Plain Speaking on the World’s Cash Crisis!

Global cash crisis! We hear this screamed from headlines and news channels every day, but to the layman the language used is so confusing, it becomes lost in a meaningless gobblygook of deficit, and spending to return ratios, a concept for most of us that muddies exactly what is happening in terminologies beyond our normal understanding.

Let us speak plainly about world debt so we can perhaps learn by the lessons put before us. The more we spent – with offers of buy now pay later or interest free credit – the more in debt we became to banks and money lenders! To continue funding our drive for more and more credit the banks had to borrow from each other until they too ran out of money. Now a country can not survive without a stable banking system so in steps the reserves, lent to banks by governments to strengthen the deficit until these too ran dry. The only option left to countries was to borrow from other countries like a flue virus it was airborne! Now every country on every continent in the world is in debt!

So what can we do about this crisis? We could turn to charts and graphs and analyze the hell out of the problem until it becomes so vast and incomprehensible that we will end up analyzing the analyzed, or we could just simplify it all in ways we can understand.

Lets pretend each country is a person, and we have ten people owing each other money! The first thing to do is work out who owes what to who. We might find that number one person owes number two, and number two owes number three who owes money to number one, then it becomes a closed system where everyone is waiting for the first person to pay up so they can pass the money on to whoever they owe, a little like three people being locked in a room with a flue bug and passing it around forever without end. Like passing the parcel around and around, holding it for a moment and feeling rich but then having to hand it over to the next person, an endless circle of “I am owed what I also owe!”

How can we break this system? How about just saying? “Look you owe me, I owe him, he owes you, lets forget it and get back to making money!” It has been done before, many countries have been in debt to us, and others, and for concessions or trade agreements we have wiped the debt to move forward, we just need to talk to each other.

The only real problem is in the possibility that we all have ended up borrowing from the same person! If this is the case then we would all have to pay this person back, making us weaker then we already are, and them stronger, but that could never happen because especially in the world of finance, being the only lender creates a little thing called monopoly, and after all that is illegal!

What to Look for in a Debt Management Program

Everyone probably has debt. In fact, a survey shows that at least 70% of American households have credit card debts and this is because they spend more than they earn. If you are looking for a way to achieve debt relief, debt getting a debt management program might just be the best way for you to achieve a debt-free, worry free life.

If you have debt, you are probably always facing a barrage of phone calls from collection companies right now. Your first impulse might be to ignore these calls as we sometimes ignore the unpleasant things in life, hoping they would just go away. But these debt collectors wouldn’t go away. They will hound you and the best thing to do would be to face them now before things go worse. The best thing for you to would be to get into a debt management program. What are debt management programs anyway?

Most of your creditors wouldn’t want to settle your debts with you. They would want to bring a third party into the scene and most of the time, these are debt counseling agencies with debt management programs. These agencies will be the one to negotiate with your creditors and will be the one to budget your monthly payments in case you have a number of debtors. On top of that, they provide counseling to make sure that you don’t go back into the same routine again and even get deeper into debt.

However, not all debt management programs and debt counseling agencies are created equal. There are those who are better at helping you and here are some of the ways to find them:

A good credit counselor

A debt management program is indeed catered towards helping you pay off your debts but most importantly, it should incorporate a program that will help you better manage your finances. As such, a great program should be carried out by a good credit counselor who will help you budget and explore other options when it comes to debt relief.

Licensed and accredited

There are a lot of scammers online posing as the solution to your debt problem. The best thing to do would be to make sure that before you get into any of their programs, they are accredited and licensed by your state just so you are sure that you are dealing with a legitimate company. The last thing that you need is to get scammed out of your hard-earned money and find out that your creditors haven’t been receiving any of your payments and you now have to face a huge amount of penalty fees and other charges.

No or minimal upfront fees

Most agencies ask for an upfront fee before you can enroll in their debt management program. The average upfront fee is $50-$100 dollars, don’t pay any more than that. Also, don’t get tricked into paying an acceptance fee, and then an application fee, and then a consultation fee and so on.

There are a lot of credible, trustworthy agencies out there. Just do your research and you should be able to find one that could help you achieve a debt-free life.

