Real Life 101 Handbook

New Year's Resolution - Better Budgeting

noreply@blogger.com (Mike Duralia) — Sat, 28 Jan 2012 19:04:00 +0000

Happy New Year! I hope this year brings you much joy, peace and happiness!

I also know many of you are putting together your New Year's Resolutions or perhaps you already have. Now that the holidays are behind us, many folks will be trying to figure out how to pay for all those gifts they bought so I thought I'd add some more information about budgeting.

In my first budgeting post I talked about how to develop a budget and use it to determine your Discretionary Spending to maximize the money you have and avoid over spending and going into debt. The budget developed was on a monthly basis and helped you develop a number for your entire month's "allowance." For a lot of folks, this can still create some problems for a very simple reason and it has to do with the way our brains are "wired."

As it turns out, some people think better in smaller increments either week to week or day to day. There nothing wrong with that as I've often said we each have a method that works best for us. For some it's using credit cards and paying off the balance each month. For others it's using cash. What ever you method, you have to figure out a way to "keep score" and track your spending and budgeting in smaller increments is one way to do that.

Once good example of breaking down a budget into smaller chunks is thinking about how you buy groceries. We all have to go to the grocery store. How often do you go? Each week? Once a month? Some combination of the two? Let's talk for a minute about someone who goes once a month. If they buy everything they need for the month at one time, how big is the grocery bill? How much extra storage space would they need at home? Maybe they would even need more than one refrigerator? All that space for extra groceries and buying the extra refrigerator and the additional power it consumes costs more money. Also, some stuff may spoil before you're able to use it which wastes the money you spent on those items plus costs more to replace them.

Now how does that compare to going once a week? If you get what you need for just one week at a time, you spend less money at the store and you don't need a whole lot of space for all the "extra" stuff. You are more conscious of exactly how much you are eating week to week and can more easily identify the "essentials" you really need. If you plan your meals for the week, it becomes even easier to figure out exactly what the essentials are for you and you are less likely to buy something on a whim thinking you will need it "sometime" during the month. Finally, there is less chance that the things you bought will spoil before you use them.

When I lived alone one thing I used was a standard grocery list. I would list all the items I normally purchased in various categories on a sheet of paper. For example, under cleaners I would have glass cleaner, toilet cleaner, dishwasher soap, laundry detergent, and etc. I would keep 2 containers of each. When I opened the "new" container of dishwasher soap, I would circle it on the list so I would know to get it the next time I went to the store. This way I never ran out of anything I needed and only bought what I knew I had to have.

Sometimes there are specials on items in the store and that can save you some money. If your dishwasher soap is on sale buy one get one free, it doesn't hurt to pick up one extra and save some money. However, going to the warehouse store and buying a 50lb bag of dishwasher soap may be cheaper per pound but cost MORE CASH out of your pocket and not fit under the sink in the kitchen! Do you get the idea? Managing a budget is about making a plan and sticking to that plan so that you insure at the end of the month you have some money left over.

The only way you will be successful is to change your mindset. You can do it; it just takes discipline and determination. What I mean is if you have $200 budgeted for food then that's ALL YOU HAVE. Break it down into weekly (divide by 4 or $50 a week) or daily chunks (divide by 30 or ~$6.50 a day) if that's what YOU need to do to manage it.

Another example I use often is going out to eat for lunch. If lunch cost you $5 a day, you'll spend $100 a month just for lunch! Wouldn't it make more sense to "treat" yourself to one or two lunches out a month and and save that $90 for groceries? You will get a lot more food at the grocery store for $90 than you will at a restaurant.

Once again the point of a budget is to make choices that are not for the short term or for what you want "right now" but for your long term financial health. If you need to put $50 cash in your pocket at the beginning of each week for four weeks to make sure you don't spend more than your $200 during the month, then that's what you need to do. If you have to place a certain amount of cash in your "secret hiding place" at home for things you may "want" during the month and only put that money in your pocket when you're ready to purchase them, then that's what you have to do.

Another thing to consider is your tax refund. How will that affect your budget? Do you plan to use it to pay down your holiday bills or will you spend it on that new "thing" you just have to have? Which decision is best for your long term financial future? Also, if you're getting a big refund that means you are giving the government an interest free loan. Ever notice that, if you underpay your taxes, they charge you a penalty but if THEY owe YOU money, they don't pay an interest?

When you complete your 2010 tax return review it with this calculator and make any adjustments you need to your withholding so that you get more money in your pocket each month. The biggest challenge for most is to have the discipline to save it rather than spend it. Just pretend like you didn't get that money. Set up for your bank to transfer that exact amount into a separate savings account each month so you don't "see" it. In fact you might even be able to save all you need for the holidays this year and not have any holiday bills going into 2012!

I'd love to hear about the methods you use to manage your budget so be sure to add some comments here or on the Facebook Page.

Who knows, you may provide the "system" that someone has been struggling to develop for themselves that will make all the difference in their financial life.

Black Friday - Was it for you too?

noreply@blogger.com (Mike Duralia) — Sun, 27 Nov 2011 23:31:00 +0000

Well, we are now into the holiday shopping season. Black Friday was just two days ago and now Cyber Monday is tomorrow. Do you know why that day is called Black Friday? Supposedly, the retailers have been operating at a "loss" (i.e. in the Red) all year and this one day is supposed to give them some profits (i.e. put them back in the Black). Hard for me to believe so many companies are able to survive the rest of the year operating at a loss especially when they are selling things on Black Friday at such "huge" discounts. By the way, if you believe them, please contact me so I can sell you my ocean front property in Arizona (LOL!).

All the marketing hype over the last few days got me thinking about how so many folks will be out fighting each other for these deals, using their credit cards to pay for all this stuff and will most likely have to make several payments to pay off this new debt at 14-20% interest! Is that crazy or what?

It reminded me of a recent survey conducted by the National Center for Credit Counseling that had some very surprising information about how people manage their personal finances. One of the findings was that 63% of adults have no idea what their Credit Score is. That was amazing to me. How could someone walk around and not know their credit score? I have that number in my head. Then I realized something; so many people don't know simply because "they don't know what they don't know!" So let me explain to you in a little more detail what a Credit Score is and why it is important.

Simply put your Credit Score, also called your FICO score, is a financial report card about you. The values of the score range from 300 (worst) to 850 (best) and provide and indication of how well you handle the credit you have been given through bank loans (such as for homes and automobiles), lines of credit (such as a credit card) and other credit extended to you by service providers (such as the power company, water company, etc.). The score is calculated by applying values to several factors that describe your individual, unique credit situation:

35% - Payment History - Have you made your payments on time?
30% - Amount Owed - How much do you owe or the total of all your loans?
15% - Length of History - How long have you maintained credit accounts?
10% - New Credit - How many new credit accounts have you opened recently?
10% - Credit Types - How many different types of credit to you use?

You can see much more about the items that make up each of these categories on the FICO Website as well as learn a lot more about what the score means. By the way, it is called a FICO score because it was developed by the Fair Isaac Corporation.

