Read: http://news.yahoo.com/s/ap/20090909/ap_on_bi_ge/us_economy
Perhaps the logic the government is employing is the hope that if they say this enough times we will eventually believe it. As if, we American's will simply overlook the other articles discussing unemployment, mortgage delinquency rates, the declining value of the dollar, and our declining global economic status. Nobody in the government wants an economic disaster on their watch and they'll max out the credit cards to prevent it – but will it work?
As mentioned in earlier post, the federal government has spent 7 trillion dollars in interest alone since 1988. The government spends far more money than it takes in and it continues to borrow more money than it can repay. What is even scarier is the fact the government continues to think of new programs (health care) to create when it's unable to pay for the existing ones. You don't need to be a financial genus to recognize this doesn't make a lot of good financial sense.
Why you may ask yourself why do I bring this up – after all, I write personal finance articles not economic dissertations. There are several reason and they all affect you.
First, the government has quickly become the worlds largest debtor. They are sucking up available credit like a super vacuum, competing with you and business for a limited pool of money. Of course, another problem we face is the government is sucking up money that doesn't exist, thereby leaving the Federal Reserve Bank to print more, thereby declining value of the dollar. Now this is the crazy part. The federal government is releasing the money as fast as it can and it's only released less than a third of what they've planned – the dollar is plummeting fast and they're not even close to finishing the devaluation the dollar! Do you remember the day when it cost a nickel for loaf of bread – well soon we'll be saying, “wow, bread is on sale for only two-hundred and fifty dollars, that's fantastic!” And of course, that's the second problem – inflation.
This article isn't to point the finger at the evil government – after all, the government is comprised of people whom we've elected and we hold them to basically the same standard we hold ourselves. However, typically when we make financial mistakes it doesn't impact our entire community. Most of us have been raised to borrow, borrow, and borrow. We already know financial literacy is horribly low, yet knowing this fact hasn't raised it. As adults, it's your responsibility to live responsibly and pass this lifestyle onto to your children and the other people you influence.
Debt is bad. I said it before and I'll say it again. Nobody goes bankrupt for losing everything; you go bankrupt when you lose MORE than everything. Only debt leads to bankruptcy and ONLY DEBT. We won't be able to fix the larger issues that surround us if we're unable to tackle the issues directly in front of us. Focus on your personal finances, learn to live without debt, get out of debt, and then focus on helping someone you know do the same. If we can change the systemic perception of debt perhaps we can influence our elected officials to be far more responsible than they have been to this point. If nothing else, you'll enjoy the prosperity that debt and interest has been robbing from you and you'll at the very least, change your own life.
Now, say it with me, “Debt is bad.”
----------------------------------------------------------
http://www.helpyoubuytime.com
Wednesday, September 9, 2009
Tuesday, September 1, 2009
Rich in Debt: The Real Cost of Debt
The average American will spend between $25,000 to $40,000 in interest over a ten year period. This sad reality is what keeps most Americans living paycheck to paycheck, impedes the ability to build a proper savings, and eliminates most American's from being able to invest wisely.
The Real Cost of Debt
Debt has direct and indirect costs; and it's often the indirect costs that are the most expensive. The direct costs of debt are obvious and most noticeable by consumers when they make a minimum payment and see little diminished impact to the principle debt amount. Creditors, as a business, see fit to get paid first, then allocate the remaining payment towards principle. Even in simple interest loans, such as in auto loans, you'll often see a sizable portion of each payment allocated towards interest. Most people do not need any lessons in understanding the direct costs associated with debt.
What is often more obscure are the indirect costs associated with carrying debt. The one area that should concern most debtors are the opportunity losses they commonly experience. Opportunity losses in investments, financial security, careers, and lifestyle.
Investments
While it may be true that leveraged investors are capable of participating in more investments than a cash investor, a non-leveraged investor has the ability to invest in safer financial instruments. Since leveraged investors are borrowing money at interest their investments must provide a return that exceeds that cost. As most investors know, there is a direct correlation between risk and reward, meaning, that if a higher reward is expected the associated risks must also be higher. Since these investors recognize some of their investments will lose significant value, they must hedge there investment bets in a way that their overall financial strategy yields a return to cover their inevitable losses. Of course, if the overall strategy does not yield the minimum expected return, financial disaster lurks in the shadows.
