Your Way Out - Personal Economic Recovery

Judging from the record number of comments that I received from all of you this week, I realized two things:

1) I have a lot more readers than I suspected.
2) You are an impatient bunch! OK, perhaps it was cruel to make you wait, but the last post was so long that I wanted to ensure that it got enough time to be read, and I didn't want to put so much into one post, that no one would read it all the way through.

The Four "I"s

This topic has nothing to do with wearing glasses. Last week, I asked you to gather all of your financial data from the last year. Since most of you didn't do it, do it now.... I'll wait....   

Welcome back! Now, the Four "I"s consist of Income, Investments, Insurance, and Interest. In order to succeed financially, you must have all four of these items in place in your life. Most likely, you don't, but we can fix that.

Income consists of all inflows to your household, regardless of source. Primarily, this consists of profits from your business or your salary or wages from employment. You may also have income from investments or savings, hobbies, and avocations. You need to maximize this aspect of your life. To the extent that your income derives directly from the "amount of time" you spend on an activity, you need to maximize your return on that time (i.e. Become more efficient).

Investments consist of continuing returns on prior income. In other words, first you worked for your money, and now your money is working for you. To the extent that you are successful with your investing, you are now using time to compound your return on your original labor.

Insurance is the method by which you protect everything that you have accomplished in your life to date. Some methods are obvious, while others are not. I have written a few articles about insurance, which you may peruse. The less obvious insurances may include unemployment insurance and workers' compensation, which protect your income. Life insurance protects your family by replacing your income, while property and casualty insurance protects your accumulated assets. Liability insurance protects everything you own against the claims of others.

Interest will either work for you, or it will work against you. You may derive interest on savings or investments in debt securities (bonds or corporate notes payable) and you may lose interest on borrowing (mortgages, auto loans, credit cards, etc.). Albert Einstein said something along the lines of "Those who understand compound interest will be investors, and those who don't will be borrowers." Which of these describes you?

Using the Current Situation to Your Advantage

At present, financial institutions in the United States are reeling. They cannot possibly keep up with all of the issues that they face. Approximately 16% of mortgages will foreclose this year. This will keep real estate prices low, which contributes to foreclosures. Yes, this is a vicious cycle. As people see their credit ratings destroyed due to non-payment of their mortgage obligations, they will tend to care less about paying for unsecured debt (credit cards), which will take away the banks' most profitable income center. A record number of bankruptcies is expected this year (well over two million cases).

Since I do not wish to create a forty page blog posting, I will lightly cover the areas that you need to address in order to solve your financial issues. This is not a do-it-yourself posting, as I cannot give you all of the information, skills, and tools needed to solve this problem yourself, in the space of a single blog posting. I will ask that you contact this week's sponsor, as they are in a position to help you accomplish all of these tasks, and as an advocacy organization, can do it much more efficiently and more cost-effectively than you can handle them yourself.

National Consumer Rights Alliance, Inc.

The NCRA is an advocacy organization dedicated to the protection of Consumer Rights for all Americans. They provide a number of benefits to their members, including credit repair services, a nationwide legal network, IRS Audit Defense, debt settlement assistance (not bankruptcy), mortgage modifications, and mortgage attainment assistance. They also assist with second chance bank accounts (no ChexSystems verification) and second chance (secured) credit cards. I believe so much in this organization that I have accepted a position as its President, in order to help drive their mission forward. I know of no better organization, public or private, that is in a better position to assist consumers in the ways that I suggest below. Of course, you may take all of these steps on your own, but I think you will find better results by allowing their experts to work on your behalf. Even if you were a skilled surgeon, you still wouldn't perform your own appendectomy, would you? Save time and money by joining the organization today.

Your Personal Recovery Steps

Income - You need to find ways to increase and diversify your income. In the current job environment, changing jobs is probably not the best option. In fact, you may be doing all you can to hold onto the job you have. Perhaps, you have lost your job, and find yourself in a very difficult spot. Try to find ways to supplement your income. Most online methods are scams, so be careful. It is possible to make money on E-Bay or Google and with certain blogging opportunities, but most people fail. NCRA has a referral program that can provide a good second income, so that might be worth investigating. 

Investments - Assuming that you still have some money invested, you need to find a way to build back up. If you are still able to invest each month, I suggest that you continue to invest. In most cases, the companies in which you are invested lost value due to the overall market, and not due to anything directly related to the performance of the company with respect to its peers. If this is the case, continue to invest in the same companies, and allow dollar-cost averaging to work for you. If you need to realign your investments, speak to your investment advisor.

