Tales & Trails of a Traveling Wiseguy

I've seen a lot of articles in the news the past few months about people struggling with $1,000+ monthly payments for their car loans. For a few years that's been us, too! ...Well, the $1,000 part, but not the struggling part. When we bought our used BMW convertible in July 2021 we chose to finance it with a loan from the manufacturer. The monthly bill was technically only $945 and change but we rounded up the payments to $1,000. Now, 33 months later, we're done.

There's an old saying, Don't write checks you can't cash. In this context that's not just a figure of speech but a literal statement. We financed the car with a high monthly payment because we could afford it. We had the money to buy the car outright with cash, so making the loan payments was never an issue.

That's the biggest problem with people and their $1,000 car payments (IMO). They've bought more than they can afford. Like, they've bought a $60,000 pickup truck without the budget to afford it. What would have fit their budget was a $35k sedan or a used pickup. Now their monthly payments of over $1,000 are a monthly hardship for the next 5 years. They've written a proverbial check they struggle to cash.

The other thing that gives people trouble with loans is the interest rate. You can end up paying a lot more than the original cost of an item with all the interest charges. When rates were low several years ago, at least for people with strong credit, interest wasn't such a big issue. Indeed, part of our decision to borrow instead of buying the car outright was that we got a great rate. At 0.9% APR it was almost like free money. In fact, it was like being paid to borrow because I could invest the principal in low-risk securities and earn a better return than 0.9%. In addition, rounding up our payments to an even $1,000/month let us retire our 36 month loan 3 months early.

What's next? Well, we're still happy with the car, and it has just over 50k miles on it, so we're in no rush to replace it. If anything it's our other car, our 12½ year old SUV nearing 125,000 miles, that we'll replace first. But for now we'll enjoy being free of car payments for a while.

The bank where I've held a checking account for twenty-some-odd years sent me this solicitation today to open a new checking account with them:



I've written before about how my banks show little clue they understand my financial situation even though they're required to by law. Here I wonder if my bank even knows how old I am, let alone that I have enough assets I'm unlikely to be swayed by, Ooh! a free laundry basket.

...Though possibly they do know my age and are thinking maybe I have a child in college who'd benefit from a checking account. That possibility makes this far from the worst mismatch they've made. It's not like they're offering me a loan at "only!" 7.99% "to consolidate [my] credit card debt!!!" when a soft pull of my credit report would show I haven't actually carried a balance on a credit card in nearly 20 years. ...And that last time was at 0% APR. 🙄

An interesting thing about the recent failure of Silicon Valley Bank is that it's not due to bad investments. It's actually mostly psychological.

SVB didn't invest in fundamentally unsound investments. These weren't complex and dishonestly mis-rated mortgage backed securities, like what screwed up banks in the Global Financial Crisis of 2008. These were treasury bonds, an investment that's considered safe and conservative. There's no "What's this really worth?" mystery as bonds are priced in transparent, highly liquid markets throughout the day. When the agency behind them makes a change it holds a press conference.

SVB also didn't lose a ton of money on these investments. The loss was, like, 2% of SVB's total assets.

People argue whether SVB's mistake was having that 2% loss. Yes, they could have done better. But really their big mistake was communicating the loss. They were too loud about it!

You see, a run on the bank happens when there's a loss of confidence. A few depositors withdraw their money and announce they did it because they think the bank's in danger. This spooks other depositors, who withdraw their money, too. Soon the bank has to sell of assets to pay out these withdrawals— because, remember, banks don't just have everyone's money sitting in cash in a vault. That triggers further fears, triggering further withdrawals. It becomes a vicious downward cycle.

A fear cycle is exactly what killed SVB. They helped trigger it by being too transparent about suffering that 2% loss. The CEO basically went on social media about it. That alerted a few big-money depositors, who (a) withdrew their money and (b) also posted on social media about it.

The fact the run on the bank spread through social media is a huge part of how it happened in the space of a day. Years ago, like back in the Great Depression, a run on the bank happened when people lined up at brick-and-mortar bank offices to demand cash from tellers. In 2023 a run on the bank happens when people use an app to transfer $25,000,000 and then tweet it.

After Silicon Valley Bank collapsed and was seized by regulators on Friday, the government has taken steps to prevent further runs on the bank. First, on Sunday the FDIC announced that it would make all depositors whole. It extended its typical insurance limit of $250,000 per account to cover the full amount on deposit. This is not a "bank bailout"; the bank is still failed. Investors lose all their money, and executives will have to find jobs at others banks to ruin. The protection for is the people who had accounts there— which actually is a lot of companies that have their accounts there for things like payroll. I know, because I've worked at multiple companies with checking accounts there— including my present employer. 😱

The second major step the government took was this morning. To prevent runs on the bank at other banks as investors and depositors react in fear, the US Treasury has promised to redeem their underwater Treasury Bills at face value. This is arguably also not a "bank bailout" as the payments are actually loans, not full redemptions. I'm still trying to find details on it— which is hard even in financial media at the moment because of the amount of misinformation and outright disinformation (purposeful lies) that pollute the channels.

The bond loans are critical because it's US Treasury bonds that sunk Silicon Valley Bank. That's right, it wasn't something crazy and risky like cryptocurrency or "liar loans" that wrecked them, it was good old, safe, sensible Treasuries. What happened was all the bonds they bought a few years ago, when rates were really low, are now worth much less than their face value since rates are really high. For buy-and-hold investors that's not a problem; if you hold bonds to maturity, you're paid the full face price. But banks and other investors who need to sell bonds early to pay for something else— like larger-than-expected withdrawals from bank accounts— have to take the current market price. SVB got burned on that, tried to raise capital with a new stock offering, and triggered a vicious downward cycle, a run on the bank.

