FrugalJim

Debt is like wine.  A glass or two during a night out can take the edge off and make the evening a little more enjoyable.  Drink two bottles though and you’re asking for a hell of a hangover.

I’m in a relatively good financial position right now, but I can easily look back and see a different path I could have taken.  For example, the wife and I could have bought a more expensive house by using an exotic mortgage instead of our modest townhouse financed with a 30 year fixed loan.  

My truck will be paid off in about a year from now, but I could have easily traded it in for a new loan on a nicer car.  I was especially tempted to do this when gas prices hit around $4 and I was paying about $80 to fill up the tank.

If I had done these things, essentially drinking the whole bottle of wine, I would have been asking for a hangover.  My company just announced it will not be giving any cost of living increases this year, and many people are being laid off all over the country.  Right now, if either the wife or me got laid off, we could probably get by long enough to find another job.  

Unfortunately, many people aren’t in this position.  Either they bought too much house, thinking prices would continue rising, or they bought whatever they wanted, assuming a stable job would allow them to pay off the debt later.  

Hopefully, I’ll remember this in the future and practice self constraint when others around me are living it up and getting drunk.

Holy Cow!  January is gone and I’ve been slacking as far as posting any blogs.

I do however have an update on my 2009 goals.  In fact, I think I’m doing pretty darn good by still thinking about them after a month into the year.  I’m guessing I made it further than a lot of people who vowed “to get in shape in 2009″, and hopefully I’ll stick with it.

Well, the good news and the bad are the same thing: the numbers are down.  

The good news is that I’ve successfully lost about 7 pounds this month.  I’ve made it to the gym 3 times a week and did some form of excercise a couple of other days.  I’m starting to see a very small difference, but I’m continually having to remind myself to not go nuts and stuff my face.

The bad news is that I’ve also lost a lot of money in my investing account.  I got killed by owning a pretty good chunk of Bank of America.  It’s pretty much down around 50%, and is hovering at about $6.  I paid around $15. 

Other than that, the only other news is that I might need to put a little more “frugal” in FrugalJim.  My company just announced that there will be no merit increases this year.  If prices keep going up with inflation next year, it’s going to seem like I have less money in my pocket.  My only chance is to get a promotion (which usually comes with a bump in pay).  It’s a stretch for me to get one this year, but I think I might have a chance… only if I kick some butt here at work.  Speaking of work, I better get back.

A stock option is kind of a vague idea for most people to understand right off the bat.  You’re not actually dealing with owning a piece of a company like with a stock, but you’re actually dealing with the “option” to own a stock which is a piece of a company.

A stock option is actually defined as “the right to buy or sell a company’s stock at a certain price”. 

I think that the best way to help understand stock options is to use an analogy:

I live in Central Florida, where we get battered with hurricanes every couple of years.  Let’s say I own a hardware company, and I know that if we get hit with a hurricane this year, I could sell 500 gas generators to people who want to keep their refridgerator and appliances running while the power is out.  The problem is that as soon as a hurricane comes, my suppliers will be bombarded with demands from other companies, and I probably will only get 10 or 20 generators to sell.  Plus I don’t want to buy 500 generators now, because if we don’t get hit with a hurricane I’ll be stuck with 100s of generators in my warehouse taking up space and a lot of my money.

So what do I do?  I go to the manufacturer and I tell him that I’ll pay him $1,000 in return for a guarantee of the right to buy 500 generators the next hurricane season at MSRP.  Even if, all the other hardware stores in Florida are asking him to send generators, he will send the first 500 from his warehouse to me, whenever I ask.

Now, if we don’t get hit with a hurricane this year, I’m out $1,000, but at least I’m not stuck with 500 generators I can’t sell.  The big benefit comes though if we do have a hurricane.  I’ll probably be the only one in town with generators to sell to everyone, and I can probably raise the price a little too.  I’ll make a killing.

Stock options work this way too.  It essentially lets you benefit as if you “own” the stock, without actually having to buy it.  For example, if I buy call options on Bank of America for next month at a $10 strike price, I’ll have to pay around $.50.  If the stock goes up to $20, I can excersize my option to buy the stock at $10, and turn around and sell it for $20, when I only spent $.50.  If the stock tanks, I’ll only be out of $.50.

I hope this helps clear some confusion in the complicated topic of stock options.

There are rumors that John Thompson, the current CEO of Symantec Software will be nominated to become the United States Secretary of Commerce.  Thompson already has plans to step down from his post at Symantec in the middle of this year.

What can we expect from this guy?  I’m betting on a bit of a protectionist agenda.  Be on the lookout for new rules against the government buying software from other countries.

For example, there is a Russian software security company out there that offers a competing antivirus solution with Symantec.  Do you think that it will make it’s way onto government computers in the future?

It will be interesting to see who gets nominated for that post.

Right now, I’m watching the inauguration of Obama on my computer here at work.  The sounds is crackling, the video keeps freezing and rebuffering, and the video window size is so small, I have to squint.  Still though…  I’m enjoying it.

I figure it might be funny to look at this image sometime in the future and remember the thoughts swirling through my head right now.  We have no idea what will happen in the next four years.

Obama inauguration screen cap