Bank Reserve Balances Are Terrible

In two weeks of time, the bank reserves continue its swan dive. The whole banking system is now held and patched together by Federal Reserve. Without all the bailouts for the bankers, many banks should have gone under.

Here is the data for the current bank reserve (click to go to Federal Reserve data), at negative 100 billion dollars. Since last November which had been holding at above positive 40 billion dollars, the US bank reserves have gone down by 140 billion dollars, or 350%. The rate of deterioration is very fast also, at about 31 billion every month. What’s holding everything together is the increase in the term auction credit. Instead of having a contracting monetary base, everything is temporarily held together at about constant monetary base (but not M3 which is exploding at about 15 to 20% annual rate).

Again, one more emphasis on making sure your bank money is covered by FDIC insurance. Cash is only valid until the bank doesn’t go belly-up.

Looks like banks are not simply done with writing down their assets.

My New Budget For 2008

While doing this new budget, I was extremely impressed by the tools provided by the credit card companies. They have made the budgeting process so much easier that you no longer need to spend hours and hours trying to figure out where your money has gone. All of them provide spending by categories and dates, so that you can easily figure out your own spending style. Although the tools will never be perfect in categorizing every bill, at least it’s a very good start.






This is not the true value that I pay, but only serves as what I should be paying in terms of interest cost due to carrying a mortgage, or the equivalent rent that I should be paying.

Homeowner due


Includes the insurance for the condo.

Electricity & Gas






Local Phone


Cell Phone


There has been some increase due to usage, but here is how I get it so low.

Long Distance Phone


Mostly it’s international calling cards.



Most vanilla plan because I can’t get clear TV signals.

Medical Insurance


Covered thru my employer.

Car Insurance


Only pay about $900 a year for two old cars, liability only, plus full coverage on 1 new car.



My round trip work commute is 24 miles. My car has about 20 miles/gallon.

Car Maintenance


Oil changes + prorate for changing brake + 30K/60K miles service.



Annual of $4600, mainly for flying (internationally) back home to visit parents.

Food + diapers + baby milk powder


Does not include dining out.

Dining out


Never realize that it’s quite a lot of money spent here.

Toys/Books for children


Preschool/other educational expenses


Currently zero, but expect hefty increases starting next year.

Wife’s allowance


Wife’s happiness is of the most importance.

Cash Usage


God knows where I spent these dollars.



Increase due to a more realistic assessment of my contribution.



About $100 extra padding, while the other $200 do get spent on all kinds of things.

Federal Tax


Tax can increase very fast with additional income or without 401k/IRA contribution.

State tax


City tax


Social security tax


Medicare tax


Property tax




Annual limit is $15500.

Spousal IRA


I’m not allowed to contribute to this due to my high tax bracket.



Employee stock purchase plan, maximum amount of $18000.

Here are some reflections on the increase of my expenses from 2 years ago:
My gasoline cost increased from $160 to $260, mostly to due crude oil price increase and longer commute distance.

The other major increase in the total of food+dining is from dining out, even though the most (if not all) of the dining bill is less than $35 per family. This category has gone up by almost 50%. The main reason is that my kid is no longer 0 to 1.5 year old, and I can finally dine out.

My cell phone usage has gone up too from $7 monthly to about $9, due to the increase in my other side activities besides the blog. But the absolute amount is tiny in comparison to any other items. And yes, I’m still using T-mobile prepaid.

And I have also decided to simply budget for my charity spending, instead of deluding myself. It has been pretty consistent for past 5 years, and the amount of money going towards charity purpose will only go up instead of down. I have under-budgeted the charity amount somewhat, just to give myself a little financial breathing room. I think putting it at $290 monthly should be a good compromise.

My “vacation” expenses have gone up a lot because of the cost increase in international travels going back home, and also now I’m forced to take these travels ONLY during school recess.

In case you wonder, I also zero out Spousal IRA item since that is simply a “theoretical” contribution instead of a real one. My tax brackets have disallowed this contribution almost every year.

I also up $200 on miscellaneous category, which appears to be the right amount from my past 12 months of spending.

Looking forward, I expect that I will be spending more and more on children on educational purposes as they grow up.

From above, my total expenses (in white) are $5238, and my total taxes (in red) are $1661, and the savings (in green) are $2792. Assuming a household income of about $110K, or a monthly wage of $9167, my cashflow after deducting all the above items is negative $524, which needs to be deducted from savings. Please note that the above taxes are just the taxes that one might be paying at such income level, but I actually pay A LOT more (3X or more). This is mainly due to a very progressive tax system that extract a lot more taxes from any additional income beyond this level. My marginal bracket is at about 40%, instead of 20% from the above. The only problem is that it just doesn’t take much more income to quickly go to 40% marginal bracket.

The bottomline is that my net saving has dropped to $30400 from the previous $45000, after I account for the 15% discount in share purchases of my company ESPP plan. Some of the drop is due to the differences in what I’m accounting for budget, but nevertheless, the drop is significant enough to be observable from bank account balances. Unfortunately, I expect my saving levels to continue to dwindle, due to the increase in the child expenses going forward.

What’s the lesson here? I’m not becoming much less frugal, but my saving drops. Inflation accounts partially for the drop, but the main reason is as stages in life progress, your saving (if it is still positive) will be dropping to its LOWEST when your children start going to college. I’ve written an entire post (boring, but truth that you don’t want to hear) on this point to advise anyone out there to start SAVING NOW. The best time to accumulate your savings is before having any kids, especially before getting married (and after you just started working). The next best time to accumulate your savings is when your kids finish college, and before you retire. The rest of the time, one should consider oneself lucky to scrap away something left after all expenses are paid. If you have any doubts about my drawn conclusion, simply ask your parents.

Tax Rebate Checks Coming

Economic stimulus is coming. And many retailers are looking for you to spend your check. In the recession, it’s a good time to spend money if you have it.

Of course, the amount of my rebate check is $0. I’m not getting any. But it’s not like I’m making a lot more. The tax rebate calculation and tax system was unfair to places with a very high living cost structure. Even though you are supposed to have a “high” income on a national basis, your high income simply doesn’t go far enough after all the needed expenses.

So what’s my advice on your rebate check? You guess it. You should SAVE it. The current economic slowdown is not going away yet. You will have plenty of chances to spend it on good purposes later.

But if you have to spend, make sure you spend it wisely. Find good deals. Pay down your credit card debts. Pay down your college loans. Build your emergency savings. These are just basics. I hate to repeat what Suze Orman would say, because what she says is obviously boring. But the truth is often boring, and not pleasing to your ears or heart. There is never a get-rich-quick scheme (or if there is, it won’t last very long at all). To accumulate more net worth, you simply have to save/earn more and spend less. I know every reader here would like to earn more instead of to save more. But saving more is actually a whole lot easier than earning more.

Anyway, if you still don’t know how much you may be getting, here is a calculator from IRS for you to figure it out. Hopefully, it’s something non-zero for you.