https://youtube.com/watch?v=H39W-fEmJOM
for consumers
in over their heads the realization that their monthly income is increasingly
exceeded by their bill payments is usually a traumatic one in many cases
years can pass before people consider drastic measures like filing bankruptcy
both financial and emotional issues come into play
in one of the most difficult and painful yet potentially beneficial
decisions with bankruptcy certain types of debts can be completely eliminated or
discharged debts that typically can be discharged
include credit card medical auto utilities and rent
debts that may not be cancelled generally include child support
alimony student loans taxes and court order damages
for example drunk driving settlements eliminating your debt
also allows you to start working towards your financial goals depending on the
amount of debt you have outstanding relative to your income
you may need a decade or more to pay it all off
filing bankruptcy needless to say has a number of drawbacks
first bankruptcy appears on your credit report for up to 10 years
so you'll have difficulty obtaining credit especially in the years
immediately following your filing however if you already have problems on
your credit report because of late payments or a failure to
pay previous debts the damage has already been done and
without savings you're probably not going to be making
major purchases such as a home in the next several years anyway if you
do file bankruptcy getting credit in the future is still
possible you may be able to obtain a secured credit card
which requires you to deposit money in a bank account equal to the credit limit
on your credit card of course you'll be better off without
the temptation of any credit cards and better served with a debit card also
know that if you can hold down a stable job most creditors will be willing to
give you loans within a few years if you're filing bankruptcy
almost all lenders ignore bankruptcy after five to seven years
and finally most people find that filing bankruptcy
causes emotional stress admitting that your personal
income can't keep pace with your debt obligations is a painful thing to do
although filing bankruptcy clears the decks of debt and gives you a fresh
financial start feeling a profound sense of failure and
sometimes shame is common despite the increasing
incidence of bankruptcy bankruptcy filers are reluctant to talk
about it with others including family and friends another
part of the emotional side of filing bankruptcy
is that you must open your personal financial affairs to court scrutiny
and court control during the several months it takes to administer a
bankruptcy accord appointed bankruptcy trustee
oversees your case and tries to recover as much of your
property as possible to satisfy the creditors
those to whom you owe money some people also feel that they are shirking
responsibility by filing for bankruptcy so if you file for bankruptcy don't feel
bad about not paying back the bank the nice merchants from whom you bought
the merchandise have already been paid charge-offs the banker's term for taking
the loss on debt that you discharged through bankruptcy
are the banker's cost which is another reason why the interest rate is so high
on credit cards and why you shouldn't borrow on credit
cards regardless of how you deal with paying
off your debt you're in real danger of falling back
into old habits backsliding happens not only to people
who file bankruptcy but also to those who use savings or
home equity to eliminate their debt this section speaks to that risk and
tells you what to do about it getting out of debt can be challenging
but i have confidence that you can do it with my tips and advice
in addition to the ideas such as eliminating all your credit cards and
getting a debit card the following list provides some
additional tactics you can use to limit the
influence credit cards hold over your life reduce your credit limit
if you're not going to take the advice i give you and get rid of all your credit
cards or secure a debit card be sure to keep a lid on your credit
card's credit limit the maximum balance allowed on your
card you don't have to accept the increase just because your bank keeps
raising your credit limit to reward you for being such a profitable customer
call your credit card services toll-free phone number
and lower your credit limit to a level you're comfortable with replace your
credit card with a charge card a charge card such as the american
express card requires you to pay your balance in full each billing period
you have no credit line or interest charges of course spending more than you
can afford to pay when the bill comes due is possible but
you'll be much less likely to overspend if you know you have to pay in full
monthly never buy anything on credit that
depreciates in value meals out cars clothing and shoes all
depreciate in value never buy these things on
credit borrow money only for sound investments
education real estate or your own business for example
think in terms of total cost everything sounds cheaper in terms of monthly
payments that's how salespeople entice you into
buying things you can't afford take a calculator along if necessary to
tally up the sticker price interest charges and upkeep the total
cost will scare you it should stop the junk mail avalanche
look at your daily mail you can save some trees and
time sorting junk mail by removing yourself
from most mailing lists limit what you can spend
go shopping with a small amount of cash and no plastic or checks
that way you can spend only what little cash you have with you
no matter how hard they try to break the habit some people become addicted to
spending and accumulating debt it becomes a chronic problem that starts
to interfere with other aspects of their lives
financial problems can lead to problems at work and with family and friends
making wise investments doesn't have to be complicated
however many investors get bogged down in the morass of the thousands of
investment choices out there and the often conflicting perspectives
on how to invest before you select a specific investment
first determine your investment needs and goals
why are you saving money what are you going to use it for
you don't need to earmark every dollar but you should set some major objectives
establishing objectives is important because the expected use of the money