Cash investors are able to invest is far less volatile areas; primary reason, the cost of their money is far less expensive. They are able to benefit from lower yields, along with less risk exposure, netting returns that match/exceed their leveraged counterparts.
Financial Security
People do not go bankrupt for losing everything; they go bankrupt for losing more than everything. By consumers living outside their means they raise the potential of a third-party making the decision of what they'll lose. They raise the potential that a bankruptcy judge can order assets surrender, accounts liquidated, wages garnished, losses that can easily exceed any perceived gains that were realized by using credit. Consumers commonly make long-term monthly financial commitments based on short-term stability.
The one center card to their financial house of cards is often the income derived from a job; two income households are often twice as likely to feel their house of cards shaken – why, because they too live outside their means. Income loss, even temporary income loss, easily can destroy their credit and take away the items they purchased with credit (cars, vacation homes, timeshares, etc). Debt builds an entirely false sense of financial security, if anything, debt builds financial insecurity.
Careers
Just as leveraged investors must realize higher gains on their investments, consumers in debt must earn higher incomes to sustain not their lifestyle, rather, to service their debt. The higher the debt the less career mobility that consumer will be allowed. These people cannot simply wake up one morning and decide they want to start a business, or take a chance with a different company, they are controlled by their financial obligations not their personal career interests.
Lifestyle
People in debt must work. They must maintain a higher level of income to sustain their interest expenses. For those in debt, the prospect of retiring early, taking months off work, truly owning real assets outside their primary home simply becomes an unattainable dream. Consumers that are burdened with debt must conform their lifestyles to match the limitations that debt presents them.
Priority: GET OUT OF DEBT!
The sooner consumers discover ways to manage themselves out of debt the sooner they will be able to move on and discover wealth. Sadly, for many consumers there is no clean way to getting themselves out of debt. Meaning, they have buried themselves so far into debt it will be nearly impossible to get out of debt without harming their credit score. For most, getting out of debt will require a significant reduction in spending habits, it will require significant interest rate deductions, and in some cases, creditors settling the debt for less.
Consumers must also learn to increase their cash savings while paying off creditors. Remember, often significant interest rate deductions and debt settlement will render those credit accounts closed, as credit accounts close, your dependence on a cash emergency fund will increase.
The biggest benefit of maintaining a strong cash account is you'll quickly move from a debtors mentality to an owners mentality. You'll own more and owe less.
The Real Cost of Debt
Debt has direct and indirect costs; and it's often the indirect costs that are the most expensive. The direct costs of debt are obvious and most noticeable by consumers when they make a minimum payment and see little diminished impact to the principle debt amount. Creditors, as a business, see fit to get paid first, then allocate the remaining payment towards principle. Even in simple interest loans, such as in auto loans, you'll often see a sizable portion of each payment allocated towards interest. Most people do not need any lessons in understanding the direct costs associated with debt.
What is often more obscure are the indirect costs associated with carrying debt. The one area that should concern most debtors are the opportunity losses they commonly experience. Opportunity losses in investments, financial security, careers, and lifestyle.
Investments
While it may be true that leveraged investors are capable of participating in more investments than a cash investor, a non-leveraged investor has the ability to invest in safer financial instruments. Since leveraged investors are borrowing money at interest their investments must provide a return that exceeds that cost. As most investors know, there is a direct correlation between risk and reward, meaning, that if a higher reward is expected the associated risks must also be higher. Since these investors recognize some of their investments will lose significant value, they must hedge there investment bets in a way that their overall financial strategy yields a return to cover their inevitable losses. Of course, if the overall strategy does not yield the minimum expected return, financial disaster lurks in the shadows.
Cash investors are able to invest is far less volatile areas; primary reason, the cost of their money is far less expensive. They are able to benefit from lower yields, along with less risk exposure, netting returns that match/exceed their leveraged counterparts.
