Hope and Hopelessness

Do you ever have those days full of hope and hopelessness all at the same time? You know there's something better for you out there but you don't know what it is or how to get to it? Do you have dreams and/or great ideas but you don't know how to make them work? It feels like the only way to make them work is to win the lottery, that way you don't have to bother with the risk of debt or asking for funding. Some people are very comfortable with debt. I am not one of those people as you may be able to tell from previous posts other than a mortgage. So my challenge then is how do I make my dreams and goals a reality without going into debt?

How do people get miraculous dream job offers? Well I think my dream job is to be my own boss, which means I have to somehow make that happen rather than hope someone will offer me that dream job.

Do you ever feel like life is only going to get worse if people insist on not taking personal responsibility for themselves and their families? Aren't you fed up with paying for other people's perpetual and insistent irresponsibility? I don't mind offering a helping hand, but don't insist I give one by taking my money and giving it to someone else? What's the point?

It's like teachers giving out lists to parents of what the children are supposed to bring to school the first day with unreasonable amounts of paper or pencils or whatever. And then when the kid brings it to school the first day, the teacher tells all the kids that actually followed through with the list to bring all their supplies up to the front of the room and watch as she hands out their stuff to the kids that "couldn't afford" or "didn't bother" to bring any supplies to school. I never had my supplies taken from me, nor did I take any supplies from my friends that I thought were better than mine. It was what it was. I'm not opposed to helping the kids whose parents can't afford supplies. But don't put all the supplies that were brought into one pile and then redistribute evenly.

That's the first lesson in income redistribution that a child may experience. That's what some people dream of. Taking money from the super wealthy and giving it to the super poor so they won't be super poor. The problem is that the super poor did nothing to earn this money. If it's just handed to them, where's their motivation to earn more than what's handed if they can always count on getting some rich person's money?

Teach your kids that income redistribution is wrong, but that charity and sharing is right. Especially the sharing of knowledge. Teach a man to fish and he can eat for a life time. And he will take pride in providing his family meals everyday. Handouts should be a temporary solution.

Personal Finances – Build a Budget

If you or your family has a problem with spending too much, one of the best ways to overcome it is to create a budget and then stick to it. You can’t make too much or too little to make a workable budget. Budgets are for everyone, not just people who can’t control your spending. They are for people who have goals and dreams as well.

First, figure out what your take home pay is after all your taxes and deductions are taken out. Never forget to look at how much the government takes from you each month.

Second, if giving to charity or your church is important to you on a regular basis, determine how much it will be each month. I realize some people will disagree with this being second, however many of us feel strongly about this and find they better manage the rest of their money when then commit to giving first.

Third, figure out what your regular bills are every month just as rent or mortgage, utilities, gas, insurance, food (non-restaurant), and any debt payments you must make like a car loans, school loans, or credit cards that need to be paid off. Decide if you want to pay any of these debts off faster like the credit card. Commit to not putting any more money on the credit card or this debt will just grow rather than go away which should be the goal.

Fourth, look at the receipts you have a for a month and categorize them into needs incidentals (i.e. you got a cold and needed some cold medicine, or went to the doctor for something worse), entertainment, eating out, non-needs incidentals such as candy, girl scout cookies, or who knows what people buy that they don’t need. You may also want to use this method to determine how much you’re spending on gas and groceries each month. Determine if this is a reasonable amount to be spending each month or if you should cut back in areas such as eating out or entertainment. Don’t cut these out completely but look for ways to spend less in these areas so you can stash more away in retirement or your emergency savings. Depending on how strapped you are at the end of the month you may want to evaluate the need you have for such luxuries as cable or cell phones.

Finally, determine how much you can save and how much you would like to save. Start out with a number you can commit to on a monthly basis without over-extending your budget and leaving a bit of a cushion for incidentals. Savings means all kinds of things such as a regular savings account, 401k, IRA, or regular stock portfolio. Figure out how you would like to divvy it up keeping in mind that savings for emergency purposes as well as future large purchases such as a vacation, gifts, or fixing up your house, are necessary components to savings. Look for little ways to save a little extra here and there be it by stashing some cash every once in awhile and leaving it alone or a change jar, or whatever you can afford from time to time.

I’m sure I’ve missed something, but these are the basics to getting you started on a budget. You’ll find things that work for you that may be different that what I say. But just remember, it is your personal responsibility to live within your means. This is a tool that can get you started on that path.

Personal Finances – Buy a House You Can Afford

Whether you’ve been through the house buying process or not, you have probably dreamed of owning your own house or at least property of some sort. But when we dream of our first house, we dream of something really nice in a nice neighborhood, comparable to what our parents live in now. Ah but we forget that our parents were also just starting out in life once before, and they didn’t have anything as nice or as expensive as they have now. They worked up to that house they have now. Perhaps they set a bad example and they can’t afford that house either. Whether you had a bad example or just have pipe dreams, neither are an excuse to get a house you can’t afford the mortgage payments on.

Owning property is a good thing. It’s the one solid investment you can make even if you just own land. Over time, the value will increase. The real value is in the land. The building you put on it or that has been put on it already is just adding value. But the land itself will never loose its value. If you bought a piece of property with a house that you found was worthless and needed to be torn down, it is your responsibility to be aware of the condition of the structure on the land before agreeing to buy it.

