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Dollars and Sense

August 19, 2015

Q:

We are going to do a room addition on our home. Should we refinance or just take out a 2nd mortgage?

A:

There are a few things to consider. Is the rate on your home mortgage above or below the  current market? If it's above the market, you should consider refinancing your 1st mortgage and borrowing the extra needed for your project. If your rate is below the current market, Iwouldn't refinance. It would probably be better to take out a 2nd mortgage. Hopefully, you have enough equity in your home to go either way. Anyone taking a 2nd mortgage on your home will likely want both the 1st and the 2nd mortgage to not exceed 80% of the value of  your home. Another idea would be to get a Home Equity loan which allows you more  flexibility. Also, you should consider if the addition to your home is going to raise the value to match the expense. If not, you might want to consider selling it and buying another homethat has what you are trying to achieve with your improvement.

Q:

Why isn't it considered an invasion of privacy for lenders to give information about me to the credit bureau?

A:

Credit bureaus are primarily used to help individuals. Lenders share payment histories so that when you apply for more credit, the next lender can see that you keep your promise on making payments as agreed. A good credit bureau report is very important throughoutyour adult life. Unfortunately, if your payment history is not good, it will hurt your chancesof borrowing from another lender. Sharing this information is not considered a violation of your privacy and it should not be considered as such. As to why this is the case, there are  several reasons. One reason is that our government understands the implications of  someone defrauding several lending institutions and the fact that it could have severe consequences on the stability of lenders. Especially banks which are insured by the FDIC, agovernment agency. Another reason is the obvious one mentioned earlier and that is it canbe of assistance to individuals in obtaining credit. If you do not pay as agreed, you have no right to obtain additional credit so, there is no privacy issue. Credit bureaus serve a good purpose in society.

Q:

What is the percentage of adults who have an Individual Retirement Account (IRA)?

A:

I recently saw some statistics that really concern me about this subject. It indicated that thedegree of education had a lot to do with it. If that is true, it's very unfortunate. In general, I think it depends more on what type of retirement program is offered by the employer of anindividual. If the employer offers some type of program, they are less likely to have an IRA.   The truth is, it shouldn't matter whether your employer has a good retirement program or  not. You should still have an IRA. Any portion of your wages that is contributed to an IRA will  avoid income tax until you retire. It doesn't matter what your tax bracket is. Deferring income tax is always a good thing. It is estimated that 80% of American workers do not have an Individual Retirement Account. Is this because young people don't think that far ahead or,  is it because they know the government will take care of them? I think it's some of both.  Sadly, that's how a lot of people look at things these days.

August 12, 2015

Q:

My house is now worth about $20,000 less than I paid for it 12 years ago. Will I ever gain it back?

A:

Contrary to what most people think, your house is not worth less than 12 years ago. You just bought it during a period of time when home prices were increasing at a rate that was unreasonable. Millions of people did the same thing. They paid an inflated price for their home. What has taken place on your home is what we call a "market adjustment." It happened in the stocks and bonds markets as well. If you had 20% or more for a downpayment when you bought your home, you probably owe less than the current reducedvalue. If you didn't, you might owe more than the current value. It happened to virtually  everyone who owns a home. You can't escape it. Will you regain the value you thought you had when you bought it? Anything is possible. However, it will take another inflationary  environment and I'm not sure that is good for anyone. Inflation brings with it a lot of problems that we don't need.

Q:

Is it worth the cost to get identity theft insurance coverage?

A:

Identity theft is becoming one of the most feared things we face today. A new breed of criminal has figured out a way to steal your money without even leaving their couch. It is a problem and it will get worse. Because of this, we have seen insurance companies now  selling coverage to avoid a loss from this terrible experience. A large percentage of people have it. However, I personally do not know of anyone who has had to file a claim for loss from identity theft. I'm sure I will but, I haven't yet. I will put it to you this way. It's not very expensive so, it doesn't hurt anything to have it. Will they pay the claim? I would think they,like all insurance companies, are under the watchful eye of the federal government. So, if  they failed to pay claims, I'm sure they would hear about it. You might want to take a look atyour insurance through your employment. Sometimes, identity theft insurance is thrown inwith your other employer offered insurance. Check your homeowners plan as well to see if there is coverage for this. I would take all the precautions you can against identity theft.

