January 2009 - Net Worth Update and Personal Finance Status
Published 1/30/09 (Modified 11/27/13)
As a work from home attorney and self driven small business entrepreneur, I like to keep tabs on the pulse of the business markets and track the breaking of current economic news at all times. Whenever I'm working from home, I always have CNBC or the Fox Business News channel playing on the TV. However, because of this constant monitoring of the markets and relentless digestion of every piece of bad economic news that comes through the news wire, I've steadily become an extremely bearish investor of late. With little credible positive news to speak off for the foreseeable economic future, I've become ever more protective of my existing financial assets, making a mad dash for safety like I've never done before.
Billionaire investor Warren Buffett (who despite all of his historical wealth building wisdom, seems to be suffering a bit of a credibility and legacy problem recently with the plunge of his Berkshire Hathaway investments) used to preach that the world of money and finances revolves around the inextricable interplay between two core human emotions - fear and greed. These two primal capitalist emotions dictate our personal financial paths at any given moment and determine how we each respond to potential monetary opportunities as they present themselves. The age old Warren Buffett truism is that we ought to be greedy when others are fearful, since valuations and expectations are lowest, and opportunities and potential upside are highest at the peak of overwhelming market fear - but unfortunately, I think I have succumbed to this crippling fear of the unknown. Disillusioned by the never ending false verbal diarrhea spewed out by so-called financial experts and relentless bull market fanatics in the media, I am now starting to favor the viewpoints and sentiments of bearish prognosticators like infamous NYU economics professor Nouriel Roubini, nicknamed "Dr. Doom" for his pessimistic yet accurate economic forecasts in recent years.
As a self proclaimed perma-bear now, I currently remain hiding in my proverbial financial cave, hibernating and holding onto my stash of winter cash reserves in preparation for more difficult times ahead. I remain extremely cautious and stubbornly skeptical of the self interested optimistic pundits out there, who although have been proven wrong time and time again with their never ending predictions of the bottom, continue to cheer lead the market into plunging headfirst into reckless and financially suicidal decisions. "Extreme bearishness" is probably the phrase to best describe my overall investment sentiment for this month, and possibly for the entire first half of 2009. While the cash flow income generated from my active trading hours for dollars part time small law practice and entrepreneurial pursuits (one of which includes this personal finance blog) remain very healthy, I have completely halted my passive investment pursuits in the stock market, at least for now. Despite my earlier plans to purchase a single family home sometime this year, it is very possible that I may well put off the purchase until 2010 or later - at least until housing prices stabilize. I have the cash and down payment money necessary for a new first time home purchase right���� now (with or without a sizable home mortgage loan), however, I want to see more visibility assurances in home prices before I invest. At least for the foreseeable future, my net worth growth and my marathon journey to become a millionaire will have to depend solely on the continuous cash flow increases provided by my regular day jobs, rather than from any improvements in passive income appreciation (via stocks, dividends, or housing).
My Current Net Worth and Financial Status Update Compared To Last Month
During Turbulent Times, It's Best To Keep Your Money Safe and Secure In FDIC Insured High Interest Bank Accounts and High Yield CDs
In my opinion, you must be certified crazy or an extreme thrill seeking risk taker to even consider adding aggressive new investment positions into your stock market portfolio at this moment in time. At a moment's notice, any one of the many market sectors could easily plunge 5-20% and destroy your life savings, as evidenced by the extremely volatile swings we've been experiencing lately. No matter the fact the market has already plummeted more than 50-75% since its peak in 2007 - the market has the potential to purge even more as current grim economic conditions have not slowed down its deterioration. This is truly not the time to get greedy and lose your money in one fell swoop. I fully understand the need to seek out long term opportunities and come out on top 5-10 years from now, but such immediate uncertainty and irrational volatility in the stock and real estate markets require a more asset protectionist mindset for the time being. I don't anticipate the economy to experience much of a noticeable recovery until at least mid 2010. Perhaps sometime during the mid summer months of 2009 will be a more suitable time to start considering more long term objectives. But for now, I recommend greater caution and taking things a bit more short term, with a healthy dose of more fearful wisdom than exuberant greed.
