Commentary Archives - Smart On Money

Do You Have a Legal-Isse Emergency Plan?

You’ve seen the insurance commercials featuring the “Mayhem” character. The main theme of those commercials is that you never know when disaster is going to strike and that’s why you need insurance. The same thing is true in the legal world as well. Many of those same situations in the commercials will also require you to have a lawyer on hand to help you sort everything out. At the very least, you should have a plan in place; far too many people have endured the unfortunate fate of losing their entire savings when struck by an accident or disaster.

Below are a few scenarios when having legal help ready sure won't do you any harm, and could potentially save you from an enormous, unnecessary bill. Having at least a basic relationship with some legal representation like Acclaim Legal Services can always put the mind at ease instead of starting from scratch once something happens.

Automobile Accidents

Do you know what to do when you get into an accident on the road? Do you know whether or not you are at fault (and how to figure that out)? You should, obviously, know to stay on the scene until insurance information has exchanged hands and the police have arrived to take statements; many people have unknowingly admitted fault, guaranteeing a huge bill to pay that might not have been necessary at all.

The combination of auto accidents and money is an issue that has plagued the unprepared for decades; do you know what to do if you hit a parked car? Do you know what to do when your parked car has been hit and there’s no sign of the person who did it? Knowing your legal recourse in these situations can be calming and help you figure out which steps to take first, and knowing that your savings will be safe from a huge legal payment.

Personal Accidents

Have you gotten hurt? Is it someone else’s fault? How do you know? You’ve undoubtedly heard about the person who slips on an icy patch of sidewalk in front of someone’s house and then sues the homeowner for failing to salt properly. You don’t want that to happen to you!

An unfortunate is that this happens all the time; people always want more money, and you could find yourself in the middle of a huge lawsuit if you're not prepared. You also don’t want to attempt something like that with someone else if you aren’t absolutely sure that you have the law on your side.

Another area in which this is important is when you get hurt while on the job. Work-related injuries have their own sets of laws and you should familiarize yourself with at least the basics. You could be entitled to a huge sum, or at the very least, some type of monetary and financial benefits.

Lawsuits

Many companies and business owners are stunned when they discover they're being sued; what are you supposed to do if you get served with legal papers? Do you know who to call first? Do you have a plan in place for what to do if you get sued or called to be a witness in another lawsuit? This is where having the number of a good legal clinic if you don’t have an attorney on retainer can be helpful. If not, you might end up broke just because you were too slow to act.

To this end, what do you do when you have been wronged by someone and want to take them to court over it? Do you know how to get a lawsuit started? Being smart with your money doesn't mean suing everyone and everything that causes you discomfort or inconvenience – lawsuits are a messy and complicated business, and you don't want to find yourself winning a lawsuit, only to discover it cost your entire fortune to win.

These are just three of the areas in which having at least a basic knowledge of how the law works is a good idea. These are also situations in which having a lawyer’s number in your phone would be quite handy indeed. Make sure that (if nothing else) you know how to properly respond to each of them, what your rights are in each of these situations and whether or not you need to have your attorney present before you say anything out loud.

A Tale Of Personal Banking Gone Bad

By Contributor 1 Comment

One of the biggest misconceptions in personal banking that many people seem to fall prey to these days is that all banks offer basically the same account options. How false this idea actually is I can certainly tell you, and that’s exactly what I intend to do here.

As a young man, I had the good fortune of being supported by parents with great intentions and reasonably high incomes. In short, I wasn’t forced into early labor; in fact, working while in school was discouraged, despite my desire to make some money on the side. My parents urged a focus on education as my one and only job – the idea being that good grades would eventually land me a concrete, high paying job down the road, and then I could pay them back.

Unfortunately for all of us, we couldn’t foresee the economic turmoil that lay ahead, which would strike at the most inopportune time, just as I was graduating from college.

The Start of It

Upon graduating, despite reasonable concern from my parents who were sincerely feeling the effects of the economic downshift, I decided to use my small life savings to do some traveling. My hope was that by taking a year or so to live cheaply and enjoy the world as a young man, I would gain some great life experiences and return to the working world just as things were starting to look up. How naive an idea that was is now laughable, but only because I managed to turn a resulting bad situation around and again find financial stability relatively painlessly.

About six months into my stint of traveling, my savings, which I had transferred over to my checking account, was dwindling faster than I could comprehend. I assumed that I’d been spending too much on food, drinks, and fun without really doing the math or sensibly budgeting. It didn’t add up though. By month seven, I had just enough to buy a plane ticket home, which I did immediately. And then I realized what had happened.

