My parents probably had some money tucked away in a mutual fund or two that were recommended by my Uncle. The Sunday newspaper had a thick section filled with the weekly summary of stock and mutual fund trading values printed in impossibly small print. The subject was a foreign language, full of arcane symbols.

The only investments ever discussed were savings accounts and certificates of deposits. I would take my birthday money to the bank along with my savings passbook. The clerk would fill out the deposit slip and enter the deposit amount in the passbook, initialing the entry.

Growing up with inflation

The bank paid 5% on deposits. We never shopped around for a better rate, because it would have been too inconvenient to travel elsewhere to transact business. During my high school years, inflation grew to 5%, then 7%, then 10%, finally reaching a peak of 13.5% in 1980. As I recall, the bank continued to pay about 5% on my savings. Even with my measly high school math I knew I was losing ground. Inflation was the story of the day. It dominated the nightly news. President Ford encouraged the nation to “Whip Inflation Now,” with his big red WIN buttons.

I don’t mean to bore you with tales from this old geezer’s childhood. I’m telling you this in case you are too young to have lived through inflationary times.

The graph below shows the relative changes in the Consumer Price Index (CPI) and the S&P 500 index over my lifetime (so far). Both values are normalized to 1. If someone had bought stock in the year I was born, and held it through my college graduation, they would have lost money, relative to inflation. No wonder no one talked about the markets!

Since 1980 we have had very steady* but slow, controlled inflation, at an average annual rate of about 2.3%. Some conspiracy theorists believe that the government has been cooking the books to keep the inflation calculation artificially low, so it doesn’t have to give senior citizens a Social Security cost-of-living raise. But when I think back to the cost of common items like a candy bar or milk I think it’s probably actually increased by a factor of 2 since the 80’s, which is what the chart says, so I don’t think the government has been cheating.

Note also that since 1980, or maybe a bit before, the S&P 500 has been on a tear, increasing at an average annual rate of about 8.8% (ignoring the internet bubble of 2000). That’s a real return of 6.5% (8.8% - 2.3%). That made saving (and investing) worthwhile.

Will inflation return?

Isn’t that the $64 question? Our government’s been printing money to pay for bailing out the banks and carmakers. It’s ok to print extra as long as the economy grows to absorb the cash infusion, but we’re not growing much right now. If we can’t absorb it, then we need folks to buy it in the form of T-Bills and the like.** Thankfully, China and others continue to support our excesses. However, we need to consider what would happen they stop buying. Or if the imbalance between printing and growth stays out of whack for very long.

How can I protect my investments, should inflation return?

There are a few things you can do now to help guard your nest egg against the ravages of inflation.

• Bonds. Check that your bonds and bond funds have a relatively short duration. That means that they’ll be more able to respond to interest rate changes. Interest rates received on deposits usually rise during inflationary times (despite my childhood experience). For example, you probably wouldn’t want to buy a 30-yr Treasury today. You’d be locked in to its 4.5% payout. Better to go for a shorter term note. It’ll pay a lower rate, but you can reinvest it sooner at what is likely to be a higher rate.
• TIPS. The principal of a Treasury Inflation Protected Securities rises with inflation. The rate is fixed, but since the principal rises, so does the semi-annual interest payment. When the security matures, you receive back the inflated principal. The minimum purchase is $100. A recent issue rate for a 10-year TIPS is 1.875% vs. 3.625% for a non-inflation-indexed Treasury note.
• I-bonds. A version of the venerable Savings Bonds, the return on I-Bonds is also pegged to inflation. You can buy these in denominations of $25, with a maximum purchase of $5,000 per year per person.
• Inflation “plays.” You could short long bonds. (That’s just fun to say.) Short sell an ETF that invests in long-term bonds, for example, Vanguard’s EDV. If inflation rises, the value of the long bonds will fall.
• Commodities. Inflation means that the price of basic stuff rises. Copper. Gold. Timber. Commodity ETF’s can take the edge off.