If you think this article is interesting, you may be interested in this Debt Collection article.

Should Married Couples Share Their Finances or Keep Their Money Separate? Part 1

Whether you are just getting engaged, in the honey moon stage, or have spent a life time together; the question of combining money is extremely important for most to make and only a passing thought for others.

The tradition of automatically pooling funds can be hard to break. It works well for some couples but the discussion of whether to pool your funds, keep them separate or a combination of the two is often a very difficult subject to approach.

Money problems are often cited as the most common trigger for arguments and one of the top reasons that married couples get divorced. Before walking down the aisle couples should spend a great deal of time discussing their feelings about money and deciding how they will handle finances from paying the electric bill to vacations to retirement. At the same time they should decide whether or not they will share their money, in whole or in part or not at all.

While the ultimate decision varies from couple to couple – many financial advisers recommend that married people each have some separate finances (including bank accounts and credit cards) and have a joint account for certain shared expenses (such as mortgages, child care, groceries, investment goals, etc.).

Separate Not Secret – Please keep in mind that separate does not mean secret. Avoid financial secrets as any secrets can be devastating to a marriage.

Some of the Basic Reasons to separate accounts include:

From simple things like:

Avoiding the frustration when your spouse forgets to tell you about checks written, ATM withdrawals, charges on your credit cards, or an eBay addition.

Protection – Protects at least the separate portion of your money from these factors as well as when there are more difficult issues that can arise when a marriage goes sour.

To more complicated Financial Issues:

Examples include those that are brought into the marriage, such as:

Issues from previous marriages, child support, alimony,

When one spouse brings a ton of debt into the marriage,

If one spouse is a spendthrift, a gambler, impulse buyer,

If one spouse gets the “its my money” bug. or

If one spouse brings a great deal of money, property or an anticipated inheritance in. (This is a good time to ask “Do you need a pre-nup?”)

Be sure to look out for Part 2 of this article to learn more and to help you decide if sharing all of your money with your spouse is right for you.

If you have feelings as to whether or not couples should share finances or example of good or bad experiences related to sharing (or not) finances please feel free to share them below in the comment section. The more people know about the good and bad that can occur the more likely they will be able to make a comfortable decision as to how to handle their own situation.

Please follow me to receive updates and new article so that you will not miss anything. Feel free to leave comments or suggestions for new articles, if there is anything that you would like to learn about investing or any of the other topics that I will be writing about.

5 Ways to Organize and Stay on Top of Your Finances in 2011

If 2011 is going to be the year you get ahead financially, you need a plan to stay organized and on top of your bills and cash flow. Missing bill payments, spending without a budget and not monitoring your bank accounts can end up costing you in the long run, and will make it harder to keep your financial house in order. Getting your bills and cash flow organized is essential for staying on top of your finances in 2011m and these activities can also help you budget better all year long.

Use these five tips to stay organized and on top of your finances in 2011:

  1. Create a budget blueprint. You can use financial software to make a budget, or just create your own using your favorite spreadsheet software. The goal is to create a basic outline of your cash flow – a comprehensive list of your monthly fixed and variable expenses, all of your income sources, and any big purchases you expect to make within the next six to twelve months. Use this blueprint as a guide and reference it regularly (see #2) to keep your finances organized.
  2. Review and revise your budget at least twice per month. Keep a close eye on your expenses and make sure all of your bills are paid on time by reviewing your budget or cash flow statement at least twice per month. Make sure you write down confirmation numbers of bills you paid online so that you can correct any mistakes easily.
  3. Pay your bills on a schedule. If you can’t pay bills as soon as you receive them, at least have a plan to pay them on a specific date – well before the due date. One of the easiest ways to organize and stay on top of your finances in 2011 is by creating a bill payment schedule or calendar. Keep this calendar or schedule in a visible place so that you never miss a bill payment again.
  4. Create a monthly checklist of luxury or extra expenses. Are you planning on purchasing a big-ticket item this month? Are you looking to splurge on something for a special occasion? Create a list of these “upcoming” expenses so that you can add them to your budget and keep track of your expenditures. Forecasting your expense in this way can help you better organize your finances and may also prevent you from overspending.
  5. Open at least one checking account at a local bank. Even if you do most of your banking online, stay organized and don’t worry about check cashing by having an account at a local bank. Open a checking account at a local bank so that you can get an ATM fee-free debit card, and also cash your checks without having to pay a fee. Make sure you understand what your limitations are with this account and that you understand the minimum balance you have to maintain in order to avoid fees.

