Practical Steps to Building Substantial Net Worth

September 25, 2010 · Filed Under Net Worth, Personal Finance · Comment 

The common American Dream of many working professionals is to become a millionaire, or at least to build enough net worth to retire comfortably. You would be hard-pressed to find a young working professional that says he or she has no desire to retire comfortably. However, statistics tell us that most people, in fact, do not retire comfortably. Each year the Employee Benefit Research Institute conducts in-depth research concerning the retirement investing habits of Americans. In 2010, the Retirement Confidence Survey indicated that the percentage of Americans who were financial prepared for retirement had fallen for the third consecutive time.

Here are statistics from the Retirement Confidence Survey:

• According to the survey, 43% of American workers said they had less than $10,000 in savings

• 27% of workers had less than $1,000

• Only 16% of respondents said they have confidence they will have enough money to retire comfortably.

The statistics are clear. There is a discrepancy between what most American workers want—to retire comfortably—and the reality of what is actually happening. This begs the question—why are Americans not able to save enough money and retire comfortably?

Americans are not retiring comfortably due to one of two reasons. Either they are not earning enough money, or they are not properly managing the money they are making. Let’s take a closer look at the first possibility. How much does the average American household earn during the course of a professional career?

Jaden is a 25 year old college graduate. Due to a challenging job market, Jaden takes a job at a small company for $25,000. If Jaden works for the next 35 years and receives an average raise each year of 3%, he will earn a total of $1.5 million over the course of his career. That’s a fair bit of money! Furthermore, Jaden’s earning potential never jumps significantly in our example, but in real life most people’s income jumps significantly during certain periods of their professional career due to promotions, furthering education, etc.
Thus, the average American makes plenty of money during the course of a working career, so the problem must be in the proper management of daily finances. The reality is that the American economy is a debt-based economy where consumers are encouraged and even expected to finance purchases by incurring large debts. Most people’s initiation into adult life includes taking on an incredible amount of debt. Most Americans incur large education debts and credit card debts in their late teens and early 20’s, and since their initiation into adult life is full of debt, it becomes normal to continually finance purchases with debt, and once this cycle is solidified in a person’s life, it is very difficult to break.

This is a major problem and a leading cause of why many Americans never build substantial net worth. Net worth is measured as your assets minus your liabilities. As stated in the previous paragraph, most Americans tend to begin adult life with tons of liabilities in the form of college loans, credit card debt and car loans, and basically no assets. In order to plan for a comfortable retirement, it is absolutely essential that a person’s first objective be to eliminate liabilities. The quickest way to increase net worth is not to focus on buying and investing assets, but it is to focus on eliminating the liabilities.

The first practical step to eliminating liabilities is to build an emergency savings account of $1,000. The purpose of this savings account is twofold: first, it helps build the habit of saving money, and two, it acts as your buffer against unexpected daily expenses. Most people finance unexpected expenses such as car repairs, doctor visits, etc with the credit card debt. This $1,000 emergency savings fund helps a person develop the habit of saving money and it helps to break the cycle of always going further into debt.

Once the $1,000 savings fund is built, then it is time to begin focusing on paying down debts. It is best to live frugally and funnel as much income each month as possible toward paying off debt. It may not be fun, but over the long-term it will lead to a much more comfortable retirement and life in general. Risky investments such as stocks and the forex market should wait until risk capital is available.

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Legal issues in repossession

September 22, 2010 · Filed Under Repossession · Comment 

Automobile companies who do the repossession and people who get their vehicles repossessed have to deal with a lot of legal issues in the process. Every state has its own laws of repossession. Every consumer must be aware of the laws in his state so that he knows the dos and don’ts in an instance of repossession.

Repossession happens when you have taken a car loan and are not able to make the payments on time. The car is attached with the loan and if you are defaulting in your payments, the car will come at risk. Since these purchases are a form of loan, the buyer does not actually own the item until the loan has been repaid in full. In legal terms, the lender will keep the title until the loan is paid in full and can repossess the vehicle without going to the court in accordance with the state laws.

When repossession has to be done, the lender will retain the services of a company that specializes in repossessions to collect the property for them. Even though repossession is legal in most states, there are some limitations on the methods that are legally allowed for these companies to take repossession of the property. There are certain legal issues in most of the states while repossession is done.

Before the repossession is done, the borrower has to be informed about the outstanding loan being in default. It should be clearly mentioned in the contract that defaulting on the specified number of payments will result in the lender taking actions to repossess the item in question.

Repossession has to be done following the laws of the state of the borrower. They cannot illegally gain entry to a garage, house or other property in order to take repossession of the item.

When repossession is done, there should be no physical damage done to the other property of the borrower. They cannot remove items from walls, damage cabinets or break the entrance gates.

No item other than the property attached to the loan as a security is to be repossessed. They cannot, for instance take possession of a boat that is on a trailer attached to a truck that is to be repossessed.

Under U.S. law, a repossession company or agent who violates these laws can see the repossession overturned in court and have to pay damages to the individual against who the repossession was carried out.

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