I hope inflation doesn’t return. The Fed has a 30-year (and counting) track record of matching the money supply to national growth. Perhaps we’ve actually learned to to manage it. This year was extraordinary, of course. The next few years should tell the real story.

*Note that the vertical axis on the graph uses a log scale. A straight line indicates a constant rate of change.

**This version of the Federal Monetary Policy has a bit of “poetic license.”

Disclaimers: This information is provided for educational purposes only. It may not apply to your personal financial situation. Before investing, you may want to discuss your plan with an investment advisor or financial planner. Investments in ETF’s and in mutual funds are not FDIC insured and can cause loss of principal. (You can lose money).

Full Disclosure: No position in EDV.

By day, Helen engineers new materials to make computer chips cheaper, better, and faster. When the son goes down (pun intended), she writes about personal finance at Affine Financial Services.

For the past eight years, my wife and I have been self-employed.  We correspond at least quarterly with our CPA to ensure that we pay the correct amounts on our estimated taxes.  Since our business income and expenses can vary so wildly, we’ve pretty much given up on trying to forecast the number at the beginning of the year.

Our most recent communication with our CPA delivered some very good news.  Our daughter’s adoption, which was finalized in April, means we will qualify for the Adoption Tax Credit.   Since the adoption was considered a special needs adoption, and qualified for the Adoptions Assistance Program, we’ll be able to claim the full 2009 credit of $12,150.

That’s quite a windfall.

Although we knew that we’d be eligible for the Adoption Tax Credit when our daughter’s adoption was finalized, we didn’t count on it happening this year.  Even though she’s lived with us for nearly three years and was never going to be reunited with her birth family, a queer-unfriendly social worker turned what should have been a straightforward older child adoption into a year-long legal battle.  Even after we won the right to adopt, our agency stalled for another six months before finalization.

We didn’t count on the credit because, quite frankly, we weren’t sure the adoption would ever be finalized.

Since we’ve been dutifully paying our estimated taxes assuming we wouldn’t get the credit this year, we’ll probably be able to skip our Q4 tax payment altogether, and we’ll likely end up with a refund after we file.  This is amazing news, because in all the years we’ve been self-employed, we’ve never had a refund.  Most years, we’ve ended up owing more on April 15th.

Our initial reaction was a collective shout of “Whoopee!”  Once we finished cheering, we started listing all the wonderful things we’d like to do with the money.  There were repairs to be done around the house, holiday and birthday gifts for ourselves and our friends, and maybe even a vacation somewhere.

Then, I had to be the killjoy.  As lovely as repairs, gifts and a vacation sounded, I realized we needed to be sensible.  Windfalls like this don’t come around very often, so we needed to use the money wisely.  After considerable discussion, my wife and I came up with the following ideas:

Emergency Savings – Although my wife and I have managed to save up about $7,000 for emergencies, it’s not enough to sustain our family over a long period of illness or unemployment.  Adding a large amount of money to that account would go a long way towards our peace of mind.  It wouldn’t be a hedge against all disasters, but emergency savings to cover four to six months of living expenses could go a long way to help.

Investment – My wife and I have several retirement accounts each, including 401(k) rollover accounts from past employment, and SEP-IRA accounts that we’ve used since we’ve started our business.  Despite making efforts to contribute to these accounts over the years, we don’t anywhere near enough to retire.  The drop in the stock market really hurt our accounts, shaving off nearly 50% of their value.  It’s tempting to invest a large part of our windfall, so we can play catch up.

Debt Abatement – Since my financial implosion and my wife’s episode of financial infidelity, we’ve made keeping the credit cards paid off a high priority.  Not having any high-interest debt is a great relief, but we still have 27 years of payments remaining on our home mortgage, and another 18 months on an automobile loan.  Retiring the automobile loan would be nice, as it would free up $325 per month that could be allocated to emergency savings, investment, or higher payments on our mortgage.

After carefully weighing all the options, we came up with the following plan:

1.    Pay off the auto loan.  Although the interest rate is fairly low at 5.64%, we decided that paying extra money for the car just doesn’t make sense.  Our savings accounts and investments aren’t doing nearly as well, so saving 5.64% in interest is worth more to us than earning the 1.3% our savings account collects.

