Investing Curiouscatblog

Category: Tips

  • Foreclosure Filings Continue to Rise

    Foreclosure Filings Continue to Rise

    Foreclosure filings last month were up nearly 50 percent compared with a year earlier, according to one company’s count released yesterday. Nationwide, 261,255 homeowners received at least one foreclosure-related filing in May, up 48 percent from the same month last year, and up 7 percent from April, foreclosure listing service RealtyTrac said.
    …
    last week the Mortgage Bankers Association reported that about 2.47 percent of home mortgages were in foreclosure during the first quarter of the year, almost double the 1.28 percent rate of a year earlier, and the highest point since the group began compiling such figures in 1979. A Credit Suisse report this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes.

    There numbers really are astounding. How lame were the decisions of banks and mortgagees that nearly 1 in 40 mortgages are in default (and that number likely increasing in the next year to much more?

    Related: Homes Entering Foreclosure at Record (Sep 2007) – Homes Entering Foreclosure at Record – Ignorance of Many Mortgage Holders

  • New Graduates Should Live Frugally

    Graduates should put off living large after college

    Good habits are important to start early,” said Laura Tarbox, founder of Tarbox Group, a financial planning firm in Newport Beach. “Take your finances as seriously as you do your relationship and career decisions, and you’ll end up way ahead of everybody else. But you’ve got to do it now. If you start even five years later, it just doesn’t work.”

    The key, experts say, is a simple one: Live like a poor college student for a couple more years. While you’re doing that, you can pay off your debt, start a savings plan and embrace healthy habits that will serve you well for life.

    This is exactly what I did. Outside of paying for college, extra living expenses in college were small. Just retaining the spending habit of college gets your personal finances off on a good start.

    Sallie Smart, 22, economizes like crazy in her first years after school so that she can save $500 a month in her 401(k), and she keeps that pace up indefinitely. Her employer matches 50%, pitching in $250 a month. If she earns a 9% annual return on her investments, when she wants to retire at age 65 she’ll have $4.1 million in her nest egg.

    Patty Procrastinator lives a little better when she first gets out of college and doesn’t start saving in the 401(k) until she’s 32. From that point, she also saves $500 a month, her employer adds $250 a month, and she earns a 9% return — just like Sallie. But at age 65, Patty will have only $1.7 million. That decade of delay will cost Patty $2.4 million.

    Incidentally, Sallie contributes from her own money just $60,000 more than Patty does. The rest of the difference comes from employer contributions and investment returns.

    By immediately starting to save for retirement and other needs you create a great foundation for your finances. Start saving for a house, a new car, create an emergency fund… Then you can create a situation where the only loans you need to take are for a house and maybe a new car – avoiding credit card debt or other personal loans.

    Related: Personal Finance Basics: Health Insurance – Initial Retirement Account Allocations – Why Americans Are Going Broke

  • Avoid Getting Squeezed by Credit Card Companies

    Squeezed by credit card companies

    “I was charged an over-limit fee when the interest charge kicked my account over my limit,” said Cressman. When he called his credit card issuer to complain, they refunded the charge. “I was told that in the future I would ‘just have to watch my balance,’” he recalled.

    Over-the-limit fees aren’t the only tactic in the credit card companies’ bag of tricks. There are a slew of penalties, fees and other billing practices that can cause consumers to find themselves drowning in debt.
    …
    But even borrowers who pay their bills on time can fall victim to deceptive practices used by the card issuers and get slammed with rising interest and hidden fees, which have become the industry norm in recent years.
    …
    many banks calculate finance charges using what’s called double-cycle billing, a confusing practice that averages out the balance from your previous two bills. So if you carry a balance and pay a finance charge one month, you’ll get hit with a finance charge on your next bill as well, even if you’ve paid off the balance.

    Then, there’s a practice known as “trailing interest” – another “gotcha” to watch out for, Arnold said. If you send in a payment according to the full amount on your statement, you may find that you still owe a small balance next month. That’s because you accrued interest between the time you sent the payment and when it was posted to your account.

    As previous posts have pointed out you really need to keep your eye on your credit card company as though they will trick you out of your money given any chance to do so.

