Archive for April, 2008

Living paycheck to paycheck
Do you deposit money in your savings account regularly? If you had an emergency now, do you have an emergency fund that can help you get through for at least 3 months? Even when we’re doing well and the economy is prosperous, we can’t consistently answer yes to these questions because we just love to spend.

In my post about “things you should never do with money” I mentioned that we as consumers have many distractions and our attention is often diverted to the popular trends causing our “want list” to grow. It really is a matter of discipline and a willingness to break bad habits. No one likes to be pessimistic about their own finances and some do not even like to talk about them with their spouse or relatives. But denying yourself the reality of your situation will only worsen the outlook of your future.

Throughout the country more and more people are living paycheck to paycheck, and there are of course circumstances in which you simply do not have any control over this because of other larger and more serious debts that are sometimes acquired through unforeseen events. But for the spendaholics, you do have some control over what you get into debt for and that’s where you would need to begin to fix your bad spending habits.

Economize on everything
Take a look around your home and try to think about what in that house you’re still paying for. Obviously your furniture is a necessity, but what purchases did you make that are not really that practical and yet you impulsively bought. Perhaps that fancy mirror above your fire place, or that decorative set of vases you couldn’t resist. These are all impulse buys, and you probably have more on your list that you eyed last time you were at the mall.

Outside of these impulse buys, which you need to stop doing, there maybe other things that you consume that you don’t really need. Do you pay for premium channels? You may want to consider bringing your cable service to a more basic level. Do you have every little feature the phone company offers on your phone service? How often do you use them and do you really think they’re beneficial? How about just cutting the land line out completely and using your cell phone instead?

Do you really need a low deductible on your car insurance? Many people think it’s a good idea to have a low deductible, when they have had a good driving record almost all their lives. If you’re a responsible driver, you should not be worried about this. Your insurance company is going to encourage this because they make more from you this way. It’s a good seller and a lot of people are doing it benefiting mostly their insurance companies.

Does your credit card company contact you often to offer you savings programs? They will tell you that if you buy through their programs you can save enormously when using your credit card. The program of course costs $29 a month charged to your credit card. Don’t take the bait, it’s all another way for them to make money off of you. You’re better off cutting coupons for savings. As a matter of fact stop using your credit card as much and use it only for things you need when you’re out of cash. Everyone sometimes forgets that that’s what credit cards are for and not to buy the latest gadget you just have to have.

To some people having a social life is everything and this means going out to dinner with friends, going to public places for drinks and company, it’s all fine and great, but how often do you this? If you’re out every weekend “socializing” in public places more than likely you’re shelling out $50 to $100 dollars a night depending on where you life. If after paying your bills, you use whatever you have left of your paycheck to party, you’ve got some serious deficits building up.

Utility bills are always up and down and it’s hard to regulate especially if you have a large family, so cutting down on utilities can be tough, but if you concentrate on regularly cutting down on everything above your paychecks should start making their way into your savings account more often.

What other services do you subscribe to that you hardly ever use? This includes magazine and newspaper subscriptions, newsletters etc. Make it a priority to start growing your savings account balance. If it’s difficult for you to break the habits, try increasing your contributions into your 401k, IRA or sponsored savings account, that way you only have enough to spend on bills you must pay.

Whatever approach you choose is fine as long as you begin sending more of your paycheck into an account where it will serve you better in the future, and as long as you begin now.

A recent news piece from CNN reports that the home loan giant has come under the radar for suspicion of wrong doings, which have warranted an order of subpoena by a federal judge in Pittsburgh, Pennsylvania.

It is suspected that Countrywide, among other lenders, had attempted to modify loan agreements it originally made with borrowers with questionable credit. The company is also under allegations of harassing borrowers who were under bankruptcy protection, threatening to foreclose even after court proceedings had legally arranged a repayment plan.

Violating the automatic stay is a serious liability, I have pointed out in several posts and in the chapter 7 page how the automatic stay becomes your shield when you’re under going bankruptcy proceedings. Lenders will take chances and sometimes, as it is actually the case with many, their automated computer systems take over when payments are not received. However when representatives of the company begin to call you in person, this is no longer considered an automated response by their system. All “humans” within that company should be aware that you’re account is on hold because of your bankruptcy petition.

