The Economy is not the Market

I hear a lot of people confusing the U.S. economy with the U.S. stock market. For example, two gentlemen at my gym were talking and one said, "The economy sure is unstable with these 200 point gains and losses." The other responded, "Yes, I sure wish it would recover." To a finance geek like myself, this conversation is part funny (ha, ha, he thinks the economy is the market)and part scary (so do a lot of people).

The economy is a broad collection of factors related to the production of goods and services. Its health is typically measured by economic growth (or recession) numbers, which by the way, tend to be backward looking. When measuring the real economic growth rate, we're looking at the nation's GDP (gross domestic product) from one period to another. GDP is made of of consumption (C), government spending (G), investments (I) and net exports (exports minus imports, NX). In fact, G=C+G+I-NX. (Note that I should not be confused with the stock market -- it is the measure of business spending on capital.)

The stock market is made of up of shares of publicly traded companies -- i.e., those who have sold stock to finance their businesses. The return for investing in companies is return on the investment, or the share price rising due to higher valuation. There are many different markets -- for example, based on company size (i.e., Nasdaq for smaller) or nation (Tokyo exchange). The stock market is not a measure of the economy. Stocks can do poorly in times of economic growth and well in recessions.

Wine Pairing: try a Semillon with mussels and then a Syrah with lamb. They're both very different pairings. Remember this next time you're about to confuse the economy with the market!

Save on Travel Costs

Ever since I planned a high school senior year Spring Break trip to... you guessed it, Cancun, I've been obsessed with deals on travel. In March of 1996, our group paid $700 each for round trip airfare, rooms at the Cancun Palace, and all inclusive food and beverage. While that charter flight was not the most professional or timely, the package included alcohol, so we basically flew and stayed for free!

While what constitutes a vacation for me has certainly changed in the last 13 years, the booking principles are the same: shop around and book in advance. There are of course last minute deals to be found, which is great if your travel plans are flexible, but for the purposes of this post I'm assuming they're not. (I did once book a $1300 week-long trip to St. Martin on Expedia 10 days before I left that included airfare from SFO and lodging.)

The first step is to plan your trip budget. Then how you will you spend it. Are you happier eating fabulous meals and staying in a less-than-stellar hotel? Or do you prefer upscale accommodation and like to bring take out to your room? Will you be in a place like the beach where you won't spend much time in your room, or does the property and/or location matter? What will you need? Does an apartment or home rental make sense, or is the best bet a hotel.

After you've answered these questions, you're ready to use Google to find a deal. Google might lead you directly to a booking site, or perhaps to a rental property manager. When getting price quotes, be sure to ask when payment is due, what the deposit amount is, and what extra (hidden) fees there might be. Be up front about your lodging budget -- i.e., help them help you.

If your trip requires airfare, my favorite site is Kayak. Here you can compare deals on all flights available and specify time windows. You can also set up a travel "alert" if you travel frequently to a particular area -- for example, I have one set up between Portland, OR and Oakland, CA since I'm often en route to California for work. The one thing to note is that Southwest Airlines does not display, so I advise you to check the airline site directly to see its rates as well.

If your trip is bringing you to a particular city, check out its associated travel and tourism site. For example, this site has fantastic deals in the Portland area. There are pre-pay hotel discounts that include parking, breakfast and a $75 gift card. The packages change but the idea is the same -- take advantage of deals designed to lure tourism. If there are particular sites or museums you want to visit, chances are there will be coupons included, and you can always ask.

Travel can be fun and exotic, just like a Chilean Carménère, which is this post's wine pairing! Carménèreis a "noble variety" in Bordeaux but is almost always a minority part of the blend. In Chile, it is arguably "king". Carménère is a medium-bodied wine with red fruit, spices and softer tannins than in a Cabernet Sauvignon, for example. This Casillero del Diablo is a great value from one of the bigger producers, Concha Y Toro and costs less than $10.

Planning a Wedding: the Budget

Last week I discussed wedding budgeting from the guest's point of view. Today's post is for the engaged or soon-to-be engaged LMF4HMW. According to this site, the average wedding costs roughly $20k, but the happy couple often plans to spend 50% less -- i.e., they go way over budget. You can thank "bliss", "competitive bridezilla moments", "have-to-have-it-don't-care-about-cost" lapses in judgement. And poor financial planning and management, of course.

I advise newly engaged couples to enjoy that engagement bliss before bungee jumping into the wedding planning mode. That's tough to do since everyone's second question (after "How did he propose?") is always, "Have you set a date?". Try it anyway, for at least a month!

