Thursday, February 26, 2009

Can a Car Purchase Fund Double as an Emergency Fund?

Buying a replacement car is one of our goals in the coming months. Specifically, buying a used, vintage 2003 or 2004 red Solara convertible for under $12,000 is our goal.

This is my first mention of it and I haven't added it to this blog's goal list yet because I want to focus on getting rid of our debt first.

I'm prompted to write this post now for two reasons. The first is my budding case of Spring Fever. Here in the Pacific Northwest (some fondly call it the "Pacific NorthWET"), we anxiously await any sign of drizzly, cold winters yielding to the spring. Once spring is here we know our short but glorious summer is right around the corner. Summer = convertibles. Simple.

I had every reason to believe spring was making her way to Washington State when I awoke to this scene in our back yard this morning:

Bleh! OK, so my first reason really isn't that compelling anyway.

Paying Debt vs. Beefing Up the Emergency Fund
My second reason for posting this is a really terrific article I read today on Frugal Dad's blog. If you haven't read his blog yet, I would highly recommend it. He takes a thoughtful, conservative approach to personal finance and money management issues. AND he offers up some great topics. Which brings me back to his aforementioned post, Recession-Proof Your Debt Snowball.

I have been tempted to slow down our debt repayment in favor of beefing up our emergency fund. Currently, it's $1,000. This makes me a little nervous because $1,000 won't go far during a major emergency such as an extended absence from work or, worse, a layoff.

Managing the Risk

On the other hand I have to consider the recession-resistance of our income. We're certainly not unaffected by economic conditions. But we're both in positions that would likely not be cut in the healthy companies that employ us. Additionally, daughter #1 has just received her final college tuition & expenses check from us this week. She graduates at the end of this quarter. This frees up a substantial amount of monthly cash flow in our budget.

So, for me it boils down to a risk management decision. We expect to have our debt smackdown! all wrapped up by mid-summer. At that point our only debt obligations will be first mortgages on our residence and a single-family rental property. The rental property mortgage is covered by rents received. And we could pay that mortgage from our incomes if it came to that. Bottom line? Are we willing to rely on a $1,000 emergency fund for the next four months or so? The answer is "Yes".

Car or Extra Hefty Emergency Fund?
Next on our goal list is to grow our emergency fund to three months' expenses. Easy enough. But after that, our plan is to focus on saving for a replacement car for wife. She's currently driving a 1999 Chrysler Sebring with over 100K miles. Normally, I would consider this car yet "young" with lots of usable life left. But the darn thing is already beginning to nickel & dime us with repairs. From the forum posts I've read, this is not a reliable vehicle when it gets some miles under the hood.

OK, enough justification. Back to the plan. With all the focus we've mustered to pay off debt we will amass $12,000 for the shiny red convertible purchase. But until it's spent, this fund will double as a back-up emergency fund. In essence, until the $12k is spent, we will have saved enough to sustain our expenses for nearly six months. Once the car is purchased we'll be down to our three month emergency fund, poised to immediately get it back up to six months' of expenses.

What Would You Do If You Were in My Shoes?
I am very interested in your take on my plan. Given our situation, do you think this strategy is sound? Is Spring Fever clouding my brain? Please weigh in with your opinion.

Tuesday, February 24, 2009

Property Taxes Up 54%!

Oh, man! I knew this day was coming. The day when I would open my real estate property tax statement for our rental property and suck the air out of the room.

And suck I did. The property taxes on this rental increased 54% from 2008 to 2009, from $998 to $1,537.

In all honesty I can't say that the dollar increase in our county property tax was a total shock. But it's one thing to have a sense of what's to come and quite another to see it printed on a statement.

Assessment Methods Differ
The reason for my tempered expectations lies in the way our county assesses property quadriannually...a fancy word for "every four years". The assessor's office divides the entire county into quadrants and reassesses property in each quadrant only every four years. In Washington State's 39 counties, 18 assess annually, 1 biannually, 1 triannually and 19 counties assess real estate property quadriannually.

On the positive side, property owners can expect some consistency in their tax bill....for four years, anyway.

Dodging the Tax Bullet...Temporarily
But this assessment method creates some interesting scenarios in quickly fluctuating markets. Take the current real estate market for example: after several years of strong growth, home prices have slumped. (Interestingly, the lower end of the market in this area - around $200k - has held values much better than homes in higher price ranges.) According to Zillow, my property has increased 41% in the last five years. While I was basking in the glow of healthy appreciation, my property taxes remained essentially at 2004 levels. I've been getting a free ride for four years. Sweet!

But wait! Back to Zillow valuation changes. According to them my property value has dropped 1.5% (-18% annualized) in the last 30 days. What if property prices continue to decline over the next four years? Not only will my gravy train have moved on to another station, but I'll be paying taxes on an "inflated" value until 2013. Sucks!

If an owner holds a property long term, this whiplash effect evens out. But this assessment method is killing those homeowners who recently bought property and leveraged themselves to the hilt. A 50%+ increase in property taxes could be the proverbial straw for them.

Tuesday, February 17, 2009

Canon Customer Service Rocks!

This post is off topic. It has nothing to do with debt reduction, real estate or personal finances. However I can't resist a great customer service tale, especially when I'm the beneficiary. Besides, this sort of ties in with my recent post. Read on:

A year ago my beloved Canon Powershot A70 began doing funny things. The LCD viewer was getting grainy and often faded to black.

A friend informed me that this was a commonly recurring problem with Canon digital cameras and that the company would probably repair it for free.

Encouraged, it off and did nothing for a year. But I got my buns in gear this month and decided to get the camera fixed. I was pleasantly surprised....shocked the incredibly responsive customer service I received from the folks at Canon.

