Len Penzo dot Com

The offbeat personal finance blog for responsible people.

Got a Fixed Rate Mortgage? Root for High Inflation.

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With all the liquidity that the governments of the world have been releasing into the economy, I believe it will only be a matter of time before we begin to experience a nasty bout of inflation that will force interest rates into territory not seen since the late 1970s and early 1980s. With that in mind it got me thinking, if high inflation is inevitable, is it still worth it for me to continue to pay down my mortgage with a goal of completely retiring it by the time my son, God willing, graduates from high school seven years from now?   For me, the answer to that depends on just how long I think the inflationary period will last. So what's my situation?   As I discussed in my previous post on the benefits of living within your means, I bought my current house in 1997 for $199,000.     Over the 10-plus years that I owned the house I have faithfully made extra principal payments in order to ensure that I was mortgage free by the time my first child was out of high school.   As a result, today, I owe less than $120,000. After my latest refinancing goes through, my new mortgage bill will be reduced from $1122 to only $640.   This new monthly payment borders on a level approaching the ridiculously absurd!   By that I mean the new monthly mortgage is so low that I should be able to pay it with little trouble, regardless of what type of job I have. Furthermore, the new lower monthly mortgage also has the advantage of putting a much smaller dent into my rainy day fund than my old mortgage.   Of course, although I will be going from a 20-year fixed loan back to a 30-year fixed loan, my original plan for now will be to stay the course and continue paying excess principal on the loan to ensure that it is retired early. Or will it? Because if inflation goes into or near double-digit territory, as I believe it will, I may be wiser to hold onto that money going toward the extra principal and forget about retiring the debt early. Why?   Because as inflation rises, it erodes the value of the dollar over time. Banks, in particular, hate high inflation because folks with longer-term fixed-rate loans end up repaying those loans with dollars that are worth a lot less than the value of the dollars they originally borrowed.   Normally, interest payments are more than enough to compensate the banks for the costs attributed to benign inflation, but when high inflation appears, all bets are off -- for the banks anyway! High inflation is a blessing for those who find themselves deep in debt -- assuming they still have the means to stay solvent.     And who is one of the biggest debtors among us?   None other than good old Uncle Sam!   Trillions of dollars of debt.   For this reason I believe that the Fed will ultimately determine that the best way to reduce the impact of the multi-trillion dollar debt run-up by the United States is to unleash a managed run of high inflation over a period of several years. Sure they used to talk a good game about reigning in inflation, but I believe they now think that it's their "best" and "only" option out of the debt mess this country currently finds itself in. That's why, as the household CEO, I've decided after a dozen years of doing otherwise, to officially reverse course and abandon my quest pay off the mortgage early. If you liked this article, please be sure to subscribe to my RSS feed. ...

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What the Heck Does a Household CFO Do?

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Being the household CEO can be a very lonely job indeed, but it doesn’t have to be.   In multiple-person households, there may be others (usually the spouse) who will wish, or even insist, to be a part of the financial management process.   Luckily, in order to keep harmony within the household, the savvy household CEO can delegate many of his responsibilities to a second management position.   This adjunct position is known as the household chief financial officer (CFO). In the Penzo household, it is the Honeybee (my wife) who takes on the role of household CFO, while I function as the household CEO. The role of household CFO is not some honorary position invented just to keep a spouse from getting their feathers ruffled.   Indeed, the position of household CFO is complementary, and certainly no less important, to the role held by the household CEO.   In fact, I will argue that the role of CFO is actually more labor and time intensive than the role of household CEO alone.   Do I acknowledge that fact to the Honeybee?   Of course not!   ;-) So what, exactly, does the household CFO do?   Let's first examine the CFO's role in the corporate world. In the business world, the corporate CFO can be responsible for performing many tasks including investor relations, managing capital, financing purchases, analyzing potential mergers and acquisitions.   The corporate CFO is also responsible for condensing financial knowledge into a form that can be used by the corporate CEO in order to help him make strategic decisions. Like her corporate counterpart, a household CFO is a financial manager.   She is responsible for keeping her fingers on the pulse of the household through careful record keeping.   Furthermore, it is the household CFO’s responsibility to thoroughly understand the household CEO’s vision (or the agreed-upon joint vision of the CEO and CFO).   And if the household CEO ever fails to accurately convey that vision, then it is up to the household CFO to say so.   The household CFO is also expected to notify the household CEO at the first sign of anything that may adversely affect the household strategic plan so that potential problems can be addressed and actions quickly taken to rectify the situation. In a nutshell, whereas the household CEO is responsible for maintaining a strategic vision by looking into the future, the household CFO must look into the past via the maintenance and examination of records such as bank statements.   The CFO tracks every little item -- even when it comes to more obscure things like the cost of delivering a baby! By looking into the past, the household CFO can then help the household CEO budget and plan for the future. So to summarize, the seven primary tasks of the household CFO are: 1.       Understand the household CEO’s vision and strategic plan 2.       Establish financial record archives and databases 3.       Ensure all checking and savings accounts are balanced and accurate 4.       Pay the bills and deposit all income into the proper accounts 5.       Track all household income and expenses 6.       Identify potential negative financial trends 7.       Communicate your data and findings with the household CEO I've already discussed the six primary tasks of a household CEO.   But keep in mind that, in the absence of a willing volunteer, the household CEO is also responsible for performing all these duties too.   In many cases, the household CEO may also unilaterally choose to handle both tasks. However, I want to stress again that when there is more than one person willing to take part in managing the household finances, designating a household CFO provides an excellent opportunity to spread out the overall responsibility and work entailed in running a household.   This becomes especially advantageous in households such as mine where there is a stay-at-home spouse. Because the household CFO has a larger workload, I'd like to strongly recommend that the position of household CFO be taken by the stay-at-home spouse.   This arrangement has worked extremely well for me and the Honeybee over the many years we've been married.   As CEO, I set the household budgets and long-term planning, while as CFO she handles the day-to-day operations and continually tracks our performance to the budget and forecasts trends. If you liked this article, please be sure to subscribe to my RSS feed. ...

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Better Late Than Never

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A recent article in Ars Technica stated that Technorati has tracked 133 million blogs since 2002. Consider this blog number 133,000,001. So what if I am five years or so late getting onto the blogging bandwagon? Better late than never, right? I ...

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