Monday, June 21, 2010

Living a life of “Plentitude”.

“Plentitude” by Juliet B. Schor is a book that discusses the new economics of true wealth. She challenges the once common practice of economic growth by way of borrowing and overleveraging, which eventually lead to the near meltdown of the global market place and the collapse of several financial institutions that have been around for over a hundred years.

Juliet Schor and her book first appeared on my radar when she did an interview on National Public Radio’s daily afternoon show “Marketplace” in early April of this year. Schor’s book at first reads like a textbook, with a very philosophical and scholarly tone (not surprising considering she is currently a professor of sociology at Boston College), but eventually makes way to more fluid reading with theories and anecdotes that are both eye opening and refreshing. The basic fundamentals of Plentitude are to veer away from the business as usual or “BAU” approach and adhere to a less is more mentality. To lower one’s impact on day-to-day life by means of self-sustainability, support of local markets and community and the reassessment of our values and priorities. And in doing so, one does not have to put on a brown robe and clogs and live a life of depravity. In fact, Schor states that Plentitude does not make consumption less important nor should we even be consuming less.

Plentitude does not put the emphasis on how much or what we consume but rather how we consume it and what cost. Schor not only addresses the material side of consumption, she addresses the consumption of our time as well. A typical employee in the United States works an average of 2080 hours per year, which is the most out of any country in the world. Other countries in Europe work anywhere from 5-8 hours per week less than we do in the U.S. Basically the individual principles of Plentitude are: “spend less and work less, create and connect more.”

Over the past 50 years or so, we have become increasingly dependent on Wall Street and the financial markets as a means of growing and acquiring wealth. This has been driven by consumer debt and consumerism, practices that are proving to be unsustainable and not just ecologically harmful but, at times has proven to be unfulfilling as well.

Plentitude suggest; working less in a declining market, but to use the freed up time productively, to invest in new skills and activities. Some of the time should be deployed to replace higher priced food, energy, and consumer goods with homemade or community-produced alternatives. Schor states that freed up time should also be used to invest in social relationships, which is another form of wealth that we tend to overlook. And some hours will be spent in High-return leisure activities that require little or no monitory outlay; these are used as a substitute for the expensive commodities of the faster paced, higher –income lifestyle.

Schor’s Plentitude is a very intriguing and thought provoking book. I have never considered myself to be overly concerned with my own carbon footprint and use to scoff at the whole “green” movement as a trend manufactured by Prius driving celebrities who preach about lowering emissions and solar power while they travel from premier to premier in private jets. Plentitude goes beyond posturing, it raises awareness on how damaged the foundation of our current socio-economic system truly is, which was made abundantly clear in the stock market crash of 2008. Business as usual simply cannot continue; the days of stealing from Peter to pay Paul have finally caught up to us. The bottom line is that we need to interlace our dreams from the past with the courage to create a new future that focuses on achieving balance: “It’s how efficiently we produce, not how much we produce, that determines how well off we are.”

Sunday, June 13, 2010

To buy or lease?

“Nobody walks in L.A.” is not just a line from the band Missing Persons one hit wonder; rather it is a succinct description that encapsulates Angelinos obsession with cars. In Los Angeles cars are looked at as more than just a mode of transportation, often they are viewed as an extension of our character and individuality. With a vast array of options to choose from, picking the right car is only half the battle, the second most important question you need to ask yourself nowadays is should I lease or buy?

It is a common dilemma and question that I have been asked numerous times by friends and clients alike. And my answer has always been…it depends. It is a question that does not have a simple answer, and always depends on the particular person’s situation. From a tax perspective new laws and initiatives have made doing one or the other a virtual coin flip when it comes to capturing deductions.

Leases and purchase loans are two completely different methods of automobile financing. One finances the use of the vehicle while the other finances the purchase of the vehicle. Each has its PROS and CONS, and when making such a decision one should not only look at the financial implications, but personal priorities should be assessed as well. You need to ask yourself what type of car owner am I? Do you like the idea of having a new car every 3 or 4 years with no major repair risk? Or are you the type of person who tends to keep your car until it’s paid off and enjoy the idea of not having a car payment?

