Previous articles have discussed various aspects of debt management, including changing one’s approach to debt. Those changes can included reducing the total amount of debt, reducing the number of debts, looking at different financing options, and understanding the difference between a positive debt that leads to long term positive financial results, and negative debt that only produces expensed and creates no benefits.
One of the golden rules of debt is related to the last distinction of a positive or a negative debt. A positive debt incudes debt that is finances an asset that produces income that exceeds the costs of debt service and the other costs associated with that asset. An investment in an apartment building that produces a positive cash flow each month is an example of a positive debt.
Another kind of positive debt would include an educational loan that allows someone to find employment that produces a higher income, even after taking the educational debt payment into account. These very same debts could become a negative debt if the investment has a negative cash flow or if the educational loan doesn’t lead to a job or a pay raise.
While managing or reducing debt can be a primary financial goal, sustainable financial stability is much more likely to happen when you have assets working for you. Your assets can range from cash in a savings account or other low-risk paper asset, or a business or real estate investment that provides a positive cash flow every month.
If you don’t have any assets at all, it is probably smartest to start with a low risk asset like a savings account or precious metals. If you are going to use some kind of paper asset, it may be best to put it into an account that is not easily accessed to keep you from being tempted to spend it quickly.
Precious metals may fit into this kind of strategy, since you can’t just take a silver bar or a gold coin link 1 oz gold american eagle to the store and use it like a common currency. You have to first take it to a coin dealer and exchange it for regular money before you can spend it. Gold and silver have an additional advantage as it can be used as a hedge against currency fluctuations and inflation.
Even if your debts are far larger than your assets, having even a tiny amount of assets to your name could do wonders to make you feel better about your financial situation and your prospects for the future.
When traveling with a large amount of cash, or other monetary instruments like travelers checks, money orders, and bearer bonds, you should take common sense steps to protect yourself from unwanted attention, and you should also be aware of what legal issues you may have to address.
Travel within the United States
The US has some odd rules about traveling with money. While it is legal for anyone to travel with as much money on their person as they please, there are a variety of laws that were designed to stop criminal transfers of money that may put you at risk to having your money confiscated. Basically, many law enforcement authorities can confiscate cash is they believe that it may be involved with a criminal transaction. It does not matter if there is no real evidence of a crime, it is up to the opinion of the law enforcement representative. The only ways to avoid this kind of hassle is to either avoid traveling with large amounts of cash, or to have along with the cash documentation, for example business receipts from US Money Reserve, or banking transaction records, with you that provides a reasonable explanation for the cash.
Travel to or from the United States
If you are departing or arriving the US, there are no limits as to the amount of money a passenger can carry. However, passengers who are carrying currency, endorsed personal checks, travelers checks, gold or silver coins or bars, or securities that are valued at $10,000 or more must report the amount that they are carrying to US customs officials. Failure to do so can result in fines or confiscation of the money. This reporting requirement applies all the travelers in your group, for example a family. For example, if a family of three is traveling together, and they have $10,000 or more between them, they must to report these amounts.
Travel outside of the United States
When leaving the US, review the customs requirements of your destination country before you travel. Rules will vary by country, so be sure to check those laws and regulations before you fly, and if necessary make alternative plans before you fly.
Protecting your money from theft or other losses
When you carry cash with you on an airline trip, you should take some very basic steps to keep from becoming a victim of theft, or from losing your money by accident.
In days gone by, taking a holiday overseas meant changing dollars for another currency or ordering a stack of travelers’ checks to cash in while on vacation.
However, consumers are increasingly opting to use credit cards while abroad to save the hassle of having to preorder currency, as well as to avoid the greater risks involved with loss or theft.
For those who opt to use a credit card while on vacation, it is advisable to take a couple of precautionary steps before leaving the US.
First, contact your credit card provider and let them know you will be going to a different country and plan on using your card. There have been instances of accounts being frozen after they were flagged up as possibly fraudulent due to transactions outside the US.
Second, ensure that you have your lender’s contact details, including the hotline for lost or stolen cards, and that you have written your card number and expiration date down. While this isn’t essential, it may help save time when you are in the midst of a crisis.
Credit cards are undoubtedly a very convenient way to pay for items when traveling overseas, but there are some downsides that need to be taken into consideration before using your plastic.
At home in the US, cardholders may be used to paying for purchases on plastic without any additional charges unless the retailer specifies otherwise, but while overseas, there are a number of different charges that can make any transaction more expensive than its cash equivalent.
Interest rates are often hiked up for any overseas credit card use and some firms can charge as much as 2% more in interest, just for the privilege of using the card abroad. This may not seem that much, but this is in addition to the other charges that firms may levy.