There are three credit reporting agencies that "track" your credit: Transunion, Equifax and Experian. Each company uses the FICO system for measurement and each one will provide you with a slightly different number. For example, Transunion may give you a 650, Equifax a 646 and Experian a 648. The scores may not be exactly identical but they should be within 10 points of each other. If they are not, there may be an error in your credit report OR you may have been a victim of fraud. You need to obtain your credit report regularly to insure it is an accurate reflection of your financial management capability and so that you are certain no one has stolen your identity.

So how do you get a copy of your credit report? How do you make sure you get one from EACH of the three agencies? Well, there was a federal law passed on December 4, 2003 called the Fair and Accurate Credit Transactions Act (FACTA) as an amendment to the Fair Credit Reporting Act (FCRA). The FCRA was originally passed in 1970 to regulate the three reporting agencies and activities related to credit reporting. The FACTA added a clause that requires that EACH one of the agencies provide you a FREE copy of your report every 12 months. You can read some more details about obtaining your free report at the Federal Trade Commissions website. You will also find a link there to the ONLY website that provides you with the FREE report from all three agencies.

You may have seen the ads on TV for FreeCreditReport.com but don't confuse that with the REAL free credit reports you are guaranteed by the FACTA. FreeCreditReport.com will ask you for a credit card number to "sign up" for their "free" service which means, you guessed it, it isn't really free. So be sure to follow the links I've provided to get your free reports.

This is really EASY to do. In fact, as I was typing this blog entry, I realized it had been just over a year since I pulled my reports so I went to the free website and pulled and saved all mine in PDF format in less than 15 minutes. If you don't have software to save your files in PDF format, here's some free software to do it. If you don't want to do that you should at least print them out and save them somewhere safe.

The report from each agency will be formatted a little different but each one will list your name, most recent address, 2 previous addresses and all the credit accounts you have had within the last 10 or so years. Each account will have details such as the name of the lender (for example, Wells Fargo Bank), the amount of credit granted (i.e. the amount of money you borrowed), the status of the account (i.e. open or closed) and highest balance and your payment history for the account. You should get these reports every year and look them over to make sure the information is accurate, meaning, all the accounts you see are in fact yours either now or at one time and that the amounts and payment histories are correct. If not, there are details at the bottom of the Federal Trade Commissions website
that explain what you have to do to contact the particular reporting agency and get the information corrected.

Why is the score so important? Well creditors review you scores to see how well you have managed the credit you have been given in the past. For example, when you decide to buy a new car and need a loan, they look up your credit score. If you have a poor rating, you will have a more difficult time obtaining new loans, credit cards, etc. AND the interest rate you are charged on your loans and credit cards will be higher. Why? A low score means you haven't managed your credit well therefore you will be charged higher interest so the lender gets their money back sooner from you. The higher the interest, the more money the lender gets for the life of the loan. For ANY loan, in the beginning, the payment (made up of interest and principle) that you make is made up of more interest than the principle. As you pay down the loan, the interest portion of the payment gets smaller and the principle portion gets bigger. Again, the higher your interest rate, the greater the amount of money the lender is getting from you in each payment as interest until you get "closer" to paying off your loan.

Now if you find yourself in trouble with a bad credit score it's not the end of the world. You can fix it with patience and dedication. First, you've got to make your payments on time and keep from going further into debt. You can get started by developing a budget as I discussed in a previous post. You should also probably get some Free Credit Counseling. The National Foundation for Credit Counseling is a non profit organization that helps people straighten out their credit. You can learn more about what the NFCC has to offer here. You could also use Google to find FREE credit counseling. You may want to go to your local bank and ask if they have any recommendations. There is help out there for you so don't lose hope - you have the control to fix it and you can.

One last thing. I talked about your Credit Score and obtaining your Free Credit Report but you need to understand that those are NOT the same thing. The Credit Report you can get for free once a year by law, however, there is nothing that says they have to give you your Credit Score for free. In spite of this, I have never paid to get my score and it's a simple little secret. The next time you apply for a loan or ANYTIME someone says asks you "May I pull your credit report?" just wait. When they have done that and they say "Ok, based upon your report, we can offer you XX% interest rate on your loan" simply ask "Would you mind telling me what my three credit scores were?" I have NEVER had anyone not tell me what the numbers were and so I've never paid to find out. That's just one of the "little secrets" I've learned to save myself some money while I manage my finances.

I hope you see now that understanding your Credit Score and reviewing your Credit Report ANNUALLY are two important items you must have in your overall financial management plan. Don't be intimidated. You can do it. Anyone can. It just takes patience, discipline and some awareness of where to look for information and what to do with it.

So now you "know" and YOU too can stay "in the Black."

Turning Your Money Blues Back To Green

noreply@blogger.com (Mike Duralia) — Sun, 30 Oct 2011 18:18:00 +0000

There have been many stories in the news recently about the financial crisis in Greece that is causing problems with the world financial markets. Four months ago there was great chaos caused by the "debate" of our own government about raising the US Debt Ceiling (see previous post). What these"events" have in common is very simple - a lack of proper budgeting.

The financial problems in Greece and the United States are not because those governments did not create a budget; they have occurred because their budgets have not been balanced - both countries have been spending more money than they had available. To manage money properly a budget must be developed as well as methods to monitor progress towards the budget.

A budget is defined as "An itemized summary of estimated or intended expenditures for a given period along with proposals for financing them." Many organizations develop a budget to manage their money. They "forecast" the amount of money they will receive (called Revenue), how much money they will spend (called Expenses) and how much profit they will earn (Revenue - Expenses). Generally on a monthly basis financial statements are created to report how the organization is performing compared to the budget as a sort of financial report card. Managers in the organization review these reports to determine if changes to their current plans are needed to keep on track to meet the budget.

Using a budget is also the best way for you to manage your own personal finances. Again, you not only have to develop a budget but you have to have the discipline to monitor and manage it. How do you do that? First, let's talk about how you create the budget.

Start by determining you total take home pay for a month. You may be paid each week (multiply by 4) or twice a week (multiply by 2) or only once a month. That monthly total is your Revenue number. Next, you need to determine your Total Fixed Expenses for each month. These are the bills you have each month that do not change or are "fixed". Examples are your rent or mortgage payment, car payment, child support, annual memberships (broken down into a monthly amount) cable bill, phone bill, electricity, water, and insurance. Even though some of these bills like phone, electricity and water may vary slightly, you still have to pay them every month and that's why I categorize them as "fixed". You will not get through a month without receiving a bill for these items. You can estimate the monthly amount for them by calculating an average amount and then add a little to it to use in the budget for that item.

Now if you do not keep copies of your monthly bills, this may be a bit difficult. If that's the case, just get an envelope, label it "Bills" and start collecting them. After about 45 days you should have all your bills in that envelope at least once and possibly twice. Once you do, sit down at a table and take them all out and make sure you have everything. If you have any payments made automatically (like phone bill charged to a credit card and no paper bill sent) you have to determine those amounts by reviewing your email or on-line statements and include them.

You also use these bills to calculate the averages for the bills that vary slightly. For example, look at your electric bill. Let's say it's $130. Well it may be a little more in the summer ($165) when the air conditioning is working. If you live in an apartment with electric heat, it may be even more in the winter ($185) . So perhaps you add another 10% to that number so that average is equal to the sum of all your electric bills divided by 12.