Insurance - Be sure that your insurance policies are up-to-date. Is your life insurance protection adequate to replace your income for at least twenty years? If not, reevaluate. Be sure you are getting the best value for your health insurance as well. Many individual and family policies now provide benefits as good or better than your workplace may provide. Oftentimes, these policies are cheaper if your family is in good health, due to the elimination of "adverse selection" that exists with group policies. 

Interest - Good news! This is the area in which you have the most control at present. These are the areas that we can address here, which will help you to solve the majority of your financial problems. Of course, if you have no income, that is a severe issue, but you can still work on alleviating much of the pressure you face by addressing these issues.

Reducing Interest and Credit Liabilities

Mortgage Modification is a great way to reduce your mortgage liability, payments, interest rate, or a combination of the three. I highly recommend that you NOT DO this yourself. Even if you are not behind on your mortgage, you may be able to renegotiate your mortgage into a better interest rate, longer terms to lower your payments, reduction in pricipal, and other options that can help you save your home and/or lifestyle. I have seen instances where individuals have lowered their monthly obligation by as much as 75%, reduced interest rates to as low as 3%, and had tens of thousands of principal balance forgiven. This is not an area for do-it-yourself. Help will cost you one mortgage payment on average, but you will have one month in which you will not owe a mortgage payment to your lender, so it is a service generally provided at no net cash flow loss to you. NCRA can connect you with a law firm to handle this for you. 

Debt Settlement is another way to greatly improve your cash flow. What would it mean to you if you could slash your total outstanding debt by 50% or more, reduce your interest rates to single digits, be debt free in 36 months, and actually come out of the process with excellent credit? Even if you have good credit and can afford to pay your debts now, this may be a great way to free up money for investment. Again, this is a service provided by attorneys, and you don't want to play this game on your own. 

Credit Repair/Restoration can help you qualify for much better terms on mortgages, auto loans, and credit cards. Do you have old collection accounts, chargeoffs, or even some late payments showing on your credit report? These items can cost you dearly when it is time to obtain financing for any purpose. NCRA provides attorney-assisted credit services at almost no cost to its members, as a benefit of membership. You only pay $5 per deletion obtained. 

Mortgage Refinancing is available if you can prove your income, have a debt-to-income ratio of 45% or less, including your mortgage, and have a credit score higher than 720. If you have these attributes, then you can probably refinance in the low 5% range on a 30-year fixed mortgage. If not, then take some of the steps above before trying to refinance. A mortgage modification may be a better deal anyway, as the cost of modifying a mortgage may be much lower than the cost of obtaining a mortgage. 

Margin Account Borrowing is available to investors who have active trading accounts with the major wirehouses. If you have been purchasing stocks without borrowing against them, you can open an account, which will allow you to borrow up to 80% of the value of the shares at rates as low as 2%-3% per annum. If you take this money, and payoff your high interest credit cards, your savings could be significant. If you will take this tact, I advise that you only borrow 50% of what is available to you, and then repay the monthly payments that you would have made on the credit cards back to your margin account. In the alternative, you can take that monthly payment to reduce the liability on other high interest accounts, but be sure that as you accumulate these payments that you eventually pay off the margin account. 

That's all for now. Once you take these steps, keep me apprised of your results. Of course, I am always here to help, so keep those comments coming. If you need individual help, let me know. If I receive similar questions from a number of readers, I will post my comments, so that we can all benefit. See you soon!

Happy New Year - Time to Catch-Up

Please allow me to begin by apologizing for the severe lack of posts over the past six months. Between a major move, having my first child, taking on two new administrative positions, several consulting projects, the college football season, my mother's moving and health issues, and more; things have been quite busy for me lately. I have also taken responsibility as co-owner for two CBS Sports Official Fanatics sites as indicated below:

CBS' Official USC Football Fanatics Group


CBS' Official CSU Bakersfield Basketball Fanatics Group

Please click on the links above to join each site.

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OK, now that we have all of that out of the way, let's get on to real issues. Apparently, this may not be the best design for a blog site, as I know that a lot of you have commented, but approved comments do not appear to be showing on the site. Perhaps, I am doing something wrong or the design is flawed, I'm not sure. Please, continue to post your comments, so that I can keep up with what you are doing, and so that I am able to help. If you would like your comment to appear, do not place any personally identifiable information in the comment (i.e. Real name, phone number, email, SSN#, etc.). You may make two comments, one with your public comments and the second with your contact information, if you would like a response. I will ensure that your personal information does not appear on the site.

State of the Economy (How Did We Get Here?)

