FiLife

(This article also ran in Slate today, just so you know.)

It’s not as if the Obamas are some modern-day version of the Clampetts, but compared with the competition, they’re at best nouveau riche. As recently as 2004, the Obamas’ adjusted gross income was $207,647, according to their federal tax returns. That’s much higher than the national median household income of $48,201, but for a family of four living in high-cost Chicago, $200K isn’t exactly rolling in it.

Which makes all the hubbub about Barack Obama’s elitism seem pretty hollow. “The irony is,” Obama said last week, “I think it is fair to say that both Michelle and I grew up in much less privileged circumstances than either of my two potential opponents.” Indeed, if Obama is the nominee and wins in November, he would have one of the most modest backgrounds of any president in recent memory; he has noted, for example, that his mother “had to go on food stamps at one point.”

Both Bushes came from family wealth, and Bill Clinton married Hillary Rodham, who would ultimately rake in more than $200K annually (in 1992 in Arkansas) while she was a partner at the Rose Law Firm. Ronald Reagan made money in movies before becoming president; we’d probably have to go back to submariner/peanut farmer Jimmy Carter or career soldier/college president Dwight Eisenhower to find another elected president whose financial picture was as comparatively humble.

But the increase in the Obamas’ wealth has been swift and strong. Their glory days started in 2005, when the couple earned $1.7 million. In 2006, they earned $983,000. Last year, they pulled down an impressive $4.1 million. And no, Tony Rezko had nothing to do with this: Obama’s newfound wealth comes from the success of his two books: Dreams From My Father and The Audacity of Hope have sold more than 2.25 million copies since publication, according to Bookscan. Obama has not donated the proceeds from his books to charity, as John McCain has, but then Obama did not marry an heiress with $40 million in assets.

How do the Obamas invest their money? Very, very safely—like a couple who wants no risk of ever being middle-class again. There are no hedge funds, trusts, or other fancy alternative investments to speak of—just, for the most part, a collection of run-of-the-mill mutual funds. Unlike the average American, however, Sen. Obama had the wherewithal to save the maximum allowable amount ($45,000) in his retirement plan last year. The Obamas also had two sizable joint checking accounts at JPMorgan Chase ($100,001 to $250,000) and Northern Trust ($50,001 to $100,000) at year-end 2006, according to his Senate financial disclosure report (PDF). Perhaps they wanted to have enough cash readily available while they’re on the campaign trail?

For a couple in their mid-40s, the Obamas’ investment holdings are arguably too conservative. One of the single largest chunks of their money (between $150,000 and $350,000 as of year-end 2006) was invested in the Vanguard Wellington Fund, which has about 65 percent in stocks, 33 percent in bonds, and 2 percent in cash. Obama reportedly sold this fund after learning it was invested in Schlumberger Ltd., a French oil-field-services company that does business in Sudan. He put that $180,000 in proceeds into the Vanguard FTSE Social Index Fund, a socially responsible fund that invests in large- and midcap stocks. The Obamas had another $100,000 to $250,000 in Vanguard’s Wellesley Fund, which allocates 60 percent of its money in high-quality bonds. Considering the Obamas have more than 20 years to go before retirement, many financial advisers would tell them to be more aggressive and increase their stock exposure to 80 percent of their portfolio.

The rest of their money—as much as $75,000—is invested across five other mutual funds. This appears to be part of Michelle Obama’s 403(b) retirement plan from her tenure as an administrator at the University of Chicago Hospitals, where she earned around $275,000 over the past two years. Michelle Obama also has three batches of unexercised options to purchase shares of Tree House Foods—a Westchester, Ill.-based food supplier that counts Wal-Mart as a big customer—on whose board she served for two years (a paid position that netted her roughly $50,000 a year). She resigned last May after her husband criticized some of Wal-Mart’s policies. The options’ value is tenuous; currently, shares of Tree House are trading below the options’ strike price of $29.65. Sen. Obama also listed his State of Illinois General Assembly Pension Plan, which is valued somewhere between $50,001 and $100,000.

In 2005 the Obamas did make some seemingly speculative—and ultimately controversial—stock bets (PDF) that made headlines last year. They bought shares of AVI Biopharma and SkyTerra Communications (for a reported total up to $100,000) in February of 2005, before selling later that fall. The sales resulted in a net loss of $13,000. The purchases caused quite a hubbub after the media learned that the two companies were backed by some of Obama’s top donors. Obama has said his UBS broker bought the shares without his knowledge in a quasi-blind trust.

