This is my daily sanity check - for all of you out there watching the tube on all the gloom and doom being spewed by the nightly news anchors and the cable news junkies, just TURN IT OFF.  There is no point in learning about how a family in Idaho is about to lose everything they’ve ever worked for their whole lives.  Don’t get me wrong - I’m not saying that you should live in denial.  Rather, you should live your own life, not others.  It’s hard not to be frightened by the daily stories of people losing their homes, their jobs, their life savings (courtesy of the Madoff scandal), etc.  I have a hard time tuning it out myself sometimes.  But, no matter what, you cannot live in constant fear of how others’ dire consequences can also happen to you.  Rather, focusing on your own situation is the best medicine for this massive recessionary bug.  Whether it is getting a second job, dusting off your resume, and trading Starbucks for McDonalds’ brew, you can take little steps proactively to help your own economic situation.  For example, I decided to take my lunch to work today.  In fact, I felt pretty good about saving the six or seven bucks that I would have squandered (?!) on a bad sandwich in the cafeteria.  No muss, no fuss - and far less stress than watching the exaggerated media reports about how the sky is falling, we’re facing a great depression, bread lines are back in vogue, etc.  In fact, I have made a New Year’s resolution to watch less TV, and spend that time more productively, whether it be working on my favorite hobbies (cheap ones of course), or working on my side business.  Enjoy the silence and take back the financial control of your life.

I recently received this question from a reader:

• I recently read your post on emotional spending and I had a budgeting question.  I am currently in law school and hope to graduate with 60,000 in loans, but this may end up being 80,000.  The amount will depend on the amount of scholarships, jobs I can get next year.  What kind of budget would you suggest with the following goals in mind.  Possible potential salary is 160,000, in a relatively expensive city (this will probably only affect rent), I want to save(retirement, emergency and general savings) aggressively and pay off debt aggressively.  What does an ideal budget look like with these things in mind?  I am hoping to work for 2-3 years and want the ability to leave if I don’t enjoy it.  One of the things I am doing is pretending that my salary will be 60,000 and making a budget from this and saving/paying back loans with the rest of the money. [60,000 in taxes, 20,000 in loans, and 20,000 in savings maybe?] but I’m not sure.  Thanks for any suggestions.

First, I want to commend you for focusing on debt reduction and savings right out of law school.  As a lawyer, I have seen a lot of fellow classmates go right into the “spend mode” when they begin receiving the outsized paychecks from the law firm.  This is a trap, also known as the “golden handcuffs.”  It becomes a vicious cycle, where you need to work for a large paycheck just to finance your spending.  I have seen more than a few lawyers miserable in their large law firm jobs, working 70-90 hours a week, doing mind-numbing work for demanding partners, and no way out.

Given your plans to work at a large law firm after graduation, I think that your budget proposal makes sense.  Living below your means by pretending that your salary is only 60,000 is a disciplined method to focus your resources on your main objectives, which are debt reduction and savings.  This is what I would suggest in percentage terms, based on your situation.

•              160,000         Base Salary
•               64,000         40% (taxes/health insurance - which will be relatively high in a large city).
•               8,000           5% (retirement - contribute up to match, if law firm provides it).
•               60,000         37.5% (living expenses, e.g., rent, food, utilities, and a few work suits!)
•               15,000         9.4 % (emergency fund)
•               13,000         8.1% (debt reduction)

The debt reduction amount may not look like a lot, but remember, once you have saved up enough for your emergency fund, you can apply all future savings directly to debt reduction.  You also have the option of reducing your retirement savings to 3% instead, particularly if your law firm does not match, and bumping that retirement savings number back up once you have made substantial inroads into paying off law school loans.  Depending on where you live, your tax burden may be slightly less, and you can apply any differential directly to your law school debt as well.  One thing that  I would urge you to do is to avoid increasing your school debt load if possible.  It’s not feasible or advisable to work three jobs while you are  in law school, particularly because grades are so critical in landing a large law firm position.  However, live as cheaply as you can and put off the popular ”let’s go to Europe” trip after the bar exam.  Some students take out bar loans, which are meant to finance your living expenses while you are studying for the bar exam, but they end up using that cash towards a big trip.  You end up blowing several thousand (borrowed) dollars, which may feel good at the time, but sets you back enormously in terms of your goal to reduce debt.  I run into other attorneys all the time who are 10 years or more into their career and STILL paying off student loans.  Those loans are like an albatross around your neck; while you have them, you have less flexibility to take jobs in the government or non-profit sector or to leave law altogether, if you don’t like it.  Moreover, the longer you toil in a law firm, you become more tempted to buy the large home, the designer clothes, and the BMW, to cement your statute as a highly-paid attorney, when you are really just weighing yourself down further with cement blocks.  Resist the temptation to spend now and keep your eye on the long-term ball, which is to rid yourself of school debt and build a satisfying career.  Good luck with your studies and your finances!!

