People come from all cultural, ethnic, and economic backgrounds. Some have been taught how to employ money, others have learned to fear it. Here are some tools to help you think about how you can use, rather than be used by, money.
Click Here to download the 2/C Midshipmen Career Starter Loan Brief
Click here or on Hank's alter ego to download an Excel primer on personal budgeting.
Contact Hank if you would like help or for him to teach a class on finance or investing.
You may be one of the millions of Americans who are trapped by growing money problems. If you are carrying debt on credit cards or you are paying significant fees for financial services, you may fall into this category. The worse your case is, the less likely you will be to ask for help.
Most people know that money grows with time - so does debt! If you are in debt and are not making payments that cover more than the interest, your debt will grow exponentially. For instance, if you have $10,000 on credit cards averaging 25% interest, a year from now you will owe $12,800, even if you havn't made a single additional charge. Five years from now that debt will be $34,458.
If someone contacts you and offers to help, ask yourself "what is their incentive"? Apparently there are a lot of heartless organizations that will prey on your vulnerability by pretending they are going to help you. What they are really doing is establishing a stream of revenue from you while your debt skyrockets and your credit plummets.
If you are in the military, refer to your finance officer for advice and referrals. Many businesses, the government, and churches also offer financial counseling. Figure out what the organization's incentive is to help you before you obligate yourself to them. For some, they have nothing to gain from your difficulties than good will.
Most people have the ability to get out of debt on their own. Here are the three steps:
1. Stop using credit cards and start keeping track of monthly expenses.
2. Use the debt reduction plan found in the above excel worksheets to set up a payment plan, paying off the highest interest rate first.
3. Establish and live on a budget that is within your means. Pay your debts and save before enjoying luxuries.
I have an MBA in finance and am enrolled in the Certified Financial Planner Course. My incentive to help is I feel that I have been given a lot of opportunities and I have a responsibility to use that benefit to give back.
Feel free to contact me for advice. There is no charge or obligation for any assistance I can provide.
Debt
"Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can’t deliver. After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money.
Do yourself a favor and save some money, too. Don’t believe these statements. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report."
The above statement is from the FTC link below. In most cases, you can improve your own credit through your own conscientious and disciplined efforts.
Investing
I'm frequently asked: "Who should I invest my money with?" Consider this - the more participation you have from an advisor, the more you will probably pay for services you may or may not need. I encourage you to explore investing in no-load funds through a major mutual funds & stock brokerage. As an informed customer, you can then determine if you need an advisor.
For the "self-starter" who is young and has a simple financial situation, you should "pay yourself first" by setting up a monthly payment to the brokerage that will automatically deposit your funds into a diversified portfolio of mutual funds held first in a ROTH IRA account and secondly in a taxable account.
If you are not a self starter, have complex financial issues, or are getting older, you should consider using a financial planner. There are a lot of "bottom-feeders" as well as a lot of well-meaning and smart people in this industry, therefore you still have to be involved in order to make a good choice. Your analysis must be deeper than a personal reference from another friend who is equally uninformed. Most people are capable of managing their own investments, but may not have the time or the interest. For a few, your finances are so complex you need someone to "quarterback" for you, coordinating between your investment advisor, estate attorney, and accountant. Some people just will not save unless they have an advocate. If you fit one of these descriptions, its OK, you just need to understand that all these folks make a very good living and that money comes from somewhere - that would be fees paid by you!
The bottom line - it's statistically shown that the individual investor staying the course in a diversified portfolio of mutual funds that follow the market will outperform complex, high-risk, trading plans. Look under Articles on the next page to see what the Richest Man in America says about this.
To protect yourself from temptation and to reduce the chance of having your identity stolen, you can stop pre-approved credit offers from coming to your mail box at this web link: www.optoutprescreen.com. Thanks to Midshipman/ Marine Jim Sheehan for contributing this good information.
Click Here to Get the "Ensign and 2ndLt Budget Brief"
Credit Repair
If most military memberst are like me, they don't know or want to spend too much time considering how much life insurance they need to have. It is unlikely your average service member on active duty is going to die anytime soon, but one should be sure that their dependents will be financially secure in case the unlikely occurs.
Term life insurance for young people is inexpensive. That's because the insurance industry is making a statistically based gamble on the fact that you probably won't die, so insurers are happy to take your money as a hedge against that. Plus, if you are on active duty, your loved ones would have a significant number of survivors' benefits that combined with social security benefits can add up to a healthy monthly income.