helps you determine how long to invest it
and that in turn helps you determine which investments to choose
the risk level of your investments should factor in your time frame
and your comfort level investing in high-risk vehicles doesn't make sense if
you'll have to spend all your profits on stress-induced medical bills
for example suppose you've been accumulating money for a down payment on
a home you want to buy in a few years you can't afford much risk with that
money you're going to need that money sooner rather than later putting that
money in the stock market then is probably not a wise move the
stock market can drop a lot in a year or over several consecutive years so
stocks are probably too risky a place to invest money you plan to use soon
perhaps you're saving toward a longer term goal such as retirement
that's 20 or 30 years away in this case you're in a position to make riskier
investments because your holdings have more time to bounce back from temporary
losses or setbacks you may want to consider investing in
growth investments such as stocks in a retirement account that you leave
alone for 20 years or longer you can tolerate year-to-year volatility
in the market you have time on your side for a moment
forget all the buzzwords jargon and product names you've heard
tossed around in the investment world in many cases they're only meant to
obscure what an investment really is and to hide the hefty fees and
commissions the investment world is really just as simple
you have only two major investment choices you can be a lender
or an owner you're a lender when you invest your money in a bank certificate
of deposit cd a treasury bill or a bond issued by a
company like general motors for example in each case
you lend your money to an organization a bank the federal government or
gm you're paid an agreed upon rate of interest for lending your money
the organization also promises to have your original investment
the principal returned to you on a specific date
getting paid all the interest in addition to your original investment as
promised is the best that can happen with a lending investment
given that the investment landscape is littered with carcasses of failed
investments this is not a result to take for granted
the worst that can happen with a lending investment
is that you don't get everything you're promised promises can be broken
under extenuating circumstances when a company goes bankrupt for example
you can lose all or part of your original investment
another risk associated with lending investments is that even though you get
what you were promised the ravages of inflation may make your
money worth less it has less purchasing power than
you thought it would some conservative-minded investors make
the common mistake of thinking that they are diversifying their long-term
investment money by buying several bonds some cds and an
annuity the problem however is that all these
investments pay a relatively low fixed rate of return that's exposed to
the vagaries of inflation a final drawback to lending investments
is that you don't share in the success of the organization to which you lend
your money if the company doubles or triples in
size and profits your principal and interest rate don't
double or triple in size along with it they stay the same of course such
success should ensure that you get your promised interest
and principle you're an owner when you invest your money in an asset
such as a company or real estate that has the ability to generate earnings or
profits suppose that you own 100 shares of
verizon communication stock with billions of shares of stock
outstanding verizon is a mighty big company
your 100 shares represent a tiny piece of it
what do you get for your small slice of verizon as a stockholder
although you don't get free calling you do share in the profits of a company in
the form of annual dividends and an increase you hope in the stock
price if the company grows and becomes more profitable
of course you receive these benefits if things are going well
if verizon's business declines your stock may be worth
less real estate is another one of my favorite financially rewarding
and time-honored ownership investments real estate can produce profits when
it's rented out for more than the expense of owning the property
or sold at a price higher than what you paid for it
the value of real estate depends not only on the particulars of the
individual property but also on the health and performance
of the local economy when companies in the community are
growing and more jobs are being produced at higher wages
real estate often does well when local employers are laying people off
and excess housing is sitting vacant because of previous overbuilding
rent and property values are likely to fall
finally many americans have also built substantial wealth
through small business according to forbes magazine
more of the united states and the world's wealthiest individuals
have built their wealth through their stake in small businesses
than through any other vehicle small business is the engine that drives much
of our economic growth although firms with fewer than 20
employees account for about one quarter of all employees
such small firms were responsible for nearly half of all new jobs created in
the past two decades you can participate in small business in
a variety of ways you can start your own business buy and
operate an existing business or simply invest in promising small
businesses many investors have a simplistic
understanding of what risk means and how to apply it to their investment
decisions for example when compared to the yoyo motions of the
stock market a bank savings account may seem like a
less risky place to put your money over the long term however the stock
market usually beats the rate of inflation
while the interest rate on a savings account does not thus if you're saving
your money for a long-term goal like retirement a savings account can be
a riskier place to put your money before you invest ask yourself these
questions what am i saving and investing this
money for in other words what's my goal what is my
timeline for this investment when will i use this money what is the
historical volatility of the investment i'm considering
and does that suit my comfort level and timeline for this investment
