Nickels and Dimes (part 2)
So where was I? Ah, yes. Our very fascinating finances.
Earlier this year, we had several friends and family members experience major medical crises which left them unable to work. Mr. A and I came to grips with the fact that we needed an emergency fund and we need it sooner rather than later. We took the somewhat scary step of stopping Mr. A’s retirement contributions to accumulate the cash savings. (I say this is scary because Mr. A would rather do ANYTHING than stop his retirement savings. He practically loves that damn 401k more than he loves me.)
With the small hiccup of needing a new (used) car when my car completely died (which ate the bulk of our adoption tax credit), we managed to accumulate a chunk of money through my summer spending haitus and the 401k non-contributions. It wasn’t 8 months salary or anything, but it was over $10K. For us, it was a LOT of money. A respectable start toward our emergency fund.
I wanted this money in a savings account at our local bank, but Mr. A convinced me that we should put it in a money market account. He isn’t here right now, so I can’t ask him why, but I think it was because it would earn more interest/income than a savings account. Mr. A talked to the people at TD Waterhouse on the phone and they helped him select a fund.
Last week, Mr. A was paying a lot of attention to the financial news, while I was trying to ignore it all. In a freak occurrence, I happened to watch Oprah last Tuesday. Her guest was Suze Orman. I like to watch Suze on Oprah because it generally makes me feel like we are making solid choices.
At one point during the show, someone asked Suze what they should be doing with their cash savings given the recent market instability. Suze looked straight through the TV at me and said with a very scary face*:
“Cash should be in an FDIC insured bank account, treasury bill or bonds, or in a treasury money market accounts. These are the three places only. She said not to put your cash in a money market account that is not insured by FDIC. If you do have a money market account that isn’t insured, she warned those people need to get their money out and into a FDIC account right away.”
Seriously, Suze’s face put the fear of god in me.
That night, I told Mr. A what she said. Mr. A is used to me coming up with somewhat cockamamie financial ideas (like the time I wanted to keep $1,000 in cash in the house in a jar in case of emergencies), and he actually **ROLLED HIS EYES AT ME**. Then in a very patronizing way, he said he would look into it.
You know where this is going, right?
That night, Mr. A called TD Waterhouse and learned that there was a crisis with the money market account where all our savings was located. Something about Lehman Brother stock, blah blah blah. The company that was holding it had frozen all withdrawals for an undetermined amount of time. (I can’t adequately explain it because it is kind of complicated, if you are really interested you can google “the Reserve” and “money market account” or something similar.)
As far as we can tell (and by “we” I mean Mr. A who has been talking to TD Waterhouse attorneys and customer relations people for the past 5 days), we won’t know how much of our money we will get back or WHEN. We might lose 3%, we might lose a LOT more, we might walk away with exactly what we put in.
Until the Bailout package is signed and the fallout begins to settle, we just don’t know. The only thing that we know is that our Emergency money is certainly not available to us if we were to have an emergency any time soon.
Mr. A feels terrible. He feels bad that we may lose this money we worked so hard to save. He feels bad that he didn’t want to bother finding a financial adviser person before. He feels bad he rolled his eyes at me when I told him about Oprah. (Actually, he didn’t originally feel bad about that one, but after I reminded him of it over and over, now he regrets it. heh.)
I feel bad that Mr. A feels so bad. What happened to us has happened to many, many other people right now. I am just grateful that we weren’t planning to use that money to buy a house or something in the immediate future. I am grateful we weren’t like some people I read about who were close to retirement and had the bulk of their retirement savings there. I am pretty pragmatic and figure if we lose it all, we aren’t really in a worse position than we were last year when we had no savings at all. While this is an annoyance for us, if this had happened to our friends/family experiencing real financial/medical crises, it could have been really really bad news.
It isn’t the end of the world, but we did learn some important lessons. For example, we now know that we can’t necessarily trust the person on the phone who is trying to sell us a particular product when he says it is a guaranteed “safe” investment (duh!). As I said to Mr. A, we don’t know who that guy on the phone is or what qualifications he may or may not have. This is why we need to get a guy who we know and who will be personally accountable to us. Besides, investing is investing. I don’t know how “safe” anything is these days.
