Jonathan Clements's Blog, page 200

Tipping Point

ON MY FIRST VISIT to Europe, I discovered a different approach to tipping���don���t. I left a euro for a bartender in Ireland and was gently admonished by our guide. I left it anyway. Just couldn���t help myself.

On the Italian island of Capri, to tip or not resulted in a confrontation with a waiter. We were told not to tip. In addition, the bill had a service charge. Was it for the waiter? Apparently not, as the waiter went on a mini-tirade looking for more, at least that���s what the interpreter said. We complained and the tour guide talked to the owner, who said he fired the waiter. I doubt it, and I hope not.

In Morocco, I checked off a bucket list item by riding a camel. When I got off���on an almost involuntary basis thanks to an ornery animal���the handler had his hand out for an additional tip. Having no idea what he was saying and faced with a rather scary face, I just reached into my pocket and gave him all the coins I had from different countries.

They do tip in some European��countries, but it���s much less than in the U.S. When deciding whether or not to tip, keep an eye out for service charges either built into the prices or already added to the bill.

Back in the U.S., tipping is controversial. Some people think servers earn only a $2.13 minimum hourly wage. But federal law requires that, unless tips make up the difference, the server must be paid the standard federal minimum of $7.25. In addition, many states have a significantly higher minimum wage for tipped workers than that required by federal law.

No matter how you slice it, most servers don���t make much money. On the other hand, the IRS estimates that 40% of tip income goes unreported. Before new tracking systems were put in place, it was estimated to be 84%.

I���ve asked several servers who are the worst tippers. The most common answer is, I regret to say, seniors. A CreditCards.com study, however, says it���s younger��generations���those ages 18 to 40���who are the worst tippers.

The income of the diner seems to make a difference, too. Only 77% of middle-income households, those with an annual income between $40,000 to $80,000, were found to tip. Hey, if you can afford to eat out, you can afford to tip.

I go out to eat with a small group of friends once a month. We just divide the bill equally, but there���s always a debate about the tip. I try to add 20%, but others object. I often have to argue just to get up to 15% to 18%. These are seniors with incomes well above average. Go figure. I���m embarrassed, so���when I can���I slip a few extra bucks into the collective cash paying the bill.

In the past two years or so, I���ve upped my tip, often to 25% and, on occasion, to 30%. Statistically, I know I���m in a much better financial place than those taking my order, helping with repairs, delivering my food and so on. I just think it���s fair to share.

What matters when deciding how much to tip? I often hear it���s the server���s attitude and efficiency. That���s fair. What I don���t think is fair is penalizing servers for what may be beyond their control, like the quality of food or a delay in receiving it. Blame the kitchen for those miscues.

I always tip in cash rather than adding it to the credit card, out of concern that the server may not receive it. I also try to hand the tip to the server to avoid light-fingered Louies helping themselves from the table.

Do you have any tips on tipping? What's your tipping philosophy?

Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive.��Follow him on Twitter��@QuinnsComments��and check out his earlier��articles.

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Procrastination Pays

I CONSIDER MYSELF to be a reasonably skilled do-it-yourselfer. I���ve tackled painting, plumbing and even small electrical projects with the help of YouTube. I figure I���ve saved thousands of dollars over the years by completing various projects myself rather than hiring a professional.

A couple of months ago, our utility provider offered my husband and me a deal on a new ���smart��� thermostat. The utility would give us the thermostat for free if we agreed to sign up for one of its energy saving programs. After reading the details of the program, we enrolled and awaited the arrival of our new thermostat.

Once it was delivered, I did some research on how to install it. The manufacturer provided a variety of videos and tips. But I became concerned when the manufacturer���s guidelines mentioned that the age and wiring configuration of our existing thermostat could hinder the process of installing the new one. Given that the daytime temperatures in our Arizona community were already approaching 100 degrees, I didn���t like the idea of disabling our air conditioner and then finding out the new thermostat wouldn���t work.

I called a local heating and air conditioning service company and scheduled an appointment. It would be a couple of weeks before a technician could come out, but we were willing to wait. In the meantime, our utility offered us assistance in installing the unit ourselves. At first, the utility sent us a link to a variety of helpful videos. After a few days, the utility upped its offer and agreed to provide phone support during the process. We declined.