Two of the biggest names in credit cards, Visa and MasterCard, both add an additional handling charge onto any international purchases. This is usually in the region of 1% and is on top of the interest rate applicable to the account.
Withdrawing cash from a credit card is seldom a good idea and a policy best reserved for absolute emergencies, as it tends to attract a higher rate of interest or charges from the credit card firm.
However, using your flexible friend to get money from a foreign ATM is even more expensive than back home.
Cardholders can be hit with two sets of ATM fees - one lot from the ATM provider, which is usually in the region of $1 to $3 per withdrawal - and the other from the credit card firm who tend to charge around $2 to $7 for a cash advance from an overseas ATM.
It is not unusual to find the total charges from a foreign ATM amounting to between $5-10 per withdrawal - a hefty sum that soon adds up.
If all of the above weren’t weighty enough, cardholders are often penalized with poor exchange rates.
When an item in a foreign currency is purchased with a credit card, the currency must be converted back into dollars. The exchange rates applied to credit card transactions are notoriously low and usually among the worst conversion rates on the market.
Although credit cards are a convenient choice when going abroad and worth considering for not only their ease of use, but security, it is essential that the additional charges and interest are added onto the holiday budget to prevent a nasty shock when the bill arrives as the suntan is fading.
This problem is usually having a point of view on an investment situation where you may have taken someone else’s word on it or never really given the question serious thought. One common financial example of this the use of a financial advisor to assist you in buying and selling stocks, mutual funds, or other investments. Whenever I consider that advice from this kind of source, I ask several questions about the source of the advice. Some basic ones may include the following:
- Does this advisor have anything to gain or lose by my decision?
- Is this advice based on the advisors own expertise or on someone else’s?
- Is this person following their on advice on that issue?
- Is the advice based on a fair analysis or a biased analysis?
- Is it to my advantage to even consider taking this advice?
- If the advisor makes any performance claim, can the claim be backed up?
- Does the advice make sense?
- After further investigation and research on my part, does the advice still make sense?
- Does not following the advice make better sense?
The current rash of mortgage problems in the US, issues like short sales because of underwater mortgages and foreclosures, is one example of this kind of decision problem in action. Many people got into this situation because they didn’t think about the consequences of taking out a home equity loan to buy expensive toys, or the possible negative consequences of an adjustable rate loan.
There are many more questions that one can ask, but the basic point is that every decision can be looked at in more than one way. It is to your advantage to ask a few questions and do at least a little work to understand what may be behind a piece of advice.
Next Lesson: Being Overconfident In Your Predictions
You can have the greatest system in the world for analyzing and solving your personal or business money problems, but you would be wasting your time if you were solving the wrong problem. This usually happens if you do not think through a problem before you start to solve it. To understand how to approach a particular problem you should understand at least these things about the problem:
A Mutual Fund Example
One example of solving the wrong problem is to pursue a high rate of return from a mutual fund investments without first deciding what kind of comparison or benchmark you should use to determine if the return is high enough. For example, index mutual funds that are designed to mirror the results of the Standard and Poor’s 500 index consistently outperform rough 80% of all mutual funds. The original problem may have been how to choose mutual funds with high returns. A better problem to solve would be how choose mutual funds which consistently perform better than the S&P 500.
Remember that most problems involving money usually involve something else besides money or mathematics. If you focus on the parts of the problem that are objective and that can be measured or solved with common with equations and spreadsheets, you may miss the most important part of the problem.
Next Lesson: Not Looking at All Sides of a Problem
Money Decision Problem 1: Not Taking the Time to Think About the Problem and the Decisions that Must Be Made
Before you make a financial decision, you have to know something about your needs, the effect your decision may have, and how you go about making a decision. Some common money decisions that often happens too quickly is what credit card you should have, whether to buy or sell a stock, or whether to go into debt to replace your boring old (and paid off) car for a shiny new one. Taking the time to make a proper decision can save you a lot of frustration and regret, especially if you do it consistently.
A Credit Card Example
Let’s look at the credit card situation more closely. There could be dozens of reasons why you suddenly decide that you need a new credit card. You might not have one at all, but one day you decide to rent a car and find out that you need a credit card. You might have a card already, but you find a way to transfer balances and reduce your interest rate for the first six months. Even if you think you need to take action right now, it always makes sense to think it through to see if it is the right decision for you. The following are just some of the questions you should ask yourself before you sign on the dotted line:
Once the background questions are settled and you have a good understanding of your overall situation, you have to start dealing with the decision making process. You should finish gathering any information that you need to make a decision. For credit cards, this would be things like late fees or other penalties, how much interest you will be charged, and what kind of no-interest grace period you have. These kinds of details should be spelled out in the agreement. If you don’t understand it, don’t sign it. If you don’t see it in the agreement, then it’s not part of the deal.
