January Newsletter, 2009

Money Guidelines

We're in an economic mess right now. So, before things get any more confusing for your personal financial picture, here's some straight talk on money from the experts. These are the guidelines – how much you need to retire, how much you should spend on a house, and the absolute max you should have on your credit cards at any given time.

Let's start with those credit cards. Remember this number: 30. That's the maximum percentage you should owe on any one credit card. So if your credit limit is $10,000, you shouldn't EVER owe more than $3,000. If you do, your credit score will go down. This is all according to Barry Paperno of Fair Isaac – the company that formulates your FICO score, the most widely used score. Why will more than 30% debt make your score go down? Because historically, people who max out their cards are very likely to start missing payments. Even if you max out your card and then pay it off, it'll still affect your credit score. So always maintain a balance of 30% or less on your credit cards.

How much can you safely spend on a house? Roughly 2.5 times your annual income. So if you earn $50,000 a year, you can afford a house that costs $125,000. No more. That amount was formulated by federal regulators right after the Great Depression. That's an underwriting standard – and it's only been in the last few years that standard has been thrown out the window. It's why we're in the foreclosure mess we're in now. The lesson is: DO NOT buy more house than you can afford. Stick to 2.5 times your annual salary and you'll be safe.

The amount you need to retire. It's your annual salary now times 15. So if you earn $50,000, you'll need at least $750,000 in the bank, and in stocks and bonds, to retire at age 65. That's according to Dr. Philip Cooley from Trinity University and an expert on retirement strategy. He says even if the stock market tanked, most retirees would NOT lose it all, as they may fear. He still recommends this strategy in spite of what's currently happening in the market. That number again: 15 times your annual salary to retire at age 65.
When Should I Seek The Advice Of A Good Bankruptcy Attorney?

By Peter Orville, Attorney at Law on December 30th, 2008

Seeing a good bankruptcy attorney is not the same as filing bankruptcy. Getting the advice and counsel of a knowledgeable bankruptcy lawyer is getting yourself a fresh and experienced set of eyes to review with you the specifics of your unique situation. Most good bankruptcy lawyers would rather tell you why bankruptcy is not for you at this moment than convince you to file when it is not in your best interest.
That said, what are the signs, or conditions that should motivate you to call for an appointment with a bankruptcy lawyer?

  1. When you are having trouble paying your bills on time.
  2. When you feel a need to borrow from your retirement, or from friends or relatives.
  3. When you think about taking out a home equity loan to pay off some debt.
  4. When you consider calling a "debt adjustment" organization.
  5. If you are behind on your mortgage.
  6. If you are afraid the bank might repossess your car.
  7. If you owe taxes.
  8. If you are afraid of your wages being garnished.
  9. If you have been sued.
  10. If your creditors are harassing you on the phone.
  11. If you are losing sleep at night worrying about your debts.
  12. If your marriage is threatened because of your financial situation.
  13. If you are concerned that you will be laid off from your job.
  14. If you can’t afford medications because you are paying off your debt.
  15. If you are paying credit card debt but can’t afford to go to the doctor or dentist.
  16. When your friends or relatives tell you to get help with your debt situation.

5 money mistakes even smart people make

By Linda Formichelli • Bankrate.com

When it comes to finances, you figure you're pretty sharp.

You know how to comparison shop and you contribute regularly to your 401(k) plan.
But there are common mistakes that even money-savvy people can make.

If you've ever let your spouse control the finances, or you've put off examining your credit report or bought something frivolous just because you had a coupon, read on to find out how to banish cash conundrums from your life for good.

Money mistake No. 1: Minding the pennies and missing dollars.
Have you ever driven across town because you wanted to cash in a 50-cent coupon? Do you spend a lot of time searching out bargains and clipping coupons? "It's sweating the small stuff," says Ginita Wall, founder of the Women's Institute for Financial Education and a financial adviser in San Diego. "You're concentrating so much on clipping coupons and getting bargains, you're forgetting what your overall goals are. Then you'll take the money you saved and just spend it on something else."