Finally, just a few days before we were going to pay to have the thermostat put in, the utility company contacted us again. It would send someone out to install the thermostat for us, free of charge. We went ahead and scheduled the appointment. The technician arrived three days later. Just minutes into the project, he declared there was a complication and that he���d need to get up on our roof to look at our air conditioner. As it turned out, the wiring on our system needed to be slightly modified to get the new thermostat to work.

It took the technician about an hour to complete the work. I was thankful my husband and I hadn���t attempted the project ourselves since it was far more complicated than we expected. In the end, between getting the free thermostat and free installation, we saved about $250. More important, we avoided the aggravation���and lengthy loss of air conditioning���that would have ensued if we���d attempted the process ourselves.

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Even More Taxing

INFLATION HAS BEEN the big economic story of 2022. Steep increases in consumer prices have hurt families in many ways—some of which aren’t so obvious.

You’re likely aware of the hefty increases in borrowing costs, home prices, rents, gas prices and groceries. But here’s something else to consider: how inflation can lead to higher taxes.

Important parts of the federal tax code aren’t indexed for inflation. Result: If inflation leads to nominal increases in a family’s income, it could lead to larger tax bills at a time when many taxpayers are already contending with steeply higher consumer prices. That would be an ill-timed double whammy for many Americans. Consider eight examples:

Social Security benefits are taxed once a retiree’s “combined income” crosses certain thresholds, set at $25,000 for single taxpayers and $32,000 for married couples. Benefits are adjusted each year for inflation, but these thresholds aren’t. Depending on your benefit level, a larger chunk of your Social Security check could be lost to taxes.
High-income taxpayers often face the Medicare surtax. This surtax hits not only earned income, but also investment gains. The net investment income tax is an additional 3.8% tax levied on dividends, interest and capital gains. The Medicare surtax applies if your modified adjusted gross income exceeds $200,000 for single taxpayers and $250,000 for couples. These thresholds aren’t indexed for inflation. If inflation leads to an increase in your income, you might find yourself above the threshold level.
Inflation boosts both the interest income from inflation-indexed Treasury bonds and the principal value of these bonds. That's the good news. The downside: These gains are taxed as ordinary income in the year they occur, unless you hold the bonds in a retirement account. That means high inflation will mean more taxable income for holders of inflation-indexed Treasurys, resulting in higher taxes. This is true even though bondholders don’t receive the inflation-adjusted principal value until they sell or their bonds mature.
Housing prices have soared over the past year, which might expose homeowners to unexpected capital gains taxes when they sell. In a recent article, I described the capital gains exclusion for the sale of a primary residence. A single filer can exclude up to $250,000 in capital gains on a home sale without paying taxes. A married couple can exclude $500,000. These amounts haven’t changed since 1997.



Unlike housing prices, stocks most certainly haven’t soared in 2022. Still, if stocks prove to be the long-term inflation hedge that they’ve historically been, investors may find themselves paying capital gains taxes on large nominal gains—but modest after-inflation returns.
The child tax credit reduces the tax burden on families with children under age 17, but inflation could make the credit less effective. The maximum credit is $2,000 per child from 2022 to 2025. Inflation reduces the purchasing power of every dollar, so higher inflation will cause the real value of the credit to shrink.
Paying college costs? The income thresholds to qualify for both the American Opportunity Tax Credit and the Lifetime Learning Credit don’t adjust for inflation, which means some families will find they can no longer use these credits simply because their employer gave them a cost-of-living pay increase. What if you do qualify? Like the child tax credit, these education credits are now worth less in inflation-adjusted terms.
Many states don’t index their income-tax brackets for inflation. Of the 41 states that tax wages, 15 of them, plus Washington, D.C., do not automatically adjust their tax brackets for inflation. That means rising nominal wages could push taxpayers into higher brackets at the state level.

What can be done? John Goodman and Boston University professor Laurence Kotlikoff recently proposed several measures to reduce the tax bite caused by inflation. For instance, they recommended fully indexing the federal tax code for inflation and doing the same for the threshold at which Social Security benefits are taxed. They also proposed eliminating the payroll tax for anyone over Social Security’s full retirement age.