2.    Contribute to emergency savings.  Whatever is left after the auto loan is paid off will go to our emergency savings account.  We’ll also redirect our former car payment to emergency savings as well, until we’ve accumulated enough cash to cover at least six months of living expenses.

3.    Invest after the emergency savings are funded.  Although we’ll continue to contribute small amounts to our retirement accounts as we’ve done all along, we are going to redirect the bulk of those contributions to our emergency account.  Once we’ve got our rainy day fund covered, we’ll redirect our old car payment to our retirement accounts.

4.    Accelerate our mortgage payoff later.  Once all our debts are paid off, our emergency account is funded and we are making steady contributions to our retirement accounts, we’ll start adding a little bit extra to our mortgage payment every month.  As the economy gets better, we’ll try to increase this amount in the hopes that we can ultimately shave five to ten years off the life of our mortgage.

Next in series: The Importance of not Counting Chickens

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I think most everyone has subscribed to a magazine or twelve in their life and while it is much cheaper than buying individual copies on the news stand is it really worth it?

Sigh… another question with a yes and no answer… don’t you just love Grey? There are so many different shades of it.

Being old enough to predate the Internet I remember when magazines were the source of specialized information about just about anything.

The internet hasn’t done away with them though… it’s probably made them more widely available as people read about them on Google and order a sample copy… they might even then subscribe.

There are still thousands of magazines that you will never see on the newsstands and are only available through subscription… and they tend to be the priciest.

I’m sure you can tell me stories about the one you have to subscribe to to keep up with new “whatevers” in your field at work that costs the same a car payment.

Because I am an avid curious reader off the top of my head I can recall subscribing for varying lengths of time to the following over the years… and definitely not all at once.

I still might pick up an individual copy if I see it at the newsstand and it has an article I want to read but I had to start limiting my subscriptions a good number of years ago when I figured out I was shelling out about $50 a month to feed the cat killer (curiosity).

• Gleanings in Bee Culture (I DO miss my beehives)
• American Beekeeper
• National Geographic (still do and have an almost 60 year collection of them)
• Smithsonian
• Discover
• Popular Science
• Popular Mechanics
• Motorcycle Magazine
• Cycling (motor not pedal)
• American Motorcyclist (comes with my membership in the American Motorcycling Association)
• AARP (again comes with membership)
• Artist Magazine
• Watercolor Magazine
• Sail
• Latitudes and Attitudes
• Wooden Boat
• Restaurant News
• Confectioners Magazine (trade publication)
• Manufacturing Confectioner
• Food Arts (still get…its free)
• Gourmet
• Cuisine
• Chocolatier
• Tea Time
• Bon Appetit
• Vegetarian Times
• Stylus (pens)
• Ornament
• Bead and Button
• Rock and Gem
• Lapidary Journal
• Time
• Newsweek
• US News and World Report
• UTNE Reader
• The Economist
• The Mother Earth News

Gay Themed:

• Advocate
• Monk
• Frontier
• Gay and Lesbian Review
• White Crane
• RFD
• Passport
• OUT

At one point I literally was subscribing to a dozen different ones… but then I was a college student and the student discounts made them really cheap… maybe $10 a year each or around $10 a month.

Contrast that with today. Most monthly magazines are in the $25 to $30 a year price range so even a few subscriptions can run into big money.

I’ve pared down to about 4… National Geographic at $45 a year.

American Motorcyclist comes with my annual membership in the American Motorcyclist Association but that includes free towing and a whole list of other benefits for around $30 a year.

AARP Magazine comes with the $15 annual membership in the American Association of Retired Persons… and they seem to think 50 is a perfect age for you to be considered “retired” and thus eligible to join.

The Economist though is the biggie… 50 issues a year and $109 for the subscription but it’s the one I really read from cover to cover every week.

Food Arts is still Free.