Some couples know where they want to get married. Others are more flexible with regards to location. In either circumstance, picking the location is an important first step, as it will affect all other costs. Just as a company would get a few quotes to find out which vendors are competitive, a bride-to-be owes it to herself and her man to seek bids for all major expenses throughout the process. (A great wedding planner can be worth her weight in gold in this arena. Make sure she is really good at budgeting when you interview her!) It is common to need a deposit of up to 50% to hold a location. And so the spending begins. But before you go sending checks, create a budget. Without an overall view of the costs, you're setting yourself up to make poor financial decisions throughout the process.

Spreadsheet savvy types should open Excel and get started; for others a Word doc will do.
A line item for each cost should be inputted in the horizontal rows. Common line items are as follows: location, caterer, alcohol (if not included in the catering charge), decorations; rings, attire, entertainment, photography and videography, invitations, travel costs, honeymoon, civil ceremony costs, and wedding planner.

Other important headings should occupy the vertical columns: vendor name, point person contact information, deposit due date and amount, final payment date and amount, and notes. The beauty of Excel is that you can set up equations to the amounts paid and due, and have these cells give you a total cost.

The point of pulling together a total estimate is to get a reality check. In the bid gathering process, you are gathering information, not making major wedding decisions. Only when you have this information will you be able to choose what items are more or less important together as a couple (versus arguing about it), and create a realistic spending plan. Remember, you're spending against a budget... not adjusting the budget to fit your spending habits.

Next week I'll discuss from where this money will come and how to create it. And tips for saving.
Wine pairing: a bubbly, fresh, citrus-packed Prosecco, an Italian sparkler named for the grape that won't break the wedding budget bank.

How to Avoid Financial Drain from Weddings

So you've been contributing to (and hopefully maxing out) your 401(k), building up that emergency fund and staying out of credit card debt. Summer is coming, which for many LMF4HMW is"wedding season". Which means some serious cash outlays.

In addition to being fun celebrations, weddings can be a serious drain on your financial pockets. For attendees, there are travel costs, gifts to buy, bridesmaid frocks, shoes, jewelry and other items. For the person(s) paying, it's often an incredible investment -- the average wedding budget is $20,000. So either the the bride and groom or the family of the bride (becoming less common) are in need of some serious budgeting and financial planning.

In today's post, I'll cover the topic from the vantage point of a guest; next week I'll discuss planning and budgeting for your own wedding. (I've attended 30+ weddings in the last 8 years and paid for mine a year ago, so I know a fair amount about them.)

Between 2005-2007, I attended over 20 weddings, two of which were international! I figure I spent an average of $1000+ on each to pay for travel, gifts, and gear (you know, the bridesmaid dresses you'll never again wear). So this amounted to $20,000 in a two year period. Just for comparison sake, had I put this cash into an index fund with a 6% annual return, by 2027 I'd be sitting on $64,000.

The above figure is not mean to scare you or suggest that you stop attending weddings. (I obviously chose to spend the money on good times.) I'm simply stating the real cost of attendance. Each LMF4HMW reader will have her own set of needs and goals. The point is to approach being a wedding guest like you would smart financial planning. Know your costs, have a goal and budget, and spend wisely.

Whether or not to attend a wedding depends on a number of factors, including how close you are with the bride and groom, distance and associated travel costs, the total number of invites you receive, and of course, your particular financial situation. If you divorce yourself from the personal relationship, going into debt to attend a wedding just doesn't make sense. Sometimes, this isn't possible, so if you're going to finance wedding attendance with a credit card, just be sure to have a pay off plan. And consider this within the context of all of your other expenditures and income in that year.

Even if you do decide to attend, think about ways to cut costs. It seems that brides these days have an engagement party, shower, bachelorette party, and a wedding. Not to mention gift registries for all of them. Only a bridezilla would expect you to attend and gift for all of these, so perhaps pick the most important event if attending all of them doesn't make sense. (And if you get any grief, perhaps you should perform a friend reality check.)

If all events are local and do not require travel costs, maybe decide to buy one nicer gift and let the bride and groom know your intention. The important thing is to consider everything in context versus just saying "yes" to all and buying gifts for every occasion without adding up what you're truly spending.

To mitigate my wedding attendee costs, I did one main thing: I did not attend any bachelorette celebrations.

