Monday, May 31, 2010
The discipline that it takes for someone to get out of debt is very similar to the discipline it takes for someone who wants to lose weight or get into shape. It is always easier to get into debt than it is to get out of it, much like it is easier to gain weight than it is to lose it.
We all know that the healthiest diets are the ones that are done gradually with a proper balance of exercise and eating right. Miracle diets or pills that promise a lot in a short period of time may work temporarily but are unhealthy, and often the weight comes back. In order to get out debt, you have to be honest with yourself, set realistic goals that are obtainable and most of all you have to be patient. Here are 5 key steps to getting financially fit, while at the same time developing healthy spending habits that will prevent you from gaining that debt weight back.
1. Be brutally honest with yourself- take time to truly evaluate your financial situation, and define “need” vs. “want”. Make a list of all of your expenses; divide them into separate categories starting with living expenses that include rent or mortgage, utilities, groceries, car payments, insurance etc. Then in another category list all the luxury items that you consistently spend money on like gym memberships, meals at restaurants, Starbucks, entertainment etc. then see what you can cut back on and what things you can eliminate all together. When was the last time you used that gym membership? Can you get the same results by running at a park near your house and doing some home exercises? Do you still need to have both a landline and a cell phone? See how you can cut back on your utilities by using the dishwasher less, or using your washer and dryer only on weekends when the rates are significantly lower than they are during the week.
2. If you can afford to, stop using credit cards all together. Use only cash or your debit card. You always hear everyone’s excuse of using their credit card to get “points” or “miles” well, guess what? Those points and miles cost money. Using a debit card will keep you more disciplined because you know the money is being taken out of your checking account the moment you make that purchase. Psychologically it is so much easier to go all willy nilly on a credit card because you are in essence borrowing money to buy something, that you have a month to pay back. It is also much easier to pay a credit card off when there aren’t new charges coming in. Seeing your credit card balance go down every month will keep you motivated and focused, the same way getting on a scale and seeing that you have lost weight will keep you wanting to diet and exercise.
3. Consolidate all of your credit cards on to one card, with a low interest rate that is fixed for at least 6 months to year, if not longer. This will give you one payment and one interest rate to keep track of every month. If you cannot, pay off credit cards with smaller balances first and work your way to the ones with larger balances last. When you finish paying off the cards with smaller balances you can then add that payment to the payment you are making on the credit card with a larger balance and pay it off quicker. Once your cards are completely paid off resist the urge to close them all at once. Having a credit card with a high limit and no balance will lower your DTI (debt to income ratio), which will improve your credit score. Simply tear up the card itself to keep it out of sight and out of mind. And don’t be afraid to ask. Most credit card companies and financial institutions are willing to work with you to reduce your interest rates if you are proactive in your approach, even changing a due date might give you some breathing room. I recently contacted the bank that was holding my student loan to give them my new banking information so they can continue to automatically debit my monthly payment. While I was on the phone with them I simply asked them if there was anything they could do to reduce my already low fixed rate of 2.65 % and within minutes they reduced my rate by 1 percent, and all I did was ask.
4. The envelope system- this system is designed for those who really want to buckle down. Set aside envelopes for common monthly expenses such as groceries, meals and entertainment and pocket money and label each envelope accordingly. Budget a certain amount of cash in each envelope every month, and ONLY use the cash in the envelope for each designated expense. Once the cash is gone, you can no longer spend any additional money on that particular expense, if there is a surplus at the end of the month use what is left toward paying down credit cards or put it into a savings account.
5. Treat yourself! Anytime you give something up completely, you will eventually fold to cravings and temptation and end up bingeing, possibly un-doing months worth of hard work and discipline. The best way to avoid this is by treating yourself every once in a while. If you have decided to bring your lunch to work everyday rather than going out, treat yourself by going out 1 or 2 Fridays a month. If you now bring your coffee to work rather than going to Starbucks every morning, allow yourself that 1 Latte a week to treat yourself for all the sacrifices that you have made. This is the best way not to end up un-doing what you have worked so hard to accomplish.
Questions? Feel free to email us any questions you might have regarding this or any other topic at firstname.lastname@example.org
Monday, May 24, 2010
With the economy still in recession more people everywhere are cutting corners wherever they can. Activities that were once considered the “norm” or “common place” are now being visited “every once in a while” or on “special occasions.” With the average price of a dinner for 2 in Los Angeles at $34.95 and $82.01 at high-end restaurants, an overwhelming majority of consumers (89%) are eating most of their meals at home rather than going out. Now that consumers are savvier than ever, not only are people choosing to eat at home more, they are also choosing to forego their favorite watering hole’s happy hour and stocking their liquor cabinets themselves.