This brings me to another very important point: you need to start keeping copies of your bills each month. Review these bills against your budget every month and make sure all the amounts you have been using in your budget for "fixed" expenses are correct. If not, you make adjustments to your budget. After 6 months, review all your bills for those 6 months again to be sure your estimates are correct and make any adjustments necessary.

Now that you have all your information for Total Fixed Expense and your Total Revenue you subtract the Expenses from the Revenue and you get your Discretionary Spending. This is the money you can totally control each month. This is the money you use for groceries, going out to eat, clothes, electronics, and all the other "stuff" you purchase. You also take your "savings" from this money. You should target to set aside 10% of your Discretionary Spending and "pay yourself first" this way before you spend money on other things. Why should you do this? You need to plan for the unexpected. The doctor visit you had to have. The flat tire that had to be replaced. The unexpected expense for the field trip at school. If you don't pay yourself first, these things can wreck havoc on your finances when they just "pop up."

Some people have asked me "Why is food discretionary?" Well, you can control what you eat, how much you eat and how often you go "out" to eat. No one is forcing you to eat out every day at lunch or go by Starbucks every morning on your way to work. When I lived alone, my grocery bill was around $125 a month. I planned my meals, bought the same things each time I went to the grocery store and I ate simply. I didn't starve, ate "good" food and was in very good health. I still brew coffee at home every morning. I don't go "out" for lunch. I live close enough to work to come home for lunch and when I worked further away I packed a simple lunch. If you eat out every day and spend $7 on lunch that is $45 a week and almost $100 a month!! If you packed a lunch you could "save" at least half that amount if not more.

If you're having trouble figuring out how to calculate all this, here's a useful tool you can use. Just fill out all the items in the GREEN boxes with your numbers.

Once you have developed your budget and you know how much you have available to spend each month, you need to develop a method to manage your budget day to day, week to week, month to month. In other words, using some round numbers, let's say you have $500 of Discretionary Spending each month. First deduct 10% for savings and you're left with $450. How are you going to track your spending to make sure you don't spend more than that $450?

Well, one way is to use a credit card for all your purchases. Many times, a credit card has some type of rewards system for using it either cash back like with the Discover Card or points you can use for other discounts or airline travel or whatever. The credit card usually has a way you can monitor your spending activity on line so you can check anytime to see how much you have spent so far for the month. Another advantage to credit cards is they have a little better fraud protection than using a debit card as I discussed in this post. The risk with the credit card is it is VERY easy to go over budget since you can charge easily and you don't "see" anything leaving your wallet. You can find yourself in over your head with debt very quickly so you have to have a lot of personal discipline to use this method.

Another way is to use a debit card in the same manner as the credit card. You can still track your transactions on line to manage your budget. With this method, the money comes out of your account immediately and the fraud protection is not quite as good as the credit card and it still requires discipline to not spend more than you have available. If you do overspend, instead of adding debt like you would on the credit card you may wind up paying fees for over-drafting your account and possibly reducing your savings if you have your savings set up to cover your checking account for overdraft protection.

The final method is to use cash. You do not have to keep up with any receipts or look on line to see how you're doing; you just have to look in your wallet to see how much money you have left. Now, I personally would not walk around with $450 cash. I would take some like perhaps $60 and leave the rest in a "safe" place and refill my wallet as necessary. For some people this is the best method because it requires less discipline since you have a finite amount of money and you "see" it leaving your wallet.

Which method is the best? Well, that depends on you. Each one has advantages and disadvantages. What's important is that you choose the one that is most likely to work best for YOU to help you manage your money the most effectively. You may try one method and find out it doesn't work well for you and switch to another. There's nothing wrong with that at all. Each of us is different and we each have to develop our own unique methods to manage our money successfully. Whatever method you choose, be sure you are conscious of your budget each time you spend money. That way you will be prepared for the unexpected expenses that happen to all of us and you'll have the peace of mind knowing you were prepared.

Take the Time...Your Kids Will Thank You for It

noreply@blogger.com (Mike Duralia) — Tue, 16 Aug 2011 05:53:00 +0000

I was recently reviewing some of my notes and research and was a bit disappointed to realize that kids in this country still aren't receiving the information they need to properly manage their own personal finances.

The first item I ran across was a survey conducted of 18-22 year-olds and their parents by Wells Fargo back in the summer of 2009. You can see the survey here but these are the key highlights:

95% were not confident about reaching their finance goals (parents, 5%);
92% think a budget is not important (parents, 8%)
41% know what a credit score is (parents, 75%);
28% understand annual percentage rates (parents, 73%);
23% understand a 401(K) (parents, 73%);
31% understand compound interest (parents, 64%).

The thing to keep in mind here is that this was a survey by a bank of their customers. Imagine what those numbers would look like for those without any bank accounts whatsoever who live paycheck to paycheck and only pay cash!

Over two years later, we have not made much progress improving our kids financial education. And it should not be surprising that they are so confused. If our own government doesn't understand how to properly manage it's money (see previous blog post) and it is educating our children through the public school system, why should we expect kids to have a good sense of money management? Without any financial guidance, these kids are left to the vast marketing machine that tells them frequently how much and what kind of "stuff" they must have to be "cool."

I've gotten to the point in my life where I don't watch much TV. There are a few shows a week that I watch so I get maybe 30-45 minutes of commercials a week? When I grew up, TV and radio were the main source of advertising. Since I watched more TV then, my mind was bombarded with images and slogans to encourage me to want certain "stuff."

Our kids are exposed to much more advertising than we were. Now there are pop-up ads on websites, banner ads on your email and "focused" ads on Facebook. The marketing folks have really spent a lot of time figuring out how to capture the dollars from the teen market. Here's one report that outlines all the methods teens use to get information, where they shop, the amount of money they have "available" and on and on. Most interesting to me is that in spite of all the electronic advertising today, the study determined that teenagers trust the advertisements in magazines more than any other advertising media; and companies use that information to target products to teens. This is serious business and a lot of money is spent each year to "capture" more of the teen market. The only way that we will help our children to avoid being sucked into this huge marketing machine is to help them learn to manage money early in their life. And I have first hand experience.

My wife and I have taught our children the importance of managing their money wisely. As is the case with most kids, sometimes they listen and sometimes they don't. They have all had times where they have made great decisions and other times where they have made silly mistakes. That is expected anytime you are learning something new; you will not master it overnight. The way that you are successful with personal financial management is to be patient, carefully consider the various choices and take action when you're sure you have identified the best option. I'll write some more in coming posts about some of the new methods we've been developing to help our kids master these skills.

Each of our kids will have a unique experience with personal finance. And so will you. Each one of us learns differently. There is nothing wrong with making mistakes so don't be too hard on yourself when you do. The important thing is that we learn from those mistakes and continue seeking information that helps us learn in the ways that are best suited for our own individual personalities.