Right now, we are just waiting for a chance to be a part of the wall street problem. We have a standing order to sell those shares as soon as possible (even at a loss) so we can put them in an old-fashioned savings account or CD at our local FDIC insured bank. Mr. A has started talking to people at work and has several names of people who have at least 10 years experience managing lawyer’s money (again, I think lawyer experience is important because the way money is handled for partnership is complicated).
So, my friends, I share this long and rather boring story of our finances so you can learn from our mistake. FDIC insured is the way to go. Find a guy who will answer to you. Watch Oprah. Don’t roll your eyes at your wife when she gives you information she saw on TV.
Thank you and good night.
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September 29th, 2008 at 4:10 pm
Some day I will actually fix the comments. Bear with me, please!
September 29th, 2008 at 4:18 pm
I was reading this with more and more dread. I am not sure our money market accounts are FDIC insured either. This was back in the day when “money market account” was what you wanted to do to be safe and boring.
September 29th, 2008 at 4:23 pm
Sorry you’re going through this…I don’t even want to think of what our investment statements will look like this month!! And I personally don’t think having cash at home for emergencies is a bad idea. We usually have something lying around. In the last few years, we’ve had a long term power outage or two. None of the ATMs worked so if you had no cash on hand, you were out of luck!
September 29th, 2008 at 4:38 pm
Sorry you’re experiencing this. I don’t watch Oprah, but I have a board full of very wealthy wealth managers-so I come home and tell j the warnings that I grasp from them (without all the underlying details). Lots of scary stuff last week about how many more hedge funds will tumble. But, since they called the Feb crisis back in Nov, he doesn’t roll his eyes-he listens carefully to whatever I can share. But he’s pretty fiscally conservative-other than that he likes to invest in new and sustainable businesses and ideas, which often dissolve.
I do worry about the funds that my employer invests for me, which I have no control over. I’m guessing they will revise that plan soon. ~lmc
September 29th, 2008 at 5:04 pm
The thing that’s bothering me is that many, many pension funds invested heavily in CDOs and MBSs–the very things that are evaporating away before our eyes. But…you don’t know about it. At least, with a 401K or similar instruments, you get an accounting every quarter, so you *know* you’ve lost 25% of your funds (that would be me) (but I’ve got 15 years for it to recuperate) (I hope). Pension funds? You don’t get an accounting of the fund itself–you get an accounting of how much *you* deposited, how much you’re *expected* to get some time in the future, and how vested you are. Period. To get an idea of the real value of the pension fund, you have to know where the fund is invested. Ugh.
As for money market accounts–yeah, everyone thought they were safe, but at least four that I know of have frozen all redemptions.
In the end: it’s a big mess.
September 29th, 2008 at 5:22 pm
I saw the same exact show. She talked to me, and I immediately called to make sure our cash was protected, and thankfully it is… I hope your cash reserve makes it out whole and safe.
P/S Your post is showing up WAAAAAAYYYY down below the title…..
September 29th, 2008 at 6:45 pm
I have followed Suzie Orman’s advise for a while (and even have one of her books) and am so glad that you wrote about your situation. Hopefully you didn’t lose too much and now have the knowledge to make a better decision next time!
September 29th, 2008 at 6:52 pm
That sucks. We just a letter from the bank retracting our home equity line of credit. Everyone is feeling this.
STOP PAYING the low interest law school loan of early. I don’t want to sound rude (which is rare for me) but that is stupid. Put that money into the emergency fund or use it to pay off a hire interest loan early.
It does make any sense to pay off low interest loans early.
http://www.AnUrbanStory.com
September 29th, 2008 at 7:14 pm
I can’t type, I meant to say “It does NOT make any sense to pay off low interest loans early”.
September 29th, 2008 at 7:50 pm
That does suck.
We have a cash reserves account at Fidelity (their version of the money market account) and it hasn’t broken the dollar yet, and everyone seems to think that Fidelity is too huge to let that happen, but we’ve talked to our local bank about an FDIC money market checking account anyway.
Of course, I would feel better about THAT if the other big local bank hadn’t just been bought up by Citigroup about 5 seconds ahead of being another failed bank.