Because of the high cost of The Economist (not really at just over $2 a copy but it does add up) I’m still spending about $15 a month overall on subscriptions.

Because I don’t really need them for other than entertainment I just have to put them down as part of the entertainment budget.

But what do those of you do who have to get something specialized and therefore pricey?

And do you find yourself with more magazines than you have time to read?

Is it one of the those little “leaks” in your budget where the “I don’t know where all the moneys gone” bubble floats back up?

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The unemployment rate for young Americans has exploded to 52.2 percent — a post-World War II high, according to the Labor Dept. — meaning millions of Americans are staring at the likelihood that their lifetime earning potential will be diminished and, combined with the predicted slow economic recovery, their transition into productive members of society could be put on hold for an extended period of time.

And worse, without a clear economic recovery plan aimed at creating entry-level jobs, the odds of many of these young adults — aged 16 to 24, excluding students — getting a job and moving out of their parents’ houses are long. Young workers have been among the hardest hit during the current recession — in which a total of 9.5 million jobs have been lost.

One of the reasons that unemployment among young people is so high is that many of those entry-level jobs are going to “adults.” There were several news reports over the summer that places like Sea World and other theme parks, which typically rely on high school and college students to run the joint, were hiring more and more seasoned workers this year. In the past, someone with a BA in English might be unlikely to apply for a job picking up trash at Six Flags, but this year that’s a desirable job.

I think both the Democrats and the Republicans have a big problem on their hands. This generation turned out in record numbers to vote last year. Yes, health care reform is important. But as both parties pander to the retirement-age voters, this generation of unemployed voters is likely to remember their economic struggles for a long time to come.

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• Mawlynnong has been touted as the cleanest and most environmentally conscious city in India. Check out how they pulled that off here. (Read it at BBC)
• An AIDS vaccine is showing some success in Thailand. (Read it at NYTimes)
• Today is Museum Day! That means free admission to hundreds of museums. (Read it at Lifehacker)
• Listening is one of those important little skills that can substantially improve your business and personal relationships. Here’s are some steps to improve your listening skills. (Read it at Dumb Little Man)
• Being an conscientious shopper doesn’t have to mean you go broke. Here are some tips to save green when you shop green. (Read it at Wise Bread)
• Looking to take the next step to get on track with your finances? Trent does a round up of eleven books that rise above the rest. All you need is your library card. (Read it at The Simple Dollar)

Queercents Flashback: Speaking of taking the next step, Helen has great way to ease into investing with the Three Minute Portfolio.

Photo Credit: Elizabeth Byrne

The most prominent stories for me though are the countless examples of what we called “The Bob Gene”, because the family referred to my grandfather simply as “Bob”. Clearly influenced by growing up during the Depression he was unwilling to let anything go to waste. If he noticed someone throwing away something good or useful, he would salvage it and put it to good use. Over the years my mother has teased me for inheriting this gene, but if you want to save money (and resources, and the environment…) it’s a good habit to cultivate. Even as a high-schooler, I was making my grandfather proud, rescuing an arm chair and a futon from a dumpster. My father often encouraged this habit by pulling over to check out what people were throwing away. Though furniture is one of the more common things to find, kitchen appliances are my new favorite grab: often old but functional appliances don’t fetch enough to sell but still work. My roommates now even alert me if they see something while they’re walking that they think I might like.

Curbside collecting like this can often have bad associates but with a good scrubbing, vacuuming or otherwise cleaning often you have a perfectly functional item for the fantastic price of free. And though my mother and sister have habitually teased me for it, I love the sense of history my objects had and the sense that if my grandfather were here, he’d be proud.

If you’re interested in dumpster diving and free cycling, Dawn has some great posts on it here and here.

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AIDS has had substantial impacts around the globe. It is estimated that 30-36 million people are living with HIV worldwide. More than 25 million people have died from AIDS since 1981; 1.8 - 2.3 million people died from AIDS in 2007 alone. It is unconscientable to me that we are 28 years into the AIDS epidemic and we still don’t have a cure. But I’ll leave that rant for another day.