One valuable tool that any of us can use was developed by a good friend of mine, Sara J. Thompson. It is called Life with Bills. It is an on-line life simulation that allows kids to obtain a "job", "earn" money, and "spend" it on various things. The system provides feedback about how they are "performing" as managers of their own finances. The best part about the simulation is that the financial "mistakes" made in the software do not have the real "pain" that are associated with those same mistakes in the "real world." It is an excellent companion to my book and I highly recommend trying it.

Now, before I finish this post, I want to be sure I'm not giving you wrong idea. I'm not saying that wanting "things" and then buying them is bad. We all have our toys and gadgets that we have acquired regardless of our age. What is important is to have the ability to distinguish between needs and wants. You need to pay your water bill so you have water in your home. You may want a new iPhone but you should not skip paying your water bill because of that want.

So think about how you can improve your financial education. Ask your parents to show you the bills they pay each month to get an idea of how much all this "stuff" that seems "free" to you really costs. Talk to your kids about personal finance and help them set savings goals so when something comes along that they want, they won't go broke trying to get it.

As with all things in life, there has to be discipline and balance. Each is equally important to achieve long term financial well being.

They want to do what!?!?!?

noreply@blogger.com (Mike Duralia) — Wed, 27 Jul 2011 00:52:00 +0000

We've all been hearing (non stop) all the discussion and debate about the need for the U.S. to raise the debt ceiling. Negotiations continue and we are currently in "gridlock" over what to do. So I started thinking "I wonder if most Americans understand what is happening and how cold I help explain it?" Well, here goes.

As is usually the case in any argument, the debate is centered around the short term problem and the short term fix and ignores the two bigger and more obvious questions:

How did we get in this mess?
How do we keep it from happening again?

Well before we do that, let's look at some of the data from the Office of Management and Budget that has been compiled in this very cool webpage put together by Adeeb Karam. Click on the "Deficit" tab and you can clearly see the answer to #1 - We got in this mess because the U.S. Government is always spending more than it collects in taxes AND, incredibly, they develop the budget each year without concern of this fact!

For the rest of this article, to make the rest of this a bit easier to understand, I'm going to provide some analogies between the U.S. approach and and individual's personal finances.

Look carefully again at the graph. You can see that all the way through 2016, the "plan" is to spend more than is collected! In order to keep doing this, OUR elected officials want to INCREASE the U.S. debt limit. This would be same as if you went to your credit card company and asked them to raise your credit limit because your card is "maxed out" and you want to keep spending!

What happens when you don't pay back your debt and have to get more credit to have enough money to continue to pay your bills? Your credit score suffers and the interest charged to you for loans increases. This is exactly what is about to happen to the U.S. credit rating and will undoubtedly result in a rise in interest rates for all of us.

So, to answer #2, how do we keep this from ever happening again? The simple answer is we have to have a balanced budget which means Spending must equal Taxes collected. To accomplish this we have two choices: Raise Taxes or Cut Spending. While there are plenty of people on TV right now that are debating which course of action to follow, there is only ONE, course of action to take even though it will be very difficult: cut spending AND not "raise" taxes but rather adjust the tax code to collect more revenue.

Cutting spending will not be easy. There will be hard and difficult choices to be made but they must be made the same way you do when you have an unexpected medical bill arrive. Less going out to eat. Less shopping on Amazon. Focus on the necessities. The government routinely wastes our money and when you're in a financial crisis, you can't waste your money on silly things. That's how you do it and the government has to do the same.

You know that you can not spend more than you have, at least not for long. The government must have the same financial discipline. The simple way to do this is to budget for next year based on this year's taxes collected and not a penny more! If you have to balance your budget and every government institution from the U.S. Congress to the local public school should have to do the same.

So why not just raise taxes to balance the budget? If you are getting in over your head financially, you can not demand more pay from your boss. What would that conversation be like? "I need more money because I don't know how to manage it well." Have that conversation with your boss and you'll find yourself job hunting and your "economy" completely out of whack! The government needs to realize it can not do a similar thing and simply raise taxes without severe consequences to the U.S. economy.

We already work until April 12th to pay all our Federal, State and Local Taxes. That is 101 days or 27.6% of the year. So, almost 30% of your income is "collected" by government to pay some type of tax either on your income, or sales tax, or property tax or other fees, etc. That should be enough to run the government right? Well, everyone pays this amount except those at the extremes: the poor and the rich pay little or no tax. This is why the tax code needs to be changed and simplified.

The poor pay little or no tax because they don't have any money to tax! The rich pay little or no tax because they pay attorneys and accountants to help them "shelter" their income from taxation. That leaves the rest of us to carry the load.

We can revise the tax code to make the amount paid in taxes simplified so that it doesn't take two lawyers and an accountant to know what you have to pay. One suggestion is a Flat Tax coupled with a Negative Income Tax as outlined by Milton Friedman here (it's a lot to digest so read it carefully). This would be a "fair" way to help the less fortunate and still generate ample revenue for government to perform its functions.

To summarize, balancing the budget through a combination of elimination of waste, reducing spending, and simplifying the tax code will not be easy but is the only way to get us out of and keep us out of this mess. When you break through all the bickering, posturing, speech making and drama it is all very simple: the government has to do the same simple thing you do if it wants to be financially successful - "collect" a "decent" amount of money and spend less than what is collected.

Some Things to Realize for 2011

noreply@blogger.com (Mike Duralia) — Thu, 23 Dec 2010 20:02:00 +0000

Well, 2011 is almost here. As you are frantically shopping for those last minute gifts, don't forget that things will be changing soon....

Fidelity Investments has created a nice, one page summary of the change in the new tax law. "After weeks of heated Congressional negotiations on Capitol Hill, President Obama has signed the tax bill into law. The new law temporarily extends the 2001 and 2003 federal income tax rate cuts, extends unemployment insurance for 13 months, provides new payroll tax breaks, reinstates the estate tax, and more."

One of the big changes is a reduction in the social security tax from 6.2.% to 4.2% for folks making up to $106,800. For most of us that means a 2% "raise" in 2011! Now I don't agree with the amount of money the government takes from us in taxes. Much of it is wasted and you have to work way to long each year to pay your taxes. However, 2% is 2%! So what will you do with that "extra" money the government has decided NOT to take from you?

Each of us has our own unique situation. Maybe you want pay down some credit card debt; maybe you can save for something you've always wanted; maybe you'll increase your 401k contribution and get a bigger "raise" with the company match you receive. The point, as always, is you need to educate yourself about how these tax code changes affect you and decide what's best to do in your situation.

Happy New Year and don't forget to tell folks about the book!

Black Friday And.....

noreply@blogger.com (Mike Duralia) — Thu, 25 Nov 2010 14:54:00 +0000

Happy Thanksgiving! This is the one day each year that we "officially" take time to remember all the things in our life for which we are thankful (although we should remember that more often!). After you push away from the table today full of "holiday cheer" you may enjoy some time with family relaxing, watching football, playing with the kids etc. for tomorrow is the BIG DAY...

BLACK FRIDAY.

For many traditional retailers, the holiday season can represent anywhere between 25-40% of their annual sales (Source: National Retail Federation). This means starting tomorrow we will be bombarded with advertising, sale announcements and "pressure" to go out and spend, spend, spend! From now until April 15 is the most important time to manage your finances well.