Alcohol for all intents and purposes is a restaurant’s cash cow. The average mark up for alcohol at most restaurants can be anywhere from 150%-300%, something to think about the next time you closeout your tab and realize that you were charged $5.00 for an Amstel Light when a 6-pack cost around 7 bucks.
Liquor, even good liquor is surprisingly inexpensive when you cost it out. Here are some cost effective ways to enjoy your spirits without being haunted by their prices.
1. Redbreast 12 year Pure Pot Still Irish Whiskey 750 ml $39.99. I first tried this Irish Whiskey when it was given to me as a Christmas gift from a good friend. It is a very smooth and flavorful whiskey, with very little after taste. It may not be a common household name like Macallan or Johnny but can hold its own and is a great addition to any liquor cabinet. Glass at home $4.00 Glass at a bar $16.00
2. Chivas Regal 12 year blended Scotch Whiskey 750 ml $25.99. Rich in history and taste. A classic drink. Ordering a Chivas on the rocks would make any bartender smile in the same way ordering a regular coffee instead of a half caff, sugar free soy caramel macchiato would make a barista smile.
Glass at home $2.50 Glass at a bar $14.00
3. Jameson Irish Whiskey 750 ml $21.99. Considered to be one of the most popular and best selling Irish Whiskey in the world. Can either be sipped with a couple of cubes or served as a shot to keep your beer company.
Glass at home $2.25 Glass at a bar $8.00
1. Ketel One distilled from 100% wheat in the Netherlands 750 ml $28.00. Classic vodka on the same shelf as your Goose, Chopin and Belvedere. Ketel One is a cheaper and comparable if not better tasting vodka than Grey Goose. A smooth shot on the go or a good mixture of soda water or tonic will accent this vodka well. Less trendy and not as pretentious as other top shelf vodkas, perfect for those with skinny wallets rather than skinny jeans. Glass at home $3.00 Glass at a bar $10.00
2. Tito’s Handmade Texas Vodka distilled from corn six times, distilled three more times than Grey Goose. 750 ml $20.00. Unlike its more expensive predecessors. The shot is very smooth and can be taken straight without a chaser, even for non-vodka loving drinkers. Glass at home $2.00 Glass at a bar (if available) $6.00
3. Svdeka 750 ml $15.00 distilled five times from Swedish winter wheat. As a general rule liquor sold in a plastic bottle should be avoided at all cost, but the Svdeka Swedish vodka breaks the mold. The Smart Water shaped bottle is often passed over for the Skky or Absolut bottle found in all bars and most homes. Whether you are drinking it in your favorite mixed drink at home with friends or at a bar, all will be impressed with your economically viable choice for a good tasting, cheap alternative to spending a lot on more marketed vodkas that taste relatively the same. Glass at home $1.50 Glass at a bar $5.00
1. Chimay Ale Blue Abv. 9% 22 oz. $12.99. A Belgian beer made in a Trappist monastery by Monks, dating back to 1862. A very smooth and full flavored beer, which goes great with appetizers or tapas that are designed to be shared in the same way this beer is. Bottle at home $12.99 Bottle at a bar $24.99
2. Amstel Light 6-pack / 12 oz. bottles $7.99. Considered to be one of the top selling imported light beers in the U.S.A. has a very clean and crisp taste. Bottle at home $1.50 Bottle at a bar $5.00
3. Rolling Rock 6-pack / 12 oz. bottles $6.99. Classic American Lager with its signature green bottle. A very refreshing beer and dangerously easy to drink. One of the lowest calories for a non-light beer. Bottle at home $1.25 Bottle at a bar $4.00
**Please drink responsibly**
A special thanks to Allen Wolfe for contributing his extensive knowledge and edited experiences with Vodka.
Monday, May 17, 2010
The fact of the matter is when you sign and agree to the terms of a loan to purchase a house, a contract between lender and borrower are consummated and therefore the borrower has an obligation to conform to the terms of the loan whatever they maybe. Yet there is an inherent imbalance in the borrower - lender relationship that makes the morality of such an argument unfair to the consumer.