Financial Security
People do not go bankrupt for losing everything; they go bankrupt for losing more than everything. By consumers living outside their means they raise the potential of a third-party making the decision of what they'll lose. They raise the potential that a bankruptcy judge can order assets surrender, accounts liquidated, wages garnished, losses that can easily exceed any perceived gains that were realized by using credit. Consumers commonly make long-term monthly financial commitments based on short-term stability.
The one center card to their financial house of cards is often the income derived from a job; two income households are often twice as likely to feel their house of cards shaken – why, because they too live outside their means. Income loss, even temporary income loss, easily can destroy their credit and take away the items they purchased with credit (cars, vacation homes, timeshares, etc). Debt builds an entirely false sense of financial security, if anything, debt builds financial insecurity.
Careers
Just as leveraged investors must realize higher gains on their investments, consumers in debt must earn higher incomes to sustain not their lifestyle, rather, to service their debt. The higher the debt the less career mobility that consumer will be allowed. These people cannot simply wake up one morning and decide they want to start a business, or take a chance with a different company, they are controlled by their financial obligations not their personal career interests.
Lifestyle
People in debt must work. They must maintain a higher level of income to sustain their interest expenses. For those in debt, the prospect of retiring early, taking months off work, truly owning real assets outside their primary home simply becomes an unattainable dream. Consumers that are burdened with debt must conform their lifestyles to match the limitations that debt presents them.
Priority: GET OUT OF DEBT!
The sooner consumers discover ways to manage themselves out of debt the sooner they will be able to move on and discover wealth. Sadly, for many consumers there is no clean way to getting themselves out of debt. Meaning, they have buried themselves so far into debt it will be nearly impossible to get out of debt without harming their credit score. For most, getting out of debt will require a significant reduction in spending habits, it will require significant interest rate deductions, and in some cases, creditors settling the debt for less.
Consumers must also learn to increase their cash savings while paying off creditors. Remember, often significant interest rate deductions and debt settlement will render those credit accounts closed, as credit accounts close, your dependence on a cash emergency fund will increase.
The biggest benefit of maintaining a strong cash account is you'll quickly move from a debtors mentality to an owners mentality. You'll own more and owe less.
Tuesday, August 25, 2009
Stimulate MORE Debt
Nearly everyone has heard the saying, “You cannot borrow your way into prosperity” - It's certainly one of my favorite phrases. Yet, despite how many times it's said, despite the number of reputable people saying it, Americans continue to borrow, borrow, and borrow whenever they see an opportunity.
The federal government's cash for clunkers program has been touted as a huge success for auto makers and participating dealerships; and it has successfully removed cars that were paid for and replaced them with cars that now require financing. Good job federal government, you certainly lead by example. Did you know we taxpayers have paid over 7 trillion dollars in interest alone since 1988 - 7 trillion dollars! If you're like me, I'm sure you could think of a lot of other programs that money could have been used for instead of throwing it away on interest. The topic of debt and it's aggregate costs are an enormous subject and I will spare you the nitty gritty details.
Some financial advisors try to present the argument some debt is good. They'll show a basic mathematical example of if you have $10,000 earning 4% interest and you can get a car loan for less than 4% then you'll still show a NET GAIN. These are financial advisors trying to make you feel good for not owning anything; and I don't want you to feel good for nothing, I want you to feel good for owning something.
The bigger picture leads to the problem and you have to look no further than the last two-years to understand what I'm about to explain. Millions of Americans live paycheck-to-paycheck. Between their credit card debt, car debt, big house payments, financing on other toys and assets at the end of the month there just isn't a whole lot of cash to go around. When things get tight either because of unemployment or just reduced bonuses/commissions, we turn to our “emergency fund” to maintain our great credit. Slowly and surely our emergency fund draws near to nothing. Creative people will start using additional credit lines, pulling funds here to pay creditors over there, and of course, this soon finds it's limits too... Some may start to liquidate stocks and other assets; which in a down market is just down right painful and a costly financial strategy. I know these things because I have interviewed hundreds of people who have done exactly as I have just described here.