We all like to spend money for gifts at Christmas especially for our close family. Having credit cards makes it easy for us to get what we want now and pay for it later but...will we be able to pay that bill when it arrives? If you take a few moments and develop a plan NOW, your finances will be very manageable for the next four months (and beyond if you stay vigilant).

Why did I mention April 15th? Well, that's when most people will receive a tax refund check from the government. Personally I prefer to manage my withholding on my paycheck to insure I do NOT receive a huge refund; I don't like the government getting an interest free loan from me! However, I know many folks like to get that big check and use it as a way to be sure they save and if that works for you fine...let it work FOR you! Here's how:

Look at last year's tax return and determine how much you got back last year. Review your current situation and make sure nothing has changed (e.g. marital status, withholding amount, home purchase, etc) that would affect your refund this year;
Estimate your 2010 tax refund. You can use this tool;
Develop a maximum Christmas budget and make sure it is less than the total amount of your expected refund;
If you do not have money available to pay for Christmas, use your credit card with plans to pay off the entire Christmas balance when your refund check arrives. Do NOT just make minimum payments until April to minimize the interest charged;
Remain disciplined between now and April to control your spending so that you can pay off the Christmas balance on your credit card and have money left over from your tax refund.

Make no mistake; you are taking a risk doing this. Your refund could be lower this year. You could have something catastrophic happen that would require more of your refund (e.g. need new transmission in car unexpectedly). There are many many different possibilities.

The point is I can't tell you exactly what to do in your situation. One size does NOT fit all. But, this is one way that you can budget for Christmas, obtain the "things" you want now and have a means to pay for them without incurring a huge amount of interest and/or additional debt and that....is priceless!

New Calculator on the Group Site

noreply@blogger.com (Mike Duralia) — Thu, 29 Apr 2010 04:05:00 +0000

I've just added a new calculator to help you calculate a car loan, a car lease and set up a preliminary budget. You can find all the information here.

The file is in Microsoft Excel format. Just change the parts on each page that are GREEN for your specific circumstances and the calculator does the rest!

If you do not have Microsoft Excel, you can get a FREE spreadsheet program for the Windows environment here.

I have personally downloaded and tried this program and it works VERY well.

I hope the calculator is helpful. Let me know if what suggestions you
have to improve it!

Debit Card vs. Credit Card

noreply@blogger.com (Mike Duralia) — Wed, 21 Apr 2010 03:42:00 +0000

Which do you use? Debit card or Credit card? I have always preferred using a Credit card for several reasons but before I discuss them let's explain a bit more about these two types of non-cash payment.

A Debit card is directly linked to a bank checking account. When you use a debit card it is just like using an ATM card with the merchant you are paying; the money comes out of your bank account immediately. If you do not have enough money available you will be charged a fee for over-drafting your account.

A Credit card provides you with what is called a line of credit. The credit card company gives you an amount of credit (e.g. $5,000) and charges interest for any amount you do not pay off in the time specified (i.e. when the bill is due). When you use it no money comes out of your bank account but you have "borrowed" money from the credit card company which you must repay. Normally, you have approximately 30 days to repay this "loan" and if you do not you are charged interest. BUT, if you pay off the balance each month, you are able to manage your cash while still obtaining what you want sooner. In other words, if you will have enough money to buy "this thing you want" next week, you would use you credit card, buy the item now, leave your cash in the bank to earn interest and pay off the credit card balance at the end of the month.

The danger of the debit card is the money comes out of your account immediately. The danger of the credit card, if you are not disciplined, is you may charge more than you can really afford.

There are also differences in the fraud protection for each type of card as described here. As the site points out there is better fraud protection with a credit card. While the debit card is "similar" to the credit card liability, notice you have to notify the bank much more swiftly if you discover fraud which means you must constantly be on top of your account (only two business days with the debit card to only incur a $50 charge while you have up to 30 days with the credit card). Depending upon how quickly you act, you might be liable for up to $500 with a debit card. While you should always be aware of what is happening with your account, you may not be able to do this swiftly enough to avoid problems.

The other risk with the debit card is that if there is a large amount of money taken out of your account...it's gone and it could take you weeks to get it back. That means you have no cash - none at all! You would then have to rely on your credit card for everything and possibly go more into debt. Also, if you have checks that have not cleared or auto-draft (ACH) payments that have not occurred for things like your house payment, car payment or utility bill, you could become over drawn and create another whole set of problems with fees from the bank and from merchants or service providers due to insufficient funds.

One unique advantage of a credit card is you AUTOMATICALLY get at least 30 days to "pay" for the charge whereas, as mentioned previously, the debit card removes the funds immediately. If you "time" your purchase so it is near you bill closing date, you could have almost 60 days (two billing cycles) to pay for the charge. Doing this allows you to manage your budget and your cash especially for large purchases.

Using a credit card also helps you build a credit history. Paying the balance off each month on time improves your credit score which reduces the interest rates you are charged on loans for a car or house. Using a debit card does not help you build this credit history.

Finally, you may have an "emergency" large expense (e.g. car repair) that might exceed what your budget would allow for this particular month. Using the credit card even though you can not pay off the entire balance allows you to pay for the "emergency" and then factor new costs into your budget so you can pay off the balance as soon as possible without having a major change to your overall finances as would happen if all the money came out of your account immediately with a debit card.

For these reasons, I advocate using a credit card and paying off the balance every month. That is what works best for me and to stay out of trouble you must be disciplined and use the credit card wisely. But the ultimate decision is yours. Do your homework and understand how these different tools work and their benefits and drawbacks. YOU must always make the choice that is best for YOUR circumstances and YOUR financial plan.

P.S. Perhaps you've seen the movie Catch Me If You Can which chronicles the life of Frank Abagnale who was one of America's foremost check forgers. Eventually he worked for the FBI helping to catch forgers and is responsible for many of the security features found on check today. Here is an excerpt from a presentation he gave at Google several years after I wrote this article where he warns against using debit cards.

Real World Financial Education

noreply@blogger.com (Mike Duralia) — Tue, 20 Apr 2010 23:33:00 +0000

I was recently a guest on Charlotte Talks and discussed The Real Life 101 Handbook and the importance of financial education for young people. I was joined by Logan Abrams author of Debt-U who discussed the hazards of student loan debt.

Click to listen to the show

Are You Ready for a New Car?

noreply@blogger.com (Mike Duralia) — Sun, 28 Mar 2010 20:15:00 +0000

Back in November of 2009, we decided to purchase a new vehicle. We needed something bigger because we did not have a vehicle that would hold our entire family. We settled on a Ford Explorer that had 13,000 miles and we got a great deal on a "semi" used car.

Now, as I mention in The Real Life 101 Handbook, there a many things you need to know before buying a new car. You should use Kelly Blue Book and/or Edmunds to research the true value of the vehicle you want to purchase AND the value of your trade-in vehicle. You need to know what the dealer hold back is on a new vehicle (more details in the book!). Armed with your research, you should negotiate based upon the final price of the vehicle NOT the monthly payments. It also helps to have your own financing secured in advance but you may want to take advantage of what the dealership has to offer. If the dealership does not offer you enough for your trade, you should seriously consider selling your car on your own using Autotrader and Craigslist (this is what we did when we bought the Explorer).