The Obamas have significantly increased their charitable contributions since declaring his candidacy. Last year, they gave $240,370, or about 5 percent of their income, to charity, with their largest contributions going to the United Negro College Fund ($50,000); CARE, the global poverty charity ($35,000); and Trinity United Church of Christ ($26,270), home of the Obamas’ infamous former pastor the Rev. Jeremiah Wright Jr. Contrast that amount with the couple’s charitable giving in 2004, when only 1.2 percent of their income went to worthy causes.

Compared with John McCain and his $270,000 in expenditures on household help, the Obamas lead a much more middle-class lifestyle. Between 2000 and 2007, they spent anywhere between $6,000 and $24,000 annually on household expenses, which appears to include child care for their two daughters, Malia, 9, and Natasha, 6, according to their tax returns. That said, their house is pretty plush: The Obamas purchased their $1.65 million Chicago home three years ago and took out a mortgage of $1.32 million through Northern Trust.

It’s unclear whether the Obamas have invested in a 529 college-savings plan for the girls. (Contributions to their home state’s 529 would show up on their Illinois state return, which wasn’t made public) If they haven’t, they probably should: The Illinois Bright Start College Savings Program recently made it onto Morningstar’s list of best college-savings plans. By investing in Illinois’ plan, those funds would grow tax-deferred, and they’d receive a state income-tax deduction.Obama is familiar with the costs of higher education—he paid off his loans only recently (reportedly after his book money came in). The first bill he introduced in the U.S. Senate would have increased the Pell Grant maximum (that’s college money you don’t have to pay back). If elected, he said he would eliminate the Federal Family Education Loan program, in which private lenders provide loans that are guaranteed by the government to borrowers. He said this program is more costly than the federal government’s direct-loan program, in which students borrow from the government through their schools, eliminating private lending middlemen. He would direct the savings toward student aid. You can argue about whether that’s good policy, but it’s a treat to have a presidential candidate discussing student aid with recent, firsthand knowledge of the subject.

– Sam Grobart & Tara Siegel Bernard

There’s a brief-but-interesting article in today’s Wall Street Journal that points out how auctioneer Christie’s is trying to attract younger bidders by revamping its website. New features include “What’s your passion?” and “What are you willing to spend?” sorting tabs and a new, more comprehensive search (powered by Google). And just because it’s Christie’s doesn’t mean everything’s priced at Picasso-money. For the low price of around $2,500 (you didn’t think the crustiest of upper-crust auction houses was going to dip into three figures, did you?) you can be the proud owner of a lovely Spinosaurus tooth. Going once, going twice…

– Sam Grobart

So how the hell did we get here?

You’ve got big fancy investment banks hitting the skids, the Federal Reserve running around like a spaz and everyone speaking of the coming Armageddon.

If you want a simple and entertaining way of understanding what has caused all this mess, you could do a lot worse than this crudely-drawn but sophisticatedly simple PowerPoint presentation that came in over the transom. Watch and learn, friends.

– Sam Grobart

Were you a boy in the 1980s? I was. I was a lot. And because I was, I became good friends with a little catalog that I liked to call The Sharper Image.

The Sharper Image was the future in your hands. Scratch that–it was better: It was like having Japan in the palm of your hands. Senseless gadgets that had no reason to exist other than because founder Richard Thalheimer (aka The Poor Man’s Steve Jobs) deemed it so? Robots and crazy voice-activated whoizts and night vision that didn’t require DoD security clearance to buy? It was paradise on Earth, I tell you.

Sadly, my boyhood enthusiasm for TSI didn’t last. And apparently, that’s also the case for millions of other people, as the company filed for bankruptcy protection last week. (more…)

Today’s post comes from Steve Heideman, President of the Upfront Mortgage Broker Association and, more importantly, a genuine and official FiLife Guru. Like other FiLife Gurus, Steve will be contributing articles to the site, answering questions from users on topics he knows a lot about and helping in innumerable other ways.

I don’t think anyone grows up wanting to be a mortgage broker. In the minds of most of the public, we are just above “used car salespeople” in terms of our business ethics and integrity. We would need to reach up to scratch the belly of a snake.

I got into the mortgage business pretty much by accident. I was working in sales support at an organic gardening products company (my college major was Biology with a Botany concentration) and my supervisor’s husband owned a mortgage company. Being a Gen Xer, I was always good with computers. One day my supervisor came to me and said that her husband needed help putting together a computer network for his mortgage company. Making a little more than slave wages at the time, I jumped at the chance for a side job in computers. When I went to his office and started to learn about the business, I became intrigued by the idea of being a “financial professional.” Since I was always good at math, I found a natural affinity to being a mortgage loan officer.

A few years into my career, I was lured away by a financial services firm that did financial planning, insurance and asset allocation. They hired me to start a mortgage division for them. During that time, my financial education took a quantum leap. I began to make the shift from looking at a mortgage as a debt to be paid off, to viewing it as a financial planning tool-a view that would later be affirmed by a study done by the National Bureau of Economic Research.