after you answer these questions you'll have a better understanding of risk
and you'll be able to match your savings goals to their most appropriate
investment vehicles the risk with ownership investments is
the short-term fluctuations in their value
during the last century stocks declined on average by more than 10 percent in
one particular year every five years drops in stock prices
of more than 20 percent occurred on average once every 10 years
real estate prices suffer similar periodic setbacks
therefore in order to earn those generous long-term returns from
ownership investments like stocks and real estate
you must be willing to tolerate volatility you absolutely should not put
all your money in the stock or real estate market
you should not invest your emergency money or money you expect to use within
the next five years in such volatile investments the shorter the
time period that you have for holding your money in an investment
the less likely that growth oriented investments like stocks will beat out
lending type investments like bonds despite what professors teach in the
nation's leading business and finance graduate school programs
low-risk investments that almost certainly lead to high returns are
available paying off consumer debt if you're
paying 10 14 or 18 interest on an outstanding
credit card or other consumer loan pay it off before investing to get a
comparable return through other investment vehicles
after the government takes its share of your profits you'd have to start a new
career as a loan shark if between federal and state taxes
you're in a 33 tax bracket and you're paying 12 percent
interest on consumer debt you'd need to annually earn a whopping
18 percent on your investments pre-tax to justify not paying off the
debt when your only source of funds for
paying off debt is a small emergency reserve equal to a few months living
expenses paying off your debt may involve some
risk tap into your emergency reserves only if you have a backup source
for example the ability to borrow from a willing family member
or against a retirement account balance investing in your health
eat healthy exercise and relax investing in friends and family invest
time and effort in improving your relationships with loved ones
investing in personal and career development pick up a new hobby
improve your communication skills or read widely
take an adult education course or go back to school for a degree
your investment should lead to greater happiness and perhaps even higher
paychecks diversification is one of the most
powerful investment concepts it refers to saving your eggs or
investments in different baskets diversification
requires you to place your money in different investments with returns
that are not completely correlated this is a fancy way of saying that when
some of your investments are down in value
odds are that others are up in value to decrease the chances of all of your
investments getting clobbered at the same time
you must put your money in different types of investments such as bonds
stocks real estate and small business you can further diversify your
investments by investing in domestic as well as international markets within
a given class of investments such as stocks
investing in different types of stocks that perform well under various
economic conditions is important for this reason
mutual funds which are diversified portfolios of securities such as stocks
or bonds are a highly useful investment vehicle
when you buy into a mutual fund your money is pooled with the money of
many others and invested in a vast array of stocks or bonds
you can look at the benefits of diversification in two ways
diversification reduces the volatility in the value of your whole portfolio
in other words your portfolio can achieve the same rate of return that a
single investment can provide with less fluctuation in value
diversification allows you to obtain a higher rate of return for a given level
of risk keep in mind that no one no matter whom
he works for or what credentials he has can guarantee
returns on an investment you can do good research and get lucky
but no one is free from the risk of losing money
diversification allows you to hedge the risk of your investments
because the future can't be predicted diversifying your money into different
investments is safer thousands of firms sell investments and
manage money banks mutual fund companies securities
brokerage firms and even insurance companies all vy for
your dollars just to make matters more complicated
each industry plays in the other's backyards
you can find mutual fund companies that offer securities brokerage
insurance firms that are in the mutual fund business and mutual fund companies
that offer bank-like accounts and services you may
benefit from this competition and one-stop shopping convenience on the
other hand some firms are novices at particular
businesses and count on some people's shopping by brand name recognition
make sure that you do business with a firm that offers the best value
investments in comparison to their competitors
value is the combination of performance including service
and cost given the level of risk that you're comfortable with
you want investments that offer higher rates of return but you don't want to
have to pay a small fortune for them commissions management fees maintenance
fees and other charges can turn a high performance investment
into a mediocre or poor one also look for a firm that
employs representatives who don't have an inherent self-interest in steering
you into a particular type of investment this criterion has nothing to do with
whether an investment firm hires polite well-educated or well-dressed people the
most important factor is the way the company compensates its
employees if the investment firm's personnel are
paid on commission pass on that firm give preference to
investing firms that don't tempt their employees to push one investment over
another in order to generate more fees mutual
funds are an ideal investment vehicle for most investors
no load mutual fund companies are firms through which you can invest in mutual
funds without paying sales commissions in
other words every dollar you invest goes to work in the mutual funds you choose
nothing is siphoned off to pay sales commissions in other words
no matter which brokerage firm an investor did business with
