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financial planning

Managing your home loan debt and eliminating it – How can you do so?

Sep 12th, 2011
by Ms Smith.
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Mortgage debt
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When you take out a home loan, you have to be careful about repaying the loan as your home is pledged as collateral. If you default on the home loan payments, it is most likely that the secured loan lender will repossess your house in order to recuperate the money. It is important for you to manage your home loan debt so that you don’t lose your home to a forced foreclosure. However, there are certainly some other debt obligations that you owe apart from your home loans debt and you need to make sure that you don’t fall back on the monthly payments of your unsecured loans when you’re repaying your home loan debt. Read on to know how you can manage your debt and repay them faster.

  • Follow a budget: You must follow a budget so that you can prioritize your payments according to their importance. As your secured loan has your home attached as collateral, you must make sure that you repay your secured loan first and then take into account all the unsecured debts that you owe. A frugal budget is a necessity as you have to make sure that you do not spend too much money on things that you don’t need.
  • Make prepayments on your home loan: You can make prepayments on your home loan if you want to stay sure about the repayment time of your loan. The mortgage lenders may allow you to pay an added payment to the already scheduled monthly mortgage payments so that you can repay the loan before time and live debt free. Just check whether or not there is any kind of prepayment penalties on the loan so that you’re not charged too much for pre-paying the loan.
  • Go for home loan modification: You can also go for home loan modification where you just change the terms and conditions on the home loan so that you can repay the loan in easy and affordable monthly payments. You can simply ask the lender to modify your loan by lowering the interest rates, the repayment term so that you can repay the loan with ease and without falling back on the monthly payments.

Thus, if you want to eliminate your home loan debt, you must make sure that you follow the above mentioned steps and stay out of it. Manage your personal finances effectively so that you can keep secured debts at bay while making payments towards your unsecured loans.

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The Benefit of a Budget

Aug 29th, 2011
by jblankenship.
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There are two important records that you need to keep if you’re planning to be successful in managing your finances – a budget and a net worth statement.  In this post we’ll talk about how to make a budget, and the benefits of having one.  In a future post we’ll talk about net worth.

(I can almost hear you groan: Great, the financial guy says I need a budget.  I can’t stand the idea of a budget!)

It doesn’t have to be like that. It’s easy to imagine that a budget would be a constraint, but this is really just a fear of the unknown.  A budget is really just a spending plan, with priorities applied.

How to make a budget

Making a budget is much more simple than you think.  Track your spending over the past several months (if you can gather the records) and do the same for every expense you pay out from this point on.  Organize these expenditures into categories (you make them up – have fun with it if you like) and begin to think about how your categories relate to your life, and your values.  For example, you likely have a category for auto expenses, another for home or household expenses, maybe one for groceries, and another for restaurants.  You may also have categories for entertainment, gifts, and clothing.

Certain expenses are fixed – such as your mortgage, cable TV, and auto insurance.  But other expenses can vary quite a bit, such as dining out, entertaining, and clothing.  And if you think about it, some of the fixed expenses might be more variable than you think – or at least they could be reduced.

What’s important about a budget is that you are now thinking about your expenditures as you make them.  As you track your spending, you’re going to notice that there are some categories that you spend a lot of your income on, while other categories may not have any expenditures in some months.

What you’re doing is prioritizing – even if you haven’t made a conscious effort to do so.  Those things that you spend a lot of money on are the things that are (presently) getting more of your attention, time, and money, while other areas are being short-changed.  Until you create a spending plan to track your expenses, you probably don’t realize what those priorities really are.  Now that you have your spending plan, you can understand the priorities – and you probably will make some changes.

For example, if it turns out that you’re spending exactly every penny that you earn or more (thus no savings), you may decide that savings for a rainy day is important to you (remember, no judgments here, we’re just reviewing the plan).  If that’s the case, then you need to figure out what categories of your spending plan are less important to you than saving for a rainy day.  Maybe it’s clothes.  Or your auto expenses.  Or gifts.  Whatever that category or categories may be, you are in control and can make wise decisions about what gets priority and what doesn’t, for your life.

Start with your “fixed” expenses – mortgage, homeowner’s insurance, utilities, etc..  Are these really fixed?  Is it possible to impact the cost of your homeowner’s insurance – maybe by choosing a higher deductible (for example)?  How about refinancing your mortgage to a lower rate?  Just be careful that you don’t draw out equity when you do this, or stretch out the payments beyond what’s reasonable – but this could free up some money each month.  Maybe you’ve been paying on your mortgage for several years now and have built up equity to a point where you don’t have to pay PMI any more if you refinanced.  What about your utilities?  Couldn’t you reduce the cost by bumping the thermostat up (or down) a degree or two?