Q:

There was an article in the newspaper about senior citizens losing money on investment  scams. How big is this problem?

A:

Over $40 billion is lost each year due to investment fraud in the U.S. and it's not just senior citizens. It happens to people of all ages. Bankers continually warn their customers about therisk of going after the big return on investment promised to them by unscrupulous sales people. Very few take that advice and it's hard to have much sympathy for them when theyget burned. My favorite comment to people when asked is, "Be more concerned about  the return of your investment and less concerned about the return on your investment." In  other words, if you fall for a good sales pitch, you may not only lose the interest promised.  You might also lose the money you invested. I realize interest rates on deposits have been low for a long time but, it's safe. It is FDIC insured. The interesting thing about some who fall for these scams, they have ample money to live on and they don't need the additional income they are promised from the higher yielding investment. In some cases they would  have to live to be 120 to spend all the money they have. So why take the risk? It's called greed.

August 5, 2015

Q:

In proportion to income are home prices the same as they were 40 or 50 years ago?

A:

I think they have come close. In 1965, a good income for the average household was in therange of $4,000 to $6,000 per year and a nice home could be bought for $8,000 to $12,000.   A family wanting to buy a home today would need income of $75,000 per year to support a  home purchase of $150,000. So, I guess it has stayed on pace. You could make the same  comparison on most any large ticket purchases. The average new car cost $2,000 to $3,000  against income of $4,000 to $6,000 in 1965. Today, average income is $45,000 to $50,000  compared to new car prices of $30,000 to $40,000. I know most individuals believe prices  have gone up faster than their income but, I don't think this is necessarily true. When I  purchased my first new car for a little under $3,000 it seemed like a lot of money to spend  on a car and at the time it was. Today, you could spend that much on accessories for a car.

Q:

Why doesn't our government have an agency that monitors spending of our tax dollars?

A:

I assume you are referring to something like we have in private business such as an accounting firm. Well, we do have government agencies that are supposed to monitor government spending. However, these agencies are not independent. The leaders of these agencies are political appointments and therefore, they answer to the President more or less. Even when things do get exposed to the public that is less than proper, there are somany layers of government that it gets lost in the shuffle. I have written many times beforethat if we ran our businesses the way they do in Washington D.C., we would lose our jobs.   I'm not sure what the answer is to getting things under control in government spending. I  hate to say it but, it may be so far out of control that it can't be fixed. We live in the greatestcountry in the world but, our political system is structured in a way that it makes it easy for people to not be held accountable for their actions.

Q:

I heard there are laws that require banks to make a certain amount of loans each year. Is  this true?

A:

There are no laws that require banks to make a certain amount of loans. However, there is a regulation called the CRA (Community Reinvestment Act) which does require banks to invest in the communities we serve. If there are signs that a bank is not doing this, it couldresult in severe penalties. Reinvesting in the community includes making loans to individuals at various levels of income, making financial commitments to civic organizations, supportingthe school systems and various other ways that impact the quality of life in the community.Banks are examined periodically to see if they are fulfilling this responsibility under the CRA.  I am very proud to tell you that our bank goes above and beyond what is necessary to be incompliance. We do it because we want to and not because we have to.  However, we won'tintentionally approve bad loans that will jeopardize the stability of the bank. Instability in your local bank would in fact harm the community. If the applicant is creditworthy, we want to help them. If not, we are under no obligation.

July 29, 2015

Q:

Have you ever discouraged someone from guaranteeing another person's loan?

A:

Using guarantors to guarantee another individual's debt is a difficult situation. If it is aparent guaranteeing a son or daughter's debt, it is less of a problem, But, a friend signing for a friend can lead to problems. We make it clear to the guarantor that if the borrower does not pay, they will be expected to pay. Virtually all guarantors never think they willcalled upon to pay the debt. So, most of them don't take it seriously. When they are calledon to pay they end up being upset with the bank for making them pay which makes no  sense at all. The only time I have discouraged someone from signing for another person is if the track record of the person getting the money is so bad that it is almost certain the guarantor will be called. Being asked to sign for debt of another person is a very serious thing and if you don't not want to do it, then just say no. If you lose a friend over it,they were not much of a friend to begin with.

