My CFO on the Go!

Well, maybe not the sky. But with the Dow Jones Industrial down 23% in just a week and a half it sure seems like it.  World financial markets are reeling, banks are failing, and the US government must think that money grows on trees, because the government’s response to the problem is to throw money at it. One question I have for all the Senators and Congressmen, “Where do you think all this money is coming from?” Either the printing presses are rolling and you are printing more money, or you expect to take it out of my pocket.  I don’t like either option.

The news media is busy feeding the flames of panic. I quit watching. I just couldn’t stand another breathless, busty  blond, eyes wide with excitement, telling me about the future horrors if the current crisis is allowed to continue without someone doing something.  Oh yes honey, the horrors. You probably won’t be able to get a new Lexus this year!  You might even have to go to only once a week manicures! Whatever will we do! And what really gets my goat is the amnesia the media seems to have.  It doesn’t seem all that long ago that the crisis was rapidly rising oil prices. Yesterday it was reported that adding to the crisis, is the rapidly falling price of crude oil. Hmmm?  Seems to me that should be a good thing.  I certainly don’t mind that it is costing me $5 less to fill up my tank than it did just a few months ago.

I’d like to inject just a little bit of sanity into the mix.

Yes the stock market is plummeting.  What this means is if you sell your stock right now you are not making a very wise decision.  The idea is to buy low and sell high.  Not buy high and sell low. (Which seems to be what most people do.)  If you are thinking of buying stock right now, and holding it for the long term, then you have the better idea.  I would wait a few days to make sure the free fall has stopped.  Then look for the stock of companies that are financially sound. I would especially look at companies that provide basic goods are services, as oppposed to companies that sell luxury items.

Yes, the credit markets have tightened up.  The news media is reporting as if this is a bad thing.  It is a bad thing for banks and lenders.  They won’t be able to collect super high interest rates and fees from people that probably shouldn’t have gotten a loan in the first place.  Yes, companies that were running on ever extending credit lines and bad business practices are probably going to go under. The truth is, they were going to fail eventually, this way they fail with a little less debt.  But I don’t think it is such a terrible thing for your average person.  Maybe you can’t go on that vacation, or buy that new furniture. You can work on paying down your current debt instead.  If you are someone who has been using credit for daily living expenses, well now it is time to learn how to live within your means. I have worked with  people from all income levels on getting rid of debt, and I can say with certainty, If you live in the US you probably have many places you can cut expenses, without seriously impacting your way of life.

And you can still get a mortgage these days.  You just can’t get a subprime mortgage. You just have to have a decent credit score, put 10% down, and have no more than 40% of your income go to debt repayment.  In other words, you have to have the savings and income to be able to repay the debt! That is not so bad.  I remember a time when you needed a 20% down payment, and your total housing costs (principal, interest, taxes and insurance) were to be around 25% of your monthly income.

And finally, the housing market. if you own your own home, and you can afford your mortgage, don’t worry about the housing market. Don’t try to sell your home and it won’t matter to you. If you are looking to buy a home and you have decent credit, well then now is the time to get excited!  You should be able to find some bargains out there.   But, if you are trying to sell your house right now,  I am sorry to tell you that you will not be able to get the  inflated rates of the past. the crazy hot sellers market is gone and we are now in a buyers market.  Not only that, people can’t get mortgages for overpriced houses anymore.   If you want the biggest market for your home you will price it so the average upper middle class family can purchase your home with a conventional 30 year mortgage. The other buyers you will find are real estate investors who are looking for a bargain. If you paid too much for your house a few years back, you are going to take a loss. My advice, talk to your tax advisor and consider turning your house into rental property. Then in a few years you can sell at a loss and write some of it off your taxes.

So, despite what the news media would have you believe it is not all doom and gloom for the average American. Sure things are going to be tough for awhile, some people are going to lose their jobs when shaky companies fail, some people are going to have trouble selling the houses that they can’t afford. But I think in the long run, the people of this country are going to be in a better place financially. They will have learned that we can survive without excessive consumerism. (The environment will thank you also!) People will have leaned to live within their means, and for those who have cash or good credit, there will be some amazing bargains in housing, stock, and luxury items.

What do you think? Tell me really, how is this crisis directly affecting you?

This blog is mostly focused on tax, savings, and business issues in the USA.  But the internet is making the world smaller and I have many readers from around the world. So this post is for all of you in the UK.

You should know by now that I think that everyone needs to be saving for the future.  Not just adults, but children also. One of the best things a parent can do, to get their children started right financially, is to open a savings account for them.  You can save for your child’s college education, or just for their future needs, but it is important to start early and show your children the advantage of saving money. If saving money becomes a habit for your children that will be well on their way to financial success!

IceSave is an online bank, open to UK residents, that offers savings accounts that are safe, easy to use, and offer attractive interest rates.   I really like their Easy Access account. It has a low opening balance requirement, and a very attractive variable interest rate. Currently at 6.30% the interest rate is guaranteed to be over the Bank of England Base rate by at least 0.35% until 1 May 2011.  After that, it is guaranteed no not be less than the Bank of England Base rate until 1 May 2013.  And my favorite part of the deal?  There are no fees. You can take your money out of the account at any time without any fees or penalties.  I am always annoyed at banks that pay low interest rates, and then charge fees for every transaction.

Your money will be safe with IceSave.  They were founded in Iceland in 1886 and have been in the UK since 2000. They have a strong credit rating and provide the same level of financial protection as every bank in the UK.

So if you are in the UK, get your kids started out right and open an account for them with IceSave.