Update: my crosspost of this journal entry to LiveJournal hit the daily Top 15 list there in less than an hour!

Continuing with my theme of how couple should manage their money together, my topic today is how many bank accounts a pair of people in a relationship should have. After "How should we share expenses?", which i wrote about yesterday, it's the next most common question I see in financial advice columns and blogs. And the two questions are related. How you set up your bank accounts is closely tied to how you share money and split expenses.

When Hawk and started living together years ago the modern advice was to have 3 bank accounts: one for each person in their name alone, and one joint account from which shared bills can paid. The idea was this preserved each partner's independence, via money and fiscal control that was theirs alone, while also making it simple to share common expenses. That was different from the more traditional arrangement, where couples once married would have a single household bank account. Often the woman in the relationship would have little control over the money.

As an aside, I can only shake my head at how the 3-accounts strategy that was the new advice 25-30 years ago still seems to be the new advice today. So many questions or stories on this topic in financial advice blogs are from women who are trying to avoid, or recover from, loss of financial control.

Anyway, back to what worked for us.

3 Accounts, in Spirit if not in Practice

When we moved in together we embraced 3 accounts idea... in spirit. We each had our own accounts but no shared account. One of the other of us would pay each bill for shared expenses (rent, utilities, food) then about once a month we'd figure out the difference and one person would write the other a check to even it out.

Why no shared account? Frankly because bank accounts are not free. Even the credit union I belonged to had a monthly account fee that was only waived if you had either direct deposit of your paychecks or a certain minimum account balance— a minimum that was high for people just getting started out. Having a third account would've meant paying fees. Evening it up ourselves once a month, even in the old days of adding stuff up on calculators and then writing a check, was easier than paying a fee. BTW if we were starting out today we'd do the same thing— though with a tool like Venmo or Zelle to even out the payments.

If 3 is Good, 6 is Better!

As we built up our finances we did open a third account... once we had enough money to meet the minimums across multiple accounts. And then we opened a fourth account, and a fifth, and more!

We opened the second trio of accounts specifically as savings accounts, separate from our checking accounts. In terms of discipline, checking accounts are for regular expenses. We auto-deposit our paychecks and pay bills there. Savings accounts we only touch for bills if they're major, planned purchases. More importantly, in terms of financial structure, the savings accounts are high yield. We hold them at banks that pay great interest rates. Most banks and even most credit unions pay essentially 0% interest on checking account balances. The best high-yield accounts are paying close to 3% today.

Advice You Can Bank On

My advice to people starting out (or starting over) today is three simple recommendations:

1. If you're in a long term relationship, use the 3-accounts approach— in spirit (like we did for several years) if not in practice.


2. If you're living mostly paycheck-to-paycheck, focus on finding a good checking account with as low fees as possible.


3. Once you're able to start saving, open a high-yield savings account and start transferring there whatever money you don't need for regular expenses. (Note this isn't investing. Investing is the next step, and it's a major one.)

I've written before that I rarely visit ATMs anymore. What used to be a twice-a-week ritual to withdraw cash has slowed to once, maybe twice, a year as I've moved to largely cashless behavior. I proclaimed "RIP ATM" in 2014. After spending a bunch of cash last week at a store that doesn't accept credit cards I went to the ATM to refill my wallet. Call it my once a year ATM trip. But when I went there my ATM was gone!

The credit union I've done my retail banking with for the past 25 years closed its branch near my home during the pandemic. I saw that when I visited the branch 5-6 months ago to deposit a small dragon's hoard of coins. I had to go to the next branch 5 miles away. But now the nearby branch has been closed permanently. And the ATM has been removed!

Time for a New Bank?

Losing the branch near home got me questioning whether it's time to switch banks. I've been considering a move for several years. The credit union I'm with doesn't particularly excel at the things credit unions are supposed to do well— better rates and fees than traditional banks offer. It's only on par with traditional banks in that regard. And it's a small institution so it's, like, 10+ years behind on digital tools.

I've tolerated these uncompetitive aspects of the CU by combining my basic checking account there with accounts at other banks. I basically just use the CU as a direct-deposit target for my paychecks and for the convenience of a branch office the once a year I need it. I keep most of my cash in an online bank that pays me a high interest rate and has great digital tools. Oh, the CU refunds me the fees charged when I use other banks' ATMs. That's very convenient when traveling. But the thing is, the big banks offer that feature, too, when you've got enough money with them across all your accounts. Plus, the big banks— Chase, Citibank, etc.— have plenty of branches and ATMs in their own networks.

The Power of Small

While the big banks have a certain power of size with plenty of locations, the CU I've banked with for 25 years has a power in its smallness. Because they're small they still focus on the retail banking customer. Those one or two times a year I've needed to go inside a branch they've always taken care of me well. The tellers are polite, capable, and empowered. The handful of times I've needed something beyond what a front-line employee can do, a specialist or manager has always taken over quickly. Even when I call their toll-free number I get to a real employee quickly— within business hours.

Compare that to the online reviews I checked for big bank branches in the area. I saw lots of complaints of indifferent tellers, having to make appointments well in advance for special service only to have the specialist not show up, and hostile branch managers who blame everything on the customer. Seeing that, I've decided to stick with Small.