Their proposals won’t lower the inflation rate, but they would lessen the pain of inflation for many taxpayers and Social Security recipients. That strikes me as a worthy goal.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.

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Three Mistakes

DURING MY NEARLY 70 trips around the sun, I have made countless mistakes. Most have been minor, but three stand out. Two I have already made, and the third I’m about to make.

Mistake No. 1: Go-Kart. When I was 12 years old, I bought a go-kart. It has a fiberglass body and was built to resemble the car driven to victory by legendary driver Jim Clark in the 1965 Indianapolis 500. It cost $300. I used the money I’d saved from my paper route. A friend and I would take it to an elementary school three blocks from our home and drive it for hours.

More than 50 years later, I still have that go-kart. I assumed our kids would enjoy it. But we were living in Southern California at the time and there was no place they could take it out on their own. I was busy at work and our kids had their own interests. We never used it. Years went by. Grandchildren have now used it, but only a few times.

I need to get rid of it. It’s taking up space and it isn’t getting used, and yet I’m emotionally attached to it. My children and grandchildren don’t want it. It would be hard to sell to a stranger for even a few hundred dollars. It wasn’t a mistake to purchase the go-kart. Rather, my mistake was not selling it when I got my driver’s license and largely lost interest in it.

Mistake No. 2: Caboose. Until recently, we owned a full-size railroad caboose, parked on 40 feet of railroad track. Twenty years ago, my wife showed me an ad in the paper.

“Look, someone has a caboose for sale,” she said. “Who would want a caboose?”

My response: “Let me see that.”

The caboose was going to be sold at an estate auction. Because of other commitments, neither my wife nor I could attend the auction. I asked a college student—the most dependable student I knew—to go on my behalf. I gave him a signed blank check and told him the maximum he could bid. When he returned at the end of the day, I found out that I’d purchased a caboose for $5,000.

Now in Illinois, we live on five acres in the country and have no zoning issues. It cost $2,000 to move the caboose 20 miles to our home. The body was lifted up and strapped to a low-boy truck. The wheel assemblies and rail were put on another flat-bed truck.

I was going to add electricity. I wanted to build two sets of bunk beds at one end, and a platform so people could sit up high and look out the cupula. I even scavenged some industrial carpet. It would be a great place for grandchildren to play or sleep.

I had great plans, but almost nothing happened. I was busy at work. When I have free time, I enjoy reading. I have few carpentry skills and I never figured out where to start.

The wooden siding began to deteriorate, so a dozen years ago my wife helped me apply new siding. We broke one of the cupula windows. I removed it but never got around to replacing it. Rain blew in and, ever since, various birds and animals have called the caboose home.

A year ago, I offered it to an area train museum. It took a pass.

Two months ago, someone knocked on our door. He offered to demolish it and remove everything. He said he would sell the steel to a scrap yard and burn the wood. He would give me half of whatever he received, after subtracting his expenses. That sounded like a good deal.

The caboose is gone now. I received $1,240.

Mistake No. 3: 1965 Corvair. Recently, I noticed a 1965 Corvair parked in front of a friend’s house. He and his father purchased the car a dozen years ago. It’s in near pristine condition, with less than 35,000 miles on it. Until recently, it was parked in a garage. My friend said he is getting ready to sell it. I told him that when he decides to sell, he needs to call me.

I believe Corvairs were the only American-made automobile with a rear-mounted, air-cooled engine. Yes, the trunk is in the front of the car.

Today, most cars are front-wheel drive. Back then, most cars were rear-wheel drive. A Corvair’s rear engine added traction on snowy and slippery roads. Some people thought it was a great idea, but crusader Ralph Nader disagreed. He wrote a book, Unsafe at Any Speed, about the alleged safety deficiencies of the Corvair.

My dad, who could fix anything mechanical, loved Corvairs and we had several. My parents allowed me to use one to go back and forth to college.

After I graduated, my first job was with General Electric in Schenectady, New York, more than 1,000 miles from our home in Iowa. My folks handed me the keys to an 11-year-old 1965 Corvair and said, “Take it. You need it more than we do.”