Q:

How is this financial crisis we have been through different from previous ones?

A:

I can only speak to those that have been during our lifetime. I think the big difference with this financial crisis compared to previous ones is the impact on the housing market. In  previous recessions or economic crisis, real estate values did not decrease as they have now.  As far back as I can read in history, never has real estate taken a beating as bad as this one.  Depending on what part of the country you are in, there have been decreases in values asmuch as 50 to 60%. In the Midwest states it has been in the range of 25 to 35%. For those people who never intend to sell their home, it really doesn't matter. However, for those whoare not in the last home they will ever live in, it is a pure loss of some of their equity. Most home owners finance about 80% of the purchase price and that has pretty much been wiped  out if they bought their home in the range of  9 to 12 years ago. Decreasing home values has to be the biggest change in this financial crisis.

Q:

How are employers handling the constant increases in healthcare for their employees?

A:

Healthcare costs have been rising for several years. Now that Obama Care is in effect, it has gotten worse. What employees need to understand is that their employers cannot take all ofthe increases in premium on themselves. What I am reading is that some employers have  decreased their share of the cost and increased their employees share of the expense.  The majority of employers have handle it another way which is to decrease the benefits inorder to keep premiums from going up at a slower pace. Neither solution is good but, employees have to decide which way they want it. Increased cost up front in premiums or,a small increase in premiums and a higher deductible. There is just no way that an employer  can take all of the increase on themselves and leave the employees share alone. You can't  have it both ways. Healthcare costs are the #1 problem facing employers today and it will get worse. We all better hope that Obama Care gets reversed.

July 22, 2015

Q:

Can you explain SBA loans?

A:

The Small Business Administration is a government agency. The primary purpose of the SBA is to assist small businesses who may not be able to qualify for a loan through a bank due to  various reasons. The borrower must have good credit, sufficient collateral for the loan and they have to show the ability to service the debt. Typically, a bank agrees to make the loanand the SBA agrees to guarantee from 70% to 90% of the debt in the event the business fails to meet the obligation.  It is actually one of the better government programs and mostlenders welcome these kinds of credits. We have been involved in a number of these transactions and they typically turn out well. It is a program that has allowed many to own their own business and many established business owners to expand their operations. If used properly, the SBA is a good program. However, lenders do not use the SBA to make bad loans.

Q:

Are there any qualifications for someone to run for President of the U.S.?

A:

Unfortunately, the one thing most important is not required. A person running for President should be required to have a background in business and finance. I am guessing there are   fewer than 5 Presidents that had the financial and business background to run a lemonade  stand much less run our country. Elected political positions, including the U.S. President, are the only jobs in the United States where you don't need to qualify for the job. Aside from the minimum age requirement of 35, being a U.S. citizen and no felony convictions, there are no other requirements. When you consider that these individuals are responsible for trillions of dollars a year, mostly our tax dollars, those are not very stringent qualifications. I know that our constitution allows for this to happen but, it still isn't right. I have a hard time believing that the founders of our great country had in mind what is happening to us today.

Q:

If someone comes to see you to start a business with no cash to invest, will you consider it?

A:

The chances of someone getting a loan from a bank to start a new business without any investment of their own, are very slim. However, if they have sufficient collateral, it may make a difference. Bankers want their business borrowers to be partners in a venture. If they make loans with no cash or collateral at risk on the part of the borrower, the bank istaking all the risk and that isn't how it works. Some may feel this is wrong because bankers are in business to make loans and that part is true. However, we also have a responsibility to protect our investors and we do that by making good loans. A loan to someone for a business who has nothing to lose is not a good loan. It places all the risk on the bank. You might ask, what about someone to guarantee the loan? That's possible but, if that personyou ask to guarantee the loan is smart, he will think about it really hard before signing anything and rightly so.  If you have no money and no assets to pledge, you are probably not going to get financing for a new business. There are exceptions but, not many.

