Archives for July 2012

Rebuilding And Starting From Scratch

One of the most frightening prospects in the world is starting from nothing and having to rebuild. Even when the situation is not as bad as you think, life can feel like it's crumbling around you. If you've been laid off from your job, watched your stocks drop or retirement plan tank, or gone deeply into debt because of a car accident, divorce, or medical bill you know that life can often make it feel as if you have to start completely over and build from the ground up.

While most people would view this as a curse, you may be better served by viewing it as a blessing. Sometimes it's good to clean house and start over. After all, it can be difficult to know what needs repair before it breaks.

Here are a few tips on how to recover from a financial calamity and start from scratch:

Stop The Blood Loss

If you have investments that are tanking, your best bet may be to just sell off and reinvest, or do better at diversifying your portfolio. Yes, you may lose some money, but if you don't act and act quickly your stubborn denial of reality may lose you a lot more and preclude yourself a chance to recover in the process. Often times the best use of old, stagnant investments is reinvesting in new growth industries.

Same scenario with a mortgage that you're thinking about refinancing. Instead of blowing your money on a new kitchen or building a home theater you may be better off refinancing the mortgage, lowering your payment and improving your financial situation.

Network With Your Contacts

You may have a rolodex of hundreds of professional contacts, but if you never communicate with them or update them on your situation, how will you ever attain any leverage from these connections? If you're out of work, instead of cowering indoors get out and network.

These days, social media allows you to streamline this process. Online communities and networking sites like LinkedIn and, to a certain extent Facebook and Twitter, allow you cultivate a rich support group of professionals who may be looking for just your skill set. Thousands of individuals have found vibrant new careers by engaging with social media.

Get Professional Advice

If your situation is particularly grim, do yourself a favor and enlist the help of a financial advisement and management service. Companies like World Financial Group can help you to appraise your investments, reevaluate your strategy, manage your current assets, and project into the future.

Especially if you've been hit with a triple whammy of employment trouble, sour investments, and mortgage or insurance problems, you need experienced professionals who can evaluate your overall situation. Part of starting from scratch is getting a new pair of eyeballs on your accounts, looking at them with a fresh perspective.

This isn't a blueprint for financial success. Few of those exist, and the ones that do are usually proprietary. You have to create your own blueprint for success. But that's hard to do if you're buried in debt or struggling to reinvent yourself. That's why sometimes the best thing to do is to start from scratch, rebuild your portfolio, and look at your life from a new angle. You may find that things weren't as bad as you thought, or you may find an ingenious new path into the future.

What Things Motivate Your Spending?

By Miranda Marquit 1 Comment

Introspection is not something many of us apply when spending money. Unfortunately, too many of us just buy mindlessly, without really think about why we buy the things that we do.

A little self-knowledge, though, can go a long way. If you are unhappy with your financial situation, maybe it's time to look at your spending habits, and figure out if they match with your spending priorities. Part of that is looking at your money motivations, and examining why you buy the things that you do.

Necessity

One of the main motivations for spending is need. If you need something, you are going to spend money on it. For most of us, money is a means to an end. We need food to nourish our bodies, so we spend money on food. We need a place to live/shelter, so we buy a home. Necessity is all about survival. If you are spending money so that you can survive, it's clear that you need to keep spending money on those things.

But make sure you know where the line is. Don't call things needs when they are really wants. You might be spending on something that you think is a need, when it really isn't. Another issue is trying to move out of survival mode. It's not fun to see all your money go to survival. If everything is a struggle, you might need to figure out how you can earn more money, perhaps with a second job or a side hustle.

Enjoyment

Another money motivator is enjoyment. Do you enjoy the things you spend your money on? I stopped buying trinkets because I realized that I didn't enjoy them. I had got in the habit of buying them, but I don't really have a good time with them. I am happier with a good book, or going out to dinner, than I am looking at a trinket. My husband likes collecting action figures. He enjoys looking for them on eBay, and getting a good deal (or sniping them out from under someone else). He also enjoys looking at them and arranging them for display.

That's fine. Having a hobby — one that you can afford — or buying things or experiences that you enjoy, is fine. But make sure that is what you really want to spend your money on. If you spend money on things and experiences that you don't actually enjoy, your money is wasted, and you are unhappy. Evaluate your spending, and make sure you are happy with where your money is going.

Impress Others

Sometimes, we spend money on things we don't enjoy in an effort to impress others. Look at your motivation there. If you are buying things because you are “supposed” to have them. Or because you think that it will add to your status in the neighborhood, you probably aren't very happy with the outcome. It's nice to feel as though you are on top of things, and that you are a major player in the neighborhood, but it's not true enjoyment. And it's certainly not need.

Examining your money motivations can help you figure out where you could change your spending, and maybe start using your resources for things that matter to you, rather than wasting money and racking up debt for things you don't actually need or even want.