It’s important to note that I am not at all mechanically inclined. I have absolutely no experience or skill in refurbishing cars.

What is the mistake I am about to make?

When my friend calls and says he’s ready to sell his Corvair, I’m afraid I’ll pull out my checkbook and say, “How much?”

Larry Sayler is the only person with a Wharton MBA who also graduated from Ringling Bros. and Barnum & Bailey’s Clown College. Earlier in his career, he served as CFO for three manufacturing and service organizations. For 16 years before his retirement, Larry taught accounting at a small Christian college in the Midwest. His brother Kenyon also writes for HumbleDollar. Check out Larry's earlier articles.

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Neglected Ideas

THE MOST POWERFUL financial ideas are those that help us make better money decisions���by providing a lens through which to understand ourselves and the world around us. Examples? Think about notions like loss aversion, diversification and market efficiency, all ideas frequently mentioned in HumbleDollar articles. Every investor, I believe, should understand such concepts.

To that list of key ideas, I���d favor adding five others���all underappreciated, I���d argue, but all central to how I think about the financial world.

1. Market portfolio.��This is the worldwide universe of stocks, bonds and other investable assets, each weighted by its market value. It's what all investors collectively own, and arguably it should be the starting point when deciding how to structure a portfolio.

My bond portfolio��looks nothing like the global bond portfolio. Instead, it consists entirely of short-term U.S. government bonds, divvied up between conventional and inflation-indexed securities. This is the money I may end up spending over the next five years, so I figure I should minimize the potential damage from rising interest rates, a strengthening U.S. dollar or deteriorating credit quality.

But when it comes to stocks, I do indeed take my cues from the market portfolio. My stock investments don���t precisely resemble the global market. For instance, I���m overweighted in U.S. and international small-cap and value stocks, and also overweighted in emerging markets.

Still, the global market portfolio is my benchmark. In fact, a total world stock index fund is my largest single holding, and I always know precisely how I���m straying from the market portfolio. One way I don���t stray: My mix of U.S. and international stocks pretty much matches the global market, with roughly 50% allocated to each.

2. Intrinsic value. I can���t tell you with any certainty what the intrinsic value is for any individual stock or for the broad stock market, nor whether that value is above or below current share prices. Nobody can. But every stock does indeed have an intrinsic value���and that value changes far more slowly than each company���s stock price.

This is what gives me the confidence, whenever the broad market falls out of bed, to invest more in my stock index funds, which I did with gusto in 2008-09 and early 2020, and I���ve been doing with somewhat less gusto this year. On such occasions, I can���t be sure I���m getting a bargain. But I know the underlying businesses probably aren���t losing value as quickly as their share prices, so there���s a good chance that some panic selling is taking place���and thus I���ll potentially profit from the irrationality of others.

3. Consequences. Risk is perhaps the most important financial idea, and yet it���s one that���s often ignored. Two concepts, in particular, are worth keeping in mind. First, more things can happen than will happen. Second, we should consider not just the odds of a bad outcome, but also the consequences.

In other words, we should be aware that the future could head off in all kinds of possible directions and we need to make sure our financial life won���t be too badly damaged, no matter what comes to pass. This means taking precautionary steps that, in retrospect, will likely appear unnecessary. We���re talking about things like diversifying broadly, buying insurance and holding a stash of emergency cash. Most of the time, such steps will slow our nest egg���s growth, and yet failing to follow such steps would be the height of financial foolishness.

4. Don���t be your results. I first read about this notion in an article��by Don Southworth. Don was writing about his career in sales, and how he was advised not to let his recent sales record affect his mood.

The same notion can also be applied to money management. We shouldn���t let our state of mind be influenced by our portfolio���s short-term performance or the size of our net worth, and not just because this could lead to unhappiness. If we become our results, there���s a risk we���ll make bad financial decisions.

How can we counteract this? Try to keep three notions in mind. First, if we consistently do the right things���save diligently, minimize taxes, hold down investment costs, index, diversify globally���we should eventually get rewarded, even if our prudence doesn���t show up in our results right away. Second, just because something can be measured���such as our year-to-date investment performance or the size of our net worth relative to that of others���doesn���t mean we should focus on it. Third, if we pay too much attention to our financial results, we can become obsessed with accumulating ever more, rather than figuring out what constitutes enough.

