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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The Risks And Benefits Of A College Tuition Plan

May 23, 2010 · Filed Under College Tuition Plan · Comment 

There are numerous ways to get on a tuition plan to get cash today to work for you tomorrow. Whether it’s planning for a child with a 529 plan or asking universities and colleges to put you on a monthly payment plan, you can find ways to balance your budget. There are risks and benefits to trying any tuition plan. In order to manage your money more effectively, consider each plan’s risks and benefits to decide if they’re going to save you money or not.

For 529 Plans

A 529 plan is a great pre-tax vehicle to save for your children’s education, long before they’ve even graduated high school. It’s this fact, along with the stock market swings, that can cause havoc with even the best laid 529 plans. If your kid decides to skip college, you’ll lose the monies in the plan as it can’t be used for anything else. Even if they do decide to go, and you create a large pool of savings pre-tax for this purpose, you still risk falls in the stock market that can impact how much you end up saving over time. The benefit is the power of compounding over time and saving taxes on that money, as it is taken from your paycheck on a pre-tax basis.

Tuition Payment Plans

If you’re still short of funds, you can request that the college or university put your account on a payment plan. There are monthly payment plans available at some institutions, and others may require four equal installments to be paid before a semester ends. The risk is that if the semester ends and the account is not paid in full, a student can be suspended from classes, and their grades withheld. They may not be allowed to re-register until the account is brought current too. The benefit is that it can lower the upfront costs of paying tuition by spreading it out over time.

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Important points mentioned while writing a will

April 26, 2010 · Filed Under writing a will · Comment 

Many people do not know about the things to be mentioned while leaving in a will. If you are writing a will, make sure that you own it at the time of your death. There may be some assets that you think you own it outright, but in legal terms, you do not. When you are writing a will, the assets have to be in your sole name or the gift will fail. Some examples are:

  • Jointly held assets (Joint Tenants)

Bank accounts: If you have a joint account, you cannot leave this to anyone since it is jointly signed with the other person to whom it will automatically pass after your death.

Insurance policies: If the insurance is a joint policy, then the other named holder will gain the ownership.

Houses: This is the biggest asset for the most people. If the deed has two or more names, and you hold it as joint tenants, then the other named tenant will automatically gain ownership on your death and you cannot leave this asset to anyone else. You can change the ownership to someone else in the deed so that the ownership can get transferred to the other person mentioned in the deed. This is the most overlooked aspect of Estate planning and if it is not done correctly, then it will cause problems from a tax point of view or more importantly from funding long term care.

Investments: If the investments are held jointly, then it will pass to the other person jointly signed with you. No one else can claim for it.

When writing your will, the first thing you need to do is to generate an Asset Register. Make a list of everything you own and put a value on it. Next thing is to determine how you own that asset. Is it solely owned by you or is it jointly signed with someone else? Once you have made your list then determine who you want to leave the assets to. There are different ways of leaving the assets.

1) You can leave them outright to a named beneficiary i.e. I leave my Bank account number 123456789 to my elder son X absolutely.

2) You can leave the assets to a group of beneficiaries in an equal split i.e. I leave bank account number 123456 to all my children in equal shares.

3) You can leave the same bank account number in unequal shares i.e. 50% to my elder son X, 25% to my younger son Y and 25% to my daughter A.

You can write wills in the same pattern for your insurance policies, house(s), and other investments.

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Financing for small business

September 6, 2009 · Filed Under Financing, Small Business · Comment 

Good credit is very important if you are looking for financing your small business. Even though if you have got the financing, it may be critical for any business to grow without good credit. Without financing, your business will not be able to meet the growing demands or buy equipment and facilities needed to expand. Due to the recent economic crunch, credit and financing are getting harder to come by using banks and traditional financing methods. If you are not having an impeccable credit to start your own business, you may explore through different financing options but be careful of falling into any kind of scams, or may not be as good as it seems.

Any business needs financing options, especially in the current economic crisis. Not only the smaller companies are suffering because of the economic crisis, big companies are also facing difficulties because of lack of financing. Credit is very important and if the bigger companies are facing tougher times because of lack of credit, small companies do not stand a chance. Financing is needed for different reasons like purchasing or hiring a warehouse, or to enlarge the current one. Inventory is needed to create more products because of the increasing consumer demand. Some companies will also stress on larger work force to increase the overall production and sales. If there is no finance in the market, the company will become stagnant due to inability to grow.

Sometimes it may seem that you have different financing options, until you look at them closely. Many a times, the financing can take the form of credit card limits, or vendor credit. It may not be enough to keep a small business afloat. There are programs which offer cash financing, but they are offered in such a small amount that it is not helpful enough. Getting a new credit for your small business can often get tough if there is no extended history or credit. Many lenders will turn down your financing or loan application if they do not find your business incorporated or has a strong history in the business area. There should be some kind of program that should decide the credit approval not just on the basis of credit history or the number of years of a business.

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