3 Things To Consider When Investing During Retirement

By Miranda Marquit 2 Comments

Too often, we plan our investments to get us to retirement; we forget that it's a good idea to plan to continue investing through retirement. With life expectancy rising, most of us can expect to be living in retirement for 25, 30, or even 40 years. This means that you can't just put your retirement on automatic, trusting that your portfolio will carry you through without changes. Between inflation, continued fees, and market volatility, it doesn't make sense to assume that the portfolio you have at retirement is the end.

Instead, you need to keep up with your investment planning. While you don't need to become a day trader, there are some things to think about when investing during retirement to make sure that your portfolio survives throughout your golden years:

investing in retirement

1. Reconsider the 60/40 Stock/Bond Allocation

You don't have to keep sticking with the same old thing, especially since we saw how it can be a real problem with an asset allocation that focuses exclusively on stocks and bonds. Instead, think of how you can add something a little different to your portfolio. The longevity that many of us can expect in retirement means that if you are 55, you can use a 20 or 25 year horizon for part of your portfolio. There are some alternative investments (you can tap into commodities with the help of ETFs), as well as a number of options that, if appropriate to your risk tolerance, can be added to your portfolio.

Don't think that you have to shift everything to bonds as you head toward retirement. While you want to include those types of investments, your retirement is likely to be a long one, and you'll want to keep building assets with a portion of your portfolio during retirement.

2. Diversify Your Income

Retirement is a great time to look for income in diverse places. You can start a side hustle, or turn your hobby into a money maker. Working a little in retirement, if you are doing something you love and that brings in another income stream, can be a great way to invest in your future.

You can also consider a little wider view of “income investing.” Many retirees think of income investments strictly in terms of bonds. However, there are other opportunities. Dividend stocks can provide you with better returns than Treasuries — especially in a low-rate environment. Think about your options, and your risk tolerance. It might be that you can handle the addition of dividend aristocrats in your retirement portfolio as you move forward.

3. Watch Out for Cash

Many retirees like cash because it's safe. After all, you can't lose when your cash is housed in FDIC or FOMC insured financial institutions, right? Unfortunately, this isn't true. Inflation is a big deal, and it's highly unlikely that you will be able to beat inflation with the meager returns you get on cash — especially if your retirement lasts more than 20 years. While having some cash isn't the end of the world, don't switch everything to cash as you retire. Instead, look for other options, and consider that you will need to adjust your asset allocation, and look for new opportunities, throughout your golden years.

Can You Get A Mortgage If You’re Self-Employed?

By Miranda Marquit 2 Comments

Home prices are still quite low, and mortgage rates remain at record-low levels. As a result, many consumers are considering buying homes right now. It's possible to get a good deal, and it's likely that rates will start rising in a few years. Because of the current conditions, it seems reasonable to buy a home right now. And, even if you don't want to buy another home, it can make sense to refinance, locking in a lower rate for the remainder of your home mortgage loan.

But what if you're self-employed? Will you be able to get a mortgage when you don't have a W-2 and pay stubs you can show your lender? Even with the tighter lending standards, you can be approved for a home mortgage loan, even if you're self-employed and running a home business. Just be prepared to show a lot of documentation.

getting a mortgage when self employed

What Documentation Will You Need?

If you are self-employed, you will have to show your latest tax returns. Normally, the lender averages your last two tax returns to get an idea of your monthly income. This can be somewhat distressing for the self-employed, since many of us take every deduction we can in order to reduce taxable income. However, there are other ways to show that you are making a solid living from your efforts. You will probably be asked for a quarterly profit and loss statement. Indeed, if you want a FHA loan, you will be required to submit a year-to-date profit and loss statement if your last tax return was filed more than a quarter ago.

Another option you have is to pay yourself a salary. If you have organized as an S-Corp., and even if you have another business organization, it's possible to pay yourself a salary. You can show that your business venture is enough to provide you with a regular salary, and that can bolster your case. You might also show your bank account statements as a way to prove that money is coming in. When I applied for a mortgage five years ago, my lender's underwriters required that I hire an accountant to perform an income audit to help establish my income.

Credit, Debt, and Assets

On top of your income, lenders also want to know what your current financial situation looks like. Lending standards have been tight since the global financial crisis, and this is especially true for self-employed borrowers. If you are self-employed, you need to make doubly sure that your situation is solid. You will, of course, be subject to a credit check. Additionally, your lender will want to know your debt to income ratio. If you have a high debt to income ratio, lenders are likely to be concerned that one bad month at your business could lead to problems.

You will also have to show what assets you have at your disposal for a down payment, as well as in reserve. Lenders generally want to see that you have two or three months' of mortgage payments in reserve before they approve you. As long as you have the assets and good credit to back up your income, you should be able to secure a mortgage loan — and get a good interest rate to boot.