When you make that plunge, mortgage brokers or banks will tell you what their formula says you can afford based on your income, your debts, and your monthly liabilities (bills). But you see, they don’t ask how much do you spend eating out or buying clothes or going to the movies. They just want to know that you will have money left over for food after your mortgage payment and bills. They don’t care if you put money in savings every month or want to put money in savings every month. Their commission is made on the size of mortgage they sell you. It is your responsibility to set the limit on what you can actually afford. No one expects you to have a 2500 square foot house the first time around. They just expect you to pay your bills each month and not become a drain on the economy.

Here’s the other thing you must consider. Depending on where you live, home values can be outrageously high and volatile, or reasonable with slow and steady growth. In some markets, it’s perfectly acceptable to take out an interest only loan. Here’s my rule on that. If you can’t make a payment that includes the principle loan amount as well as the interest on the loan, you can’t afford it. I don’t care if it’s a hot market and you’re convinced 3-5 years from now you will be able to sell it for $50,000-$100,000 more than what you “paid” for it. That’s a risk. What if home values drop dramatically? You are then stuck there paying interest on a loan worth more than the house.

That leads me to my next rule. If your income is not outrageously high to afford the volatility of the “markets” out there, only take out fixed rate loans. This means that the interest rate you pay will stay the same for the term of the loan unless you refinance. The only change in your monthly house payments will be on your property taxes and insurance. Those of you that can’t afford a down payment on the house but can afford 2 mortgage payments, you can get both loans fixed. Fixed rate loans will keep you out of trouble later.

When you have a loan that you are systematically paying on the principle, you are building equity. In essence it’s like a savings account. It’s just not a very liquid savings, but when you are paying rent or interest only, you are not building ownership or equity. You are throwing all of that money down the drain. Just start out with something reasonable and within your means. Only you know what that is. Don’t get caught up in the process of looking for a house either. You’ll find a yard you like or a house that appeals to your emotions and that’s when you can get in trouble. Keep logic at the forefront when going through the process. Set a maximum you can afford and a preferred amount. Sometimes you’ll find that houses at the maximum need more work than houses in the preferred range. Use logic. You can always trade up later on when you have the means to.

Personal Finances – Your Credit Score

Helping people out of financial strain has always been sort of a dream of mine. Kind of like Suze Orman without the tan. But I hate the thought of charging them for advice when they’ve already gotten in over their heads. So this is potentially a way for me to offer what I consider to be common sense advice but what many schools and parents fail to teach causing endless cycles of families struggling to survive. Maybe someone somewhere will stumble across this blog and it will reach them somehow…Ah who am I kidding. That’s not going to happen.

So lesson one is about our credit score. Your credit score says a lot about you. The higher your score, the more responsible you have been with credit and money you owe. The lower the score indicates that you are more of a risk to lenders. There are 5 elements that make up your credit score; payment history, total debt owed; length of credit history, available credit, and types of credit used.

There are things you can do in each of these categories to improve your score. For example too many credit cards can be perceived as a negative, especially if they all carry balances. However, having no credit cards can also be a negative since it decreases the amount of credit immediately available to you. As some of you may have noticed, the longer you have a credit card and have consistently paid off the balances you carry, the more credit the card companies make available to you. This is a good thing if you are responsible and don’t carry a balance for long or if you make sure to pay off your balances every month.

Another habit you can get into is to make sure to pay all of your bills on time. This includes loan payments, credit card payments, and utility bills. Establish a history of honest dependable repayment. This tells potential creditors that you care about your financial obligations and that you are less risky than someone who sporadically pays their bills, or gets behind on their bills. People that do that are potentially in over their heads, and potentially don’t care about being in over their heads. As you can see someone lending you money wants to lend it to someone who they can trust will pay it back.

As you can see many of these things improve your credit score with age. This is because generally with age comes more responsibility of bills. I must say though what seemed to cause my credit score to jump most dramatically was buying our house and paying on it for a year on time and in full every month. I can make a guess that it has to do with being able to handle a larger, longer-term loan responsibly with all of our other payments.

The benefits of having a high credit score include the best interest rates, access to credit, and plain ol’ pride in yourself for being a financially responsible member of society rather than a drain on society. Because people that don’t pay their bills or run up high credit card balances and pay the monthly minimum if that, or get in way over their heads and find themselves juggling their bills from month to month are a drain on the economy.

I’m not saying people don’t run across hard times. We all struggle from time to time. But even when you are struggling, you can still live within your means. Maybe that just means, that new car will have to wait another year, or buying a house will need to wait another year or two, or you go without satellite or cable TV, or go without the Internet since you have access to it at your local library or at work during your lunch hour (or all day for most government employees J). Basically speaking, look at how much money you bring home each month, subtract your necessities, and I’m sorry but a cell phone is also not a necessity, negotiate what you will save each month and what excess wants you can afford. That’s living within your means, since keeping up with the Joneses is really impossible since as you get more, they get even more. Trust me, the Joneses are probably in over their heads too. At least you can hold your head high if you live within your means.

Now let’s all hold hands and sing cum bay ah…or however you spell it.

For more information related to your credit score go to http://www.myfico.com