Depreciating Assets Can Hurt Your Finances

Everyone has them— depreciating assets. What are they? Assets that lose value over time rather than gaining value. It isn’t possible, it seems, to avoid purchasing a car, major appliances and electronics. They are financial realities. However, the trick is to purchase what you need rather than what you want and to be aware up front what depreciation rates assets can have. There are some assets you probably could do without if you took into consideration how fast they depreciate. If you can’t do without them, take special care in acquiring them.

Common Depreciating Assets

Timeshares: Many people purchase them without realizing the money holes they can become. Unlike the majority of standard real estate, most timeshares lose 50 percent of their value immediately upon their purchase from a resort. Additional depreciation, up to 90 percent, occurs over the next few years.

Boats: There is a reason why boat owners often lament that the two happiest days of their lives were the day they bought their first boat and the day they sold that same piece of property. The dream of boat ownership is quickly absorbed in the reality of the expense such ownership entails. Boat rental may seem an expensive alternative, but it is usually far less expensive than to own your own. Your own boat is usually a depreciating asset you could do without.

Recreational vehicles: Just like cares and boats, RVs love a large percentage of their retail value the minute you depart from the dealer’s parking lot and they continue to lose value as they age. Few people use RVs as much as they expect to when they plunk down the purchase price. Add the costs of gas and the space rental many people have to pay for the RVs when they are not in use and ownership doesn’t make much sense.

Luxury cars: There is not much chance of avoiding a car purchase forever, but keep in mind that it is a depreciating asset. To get the most out of your purchase, focus on what you really need, not what suits your ego or what will keep you in the running with the Joneses. A used car in good condition has already seen much of the initial depreciation priced out. The corollary is someone who wants to have the benefit of gold’s stability and buys jewelry instead. You can’t have it both ways.

Electronic Gadgets: They not only depreciate, they do it quickly. Owning the latest and, purportedly the greatest in computers or electronic gadgets may be popular, but it also is the least cost-effective option. The latest models always come with a premium price. Last year’s model is usually just as effective for most people. And last year’s models will be heavily discounted as soon as the new model appears on the horizon. Make sure your purchase checks out with your wealth building plans.

The prospect of any large purchase should trigger the question: “Do I really need this?” If the answer is “Yes.” proceed wisely. Opt for the product that fulfills your actual needs at the best possible value. Depreciating assets eventually affect your finances, so avoid them when possible and consider devaluation as one of the factors to evaluate as you make your purchasing decisions.

Buying a Home? Prepare, Compare, Negotiate

The U.S. Housing market has taken some heavy blows in the slowly mending recession, but it is not dead. People are buying and selling houses. But if you are in the buying mode, it is more important than ever that you be informed. A recent release by the Federal Reserve Board, titled “Looking for the Best Mortgage” has several key words: Prepare, Compare and Negotiate.

Determine Your Best Mortgage Payments

Start the process by an honest and realistic assessment of your ability to purchase a home. Be certain up front how much you can afford for a down payment and closing costs. Use a free mortgage calculator to determine your monthly payments. Start with your credit report. If it is less than perfect, due to illness or temporary loss of income, don’t just give up, assuming that you would be limited to high-cost lenders. If the information in the report is accurate but you have good reasons for the negatives, explain them to a potential lender or broker. If the less-than-perfect report can’t be explained, you probably will end up paying more. But don’t assume. Ask how a past credit history affects the price of a loan and what you would need to do to offset the current bad rating. You can obtain a current credit report by visiting www.annualcreditreport.com or calling 877-322-8228. Or go directly to the reporting agency. Equifax: (800) 685-1111; TransUnion: (800) 99196-8800; Experian: (888) 397-3742.

Mortgage Lending

Be ware of the types of lenders, including commercial banks, mortgage companies, thrift institutions and credit unions. Different lenders may quote you different prices. Contact several and compare. You may work through a mortgage broker, who would arrange a transaction rather than lending money directly. Remember that a broker is not obligated to find the best deal for you unless you have signed a contract. Consider contacting more than one broker, just as you do with the lending institutions. It may not be clear if you are dealing with a lender or a broker. Some institutions operate in both capacities and their advertisements likely do not use the word “broker.” Ask if a broker is involved in your potential purchase. A broker is usually paid a fee separate from and in addition to the lender’s origination and other fees. His compensation may be in the form of “points” paid at closing or as an add-on to your interest rate or both. Ask how your broker will be compensated so you can compared the various fees. Negotiate if it is appropriate.