Five years ago, many of those I interviewed could have owned outright their homes, cars, toys and other assets – yet they choose not to use it. Now, if you're paying attention the common rebuttal to this example is, “if they used there cash they wouldn't have had an emergency fund or stocks/investments!” And if you said that (or thought it) you're absolutely WRONG.
There are two dominate reasons this notion is incorrect. For one, the REAL costs associated with debt; interest easily adds in to the thousands of dollars annually and if you're like most Americans you see more and more debt each year, not less and less. This equates into thousands and thousands of dollars just wasted. The second reason this notion is horribly incorrect is based on the assumption that consumer behavior remained the same – when it absolutely would NOT. Most Americans, even if they have the money readily available will pass/wait on unessential purchases when using cash versus credit. This is the reason why department stores try so hard to get you to complete a credit application, they know that statistically shoppers WILL spend more via credit than cash. Now, think about that. You spend more then you really intend to using credit and then on top of that, you spend thousands upon thousands of dollars in interest payments to purchase items you really never intended on purchasing. And you want to tell me this is okay? And through this strategy you'll reach a comfortable existence?
Debt is fine when used responsibly; the challenge we have is very few Americans use debt productively or responsibly. In a time of economic concern, increasing your long-term monthly responsibilities in a time when the only sure thing was the paycheck that already cleared the bank is a scary proposition. During this time, American's should be reducing their long-term monthly obligations, increasing their cash positions, and perhaps even considering increasing their positions in productive assets (investing in domestic companies).
Always remember, “You cannot borrow your way into prosperity” - so stop trying.
~Frank Carlton
http://www.helpubuytime.com
The federal government's cash for clunkers program has been touted as a huge success for auto makers and participating dealerships; and it has successfully removed cars that were paid for and replaced them with cars that now require financing. Good job federal government, you certainly lead by example. Did you know we taxpayers have paid over 7 trillion dollars in interest alone since 1988 - 7 trillion dollars! If you're like me, I'm sure you could think of a lot of other programs that money could have been used for instead of throwing it away on interest. The topic of debt and it's aggregate costs are an enormous subject and I will spare you the nitty gritty details.
Some financial advisors try to present the argument some debt is good. They'll show a basic mathematical example of if you have $10,000 earning 4% interest and you can get a car loan for less than 4% then you'll still show a NET GAIN. These are financial advisors trying to make you feel good for not owning anything; and I don't want you to feel good for nothing, I want you to feel good for owning something.
The bigger picture leads to the problem and you have to look no further than the last two-years to understand what I'm about to explain. Millions of Americans live paycheck-to-paycheck. Between their credit card debt, car debt, big house payments, financing on other toys and assets at the end of the month there just isn't a whole lot of cash to go around. When things get tight either because of unemployment or just reduced bonuses/commissions, we turn to our “emergency fund” to maintain our great credit. Slowly and surely our emergency fund draws near to nothing. Creative people will start using additional credit lines, pulling funds here to pay creditors over there, and of course, this soon finds it's limits too... Some may start to liquidate stocks and other assets; which in a down market is just down right painful and a costly financial strategy. I know these things because I have interviewed hundreds of people who have done exactly as I have just described here.
Five years ago, many of those I interviewed could have owned outright their homes, cars, toys and other assets – yet they choose not to use it. Now, if you're paying attention the common rebuttal to this example is, “if they used there cash they wouldn't have had an emergency fund or stocks/investments!” And if you said that (or thought it) you're absolutely WRONG.
There are two dominate reasons this notion is incorrect. For one, the REAL costs associated with debt; interest easily adds in to the thousands of dollars annually and if you're like most Americans you see more and more debt each year, not less and less. This equates into thousands and thousands of dollars just wasted. The second reason this notion is horribly incorrect is based on the assumption that consumer behavior remained the same – when it absolutely would NOT. Most Americans, even if they have the money readily available will pass/wait on unessential purchases when using cash versus credit. This is the reason why department stores try so hard to get you to complete a credit application, they know that statistically shoppers WILL spend more via credit than cash. Now, think about that. You spend more then you really intend to using credit and then on top of that, you spend thousands upon thousands of dollars in interest payments to purchase items you really never intended on purchasing. And you want to tell me this is okay? And through this strategy you'll reach a comfortable existence?