5. Money and meaning. There���s what we think we want from our money���and then there���s what we truly want. It can take a lifetime to figure out the difference.

For all of us, money brings with it a raft of emotions���what we were told by our parents and corporate marketers, what we imagine others think, and what we learned from financial experiences, both good and bad. These influences and experiences both mold our personality and are also filtered through it. For instance, you might easily shrug off a big stock market decline, but that same decline could traumatize your friends, leaving them even more risk averse. Similarly, a spanking new BMW, which you view as the height of financial foolishness, might strike your neighbors as the sure road to happiness.

Somehow, we need to peel back these layers, figuring out how we can best use the dollars we have to make our life richer. How do we know we���re being successful? The goal is to get happiness from our money that far surpasses the nominal dollars involved. If the BMW brings you joy day in and day out for years on end, it���s money well-spent. But if you sit in your cubicle, wishing you���d instead put the dollars in your 401(k) so you can quit the workforce a few years earlier, you likely bought yourself a lemon.

Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier��articles.

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My Proxy Wars

I JUST RECEIVED an email from TD Ameritrade Clearing, Inc., imploring me to ���Vote now! KYNDRYL HOLDINGS, INC. Annual Meeting.���

For the few who haven���t read my fascinating earlier article, I will share my heuristic for voting proxies: ���yes��� to independent chairmen, ���no��� to classified boards, ���no��� to options, and then ���yes��� or ���no��� to whatever piques my interest.

I���ll usually spend 10 minutes max thoroughly reviewing the issues for the first proxy I receive in the new year. I���ll spend about one minute for the last one I receive���with a logarithmic��decrease in between.

Well, after voting my Equity Residential (symbol: EQR) proxy back on May 3, I thought my yearly work was done. That meant I could begin a well-deserved rest until next year���s onslaught begins. I could use my newfound free time to work on a miniaturized model of the New York Stock Exchange trading floor.

Unfortunately, the TD email interrupted my reverie. I was quite tempted to delete it. But then I just had to find the answer to the same three questions that you must be asking yourself right now: What the hell is Kyndryl (KD)? What the hell does it do? And what���s with the name?

I also wanted to know how I came to own a stock with such a ridiculous-sounding name. Years ago, I bought shares in a company with an equally ridiculous-sounding name���Enron���and there���s no way I would make that mistake again. That said, Enron did sound better than its next name: Enron Creditors Recovery Corp.

I was hoping that after clicking on the annual report and reading ���A Message from Our Chairman and Chief Executive Officer������so much for the independent chairman���I could quickly get answers to my questions. No such luck.

All I learned was ���Kyndryl has solidified its place in a broader market��� delivering on our overarching mission to modernize and manage the world���s mission-critical systems and services���the ���hearts and lungs������of the most important enterprises around the world.��� It also said all this was ���leaning into Kyndryl's advanced delivery advantage.���

The ���hearts and lungs��� talk made me think Kyndryl might be a medical company. The ���mission-critical��� and ���delivery advantage��� might mean some sort of defense company. The ���services��� part��� well, that might mean just about anything.

I then did what I should have done in the first place, and went to Wikipedia. It was there that I discovered that ���Kyndryl Holdings, Inc.��is an American multinational information technology infrastructure services provider that designs, builds, manages and develops large-scale information systems.���

Okay, I thought, that���s more than I knew before. But I still wasn���t sure what that all meant. I could have researched it further, but I was beginning to lose interest���and coming up on the 10-minute deadline.

I did summon enough resolve to continue reading and I���m glad I did. It was then I learned the company was created from the spinoff of��IBM's infrastructure services business. It was given the name Kyndryl in April 2021, with "Kyn" referencing "kinship" and "Dryl" referencing "tendril."

So, I thought, ���the name is a��� pun? And not just one, but two?��� Did they append the word ���Holdings��� to make it all sound more like a real company and less like a pharmaceutical used to treat��hair loss in extended families?