September 29th, 2008 at 8:44 pm
I am sorry for your worry and yet you have such a great attitude about it. We have all made money mistakes. Luckily most of us, like you, can recover. I admit I am addicted to Suze Orman. I can’t decide if it is good I retired this June or if that was the dumbest move I’ve ever made. Oh, well - too late to worry now. Thinking of you and wishing you the best.
September 29th, 2008 at 9:11 pm
This page may be of some help to some people:
http://www.fdic.gov/consumers/consumer/information/fdiciorn.html
FWIW, if you have over $100,000 in an account, the account is most likely only insured up to $100,000 (this information is in the link I posted).
AmFam - My husband works in finance/has his MBA and is still looking at me like I have 2 heads when I tell him I want our money under a mattress. I know he’s right, and it’s his profession to have our money in reasonably safe places, but I’m scared too. Maybe you and I can go dig a nice deep hole somewhere and start burying our money.
September 29th, 2008 at 11:00 pm
Asstastic stuff going on. But tell Mr A to look at it this way - the $10k you put into the money market would (likely)have gone *poof* in the 401k anyway. And it sounds like you have a better chance of recouping from your MM fund than the 401k. You know me…. always looking on the bright side.
September 30th, 2008 at 2:28 am
alright, I have a money market account with TD Amer*itrade (which Sam Water somebody is the spokesperson for) I am really hoping this is not the company you’re referring to. Holy crap…I’m off too check on this. Whatever you do, do not look at what has happened to the value of your retirement savings in the last 60 days, it will make you sick
September 30th, 2008 at 3:49 am
Some thoughts for future savings: There are several on-line options which generate resonable interest plus immediate access to cash plus FDIC insurance. We have our emergency fund in ING Direct. A regular savings account there gets a much higher interest rate than a brick and mortar bank (currently 3.00% APR, could be higher if you put $50k or more in their checking account program). Other programs have even higher savings account interest rates at the moment - HSBC Direct, for example. You can do research on the current best rates here: http://www.bankaholic.com/. Even when you do get a financial adviser you trust, it is still a good idea to stay on top of these things yourself. Good luck. Have a long term view. It will help you ride the short term bumps.
September 30th, 2008 at 1:52 pm
we use Edward Jones for our investments. Their financial advisors don’t pressure at all - they just explain what investments do what and you make your own choice.
September 30th, 2008 at 2:04 pm
Would be useful to note yhe difference between a money market ACCOUNT and a money market FUND. The former is more secure than the latter. Too long an explanation for a comment box, but y’all don’t panic about your personal situation before looking this up.
October 1st, 2008 at 1:58 am
I watched the same Oprah show you did and saw that look in Suze’s eyes too. I always enjoy listening to Suze Orman and TiVo her show as well. I am where you were in terms of an emergency fund - and I am trying to build mine now. But believe me, after hearing the urgency in Suze’s voice the other day, I now know where to put my emergency funds. Whew!
Thanks for blogging about this topic - I’m one to also talk about finances to my friends. Most share after I have opened up about my finances, but I never really give exact numbers - just the details without the numbers. Sounds like you do the same. I can relate.
October 1st, 2008 at 4:56 pm
I *THINK* money market ACCOUNTS are FDIC insured while money market FUNDS are not.
Also I read yesterday that IF the account is joint, FDIC covers $250,000 not just the $100,000
Except for not having money on hand, you are doing fine. The market has ups and downs. Stay the course. If everyone pulls their money, then we have a collapse….
October 10th, 2008 at 1:05 am
I’m so sorry! Money freaks me out entirely. I hope you can get your money safely back soon.
October 10th, 2008 at 7:19 am
For the moment, the US Treasury is guaranteeing money market funds (assuming the fund chooses to participate).
Press release here.
I don’t know if that will be any help for people invested in the one(s?) that have already broken the buck, though.
October 10th, 2008 at 7:20 am
Oh, and as someone said above (though I wouldn’t put it in such vehement terms): when you’re trying to build up your savings, it’s far better to cut the student loan payments down to the minimum than to cut back on retirement plan contributions.
October 28th, 2008 at 4:54 pm
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