August 2009 Archives

MonthlyBillTracker.xls This past week I met a widowed mother of three whose only source of income was the Social Security survivor's checks that her children receive. Combined, this income amounts to a little over $3,000 a month and should be adequate for the community they live in. In reviewing her bills... it took two hours just to open all the envelopes and determine which are the most recent as some had gone into collections during the time she hadn't been opening them...and another hour to develop a place to start dealing with the issues. In the past two months she had paid $300 and $220 respectively in bank overdraft fees. Part of the problem we discovered is that, unlike other types of payments or bills that are due on a particular DATE, the Social Security payments are deposited on a certain DAY of the month. For example, the mortgage is automatically debited on the first of the month, the electric bill is due on the 15th, the gas bill is due on the 19th, etc. Her income date falls between the 15th and 21st. So in the worst case scenario, her two utility bills will come due prior to her income arriving. Without adequate planning (avoiding other expenses until the income is deposited) she will continue to incur overdraft fees. The attached budgeting tool might help her visualize and plan ahead for paying her bills.

I am meeting with her this morning and with her family preservation caseworker who should be able to monitor her progress. When I left her last week she has several tasks to accomplish and I'm eager to see what she was able to do. Success breeds success and small steps really do help you make progress. We will establish a recordkeeping system by uisng a plastic crate and some hanging files labeled with the different ongoing bills so that she can more easily keep track of her payments.

Other issues that surfaced during my initial visit were that she gave her now ex-boyfriend her ATM PIN and in reviewing her bank statement he had spent in excess of $100 at a New York Casino without her knowledge. She has used Rent-to-Own in the past as a source of furniture and presently is without a kitchen table or chairs and apparently a large screen TV was returned as well for non-payment. We discussed various ways to obtain furniture such as yard sales, thrift stores or even buying a folding table and chairs to suffice until money could be saved to purchase more stable furniture. Thrift stores are also great places to find clothing for kids a well as other items.Many people have misperceptions about Thrift Stores. Some are unaware that these stores may also sell brand new clothing in addition to donated used clothing.

I will not reveal names to protect the guilty, but one of my descendents (I will not use her name to protect the guilty) recently called to discuss what could possibly have happened to her bank account...money was missing! She had been tracking her account ONLY using the ATM receipts and noticed a significant discrepency between transactions. I had suggested awhile back that she enroll in online banking so she could track her money, but she found other things to occupy her time. So after a night of anguish, she called the bank this morning and established online services ("it was easy and the bank lady was really nice!") and deterined where her missing money went. It seems she had written a check to pay her credit card bill and it had taken some time for the check to clear. My suggestions to prevent this kind of panic in the future

1. DON'T only rely on the ATM receipts to determine your account balance. The bank doesn't know about your checks that are written until they receive them so you may have an artificialy high bank balance that doesn't account for the obligations incurred when you wrote the checks.

2. DO keep an accurate register of your account transactions that include deposits, automatic payments, ATM transactions and checks written.

3. Check your online account balances weekly and watch for possible discrepencies between your recordkeeping and the banks. Act promptly if there is a transaction you aren't sure about.

Ah, home ownership, the epitamy of the American Dream! In the past few years that dream has turned into a nightmare for many families who found themselves in over their heads faced with adjustable rate mortgages or foreclosure due to layoffs and job losses resulting in the inability to keep up with the payments.

Who to blame? There's enought blame to go around. Let's start with the definition of home ownership. Think about this. When you fill out loan/credit applications there is a question - do you own your home or do you rent. In reality, we're all "renting" until the last morgage payment is made. We own the home when the bank no longer holds a mortgage and the deed to the property is in our possession.

The belief that renting is just throwing money away month after month where with a mortgage you build equity. Have you SEEN a ,mortgage loan amortization schedule? For the first five years or so, you're mostly paying interest, not really building equity.

Lack of an emergency fund, much less one that is adequately funded. Having cash on hand for up to six months of living expenses just isn't as tangible or exciting as that 3 bedroom 2.5 bath home with the well manicured lawn.

Lenders. Back in the day when I first started buying a home, the bank required a 20% down payment MINIMUM and they would lend the remaining 80%. This was their way of managing the risk that the property value could drop as much as 20% and they would still have value. CREATIVE financing that included no downpayment and even 125% value to equity loans attracted many people to the housing market that were poor financial risks. Some lenders weren't even verifying if borrowers had incomes or if those incomes would be adequate to not only cover the mortgage costs, but leave a little for food and utilities. Lenders also used to use a 2.5 x your annual income as a ballpark method of estimating how much they would lend you. While you could get into a pretty good size house, what happens if one of the incomes is lost due to layoff, illness or divorce? AND that pretty good size house comes with pretty good size utility bills, property taxes and upkeep.

Just because the financial institution will lend you money, doesn't mean it's a good idea to take it. I use the 30% rule in determining if I can AFFORD a house. Take into account the mortgage, taxes, insurance, utilities, anything that it takes to keep you living in your home. the monthly costs should not exceed 30% of your monthly take home pay. If you do those calculations and find that you are paying more than 30% it explains some of your financial stress.

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