But is that really all you need to consider? What about your insurance? Will it change with the "new" vehicle? What about your property taxes? How about setting aside some money for new tires in 2 years or so? These are all REAL costs that are not in your monthly car payment but that you do need to consider to make sure the vehicle will fit your budget.

As an example, let's say you have:

Car payment $ 250.00
Insurance $ 30.00
Property Taxes $ 40.00
Maintenance $ 20.00

Total Monthly Payment: $ 340.00

Now, for your new car, you want to keep your total monthly payment for all the car related expenses around $325.00 and your insurance will go up by $10.00 a month and taxes by $15.00 month. Working "backwards", the monthly payment you should have is:

Total payment $ 325.00
Insurance $ 40.00
Property Taxes $ 55.00
Maintenance $ 20.00

Total Car Loan ONLY Payment: $ 210.00

So, you need to use the Time Value of Money equation to determine what the absolute price paid for the car "could" be at $210.00 per month for the interest rate and loan period you have. It is important that you take some time working through all this math before you go to the dealership so you are confident with your numbers and know when to "walk away" if you can not get the deal you need.

Some of you may be asking why I included $20.00 a month for maintenance. This is a "round" number to use that will save you $240.00 a year for things like new tires, brakes, oil changes, and other "routine" maintenance. Other than the oil change, you will not have these expenses every year but building those costs into your monthly payment insures you have the money saved when it's time for those items. It can also be helpful for the unexpected; things that break on the car that are "unusual" but happen.

So before you get caught up in that "new car smell", do your homework, know what a "reasonable" price is for the car you want, know what you can really afford and be sure to have a little "extra" set aside for the unexpected. Following these simple guidelines will keep you happily on the road with your overall budget intact!

The Coming of the New Year

noreply@blogger.com (Mike Duralia) — Thu, 31 Dec 2009 16:30:00 +0000

Most of us are ready for 2009 to be over. We have had a wild ride with all that has happened in the US Economy. To get ready for 2010, there are a few things to consider to help you make the most of your money.

Adjust Your Witholdings: Do you look forward to that tax refund check every year in April? How much is it? Several thousand dollars? Well, while it might be nice to get "so much money back", you have in effect given Uncle Sam a NO INTEREST LOAN! If you adjust your witholdings and complete a new W-4 form with your employer, you can give yourself a pay raise simply by reducing the amount you are letting Uncle Sam "hold" for you. So get out your 2008 tax return and follow the instructions in this calculator.
Pay Yourself First: Make sure you are contributing what you can to your 401k or IRAs. The 401k is best because it uses "pre-tax" dollars so you save money for your future AND you lower your taxes. More info here.
Review Your Budget: Like everyone else, you are probably "recovering" from all your Christmas spending. There's nothing wrong with spending some money to show those you love how much you care but make sure you get back to your financial plan for 2010. Review your budget carefully and be sure you are spending your money in the best way for your unique situation!
Get Organized: Did you buy a car in 2009? You can deduct the sales and excise taxes from your 2009 taxable income, even if you don’t usually itemize deductions (including cars, light trucks, motor homes and motorcycle). How about property taxes on vehicles or your home? Did you have any charitable contributions? What about interest on your house payment? I file all records like this as I receive them in one folder so at tax time, I have everything I need to enter my deductions.
Do Some Research: Drop off Facebook for an hour or so and Google "Tax Deductions 2009". There are lots of good ideas for you there; Here are some from Kiplinger.

Remember, no one is watching out for you but you so do your homework and let 2010 bring you all the financial success that you deserve!

The Road Less Traveled

noreply@blogger.com (Mike Duralia) — Thu, 12 Nov 2009 01:46:00 +0000

The Dow Jones Industrial Average came very close to its highest point in 2009 today. And we are reading so much about the US economy and all our woes. So I got to thinking; is there a bright side?

Well, there is and it's all part of the lesson we can all learn from what has happened to our economy. Let me use an analogy. Have you ever gotten something you really wanted and as soon as you got it you wanted more? Doesn't make a lot of sense does it. After all, you had wanted this "thing" so bad and now that you finally have it all that fills your mind is getting more? Crazy huh?

Well, that's exactly what has happened to all of us. Shortly after Bill Clinton became president, the economy took off! Just look at this chart from October of 1928 to October of 2009 (click on it for larger version):

The start of the RED line is 1980 and there was consistent, sustainable growth during the Presidencies of Ronald Reagan George W. Bush. The HUGE jump in the middle of the red line happened approximately one year after Bill Clinton took office. WHY did things take off so quickly? The answer is easy; credit became VERY, VERY easy to obtain.

With so much "money" in the system due to easy credit, demand increased dramatically. People now had money to buy more stuff...and they did! Businesses hired people to meet the increased demand for their products. People were able to buy houses they couldn't afford because no one was checking to see how much money they earned! It was super growth...and it was insanity!

That first dip is...September 11, 2001. After the attack, the US economy did take a plunge for a bit as people waited to see what would happen next. Everyone has an opinion about George W. Bush II and I must admit he was not a very impressive president. However, he did take action after the attacks and helped restore people's confidence. We were not going to allow the events of that horrible day to crush the American Spirit! Unfortunately, he did not do anything to insure that our "recovery" was on the type of consistent growth path established by Ronald Reagan and continued by his father.

We all know what happened next. Banks realized people weren't paying their loans and they started foreclosing. Individuals who couldn't pay said..."No worries. Take the house; I'll just move back into an apartment." Now the banks were stuck with a LOT of BAD loans...loans they had created because they wanted "more"....just like everyone else. Supply was much greater than demand and the economy slowed down quickly.

Now...here's the interesting part. Look at that red line again. See where it ends? We've been on a wild roller coaster ride but we have wound up almost EXACTLY where we would have if we had maintained the growth path established by Reagan and Bush. If we had taken the Road Less Traveled as Mr. Frost suggested so long ago, it could have "made all the difference."

So I hope you do the same and take the road less traveled. Be wise with your money. Don't spend beyond your means. Save. Make wise choices. We might not get there as quickly or with as much excitement, but we will arrive at the same place all the same...and perhaps with a little more sanity.

Roll Me Over

noreply@blogger.com (Mike Duralia) — Tue, 27 Oct 2009 23:29:00 +0000

The other day I received a letter from one of my former employers announcing they were getting ready to change 401k management companies and would be moving my account to a different investment firm. Now, as luck would have it, I had TWO former employers who had chosen the same company so all my 401k money was with the same investment firm. I DIDN'T want the money to be moved...what could I do?!?!?!

Well, I started thinking. Since all the money I had in these two 401k account were with former employers, they would no longer be making any contributions. So, why should I keep the money in their plans. If only there was a way for me to keep the money in my own account, I could avoid a lot of hassle. That's when I remembered about the different types of Individual Retirement Accounts (IRAs).

There are two types of accounts. A Traditional IRA allows contributions on a pre-tax basis, or in other words, you contribute money without paying income tax on the contributions. Now, any gain in value of the account is not taxed but you do have to pay income taxes on the money when you withdraw it.