During such scary times, I prefer to keep the vast bulk of my liquid cash savings stored in FDIC insured bank accounts, preferably invested into a mixture of high yield savings accounts and high interest certificate of deposits (CDs). I use laddered CDs with the best CD rates to maximize interest rate yields, but use multiple maxed out high interest savings accounts to keep money readily available for emergency fund purposes. As the cash savings generated by my day jobs and entrepreneurial pursuits have flourished, I have had to open multiple high interest online bank accounts to keep my aggregate savings fully protected under the current FDIC insurance coverage limit of $250,000.
Despite the current grim landscape of failed banks and struggling financial institutions, banks that offer full FDIC insurance coverage still afford consumers the best protection for their money that the market has to offer. FDIC insured deposit accounts at the nation's best savings banks are fully backed by the full faith and credit of the United States government, and thus enjoy near iron-clad protection against bank failure or catastrophic financial loss. Unless the federal government of the world's most powerful nation deteriorates and collapses into complete disarray, so much so that it can no longer honor its financial obligations to creditors, your money is otherwise 100% safe. Despite my extreme bearish sentiment, I have no real fear that the United States government won't be able to survive the current credit crisis or economic recession. Times are certainly extremely gloomy, but the federal government and the U.S. economy will ultimately prevail - although it may take many years for recovery to happen.
Making Sure I Use My Reward Credit Cards To Keep The Accounts Active, and Keeping Tabs On My Credit Score
The current news on the street is that due to troubled credit markets, major credit card issuers are canceling and closing out inactive and unused consumer credit card accounts. For many struggling with credit card usage temptation or are currently mired in credit card debt, this may come as a forced financial blessing. However, it's important to note that when a credit card issuers closes out one of your unused credit card accounts, this seemingly simple act may have the unintended consequence of hurting your FICO credit score. The FICO credit score is comprised of a multitude of credit and debt payment factors, but a very large component is the proportional usage of your utilized credit in relation to the total aggregate amount of credit that is available to you. Thus, by closing out unused but available credit lines, this decreases your credit utilization ratio - thereby causing the FICO credit score algorithm to churn out a lower credit rating in your name. This is also the same reason why unused credit card accounts with reward or 0% APR balance transfer terms that are no longer desirable should never be canceled, but rather should be stored in a safe place and kept open. Thus for example, if you've tapped out your Citi Platinum balance transfer offer, instead of closing out the card immediately, it benefits your ultimate FICO credit score more to keep the card open and use it at least a few times a year on small purchases.
As a heavy credit card user who has a large portfolio of reward and balance transfer credit cards, I have been making a concerned effort to make sure I use each of my credit cards at least once every few months to keep them active in the eyes of the issuing credit card companies. In particular, I pay special attention to keeping active those lesser used cards opened many years ago as the FICO scoring algorithm heavily favors older credit accounts over newer, recently opened accounts. Yes, the whole process of���� juggling cards and ensuring continued usage of each individual credit card at least a few times a year is somewhat of a hassle. However, my extra steps have kept my FICO score nice and high at 802, in anticipation of my future plans to apply for a home mortgage loan when this whole economic recession finally blows over.
Charting Out My Financial Plan and Tracking Expenditures With Quicken 2009 Software and Free Quicken Online
While I've always had a history of using Intuit and Quicken related products like the paid desktop software versions of Quicken Premier and Quicken Deluxe, it was not until the recent emergence of free Quicken Online, that I've begun to consider the online version to be a real viable way of tracking my expenditures and financial account balances. As a long time user of Intuit's popular online tax preparation program Turbo Tax, I eager anticipate the day that TurboTax is fully integrated into the free Quicken Online program for a more complete online budgeting platform with tax planning analysis. Tax planning is a critical component of any family's or small business' financial management so it stands to reason that full integration will arrive sometime in the future as web technology finally catches up to the demands of financial consumers such as myself.
In the meantime, I recommend getting into the habit of using account aggregation programs like Yodlee, Mint, or Quicken Online to help you calculate your networth and better budget your expenditures. I know it sounds like a sales pitch, but I recommend Quicken Online primarily because it's a completely free service and a popular choice for many people. With future potential integration with programs like TurboTax from the same software maker, Quicken Online has pretty good future upside for those that prefer sticking with a single company for their financial planning needs.