Shop and Compare Mortgage Lenders

Be sure to get mortgage information from several lenders or brokers. Just the monthly payment or the interest rate is not enough. Seek information about the same loan amount, loan term and type of loan so you can compare the details. Interest rates fluctuate, sometimes several times in the same day. Even very small differences may make an impact on your payment. Ask if the rate is fixed or adjustable. If you choose an adjustable rate, keep in mind that when the rate goes up, so will your monthly payment. Get the details. Ask about the loan’s annual percentage rate, which takes into account not only the interest rate but points, broker fees and certain other credit charges, expressed as a yearly rate. Points are fees paid to the lender or broker and often are linked to the interest rate. Usually, the more points you pay, the lower the rate, to compensate for the larger amount. Your local newspaper has information about current rates and points. Ask that points be quoted as a dollar amount rather than as a number of points. A home loan is likely to involve several fees such as loan origination or underwriting, broker, transaction, settlement and closing costs. Some are negotiable. Ask. Application and appraisal fees often are required when you apply, others are paid at closing. You may be able to borrow the money to meet fees, but that will increase the loan amount and total costs. “No cost” loans may be available, bu they usually involve higher rates. Several items may be lumped into one fee. Ask questions until you understand what each fee is for.

Down Payment Requirements For Mortgages

Down payment requirements vary. They range from as little as 5 percent to 20 percent, depending on the lender’s policy. If a smaller down payment is involved, the lender may require the purchase of private mortgage insurance. Government-assisted programs such as FHA, VA or Rural Development Services generally require substantially smaller down payments. Don’t look just at the amount, be informed on all the variables.

Negotiating Your Mortgage Terms

Once you have the background information on what lenders offer, prepare to negotiate. Be aware that on any given day, lenders and brokers may offer different prices for the same loans to different customers, even if they have the same loan qualifications. Loan officers and brokers often are allowed to keep some or all of this difference as extra compensation. Such higher prices are termed ” overages.” When they occur, they are built into the prices quoted to consumers. Have the lender or broker write down all the loan’s associated costs and see if any of the elements can be waived or reduced. Be sure that one fee is not lowered while another is being raised through points. You may simply ask for better terms, quoting those more favorable that you have found elsewhere if that would be helpful. Once you feel you have done the best possible, you may want to lock in the loan. Be clear on the rate you have agreed on and how long the lock-in lasts. A fee, sometimes refundable at closing, may be charged for the lock-in. The arrangement also could backfire on you if interest rates go down while you’re waiting to close. Again, time to negotiate a compromise if possible.

Legal Protection For Home Buyers

Remember that there are laws that protect you as a potential home buyer. The Equal Credit Opportunity Act prevents discrimination based on race, color, religion, national origin, sex, marital status or age or whether any part of your income comes from a public assistance program The Fair Housing Act provides the same protections, adding handicapping conditions and familial status to the conditions that cannot be used as determinants for loans. A consumer cannot be refused a loan or charged more or offered less favorable terms because of any of the listed conditions.

For most Americans, a home is the most significant purchase they make. It is a process that should involve your best effort. Take your time. Prepare. Compare. Negotiate

Secure Your Home During Foreclosure

Losing your home is bad enough, but walking away and leaving it empty and a target for vandalism, theft and illegal activity just adds to the problem.  You are still liable for the property during the foreclosure process, experts remind those who are affected. They say that malicious or even unintentional damage to an empty home can cost mortgage lenders and homeowners considerable money. Insurance may not cover repair costs.

It may pay in the long run to prevent a property from looking vacant.  Would-be vandals, thieves and illegal interlopers (who may use property for such things as illicit drug manufacturing) may think twice if the property has the appearance of being occupied.  Experts offer these suggestions for minimizing the prospects of damage:

Lock up: One unlocked window could invite unwelcome invasion. An insurance company may make it grounds to deny a potential claim. Double check to see that all entrances are secure.