When I was done with my stint at the financial services firm, I knew that I had a vision for a different kind of mortgage company. One that did not focus on pushing products and “selling” loans, but rather a company that put the mortgage where it belongs-in the context of a family’s short and long term financial planning goals. This is why I moved to Arizona and started United Mortgage Financial Group, Inc.

One thing I never could get comfortable with was the degree to which bait and switch tactics were commonplace in my industry. I guess I’m too Pollyannaish, but I always find it amusing that one of my unique value propositions as a mortgage professional is that I am honest. In my world, that is just the way business is done. It is my core philosophy that the surest and best way to get what you want, is to help as many people as possible get what they want. One day I was reading the paper and I came across a column written by Jack Guttentag (aka “The Mortgage Professor“). He was discussing the mortgage industry and his concept of an “Upfront Mortgage Broker.” An Upfront Mortgage Broker is a mortgage professional who works for their clients on a fixed-fee basis that is negotiated (surprise, surprise) up front. The fixed fee may be paid by the client, the lender or both, but all lender rebates above the agreed-upon price are given back to the client. The commitment of an Upfront Mortgage Broker can be found here.

This concept was music to my ears. So I wrote to the professor and, shortly after that, became a bona-fide Upfront Mortgage Broker. In 2005, the professor came to me and asked me to be the founding president of a new association to ensure the survival of the Upfront Mortgage Broker after his retirement. I agreed and in 2006 the Upfront Mortgage Broker Association was born.

As far as my own mortgage, I utilize interest-only loans because I am a believer in keeping myself as liquid as possible for emergencies, disabilities or economic downturns. (Boy, am I glad I did with the current mortgage credit crunch :))

– Steve Heideman

So here’s the deal: I’m not a Rockefeller, but after working for a dozen years (and marrying someone else who also works full-time) I’ve got some money. Not scads of money, not boatloads, but some.

And with an 18-month-old laying waste to my apartment, I’ve got to think about more things than just my and the Mrs’s retirement. There’s the possibility of private school for the bambina at some point, and then college after that. We may want to move into a larger apartment down the road (particularly if we have another baby).

When it comes to retirement, we’ve never really coordinated our savings for that, so there may be some overlap there. Basically, I want to dump a sheaf of account statements, tax returns and paystubs in front of someone, tell them what our goals are and have them tell us what to do to reach them.

Fortunately, such people exist in the form of financial planners. (more…)

Here are the top four personal-finance resolutions on my list for 2008:

1) Get my billing cycles in order. I like to sit down at the beginning of each month and pay the previous month’s bills. Unfortunately, my schedule is out of sync with a fair number of companies that bill me. This means that I wind up paying in-between billing cycles, which can lead to a missed month here and there or a credit showing up in my account when I’m early.

Starting this month, I’m having all my regular bills (cable, electric, gas, cell phone) go straight to my credit card. I thought about calling each company and asking them to change my due date to line up with my monthly ritual, but I’ve recently come around to the credit-card idea.

These are charges that tend to be the same (or only vary by a few dollars each month), so I can see if one month’s bill is out of whack. And by having them go to my credit card (as opposed to my debit card, which I use far more often), I do have some recourse if something goes wrong. Instead of dealing with five or six payees each month, I can just pay off my balance in about 30 seconds and that’s that. (more…)

Adam Galinsky is (deep breath) the Morris and Alice Kaplan Professor of Ethics and Decision in Management at the Kellogg School of Management at Northwestern University.

What this means is that Adam Galinsky, for a living, thinks about negotiating. How people negotiate; how they negotiate well; how they negotiate poorly. Adam Galinsky is very, very good at knowing what he wants, what other people want and how to get what other people want to be the same thing as what he wants. He’s sort of a conversational ninja, and the conference room is his dojo. (more…)

Were the car-manufacturing industry based out of the North Pole, instead of Detroit, Southern Germany and Toyota City, my list to Santa and his elves would go something like this:

1) Quit nickel and diming me with this options bullshit. Let’s say I want to buy a Mazda3. Ok, I’m looking at a base price of about $19,000. Nineteen. Thousand. Dollars.

And if I want, say, a cargo net in the back, to keep things from rolling around? That’ll be $40. Give me a break. (more…)

Over at Blueprint for Financial Prosperity is a good primer on the different types of accounts in which you can park your emergency cash fund.

The blog lays out the difference between a high-yield savings account, a money-market deposit account and a money-market mutual fund. These last two are the source of a lot of confusion, and BFP more or less makes it clear what the differences are. (more…)