Are You Raising Your Kids To Be Financially Independent?

By Miranda Marquit 4 Comments

One of the things I remember growing up was that my parents tried to teach me financial independence. While they helped pay for extracurricular activities, and provided for my needs, I was also expected to save up for various items related to my own entertainment. If I wanted to go to a concert, or if I wanted to go out with my friends, I had to use my own money.

My parents also made it clear that I wouldn't get a free ride, should I decide to move back into the house after I left at age 18. When my sister moved back in with her family for a few months, the ground rules were clear: You need to have a job, or be attending school. You need to be trying to improve your situation, or you're out. They didn't charge rent, but they did expect financial progress to be made, and my sister's family moved out after getting back on their feet.

It's true that my parents have sacrificed for us, but they're not about to let us ruin their financial future, and the emphasis has always been on getting us to a point at which we could fend for ourselves financially. At some point, it makes sense to send your kids out there to provide for themselves. And, of course, those lessons start at home.

kids financial independence

Make Kids Responsible For Their Money Choices

While you can't expect a 10 year old to pay rent, or cover all of his or her clothing costs, you can help your child understand how to manage money. Let your child have money of his or her own to manage. This includes putting money away in a savings account (my son thinks it's fun to head to the bank and earn prizes for reaching certain milestones), donating to charity, and making spending decisions. My son has made mistakes, since we have, in the past, let him buy stupid things that he's regretted. Better he learn about making good decisions now, with the small stuff, than learning the hard way later. As a result of being allowed to make money mistakes, my son is already more thoughtful about what he does with the money he controls.

Teach More Complex Concepts As Kids Age

Starting out with an allowance, or with a way for children to earn their money, is a good way to begin teaching financial fundamentals. As kids age, you can teach more complex lessons. Consider helping them invest, and let them borrow from you — with interest. Requiring your children to pay you back with interest is a valuable lesson they can learn about finances, and borrowing. My son borrowed money not too long ago, and his repayment schedule meant that he saw all of his allowance for four weeks (after his tithing and savings were taken out), go to repaying the debt. He hasn't borrowed since, especially now that he knows that repaying debt means you have to give back more than borrowed.

Hopefully, these lessons will help my son learn financial independence. Later, we'll start a Roth IRA with him when he starts working a “real” job. It will be a good thing for him to get an early start on financial freedom.

What do you do to teach your kids financial independence?

Avoiding Debt? You Still Need Good Credit

By Miranda Marquit 1 Comment

You probably know that if you plan to borrow money, you'll only get the best terms if you have good credit. If you want to save money on interest, and enjoy the best possible terms, you need to show the lender that you are responsible, and that there is a good chance that you will repay your debts. But what if you have been avoiding debt?

There many people who save up to make purchases. They save up for car purchases to avoid auto loans. There are those who prefer to invest their money instead of getting a mortgage. Or, if you already have mortgage, you might not see the sense in the need to borrow for anything else. Cash often works just fine when making most purchases. Why do you need to worry about your credit when you won't be borrowing?

Whether or not you agree with the trend, the truth is that lenders aren't the only people interested in looking at your credit situation. You need good credit if you expect to save money in other ways, or have access to opportunities that may not necessarily be directly connected with getting a loan.

Insurance, Renting, Cell Phones, and Jobs

Your financial habits are of immense interest to a number of people that you might not realize. Some banks check your credit before allowing you to open certain types of accounts. Even if a full credit check isn't done, a ChexSystems check might be used to look at some of your consumer behavior. You can be denied a bank account based on what's in certain consumer reports.

Additionally, one of the biggest impacts come when insurers occasionally check your credit score. I am actually receiving a discount on my bundled home-aut0-life policy because of my credit score. A poor credit score means that you can miss out on monthly savings in the form of lower insurance premiums. Over a lifetime, a savings of $10, $20, or $30 a month can make a real difference.

Others want to check your credit to determine what kind of deposit you will have to pay. Landlords sometimes adjust the security deposit you are required to pay based on your credit history. A poor credit history can result in a higher deposit, since there are indications that you could skip town without paying your rent. Cell phone, Internet, and TV providers sometimes run credit inquiries as well. The inquiry might only be a “soft” check, but it still emphasizes that these service providers want to know if you are reliable. In some cases, the company might require that you pay for your first month of service up front, rather than waiting until you have actually used it.

Finally, some employers run background checks that include pulling your credit report. Credit bureaus offer special credit reports geared toward employers for this purpose. Employers aren't supposed to have access to your credit score, but seeing some of your credit history can still help them get a feel for your habits — as well as whether or not you might represent a risk in sensitive situations.

In the end, more and more decision makers are relying on your credit. It's an easy indicator, and it's easy to access. So, even if you aren't borrowing anymore, and even if your debt levels are low, it makes sense to ensure that your credit history looks good.

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