I'm just wondering if anyone is keeping track of just how much NEW spending has been proposed/passed by our government over the last 6 months. Forget $700B, I count $3.01 TRILLION Here's an estimated breakdown:
Original cost of Fannie/Freddie $200,000,000,000
US guarantee to JPM for Bear Stearns $29,000,000,000
2-yr loan to AIG $120,000,000,000
Exchange rate stability funds $50,000,000,000
Increase to FDIC $500,000,000,000 (Proposed)
Authorized Fannie/Freddie to buy mortgage backed securities $500,000,000,000
RTC type portfolio for banks $845,000,000,000
Pelosi/Obama stimulus package $115,000,000,000 (Proposed)
Hurricane and Flood Victims $24,000,000,000
Detroit Automakers $25,000,000,000
Heating for the poor $5,200,000,000
Budget Increases- Pentagon/Homeland Sec/Veterans Affairs $600,000,000,000
Since none of this money actually comes in the form of payment from an account but instead the printing of additional money people need to seriously consider how inflation will be impacted in the near future.
Bottom line: Dump your variable liabilities (ARMs, credit cards, HELOCs with variable, etc). The next 10 years could easily average an inflation rate double what we are currently seeing.
Take care,
Charles
Showing posts with label financial planning. Show all posts
Showing posts with label financial planning. Show all posts
Wednesday, October 29, 2008
I wake up and find I'm incredibly in debt!
There are different degrees of debt management. Your situation may be in the "crisis" stage. If this is the case, I suggest the following:
1) Analyze your debt: know what you have, what rate it's at and what the monthly payments are. Get a free credit report (annually) and make sure it's accurate (www.freecreditreport.org).
2) Minimize debt growth: more than likely you've gotten used to spending on a credit card or some other unsecured method of debt. Break the habit by putting the cards away. In the freezer if you have to (this eliminates impulse spending since you literally have to wait for the card to thaw out!). Move to debit cards wherever you can. For existing credit cards, can you move to lower interest rates (without getting ripped off after the intro period)? Stop automatic bill payments that go directly to the cards. Can you trade for a less expensive vehicle?
3) Itemize your life: this is the part where planners (present company included) tell you to budget. In my experience, if you had a budget you wouldn't be asking this question. More than likely you are not going to just pick up a full blown budget tomorrow. So start with a snapshot. Get your card statements, checkbook, receipts, etc. Everything that indicates an expenditures for the last 30 days. Write it all down. Next, scratch EVERYTHING. Then rebuild your expense list beginning with the most critical things. This will help you prioritize your expenses. Begin eliminating the lowest priority items and try to continue moving up the list.
4) Crown cash king: For a period, start carrying cash again. Not big bills waiting to get robbed but begin paying for small purchases with cash again. This way, if you don't have it you don't spend it. Debit cards are great but we can still get lost in the idea of having a mystery amount of money out there.
5) Increase cash-flow: You've already removed those unnecessary expenditures. Now let's increase your take home. Reevaluate your job. Are you earning the appropriate amount? Is it possible to pick up some part-time or contract work during evenings or weekends? "Garage Sale" over EBay?
6) Reconsider strategies: This is controversial but it is my experience so here you go. People will liquidate and get penalized by taking out their long-term retirement money (401/IRA) in order to cover short-term cash flow needs. Until you get debt under control, suspend contributions to retirement and savings plans. Remember, short-term cash crisis needs must be satisfied in order for long-term savings plans to be realized. Also, if you own a home consider whether or not it is in your best financial interest. I've had clients sell their home and move to a smaller, more manageable place and get a hold of their debt. Make sure you have "emergency money" which may even include available balances on credit cards (911 only).
Just a few expense reduction ideas: * If you have roadside coverage via AAA or your dealership, see how it balances out to the one offered by your cell phone plan. Choose the best option.
Reduce your cell phone plan and use land lines more. Most people can save $20-$30 per month with this.
Change life insurance from cash value policies to much cheaper term policies (consult planner first).
Check web bulletin boards for advice before making major purchases. Compare prices and get consumer advice.
Get healthy: trade Starbucks for water... tap water. Eliminate fast food ($6-$8 and clogged arteries per visit).
Shop at discount stores like Big Lots and $ stores for basic household items- even cheaper than Walmart.
Check company websites for coupons before utilizing their services (ie- getting your car fixed by a national chain).
Hope this helps!
Charles
1) Analyze your debt: know what you have, what rate it's at and what the monthly payments are. Get a free credit report (annually) and make sure it's accurate (www.freecreditreport.org).