Debt is fine when used responsibly; the challenge we have is very few Americans use debt productively or responsibly. In a time of economic concern, increasing your long-term monthly responsibilities in a time when the only sure thing was the paycheck that already cleared the bank is a scary proposition. During this time, American's should be reducing their long-term monthly obligations, increasing their cash positions, and perhaps even considering increasing their positions in productive assets (investing in domestic companies).
Always remember, “You cannot borrow your way into prosperity” - so stop trying.
~Frank Carlton
http://www.helpubuytime.com
Friday, August 21, 2009
Rich in Debt II
Topic: Simplification.
Sub: Reduce in Monthly Debt Expenses
If you're like millions of Americans you probably find yourself carrying a debt burden that is fairly manageable when the economy is expanding and a horrible nightmare when the the economy is stagnant. The last thing you should do is beat yourself up over your present situation, for one, it isn't productive, learn from it and move on, secondly, this economy caught the so-called experts off guard. If you're doing pretty well right now, congratulations, pat yourself on the back and send me your comments on how you do it, and if you don't mind, I'll share them with others, email me at frank@helpubuytime.com.
In times like this you must simplify your life. Beyond cutting monthly expenditures in food, entertainment, clothing, the necessities – you also need to understand your credit expenditures. How many of us have been drawn into buying a new big screen television because it was only $90 a month, or purchased a new computer for only $50 a month? Do you know people who drive a German automobile and wonder, “how can they afford that?” Did you know you could lease a top of the line German automobile for less than $400 a month? We have been taught to become comfortable making long-term financial decisions based on a short-term stability. The only thing that is for sure in even the BEST economies are the paychecks that have already cleared the bank – always remember. And if you think your employer is rock solid, remember all the LARGER corporations that have failed seemingly overnight, if you work for someone, your employment is not stable.
If you're unemployed or experiencing a significant reduction in compensation, you must take drastic measures before you expend all your cash. You control the cash in the bank, you do not control what creditors do with your account. Many people have shared stories with me on how accounts in good standing had limits reduced leaving them nearly stranded because they depended on their credit as their “emergency fund”. That's just bad planning. I had an accounting professor always say, “Cash is King.” It was a phrase that carried through my business classes, economics, and a phrase that responsible businesses adhere too – sadly, this common business adage hasn't permeated through consumers.
With unemployment comes a significant reduction in monthly compensation. It's also very finite. Very quickly you should move to preserve your cash. Explore programs like http://www.helpubuytime.com, learn about your credit rights, this information is readily available through the Federal Trade Commission, and aggressively work to lower your monthly expenses early and often. The sooner you make concessions and plan, the easier it be to weather the financial storm.
Links of Interest:
http://www.helpubuytime.com
http://www.ftc.gov/
“You cannot borrow yourself into prosperity”
Sub: Reduce in Monthly Debt Expenses
If you're like millions of Americans you probably find yourself carrying a debt burden that is fairly manageable when the economy is expanding and a horrible nightmare when the the economy is stagnant. The last thing you should do is beat yourself up over your present situation, for one, it isn't productive, learn from it and move on, secondly, this economy caught the so-called experts off guard. If you're doing pretty well right now, congratulations, pat yourself on the back and send me your comments on how you do it, and if you don't mind, I'll share them with others, email me at frank@helpubuytime.com.
In times like this you must simplify your life. Beyond cutting monthly expenditures in food, entertainment, clothing, the necessities – you also need to understand your credit expenditures. How many of us have been drawn into buying a new big screen television because it was only $90 a month, or purchased a new computer for only $50 a month? Do you know people who drive a German automobile and wonder, “how can they afford that?” Did you know you could lease a top of the line German automobile for less than $400 a month? We have been taught to become comfortable making long-term financial decisions based on a short-term stability. The only thing that is for sure in even the BEST economies are the paychecks that have already cleared the bank – always remember. And if you think your employer is rock solid, remember all the LARGER corporations that have failed seemingly overnight, if you work for someone, your employment is not stable.