It all seemed so absurd that I immediately decided to sell my shares. I thought better of it when I realized this would require me to log onto my online brokerage account, with the distinct possibility of glimpsing the total value of all my holdings.

Instead, I went ahead and voted my proxy. I voted against all the board members as the board is classified. I voted against the compensation plan because it includes options. Finally, I voted against the appointment of PricewaterhouseCoopers as auditor because, well, by then I was just feeling obstinate.

Kyndryl Schmyndryl.

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Reverse Engineering

WHAT IF I SAID YOU could borrow to buy a home and have no mortgage payment? Would you think I was nuts?

Trust me, I���m not. If you're age 62 or older, it's possible to finance a home purchase and have no ongoing mortgage payments. How? By taking advantage of a��home equity conversion mortgage, or HECM. The federally insured HECM is the most popular reverse mortgage in America today.

Now, I know what you're thinking. Aren't reverse mortgages just for desperate, penniless retirees? Not at all. The product has evolved over the years. Today's reverse mortgage is safer and more versatile than those of the past.

Most people are familiar with the "refinance" HECM, which allows you to draw down equity in a home you already own. Fewer people know that you can also buy a home with what���s called a ���HECM for purchase.��� It���s one of the mortgage industry���s best-kept secrets.

The HECM for purchase requires no mortgage payments as long as at least one borrower or��non-borrowing��spouse lives in the home and pays the property taxes and homeowner's insurance.

You remain the owner of the home, which means you can leave it to your heirs. If your heirs want to keep the home, they might pay off the balance with cash or by taking out a conventional mortgage. If your heirs don���t want the home, they can sell it or let the lender sell it. Once the sale closes, the reverse mortgage balance is repaid and the remaining equity goes to your heirs.

The HECM is a non-recourse loan, which means you���re protected if your home isn���t worth enough to pay off the entire loan balance. The Federal Housing Administration covers any shortfall.

Here���s an example of how the HECM for purchase works: Let's assume Betty, age 68, is buying a home for $400,000 and doesn���t want to have a mortgage payment. Most people qualify for a HECM loan amount equal to roughly half the home���s purchase price, so let's assume Betty can borrow $200,000.

Betty is responsible for closing costs, which can be 3% to 5% of the purchase price. A good chunk of this is for the upfront mortgage insurance charged by the Federal Housing Administration. That insurance helps make the HECM for purchase a non-recourse loan. Let's assume Betty���s closing costs are 4% of the purchase price, or $16,000.

If the bank finances $200,000, Betty will need to bring $216,000 to settlement���a $200,000 down payment plus $16,000 in closing costs. After closing, no mortgage payments are required as long as Betty lives in the home and pays the property taxes and homeowner's insurance.

The HECM has an interest rate like any other mortgage. It also has a 0.5% annual mortgage insurance premium that helps make the HECM non-recourse. Let���s assume Betty���s interest and annual mortgage insurance add up to 5.5%. Again, no mortgage payments are required, so the unpaid interest and annual mortgage insurance are simply added to the loan balance over time.

How would her reverse mortgage look after 20 years? Betty���s outstanding loan balance will grow to $599,325. If her home has appreciated by, say, 3% annually, it will be worth $722,444���enough to pay off the mortgage and still have more than $120,000 of home equity.

Yes, the loan balance will grow substantially over the 20 years���but that���s how the HECM is supposed to work. Yes, Betty���s home equity has fallen from $200,000 to some $120,000 over 20 years. But that���s how she���s paying for a loan that has no monthly mortgage payment.

What if Betty instead finances the $200,000 she borrowed with a traditional 30-year mortgage at 5%? She���d pay $257,674 in principal and interest payments over 20 years. But with the HECM, that money can now be used for other purposes, such as home improvements, medical expenses and travel.

The HECM for purchase also makes it possible for Betty to buy a home and keep more of her money in the bank. Instead of paying $400,000 in cash to avoid a mortgage payment, she spent just $216,000. The reduced cash outlay means she holds on to more of her retirement savings, leaving her in better financial shape to enjoy retirement and cope with unexpected expenses.