I'm sure there were friends who were offended or miffed that I didn't make their bachelorette parties, but I just didn't think about it. (Brides tend to get a little wrapped up in themselves so I chalked it up to "me" focus and figured it would pass.) Attending all of them would have required an average outlay of an additional $1000+ dollars for each bride. (This would have doubled the cost to attend and made my investment comparison figure $128,000!) With the number of weddings I was in and attending, it just didn't make financial sense. Period. I made it "fair" by applying my no-bachelorettes policy consistently and gently let the bride know that I was saving to attend her wedding.

The above represented my biggest cost savings. I also booked travel in advance through sites like Kayak.com and Priceline.com and avoided attending associated wedding events that weren't local. For example, if a shower was in another city, I stayed put.

Your wedding attendee situation may differ from mine -- if you live in your hometown and all events are local, participating in more of them may not substantially drive up your costs. The main point of the post is to consider the full contextual cost of attending a wedding and make sure you don't go into debt to get there!

PR Skills Applied to Your Credit Card

A tenet of effective public relations is developing mutually beneficial long-term relationships. In addition to having the ability to network and connect, there are two elements critical to securing results in the PR process: 1) create consistent, compelling positioning and messaging; and 2) promote the message continually and clearly with proof points.

Interestingly, the above advice can be used to save you money. How? By taking a measured approach to negotiating your credit card rates and loans. Read the two below scenarios and choose your plan accordingly:

Scenario 1:
Call your credit card company and demand a lower rate. Provide no justification other than "my debt is out of control" and "I'll never be able to pay this off". Get frustrated and start whimpering when the phone call is looking like a dead end. Before slamming down the phone, lament about "evil credit card companies". Get nowhere. Or perhaps get a minor reduction.

Scenario 2:
Approach attaining a lower credit card rate like pitching a great story. First you'll engage in preliminary research to determine the best rates the company is offering and gather data about your account. Then, you develop talking points for your call including the following: 1) an introductory statement; 2) brief account history with number of years as a client; 3) proof points for your being a good customer like number of bills paid on time, automatic payments you've set up and increase in your credit score; 4) casual mention of competing offers received; 5) ask for a specific reduced rate or "the company's best offer for great customers"; and 6) plan if you're request isn't granted.

Make sure to call when you are at least somewhat relaxed and after having taken a few deep breaths. As soon as she answers, repeat the customer service representative's name and immediately thank "Sally" for her time. (You're getting her on your side and creating a connection.) Go through your talking points in a calm, firm tone. Ask "Sally" if she has any questions. Then reiterate that you "want to remain a good customer" and are "interested in securing the best possible rate" given your relationship.

Synopsis:
Sally is much more likely to come back to you with an offer in Scenario two than number one. When she does, thank her again.

If she doesn't, or gives you a rate that is higher than you expected, ask her what you can do to improve your standing and when would be a good time to call back. Have her document the call and do so yourself. Follow up.

***Notice that part of approaching the rate pitch like a PR pro involves coming to the table with proof points -- your history, payments made on time, credit score enhancement, etc. If your "proof points" aren't there, work on those diligently for six months before you start the negotiation process.***

A Rock Solid Read, And Quite Possibly the World's Only Personal Finance "Beach Book"

I was recently sent the revised edition of Beth Kobliner's Get a Financial Life. Since I created this blog purely for the pleasure of writing about finance and don't accept advertising, I have zero pressure to promote. (I do that enough in my day job running a marketing communications firm.)

If there was ever a work about personal finance that could be described as a "beach book", Get a Financial Life would be it. Beth's style is zippy (my definition of to the point and fun), easy to follow and free of the financial jargon that puts even the most devoted LMF4HMW readers to sleep. This is not to say that Beth is talking down to her readers -- she well navigates the fine line of providing great explanations for key financial terms and avoiding unnecessary diatribes. From budgeting to mortgages and investing to insurances, Beth well covers all of the financial bases. And it's a fun read.

Get a Financial Life is about "personal finance in your twenties and thirties". It certainly puts Gen X and Y on a great track; however, it's also applicable to those who've been around the block a few more times. First, it covers health insurance immediately, which many personal finance books omit or cover after most readers have fallen asleep never to return again. We all need health insurance -- perhaps not the same type, but baseline high deductible coverage is crucial. Health insurance is a financial issue because without it, even your best efforts can be wiped out with a single emergency or severe illness.