The other type of is a Roth IRA. Contributions to this account are made after income taxes. This is very similar to any other investment in stocks, bonds, mutual funds, etc. that you would do with a standard Brokerage account. All the gains in this account are not taxed either AND you do NOT pay any income taxes when you withdraw the money since your income taxes were paid before you invested the money.

Which account works most like the 401k?. That's right; the Traditional account. When you contribute to your 401k, the money is taken out from your check before your income taxes are deducted.

So the answer to my dilemma was simple. I opened a Traditional IRA with my current investment firm and then did a rollover of all the money in BOTH my accounts. They did what is called a transfer-in-kind which means all the stocks, mutual funds, etc. that I have in my old accounts moved directly into my personal IRA without any change in the quantity or the type of investment and without any fee!

Now all that money is secure in my name and I can decide how to invest it and where to go from here. Most importantly to me, I have control of who is going to be my investment company.

Take some time to learn about the different kind of investment accounts that are available to you and how they work. Because many years ago I had spent time "doing my homework" I was able to avoid changing financial institutions and insure my money stayed where I wanted it to stay!

A Little History

noreply@blogger.com (Mike Duralia) — Sat, 10 Oct 2009 17:58:00 +0000

I came across and interesting article today that provided several facts about what has happened to our economy over the last 2 years since the Dow Jones Industrial Average all time high in October, 2007.

During 2007, there were a lot of articles about Americans not saving enough money.
Here's one(ironically from the beginning of October 2007).
And another from December 2007.
And another all the way from 2005.

But here are some interesting facts about our current situation:

- -0.5 percent: Personal savings rate in 2005 as home prices were soaring.

-- 6.9 percent: Personal savings rate in May.

-- $975 billion: Credit card debt held by Americans last September.

-- $899 billion: Credit card debt held at the end of August, down 8 percent.

These are good signs. It shows we are adjusting our outlook on how we use our money. We all must continue to make smart choices for both our individual AND collective financial future. Make sure you are honest with yourself about whether or not the item you are about to purchase is a WANT or a NEED. If it is a want, and you ALREADY have the money to pay for it, then fine. If not, it is NOT hurting you to wait but it may hurt you if you go ahead and buy it only to have an unexpected thing happen (e.g. car needs to be repaired) and you don't have the money so you quickly wind up in debt.

Have we all learned our lesson? Let's hope so. As my grandfather always said "Every school costs money" and we have all been affected financially by the changes in our economy. We have to make our choices wisely and follow the right example. We certainly can NOT act as our government does; it certainly does not know how to handle money.

So stay positive and keep making good choices. Before we know it, things will be much better and hopefully we have learned enough to avoid going down the wrong road again!

When are we going to learn...

noreply@blogger.com (Mike Duralia) — Thu, 08 Oct 2009 00:02:00 +0000

My dad recently sent me an article about economic externalities. For those of you who are not familiar with the concept and externality is something that has a "cost" but is not "captured" within the normal relationship between supply and demand.

This is very true; it is EXTREMELY hard to put a price on externalities. For example, if you calculate your cost of your commute per mile to work...how do you account for the 20% of the time you are stuck in traffic and not moving (i.e. wasting fuel)?

The REAL issue is that government has NO BUSINESS trying to run the economy. WHATEVER the government does, it sends false signals about supply and demand to the entire market...and screws things up.

Case in point - the current financial crisis. Fannie Mae and Freddie Mac made it EASY for ANYONE to get a loan. Once the banks realized how much money could be made, they "jumped" in the pool. Were the banks wrong? ABSOLUTELY...but would they have gone down that road on their own without Government "interference?" And WHO was "the government" driving that? Guess who?

You want to fix the economy? Don't create another government program to suck money away from us (read the link carefully - higher taxes) and provide us with less than we have now. Cut taxes 10% across the board and let the American people decide how to spend THEIR money. Then WATCH how this country responds...

It's been a while

noreply@blogger.com (Mike Duralia) — Sat, 18 Jul 2009 15:31:00 +0000

Sorry it's been so long folks...just like the Nationwide commercial "Life comes at you fast" and it's not always easy to keep all the balls in the air!

So what has been happening? Well, I recently got engaged and my family situation has changed dramatically. My fiance has three children and there have been a lot of expenses as we have merged our two households. Once again, planning for the future has made this change in my "status" fairly easy to handle financially.

There are a lot of things to consider when you merge your finances with a spouse. What assets do you each have? How much debt? How will you manage your COMBINED finances? Who will pay which bills? The list is endless but there are a few simple things to get you started:

Discuss financial plans, expectations, preferences and goals with your spouse BEFORE you get married. If you two are unable to find common ground about your finances, there will be tension in your relationship that will be very difficult to overcome.
Make a plan and stick to it. Sit down together and list all your monthly bills and expenses and decide together who will pay for what and how you will handle money (joint account, separate accounts, etc.).
Develop a budget. Once you understand your expenses, create a budget to make sure that you will save money for the future and have a way to track your spending easily in the future. We use the Discover Card for all our purchases. It makes it easy to track our spending and we get 1% back in a rebate. They have GREAT fraud protection and will monitor your credit daily if you choose that service. We also use MS Money for all our financial information and can generate reports easily to help us mange our money and stay on budget.
Be prepared for the unexpected. Even when you make great plans, things arise that you never considered. That's ok; that's life. Be willing to sit down with your spouse and discuss how you will handle it as a team and focus on solving the problem together.
Know your limits. The current economic crisis was created in part because folks did not realize their limits. You KNOW you can't afford a Ferrari but when you get such a great monthly payment on that new car, seems like such a good deal, right? But, have you over extended yourself financially? You must be sure that you both are spending within your means and not getting over extended...no matter how much you want that new "thing".

What I've been discussing here really boils down to how to make good decisions both individually and as a "couple." There was a great article in The Bottom Line that describe how to make good decisions considering what is best for the next 10 minutes, 10 months and 10 years. Is what you are about to buy worth sacrificing you financial security for the next 10 months? If you look back on this decision 10 years from now, would you still make the same choice?

So think carefully before you decide and make sure you consider all the consequences of your decision. Every choice has consequences; sometimes good, sometimes bad...but they always depend upon the choice you make!

Credit Crunch

noreply@blogger.com (Mike Duralia) — Tue, 28 Apr 2009 02:57:00 +0000

An interesting thing happened to me today. I received a letter from my credit card company announcing that my credit limit had been cut in half. Now this was a bit surprising to me because:

I have had this card for 11 years. My parents gave me this card (i.e. cosigned on it) when I went to college to help me establish my own credit. When I got my first job I had them removed and the card listed solely in my name;
I have NEVER missed a payment on this card...EVER!
I have always remained under my credit limit;
I have RARELY (i.e. twice in 11 years) carried a balance from month to month;

So WHY did they do this? Well, this card is through AAA (American Automobile Association). Why did I get a VISA through AAA? Because that's what my parent's gave me...but why did the card company lower my credit amount? Simple, the card is through Bank of America. Have you seen what's been happening to them? So, they want to make sure that they do not have too much "exposure" in the future and so they are lowering their customer's credit lines.