    Related: Don’t Let the Credit Card Companies Play You for a Fool – Managing Your Credit Card Successfully – Sneaky Credit Card Fees – Legislation to Address the Worst Credit Card Fee Abuse, Hopefully

  • Dealing with Debt Collectors

    The best method to avoid problems with debt collectors is to avoid debt problems (Create Your Cash Reserve – use your credit card responsibly – Buy less stuff). But if you do run into problems and get stuck dealing with debt collectors in addition to the financial trouble you may find yourself very frustrated and stressed. The Fair Debt Collection resource of the Federal Trade Commission provides useful information:

    Debt collectors may not harass, oppress, or abuse you or any third parties they contact. For example, debt collectors may not:

    • use threats of violence or harm
    • publish a list of consumers who refuse to pay their debts (except to a credit bureau)
    • use obscene or profane language; or repeatedly use the telephone to annoy someone

    Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not:

    • falsely imply that they are attorneys or government representatives
    • falsely imply that you have committed a crime
    • falsely represent that they operate or work for a credit bureau
    • misrepresent the amount of your debt
    • indicate that papers being sent to you are legal forms when they are not
    • indicate that papers being sent to you are not legal forms when they are

    Why is such a resource needed? Because many debt collectors have behaved unethically and illegally. To file a complaint use that link or call toll-free, 1-877-382-4357.

    FTC 2008 Report on Fair Debt Collection Practices Act
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  • Personal Finance Basics: Health Insurance

    Much of personal finance is not amazingly complex once you take some time to lay out the basics. We have covered some important topics previously: tips on using credit cards, retirement saving, creating an emergency fund… One of the most critical factors is to insure yourself against possible catastrophic events.

    Some personal finance mistakes can set you behind, say falling to save for retirement when you are 28 or cashing in your 401(k) when you switch jobs at 27. Those mistakes however are most often manageable. You just need to save more later. For health insurance the critical need is to protect yourself from huge costs.

    Bankruptcies are a huge problem due to health costs. If you have done everything else right and have saved up say $150,000 in mutual funds (in addition to retirement savings and a house) at age 40 but have no health insurance there is little I can think of more likely to result in your losing that saving than a health crisis when you are without coverage (disability insurance is another critical personal finance need that I will discuss in another post and the another such risk – as is an uninsured home). The costs of health care are just too large for any but the richest to survive a major cost without either ruining an entire lifetime of smart financial moves or coming close.

    There are certain things that cannot be compromised in your personal financial situation. Health coverage for significant costs is one of those. If you can afford a $5,000 (or higher) deductible that is fine. The critical need for health insurance is not the first $2,000 or $20,000 but the 2nd, 3rd, 4th… $100,000 bill. A bill for $2,000 you can’t afford is a challenge but a bill for $100,000 you can’t afford can ruin decades of smart and diligent financial moves.
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  • Lazy Portfolio Results

    Lazy Portfolios update by Paul Farrell provides some examples of how to use index funds to manage your investments:

    These portfolios are virtually “zero maintenance!” Set them and forget them. Plus you can ignore Wall Street’s relentless, misleading chatter about markets and the economy. Seriously. After customizing your own Lazy Portfolio you can ignore the news and focus on what’s really important: your family, loved ones, friends, your career, hobbies, travel — you name it — anything but wasting time tracking and playing the market.

    I think the article is a bit misleading in showing the out-performance of the S&P 500 index (during periods where the S&P 500 index does very well these portfolios will under-perform it). The out-performance shown in the article is largely due to the great performance of international markets recently. Still the strategy is well worth reading about. The strategy is based on using index funds from Vanguard (very well run mutual funds with very low fees). But don’t get tied into Vanguard, if they start to focus on lining their pockets by increasing your fees look for alternatives.

    Overall, I give this concept high marks. Dollar cost average appropriate levels of money into such a strategy and you will give yourself a good chance at positive results.

    My preference would be to include significant levels of international and developing stocks. For aggressive long term investing I like something like:

    40% USA total stock market
    15% Real Estate
    25% international developed stock market index
    20% developing stock market index

    When aiming for more security and preserving capital (over growth) I favor something like:

    30% USA total stock market
    10% Real Estate
    25% international developed stock market index
    10% developing stock market index
    10% short term bond index
    15% money market

    Of course all sorts of personal financial factors need to be considered for any specific person’s allocations.

    Related: Allocating Retirement Account Assets – Why Investing is Safer Overseas – Saving for Retirement – 12 stocks for 10 years – what is a mutual fund?