When you buy, you pay for the entire cost of a vehicle; regardless of how many miles you drive it. You typically make a down payment, pay sales taxes in cash or roll them into your loan, and pay an interest rate determined by your loan company, based on your credit history. You make your first payment a month after you sign your contract. Later, you may decide to sell or trade-in the vehicle for its depreciated resale value.

When you lease, you pay only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it. Leasing is not the same as renting. You have the option of not making a down payment, you pay sales tax only on your monthly payments (in most states), and you pay a financial rate, called the money factor, that is similar to the interest rate on a loan. You may also be required to pay fees and possibly a security deposit that you don't pay when you buy. The amount of miles you drive per year also affects the terms of your lease; the more you drive the more you will pay per month. There are also penalties when you go over your allotted miles. So if you know that you will be putting a lot of miles on your vehicle, leasing might not be the option for you. You make your first payment at the time you sign your contract — for the month ahead. At lease-end, you may either return the vehicle, or purchase it for its depreciated resale value.

As an example; if you lease a $20,000 car that will have, say, an estimated resale value of $13,000 after 24 months, you only pay for the $7000 difference (this is called depreciation), plus finance charges and possible fees.

When you buy, you pay the entire $20,000, plus finance charges. This is fundamentally why leasing offers significantly lower monthly payments than buying. This is also the reason why high-end and high priced automobiles are so commonly seen in L.A., because leasing makes an otherwise unaffordable car based on it’s sticker price affordable. Leasing also gives you a sense of “worry free” driving allowing you to forgo any major repairs, which are covered by the dealership during the term of your lease. When you buy a car and once the manufacturer’s warranty expires all repairs and maintenance are the owner’s responsibility. Other factors need to be considered as well like purchasing GAP insurance, which protects you if you owe more than what your car is worth. For example if your car is stolen and you owe $20,000 on your loan but the value of your car is only $15,000, GAP would cover the $5,000 difference, without it you would be responsible for the difference yourself. GAP insurance is usually factored into most lease programs as opposed to having to purchase GAP insurance from your lender outright when you chose to buy a car.

With some dealerships offering APR’s (annual percentage rate) as low as 0% on purchases for 60 months, deciding between leasing or buying is more difficult than ever. Cars, even in the lower or middle range of the spectrum are becoming more advanced and in some cases more reliable as well, it is not uncommon to see cars with well over 100,000 miles and still going strong.

So which is better? If you are comfortable with always having a car payment and get bored of your car easily then leasing might be for you. I for one have owned only 3 cars in nearly 20 years of driving and have yet to lease. I tend to buy a car I really like and enjoy the idea of having it paid off and taking care of it for as long as it is able to take care of my needs. There is a certain pride in owning something outright without a car payment looming over your head every month. Sure everyone wants the latest shiny sports car that can park itself or rugged SUV that will probably never see dirt. But there’s something to be said about having old reliable parked out on your driveway, with its nicks and scratches that add to its character. And its foibles that contribute a human element, which creates a bond between car and driver.

Monday, June 7, 2010

Which bank is best for you?

If there was one bright spot within the darkness of the mortgage crisis, although one would have to borrow Pollyanna’s glasses to find it – it would be that banks have gone through a process of attrition. And survival of the fittest has hopefully left us with better regulated financial institutions that we can, dare I say, trust… to not only safely hold our money for us, but have our best interest in mind when selling us their various loans and other products as well.