If this should happen to you, you need to take action by reporting the event to your attorney at once. This is why it is important to have representation. Your attorney would know exactly what to do, should you become a target of collection during your proceedings. Lawsuits for punitive damages are not uncommon and though most lenders won’t take the risk, for some reason others do, and it not only complicates your process but it can add legal costs.

Countrywide admits to having handled some debts erroneously but denies harassing bankruptcy protected borrowers to collect money.

Foreclosures for the lender have risen dramatically causing share values to slide significantly, however I think the biggest burden the company faces at this point is the surplus of homes in the tens of thousands it now owns across the country that it must now unload at severe discounts.

Sometime the decisions we make that can negatively impact our financial future are not always obvious, there are too many entities working against our better judgment when it comes to how we handle our own money. I’m talking about commercial entities and the popular trends we pay so much attention to, that contribute to the ever growing “want list“ that we often mistake for the “need list”. I’m gathering a list of general things called “things you should never do with money”, there are many, and this is the first in a series of several future posts. These are some of the things we tend to give into that eventually get us into trouble:

1. Don’t sign up for another credit card when you’re maxed out – This should be a red flag for any credit card company processing your application that you’re not living within your means and you spend more than you should. Will that stop them from processing your application? Probably not. As long as you have good credit and you make your payments on time, even if it’s only the minimum due, there’s no indication to them that you’re a risk. But is this a sound financial decision for you? If you’ve maxed out your current credit card, you need to stop and look back at the purchases you have made and honestly determine if these are needs or wants. If you get another credit card, what’s to stop your from maxing it out also and ending up with now two cards to pay off?

2. Don’t borrow against your home – Here’s another example of a really bad decision in which lenders are happy to help you dig your own hole. A “HELOC” (Home Equity Line of Credit) is, in my opinion, the worst product ever put out in the financial world. Why? Two reasons, these loans always carry adjustable rates and you’re only required to pay the interest. If you MUST borrow against your home, what you should be asking for is a Home Equity Loan, on which you do pay the principal balance every time you make a payment. With a HELOC you’re only required, and 99% of the time inclined, to pay only the interest of the loan. When do you actually pay the balance? If you max out that line of credit and your balance is $50,000 when will you be able to pay this balance in full? When you sell your house would be one way, but if you’re not selling your house or if market conditions end up putting you upside down, how will you come up with the money to pay this off when it is due in full?

3. Don’t borrow against your retirement account – Depending on your plan, sometimes there are few restrictions for borrowing or withdrawing money, and there’s usually a lot of flexibility for you to do so. Some 401K or savings plans will allow you to withdraw certain amounts of money and you don’t always have to prove hardship. Why do this if you’re not in real need? It’s all impulse. You’ll probably say to yourself “it’s my money anyways”. Well…. yes and no. It’s also the government’s money and that’s a huge liability. The money that’s in your 401k or savings plan is pre-tax money, meaning it gets deducted from your pay before taxes, so taxes will apply when that money is withdrawn. Not only that, but there’s usually a penalty associated with early withdrawals, so if you borrow $5000, the IRS will automatically take 20% or $1000, plus any penalties the savings plan may carry. So if you’re not in real need, don’t mess with this account.

4. Don’t invest in things you know nothing about – There are so many products out there about making money by starting your own business or making money online. Look, a lot of people make a decent living by running their own business and doing business online. But it’s not supposed to be easy and it’s not supposed to be fun as it is often emphasized. It is a lot of hard work. Sure it can be enjoyable and rewarding but fun and easy it is not. Many of these programs almost always over emphasize earning potential with exaggerated figures, but if you visit the advertised website you often find that the program is not at all described and you have nothing to go by other than to enter your personal info for someone to call you later. They will often sell you general information on how to start a business but won’t concisely explain the how to. They also offer coaching programs with phony guarantees, which are expensive so think carefully before signing up. You could end up spending a lot of money for something you could easily research on your own.