Managing Expenses for an Audit

Tracking your expenses is an integral step in managing your business’ finances. Unfortunately, merely writing down what you spend doesn’t cut it anymore.

When the IRS wants to have a look at what you’re writing off, or a potential acquirer for your small business wants to see how you spend your money, without any expense organization, you could end up deep over your head.

The following three tips for expense management will help survive your next audit:

1) Keep All of your Receipts

Anytime you spend over $75 on a business expense the IRS will require a receipt for it. But any business expense under $75, you are required to provide “convincing documentation” that the expense was actually incurred for a business purpose. While a calendar entry will provide some proof of a business expense, leave no doubt in your auditor’s mind by saving and collecting all of receipts, not just the expensive expenditures. There are plenty of portable receipt scanners out there such as ProOnGo Expense and Neat Receipts, but whatever you do, make sure you have a way to easily collect and store your receipts.

2) Log your Miles

Warren Buffet wrote-off his bicycle on his first income tax statement as a transportation cost at the age of 14. While you may not ride a bike to work, you can certainly write off the miles you drive. If you drive 20 miles round trip for work every day, then you could can write-off $10 for every day you drove to work in 2010.

3) Track both Business AND Personal Expenses

If you’re undergoing an audit, the main objective is to convince the auditor that the numbers you keep are dependable and accurate. This is why keeping track of your personal expenses, in addition to your business expenses, can give your auditor more confidence in your math. If you demonstrate you have a full understanding of what you can and can’t write off as business expenses, you will instill that much more confidence in your numbers.

An audit can be a major headache. Fortunately, expense management is a powerful tool in protecting yourself in case of an audit, so make sure you take the proper precautions the next time your write off your next business expense.

 

After Christmas Sales for 2010 May Have Fallen Short of Expectations

In the past many shoppers have been persistent in their efforts to find the ultimate bargains after Christmas. Retailers also anticipate huge crowds after Christmas as they continuously boast about the sales and bargains that customers will receive. They are hopeful that customers will come out eagerly buying that gift that they did not receive for Christmas. December 26, 2010 the crowds were smaller than expected. This reduction in the after Christmas shopping crowd came as a result of either in climate weather or just overall lack of funds. Now on the east coast in particular crowds were low because it was slammed by snowstorms. These snowstorms kept many would be bargain shoppers at home. Some stores were even offering extra discounts to people who were bold enough to fight through the storm to continue their shopping. Now the economic factor played a role also in the low customer turnout for after Christmas sales. If you really think about it, from a financial standpoint people cannot spend what they don’t have. Then there were some people like myself who were just overly frugal. Like other people I want to be able to weather the economic storm that we are going to face in the United States in 2011.

I went out to do some shopping but my purchases were so minimal I noticed that the after Christmas sales were not as good as they had been in the past. One thing that I observed while shopping was that most people were using cash instead of credit cards when they made purchases. I also refrained from using my credit cards because it makes no sense to be paying for items next year that were purchased the previous year. People are trying to get out of debt. Reduced consumer confidence also played a major role in people spending less money after Christmas. One stunning fact that consumers realized this year is that they have to get back to reality after the Christmas holidays. They took in consideration that they have to be prepared to live the other 364 days of the year.

Bloomberg News, Snowstorms smothers index after Christmas shopping, New Jersey Business.com

Gray Pilgrim, After Christmas Sales 2010, Buzzle.com

Bankruptcy Alternatives: Debt Relief Orders (DRO)

Due to the long-term problems of bankruptcy filing, which go beyond the mere consideration of a ruined credit record, many will seek one of the alternatives to bankruptcy. One key way to avoid bankruptcy is to consider applying for a debt relief order.

Avoid Bankruptcy: What are Debt Relief Orders?

Debt relief orders came into effect in the UK in April 2009 as an alternative to bankruptcy. A debt relief order is designed to help those who can not pay off their debts seek refuge from creditors and restore financial health within a 12-month period.