  • Angie’s List

    I heard of Angie’s List several years ago. I looked at it a couple times but thought the price was a bit much so I never joined (it is around $10/month). But I joined a few weeks ago and I am impressed. What they offer is information. And there is lots of information for free on the internet. But they do a good job of organizing what the information and provide a valuable service in my experience.

    From their site: “Angie’s List is where you’ll find thousands of unbiased reports and reviews about service companies in your area. Our members share their experiences with each other so that you can choose the service company that’s right for your job the first time around.”

    The usefulness boils down to their ability to get accurate and useful information and present it well. And they do. The reviews, provided by other users, are detailed and helpful. I found two companies to do some work for me based on the site and both were very good. So far so good. I hope the track record continues.

  • Real Free Credit Report

    From the official US Federal Trade Commission site:

    A recent amendment to the federal Fair Credit Reporting Act requires each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit report, at your request, once every 12 months. But there’s only one online source authorized to do so. That’s annualcreditreport.com. Beware of other sites that may look and sound similar.

    Viewing your credit report is an important step to financial security. You should review your credit reports annually (at least) to correct and any errors. Also doing so can be a tool to help you spot identity theft. The credit report site also has a large frequently asked question section with answers to questions like: What is a credit score? How do I request a “fraud alert” be placed on my file? Should I order all my credit reports at one time or space them out over 12 months? (I would suggest spreading the requests out during the year myself).

    Reposting, original is from last January.

  • Uncertain Economic Times

    So lets say you have a 401(k) and are adding to it regularly, you own your house, you have no credit card debts, you are paying off your car loan and overall your financial house is in fairly good order. Still you keep hearing the news about credit crisis, mortgage meltdown, dollar depreciation… It is enough to make you nervous but what should you do?

    Frankly very little in the macro economy has much impact on what is a smart long term strategy. Should you move your retirement money into a money market fund, because of the risks of stocks now? No. If you are good enough to time the market you are already amazingly rich (or will be soon). But either no one is able to do this or next to no one is. Occasionally you might get lucky and time things right but being able to consistently do so over 40 years is just not something that happens.

    So what you should do now is what you should always do. Have cash savings. Pay off your mortgage (don’t over-leverage yourself – don’t take out equity just because you have some). Save for retirement. Have health insurance. Don’t take on credit card debt (or most other debt). Keep up your employment skills (learn new skills…). Diversify your investments (stocks, international stocks, real estate, cash…).

    People often get careless when the overall economy is good. And so maybe you failed to do what you should have been doing then. But the right thing to do today is essentially the right thing to do always. For example, Americans are drowning in debt. They were also drowning in debt 3 years ago. That problem is the same. If you have too much debt you should fix that. Not because of all the fear today, but because to much debt is always bad. You should not take out too much debt in the first place and if you have to much you should fix it whether the economy is strong or weak.
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  • Create Your Cash Reserve

    Some people think all financial info is boring. I actually find a good deal of it interesting but this tip is pretty boring. Building a cash safety net is an important part of your personal finances. We have explained previously the very simple idea that you don’t buy what you can’t pay for. If you can’t pay for it this month, don’t buy it.

    But that leaves out one thing. Even if you do have the cash you should be building up a cash reserve before buying luxuries. The typical advice is to build up 6 months of expenses in cash (rent or mortgage, food bills, utilities, health care, etc.). Now actually building up to that level can take awhile and forgoing all non-mandatory expenses until you have that saved is not usually reasonable. But as part of your personal finances building up an cash reserve is important (even if it is boring).

    A significant portion of downward spirals in personal finances are started when people have emergency expenses and have to borrow that money (since they don’t have cash reserves). If you are over say 26 and don’t have a cash reserve yet saving for it should be part of your monthly budget. How quickly you build that up is a personal decision but I would say a 1% of the target amount (so if you are aiming for a cash reserve of $20,000 then $200/month).

    If your finances don’t allow that, then do what you can. But realize that is one of the weaknesses in your personal finances and try to fix that as soon as possible.

    Very important personal financial allocations for you to put first include: current needs (food, car payment, rent/mortgage, utilities…), insurance, creating a cash reserve, retirement savings, saving for future purchases. Then there are luxuries and treats, such as: eating out, vacations, cable TV… Many people put current needs, luxuries and treats fist and then say they don’t have the ability to do what is responsible. That is not often true for those that actually have an internet connection to read this blog.

    Related: Buy less stuff – Saving for Retirement – How to Use Your Credit Card Responsibly – Trying to Keep up with the Jones