Bank Fees Take Their Toll

My existing accounts, both savings and checking, had huge maintenance fees attached to a failure to keep a minimum balance in both. I’d had no idea these fees even existed as I’d set the accounts up with my parents way back in high school. Somehow, they’d forgotten as well, and the result was a ridiculously huge amount of money being virtually thrown away to the bank over the course of six months. It was enough to cut my travel plans decidedly short, and force me to take out a hefty personal loan to cover my living expenses for the next 4 months before I finally found a job.

The Remedy – Researching New Banks

Aside from the loan, which I’ve just recently been able to pay off in full, I immediately dropped my old bank in disgust, and did a huge amount of research on various other options before deciding to go with an online bank, much thanks to discover.com/online-banking and other similarly helpful online banking sites that I used to compare interest rates and maintenance fee-free options. The number of vastly better options I quickly found literally disgusted me, such was my angst that I'd been so careless.

The Takeaway

Number one, never, ever, be naive enough to think that all banks and account options are created equal: they’re not. And number two, doing research on both your existing bank account and financial institutions and comparing them to other available options out there can save you a world of financial woe and heartache. The fact that I missed out on so much money and opportunity to continue an incredible traveling experience for such an unnecessary and easily-avoidable reason, has me kicking myself on a regular basis.

So do yourself a favor, and make sure you do the research before you find yourself doing the same.

Is It Hard To Get By On A Six Figure Income?

By Mr. Money 4 Comments

I feel like I've been reading a lot of stories lately about how one family or another is having a hard time getting by, on incomes that are a bit above the average. Why are they having such a hard time making ends meet? There could be any number of reasons – from gross overspending to not keeping a budget of any kind.

One particular story that I read about this week sounded interesting in that the author was talking about how she and her family felt poor despite earning a six figure income. Not only that, she asked if six figures was the “new minimum wage”. I thought that sounded a bit ridiculous, but wanted to examine why she thought those things.

six figure income

Six Figures Equals The New Minimum Wage?

Laura Cone, a contributor on Yahoo.com, talks about how despite their family income recently topping six figures, they still can't seem to find any money left over every month.

Our family income recently topped $100,000, but we aren't spending as though we make six figures. We don't sip Mai Tai cocktails at resorts or buy pricey tech toys.According to recent data, incomes are rising and consumers have more money to spend. They are also taking on more debt for the first time in three years. Financial experts say the increase in borrowing can be attributed to buying cars and paying for college . We bought a new car this past year so our son could earn money for college delivering pizzas. He may need to borrow money for grad school.

Although I admire people who live on fixed incomes or minimum wage, I have no idea how they do it. When I was younger, I got by on a salary of just $19,000 a year. At that time, I did not have a mortgage or two sons attending college. Back then, the high cost of childcare took a big chunk out of my pitiful paycheck . Still, I never thought we would have trouble living on $100,000.

The author relates how sometimes no matter what income you're at, you just don't feel secure. She then goes on to talk about what expenses the family has. Among them expenses are housing, cars, insurance and food:

Our fixed expenses include $350 a month for utilities, $300 for car insurance, $175 for Internet, cable and phone. We owe $1,222.02 a month on our mortgage and $300 on a car loan. We have no other debt. We save 10 percent of our income for retirement. We spend at least $500 a month on gasoline and an astounding $1,000 a month on food. I’d feel rich if I was eating at upscale restaurants or buying gourmet foods, but our food budget just provides the basics for four people.

Among her expenses are a few things that aren't necessarily a necessity. For example, the internet/cable/phone. I'm sure they could cut back on that expense in if they wanted to. They also in the article talk about their cars which they have loans on and the car that they bought for their son. Two more expenses that could at least be cut back – if not cut out all together (make the son buy his own car!).

A commenter on the site pointed out that the author also was spending quite a bit more on food than she was for the same family size – more than twice the amount.

Breaking Down Where Her Income Is Going

Let's make some assumptions about what Laura's family is making, and figure out where their money is going. For argument's sake, let's assume they're making exactly $100,000.

$100,000 salary – $8333.33/month:

So what fixed expenses do they have every month according to the author?

$2083.33/month federal taxes (assuming 25% 2011 tax rate for married filing joint.)
$554.17/month state taxes (assuming 6.65% NY state tax rate)
$1250/month tuition
$1222.02/month on mortgage
$1000/month food
$833.33/month on retirement
$500/month gasoline
$350/month utilities
$300/month car loan
$250/month extra on mortgage
$175/month internet

So the expenses that she mentions above by themselves come out to about $8517.85/month, more than their income. That's not even including other incidental expenses they most likely have every month like clothes, doctor visits, etc. So I'm assuming the things she's telling us aren't 100% correct, our assumptions are a bit off or something.

Looking at the expenses some of them do seem a bit high like food, phone/internet and they bought their kid a car to deliver pizzas – why not have them pay for their own car?