Should a court decide to issue a debt relief order, then the individual is protected from further actions from the listed creditors for the period of the debt relief order, which usually lasts for 12 months. Further more, at the end of the period all those debts which have been listed in the debt relief order will be written off.

 

Despite the benefits of a debt relief order, during the period of the debt relief order the individual will still have to make payments to any creditors which have not been listed on the debt relief order. In addition, at the end of the debt relief order any debts which where not listed will still have to be paid off in full.

Bankruptcy Solutions: Who Can Apply for a Debt Relief Order?

One can apply for a debt relief order as an alterative to bankruptcy if the following circumstances exist:

Level of Debt – The level of debt should not exceed £15,000. These debts must be considered as “qualifying debts”. Qualifying debts are usually unsecured forms of debt including rents, credit card debts, overdrafts and other unsecured personal loans.

Disposable Income – In order to apply for debt relief orders one must have a disposable income of less than £150 per month.

Personal Assets – To apply for a debt relief order an individual must not have assets greater than £300. This excludes motor vehicles; here an individual can only qualify for relief if they own a motor vehicle worth less than £1,000.

Residence – To apply for a debt relief order one must have resided, worked or owned a property within England or Wales for the last three years.

In summary, if one has personal unsecured debts less than £15,000, seeking a debt relief order may be a cheaper and less stressful option than going bankrupt. However, whilst debt relief orders offer a credible alterative to bankruptcy solutions, a debt relief order may not be suitable for everyone, especially where significantly large levels of debt have been amassed.

Debt-to-Income Ratio (DTI): Using Financial Statements to Determine Financial Health

When a person’s personal economy is in turmoil, it is common for debt to mount while income either drops or stagnates. When the going continues to get tough, more credit may be needed either through extended lines, or new ones.

Potential creditors, such as Bank of America or the local car dealership, will offer or deny such lines based on a person’s debt-to-income ratio, or DTI.

Figuring a Person’s Debt-to-Income Ratio

The average person might think of debt as the entire amount borrowed compared to the entire amount earned. For example, if a person earning a yearly income of $90,000 has the following debts:

  • Home mortgage – $210,000
  • School Loan – $30,000
  • Auto loan – $20,000
  • Credit card – $3,500
  • Credit card – $2,500

Then it could be falsely concluded that their debt ($266,000) to income ($90,000) ratio was just under three, meaning $3 borrowed for each dollar earned.

Creditors, however, look at it in terms of the monthly obligations (also called a minimum payments) versus monthly income. Using the example above, it might look more like this:

  • Home mortgage – $1,500
  • School Loan – $300
  • Auto loan – $420
  • Credit card – $42
  • Credit card – $35

This means that the person above has a DTI of $2,297:$7,500, which is just over .3, meaning that 30% of this person’s earnings are called for at the start of the month, and he has the rest to live off of.

What is a Healthy Debt-to-Income Ratio?

Lendingtree.com’s article titled “Calculating Your Debt-to-Income Ratio” notes that a lender’s maximum DTI is not to exceed .64, meaning that a person should not borrow more than $64 for each $100 earned.

It goes further to explain that a home payment should not exceed 28% of a person monthly income and that other debts should not total to exceed 36%, though there are some exceptions in cases of VA home loans.

But these numbers are subjective. For example, if one was to ask financial guru Dave Ramsey, he would strongly urge the person in the example above to utilize a debt snowball to bring his DTI down to zero.

Flaws in DTI

Debt-to-income ratios are flawed, and in a way that could prove harmful to someone calculating without the following knowledge.

The income used in DTI measurements is income before taxes. So, while the $7,500 used above may be the money that that person actually earned, he’ll only be able to access 72% of it since 28% will be taken out in federal income taxes, leaving his DTI to be $2,297:$5,400, or about .45.

Despite his high income, $45 of every $100 (at a minimum) will go to creditors.

Knowing one’s DTI is crucial for understanding short-term financial health. It can be found by keeping cash flow statements, which will help one keep a closer eye on the long-term financial health found in a balance sheet.