There are a myriad ways to reduce or eliminate these “fixed” expenses – as well as to impact your more variable expenses.  Cut back on dining out.  There’s no shame in brown-bagging your lunch – if dining out isn’t a high priority for you.  The same goes for grocery costs (clip coupons), clothing (most folks have more clothes than they ever wear anyhow), automobile expenses (take the bus, or work out a telecommuting arrangement at your job), and so on.

The point is that unless you track your spending, you can only have a vague idea of what your spending priorities really are.  By tracking your spending, now you are fully conscious of where you are putting your money – and you can decide what categories get more of your hard earned dollars.

The Benefit

As mentioned above, as you begin tracking your expenses you are now in a position to understand and control your spending.  Where before you thought that all these expenses were necessary, now you’re thinking of where your priorities lie.  If you place a value on a particular category, let’s say it’s charitable giving, and that priority is higher than your priority for cable television for example, now you are in a position to consider how to reduce the one expense in order to put more toward the other.  Having organized your information you can plan out how your budget dollars will be spent.

The bottom line is this – if you’re going along merrily without any sort of plan, two things are going to eventually happen:

  1. You’ll never achieve the balance of priorities that you hope to achieve in your life; and
  2. At some point, when your income is reduced either by a change in job situation or at retirement, you’re going to have to work out a budget because the expenses without a plan are greater than your income.

Most everyone comes to this point in their life at some time – and those who have spent a bit of time working on understanding their outlays in advance are in a much better position to make changes and adjust to a reduced income when it occurs.

Make a Long-Term Plan and Stick to It.

Jun 22nd, 2011
by jblankenship.
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stick stick stick stick stick stick stick
Image by SMN via Flickr

In his Preface to the Fourth Edition of Benjamin Graham’s legendary book The Intelligent Investor, Warren Buffett wrote the following:

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information.  What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.  This book precisely and clearly prescribes the proper framework.  You must supply the emotional discipline.

I’ve seen the same sentiment boiled down and paraphrased a bit, also attributed to Mr. Buffett (although I couldn’t find the original source) as:

It only takes two things to make money – having a plan and sticking to it – and of those two, it’s the sticking to it that most investors struggle with.

Either way, the point is relatively clear – investing successfully, per se, is not rocket science, there are many sources you can use to develop your plan; or rather, your “intellectual framework for making decisions”.  The difficult part is keeping your emotions in check when your investments have gone to extremes, high or low, so that you can stick to your plan.  The whole reason for developing a plan in the first place is to help you to navigate the tough times.

The same goes for your overall financial goal plans – such as retirement plans or college savings.  Developing a plan is not exactly simplicity – there are many issues to be dealt with to ensure that the plan itself is sound, including investment allocation, tax concerns, coordinating various sources (Social Security, taxable accounts, IRAs, 401(k)s, pensions, etc.), timing of contributions and withdrawals, and so on.  These things are quantifiable, although the weaving together of these issues can be very complex.

The place where most financial and investing plans go awry is when difficulties arise, and you begin to question the plan.  It’s understood, in part because you can often find yourself facing these difficulties in a vacuum, without any idea whether what you’re experiencing is common for all folks in your position or if you’re doing better, or if you’re doing worse.  You may have no idea if the plan you’ve developed is appropriate for weathering the current storm, or if the reason you’re experiencing poor results is due to some problem in the plan itself.

This is where a good financial advisor can be worth her or his weight in gold.  If the advisor you’ve chosen is properly qualified, he or she can draw upon voluminous knowledge and experience to help you understand what the plan needs to include to weather the storms.  The second part, and according to Buffett the most important part, is staying with the plan even when things aren’t rosy all around.  A good financial advisor, one who will operate as a fiduciary, undertakes the duty to maintain calm and to ensure that emotions are not driving the decisions.

Note: Not all financial professionals undertake this responsibility in their work with clients.  Ask the questions, and if the financial pro you’re talking to won’t explicitly accept the responsibility to help you stay on track when things get rough, you need to look elsewhere for a new advisor.  Try www.NAPFA.org for starters.

Most often this “sticking-to-it” part becomes the most difficult when there is great volatility on the downside in the markets.  You don’t have to go very far back in time to recall some of those dark days… we saw such a dramatic downturn in the markets between Summer 2008 and Spring 2009.  Those were scary times, to say the least.  I remember sending out messages to my clients every few weeks during those days, repeating the mantra to stay with the plan, don’t panic. Maintaining perspective and remembering that the plan is for long term is the key – I can remember conversations where we discussed the concept that we’ve invested with the aim of using the money many years from now, and since what’s happening today is the short term, we need to maintain our positions.