We are SCREWED! OK, well maybe it is not that bad for everyone, but we certainly have issues, and our government can't seem to get out of its own way. One of my biggest complaints about the educational system in the United States is that we do not teach our own system of economics to our young people. Columbus and the Pilgrims did not board wooden ships, and sail half-way around the world (and risk going over the edge) in order to set-up camp and find jobs at the local 7-11. The early settlers to our country left their birthplaces to avoid persecution, prison, to gain religious freedom, and to have the freedom to choose their own type of work and profession. In the late 18th Century, most women did not work outside the home, 95% of men who worked had some kind of a trade or profession, and the 5% or so who did work for someone else were generally working in some sort of an apprentice capacity in order to learn a trade or skill, which would allow them to become self-sufficient and self-employed. Towards the end of the 19th Century, the golden spike was driven into the East/West railroad, and our economic system changed forever. Up until that point, every community had to be largely self-sufficient. That means that anything needed by the town had to be grown or produced there, or brought in by inefficient means, such as carriages, carried on foot, or horseback. That limited the availability for many products and materials. It also created opportunity for those within the town or village to provide services or manufacture products for the town. We had tailors, seamstresses, metal workers, printers, hobbyists, carpenters, etc. serving the needs of the local town. Now that the railroad was in place, enterprising souls could take these seamstresses, carpenters, and other tradespeople from the small towns, move them into a factory setting, and mass-produce these same items for a fraction of the cost. The rail system could then distribute these goods nationwide, and make them available to towns that did not have locals to produce them. In some cases, the local providers were displaced by this competition (way before Wal-Mart, folks!). As manufacturing companies proliferated, they realized that they needed an educated labor pool in order to ensure that those incoming employees had at least the ability to read, write, and calculate (Think Reading, 'Riting, and 'Rithmetic). Prior to this time, most education was handled by churches or community centers that providing a "School Marm" to teach all grades on a daily basis. Watch some old episodes of "Little House on the Prairie," if you would like to see an example of this. Since education had to be made consistent nationwide, the government (God Bless Them) stepped in and created our current educational system. Curricula were decided, teachers hired, and funding provided to establish schools across our nation. Education was made compulsory shortly thereafter. The problem with this whole scenario is that the schools were not created to promote our system of economics (Capitalism), but rather to train students to become employees of these new factories and other centralized companies (Socialism). The new mantra became, "Get a good education and go to college, so you can get a good JOB!" (Many thanks to Dave Severn, who provided a similar historical account years ago on a mass-produced tape entitled, "Pigs Don't Know Pigs Stink!") This brings me back to my point. Since we have systematically destroyed the system of economics upon which this country was founded, and we have spent over 100 years not teaching the fundamentals of capitalism, we find ourselves at a point where the electorate (We the People) have no clue about whom we should elect to office, and the fools that we do elect have no clue about fixing the problem.

How Do We Fix It?

The only way to fix the problem now is to allow everything to crash, and let private businesses find the solution to prop it back up. This whole situation was caused by unrestrained greed. If we bailout the idiots who got us into this mess by providing capital to them, we only exacerbate the problem. Giving more money to banks will not fix things at the consumer level. Giving more money to auto makers will not give them an incentive to correct their issues. They need to be allowed to go bankrupt, reduce their liabilities and labor costs, and then give money to consumers to use for down payments, so that the public may choose which automaker should survive based on their ability to serve the demands of the consuming public. Better yet, just give out $700 billion in tax refunds, and let the consumers make all of the decisions as to whom should survive. I was disappointed with the $700 billion bailout. I understood the argument that providing $700 billion was better than allowing the market to lose trillions in market capital by allowing things to fall, but before the first dollar of the $700 billion was advanced, the market had lost $6 trillion dollars already, and the real estate market has lost over $2 trillion more. If the bailout is not going to fix anything, recall it! It is now too late for that, as much of the money has already been advanced. No matter what method is used to try and correct this situation, we are all going to feel some pain. The only answer that I can provide is how to protect and enhance your own (or your family's) situation. Unfortunately, I am going to make you wait one week for the answer. In the meantime, I will ask you to spend this week analyzing your current financial position. Gather together all of your investment account statements, your tax information, your banking and savings information, and all of your bills. Then, start a fire (just kidding). Bring all of this information together. Have it ready by the time my blog posts next week, and I will tell you how you can get rid of all of your debts and be on your way to financial recovery in the next five years. No fooling! Now, is the best time to take advantage of this situation, and to use it to your advantage.

Investment Opportunities (By Popular Request)

With the current economic meltdown, several of you have asked me for specific investment advice. While I refrain from making global suggestions for individual stock issues, I do have some worthwhile opportunities on my desk for the right investors. If you have interest in seeing these, and the ability to act quickly (i.e. Be able to wire money within two business days), you may place a comment here with your contact information, and I will forward information to you. These are private placement opportunities available only to accredited investors. Minimum investment is $25,000 and maximum investment is $10 million. However, you will not be allowed to participate if your participation constitutes more than 25% of your invested assets (not including your home).

That's all for this week. Happy New Year! See you next week, for real!