The next big steps are making the decision and carrying it out. If you decide to do something, then follow through. If you decide to do nothing, then take no action, no matter how tempting it may be. If you decide to change your mind, go through the same decision process. Don’t make the mistake of being logical and systematic the first time through and then being very informal the second time you wrestle with the same decision. Every decision is a combination of your analysis and your judgment. If you have a consistent process, you’ll likely improve the quality of both your analysis and your judgment.
Keep in mind that a credit card can turn out to be a long-term relationship. If you pay your bills in full every month, it can be a very happy and harmonious relationship. If you fall behind, it can turn real ugly real quick.
Next Lesson: Solving the Wrong Problem
Several years ago I found myself unemployed for the first time in my 30+ year career. After the initial panic and rearranging of finances so that day to day expenses could be met, my partner and I started talking about options and decided that we would look into franchising. Franchising offered the promise of “being your own boss”, “90% of franchises are successful”, “building for retirement”, and “doing something fun”.
Being my own boss was definitely attractive since I tend to have definite ideas of how things should be run. I was also still on the rebound from the shock of unemployment. Little did I understand at the time, what being your own boss really means. You’ve got it all… the good, bad, and the ugly. There is also the mind switch from working in the business to working on the business. Give this some thought if you are thinking about starting your own business whether it is a franchise or an entrepreneurial venture.
As for the “90% of franchises are successful”, that may be true overall or may have been true in the past, but I would now take this with a grain of salt as opposed to “with statistics like those, how could we possibly be in the bottom 10%?” A franchise is a great way to get a head start on your business, but it is not a sure thing. You must be willing to follow the franchisor’s formula as closely as possible to help ensure your success. Looking at success rates within your prospective market niche is also a must.
As we looked into franchise options the next hurdle was choosing a business. The internet was a logical place to start and we did take a serious look at a fitness offering. Being on a successful fitness program at the time, this seemed a logical fit for the “fun” portion of the equation. It also appeared to be a real growth industry at the time. We met with the regional manager, went over the “Uniform Offering Circular” and met with a couple of franchisees.
At the same time, we got hooked up with a franchise consultant through FranChoice. This was probably one of the best moves we made during the process. The consultant talked to us about our backgrounds, work style, financials, etc. and then presented several options for franchises. He also told us about a program through Guidant Financial whereby I could parlay 401(k) funds into capital for the business venture. Shortly after starting our discussions with the consultant, we found a red flag with the fitness franchise… no “Discovery Day”! This is like a day long interview at the franchise corporate headquarters with the executives of the franchise. If a franchise doesn’t offer “discovery day”, be very suspicious.
We worked with our franchise consultant and went through the process of discussing our lifestyle, what we wanted out of the business, etc. He provided several concepts that may have worked out better than the one we chose, but rather than really look at the business, we looked with our hearts and emotions.
After doing a phone interview and a “Discovery Day” visit, we were off and running with a commitment for one location under our belts and an option for a second location. Little did we know what a ride we were in for.
Franchising can be a viable option when you find yourself unemployed, but several lessons learned need to be remembered:
I completely laughed hysterically when I heard Tim Roth say those words in Pulp Fiction, but in real life it’s not quite as funny. Despite the increasing options for banking online there are still times a visit to a physical bank or ATM is required. Interestingly, as much as technology in Internet banking has developed so have the modern day physical security measures as well.
Companies like ADT Security have been investing in cutting edge security technology for physical bank security systems. I used to think that ADT specialized in high level home security, but they have a number of high tech tools for financial institutions. Banks are starting to use some of the biometric systems such as iris, smart card and fingerprint readers.
They’ve also started integrating alarm verification, interactive video and live remote video monitoring.
While it seems like bank robberies are something out of the old west a quick search on Google news reveals that they continue to happen every day. It is one of those things that everyone always thinks happens to someone else. It is always nice to see the company providing the security system to my local bank. If it is a company like ADT I know my bank has chosen well and has the right technology to keep me and my money safe.
I’ll never forget the first spam I received involving an African prince who would send me oodles of money. Unfortunately, these types of loans continue to proliferate the Internet and take advantage of people. The trend has only gotten worse as people are more desperate in these hard economic times. They prey on people desperate to get student loans and other types of financing. The most common type of fraud is called an advance fee loan scams. In this situation the person is told that they have been guaranteed a unsecured loan for a large sum of money. They simply need to pay the processing fee.
Here are a few of the signs that the company may not be legitimate.
Do business with licensed companies. Ask your state banking or finance department about the licensing requirements for lenders and loan brokers, and find out if the company has complied.
If you are the victim of a fraudulant crime you can visit https://www.ftccomplaintassistant.gov/. This site helps people who have been victimized by credit card theft. It helps the government to aggregate data and ultimately apprehend those responsible for the fraudulant crimes.