Mike Roberts is a reverse mortgage industry veteran and the founder of MyHECM.com , a leading online resource about HECM reverse mortgages. Check out his site���s free reverse mortgage�� calculator . Mike's previous article was You May Be Surprised.

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A Spaghetti Economy

IT���S SUMMERTIME in South Florida, where I live. The temperatures are high, the humidity too, and the sandy beaches too hot to walk��barefoot on.��Then there���s the Atlantic hurricane season. It���s in full swing and runs from June 1 to Nov. 30.

What���s any of that got to do with managing money? Think spaghetti map predictions.

We���ve all seen those��spaghetti maps��on television and online. They typically appear 10 to 14 days before there���s a possibility of a hurricane or cyclone coming our way. The strands show possible courses a storm may take as it tracks across the sea toward land.

Each line on the map represents a model that comes from a different weather source, such as the hurricane weather research forecast from the��National Hurricane Center��or the global forecast system from the��National Centers for Environmental Information.

There are dozens of companies around the world that offer weather modeling services. That���s why there are so many different strands on a weather map, not just one or two spaghetti lines.

In the same way, we���ve all heard way too many predictions about the economy lately from a host of different economic and money-related sources.��All claim to offer insight and direction about the current state and possible direction of the U.S. economy.��But like��the weather model makers, all see and calculate things differently.

And therein lies the rub: Nobody knows for sure which model, projection, prediction or forecast will be spot on.

On July 1, 2021, SNN News in Sarasota, Florida, offered this commentary on hurricane spaghetti models:�����The problem arises when people use spaghetti models to plan for a��possible landfall. Spaghetti plots are��not��official forecasts. Official forecasts take all the models into account. They don't simply take all the models and put the official track in the middle of it. Some models are updated more often, and some models are more reliable���.���

And so it is with today���s predictions for the economy. Where it���s really headed in the near-term to mid-term to long-term is anybody���s guess. That���s because there are so many local, regional, national and world variables that affect the modeling.

What we actually do know today is that interest rates are rising, money is tougher to get your hands on, and it���s costing every one of us more money to live today than it did yesterday.

We can try to describe this with a swirl of economic terms like gross domestic product or inflation in its various forms���stagflation, recession, depression, hyperinflation and disinflation. We can plumb the depths of the bear market and then project how declining stock prices might affect businesses, people and their retirement accounts.

In the end, it���s all��talk and speculation. No prediction comes with certainty or guarantee. The best any of us can do in these uncertain times is to stay focused on our own life and financial picture, and not compare ours with anyone else���s.

I was talking with two friends the other day, both in their mid-50s and currently employed. Each was wondering if they���ll have to��work a few more years because their retirement accounts have lost so much value. Their adult kids, feeling the effects of a rising interest rate environment, have had to put off purchasing their first homes.

It���s a hold-on and hang-in-there financial world for now.

On the other hand, a one-percenter I know isn���t concerned. He���s adding money to the stock market and considering purchasing some real estate in the near future if home prices drop and more foreclosures surface.

Then there���s a senior-aged friend who has no idea where she���ll live next month. The landlord increased her monthly rent by $400 and she can���t afford that. As so many retirees understand, there���s no wiggle room for those living on a fixed income. Her financial future likely will depend on the thoughtfulness and graceful giving of others.

As we all eventually come to know, no two financial lives are the same. Nor have they ever been. Each represents a spaghetti line on a map that���s uniquely their own. If you ask me what the economy looks like, I���ve got to say it looks like a spaghetti economy to me.

Back in the day, Dian Vujovich was a nationally syndicated mutual fund columnist, wrote a handful of books about investing and retirement, and was a luxury travel writer who won a few awards for her work. Today, she���s grateful to still be able to string a few sentences together and create a story where there once was none. Dian lives in sunny Florida and is quick to tell anyone who cares to listen that living a long life has now become obscenely expensive. Her previous article was Sell in May.

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Life on Pause

THE COVID-19 PANDEMIC has disrupted so many aspects of our lives. I was reminded of that recently at, of all places, a bar in the Myrtle Beach, South Carolina, airport.

My wife and I were returning from our 40th wedding anniversary trip to Charleston, South Carolina, and Sunset Beach, North Carolina. Our evening flight was delayed, so we decided to get a glass of wine at a small kiosk bar in the terminal.