Winterize: Shut off the main water valve. Drain water from plumbing, using compressed air, if necessary, to remove all remnants of water. Even a small leak can cause extensive, expensive damage.

Keep up maintenance: There are property preservation companies that specialize in giving vacant sites a “lived-in” look. They perform such services as maintaining lawns and yards, keeping mail and debris picked up, shoveling snow and generally making the property appear neat and occupied. If you can’t afford such a service, ask friends or neighbors for help in maintaining and monitoring the property.

Unplug: Even when turned to “off” an appliance can still draw a little power, so make sure all plug-ins throughout the property are disconnected. This move also can minimize the potential for fire.

Monitor: Test and retest smoke and carbon monoxide detectors and security alarms. Put in fresh batteries and test again before vacating the property.

Taking the steps to secure  an empty home may fend off a lot of headaches in the future.

 

Discover Card Review

The last five days of growth for Discover Financial Services (DSF), located in Riverwood, Illinois has been well above their credit card competitors, Visa, American Express and Mastercard. Why has this happened? David Nelms, CEO of Discover since 2004 says, “Our very strong results this quarter were driven by a significant improvement in the credit performance of our loyal customer base along with continued solid growth in cardmember spending.”

During the fiscal second quarter, Discover reported a record sales volume at $23 billion. Discover topped their prior year statistics by 6%. Where are the profits coming from?

Discover has three payment services Pulse, an ATM/debit network, Affiliate Banking and Diners Club. Together these services process billions of financial transactions a year.

PULSE is one of the nation’s leading ATM/debit networks, currently serving more than 4,500 banks, credit unions and savings institutions across the country and they have just partnered with MoneyPass which offers thousands of surcharge-free ATMs. It is now the company’s biggest money maker.

Diners Club International was acquired by Discover in July of 2008. Diners Club card entitles consumers to exclusive savings on travel, dining, and entertainment.

Struggling with the new banking rules which prohibit charging late fees over $25, Discover will be loosing between $80 to $90 million a year. To help make up for that they will be focusing on their consumer banking division to make up for lost profits. They have two bank affiliates, Discover Bank and Bank of New Castle. In addition to the credit card division, they also offer personal and student loans, online savings accounts, certificates of deposit and money market accounts.

With David Nelms as the CEO, this company seems to be doing better and better. In fact, the earnings statement for Mr. Nelms is staggering. For 2009, his salary was $1 Million dollars, restricted stock awards $4,627,613.00, other compensations at $17,150.00 and pension valued at $39,750.00 for a grand total of $5,684,513.00 – over 5 1/2 million dollars a year. Looks like his MBA from Harvard Business school served him well.

The two most significant reasons he gives for the recent improvements have to do with how you and I have improved our credit reliability and continued to use Discover Card for purchases. Some employees from Discover have even suggested ways of making money through the significant rewards program they offer. If you are dedicated to watching your spending and able to actually pay off the monthly balance, you can earn money on what you spend. But that is only for the very self-disciplined spenders. This practice could leave you with nothing more than a huge credit card bill so be wary.

30 Personal Finance Tips To Use Now

Personal finance tips can come in handy when you are trying to improve your financial situation.  Economic struggles in the past several years have really turned some people’s lives upside down.

In March, 2010, the number of long-term unemployed people (those without a job for over 27 weeks) was a staggering 6.5 million. There were 15 million unemployed people. That’s a lot of people struggling to make ends meet any way they can.

To help you through this tough economic time, make sure that you help yourself by doing some of these practical things.

Protect yourself

• 1. Get a credit report every year so that you can make sure your credit is in good standing.
• 2. Scan everything in your wallet. In case of theft, you’ll have all your account numbers and contact information available.
• 3. Stop overdraft fees by going online and hooking up your checking account with a savings account.
• 4. Sign up for an alert that warns you when your account reaches whatever amount you choose.
• 5. Keep well organized financial documents for tax purposes
• 6. Diversify your sources of income.

Setting Goals

• 7. Decide what you want to do with your money.
• 8. Cover the necessities first
• 9. Use free websites for tracking goal setting
• 10. Choose some new starting points to hope for the best but plan for the worst.

Savings Strategies

• 11. Start saving at an early age.
• 12. Save money on a weekly basis and leave it alone for a while.
• 13. Order free information for your vacation planning.
• 14. For older folks, estimate your retirement benefits online at www.ssa.gov where you can put in your social security number and estimate your retirement benefits.