Jeremy Schoemaker, known for his Shoemoney.com is one of the authoritative bloggers on the Net today. His company and personal branding is so powerful, that every marketer wants to capitalise on them - even doing it illegally.
This is a classic case of identity theft for the purpose of making more money through the power of endorsement.
One of Jeremy Schoemaker’s favourite photos is him holding a cheque of a large sum - thanks to his successful make money online business ventures.
Unfortunately for him, this photo is allegedly used by an advertiser to promote Google Money Tree, a ’system’ to make money online through Google, which later found to be a scam.
That’s where the problem lies: Unauthorised use of images to endorse a product without any permissions is already considered illegal and unethical. In this case, the image is used to scam people.
The impact toward Jeremy’s brand images is devastating: People assume he endorses the Google Money Tree, so that many people join the program simply due to the fact that Jeremy, the Shoemoney, ‘endorses’ the system. When the system is deemed to be a scam, so does Jeremy!
He is, of course, not happy with the stolen identity and false endorsement.
Although Jeremy Schoemaker is not your typical celebrities - he is one of the blogging celebrities that is made famous for his financial achievement through blogging and building businesses surrounding it.
The main reason advertisers splash a large sum of money on endorsers that always are public figure is this: to get into prospects’ mind.
Jeremy is a public figure - he build his business and personal branding relentlessly. In blogging world, Jeremy Schoemaker means make money online, blogging celebrity, and branding powerhouse.
Many advertisers want to touch the corner of Jeremy’s robe so that Jeremy’s positive attributes, such as charisma, authority, mindset, and knowledge, are transferred to their products, or at least related to their products.
This way, advertisers get into prospects mind, by saying “Jeremy uses this system to make money,” “Jeremy believe this product is excellent,” and any other assumption.
Obviously, the more authoritative your endorsees are, the stronger visual and emotional bait your product has.
How would this affect the endorsee? He/she could be related to the product, and as the product is successful, his/her image and personal branding will be enhanced, too. Of course, this also applies to the contrary.
In his Shoemoney.com blog, Jeremy wrote a clarification post that clearly stated that he has nothing to do with the Google Money Tree scam, and indicated that he will pursue a lawsuit against the owner of Google Money Tree system.
Jeremy did the clarification to stop the negative ripple effect that could bring his businesses down altoghether. Clearing his name will take a lot of resources, including money and time.
I respect Jeremy Schoemaker and would like to look forward for a positive outcome of this.
Image by fotologic.
People are often being overly reactive when it goes to bad situations.
The recession itself is happening largely due to global public reaction toward financial crisis, that is more often than not, doesn’t actually affect them directly whatsoever.
Negative outlook on financial issues cost the community lost productivity, thus worsening the effect of the financial crisis.
As a major part of your community, you, in whatever way possible, need to feel secure about your financial stature.
Why? Because if you feel secure about your financials and your life in general, you will be able to affect the community surrounding you.
Improving personal sense of security has never been this important in the past decades.
Sense of security is driven by facts and assumptions. The more you assume, the more insecure you will be. The more you identify facts, the more secure you will be.
Sense of security = know more facts and less assumptions.
Assumptions can be ‘altered’ into and identified as facts - no matter they are right or wrong - if you increase your knowledge through learning from reliable sources.
Facts also related to control. If you want to feel secure, you need to gain (and regain) more control on your life based on a set or series of facts.
In term of finance, assumptions leave you unguarded.
For example, consider these statements: “Stock A will go up in 10 minutes.” “Real estate B will increase in value.” etc.
The problem in the above example, is due to the fact that nobody can guarantee the above statement. Any guarantees on such would be classified as misleading, even illegal.
On the other hands, facts can secure your personal finance and help you see things from the right perspective.
For example, consider these statements: “I’m getting a 10% rate of return on my investment.” “The foreclosure houses I bought make me $150 positive cashflow per month.”
Warren Buffet, the maestro of investment, do all of his investment based on intrinsic value - the facts - not based on the floating stock value on stock exchanges - the assumptions.
Again, it is all about control. “Sure things” improve control, hence reducing investment risks.
You need to get more facts about personal finance. You will eventually find out that there is a certain consensus between personal finance experts about some of the best practices in managing your finances.
Such knowledge you acquire should be enhanced with tools that can help you with a more exact (and measurable) facts. For example, the use of Savings Calculator to learn how much you would receive within a period of time can provide you with a measurable fact that allow you to decide what’s best for your personal finance - finding savings account that yield you more, finding new investment that can increase the speed of your money, and so on.
Nevertheless, your diligence in increasing your financial knowledge will determine how secure you feel about your personal finance, and how well you cope (and thrive) in today’s economic crisis.
Image by bragadocchio.