As the title of this post suggests, your mood, like most of us is pretty awful when it comes to your finances.  The list is endless: the financial markets are in a once-in-a-century upheaval, your house is worth half of your huge mortgage, and your boss is increasingly cold to you these days.  When we think about all the dire headlines and bits of financial information constantly assaulting our brains on a daily basis, we can’t help but feel more and more insecure, even if we are still able to satisfy our immediate financial needs, like food and shelter. 

Just like the inevitable crises that you may have to deal with at work or in your family, there are only two general directions to go: panic or plan.  I’m not saying it’s easy, but the better course to take, obviously, is PLAN.  Or maybe you still want to indulge in a bit of panic, like running around your house uttering a cathartic scream, and then sit down to pen your plan.  Here’s a preliminary start for your collective plan to deal with the financial tsunami that has been gripping this country for the past year.

1.   Take stock of your finances by writing down everything you own and everything you owe.  It might not be as dire as you think.

2.   Turn off the TV.  I’ve stopped watching the nightly news.  How many times can you listen to Brian Williams of NBC say “financial crisis,” “hard economic times,” or some other variation of the same?  It will only depress you.

3.   Vow to adjust your attitude at work into one of gratitude.  Instead of lamenting the disappearing raises and the meanie boss, take heart that at least you are employed.  If you’re not employed, skip this step.

4.   Reach out (selectively) to family and friends, and share your feelings.  You’ll find that your mood picks up immediately, even if you don’t resolve the question of what should happen with the $700 billion bailout package.  Why?  Because you’ll end up catching up with loved ones on more important matters.

5.  Write out a 30 day spending budget.  This sounds simplistic, but it’s a straightforward way for you to break down what is happening in your financial universe in the immediate future.  Forget about what will happen with retirement, your college fund for the kids, or looming medical costs down the road.  That kind of thinking is just too overwhelming at this point.  Moreover, you really can’t do anything to solve those issues in the next week.  Do what you can now.

This post is the start of my occasional series on how to handle our emotions and actions during this unprecedented financial crisis.  In future posts, I’ll flesh out my thoughts on how to cope with job loss and how anxiety and worry can actually work to your benefit.  Ciao for now.

Unless you’ve been hiding under a rock, you surely know about the public outrage against the pending $700 billion bailout of Wall Street package currently being considered by Congress.  Why should the average American who angsts over gas prices put her hard earned dollars up to bail out Wall Street banks, who have cashed out to the tune of billions of dollars during the housing boom.  However, putting aside the blame (even though there is a lot to go around), this is what this country needs to get us out of this credit mess.  Why?  Basically, banks and depositors don’t trust each other now, and credit is extremely tight.  No one knows if the collateral on banks’ balance sheets are worth what they say they’re worth, despite repeated markdowns.  Banks are deathly afraid of incurring more loan losses, particularly given what has already happened to Bear Stearns, Lehman Brothers, AIG, retail bank Washington Mutual, and potentially Wachovia, one of the largest commercial banks in the country.  This is where the $700 billion package comes in.  Banks are afriad to lend to one another and to you, the average homeowner, small business owner, car buyer, etc.  If the government comes in and buys those mortgages and takes them off the books of the banks, they are free to rebuild their balance sheets and other financial institutions will have more confidence to start lending to one another.  Moreover, the bank account holders like you and me won’t be so freaked out that we run to our bank and withdraw all of our deposits.  The banking system will stabilize and the credit freeze will start to melt.  Businesses will once again be able to borrow against lines of credits, payrolls will be met, and financial commerce will continue. 