On the other hand this family is also paying more than their mortgage in tuition costs every month, in addition to saving 10% for their retirement and adding extra to their mortgage payment every month. So it's not exactly like they're in awful shape here. If push came to shove they could reduce contributions to retirement, and/or ask their child to pay for more of their own education (like mine did) and they'll instantly have well over a thousand dollars more in their monthly cushion.

Just Getting By, Or Doing OK?

The author of the article seems to think they're barely getting by on their six figure income, but if you really look at it they are doing things that other families can only dream of like fully paying for college costs for their child – as well as funding retirement and paying extra on the mortgage. To me, while they're not getting ahead as fast as some, there are certainly things they can do to improve their situation and save more.

So no, I don't think that six figures is the new minimum wage, and I think it is entirely possible to get by on much less than 100k. As income goes up, so do expenses in many cases, and lifestyles become inflated. If you look close at where the money is going, and cut back on the un-needed costs, you'll be doing just fine.

What do you think? Is the author of the linked article just hyperventilating, or are they correct to be worried about not making enough?

Are Your Priorities Truly Priorities If You Don’t Put Them Into Action?

By Mr. Money 3 Comments

We live in a fast paced age, and our lives can become chaotic jumbles of competing interests and priorities. It can be hard to keep track of what things are truly important to us.

People will talk about how this thing or that thing is their number one priority, and how they are working towards making it happen. We talk about wanting to lose weight, getting rid of debt or of finding a new job. Far too often, however, we don't follow through on the things we say are priorities, and things remain undone. Why is that, and are they truly priorities if they don't get followed through on?

Priorities Or Wishful Thinking?

J.D. over at GetRichSlowly.org had a recent post in which he had a tangential story about priorities, and how we should truly define what is a priority.

This reminds me of a conversation I had once with my cousin. I was complaining that fitness was one of my top priorities, but I couldn’t seem to get healthy. “That’s because fitness isn’t a priority for you, J.D.” Nick said.

“What do you mean?” I asked. “Yes it is.”

“No, it’s not,” he said. “Your priorities are the things you do, not the things you say you’ll do.”

I argued at the time, but looking back, Nick was right. Saying that something is a priority doesn’t make it so. We demonstrate in our daily lives the things that actually matter to us. To quote Will Durant (not Aristotle): “We are what we repeatedly do.”

When we say something in our life is a priority, our actions should bear it out that it truly is a priority, and not just wishful thinking – or window dressing. Priorities are born out by the things we do – action.

For example, for a while now I've been saying that one of my priorities – like J.D., was fitness. After reading his post and the quote above, however, I was a bit convicted because my actions – and the things I do – haven't backed up my claim that fitness is one of my priorities. It's a secondary thing lately.

Priorities Are Shown By Our Actions

Our true priorities in life are shown by our actions. The things that we do and the actions that we take show what is truly important to us.

For me my actions would show my priorities lie with my blogs, my family and possibly in some other lesser areas. Things that I have said are priorities, but haven't actually become that yet include my fitness goals, and some of my financial goals. It's time to take action.

Following Through On The Things We Call Important

So for me the key is to examine your life and determine what things truly are your priorities, as opposed to the things that only sound good as priorities when someone else is asking. Find your true priorities and figure out how you can work towards making those things a reality.

Is your first priority to lose weight and get fit? Join a program to help you towards that goal.

Is your goal to get rid of all your consumer debt? Follow a program like Dave Ramsey's 7 Baby Steps, and start actually paying off the debt.

Put your priorities to action – and make it truly a priority!

From Billionaire To Broke: One Wealthy Heiress And Her Slide Into Bankruptcy

By Mr. Money 13 Comments

I‘ve had a continuing series on this site called “Retiring Wealthy On An Average Salary” where I chronicle the stories of regular folks who have planned ahead and been able to retire wealthy while never making more than an average salary during their working years. The stories can be pretty inspiring and hopefully will nudge people towards making good financial planning decisions.

While it's fun to read the stories that had a good ending like those, unfortunately there are far too many examples of people who have squandered their fortunes as well. Today I wanted to look at one such story, that of Billionaire Heiress Patricia Kluge.

Patricia Kluge: Billionaire to Bankrupt

Patricia Kluge Bankrupt Billionaire

Patricia Kluge was once married to one of the wealthiest men in America, TV mogul John Kluge. In 1989 Kluge topped the Forbes 400 list with a fortune of $5.2 billion. They enjoyed the good life with homes and vacation houses all over the world. In 1990 when the couple divorced Kluge received a huge settlement that was by some reports over 1 million dollars a year, and included a $100 million estate in Virginia called Albemarle. The 24,000-square-foot home, which was once valued at over $100 million, features 8 bedrooms, 13 bathrooms, a helipad, stables and two kitchens. From Yahoo:

AP Photo/Steve Helber

Patricia Kluge was once known as “the wealthiest divorcee in history.” Those days are over. Kluge, who had formerly been married to the late billionaire John Kluge, recently filed for bankruptcy protection, citing debts somewhere between $10 million and $50 million and assets between $1 million and $10 million.

