Lifestyle Choices for A Healthy Bottom Line

As lending requirements continue to shift, some consumers have an increasing need to bolster credit scores, establish budgets, scale back on expenses, and create a financial plan for a healthy future.

In the past year, I have seen the introduction of many new lending programs, as well as the elimination of others. The paramount concept

remains the same across the board; consumers need to be diligent about improving and maintaining higher credit scores. Credit scores, and by default – credit worthiness, are significantly impacted by payment history, the amount of debt owed and a number of other factors.

My clients are encouraged to carefully consider the type of debt they create for themselves. Good debt includes anything you need but can't afford to pay for up front without wiping out cash reserves or liquidating all your investments. In cases where debt makes sense, only take loans for which you can afford the monthly payments. Bad debt includes liabilities you've taken on for things you don't need and can't afford (that trip to Spain, for instance.) The worst form of debt is unmanageable credit card debt since it usually carries the highest interest rates.

Purchasing a home or investment property, refinancing a house or establishing a line of credit requires a balance of various factors; how much financing is needed or can be obtained is dictated by more than just credit scores. For instance, a client recently referred a colleague to me to purchase a home. She has excellent credit scores, but does not have the income to support her current credit card debt and a new mortgage payment. With a strategic, aggressive debt repayment plan, my new client will be able to close on a home in just a few short months.

Keep these tips in mind to maintain your healthy bottom line!

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Planning With the End in MInd: The Key to Meeting Your

Financial Goals

A valuable lesson I learned is to always begin with the end in mind. Without a specific goal, it is easy to fall off track.

One of my clients was never able to accumulate more than a few hundred dollars before spending it. In working with her, I discovered that she did not identify specific goals, which should include dollar amounts, timeframe and purpose. This was certainly not going to help her meet the goal of purchasing her first home within the year.

In preparing a budget for her, we trimmed expenses and determined that she needed to save $450 monthly for 11 months in order to have enough funds for her closing costs. With this new plan in place, she was able to save almost $9800 in less than one year because she had the end in mind: she knew that within one year, she needed to have at least $4950 to purchase her first home.

With just nine more months remaining in 2007, I challenge you to think about the end – what do you want to accomplish financially by the end of 2007? With the end in mind, take a look at various types of saving vehicles, and select one that may help you achieve a specific goal:

Emergency reserve funds are short-term savings set aside for unexpected expenses. An emergency reserve goal should be to maintain three to six months’ income. Primary options for accounts include brick and mortar or virtual/online banks or financial institutions, credit unions and money market mutual funds.

Accumulation funds are long-term savings that can cover unexpected major expenses, large purchases or periodic expenditures like vacations or gifts. An accumulation fund allows you to have a longer time frame in mind—anywhere from one to five years before you’ll need the money. Your goal is to secure an option that will provide you with higher returns than a regular passbook savings account.

Long-range investments help families achieve a greater degree of security, provide an inheritance and fund retirement. Long-term investments are meant to last and grow for years to come. A financial planner or advisor can help you select the options that meet your needs.

Think about it, and start planning today with the end in mind!

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Creating Financially Healthy Legacies

You can learn a lot from a 13 year old. In a recent conversation with a class of eighth grade students from Washington, D.C., they told me their future plans included strategies to save money in order to attend college, purchase a home and prepare to raise their children. Some of them come from financially-balanced homes where parents model responsible saving and spending habits. The vast majority, however, learned these valuable lessons from their math teacher, Ms. Kelley Lockard. Her “Family Life” project forced them to enter the world of adulthood.

As a part of the project, all students, regardless of their assigned marital status, were financially responsible for a car note, mortgage, credit cards, and children. A lesson on compound interest allowed the students to buy cars and select economical repayment terms of three, four or five years. Ms. Lockard beamed as she described to me her students' financial worksheets of budgets, charitable donations and spending money. At the end of the four week project, students learned the value of buying versus renting, establishing savings, using cash for purchases, and making profitable investments. One of Ms. Lockard’s students summed it up best; “It doesn’t matter how much you make, it’s how you budget and spend your money!”

It was refreshing to speak with young adults who have been exposed to the concept of financial empowerment. However, the number of individuals who lack basic information about how to build wealth, and stay out of long-term debt, is staggering. A few years ago, the Consumer Federation of America noted that “the typical black household had less than one-quarter the net wealth of the typical American household -- $15,500 vs. $71,700.” Their research indicated a clear distinction between Blacks and other American groups in terms of long-term planning, wealth building, saving, and spending. Some of the negative behaviors noted were; spending beyond income, irregular or no savings, low tolerance for investment risk, and short-sighted financial plans.

But this doesn't have to be the legacy we live by or pass on. The idea of building wealth is not a difficult concept to grasp. Owning a home is one of the best ways to increase your net worth. Beyond that, tackling your current debt and reformatting how you view money is the next big step. This requires a commitment to honestly assess your current liabilities and assets, note all sources of income and devise a financial plan that you follow. If you are not a long-term planner, then you may wish to consider your goals in five to ten year increments. What big purchases will you make within the next five years? What should you consider in the next five to ten years? When will you have to replace your furnace, car, or pay college tuition? The idea is to plan for big expenditures, and then save money for each one. You will eventually use cash, not credit, to make all of your purchases, thus eliminating unhealthy debt.

Do you have a vision of your future? How about a plan to get there? People who write down their plans and outline steps to achieve a goal are more likely to accomplish them. Regardless of your lifestyle, income, or current financial situation, you may find value in writing out some of these basic steps to help you make your vision plain enough to see, and simple enough to follow:

• Monitor your spending by noting every purchase made for one month. Evaluate your spending to see where you can cut back.

• Establish a written budget that includes personal spending money and savings.

• List your assets and all liabilities.

• Create a debt elimination plan; target smaller items first, or those with the highest interest rate. 

• Obtain adequate protection of your assets. For instance, a single homeowner may want to consider life insurance to protect her home in the event of her demise, or inability to continue working.

• Establish an employer-based savings, IRA, SEP, or Keogh, or other long-term savings plan.

• Aim to save three to eight months' worth of your living expenses in order to create a cushion, in the case of an emergency. 

• Earn higher wages or additional income.

• Accumulate no new debt! Separate your needs from wants. 

• Make radical changes in your life. You'd be surprised how much money you could save (and use to pay off that credit card you racked up) by giving up certain things.

• Make a commitment to live a debt-free life!

One of my personal goals is to educate others on simple steps that may enable them to make financially sound decisions. My deepest desire is to see generations of families leaving financially healthy legacies behind. 

What do you want your legacy to be?

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