The big question is:  will the American taxpayer be stuck with hundreds of billions in losses?  Not likely, IF the Federal government acquires the mortgage securities at a significant discount, marked down to what healthy banks are currently paying for the assets of failed banks.  The government will likely hold these mortgages for some time as the economy slowly recovers.  Despite the wave of foreclosures, housing prices aren’t going to zero.  At some point, when confidence in the economy is restored, housing purchases will pick up.  The housing market will strengthen and unemployment will decline.  In turn, the mortgage securities will become more valuable as the underlying assets increase in price.  Under this scenario, the plan may indeed be an excellent long-term trade.  Warren Buffet has commented that this is what he would do if he were there. He’s been right more times than he’s been wrong.

Have you been itching to start that side business but between a full time job, family, household chores, etc, all you have time to say is “I don’t have time!”  That’s the dilemma that I’ve been struggling with as I am planning my new business while balancing a full workload at the office and a 7-month old baby at home.  But I recently read a guest post on personal finance blog Get Rich Slowly by Erica Douglass.  Erica, who has her own blog, erica.biz, says that all of us waste an average of 750 hours a year (drum beat) mindlessly watching television or surfing the internet.  That breaks down to a little over 2 hours a day, time you could spend cracking open that novel, planting vegetables, training for a triathlon, or starting a business.  I have to confess that I have heard this advice before.  My Uncle Frank, a successful entrepreneur, has admonished me not to mindlessly watch so much TV when I complained that I didn’t have enough time to start my business plan.  I have noticed that motivated people will block out time during the day to work on their passions, whether it be exercise, volunteering, or a side business, likely at the crack of dawn or after a full day at the office, because they make it a priority.  So, instead of watching my reality favs like “The Biggest Loser” and (I have to admit it) “Dancing With the Stars,” it’s time for me to get off my couch and pursue my dreams.

When you think you have to invent some fancy shmancy website to hit it big, just realize that the simplest ideas frequently are the best ideas.  The creators of the social networking site, www.bebo.com, who just sold bebo to AOL for a cool $750 million, have turned their attention to www.birthdayalarm.com.  I know, I know, it sounds so simple but is much harder than it looks.  But you’ll never know until you try.

After a particularly hellish day at work, have you ever fantasized about waltzing into your boss’s office and telling her to “take this job and shove it?”  Or better yet, picking up your purse or briefcase and simply walking out, computer still humming, unopen emails still beeping?  As a long-suffering member of the legal profession, this thought has occurred to me more than a few times. 

The reality, however, is like a bucket of cold water thrown in your face.  Most of us cannot afford to leave our day jobs, even if we’re convinced we have a million dollar idea.  Who’s going to pay the mortgage, put food on the table, and put clothes on our backs?  But, alas, there is still a way to pursue your dreams.  Not surprisingly, it involves a bit of sacrifice.  The title of this post, appropriately enough, I heard from a frequent guest on the Donny Deutsch show on CNBC, “major in reality, minor in your dreams.”  This is more the reality for most than those 20 something billionaires who started their companies out of their dorm rooms (e.g., Dell, Google).  When you want to pursue a business idea, but feel trapped in your job, turn that mental attitude around from a negative to a positive.  Instead of nashing your teeth about how much you hate your job and how you would like to quit to start your own business, use your job as motivation to get off of your duff at home.  I’ve heard all the excuses - “I never have time.”  But let’s face it - most of us have more time than we think.  Instead of watching endless episodes of “CSI” or Netflix’ing (is that even a word?) the latest releases, use some of your leisure time to start researching your idea and taking action.  Becoming self-employed is not an all-or-nothing proposition, especially when you have a mortgage, kids to feed, and a thirsty SUV.  But take the aggravation at your job as a serious incentive for you to do those things you’ve always wanted - write a screenplay, train to become a masseuse, build a widget that stops nosebleeds, whatever.  Just do it!

Just ask the owners of Dailycandy, an email newsletter for young women in large metropolitan cities like Los Angeles, New York, and Atlanta.  Several years ago, on advice of a friend, I signed up for Dailycandy, which sends out email tips on new restaurants, beauty salons, and free promotions primarily directed towards the female persuasion.  According to the New York Times, Dailycandy, which has a subscriber base of about 2.5 million, was just purchased for a cool $125 million by Comcast (yes, your internet provider).  Wow, anything is certainly possible - keep your aspirations, no matter how small, alive.