Debt Management

• 15. Use your tax refund to pay off high interest credit card debt.
• 16. Go to the websites where you have credit card accounts and sign up for an alert to remind you 10 days prior to the due date.
• 17. Request a reduction in your credit card interest rates.
• 18. Be grateful that your debt is not as big as the country’s debt.

Daily Living

• 19. Take an oath of financial honesty, with yourself and with others.
• 20. Use your local library instead of purchasing books.
• 21. Eat at home. Avoid restaurants to limit calories and cash expenses.
• 22. Reassess your possessions and see what you can live without.
• 23. Tell a friend what you are saving for and ask for emotional support.
• 24. Practice self-monitoring. Track spending using software like quicken or see if your online banking has a budgeting feature and track it for free.
• 25. Beware of advertising campaigns to entice you to spend more on house-hold goods. Proctor & Gamble, will increase advertising expenses by 20% in 2010.
• 26. Shop at cheaper stores. You can get Egyptian cotton sheets at discount stores.
• 27. Recognize buying mistakes and vow not to make them again.
• 28. Give away things you don’t need to make room for your new life.
• 29. If you are suffering from depression about your finances, discuss it with your doctor.
• 30. Learn to live with less – do you really need everything you have stashed away?

Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones.

The Pursuit of Happiness Through Difficult Financial Times

In the pursuit of happiness, many of us believe that having lots of money will make us happy. According to Jean Chatzky, the author of the book “The Difference,” this is not always true because once you have money, more money won’t buy more happiness. The happier you are, the more money will come in.

Some of us have been through bad financial situations. With bills piling up, creditors calling, and the household income barely enough, life still goes on.  You can make the best of it or just plain give up and lose hope. Financial problems can  be  very stressful  for anyone but there is always room to make a change in your attitude. In such difficult times, what are the critical factors that can make a difference in your life? Jean Chatzky tells us all about the main traits that you have to be successful.

Happiness and optimism are two of the keys in making more money because these two traits help you solve problems and come up with great ideas. Even if you fail the first time, being optimistic will help you try again, and again.

Having resilience means you can overcome anything and that includes financial problems. These people never denied that their finances were suffering. They were able to concentrate on how to take control of the things that they could change and let go of the things that they could not.

Having passion to lift yourself up from your financial struggles is another key element to financial success. Loving what you do is very important and when you love what you do for a job then you are on the road to financial stability.

Social capital is acquired by seeking out advice from people who can help you get to the next level of income. Value the relationships you have and reach out to people that you can help and those who can help you. Take time nurturing these relationships.

Wealthy people have the funds to spend lots of money but most of them are not foolish spenders at all. In fact, they save money on a regular basis. This is a fundamental goal for anyone wanting to improve their personal finances.

We usually have hunches about what might happen next. These intuitions will help you make decisions about spending and investing your money. Most wealthy people have developed  good intuition and this gives  them a big advantage. Learn to listen to your intuition when you are making financial decisions.

Taking calculated risks in the market is a good way to make money whether in good times or in bad. Those that lost thousands in their investments are slowly beginning to see those dollars come back. Let your money work hard for you.

Being grateful for your particular situation is key to being able to move on and learn from the past. People who get rich and stay rich, express their gratitude by contributing to organizations and communities that they care about.

Use these principals of gratitude, passion, resilience and optimism to change your attitudes, set realistic goals and return to your path of financial prosperity.

Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful. ~Albert Schweitzer

Personal Finance Give Up-Itis

Personal Finance Plans

Have you given up trying to succeed with your financial plan? Have you gone through personal finance disasters? Do you suffer from give up-itis?

You may be wondering what give up-itis is. To explain that, let me share with you a story from Donald O. Clifton’s book, “How Full Is Your Bucket?”

U.S. Army chief psychiatrist, Major  (Dr.) William E. Mayer,  did a study of the lives of soldiers who were held as prisoners in the Korean War. He studied 1,000 cases of soldiers who suffered extreme psychological depravement as POWs.  These people didn’t suffer physically as in being tortured, but they were systematically deprived of the normal benefits one can receive from friendship and support.  They caught a deadly disease:  extreme hopelessness.

