction from taxing bodies, it won't take long for these taxpayers to realize that they have been served with a 15-25% tax increase. It will be at this point that the "die will be cast". The idea that all must live within their limited means will be the swan song for any official looking to be elected or reelected.

www.chicagotribune.com/classified/jobs/ct-biz-1229-outlook-employment-20101229,0,6429492.story

www.chicagotribune.com/classified/realestate/ct-biz-1229-chicago-home-prices-20101228,0,6477553.story

www.chicagotribune.com/business/yourmoney/ct-biz-1229-gail-municipal-bonds-20101229,0,6784597.column

The business section Chicago Trib...... An island of HAPPY news.

[doctorwho]

Dec 29, 2010 12:34:05 GMT -6 southsidesignmaker said:

Doc, the actions that many corporations took regarding defined pension plans could / would/ should be considered criminal. Many committed loyal employees were hit hard when these plans evaporated.

In my case I was young and the company was a small closely held company, the attitude was, "the few at the top do well" while middle and line managers received scraps. More important was the fact that managers were paid on the bottom line rather than any incremental change the manager could provide. Upper management just changed the game rules when a line manager made more than top management felt necessary. This environment was toxic for line managers that understood a statement and who could do a little investigation to find out how the statements were manipulated. Once this SSSM brought up the inconsistencies to the middle manager, it was only days before this overzealous manager was replaced. One of the best lessons I ever learned.

This is not to say that all companies are managed this way rather I felt that the energy spent trying to find a well managed company would be better spent striking out on my own. With a good core CPA, banker, and attorney, it seemed the right move at the time.

Getting back to education pensions when investigating averages for Illinois teachers it appears that many would receive less than $40,000 per year. (note that teachers in many pension plans do not receive Social Security Benefits). Upon closer inspection based of course on averages, I am not sure that these average payouts are that out of line. Considering that for decades teachers salaries have lagged behind the private sector which could put substantial pressure on teachers ability to save towards retirement. Of course now teachers salaries are much closer to that of the public sector but mainly because the public sector has suffered much wage deteriation.

In the last 20 years private sector employees have enjoyed the ability to save through many investment vehicles and with the superior wages for the first 15 years, the private employees could get a strong jump on retirement savings. The concern I feel is that many of these private sector employees did not take advantage of these opportunities and instead lived beyond their means when the $$$$$ was flowing. This angst is only fanned with a few front page articles noting a few jack asses at the top who have padded their pensions with every trick in the book (legally of course).

The reality is that many of the rank and file public employees will receive a reasonable pension but may sometime in the future have to take substantially less as the system as a whole will indeed implode.

Asmo brings up a valid concern regarding depreciating residential and commercial values. When taxpayers open up the tax bills and notice that their residence has dropped 15-25% in assessed value with no corresponding reduction from taxing bodies, it won't take long for these taxpayers to realize that they have been served with a 15-25% tax increase. It will be at this point that the "die will be cast". The idea that all must live within their limited means will be the swan song for any official looking to be elected or reelected.

www.chicagotribune.com/classified/jobs/ct-biz-1229-outlook-employment-20101229,0,6429492.story

www.chicagotribune.com/classified/realestate/ct-biz-1229-chicago-home-prices-20101228,0,6477553.story

www.chicagotribune.com/business/yourmoney/ct-biz-1229-gail-municipal-bonds-20101229,0,6784597.column

The business section Chicago Trib...... An island of HAPPY news.

"Getting back to education pensions when investigating averages for Illinois teachers it appears that many would receive less than $40,000 per year. (note that teachers in many pension plans do not receive Social Security Benefits). "

this is an argument teachers unions use also- but remember 2 things 1/ they also don't pay into social security so that money can be invested and earn interest for 30 years..and more importantly 2/ most traditional pension plans are fully taxable and is income- so social security in effect is also reduced because you have the other income - making all social security taxable also ) - and you can't take the 'full boat' until 70 - when many people are no longer around.

also teacher salaries easily equate to private sector and administrator salaries ousttrip most people I know- with masters degrees - so there's been a LOT of catching up -- also hence the issues with the state being able to cover these commitments. I don't get upset over most salaries ( some administrators I believe are overpaid- just like some are in the private sector as well)- as teachers should earn the salaries they do today. I do get uposet when I see unions offered 3% raises and hear about how that can't be lived on when the private secotr most people have not seen raises in years now.


you made the right move and I encourage both my kids to be entrepreneurs. Not because I think it's easy, I think it's damn hard...but when the day is over and you've put in 12 hours or more- the name on the shingle is yours. Companies churn and burn employees and those hours / effort are not appreiated- in fact today they are necessary just to keep your job- and they will tell you so.

"...every trick in the book (legally of course). "

we have seen that first hand here by our SB with our tax dollars- spending $155M when $124 was voted upon - and all the chicanery that took place with it. Just inside the law has become the operating realm of pirates.. and we all pay the price for it.

btw I agree with the criminal nature of what some companies did to people - but they 'won' the court system and politicians so there was nary any coverage when all the court cases took place.