The bartender was a young woman in her early 20s. She was friendly, knowledgeable and adept at serving several groups of boisterous seniors returning from the Myrtle Beach area. We struck up a conversation. She told us she had recently graduated from a local university with dual degrees in political science and women���s studies.

Her women���s studies major focused on a challenging topic: the history of women���s inequality and subjugation. She said she���d begun her college studies with the idea that she could use her dual majors to help the plight of women around the world.

But the combination of the depressing coursework, along with several years of COVID-induced isolation, now had her questioning her career choice. She said she was working as a bartender because it paid well���and allowed her to go back to school, where she could take some business and marketing classes.

Another young couple at the bar joined the conversation. The young man had just graduated from one of New Jersey���s state universities with a degree in criminal justice. He said COVID had badly disrupted the last two years of college, and had him also questioning his choice of a major.

When I asked him about his career path, he acknowledged that he didn���t have one. He said he was going to spend the summer figuring out his next steps. Like our bartender, he said he planned to work in the hospitality industry to make money while he contemplated his options.

It���s a similar story with some of the young women who have looked after our grandson over the past two years. I���ve seen how COVID upended their college plans. Several switched from attending out-of-state schools to our local college.

All these young people I met are friendly, intelligent, articulate, and able to hold pleasant conversations with my wife and me. They all demonstrate a strong work ethic, finding ways to make money while they figure out what they want to do.

Still, I worry about how the pandemic years have delayed their transition to longer-term careers and adulthood. The internet is rife with articles and studies discussing the impact of COVID on high school and college students, including decreases in graduation rates, increases in mental health issues and delays in attending college.

As a parent, one of the great joys is to watch your children grow up and succeed. This isn���t just about workplace success. It���s also about becoming adults, building families and taking their place as valued members of their community.

I���m sure many HumbleDollar readers have a wealth of experience navigating challenging career and life obstacles. I���ve had my share, and somehow came out the other side. I had the good fortune to work with, manage and mentor hundreds of young engineers and scientists. Watching them succeed is one of my career highlights.

I can���t think of anything I faced that compares with these past few years. The extreme level of uncertainty has made it hard to make plans. Engineers like me hate uncertainty because it���s so difficult to build a life on shifting sands. I���d be interested to know if other members of the HumbleDollar community share my concerns, and if they have any ideas for how to help.

Richard Connor is��a semi-retired aerospace engineer with a keen interest in finance. He��enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter��@RConnor609��and check out his earlier articles.

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Falling Like a Brick

IF YOU THINK STOCKS have fallen fast this year, check out the collapse in the National Association of Realtors��� housing affordability index. The index tracks how financially easy it is for the typical family to buy a house with a conventional 30-year mortgage.

May���s reading of 102.5 is down sharply from the 154.4 recorded in December 2021 and it���s just a whisker away from the lowest levels seen in the past four decades. For those of us in the southern U.S., we have to go back to the mid-1980s to find worse purchasing conditions. It���s a sobering reality for first-time homebuyers, who must contend with higher interest rates and still-soaring property values.

Today���s environment is a far cry from the generous buying conditions seen in��early 2021, when the index was above 170. Back then, the average 30-year fixed-rate mortgage was roughly 3%, while home prices were nearly 20%��lower. Survey data from the end of last week show the current 30-year mortgage rate at a whopping 5.84%. You have to wonder: Are falling home prices just around the corner?

Goldman Sachs puts out its own version of the housing affordability index. The investment bank���s gauge likewise illustrates a stunningly expensive turn in the domestic housing market���the worst since it started tracking affordability in 1996.

But there are bright spots. First, families are making more now than in early 2021. But the 4.5% rise in median household income has, alas, been less than the rise in home prices and inflation more generally.

Second, families are well positioned today to meet the challenges of high real estate prices and steep borrowing costs. Household financial obligations, as a percent of disposable personal income, remain incredibly low by historical standards. This figure compares debt payments, lease payments, property taxes and rents to after-tax income. It averaged 17% from 1983 through 2009. Today, the ratio is barely above 14%, thanks in part to a strong jobs market.

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