That leads us to my final point on this quote: One thing that the rephrased quote above leaves out (versus the original) that I think is just as critical is where Mr. Buffett specifically refers to investing “successfully over a lifetime”.  Mr. Buffett has many times stated

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

… meaning of course, that moving in and out of the market based upon “timing”, gut feelings, or crystal ball predictions, is not the way to be successful.  Having long-term plans with solid investments, not the “get rich quick” type of investment, is the way to success.

So – here’s another rephrasing with my adjustment:  Have a well-thought-out long-term plan to help you make decisions for your future (investing or otherwise), and stick to it. And hire a financial advisor to help you with both, because you’ll need the guidance, knowledge, and discipline to help you through tough times.

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Book Review: Uncertainty is a Certainty

Jun 17th, 2011
by jblankenship.
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uncertaintyisacertainty

This was a surprising and refreshing book.  The full title is Uncertainty is a Certainty, Fables for Fiduciaries. The author, Guerdon T. Ely, has done the near impossible: the very topic of fiduciary duty has been known to induce a near coma-like status in even the most devout financial professional, but Ely has distilled the critical concepts into a very easy-reading tome that keeps the reader interested, even engaged, in his explanation of what is required of the fiduciary.

For the uninitiated, a fiduciary is a financial professional who has the responsibility of handling financial affairs for another entity – it could be a trust, a pension plan, or an individual or family.  There is a set of rules that explain the duties of a fiduciary, known as the Uniform Prudent Investor Act, or UPIA for short (we certainly love our acronyms in this industry, don’t we?).

This bit of law, originally adopted in 1992, serves as the default guide for a fiduciary in managing the financial affairs which he or she is responsible for.  There are many different components of the law that are complicated to understand – enough that a great many financial professionals would have a hard time explaining some of the concepts, even though they may be required to follow these tenets.

Guerdon Ely uses stories from his own experience to relay and interpret these key concepts. These stories cover such wide-ranging topics as meeting a group preschoolers; working as a beekeeper; and being behind the scenes at professional golf tournaments. By catching up the reader into the world of his story, before you know it he’s deftly explained a key tenet of the UPIA – in a way that’s easy to understand and retain.

A couple of examples include:  Using a boyhood story of being dared to go higher and farther to explain the concept of risk tolerance; meeting Alice Cooper and Clint Eastwood by happenstance on a golf course to help explain how illusory image has become the bane of our financial industry; and time spent backpacking around the country as a twenty-something young man to help explain the benefit of focusing on efficiency and value in dealing with financial matters.

I’d say that the audience for this book is primarily financial professionals – whether or not you’re required to have a fiduciary standard of care for your clients.  But at the same time, folks outside the industry can benefit from this book as well, since a good understanding of the concept of the fiduciary can serve as a protective shield as you explore your options for service in the financial industry.

Either way, if you have even a passing interest in the UPIA and it’s concepts, I think you owe it to yourself to pick up a copy of this book and read it.  You won’t be disappointed, I promise you.  And it’s likely that you’ll learn something you didn’t know – which is always valuable.  I truly enjoyed this book, and I recommend it to all who may have an interest in the topic.  You can visit the website for Uncertainty is a Certainty by clicking the link.

What Amount of Savings Should You Have at 40?

Apr 25th, 2011
by Kelly Austin.
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International Money Pile in Cash and Coins

Image by epSos.de via Flickr

By the time you turn 40, your attention is likely to gain more focus on the amount of savings that you have. If you haven’t already gained control of your spending and saving habits, now is the time to do so. 40 is also an age when you’re probably beginning to think about future retirement or sending the kids off to college. What amount of savings should you have put back by then, and how will you ever be able to accomplish your goal? The truth is, there are no restrictions to the amount of money that you can save if you put your creativity and knowledge to good use.

What Are You Saving For?

Building a hefty savings account is only made more difficult if you do not have a clear idea of exactly what it is that you are saving for. Saving money just to save it can be effective, but it is still important to set a clear goal for yourself. If you know what you are saving for, deciding between a $5 latte and that trip to Italy is made a lot easier. Do you want to be able to travel after the kids leave for college? Do you want to retire early? What about college tuition for your children? All of these are important questions to ask yourself when building a savings account.