If you do not have dependents, you need minimal insurance. The opportunity cost for paying too much for insurance is the earnings through investments you and your loved ones could enjoy together. Insure for the unlikely/ save for the future. I recommend you analyze what your survivors' monthly needs and income would be if you were to pass away right now, then augment that budget with insurance to cover paying off the mortgage, partially funding childrens' college savings (although there are myriad programs for survivors in this area) and any other large expenditures you would not reasonably want your survivors to cope with. Remember, it is very unlikely the benefit of this insurance will be realized, so keep it conservative and invest your extra money in the financial market with more assurance you can enjoy it together later.
Whole vs. Term Insurance. There are two camps of thought on this topic. Financiers prefer term insurance and Insurance Salesmen prefer whole or what they like to call "permanent insurance". Whole life insurance has a cash value that builds at a lagged rate compared to how your money would grow if invested in a normal market. Salesmen like to advertise this in hopes you will rationalize the cost. I got suckered into a whole life policy on this rationale once and was paying ten times the cost per dollar of coverage in comparison with the term available. For $50/ month I was getting $100k of life insurance that after a decade had a cash value of about $2k on the $6k I had put into it. For $50/ month I could have had $1,000,000 of term coverage or I could have paid $10/mo for $200k of term and invested the other $5,000 in the stock market.
Life Insurance &
Survivors' Benefits
Sign up for the Post-9/11 GI Bill now so you can transfer your benefits 1 August. Forgoing this assistance could be like throwing away over $100k. Not only can you benefit from it, it is usually transferable to your spouse (after six years of service) and to your children (after ten years of service). If I were to go to college in my home town (MD) today, here is an estimate of what the GI Bill would pay over four years:
Tuition estimated at $6,872 / semester for eight semesters: $54,976E-5 Basic Allowance Housing with dependents allowance of $1671 for 36 Months: $60,156Annual Book Allowance of $1000/ year: $4,000Reimbursement for Fees $1107/ year: $4,028Total: $123,160This is a lot of money, but you also need to consider that the maximum payable amount is indexed to the maximum tuition rates in the state the beneficiary attends school. A general rule of thumb is that tuition will increase at twice the rate of inflation and that trend is increasing exponentially. If I estimate inflation will average 2.8%, then tuition should go up 5.6% per year; by the time my one year old is ready to enter college, the Post 9/11 GI Bill benefit in Maryland will look like this:
Tuition estimated at $27,777/ semester for eight semesters: $138,822 (5.6%)E-5 Basic Allowance Housing estimated at $2,672 for 36 Months: $96,192 (2.8%)Annual Book Allowance estimated at $1600/ year: $6,400 (2.8%)Reimbursement for Fees estimated at $1,770/ year: $7,081 (2.8%)Total: $248,495On Major John Ahn’s advice, I researched the specifics at www.va.gov and I discovered that in order to transfer the benefit to my spouse or children, I need to serve an additional four years from the date that I transfer my benefits for the Post-9/11 GI Bill. (I can later revoke or modify how I want it distributed.) Since I happen to be at 16 years and 1 month of service, delaying my enrollment and subsequent transfer of benefits essentially means I am delaying my potential retirement date, if I want to transfer the benefit to my dependents. You need to research the specifics as they apply to your service to ensure you do not miss/ lose the benefit by missing a deadline! LCDR Derek Peterson sent me this checklist to help determine what you need to do.
If you are interested in private schools, look into the Yellow Ribbon Program . Hundreds of private schools are agreeing to offset the maximum amount the GI Bill will pay so there is no tuition cost to be incurred by the GI Bill beneficiary.
In order to save that estimated $248,495 for my one-year-old’s college, I’d have to put $935 per month for 17 years in an account earning 3%. In a mutual fund earning 7%, I’d still need $636/ mo and as we all know, there are no guarantees in the stock market. It’s a no-brainer, sign up for the Post-9/11 GI Bill and teach others to do the same.
If you have specific questions about the GI Bill, Major John Ahn (john.ahn@iraq.centcom.mil) will be thrilled to answer them. Click on this Logo to Sign up for the GI Bill.
The mortgage market has changed dramatically in the past year or so. No longer are the days when someone can learn how to fill out a few forms and jump headfirst into a marketplace so rich with demand that "anyone can do it".
Banks, the ones that survived, now know that the broker is the bank's eyes and ears, the man "on the ground" who can be pivotal in deciding whether the prospective borrower is a good risk or not. You will be looked at with much greater scrutiny now than you would have been just two years ago.
What hasn't gone away are the hidden costs and inflated expenses inherent to this industry. Many people choose their mortgage broker through friendships or rationlize, what's the difference, they are all the same - they are not. In fact, a difference in $20/ month over the life of a 30 year mortgage is $7200. Everything counts.
My loan comparison calculator in the Excel Primer at the top of this page can help you compare loans and I have some slightly more complex loan comparison tools - email me if you'd like a copy.
Click Here to Get the "Financial Choices Brief for Marines"