2) Minimize debt growth: more than likely you've gotten used to spending on a credit card or some other unsecured method of debt. Break the habit by putting the cards away. In the freezer if you have to (this eliminates impulse spending since you literally have to wait for the card to thaw out!). Move to debit cards wherever you can. For existing credit cards, can you move to lower interest rates (without getting ripped off after the intro period)? Stop automatic bill payments that go directly to the cards. Can you trade for a less expensive vehicle?
3) Itemize your life: this is the part where planners (present company included) tell you to budget. In my experience, if you had a budget you wouldn't be asking this question. More than likely you are not going to just pick up a full blown budget tomorrow. So start with a snapshot. Get your card statements, checkbook, receipts, etc. Everything that indicates an expenditures for the last 30 days. Write it all down. Next, scratch EVERYTHING. Then rebuild your expense list beginning with the most critical things. This will help you prioritize your expenses. Begin eliminating the lowest priority items and try to continue moving up the list.
4) Crown cash king: For a period, start carrying cash again. Not big bills waiting to get robbed but begin paying for small purchases with cash again. This way, if you don't have it you don't spend it. Debit cards are great but we can still get lost in the idea of having a mystery amount of money out there.
5) Increase cash-flow: You've already removed those unnecessary expenditures. Now let's increase your take home. Reevaluate your job. Are you earning the appropriate amount? Is it possible to pick up some part-time or contract work during evenings or weekends? "Garage Sale" over EBay?
6) Reconsider strategies: This is controversial but it is my experience so here you go. People will liquidate and get penalized by taking out their long-term retirement money (401/IRA) in order to cover short-term cash flow needs. Until you get debt under control, suspend contributions to retirement and savings plans. Remember, short-term cash crisis needs must be satisfied in order for long-term savings plans to be realized. Also, if you own a home consider whether or not it is in your best financial interest. I've had clients sell their home and move to a smaller, more manageable place and get a hold of their debt. Make sure you have "emergency money" which may even include available balances on credit cards (911 only).
Just a few expense reduction ideas: * If you have roadside coverage via AAA or your dealership, see how it balances out to the one offered by your cell phone plan. Choose the best option.
Reduce your cell phone plan and use land lines more. Most people can save $20-$30 per month with this.
Change life insurance from cash value policies to much cheaper term policies (consult planner first).
Check web bulletin boards for advice before making major purchases. Compare prices and get consumer advice.
Get healthy: trade Starbucks for water... tap water. Eliminate fast food ($6-$8 and clogged arteries per visit).
Shop at discount stores like Big Lots and $ stores for basic household items- even cheaper than Walmart.
Check company websites for coupons before utilizing their services (ie- getting your car fixed by a national chain).
Hope this helps!
Charles
Who do you trust when shopping for a new Home Loan?
If you are JUST looking for a home loan then you are looking for a commodity and price is your only concern. Research prices and then have different companies compete by sharing their paperwork with one another. www.bankrate.com is a good site to begin with. You can get an estimate on what a mortgage in your area should run.
If, on the other hand, you are looking at increasing your overall net worth then you want to talk to a mortgage planner. They see the big picture and don't make you sacrifice your long-term wealth potential for their short-term commission. A mortgage planner will have you consider the asset and liability side of your books and treat a mortgage appropriately. If you need one let me know and I can make a suggestion. I've felt comfortable referring my clients to him in the past and he has done a good job.
Charles
If, on the other hand, you are looking at increasing your overall net worth then you want to talk to a mortgage planner. They see the big picture and don't make you sacrifice your long-term wealth potential for their short-term commission. A mortgage planner will have you consider the asset and liability side of your books and treat a mortgage appropriately. If you need one let me know and I can make a suggestion. I've felt comfortable referring my clients to him in the past and he has done a good job.
Charles
Whether to pay off the mortgage
You have some good financial answers listed here. 6% is a pretty cheap mortgage and not a bad position for a liability. But it does need to be considered with the rest of your financial plan.
Here's something else to consider. You said you WANTED to pay off some part of your mortgage. You may really want to do this but are concerned you might be making a mistake. No, it's not a bad idea. You wouldn't be doing anything "financially-wrong". If you will sleep easier and it will give you a greater piece of mind- pay down the mortgage.
For the record, I run a financial planning firm. So I guess I would have to respectfully disagree with the other comments about advisors never suggesting you pay down the mortgage.