Start Saving Early for the Best Payoff

Did you know that if you start saving just $50 per week at the age of 30, you will have more than $40 thousand dollars by the time you are 40 years old? Starting early on savings can have a huge payoff in the end. Ultimately, the longer you are able to save for your goal, the less you have to save each week or month.

Earn Savings by Freelancing Your Skills and Talents

Freelancing your skills on the side can be an excellent source of revenue for your savings. Offering guitar or beading lessons, tutoring and even landscaping on the weekends are all ways that you could earn money towards your savings goal. Trying to save can be difficult if you’re on a tight budget, but there are always new ways to make money.

Maintaining a clear focus on your goals and getting creative with your ideas (rather than letting your savings account overwhelm you) is by far among the best foundations for building a strong savings at 40, or at any age.

This article was written by Kelly Austin from HigherSalary.com. Visit her site for information about the average accountant salary and pay information for other popular careers.

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Bankruptcy – what it means, and where to begin your recovery

Apr 11th, 2011
by dspader.
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Do you truly understand the consequences of your bankruptcy? Many consumers believe that their financial futures are ruined after such an event. The details below reveal the truth about what it means and how to start your recovery.

The Truth About Bankruptcy

The extent to which bankruptcy changes your life depends on the particular track followed. Chapter 7 is liquidation path, in which some of your property is sold to repay creditors and almost all debts are canceled. Chapter 13, on the other hand, is a three-to-five-year repayment plan in which most debts remain in force.

Eiko and her credit card
Image by eikootje via Flickr

Elimination of All Debts

While bankruptcy can develop a plan for canceling or repaying auto loans, credit card bills, personal loans, and medical bills, you may not end up with a clean slate. Some debts, such as student loans or child support, typically remain intact.

Loss of Belongings

Under Chapter 7, you are likely to lose possessions such as your car, new furniture, or certain other disposable assets. In most cases you can keep your home, but the lender can still foreclose on the property if agreed-upon payments are not made.

Recovery

Bankruptcy can mean the end of a financial struggle, but it is also the beginning to new opportunities. The advice below will help ease the transition.

Repay Your Bills

Because bankruptcy may not eliminate all of your bills, one of the most important post-discharge actions you can take is to repay these creditors. Payment history accounts for about 35% of a credit score, so on-time payments are key to eliminating the bad credit stigma quickly.

Address the Problem, Not the Symptoms

Even though new laws have made filing more difficult, some people still think of this process as an easy way to eliminate debts and continue life as if nothing happened. Instead of returning to old ways, figure out what caused the bankruptcy and fix it. Consider whether you would benefit from a monthly budget or a larger emergency fund.

Apply for New Credit

After you understand how to use credit wisely, you may want to apply for one or two new accounts. Secured credit cards are the easiest to obtain because borrowers must make collateral deposits. Department store and gas cards are also effective.

Seek Help

Bankruptcy can be an isolating experience. Instead of accepting the status of a financial leper, find sources of moral and financial support. Talking with other people who have gone through a similar discharge can be an eye-opening experience. Finally, spending a few dollars for the advice of a financial professional can give you the tools you need to recover from bankruptcy and improve your financial future.

David Spader is a freelance writer and blogger who usually looks at savings account deals over at SavingsAccount.Org. His most recent review looked at the best saving account rates.

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Kinds of financial form – Why they’re essential in every financial transaction

Mar 7th, 2011
by graceruskin.
2 comments
Form 1

Image via Wikipedia

If you’re in the market for some financial transaction, you must be aware of the importance of financial forms. Financial forms are the first thing that you see when you apply for a mortgage or a loan or even for any kind of membership. There are different kinds of financial form like membership forms, loan application forms, real estate forms, legal forms, business forms and many more. No financial transaction can be complete without a financial form. It completes the process and makes the transaction authentic. Whether you’re buying a house, paying taxes or paying an insurance premium, the need of a financial form is obligatory. Read on to know the various types of financial forms available and their purposes in every financial deal.

Where can you get a financial form?

The aforementioned question is mostly asked by those consumers who are in the market for any kind of financial transaction. Well, with the widespread use of the internet, almost everything under the sun can be downloaded by a click of the mouse. Financial forms are no exception. You can easily browse through the internet in order to get the financial form that you need. Though there are certain websites that offer various kinds of financial forms free of cost, there are many more that may charge a nominal fee per form. You just need to choose the form and click on the ‘download’ option. The financial forms that you get through the internet are usually available in .doc or .pdf or html format.

Financial forms – Why is every financial deal incomplete without them?