If you're unemployed or experiencing a significant reduction in compensation, you must take drastic measures before you expend all your cash. You control the cash in the bank, you do not control what creditors do with your account. Many people have shared stories with me on how accounts in good standing had limits reduced leaving them nearly stranded because they depended on their credit as their “emergency fund”. That's just bad planning. I had an accounting professor always say, “Cash is King.” It was a phrase that carried through my business classes, economics, and a phrase that responsible businesses adhere too – sadly, this common business adage hasn't permeated through consumers.
With unemployment comes a significant reduction in monthly compensation. It's also very finite. Very quickly you should move to preserve your cash. Explore programs like http://www.helpubuytime.com, learn about your credit rights, this information is readily available through the Federal Trade Commission, and aggressively work to lower your monthly expenses early and often. The sooner you make concessions and plan, the easier it be to weather the financial storm.
Links of Interest:
http://www.helpubuytime.com
http://www.ftc.gov/
“You cannot borrow yourself into prosperity”
Rich in Debt
“You cannot borrow yourself into prosperity”
The past two years has surely been a wake up call for millions of American. When the economy was humming, people were happy, banks were happy, creditors were happy – as the economy slipped, the inverse followed.
Everyday millions of Americans bend over backwards trying to maintain their “credit”. Maintaining this intangible record of accounts is more important to many people than putting food on the table, or taking a moment to unwind, or their relationship with friends/family. It appears when things get rough, we as a community of neighbors do not come closer together, we break apart. What's remarkable is that people are not make these decisions based on survival, they're making them for an intangible record of accounts, aka credit report.
Why, you may ask, do I frame this issue around the credit report or a credit score? Because that is the issue for millions of Americans. They're willing to sacrifice so much, even friendships and their own sanity to preserve their credit score. I ask why?
Let me back up. Do you remember when you were in school? Typically those student who had a sincere desire to learn not only retained more knowledge they also earned high grades. Whereas, students who only performed for high grades, retained little knowledge and experienced far higher anxiety and stress related to the event of learning. Is school for learning or is it for grades?
So, what does that fact have to do with your credit score? Well, is life about your credit score or does your credit score follow the events in your life? There is NOTHING wrong with your credit score reflecting the financial challenges you face in life. During time of financial duress you may not be able to get that new car loan, or get a new mortgage, or get another credit card immediately, but if you're suffering financially should you be doing those things? Absolutely not. When you're having problems paying your bills how does adding to your monthly bills help your financial situation?
Americans need to STOP worrying about their debt and START worrying about their wealth. Please understand, I am NOT advocating you “walk” away from your debt, repaying your debt to me is an ethical issue (including a legal one), you promised you would repay it, so you should repay it. However, you also need to worry about the NOW and the FUTURE. Meaning, you need a plan, not a haphazardly thrown together plan dictated to you by a “debt settlement” company. You need CASH, you need ASSETS, you need INVESTMENTS, and you need to REDUCE your monthly debt payments. You should write those tangible goals down where you can see them everyday.
Chances are good you will NOT be able to formulate this plan by spending all your cash on your debt, then living on your credit to get you through until your next pay check. That road leads to poverty and bankruptcy. You need to focus on CASH, ASSETS, INVESTMENTS, and if need be, a FORCED REDUCTION of monthly debt payments.
If you're unemployed or experienced a significant reduction is monthly compensation and you simply do not have enough money to pay your creditors then you need to make some hard decisions. The average American must reduce their monthly expenses to acquire wealth. If this hardship is TEMPORARY, then visit http://www.helpubuytime.com.
If you feel it not temporary, you've just acquired too much debt and you're unable to maintain it you're still going to need time to save up cash to offer a settlement. This is something you can do yourself with a little research – BUT YOU'LL NEED CASH to offer a settlement, DO NOT BORROW THE MONEY TO PAY the settlement.
Lastly, you can consider bankruptcy, however, use this option carefully. Research is exhaustively and find a qualified attorney.
Remember the first steps to wealth accumulation are CASH, ASSETS, INVESTMENTS, and a REDUCTION TO MONTHLY EXPENSES.
Subscribe to:
Posts (Atom)