Aside from the human costs, there are incredible economic consequences to the AIDS epidemic. According to an old article in the LA Times:

By 2000, the total cost to the global economy of the AIDS pandemic could reach $514 billion and, in the worst-case scenario, rob the world of 1.4% of its gross domestic product–the equivalent of wiping out the economy of Australia. In addition to the tremendous cost of health care, AIDS is directly affecting business around the world. The majority of cases strike adults in their most productive years. (AIDS is now the leading cause of death of 25- to 44-year-olds in the United States.)

These economic estimates only look at the big picture, but they fail to account for the economic burden that HIV places on the individual. HIV medications can be very expensive. Although there are many insurance and HIV assistance programs, they do not always cover the full cost of HIV medications. Some of those medications range from $300-$1100 per month. The cost of medication can be a huge hurdle for patients to jump, and it certainly puts treatments out of reach for those living in developing countries.

I hate to bring a dark cloud over the good news about the HIV vaccine trials. There are a lot of questions raised by the latest study, but the study may also provide answers that will help researchers better understand how HIV effects the body. However, it would be foolish to only rely on a vaccine to stem the tide of AIDS. We need to continue demanding comprehensive prevention programs that include safe sex education and condom distribution. Money spent on family planning and STI prevention is well worth the return on the investment. And I think that even the researchers in this study have said that counseling about changing risky behaviors is as likely to have contributed to the decrease in HIV transmissions rates as the vaccine.

For a quick explanation on how the HIV vaccine trials were conducted, click here. For more on the economic cost of AIDS, click here and here.

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This week my favorite grocery store had acorn squash on sale for 37 cents a pound! The easiest way to prepare acorn squash is to cut it in half, scoop out the seeds, place it face down on a cookie sheet that has an inch of water in it, then roast it in a 350 degree oven for 20-30 minutes. You have two options at this point.

Stuffed Squash
Make a stuffing with cooked rice, chopped celery, carrots, and onions, and some vegan sausage. Season it with sage and paprika, salt and pepper. If you really wanted to be fancy you could add some chopped pecans to the stuffing. Put the stuffing in the hallowed-out center of the acorn squash, then put it back in the oven for about 5 minutes.

Pureed Squash
After the squash comes out of the oven, scoop out the flesh with a spoon and put it in the food processor. Add some butter and a little milk (or vegetable stock). Puree the squash until it’s nice and smooth. You can season this with brown sugar, nutmeg, and ginger. Or you could go for a more savory flavor combination like rosemary and sage.

Both of these preparation methods would work for butternut squash. And pureed pumpkin and turban squash are both delicious. Incidentally, we’ve discovered that our dog prefers vegetables to meaty dog food, and he is a big fan of the pureed squash. Lucky us, since it’s cheaper than canned dog food.

Spaghetti Squash
Spaghetti squash can be a bit of a mystery if you’re not used to preparing it. The easiest way to do this is to cut it in half and seed it, just like the acorn squash. Roast it on a cookie sheet with an inch of water for 30-40 minutes. When you take it out of the oven, scoop out the flesh and set it aside. I like to saute some portobello mushrooms, then add fresh basil and chopped tomatoes (you can use canned or fresh). Hit this with a little red wine, season it with salt and pepper, then add the squash to the pan. Toss everything together, top it off with some Parmesan cheese and you’ve got a low-carb, low-fat main dish.

I’ll save the pumpkin recipes for my next post. (When Starbucks rolls out the pumpkin lattes, you really know it’s Fall!) So stay tuned for my favorite pumpkin recipes. Until then - bon apetit!

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End marital conflict. If you’re constantly arguing about the unkempt lawn, or the moldering laundry, see if you can throw some money at the problem. Can you hire the teenager down the street to clean out the garage?

Better yet, can you hire a cleaning service to clean the entire house? You betcha. In an effort to save money a couple of years ago, we canceled our cleaners. Of course, this experiment lasted about 2 minutes before we started bickering about who was going to clean the toilets that weekend. We just couldn’t make what should be a simple act of frugality work.