After all it was the banks and lenders that set the rules, or lack thereof, during the housing boom. They were the ones that were literally handing out loans to people without proof of income or a down payment, in most cases the only two things these predatory lending institutions required was a pulse and the ability to sign your own name, while the institutions themselves made out like bandits. So why should homeowners care about defaulting on a loan, in which the institution that made the loan was bailed out by their own tax dollars? Well, frankly, they shouldn’t. Loan modifications are being done at a snails pace with very little success. Now that property values have dropped 20%-50% in some areas, these institutions need to assume responsibility for the bubble that they both inflated and burst.
Homeowners who find themselves in dire living situations, due to the current state of the economy need to do what is best for them and their families. Homeowners need to cut the sentimental attachment to their homes and treat the decision as a business rather than an emotional one. Why continue to pay a mortgage on a home that may never recover its original value, when you can rent a similar house for far less? Yes, there are repercussions and consequences. Foreclosing on a home will drastically affect your credit score, which could be repaired after 2 years.
Better yet, homeowners can take the “strategic” approach to defaulting on their mortgage. By purchasing all the major items they may need for the next couple of years such as applying for an auto loan or a rental lease agreement for a house or apartment right before pulling the plug on their current mortgage lender. Most families and or individuals should be able to plan in advance for a few years of limited credit, which is a small price to pay for the amount of money that will be saved in the long run. Why should homeowners put themselves in a moral quandary while all lenders think about is how to maximize profit? Did the CEO’s of the now defunct banks have the same type of moral tug-a-war with themselves when they received tens of millions of dollars in severance packages to go along with their golden parachutes? When it comes to deciding whether or not walking away from your home is the best thing for you and your family let logic and your own financial reality be your guide. Save your moral compass for the more complex intersections of life.
Sunday, May 9, 2010
We all remember when we reached that point in our childhood when adults began to ask us the question “what do you want to be when you grow up”? Our childhood innocence would prompt such answers like “I want to be a fireman, a doctor, an astronaut or a professional athlete. As we got older, our childhood dreams would often succumb to grown up realities. With today’s tough economy and even tougher job market, stories of people having to make sacrifices when it comes to seeking employment of any kind are becoming the norm. With budget cuts and company lay-offs running rampant, people nowadays are doing whatever they have to, just to make ends meet. And with the country’s unemployment rate at a dismal 9.9 % and the underemployment rate, which measures the percentage of the workforce with high skill levels and higher education in low wage jobs is at an even higher 15.6 %. Some may feel that the forecast is looking bleak while others are checking their egos at the door and taking this opportunity to reassess their priorities and reinvent themselves while trying to find their true passion in life.
I personally had to make such a sacrifice late last year when one of my biggest clients had to drastically scale back due to a lack of work and for all intents and purposes had to close shop, laying off all of their staff & advisors, including myself. I managed to keep some of my smaller clients and was fortunate enough to land a 3-month contract with a real estate investment firm for half of what I used to make. The contract also came with an 8 am to 5 pm, Monday thru Friday schedule, something that I have not done in almost 4 years. I went from essentially being my own boss, with a schedule that allowed me to roll my eyes at such terms like “rush hour traffic” and “TGIF” to being part of the daily grind. Having to adjust to such a radical change was reminiscent of another childhood memory of starting school after having 3 months off for the summer. I pouted, stomped my feet and had to drag myself out of bed every morning for the first couple of weeks until I made myself realize how lucky I was just to have a job. I had friends who were working two jobs at 60 plus hours per week with positions in which the term “overqualified” was a staggering understatement just to make rent and put food on the table. So what the hell I was complaining about?
I began to immerse myself in my routine. I started to go to the gym before work and brown bagging my lunch. I traded in the ubiquitous accessory of a Starbucks cup for a home brewed cup of Joe in a thermos and eventually found comfort in something I used to detest. I started to use my routine to get me through the day; wanting to keep moving, whether it was forward or sideways. I found myself using movement of any kind to keep me focused and grounded. I started to look at this moment in my life as just that, a moment. They say that when we lose one of our senses that the ones that remain become stronger, similarly I felt like I had a heightened appreciation for what remained in my life rather than a yearning for what once was. I became more open to the possibility of success in a different form, a kind of success that can be so much sweeter and much more appreciated the second time around. We may never find the job from our childhood dreams, but what we may find is an opportunity to discover fulfillment in what we do, with a routine that we can approach with a childlike zeal.