Charles
Here's something else to consider. You said you WANTED to pay off some part of your mortgage. You may really want to do this but are concerned you might be making a mistake. No, it's not a bad idea. You wouldn't be doing anything "financially-wrong". If you will sleep easier and it will give you a greater piece of mind- pay down the mortgage.
For the record, I run a financial planning firm. So I guess I would have to respectfully disagree with the other comments about advisors never suggesting you pay down the mortgage.
Charles
Should I get a mortgage?
If your question is PURELY from a financial standpoint then here are some thoughts. I begin that way because mortgages usually have a psychological aspect that often outweighs the financial (ie- someone who says, "I'm just happy not to have a mortgage.")
Mortgage or no mortgage- who cares. Instead, think NET WORTH. When your end financial goal is to increase your personal net worth then all purchasable items become one of two things: an asset or a liability. Both should be used with the goal of increasing net worth. 4 years ago I would have said, take the mortgage. Why? Because you could get a low cost mortgage locked in for 10 years at 4-ish% then invest in a high quality fixed instrument for the same term at 5-ish%. Then you could write off the interest (to an extent). The bottom line was that you had your bond paying your mortgage and you were able to net money off the spread... thus, increasing net worth. Some people may gripe about this strategy but the fact is I did it for a client and it continues to work exactly the way we planned it. Today you're not going to find the fixed 4% mortgage or the high quality 5% income product. No, if given a choice I would not do the mortgage in today's environment.
Another component. With the above strategy you only use low risk products. You wouldn't use an adjustable mortgage and you would ONLY use high quality fixed investments. You need equal amount of risk on each side to properly counter balance your leverage (mortgage). You cannot offset the potential risk involved with using the stock market (US or non-US). So I would have to recommend against the strategy you described. As for advisors, get advice from someone who is referred to you by a trusted source. Make sure their fees are reasonable and they know what they are talking about. I recommend only using someone with the CFP credentials behind their name. I wouldn't stress about what "type" they are (ie- commission, fee based, fee only, etc). After 10 years in the business I've seen good, bad and ugly on all sides. The PERSON brings integrity, not the firm, the designation or the type of practice they run.
Hope that helps, CRG”
Mortgage or no mortgage- who cares. Instead, think NET WORTH. When your end financial goal is to increase your personal net worth then all purchasable items become one of two things: an asset or a liability. Both should be used with the goal of increasing net worth. 4 years ago I would have said, take the mortgage. Why? Because you could get a low cost mortgage locked in for 10 years at 4-ish% then invest in a high quality fixed instrument for the same term at 5-ish%. Then you could write off the interest (to an extent). The bottom line was that you had your bond paying your mortgage and you were able to net money off the spread... thus, increasing net worth. Some people may gripe about this strategy but the fact is I did it for a client and it continues to work exactly the way we planned it. Today you're not going to find the fixed 4% mortgage or the high quality 5% income product. No, if given a choice I would not do the mortgage in today's environment.
Another component. With the above strategy you only use low risk products. You wouldn't use an adjustable mortgage and you would ONLY use high quality fixed investments. You need equal amount of risk on each side to properly counter balance your leverage (mortgage). You cannot offset the potential risk involved with using the stock market (US or non-US). So I would have to recommend against the strategy you described. As for advisors, get advice from someone who is referred to you by a trusted source. Make sure their fees are reasonable and they know what they are talking about. I recommend only using someone with the CFP credentials behind their name. I wouldn't stress about what "type" they are (ie- commission, fee based, fee only, etc). After 10 years in the business I've seen good, bad and ugly on all sides. The PERSON brings integrity, not the firm, the designation or the type of practice they run.
Hope that helps, CRG”
What do you do with your 401k after you reach age 70 1/2 and you are retired?
First off, if his 401k included any low basis company stock DO NOT ROLL IT TO AN IRA. He needs to consider the potential benefit of what is known as Net Unrealized Appreciation. If you need additional info see a CPA or ask on this board. I'm certain there are a number of knowledgeable professionals familiar with NUA. I see some insurance/annuity suggestions on this board. I'm familiar with the strategies described. I doubt I will ever be comfortable generating that type of current year tax hit. Next, does the owner of the 401k have a company of his own? Even a side business or something that could easily become a part-time company of his own? If he does then there may be ways to delay the withdrawal of the 401k. There are some provisions were a worker is not required to take the required minimum distribution if he is still gainfully employed. If he's the only employee of his business then he may be able to have a solo-401k. He should be able to roll the money into that plan and delay the distribution. As with anything, definitely consult a tax advisor and retirement specialist before doing any of these. Hope that helps, CRG
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