As already mentioned earlier, financial forms are a prerequisite for every financial transaction. But have you ever thought why a financial deal can’t be complete without using a financial form? Well, every transaction requires being authentic so that there are few chances of any kind of discrepancies in future. For instance, if you’re applying for auto insurance, there are a number of financial forms that you need to fill out during the entire transaction. You have to start the transaction by filling out a financial form and also close the application by filling out some other forms. Therefore, you can well understand that financial forms are usually needed to commence and also close a particular financial deal. This boosts the credibility of the transaction as everything is written and there are no chances of being hoodwinked by your lender in future.

3 Kinds of financial forms that may help you legalize your deal

Here are some kinds of financial forms that care available on the internet and that can help you legalize all your financial transactions.

  • The real estate forms: There are various real estate financial forms like deeds, contracts, purchase agreements, eviction forms and many more. All these forms are very important for any real estate transaction. Contracts are unilateral and bilateral and it is a legally binding agreement. Deeds are legal instruments that are implemented to grant a right. Deeds are financial documents that fall under a wider class of documents that are under seal.
  • The bankruptcy forms: A debtor usually files for bankruptcy when he declares himself to be financially unable to repay his debts to his multiple creditors. However, when a person files for bankruptcy, he has to seek the help of a bankruptcy attorney, fill out a Chapter 7 bankruptcy form with the exact information demanded by the bankruptcy petition court.  Filling out a Chapter 7 bankruptcy form will put the debtor as well as the creditor into certain restrictions. Thus, it is necessary for you to fill the form without any error so that you could avoid any further discrepancies.
  • The insurance forms: An auto insurance financial form is required when you’re applying for an auto insurance policy to protect you and your vehicle. You usually provide the insurance lender with all your personal information, your vehicle details, household details and many more things.

While choosing among the various kinds of financial form, it is always advised by most financial experts that one must download the forms from a reputable website. Seek the help of financial professionals if needed, so that you can choose the right form and fill it up without making any errors.

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Social Security for the Self-Employed

Feb 25th, 2011
by jblankenship.
1 comment

self employed by TheeErinAs a self-employed small business owner, you have lots of plates to keep spinning, and lots of additional costs that you never dreamed of when you were employed by someone else (like health insurance, for example).  Another cost that you have to deal with when self-employed is Self-Employment tax.

Self-Employment tax (SE tax) is essentially where you are paying both the employER and the employEE portion of the Social Security withholding tax.  This means that, in most years, you are taxed at a rate of 12.4% on your first $106,800 of income (double the amount you’d have withheld if you were employed by someone else).  This doesn’t count the 2.9% that you also have to withhold for Medicare tax – this is another matter altogether.

Note: for 2011, the rate is reduced by 2% due to the provision in the 2010 Tax Act to stimulate the economy.  The rate is presently scheduled to go back up in 2012.

With this in mind, you might wonder if there are ways that you could reduce the tax…?  One way might be to incorporate your business and reduce your income by taking dividends for a portion of the otherwise taxable income.  By doing this, you would eliminate the SE tax, and then pay employER withholding and employEE withholding only on each paycheck that you provide yourself.  The dividends would not be subject to Social Security tax, since they are not wages.

It’s important to note that such a strategy will have two important factors for you to consider:

  1. Your earnings record will reflect the new, reduced amounts for income, so your future Social Security benefit will be reduced as well
  2. You must be careful to pay yourself a reasonable wage, otherwise the IRS will consider your dividends to be taxable as income.  It might seem clever to reduce your wages to a very low amount (or eliminate them altogether), but this will come back to haunt you when the IRS gets ahold of your return.

Incorporating your business may be a valid strategy to help reduce your tax costs – for other reasons beyond Social Security tax.  But you’ll need to consider all of the consequences before you do this – one of the most important factors being that you will want to increase your retirement savings in order to make up for reduced future Social Security benefits.

Photo by TheeErin

An Oldy – But a Goody

Feb 7th, 2011
by jblankenship.
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I’m traveling this week, so instead of the usual posts that I put up for you thrice a week I thought I’d take the easy way out provide you with a link to a post from the past that I think is particularly useful and that perhaps some of you could get benefit from.

I originally posted this one a little over a year ago, and it’s been one of the more popular articles – it’s all about how long to save various documents.  During tax season we all go through the agony of reviewing our old records and looking in vain at the piles from years past, so maybe this article will help you to clear out some of the clutter and maintain only the important ones… And if you’re not saving the right records, maybe you’ll be inspired to start.

Here’s the link – hope you get some good out of it:  Financial Recordkeeping – How Long Do I Keep This?

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