Check out this new website by Barnes and Noble called http://quamut.com.  It’s a how to guide of everything from making sushi to setting up your own website.  The website categorizes its how to guides by general categories such as house and home and computers and technology.  The categories break down into more specific topics like automotive/garage and programming/software.  What I like about the site is the in-depth treatment of each topic.  Other web-based how to guides throw a million topics at you, but with little actual information for each one.  By contrast, Quamut devotes pages and pages of information on each topic.  Today’s “how to” is (surprise!) blogging.

Interestingly, I just tried looking up the word “quamut” on dictionary.com.  The word doesn’t exist.  I guess companies are getting very creative about coming up with names for their websites because there are just too many cybersquatters out there hogging webnames for no good purpose other than to try and sell it to you!  My thinking - if you don’t use the web name for six months, you gotta give it up.  That’s my gripe of the day.

I recently received an email from a reader in New York City:

              Dear Financial Gal-

I read your post about disgruntled lawyers.  I am a dissatisfied attorney myself and looking to get out of my 16 hour/day never-see-the-light-of-day associate position at a major law firm.  I have been trying to save enough money to cover my expenses for at least six months so that I can take time off to travel or simply decompress, but I can’t seem to reach the goal.  Although I am making a decent salary, NYC is a very expensive place to live.  Most of my paycheck gets eaten up by taxes, rent, dry cleaning, dinners out, new suits, etc.  My biggest problem is that because I’m so stressed out at work, I tend to spend my free time shopping to blow off some steam.  I have a closetfull of clothes and shoes that I have barely worn.  I suspect that what I’m doing amounts to emotional spending, like emotional eating.  How can I control this bad habit so that I can move on with my life plans?

            Suffering big law associate.

I completely empathize, because I’ve been there myself.  My first job outside of law school required 14 hour days and frequent weekend work.  On those rare weekends where I actually got a day off, I spent them sprawled on the couch or at the mall, trying to figure out which pair of shoes to buy.  Just like digging into a ice cream sundae, shopping was an indulgent fix (albeit temporary) to my stress-ridden life.  Of course, when you are working that much, the last thing you want to do is clean your own house or do your own laundry.  Hence, you incur even more expenses and dig yourself further into the money pit.  Here’s my two cents on what to do:

1. Make a plan to escape.  Just like Tim Robbins’ character in the Shawshank Redemption, sometimes it takes a few pebbles at a time to dig yourself out of your cell.  Your exit won’t happen right away, but if you have a plan, this will instantly boost your spirits.  Chart your goals for the next year.  When do you absolutely want to be out of your job?
2. Once you have your deadline set, figure out how much money you need to set aside for each paycheck to reach your goal.  Then, set up an automatic withdrawal plan with an online bank like www.ingdirect.com.  The money will disappear out of your account before you’ve even gotten your hands on it.
3. Credit card therapy:  Reduce your credit card stash in your wallet to no more than two cards.  Then, tape a note to each card to remind yourself that you are sticking to your plan NOT to spend so that you can reach your financial goal.  If you want to be even more graphic, include on your note a picture of the partner that is making your life a living hell.
4. Go through your closet and rid yourself of the clothing that you no longer wear or don’t ever intend to wear.  Calculate how much money you spent on those clothes.  Write that number down using a big black magic marker and stick it on your refrigerator as a reminder of the cash that was wasted.  Chances are you would have already reached your six month goal had you not made those purchases. 
5. For the clothes that are still wearable (which I am guessing is all of them), donate them to Goodwill or to Dress for Success.  Pat yourself on the back.
6. Last tip:  Reduce your contact with shopaholic friends and family.  You would be amazed at how peer pressure will cause you to spend needlessly.

Let me know how you’re doing and whether you have adopted any of these tips.  There are going to be days when you find it too difficult to resist a purchase here or there.  But when you do make progress, you need to congratulate yourself and remind yourself of your long-term goals.  From all of us disgruntled lawyers, we are all rooting for you!