Other highlights include actionable advice, crib notes and financial cram sessions. Many books tell you what you should do, but don't offer a road map regarding how. Beth does this very well, and by implementing her suggestions, you can easily pay for the cost of the book and save yourself some serious money. For example, she writes about negotiating better loan and credit card rates (yes, you can do this -- it will be the subject of an upcoming post). And provides financial work sheets like the monthly statement so that you can better understand the in- and outflows of your money.

The "crib notes" are another favorite: chapter one provides an overview of the most important items and allows those perhaps wary of financial reading to be drawn in. (I know I'm biased given my finance "hobby", but anyone who puts the book down after page 11 is really doing herself a disservice.) These crib notes continue in the form of "financial cramming", or summaries of the key points at the end of each chapter. I recommend reading the book actively, and using these cramming bullet points as check-lists (see my December 2008 posting about "Fail to Plan...) as you progress along your road to financial security.

If I had to choose an absolute pinnacle, it would be Beth's explanation and recommendation of index funds (check out my March 2008 posting professing love for them). They're cheaper (you're paying a lower expense ratio given passive management) and over time, tend to perform better than actively managed funds. She talks about finding the "index fund religion" (maybe that's why I like them so much -- they're downright spiritual in their simplicity) and puts it best when she proclaims, "The bottom line: Go with index funds."

The only area of the book I would debate is the discussion of risk and dealing with fear of loss in a 401(k). Beth acknowledges that it's "easy to panic" in a bad market with investment losses, and that timing is tough (if not impossible -- hence my borrowed saying, time in the market; not timing the market). This is true. But she offers that a reader who "feel(s) like" she's taking "too much risk... can shift to money market funds".

Moving money out of fear is not the best strategy. Doing so is basically like trying to time the market -- you think it will get worse, so you pull out. This locks in your losses, and suggests that you'll know when to re-enter. Then you're risking missing out on gains. And so an all too common mistake happens again: "Sell high; buy low". So I revert to my prior postings about hangin' tough, investing like a distance runner, making risk your BFF and most importantly, having a strategy, not a reaction based on feelings.

The above being said, Get a Financial Life is a must read for LMF4HMW readers and their male counterparts. In fact, the only people who shouldn't read it are: 1) boys who've stood you up on dates or not called when they said they would; and 2) the guy who dated me while hiding a fiancée in an emerging market.

Pair this read with an equally zippy, crisp and fun Sauvignon Blanc or Albariño. I like the Martin Codax which is easy to find (imported by Gallo) and light on Beth's budget worksheet at around $13. Both the book and the vino will be a treat oceanside!

To the Hackers Who Suck Productivity Out of Our Society

As the LMF4HMW blogger and small business owner, I have a tremendous appreciation for the benefits afforded to our world by marketplace activities. Businesses create jobs, responsibility, valued products and services and opportunities for advancement in society. They also pay taxes, which fund programs, maintain operations, and help the less fortunate. (I'm resisting the urge to be negative re federal and state spending here.)

Today, I was forced to abandon my small business -- the needs of my clients, following up on proposals written for future revenue, and my personal advancement goals (which included exercising, maintaining calm and running two important errands).

Instead, I spent the last 10 hours trying to fight off a variety of Trojan horse malware viruses installed on my computer by who knows what group of a**holes. The first hour phone call went to my cherished tech support person, who advised me to contact my Trend Micro Antivirus software. The second two hours were spent on hold and speaking to this tech team who determined that particular virus rendered them helpless. The remainder of the hours were spent on four separate calls to Microsoft where a number of scans were run and an incredible amount of support rendered. Approximately 9 hours and 45 minutes after my first phone call, I finally have access to my computer.

I figure the cost of lost productivity and potential business, lost benefits for clients (if I'd made two PR calls and generated two stories, that would represent a big promotional push for them) and my personal time is valued at approximately $5000. And there's no guarantee that the problem is fixed.

So to the people who find it entertaining to create problems for those of us who are trying to create value, I have this to say: There is no punishment strict enough. And there is a special place in hell for all of you. Just because no LMF4HMW reader would spend a moment even considering you -- I just feel hackers must be dorky men, does not give you the right to steal from us.

To my LMF4HMW readers, let this be a reminder to back up your data with a portable drive and online, have anti-virus and malware detection installed, run updates automatically if you're on Windows. Unfortunately, even if you do all of that as I did, you still may get hit. In that case, open a bottle of wine -- I'm enjoying a Dr. Loosen 2007 Riesling which is going down very smoothly -- something a little sweet to combat the tech nightmare I've just endured.