This is the second post in a series that will explore how you can become debt free, and stay debt free forever. Future posts will talk about when you should and should not use credit cards for purchases. Why you should care about your credit score, how to save money on every day expenses, will credit repair companies help you or hurt you and much more. Make sure to subscribe to our feed so you don’t miss a single installment of this series.

I hope you have read the first post and have made your commitment to become debt free forever. Last time we talked about the problem of debt, and of the fact that most people do not get an adequate financial education. With this post we are going to start into the real work of becoming debt free forever. And the best place to start is with credit card debt.

Credit cards are easy to obtain and easy to use. In fact, most stores will give you a discount on your purchase if you will sign up and/or use the store credit card. Why is that? Because they know that you will probably not pay off your purchases every month, and that they will earn more from you in interest charges and fees than the discount that you get.

It is interesting to see just how much a purchase made on a credit card can end up costing you. Let’s look at an extreme example.

Let’s pretend you have just took a wonderful vacation and charged the whole trip to your credit card. After all, you work hard and you deserve a good vacation! For this example we’ll assume you are paying 24% interest on your credit card and paying the minimum payment, which is the interest charge + 1% of the balance. If you always make your payments on time, and you never charge anything else on that card, how long do you think it will take to pay off your credit card? It will take almost 20 years and you will pay over $3,500 in interest on your vacation! Wow!

What if you did it a little different. What if you planned ahead and saved for your vacation. Making the same payments as your initial minimum payment of $59.60 a month into a savings account it would take you less than 3 years to save $2,000 and pay for your vacation in cash. And that is not taking into consideration any interest you might earn on your savings. So, would you rather pay for your vacation for 20 years, or for 3?

Assignment:2 Find Out How Deep the Hole Is, Add Up Your Credit Card Debt

Go find all your credit card statements, we’re going to find out just how much credit card debt you have. No guessing allowed, you probably have more than you think. If just thinking about doing this assignment gives you a sick feeling in your stomach, do it anyway. Once you know how big the problem is, you can start fixing it.

For this assignment you can use pencil and paper, you can make yourself a spreadsheet, or you can use this debt tracker spreadsheet from mdmproofing.com.

Across the top of a large piece of paper, make the following columns. Name of credit card, interest rate, initial balance, current balance, minimum payment, current payment. Then, fill in the blanks.

It should look something like this:

Now total the following columns. Current Balance, minimum payment, and current payment.
Now take a deep breath and look at the current balance number. Don’ let it stress you out, it is just a number. Good job! In my next post we are going to work out a plan for paying off your credit card debt. It may be just a little different than you think!

If you are serious about becoming debt free, one of the things you must have is an emergency savings account. But not just any savings account. Many major banks today are paying dismal interest rates, often under 1%. And to top it off they have monthly service charges and minimum balance requirements that can make it where you are actually losing money on your savings account. Especially when you are just starting your savings plan and don’t have a lot of money to save, you need a savings account with no fees and no minimum balance requirements. And, as you progress in your debt reduction and savings plan you will probably end up with thousands of dollars in your emergency savings account. You need to earn the most interest possible, while keeping your funds safe.

This is where online banks come in. Online banking is safe and reliable. You can link your online savings account to your regular checking account, so getting to your money is easy. But not so easy that you will be tempted to make impulse purchases with your emergency funds. And many online banks typically pay much higher interest rates on savings accounts.

I really like HSBC direct. If you open an account before September 15, 2008 you can earn 3.50% APY* in Online Savings. Thats 9 times higher than the average savings interest rate. What makes this even better is that there are no fees for this account, and no minimum balance requirements. You can open an account for as little as $1, and did I mention, no fees. That means no minimum balance fees, no service charges, nothing to cut into the interest that you are earning. Plus your money is FDIC- insured.  You can deposit with confidence.

This is the first post in a series that will explore how you can become debt free, and stay debt free forever. Future posts will talk about when you should and should not use credit cards for purchases. Why you should care about your credit score, how to save money on every day expenses, will credit repair companies help you or hurt you and much more. Make sure to subscribe to our feed so you don’t miss a single installment of this series.

The United States is in a debt crisis. A 2.57 trillion dollar crisis in 2007 according to the Federal Reserve. The average American household caries $8,565 in credit card debt. What makes this particularly scary is that many consumers are not getting over the heads in debt from frivolous spending. As salaries and wages haven’t kept up with rising costs, consumers are turning to their credit cards to make ends meet.

Many people are aware of the problem and would like to become debt free. But they don’t know how. Schools don’t teach finances, and with the amazing amount of both good and bad information on the internet it is hard to know where to turn. In fact, it is easy to get ripped off and end up even worse than before.

In this series I am going to give you a basic financial education and step by step directions that will help you get debt free, and stay debt free forever. You won’t need to buy anything, you won’t need to hurt your credit rating or declare bankruptcy. Each post will talk in depth about a specific credit or money topic. Then I’ll give you an assignment to work on. Stick with me, and you will become debt free forever!

Now here is your first assignment.

Assignment One: Make a Commitment
Let me be honest. This isn’t going to be easy, and you are going to make plenty of mistakes along the way. So you need to make a commitment. A strong commitment to do what it takes, and to keep doing what it takes, until you reach your goal. So today I’d like you to set the goal of becoming debt free, with the commitment to do the assignments exactly as they are assigned. And if you make a mistake and fall off the wagon, make a commitment to get right back up, brush yourself off, and get back with the program. Making a public commitment makes you more accountable, so feel free to post here if you will work with me to become debt free forever!