I remember when I wrote about it, My Open Wallet left this comment, “I think for a couple, housekeeping can be an issue that is worth resolving via outside help– either a cleaning lady or a therapist!”

Truer words were never spoken. No therapy required. But since then, we’ve spent $160 each month to have the service show up twice. If I had my druthers, we’d spend the money for weekly visits, but Jeanine is convinced that we should be able to “spot-clean” on the off weeks. Um, yeah… that’s not happening.

A cleaning service is one “affordable luxury” that I’ve always felt was well deserved. I work hard at my job, one that requires quite a bit of travel and the last thing I want to do on my weekend is clean the house. Toss a baby into the mix and whammy… a spotless backsplash in the kitchen isn’t a priority on Saturday mornings.

In the book, Nickel and Dimed, Barbara Ehrenreich writes about her then-current employer, the Merry Maids franchise owner and how he “learned to capitalize on housework-related spats by making follow-up calls on Saturdays between 9:00 and 11:00 AM – which is prime time for arguing over the fact that the house is a mess.”

I hear ya! Anne Gibbons, the cartoonist, illustrates it best for me, “Nature abhors a vacuum. And so do I.” A cleaning service is money well spent. And in our household it does lead to happiness!

What about your money and marital bliss? Comments welcomed below.

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In just a bit less than three weeks, our daughter will celebrate her 14th birthday.  As usual, she’s hoping for a fun party and a pile of gifts.  In years past, we’ve managed to put together some nice, though not terribly extravagant, parties.  This year, our budget is much smaller since my wife hasn’t had a full time gig since the end of March, she’s retraining for a new career, and we are trying to avoid debt.

For the past three years, we’ve typically taken a small group of our daughter’s friends and family out for dinner for a moderately-priced meal.  One year, we went to a kid-friendly pizza restaurant filled with coin-operated games.  Another year, we took a group out to our daughter’s favorite Italian restaurant.  Last year, we took a small group out on an overnight camping trip.  We paid for everyone’s campground reservations and for most of the food.

This year, even a camping trip for family only is outside of our budget, so we are looking to cut costs in the following ways:

• Hold the party at a free venue.  We live an area where the weather will likely remain pleasant through early October.  As a result, we could hold the party at one of a number of local parks that offer free picnic areas.  We are also considering our own back yard, as we have a BBQ grill, sun shade, and plenty of outdoor chairs.
• Cut back on decorations.  Although helium-filled mylar balloons, matching invitations, tableware and decorations are fun, they add to the cost of the party.  We’ll probably end up skipping most of these trappings, as we’ve managed to have plenty of fun parties with no decorations at all.
• Bake our own cake.  Since my wife and I started stocking our larder and doing more cooking from scratch, we’ve learned how to bake very nice-tasting cakes from scratch.  Granted, they might not be as pretty as a store-bought cake, but they certainly will taste just as nice.
• Eat in.  This year, instead of treating a bunch of people to a restaurant meal, we will cook at home.  Likely, we’ll be looking at a relatively inexpensive meal of grilled hot dogs or hamburgers, but even if our daughter wants something a little more upscale, we can still manage.
• Combine parties.  My wife’s birthday falls just a week after our daughter’s.  This year, instead of planning two parties, we will consolidate and plan only one.
• Make our own entertainment instead of hiring it.  Instead of paying for a venue that offers entertainment, we are going to look at ways to create our own fun.  We have a variety of board games and other activities that don’t cost anything at all.
• Limit the number of gifts.  We’ve tended to go a little hog wild on gifts, buying a large number of relatively cheap items.  Every year, despite our best intentions, the cost has added up.  This year, we’ll be focusing on a smaller number of higher-quality gifts, which we hope will result in a lower overall cost.

This year, we’ll also be paying careful attention to our list of invitees, being sure to invite people who are known to be fun in groups.  This way, we’ll be more likely to enjoy our company, since we won’t have the distraction of expensive activities.

Next in series: What to do with a windfall

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