Now this is NOT that big a deal for me. I don't need that much credit available all the time...but...do you know what it will do? It could possibly reduce MY credit score!

How? Well, one of the factors in determining your credit score is how much of your TOTAL available credit you are using. The more you are using, the lower you score because you are "over extending" yourself.

Now NOTHING has changed about my financial situation. Not decrease in income. No great increase in debt. And yet, by reducing this credit amount, my score may be affected.

So...I thought I would put it out there for a poll (see to the left) and find out what, if anything, your credit card companies have "changed" about your account lately. Check back often for results!

A Good Explanation of the Credit Crisis

noreply@blogger.com (Mike Duralia) — Tue, 14 Apr 2009 00:43:00 +0000

Here is a very good explanation of how the current crisis in our economy developed.

Are we out of the woods yet?

noreply@blogger.com (Mike Duralia) — Tue, 17 Mar 2009 02:05:00 +0000

The economy appears to be getting better, albeit ever so slightly. Although we had a slight downturn in the markets today, there were increases for the previouse 4 days and the DJIA is above 7,000 again. Looking at the chart, you can see that it was at almost 15,000 in October of 2007!

So does this mean we're almost "half way" recovered? Hardly. We must all remember that the rise of the market to those levels almost two years ago was the result of "false growth." Credit was EASY to get and ANYONE could get it. People were getting loans they couldn't afford...much less understand. But all of that is behind us right? Not exactly...

The "other shoe" that is about to drop is the situation with credit cards. The current average houshold credit card debt is a little over $8,000. You see, credit card debt is sliced up and sold just the way mortage debt was and now, debt collection is on the rise. The current economic conditions are causing anyone and everyone who is owed money to chase after it. If you're not being pursued by a debt collector yet, you're probably facing and increase in the interest charged by your credit card company!

So how do you avoid all this mess? Use your credit card as a tool in your financial plan NOT as a bank account. I use a credit card for everything I purchase. Groceries. Gasoline. Dinner out. Household cleaning supplies. Everything. BUT...I use it to help me manage to my budget and I pay off the balance every month. I review my spending by looking at my receipts weekly (I also use Microsoft Money to manage my finances) so I know going into the next week if I need to "slow down" my spending or if I have "a little room" for that night "out to eat." Using the card for major purchases like tires for the car means I don't have to carry cash (dangerouse) nor do I have to fumble with writing a check.

In addition, by using a credit card for everything, I have automatic 30 day payment terms with everyone. When I purchase something, I have between 30 and 60 days before the credit card bill is due. That means my money is in the bank earning interest for ME that much longer.

The secret to making all this work is discipline. I don't spend more than I can pay off each month and if I an unexpected event (e.g. car has to go in the shop), that becomes a "factor" in next month's budget and I just resolve to spend less. Spend $35 at the grocery store and see how much longer you eat verses going out to dinner once.

If you're already in trouble with your credit cards, there are a few things to do:

Establish a budget immediately and stick to it;
ALWAYS pay more than the minimum due and pay as MUCH as you can;
If you own a home, consider opening a home equity line of credit to pay off the card debt. The equity line interest rate will be much lower than the credit cards and the interest payments are TAX DEDUCTABLE!
If you have multiple cards, as you pay off the balances, cancel the accounts. Keep just one or two cards preferably the one's you've had the longest as it looks better on your credit score.
Take a look at these ideas too.

Make sure you are getting all the advantages of using a credit card (i.e. not carrying cash, 30 day payment terms with everyone, easily able to check spending weekly, etc.) and don't let them take advantage of you. If we all act responsibly with our money and our credit, people will continue to gain confidence in our financial system and the economy will turn around.

What A Mess

noreply@blogger.com (Mike Duralia) — Sun, 08 Mar 2009 03:47:00 +0000

There is no doubt that our economy is in a mess right now. Some, like former Fed Chairman Alan Greenspan, are saying it is the worst it has ever been since the Great Depression. So how did we get in this mess in the first place?

There have been countless articles written about why this happened but it really boils down to just two things:

People in the finance industry developed new "products" that allowed people to obtain loans much easier than was possible in the past;
The American Public was never formally educated about finance, how a loan works, how to calculate monthly payments and what is really necessary to purchase a home during any part of their government mandated "schooling."

Now, each "group" shares blame for the problems in our economy. Nevertheless, the people in the financial industry had more education and understanding about what they were "selling" and must have realized that although the commissions they were making were terrific, at some point these loans would go into foreclosure because the individuals borrowing the money did not have adequate means to maintain the payments.

Now these new types of "products" the banking industry developed were much more complex than a standard 30 year fixed mortgage. The phase "NINJA loan" has become part of the American lexicon to describe the most irresponsible of them all. Loans were given to people with No Income, No Job or Assetts. Ridiculous? Absolutely but it happened routinely most often because the person requesting the loan "didn't know what they didn't know."

I am sure many people were very excited to learn that the house of their dreams was somehow miraculously within their reach. What the did not understand was how their payments would change when the interest rate changed on their adjustable rate mortgage (ARM) or how much cash they would need when the balloon payment was due. They simply moved into their new home and began living their fantasy for real.

So all of us are now paying for decisions made by people who lacked integrity and took advantage of folks who made decisions and lacked education. It is highly unlikely that any of us will be able to insure that integrity becomes the cornerstone of our society anytime soon. Our only choice to prevent something like this from happening in the future is to educate ourselves and each other so we know what we "should" know and are not all so easily duped.

Will our economy recover? Without a doubt. If nothing else, the American people are a resilient, rugged bunch that persevere and perform well in a crisis. But the recovery is going to take quite some time; trust has been broken and that is not something that is restored overnight. In the meantime, we can all help prevent something like this from ever happening again through one simple action: education. Make sure your kids understand finance, loans, budgeting and how to manage their money.

We may not see 20% stock market returns again but I would much rather have 8% consistently over time than a "shot" at 20%!

Welcome!

noreply@blogger.com (Mike Duralia) — Sat, 07 Mar 2009 20:39:00 +0000

Welcome the blog for the Real Life 101 Handbook!

One day in 2003 I was balancing my checkbook and, all of a sudden it dawned on me; there was so much I had not learned in high school. Although I did receive a decent "general" education that prepared me for college, there were so many things no one had ever taught me. Things like how to balance the checkbook, how to rent an apartment, how to look for a job, how to buy a car and so many other things.

So I got on the internet and started searching. Much to my surprise, NO ONE had written a book like that. No one. And I thought "I just jot down some ideas about what a book like that should contain." In January of 2009, my book was published.

I wrote this book as a premier for folks that have never received this information from any other source. The book introduces you to several important topics and gives you enough information to get you started on your "Real Life" education. You can see more about the book here.

But the book is only the start of your education. So, I created this blog and a Google Group so folks can get additional information, ask questions, share information with each other and continue their education about all the necessary things in real life. If you're on Facebook, you can become a fan of the book.

I hope you enjoy this and find it helpful for your unique life situation! Let's help each other have the best "Real Life" each of us deserves!