Also, being pennywise can sometimes cost you more money than you save. For example, you may spend more in gas than you save from the coupon if you have to drive across town to redeem it.

Smart cents solution: Think of your goal.
It's fine to save cents by clipping coupons and shopping around for bargains, but be sure to keep your bigger goal in mind. Why are you saving the money? Is it for your kid's college education, your vacation fund, a new car? Then take the money you save and put it where it will do the best. For example, many grocery stores have banks inside. If you save $7 with coupons, walk over to the bank right then and deposit that $7 into your savings account.

Money mistake No. 2: Being confused by credit reports.
Whenever you seek credit, whether it's a new store card, a car loan or a mortgage, the lender checks your credit report to determine your creditworthiness.

"Credit reports are the most important decision-making tool for creditors," says Catherine Williams, vice president of financial literacy for Money Management International. Even potential employers and landlords can request your report to find out if you'll be a responsible employee or tenant. That's why mistakes on your credit report, whether they're caused by the credit agency or are the result of identity theft or fraud, can make your life miserable.

Smart cents Solution: Check your report.
"Everybody owes it to themselves to get a copy of their credit report, and you should know that the 2003 FACTA (Fair and Accurate Credit Transaction Act) (had) a provision to allow consumers one free copy every year from each of the three major credit bureaus -- Equifax, Experian and TransUnion," says Williams.

You should request a copy of your credit report every year and before making any major purchase. The Web site annualcreditreport.com, sponsored by the three major credit reporting agencies, serves as a centralized, authorized source for consumers to request free credit reports from all three sources. When you request reports there, you can also choose to pay to receive a copy of your credit score.

Each agency differs slightly in the information it carries, so it's a good idea to check all three reports. Also, the reports should come with supporting information on how to read the data and dispute mistakes.

The three bureaus are TransUnion, Equifax and Experian. You can also request credit reports directly from the agencies, usually for a fee, and dispute your credit report's errors.

Money mistake No. 3: Letting budgeting get you down.
Feeling guilty that you don't have a budget? You're not alone. Many people find budgeting such a drag that they just don't do it, says Wall.

Smart cents solution: Do 'spot budgeting.'
Don't feel that you have to budget down to the last penny. If budgeting is a burden, you can do "spot budgeting" instead, says Wall. "Pick three or four categories where you think you can trim expenses -- such as clothes and entertainment -- and cut down on those. You don't need to worry about every expense."

Money mistake No. 4: Letting your money leak away.
Money leaks are those little ways you spend money, usually automatically, without even thinking about it, and often without enjoying it. The daily candy bar at work, the midmorning cappuccino, the $20 bill you hand your kid whenever she asks for money. "That money might be better used for something you would enjoy, such as saving for a cruise," says Wall.

Smart cents solution: Write it down.
Keep a little piece of paper and a pencil in your wallet, suggests Wall. Every time you spend money, jot down what you spent it on and how much it cost. "In three weeks, you'll be able to see where the money is going -- like, gee, the kids are tapping me for $20 every time I turn around ... so your kids may be your money leak," says Wall. "Time to corral in the kids -- no more 'Bank of Mom and Dad."'

Money mistake No. 5: Being out of touch.
Letting your partner have total control of the family finances can spell bad news. If you don't know how much money you have, where key financial documents are stored or how to pay bills or taxes, you could be in for a rude surprise should you ever need to handle the finances on your own.

Smart cents solution: Hold money meetings.
Both partners should know what's going on financially, even if they divvy up the financial duties, says Wall. Even if your spouse is in charge of taxes and investments, for instance, you need to have a handle on those areas, and you should keep your spouse in the loop on your bill paying and budgeting duties.

That's why Wall suggests holding monthly "money meetings" where you and your spouse fill each other in on how much you're earning, what your goals are, where your money's going, how much you're saving and any problems that may be rearing their heads.

"It doesn't mean to sit down and criticize what the other has done," she says. "The treasurer is reporting to the board of directors about where the family stands."