the cost of the firm's services was set and the level of commissions was high
competition inevitably resulted in more and
better choices many new brokerage firms that didn't do business the old way
opened they were dubbed discount brokers because the fees they charged customers
were substantially lower than what brokers charged under the old fixed fee
system even more important than saving
customers money discount brokers established a vastly improved
compensation system that greatly reduced conflicts of interest
discount brokers generally pay the salaries of their brokers
the term discount broker is actually not an enlightening one
it's certainly true that this new breed of brokerage firm saves you
lots of money when you invest you can easily save
50 to 80 percent through the major discount brokers
but these firms investments are not on sale or
second rate discount brokers are simply brokers without major conflicts of
interest of course like any other for-profit
enterprise they're in business to make money
but they're much less likely to steer you wrong for their own benefit
be careful of discount brokers selling load mutual funds
the worst places to invest are those that charge you a lot
have mediocre or poor performing investments and have
major conflicts of interest the prime conflict of interest arises when
investment firms pay their brokers commissions on the basis of what
and how much they sell the result the investment firms
sell lots of stuff that pays fat commissions
and they churn or cause a rapid turnover of
your account because each transaction has a fee
the more you buy and sell the more money they make
financial consultants also known as stock brokers financial planners
and others who sell investment products can have enormous conflicts of interest
when recommending strategies and specific investment products
commissions and other financial incentives can't help but skew the
advice of even the most earnest and otherwise well-intentioned
salespeople if you like the idea of spreading your
money around you may want to invest through a number of different firms
with a discount brokerage account you can eat your cake and have it too
you can diversify across different mutual fund companies
through one brokerage firm however you'll pay small transaction fees on
some of your purchases and sales of funds unless you work in
the industry you may find insurance to be a
dreadfully boring topic most people associate insurance with
disease death and disaster and would rather do just
about anything other than review or spend money on
insurance but because you won't want to deal with money hassles when you're
coping with catastrophes illness disability death fires floods
earthquakes and so on you have to secure insurance well before
you need it insurance is probably the most
misunderstood and least monitored area of personal finance
most people are overwhelmed by all the jargon and sales and policy statements
thus they pay more than necessary for their policies
and fail to get coverage through the best companies
law one insure for the big stuff don't sweat the small stuff
the point of insurance is to protect against losses that would be financially
catastrophic to you not to smooth out the bumps of everyday
life you should insure against what could be a huge financial loss for you
or your dependents the price of insurance isn't cheap but
it is relatively small in comparison to the potential total loss from a
financial catastrophe the beauty of insurance is that it
spreads risk over millions of other people
should your home burn to the ground paying the rebuilding cost out of your
own pocket probably would be a financial catastrophe
if you have insurance the premiums paid by you and all the other homeowners
collectively can easily pay the bills think for a moment about what your most
valuable assets are also consider potential large expenses
perhaps they include the following future income
during your working years your most valuable asset is probably your future
earnings if you were disabled and unable to work
what would you live on long-term disability insurance exists to
help you handle this type of situation if you have a family that's financially
dependent on your earnings how would your family manage if you died
life insurance can fill the monetary void left by your
death business if you're a business owner what
would happen if you were sued for hundreds of thousands of dollars or a
million dollars or more for negligence in some work that you
messed up liability insurance can bail you out
health in this age of soaring medical costs
you can easily rack up a hundred thousand dollar hospital bill in
short order major medical health insurance coverage helps you handle such
expenses and yet a surprising number of people
don't carry any health insurance particularly those who work in small
businesses psychologically buying insurance coverage for the little
things that are more likely to occur is tempting you don't want to feel like
you're wasting your insurance dollars you want to get some of your money back
darn it you're more likely to get into a fender bender with your car or have a
package lost in the mail then you are to lose your home to fire
or suffer a long-term disability but if the fender bender costs 500 which
you end up paying out of your pocket because you took my advice to take a
high deductible or the postal service loses a package
worth fifty dollars or a hundred dollars you won't be facing a financial disaster
on the other hand if you lose your ability to earn an
income because of a disability or if you're sued for a million dollars
and you're not insured against such catastrophes
not only will you be extremely unhappy but you'll also face financial ruin
i agree that the odds of this happening are quite low
but the risk is there the problem is that you just don't know what
or when bad luck may befall you and don't make the mistake of thinking that
you can figure the odds better than the insurance companies can
the insurance companies predict the probability of you're making a claim
large or small with a great deal of accuracy
they employ armies of number-crunching actuaries to calculate the odds of bad
things happening and the frequency of current
policyholders making particular types of claims
the companies then price their policies accordingly
so buying or not buying insurance based on your perception of the
