The Great Consumer Crash of 2009

The Great Consumer Crash of 2009

A wise man once said, "Those who structure their standard of living to allow a little surplus, control their circumstances. Those who spend a little more than they earn are controlled by their circumstances. They are in bondage." (Nathan Eldon Tanner)

The article referenced below is a must read. Mr. Quinn provides much useful information  even if you do not agree with all of his conclusions.

It is scary. The Federal Reserve says that 40% of Americans spend more than they earn. That simply cannot continue. As you will see, the debt/savings trends in the United States cannot continue. The average American family has nearly $10,000 in credit card debt.

In "The Great Consumer Crash of 2009" James Quinn begins by saying, "I hate to tell you, but the storm has reached your location and it is a Category 5 hurricane. The levees are leaking. Ignore it at your own peril. The 6,000 sq ft McMansion buying, BMW leasing, $5 Starbucks latte drinking, granite countertop upgrading, home equity borrowing days are coming to an end."

And just who is James Quinn?  He is a senior director of strategic planning for a major university. Mr Quinn has held financial positions with a retailer, homebuilder and a university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning.  He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.

This article is a bit lengthy but well worth the time to read. Do not miss this.

As you read this article, think "what changes do I need to make in my finances?"

Debt Resolution

This is a recap and a summary of the options for debt resolution.

These are the choices you have to discharge your debt obligations and become debt free. That is the objective, freedom from debt.

Freedom From Debt Options

• Pay Off Your Debt in Full
• Consumer Credit Counseling
• Debt Consolidation
• Debt Settlement
• Bankruptcy

To read detail about these options click on the links below. These are options. Some are not appropriate for your situation, but each are options for becoming debt free.

Pay off Your Debt in Full

Consumer Credit Counseling

Debt Consolidation Loan

Debt Settlement

Bankruptcy

What Have I Missed?

Bankruptcy

This is the fifth in a series of posts on becoming debt free. We turn our attention again to debt resolution options. We will discuss another option available to debtors for becoming debt free.

In this and later posts, we will discuss the choices you have available to you to discharge your debt obligations and become debt free. That is the objective, freedom from debt.

• Pay Off Your Debt in Full
  
• Consumer Credit Counseling
• Debt Consolidation
• Debt Settlement
• Bankruptcy

Here we will discuss the fifth option. In other posts I will cover the other debt resolution possibilities.

Bankruptcy

If you are you struggling with overwhelming debt or suffering from serious financial hardships bankruptcy may be a viable or wise option for you. However, it comes with a high price tag.

It is usually a long and painful process. Your credit report will continue to show a bankruptcy for 7-10 years and each time you make a major purchase, you will be impacted with higher rates. When applying for a job, trying to get a loan, rent or purchase a home you will feel the effect of the bankruptcy.

Bankruptcy should only be considered when none of the other four  debt resolution options will work for you.

For some people bankruptcy is a legitimate debt resolution option. However, there are significant consequences that you should try to understand before pursuing this.

Most people will do almost anything to avoid bankruptcy which is not a quick fix solution, nor is it easy. If you are considering bankruptcy, please consult a bankruptcy attorney in your state.

What Did I Miss?

I am not an attorney and nothing contained herein should be considered legal advise. You should consult an attorney concerning your specific situation.

Required Reading 8/08

No Free Rides: This Means You
No Free Rides: This Means You is a straight forward article on personal finances.

Their Fair Share
Their Fair Share is an article of who pays the taxes in the United States.

Plan Your Estate is an excellent book with information on the basics of wills and estate planning. It explains everything from simple wills to complex trusts and how they can benefit various individuals and families."

The Millionaire Next Door
The Millionaire Next Door: The Surprising Secrets of America's Wealthy is a book which shows how many people who would be considered ordinary are indeed ordinary in most ways but are extraordinary in the way they manage their finances. They appear to be like the people next door but have accumulated significant wealth by the manner in which they live.

Retire on Less Than You Think
According to Fred Brock, you can Retire on Less Than You Think. Mr. Brock was a business editor at the New York Times for over 10 years. This book explains how people can if they are inclined to do so, retire on less than you think and still have a quality lifestyle.

These books and this article are a good read. Although I do not agree with each and every point , they have many excellent money ideas and financial strategies.

Enjoy.

Debt Settlement

This is the fourth in a series of posts regarding becoming debt free. We turn our attention again to debt resolution options. We will discuss another option available to debtors for becoming debt free.

In this and later posts, we will discuss the choices you have available to you to discharge your debt obligations and become debt free. That is the objective, freedom from debt.

• Pay Off Your Debt in Full
• Consumer Credit Counseling
• Debt Consolidation
• Debt Settlement
• Bankruptcy

Here we will discuss the fourth option. In other posts I will cover the other debt resolution possibilities.

Debt Settlement

If you have financial ability to pay your debts, this option is not for you. You should just pay your debts. I believe that if you have a valid debt and you have the means to pay that debt, then you have an obligation to pay it.

