Bankruptcy & Foreclosures

When it comes to our financial futures, it is often times easy to build a goal while overlooking the critical first step. In a recent article by Andy Andersohn, he says that a vast majority of people when planning for the future typically overlook the planning process itself.

Just the process of doing an inventory of one’s financial assets, making a complete listing of the assets and liabilities to construct a basic balance sheet is a good place to start. Many times the balance sheet inventory creation will uncover assets long forgotten. The newfound assets may include old retirement plans, savings bonds, appreciated coins or stamps, and a litany of other mothballed financial resources.

Recently a friend conducted a financial inventory and discovered that limited prints they had purchased over 15 years ago had now appreciated over 800%. Would they continue to grow in value? They didn’t know but this alerted them to get their home owners insurance updated. They also started looking at ways to liquidate some of the prints and invest the proceeds in more liquid assets while continuing to enjoy their remaining favorites.

In another example, a former engineer at a company that manufactured telephones had accumulated prototype phones that, with his employer’s approval, he had been taking home for years and storing in his basement. Had he not rescued them from the scrap pile they would have been destroyed. In doing his financial inventory, he became motivated to see if the former prototype phones had any value. He was surprised to learn that they were worth up to several thousand dollars each. So as to not flood the market he began a systematic marketing program by selling one every two or more months on EBay. It may take him several years to turn his “scrap” phones into a significant increase to his retirement assets.

Another couple who started the financial planning process recalled receiving a box of coins over 10 years ago from the husband’s long deceased uncle. The coins were inventoried and sold for enough to fund both their Roth IRA’s for two years.

Conducting a reasonably thorough review of the last several years’ tax returns helps in understanding sources of income and sometimes uncovers surprise assets as well. Many assets produce clues in the way of tax reports, such as 1099s.

The sad reality is that most Americans spend more time planning their vacations that their financial future. This is all too true as pointed out in a recent discussion with a couple making a one week Alaskan cruise. They had spent the better part of a month weighing their options on available daily side trips as the cruise ship sailed from Vancouver, BC to Anchorage and back. Yet upon questioning they didn’t have a good idea as to where their 401k contributions were being invested or if they contributed enough to receive the maximum companies match.

Beginning the financial planning process now; take the first step and you will be far ahead of most people as the planning process is typically overlooked until it is too late.

The entire article can be read by clicking here.

Every few blog posts I like to take an opportunity to share some of the statistics that come across my desk each day. I hope not to discourage anyone with these stat run-downs but rather to demonstrate the reality that financial carelessness can lead to serious and often long-term damage.

The average American household has 13 payment cards, including credit cards, debit cards and store cards. As of 2006 there were 1.3 billion payment cards in circulation in the United States alone and that number continues to grow each day.

Americans carry, on average, a balance of $5,800 worth of credit card debt from month to month. Here’s where it really gets sad. If you were to make the minimum payment on that debt every month, it would take 30 years to pay off and include an additional $15,000 in interest charges. Really take a moment to think about that.

According to the American Bankruptcy Institute (ABI), 302,829 people filed for bankruptcy in the first quarter of 2000 and that number has been increasing ever since.

According to the Federal Reserve, close to 50% of all families in the United States spend more than they earn. This means that debt is everywhere!

Only 2% of homes in America are paid off.

Almost one out of every 100 households in the United States will file for bankruptcy.

Again, these stats aren’t meant to scare you but rather to make you stop and think. Debt management begins with each of us and in the decisions we make on a daily basis.

In a recent blog post, John Rosevear presents an excellent argument to those whose insist that carrying around a pile of credit cards isn’t dangerous to their budget.

His solution is to implement an all cash regimen…

The idea that one should get off the credit-card carousel is hardly new advice. I could fill a lot of space (and bore you to tears) with links to articles and books recommending that readers throw away their credit cards. I think a rarely used credit card makes a great emergency fund, and except in extreme cases, I usually suggest that folks hide their cards in their dresser drawers rather than cut them up, if they’re inclined that way. But I understand where the cut-’em-up crowd is coming from.

The case for giving up debit cards is a little muddier, but here’s what the cash proponents say, according to my reader:

• Cash makes you more conscious of your spending. Paying with cash whenever possible — rather than with a card of any type — forces you to be acutely aware of the amount of money leaving your hands. I think that’s a fair point.

• With cash, you avoid credit card fees. True enough. Certainly, companies such as Bank of America (NYSE: BAC) and American Express (NYSE: AXP), both of which see hefty cash flows from credit and charge-card fees, would prefer that you stick to plastic. But you’ll still be paying fees for those out-of-network ATM cash withdrawals. And it’s not hard to avoid most credit card fees, if you choose the right card and pay the balance in full every month.

• You can’t blow your budget if you spend cash all the time. This just isn’t true. You may not be able to incur credit-card debt, but you can certainly spend the rent money on cute shoes or stupid stuff easily enough.

• Credit cards can make you fat. This one isn’t actually from my reader, it’s from a recent Bankrate.com article. The article pointed out the recent trend among fast-food restaurants such as McDonald’s (NYSE: MCD) and Jack in the Box (NYSE: JBX) toward accepting credit cards, and it argued that this made fast-food impulse control even harder. Maybe so, but if you’re in the habit of carrying cash and you want a Big Mac, I don’t think that having to spend actual money to get that burger is likely to slow too many people down. (Especially if you have kids.) I’m extremely unconvinced.

The upshot

From where I sit, I’d say the all-cash-all-the-time program doesn’t seem to be worth the hassle. There’s a reason nobody uses those red clicky things anymore. It is certainly true that spending cash all the time is likely to make most people more aware of just how much they’re spending, but I argue that you can get the same results by using a debit card and reviewing your spending every week or two. In fact, I recommend exactly that approach for people who are setting up a budget.

And while there are real security concerns with debit cards, if you lose a wallet full of cash, those concerns will seem pretty trivial.

The entire post can be viewed by clicking here.