So what went wrong, and how did this wealthy socialite lose it all?

By some reports, despite the fact that they had millions of dollars in assets, Kluge and her new husband leveraged themselves to the hilt, and were up to their ears in debt because of a vineyard and winery business they had started.

The seeds of Kluge’s financial downfall were sown in 1999 when, along with third husband William Moses, she established the Kluge Estate Winery and Vineyard on 960 acres near Albemarle. The couple’s plan: Create vintages that would establish Kluge Estate, and subsequently Virginia, as an East Coast mecca for fine wine.

…Kluge decided to expand aggressively. Over the past five years she took out $65 million in loans, according to public records. The money went into expanding wine production and building a super-luxury subdivision called Vineyard Estates, which was to include 24 multimillion-dollar homes with pools, outdoor kitchens, tennis courts, horse trails–and even space for private vineyards.That’s when the housing crisis hit. Vineyard Estates failed to draw buyers. Property values plunged.

In 2009 Kluge put Albemarle up for sale. Sotheby’s International Realty initially listed it for $100 million. The figure was cut to $48 million in early 2010 and then to $24 million, where it sat until February’s bank foreclosure.

Since they faced foreclosure in February of this year, another high profile billionaire stepped in to save them – Donald Trump. Trump purchased a portion of ownership in their winery business to the tune of 6.2 million dollars. While they're not out of the woods quite yet, I guess it pays to run in those circles and to have wealthy friends who can bail you out of situations like this.

What Can We Learn From This Situation?

So what can we learn from this story of billions to broke?

Live on less than you have coming in: One thing we've seen time and again is that those who live on less than they make or have end up coming out ahead in the end. Those who live on more than they make – whether they are a billionaire or living in poverty, will end up with a mountain of debt and a bankruptcy hanging over their head.
Debt carries substantial risk: It seems to have become conventional wisdom that debt is a good thing when you're running a business – just a cost of operating a business nowadays. I don't think people really focus enough on the risk that is entailed in taking out a ton of loans and debt. Why not try to run a business on cash – like Dave Ramsey and his empire?
Plan ahead for unforseen negative events: Sometimes there are things that happen that weren't foreseen, like the housing and economic crisis that hit Kluge and her husband so hard. Plan ahead for doomsday scenarios – and make sure you're diversified! Don't put all your eggs in one basket like they did.
Be careful of expanding your business too fast: From the stories I've read it sounds like Kluge and her husband tried to expand their winemaking facilities and build a super-luxury subdivision on their land at a faster pace than they probbably should have. When the downturn hit, they lost it all.

What other lessons can we learn from this story? What do you think – would you ever be able to lose it all if you had that much money to begin with? Are we all susceptible to bad decision making if the situation is right?

Thank You To Those Who Have Given Their Lives On This Memorial Day

By Mr. Money Leave a Comment

Memorial day has always been one of those strange days for me. One where I'm filled with gratitude for the sacrifice that our fighting men and women have made, but at the same time the day is tinged with sadness. It's sad that they had to give their lives, or make such sacrifices – and that there is such evil in the world that requires their sacrifice be made.

My grandfather was in the US Army Air Corps in World War II, and while he wasn't killed in action, he was shot down and served several years in a German POW camp. I'm sure he was changed by the experienced, but he never let on very much to his grandchildren about all he had been through. I'm sad that I didn't get more of an understanding of his experiences as he went home to be with the Lord in his sixties, far too young.

So today, I'm thankful for his sacrifice, as well as the sacrifice of all the thousands of other fighting men and women who have given their lives in support of freedom. Thank God for them.

Memorial Day

Memorial Day has it's history dating back to the Civil War according to Wikipedia:

Memorial Day is a United States federal holiday observed on the last Monday of May. Formerly known as Decoration Day, it commemorates U.S. Service Members who died while in the military service.[1] First enacted by an organization of Union veterans — the Grand Army of the Republic (GAR)— to honor Union soldiers of the American Civil War. It was extended after World War I to honor Americans who have died in all wars.

Memorial Day often marks the start of the summer vacation season, and Labor Day its end.

Begun as a ritual of remembrance and reconciliation after the Civil War, by the early 20th century, Memorial Day was an occasion for more general expressions of memory, as ordinary people visited the graves of their deceased relatives, whether they had served in the military or not.

So thank you to all those who have given their lives in the service of our country, and for those who served, and who have passed before their time. We will not forget you, and we honor your sacrifice.

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