Where is a Good Place for Savings? With Interest Rates Declining, Where Should You Save Money?

The average interest on savings accounts in the UK has now gone below 1%, with some giving savers far less than that. When one considers inflation, this means that any cash in ordinary savings accounts is now decreasing in the real sense! So where should savers keep money in the current economic climate? Here is the advice of some experts.

Pay off as Much Debt as Possible

No matter how low the interest rate on any current debts people may have, it is better to pay it off and reduce the money in savings accounts. This is particularly true for those who have credit card and similar debts at a high rate of interest, but applies equally in the present climate to things such as mortgage debts. Experts advise keeping a small emergency savings fund, but suggest that this should not be more than three months salary; any more should be used to pay off any type of debt.

Put Extra Savings into a Cash ISA

Everyone is allowed to put £3600 per year into a cash ISA (Individual Savings Account). The interest on these is tax-free, and some are still offering a reasonable rate of interest. This should be the first place for any spare money. Many people only put money into cash ISAs at the end of the tax year, but one can do it at any time. It would be sensible to do this now, and if possible find one where the rate is fixed, before interest rates drop any lower.

Regular Savings Accounts

Some banks and buildings societies still have good rates for Regular Savings Accounts, where the saver puts in a set sum each month. The maximum is usually relatively small, around £500 at most. However the rates are usually fixed for the year, so this is worth doing now for those who have any spare cash. At the present time Barclays Monthly Saver, Close Brothers Premium gold Account, and Abbey Monthly Saver, were all offering rates over 5%.

Premium Bonds

Those with a significant amount of money in Premium Bonds usually have small wins at regular intervals, and of course there is always the possibility of winning a large amount. So this could be a sensible place to save at present, even for those who do not usually do anything approaching gambling. And since Premium Bonds are government owned, the original amount of money is always safe.

Perhaps the most important thing to do is keep an eye on savings rates and be prepared to move accounts if a better deal comes along. In the present economic situation this could make the difference between making a small gain at the end of the year, and losing money in real terms.

Higher Returns from a Stocks and Shares ISA: Investing in an Emerging Markets Fund or FTSE Tracker

The Inland Revenue has given investors the chance to benefit from tax-free savings by investing in an Individual Savings Account or ISA. It is possible to invest up to £7,200 in a stocks and shares ISA each tax year. The risk averse may wish to consider a cash ISA.

Risk Vs Reward – Higher Returns In a Stocks and Shares ISA

It is possible to keep capital safe and benefit from a steady capital growth in a cash ISA. A cash ISA won’t make anyone rich, but it is a great savings account for the risk averse. Other cautious investors wishing to take advantage of a stocks and shares ISA may wish to consider a protected capital FTSE tracker.

Just as risk is abhorrent to certain people, conservative investments are extremely unappealing to those wishing to take a chance to secure higher investment returns. Higher returns of 40-50% aren’t uncommon for those investing in an emerging markets fund.

Whilst everyone would like to enjoy tax-free savings and substantial gains in an emerging markets fund, it is important to accept that the investment capital is at risk. This means that it is vastly more sensible to invest in a variety of equity-based funds in order to spread this risk.

Different Types of Higher Risk Stocks and Shares ISA

  • Emerging markets fund. These funds seek to identify investment opportunities in fast-growing, emerging economies. These tend to concentrate on Asia and Eastern Europe;
  • Self-select ISA. It is possible for an investor to open a stocks and shares ISA with a non-advisory broker and select their own share portfolio. Some investors have created substantial tax-free savings by investing in technology shares before the boom. Others may wish to take advantage of falling banking shares;
  • Index trackers. Low management charges make a FTSE tracker a popular investment, particularly when market levels are low. Buying into a FTSE tracker can prove to be a very smart move after substantial falls for those prepared to take a longer term investment perspective;
  • Green funds. Those that don’t wish to compromise their ethics may wish to invest in green funds. Most funds marginally under-perform because of the higher ethical stance, but many still make holders of a stocks and shares ISA decent returns.

All investors have a different attitude towards risk so it is important to consider all options carefully before opting for a stocks and shares ISA. Those with a lower risk profile should normally opt for a cash ISA or capital-protected FTSE tracker ISA.