Judge for yourself. Here's the timeline of my repair experience:
  • Sunday, Feb. 1st - I searched for repair info on the internet and fired off an email to Canon USA
  • Sunday, Feb 1st - 2 minutes later, Canon responded with an automated acknowledgment
  • Sunday, Feb 1st - 10 minutes after my first contact, I was contacted via email by a customer service tech who acknowledged my problem and asked me to run a simple troubleshooting routine to isolate the problem.
  • Sunday, Feb 1st - I ran the test and responded in about 15 minutes to the tech's request.
  • Sunday, Feb 1st - 34 minutes after my initial contact, I received another email from the tech explaining that I would be receiving a prepaid UPS return label and a return authorization form from Canon USA.
  • Tuesday, Feb 3rd - I received, via email, the return label, an online link to track my shipment, shipping instructions and a list of the UPS free drop off points nearest to my house.
  • Wednesday, Feb 4th - I dropped the prepaid package containing my camera into the UPS stream and received a short email survey, asking about my tech support experience.
  • Wednesday, Feb 11th - Canon USA notified me that they received the camera for repair.
  • Friday, Feb 13th - I received an email that repairs were now complete and the camera had been shipped back to me.
  • Monday, Feb 16 - I received my newly repaired camera, shipped 2-day delivery!
This afternoon, I was happily snapping photos of my photogenic wife. Here's a summary of one terrific customer experience:

  • Costs incurred by me: $0
  • Number of times I was contacted by Canon USA: 7
  • Number of years my camera was out of warranty: At least 2
  • Number of days from my first inquiry to taking receipt of my repaired camera: 15
We read and hear so many stories about bad customer service, rude company representatives, and lackadaisical attitudes toward the consumer. I'm heartened by companies who care enough about their business and their customers to put remarkable service systems in place as Canon USA has done. They got it right.

Small businesses have gotten it right for years. This experience gives me great hope for the future of large business in this country.

Sunday, February 15, 2009

Debt Smackdown! Update

Time for an update on our debt reduction progress. It's been a month since I heralded our goal to pay $20,815 in debt.

We're a little over 1/8th of the way to achieving our goal. Extrapolating our progress into future months would put us smack dab into *debt free status by mid-September, 2009. Ever the optimist, I'm predicting we'll beat that handily.

By publishing this information I'm finding I think about being debt-free more than ever. Socrates was on to something when he said:
The unexamined life is not worth living.
Consequently, I've come to the conclusion that blogging changes behaviors. In my case, I'm grateful because I very much like the new and improved, financially astute Boomer.

Here's the detail of our progress from the original January post:

medical debt (orthodontist) Paid in full
2) $6,887 $4,676 credit card debt
3) $13,567 2nd mortgage on the SFR rental.

*debt free, that is, except for first mortgages
Photo by w00kie

Saturday, February 14, 2009

Secret Service: Hidden Systems That Deliver Unforgettable Customer Service

I just cracked Secret Service: Hidden Systems That Deliver Unforgettable Customer Service, by John R. DiJulius a couple of days ago.

I'm in the B2B sales field so I'm always looking for methods to get a leg up on my competition. Besides, who doesn't want to be part of amazing customer service, whether we're providing it or receiving it?

I've read several interesting rants relating crappy customer service lately. Some of the experiences are doozies (great word....highly underutilized, no?). While reading those customer service horror stories fill us with righteous indignation, I'm more interested in how I can contribute to the culture of amazing customer service in our economy.

I'll let you know my judgments on this book when I finish it. Until then, I'm interested in hearing your experiences of great customer service. Has a business gone out of it's way lately to make you feel valued? Do tell!

Wednesday, February 11, 2009

Bailout Haiku

oh dear granddaughter
we're a little short this month
float us a trillion?

Saturday, February 7, 2009

February Net Worth (-$19,815.90)

We had a mixed bag of results last month. Our investment and RE holdings took a substantial hit to the tune of about 2.25%. OUCH!

I've read several discussions about how to properly value RE in the context of calculating net worth, but for my purposes, I'm most interested in the comparative values from month to month. We don't anticipate selling either property anytime soon. So for all its shortcomings, I've chosen to use Zillow. I think the site offers accurate trends within a given market.

Still, it's interesting to compare Zillow with other RE valuation sites and see the sometimes vast disparity in values. I'll write about that topic in a future entry.

What's most heartening is the nearly $2,000 of our medical and credit card debt paid off over the last month. Our debt smackdown is on!

Monday, February 2, 2009

Home Sales Are Normal

Insightful article in the January 2009 issue of Financial Focus. The piece, written by Greg Sweeney, CFA , delves into historical home sales data in the last 20-year and 40-year periods and how they compare to the most recent annual home sales report. Read it here.

Put into historical perspective home sales in the most recent period are normal. He writes:
"Going back to data for home sales from 1969 through today, readers may find it interesting that annual existing home sales averaged 3.54 million units per year. Bringing the data more current, from 1989 through today, average existing home sales were 4.28 million units a year. Strip out the time period from 2003 to 2007, which featured excessive sales, and the previous 20 years’ home sales averaged 3.86 million units. The latest annual home sales report shows 4.02 million home sales, consistent with both 40-year and 20-year averages."
What he doesn't mention in the article is the period for which the latest annual figures are reported. I'm assuming it's 2008.

Keep in mind, these stats cover existing home sales, excluding new construction. As any home builder is painfully aware, we have a glut of new home inventory in America today. Still, SOMEONE is buying existing homes.....a lot of them.

To my way of thinking, the long view provides us with some much needed perspective. Those of us with perspective find some sense of peace in the cyclical nature of the world around us.

"Every generalization is dangerous, especially this one. "
-Mark Twain

-Photo by lazlo-photo