I have been a member of a credit union for most of my working career (the last 15 years or so), mostly out of default. I worked at the very same credit union while I was going to college and at the time it was simply the convenient thing to do. Upon graduating college and taking on other jobs my reason for banking at my former employer went from convenience to just sheer laziness. I worked and consulted for many other companies that did not offer direct deposit which made it extremely inconvenient for me to have to drive to one of only two branches that were located within the general vicinity of where I lived, let alone where I happened to be working at the time. As for- profit banks began to offer similar products to better compete with their non-profit counterparts, the benefits of being at a credit union became negligible at best. Most credit unions went from “member’s only” to “all are welcome” in an attempt to capture more members. Recently, I finally stopped procrastinating, and began the tedious process of moving banks. After researching various banks and what they had to offer, and asking friends and family about their banks and what their experiences were, I decided to open an account with Chase Bank (which took over Washington Mutual) mainly because I felt like they were the right fit for the kind of accounts I would have and the kind of products I was interested in. Here are the things I discovered about Chase and other banks that might be the right fit for you.

Credit Unions- Credit unions operate as a non-profit, cooperative financial institution. Credit unions are insured by The National Credit Union Administration (NCUA) rather than the FDIC (Federal Deposit Insurance Corporation).Traditionally credit unions have certain requirements in order to become a member. Some of the more common requirements were being part of a certain community or specific industry, or having to be referred by an existing member or employee. Today restrictions have softened significantly, and most credit unions accept walk in members with little or no restrictions.

PROS- Since credit unions perform under a non-profit title they are exempt from federal taxation, which allows them to offer higher interest rates on savings, CD’s or money market accounts. And lower rates on loans. Some also act as a “one stop shop” offering other non-banking services like property and casualty insurance and financial services. Plenty of no fee or free checking and savings accounts.

CONS- Very limited branches can make banking a chore. Limited branches also translates into limited ATMs as well, which means having to pay up to $5.00 in fees every time you withdraw cash from a non-credit union sponsored ATM machine. Also, credit unions do not offer the same type of reward programs when it comes to debit and credit cards that other commercial for-profit banks do, like cash rewards on certain debit card purchases. Loan rates are becoming competitive across the banking industry and one could always open an account at a credit union simply to apply for a loan if need be. No live 24/7 phone support, limited online banking presence.

Chase Bank (formerly Washington Mutual) offers a variety of services and more importantly in my case, far more branches than the credit union I used to belong to. The investment history of JP Morgan Chase allows them to be competitive with credit unions when it comes to offering loans and investment products.

PROS- Many branch locations to chose from, low minimums for opening accounts. Great programs for people who like to use debit cards over credit cards. Cash back programs on debit cards was one of the biggest reasons why I decided to open an account with them. They also have a strong online presence and cater to the technologically savvy by offering text messages for low balance warnings or fraud alerts.

CONS- free checking is only offered to those with direct deposit, but could be waived if debit card is used at least 4 times a month.

Bank of America- It’s estimated that 1 out of every 3 people in the U.S. have an account with Bank of America. They are the Seven Eleven of banks with a location at virtually every street corner.

PROS- Surprisingly high customer satisfaction rate. Over 20,000 no fee ATMs, with branches conveniently located all through out the country. Strong online banking presence with state of the art check scanning features on all checks deposited via ATM.

CONS- lots of various fees that seem to pop up out of nowhere. No free checking without direct deposit and charges apply if you see a teller more than 3 times in a month. Seems to encourage that members stay online rather than in line. General vibe deters anyone from actually coming into a branch.

Wells Fargo-Bank that markets itself on traditional values. Does not have the same omnipresent feel as BofA and Chase. Known just as much if not more so as a lending institution as it is a depository bank. Managed to steer clear of the mortgage crisis by opting not to participate in sub prime loans, leaving them one of largest mortgage lenders in the U.S.

PROS-Better than a decent amount of locations and reputation of high quality customer service. Great selection of loans and other financial products. Many different account packages from “Basic Checking” and “College Combo” to “Complete Advantage Checking” Ideal for homeowners and small businesses.

CONS-High fees, “Basic Checking” does not offer free checking or free online banking. Typical savings and checking accounts looked at as secondary priority to loans and mortgages.

Moving banks is almost like moving houses. You have to take the time to look for a bank that is the right fit for you, it has to be the right size with a layout and structure you are comfortable with and could build on in the future. And when all else fails, just remember that it’s all about location, location, location.
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