Debt Settlement or Debt Negotiation, may be appropriate for debtors with a serious amount of unsecured or credit card debt or who are looking at bankruptcy. Usually debtors who can benefit from debt settlement are struggling with overwhelming debt and experiencing a hardship that may makes it impossible to make the payments on time. Although it is possible for the debtor to handle debt settlement without assistance, typically, debtors use a debt settlement firm.

When debt settlement is used, an effort is made to negotiate with the creditors to reduce the debt and settle in full for a percentage of the amount owed. Using this method it is often possible to settle debts for 50% or less of the amount owed to these creditors. So if you owe $40,000 it may be possible to settle the debt with the creditor for $20,000 or less.

At the conclusion of the debt settlement process, the debt is satisfied and is considered paid in full even though only some fraction of the debt was actually paid. Thus if becoming debt free in 2-3 years sounds good to you, this may be a good option for you.

Everyone benefits. The creditor gets some of the money rather than none at all as in bankruptcy. The debtor gets debt relief when a debt is settled for a portion of the original.

If you think you might need professional debt settlement assistance, two reputable debt settlement firms are Debt Shield and Freedom Debt Relief. Call them and get a free consultation.

If you desire some help but wish to handle it yourself, you might want to consider a Do It Yourself product provided by NFAN.

Caution

A word of caution, if you negotiate a settlement on a debt without professional assistance never make a payment until you have the settlement offer in writing. In other words, if you have a $10,000 credit card debt and you negotiate and agree to pay $4,000, make certain you get that offer in writing from the creditor or collector and that it states the creditor/collector agrees to accept $4,000 as payment in full before you pay one cent.

Regardless of the option you choose, a debt elimination calendar and a simple family budget worksheet may be of some value to you.

What Did I Miss?

Do You Have a Will?

Even if you answered no, the answer is yes, you in fact do have a will.

Everyone has a will. If you have not had one prepared for you, the state in which you live has prepared one for you. It is a "one size fits all" will and it will be used upon your death if you have not written one of your own. However, for purposes of this article, if you have prepared a will we will say you have a will. If you have not prepared a will you do not have one. When a person without a will dies, he or she dies intestate.

A glossary of terms that are commonly used in wills might be helpful.

If you have NOT prepared a will:

1. The court will decide who will be the guardian of your minor children
2. Your assets and property will be divided up according to state law

State law usually provides that your spouse, children, parents or siblings would inherit your property without regard to your preferences, which are unknown to the court. If you have no surviving spouse, children, parents or siblings, the state will be your heir. Friends and your favorite charities receive nothing. It is unlikely that the will provided by the state will carry out your wishes for your property or assets.

Should you die without a will, you should not assume that your spouse would automatically be awarded your property or assets upon your death. Most likely this is not what would happen.

If you die intestate (without a will) a court in the state in which you live will determine who will become guardians of and care for your minor children and their property if there is no other parent. Further, the state will determine how to dispose of your property using a process called "intestate succession." If you have a spouse and children, your property will be distributed to them, but if you do not, your property will go to other relatives based upon the provisions of the law. If you do not have such heirs, the state will lay claim to your property.

Most people think that the surviving spouse would get all of the deceased spouse's property. In most situations, the law provides that one-third to one-half of the property would go the to surviving spouse and regardless of the age of the children, they would receive the rest.

If there are no children involved, again most states distribute one-third to one-half to the surviving spouse and the rest will go to the decedents's parents if they are still alive.

If you are married and desire your spouse to get everything at your death, you better have a will prepared that provides for that. Otherwise it will not happen.

If you have prepared a will :

1. You decide who will have guardianship of your minor children
2. You will name an executor or personal representative to carry out your wishes
3. You will determine how your assets will be distributed
4. You will identify a trustee to look after the money and property left to your minor children
   

If you have children who are minors, it is imperative that you have a will. In the will you will determine who will become their guardian and care for them in the event of your death. Without a will, a court will make this decision and the guardian may be someone not of your choosing.

Those with a small estate may feel there is no need to get a will, but without a will, you will have no say in what happens to your most precious assets, your children.

In addition, as discussed earlier, your property, even if modest, should be divided according to your wishes.

Do You Need a Will?

Do you need a will? Yes. Having a will is an important financial decision and can save your family much time, disagreement and heartache. However, if you have minor children it is even more critical. Most everyone needs to prepare a will and yet over half of Americans die without one or die intestate. So, you should have a will prepared for you.

Am I Required to Have a Lawyer to Prepare My Will?

There is no legal requirement that an attorney writes your will, but it is an excellent idea to pay one to prepare your will. There can be many technical legal issues that a lawyer can assist you with. Although software programs can provide useful information, this is an area where you should seek professional help. My advise to you is that it makes good sense to see an estate attorney about these matters. But even if you decide against professional legal assistance, you should still get your will done.