likelihood of needing the coverage is foolish insurance companies aren't
stupid in fact they're ruthlessly smart when
insurance companies price policies they look at a number of factors to
determine the likelihood of your filing a claim
most insurance policies have deductibles the maximum amount you must pay
in the event of a loss before your insurance coverage kicks in
on many policies such as auto and homeowners renters coverage
most folks opt for a 100 to 250 deductible here are two benefits to
taking a higher deductible you save premium dollars year in and
year out you can enjoy the lower cost of an insurance policy with a high
deductible you don't have the hassles of filing
small claims filing an insurance claim can be an
aggravating experience that takes hours of time in some cases you may even
have your claim denied after jumping through all the necessary hoops
getting your due may require prolonged haggling
when you have low deductibles you may file more claims
although this doesn't necessarily mean that you'll get more money
after filing more claims you may be rewarded with higher premiums
in addition to the headache you get from preparing all those blasted forms
filing more claims may even cause cancellation of your coverage you pay a lot of money in taxes probably
more than you realize believe it or not few people know just
how much they pay in taxes each year most people remember only whether they
received a refund or owed money on their return
but when you file your tax return all you're doing is settling up with tax
authorities over the amount of taxes you paid during the year
versus the total tax that you owe based on your income
and deductions some people feel lucky when they get a refund
but all a refund really indicates is that you overpaid in taxes during the
year you should have had this money in your
own account all along if you're consistently getting big
refunds you need to pay less tax throughout the year
fill out a simple tax form the w-4 to determine how much you should be paying
in taxes throughout the year you can obtain a w-4 through your
employer's payroll department if you're self-employed you can obtain
form 1040 es by calling the irs at 800
tax form 800-829-3676 or visiting its website at www.irs.gov
instead of focusing on whether you're going to get a refund when you complete
your annual tax return you should concentrate on the total
taxes you pay to find out the total taxes you pay
you need to get out your federal and state tax returns
on each of those returns is a line that shows the total tax
if you add up the totals from your federal and state tax returns
you'll probably see one of your largest expenses
understanding the tax system is the key to reducing your tax burden
if you don't you'll surely pay more taxes than necessary
your tax ignorance can lead to mistakes which can be costly if the irs and state
government catch your underpayment errors
with the proliferation of computerized information and data tracking
discovering mistakes has never been easier the tax system
like other public policy is built around incentives
to encourage desirable behavior and activity home ownership for example
is considered desirable because it encourages people to take more
responsibility for maintaining buildings and neighborhoods clean orderly
neighborhoods are often the result of home ownership
therefore the government offers all sorts of tax
perks to encourage people to buy homes not all people follow the path the
government encourages after all it's a free country however
the fewer desirable activities you engage in
the more you pay in taxes if you understand the options
you can choose the ones that meet your needs as you approach different stages
of your financial life when it comes to taxes
not all income is treated equally this fact is far from self-evident
if you work for an employer and earn a constant salary during the course of a
year a steady and equal amount of federal and
state taxes is deducted from each paycheck
thus it appears as though all that earned income is being taxed equally
in reality however you pay less tax on your first dollars of earnings
and more tax on your last dollars of earnings
for example if you're single and your taxable income totals forty five
thousand dollars during two thousand six you pay federal tax at the rate of
ten percent on the first seven thousand five hundred fifty
dollars of taxable income fifteen percent on income between seven
thousand five hundred fifty dollars and thirty thousand six hundred fifty
dollars and twenty five percent on income from thirty thousand six hundred
fifty dollars up to forty five thousand dollars your
marginal tax rate is the rate of tax you pay on your last
or so-called highest dollars of income in the example
of a single person with taxable income of forty five thousand
dollars that person's federal marginal tax rate is 25
percent marginal tax rates are a powerful concept
your marginal tax rate allows you to quickly calculate the additional taxes
you'd have to pay on additional income conversely you can delight in
quantifying the amount of taxes you save by reducing your taxable income either
by decreasing your income or by increasing your deductions as
you're probably already painfully aware you pay not only federal income taxes
but also state income taxes your total marginal rate includes your
federal and state tax rates you can look up your state tax rate in
your current state income tax preparation booklet
taxable income is the amount of income on which you actually
pay income taxes the following reasons explain why you don't pay taxes on your
total income not all income is taxable for example
you pay federal tax on the interest you earn on a bank savings account
but not on the interest you earn from municipal bonds some income such as from
stock dividends and long-term capital gains
is taxed at lower rates you get to subtract deductions from your income
some deductions are available just for being a living breathing human being
people over age 65 and those who are blind get a slightly higher deduction
other expenses such as mortgage interest and property taxes
are deductible in the event that these so-called itemized deductions exceed the
standard deductions when you contribute to qualified
retirement plans you also effectively get a deduction you