The methods used to cause this hopelessness were conniving and deceitful. The death rate in the POW camps there rose to 38%, the largest in military history. Half of those soldiers died because they had given up.

To break down the spirits of the soldiers, they were offered small rewards for ratting out their fellow inmates. Nothing happened to the inmates as a result of the news, but alienation soon crept into the camp. The North Koreans in charge held mandatory group meetings where the prisoners were forced to tell of all of the bad things they had done and any instances of good that could have been done, but failed to be done.  Without emotional support, the prisoners soon began to give up.  Some would go into their huts, sit in a corner, pull a blanket over their heads and were dead within two days.

You may have suffered from a recent financial loss of some kind, perhaps a loss of a spouse, a job or your personal health.  If you can learn from the hopelessness the soldiers  suffered as prisoners of war, you can start getting your financial life back on the right track.

Don’t give up and pull the covers over your head preparing to die. Seek out friendships that are emotionally supportive. Support other people in their struggles with life and you will fill that emotional bucket you need to avoid give up-itis.

With emotional support, you will be able to face things in your personal financial life that you never thought you could face.

Five Personal Finance Tips

1. Be honest with yourself about what has happened to you. Find out where you are right now with your money.
2. Re-examine your living expenses and what you actually need to survive. Is there any place that you can cut back on spending? Where can you most effectively decrease spending?
3. Evaluate your income as it is now and make plans to increase it. There are many ways you might be able to earn extra income to help you through. Odd jobs and piece work types of jobs are plentiful.
4. Start tracking your expenditures if you don’t already do so. Tracking what you do is the best way to help you pinpoint the problem areas that you may be causing.
5. Set goals that you would like to reach and tell a friend about them. Emotional support from friends is really invaluable to you.

What is your plan to improve your financial situation?

Learn the lessons that your money can teach you

Are you struggling to make ends meet? Is the personal financial advice that you hear from experts making you depressed?

Suze Orman has a television show that offers you personal finance advice. People are invited to call in and ask her the proverbial question, “Can I afford to buy this item?”

Some things that people want to buy seem to make perfect sense.  They may however, be outrageous to Suze.  She’s definitely on the conservative side of spending. You need to have a gazillion dollars saved to be able to afford to purchase an item under ten thousand dollars.

Powerful, forceful, decisive and intimidating, Suze will tell you the good or bad news about whether you should make a purchase or not.  She always says, “Show me your money!” You will be asked to list your current income, your savings, your retirement savings and the amount of debt you have accumulated.

After watching a few hours of this show, you may look at your own situation and feel like a total failure and that you’ll never measure up to the standards you “should” meet. You may have been through a job loss, a divorce or a medical catastrophe and not have the assets you see other people having.

The ironic thing about this show is that a few experiences in Suze Orman’s past may actually make you feel better.  Recently on Oprah’s website, Suze revealed that as a young woman, she had been lured into the rich lifestyle and the feeling she needed to own things to impress other people. She frankly admitted, “I, Suze Orman, took money out of my 401(k) to pay for that pricey Cartier watch. And when I ran through all my money, I started using the bank’s. I eventually had more than $60,000 in credit card debt.” So she has been in trouble financially and knows what kind of misery it brings.

Dave Ramsey, popular author, radio show host and personal finance advisor had a similar brush with disaster. By the time he was 26 years old, he had a net worth of $1 million dollars. That sounds wonderful, doesn’t it?  However, he ran into some problems with borrowing money.  Soon, one of his creditors demanded that he pay his short-term notes totaling $1.2 million. On top of that he had only 90 days to do this. He was sued, foreclosed on and with a wife and baby added to the mix, the Ramsey’s were finally bankrupt.

It is just this type of experience that led him to develop his expertise on financial advice. He sought out every type of financial advice out there. He read everything he could get his hands on. Now he has helped thousands of people to achieve financial security.  He took to heart the admonitions of F. Scott Fitzgerald, considered to be one of the twentieth century’s greatest writers.

“One should … be able to see things as hopeless and yet be determined to make them otherwise.”

If you are struggling financially, become determined to make things different.  You can learn your money lessons by paying careful attention to getting out of debt, building an emergency fund, and living on a reasonable budget.

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