Revocable Trust

What about a revocable trust. For many perhaps most people a revocable trust is a good idea. Often people want to know Does a Revocable Living Trust Replace a Will? The short answer is no. If you have a revocable trust, you should have a will in addition to the trust. Again, get professional legal assistance. What are you waiting for? Get a will!

Plan Your Estate is an excellent book with information on the basics of wills and estate planning. It explains everything from simple wills to complex trusts and how they can benefit various individuals and families."

What Did I Miss?

I am not an attorney and nothing contained herein should be considered legal advise. You should consult an attorney concerning your specific situation.

Who Pays Taxes?

The Internal Revenue Service has released tax information detailing who paid what in the year 2006.

Who is Paying the Most Taxes?

Who is paying the most in taxes, the rich, the middle class or the poor? Take a look at the chart that breaks down who paid what. This is all based upon the adjusted gross income (AGI) reported on income tax form. Americans with income in the top 1% paid 40% of income tax. Think about it, 99% of us only paid 60%. Those in the top 5% paid 60%, while the top 10% paid 71% of the taxes. The top 25% paid a whopping 86%, whereas the top 50% paid 97% of the taxes in this country. The 50% with the lowest income paid 3% of the taxes. How does that strike you?

What is Your Fair Share?

Which group do you fall into? Are you paying your fair share? Are high income persons paying their fair share? Are the lower income persons paying their fair share?
It strikes me that a system in which one fourth of tax payers are paying all but 14% of the taxes, should not be allowed to become any more top heavy than it is now. It seems to me that the argument that the wealthy are not paying their share is simply ludicrous.



There are those who are saying that they favor cutting taxes on the those at the bottom. That may be difficult to do, since the bottom half only pay 2.9% of the taxes, unless you want a system in which half of the taxpayers pay all the taxes to support the other half. Do we really want a system in which half of Americans do not pay any tax?
According to the Joint Economic Committee of Congress, in 2004, those with incomes below 20,000 paid no tax but were given tax credits. In the same year, of those with incomes of 20,000 to 30,000, they paid an average of 16 cents income tax.

To obtain more detail, read Who Pays Income Taxes? See Who Pays What which also shows this information for for 1999 through 2006.

Relative to income, who pays taxes? 

Did I Miss Anything?

Your Debt, is it Good or Bad?

The amount of personal debt continues to increase. In speaking of debt, it is often classified as either good debt or bad debt. What is the difference? What debt is good, and what is bad? How can you tell the difference?

Good Debt

Although it is not completely black and white, debt is good if the debt is for something that will increase in value. Thus, home mortgages, a student loans, a real-estate loans, and business loans are usually considered good debt. For example, a mortgage is considered good debt because normally one expects the house to increase in value, whereas a student loan is considered good debt because it should enable the person to increase their income.

Three years ago I sat in a meeting in which I warned against certain practices that were being employed in the mortgage industry by lenders such as:

• Interest only mortgages
• Inflated appraisals on homes
• ARMs
• Approvals of mortgages for people who could not afford them

Although I take no pleasure in it, time proved me right.

There were some in the meeting who argued that these practices where not a problem because the home would increase in value and so the home owner would always be able to afford the home or could sell it at a profit. Of course, the problem is that homes do not always increase in value and the last year has demonstrated that not all mortgages are good debt. However, I agree that a good and affordable mortgage is good debt.

Even a home mortgage is not good debt if you cannot afford it.

Bad Debt

On the other hand, debt for things that have no likelihood of increasing in value are bad debt. To use debt to purchase something with no potential to increase in value, is to acquire bad debt. For example, when a credit card is used to purchase food or clothing, that is bad debt. Most credit card debt is bad debt. So what about a car loan? Is it good or bad debt? Will the car increase in value after purchase? No likely, so a car loan is bad debt.

Eric Gelb, CEO of Gateway Financial Advisors says, "My grandma used to say that if you're going to buy something that doesn't go up in value, and you can't afford to pay cash, then you can't afford it." Grandma is correct, it is bad debt.

A wise person learns the difference between good and bad debt. A wise person uses good debt to their advantage and avoids bad debt when possible.

Should you use good debt to pay off bad debt? In other words, should you get a larger mortgage and use a portion of it to pay off credit card debt? No. It is not a good idea to pay off bad debt with good debt, in fact is it not a good idea to pay off debt with debt. For that reason, I am opposed to debt consolidation loans.

Good or Bad?

You must still be careful that you don’t take on too much debt, even if it’s good debt. If you’re overloaded with debt, then it doesn’t matter whether the debt is good or bad, it still hurts your financial health. If have overwhelming debt and you are unable to make the payments, no matter what the debt is for, it is bad debt. So even a mortgage can be bad debt if you cannot make the mortgage payments.

Further, any debt that damages you financially is bad debt. If a debt causes your financial health to decline, it is bad debt. 

What Have I Missed?