Sunday, May 2, 2010
Like so many blogs financial or otherwise before me, the catalyst for such an endeavor stems from personal experiences. I have been working in the field of accounting and finance for almost my entire adult career and upon graduating college I began working for a mid size management firm, who employed many CPA’s, financial analysts and business managers. I was hired as a business manager in the entertainment division handling all the day-to-day financial and business affairs of various actors, writers, directors and anyone else who made their living in the entertainment industry.
My job was part financial advisor, part life coach while the biggest part of my day-to-day job was baby sitter. My position as a business manager would often give me a very intimate view of not only my client’s finances, but their personal lives as well. You’d be surprised just how much you can tell about someone by reading his or her credit card statements or cable bill. I knew far more than I ever wanted to know and more often than not, they would tell me even more. I quickly became desensitized to the $25,000 a month Amex bills and the ridiculous charges that came along with them. It was my job to make sure that these highly paid individuals remembered to pay their bills on time, pay their various assistants and staff, put money away for taxes, save and make smart business decisions while they, for the most part stayed lost in their own creative oblivion, not to be bothered with the mundane issues that we mere mortals have to worry about.
One would think that anyone making this kind of money would be easy to coach into making good business decisions, but that was far from the case. I often found myself having to schedule what I called financial interventions with clients who found it impossible to live within their fortunate means. I remember such a meeting with a client who had been acting in television for over 25 years and his wife, during which, I was practically begging and pleading with them to cut back on their spending and keep their credit cards below a certain amount each month. The very next day while at a doctor’s appointment, I got a call from the both of them, asking me “ how much money do we have to put down on a car?” They had called me from a Mercedes Benz dealership and were about to purchase a $90,000 car for the wife to drive. It was as if the meeting that the three of us had less than 12 hours prior had never happened.
You would think that a person in my position would take advantage of learning from other people's mistakes and not make the same ones myself. I thought the same thing; until I found myself slowly wanting to live the same way my clients did, with all the shiny new toys and latest gadgets. I found myself falling captive to the very same trappings that I had advised them against. My star was on the rise at the firm and so was my salary. I eventually went out on my own and started consulting and began to make more money then I ever had before and of course, I started to spend it accordingly. I wanted it all. I bought an overpriced condo, in a fancy neighborhood with a fancy car to match. Within my first 6 months of consulting, I went from living with 2 roommates to owning my first home, I went from driving a paid off 10 year old reliable Honda to a brand new Audi with a monthly payment that was equivalent to what I used to pay in rent. My new place looked like a page out of a Crate & Barrel catalog and the lifestyle I was living, in hindsight was just as two-dimensional. If I wanted something, I simply bought it. I was “the guy” who would be out having sushi and drinks with friends and pick up the tab just so I could show everyone my Gold Card and say things like “ I got this, it’s been a good month.” I used to despise people who would say such pretentious things; I used to want to punch anyone in the face who would say something like that, now I was “that guy”.
Then the economy started to take a turn for the worse, and in October of 2008 when Wall Street was on the brink of Armageddon, my life savings, which was almost 100%, vested in various stocks was completely obliterated. I remember vividly the day I found out how much money I had lost. I remember sitting on my Italian leather couch with its faux distressed finish and looking around at all of the other “stuff” I had accumulated and thinking to myself that there has to be more to life than this. I was 30 years old, in debt up to my eyeballs with a condo chock full of all of the things I thought I wanted, while I felt completely empty inside. So, after allowing myself to wallow in my own self-pity I decided to begin the slow and humbling process of going from nouveau riche to practical and sensible. I replaced sushi dinners with $5 foot-long sandwiches having one half for lunch while saving the other half for dinner. After almost 3 years of living in my condo, I was fortunate enough to find a buyer for both my overpriced condo and car within the same 6-8 month period. I started to visit Craigslist instead of department stores for furniture and appliances, and opted to “Dress for Less” rather than the premium plus retailers in which I had become quite the fixture. I managed to crawl my way out of the depths of debt, in lieu of filing for bankruptcy and now find myself renting a house with a backyard for my dog for less than half of what my mortgage used to be, while driving around in a 1995 Toyota Land Cruiser that has the best amenity any car can offer, being paid off! I may have a lot less stuff but with a lot more personal satisfaction. If I can help just one reader learn from the mistakes I made rather than having to create his or her own, then mission accomplished. All I ask in return is that you tell me about it and keep coming back for more!