July 15, 2015

Q:

What is the cause for most businesses that fail?

A:

 I won't list them all. However, I can give you four at the top of the list. One is a lack of working capital. No business can operate solely on borrowed money for extended periodsof time. Another reason high on the list is someone trying to expand their business too quickly. I've seen it happen many times. A business owner has a little success in a short period of time, they get excited and immediately want to expand the business beyond their capabilities. Another reason is when the owner doesn't pay enough attention and they let employees make too many decisions for them. They have a little success and they want to sit back and enjoy it while someone else is running the show. Not a good idea. If you don't want to work hard, don't own a business. The last one is when a business owner takes more profit out of the business than is justified. A business owner cannot drain the cash out of a  business and last very long.

Q:

 What traits do successful business owners have that others don't have?

A:

All I have to go on is my experience with business owners. It's clear to me that some people  are more suited to owning their own business than others. There are some that are better suited to having a boss and someone to guide them. They are not self-starters and they arenot driven enough to work on their own. Others don't need someone standing over them toget them to work. This doesn't mean that one type is smarter than the other. It's more about a different mindset. Also, I'm sure that some don't do well at taking orders from someone. So, they work for themselves. Others just don't want the headaches and risk of owning a business. We need good business owners and we need good workers who aren'tin business for themselves. However, there is one thing that all business owners must have to be successful and that's discipline. If you can't discipline yourself, you will fail.

Q:

On your answer a couple of weeks ago, if interest deregulation meant more interest earned by depositors, how could this be bad?

A:

A community bank has a responsibility to several groups of individuals. In addition to  depositors, a bank must remain profitable for their investors who own stock in the bank,  to provide resources to the community as a whole and to provide jobs and appropriate compensation to employees. When the income of a bank is negatively affected by new lawsimposed by the government, all these people we have a responsibility to are negatively  affected. If depositors were our only responsibility, it would be different. Community banks play a very important role in the communities they serve and we cannot afford to be short sighted in that responsibility. If community banks are not sufficiently profitable enough to satisfy shareholders, they could potentially decide that the bank should be sold to a large regional bank that cares nothing about the community. This would result in less charitable contributions, fewer jobs, less community involvement by the staff and community identity  is lost  by not having a  locally owned and operated bank. It happens every time.

July 8, 2015

Q:

Have bank interest rates always been competitive or were they fixed at one time?

A:

 Rates were fixed until the 1970's. They were regulated and set by the government and all banks paid the same rate. In the early 70's, rates were deregulated and each bank began to set their own rates. It was one of the worst things ever done. Some bankers began to use higher rates that were not profitable just to increase their size. This forced other banks to compete to keep their customers and before you knew it, the banking industry was  experiencing lower earnings. Deregulation was done by the government supposedly to helppeople. Unfortunately, I believe it hurt people rather than help them. The banking industry was forced to begin charging fees for certain services to offset the loss of income from deregulation. This is another example of how politically elected individuals try to tell private  business how to operate when they do not have the experience or intelligence to do so.

Q:

 Do people still buy Treasury Bills from the government?

A:

 Sure they do. However, other than the safety factor, they are typically some of the lowestinterest rate investments you will find. I can remember a time when banks had a significant amount of their investment portfolio in Treasury Bills and Treasury Notes. Some individualsstill purchase them but, not to the extent they once did. There are some that still purchase  them because they feel a sense of patriotism by investing in our government. Not as muchas 30 years ago but, some still do. It's been said that foreign countries own the majority of Treasuries issued by our government. I don't have factual proof of this but, it would not  surprise me. For whatever reason, the Chinese government is the foreign country most  heavily invested. I certainly would not discourage you from buying them if you want to do so. It's simply a matter of how they would fit into your long term goals and objectives.

Q:

 I heard that some people are getting calls from their bank to verify account information. Is that normal?

A:

 Under no circumstances should you give someone account information over the phone. Wewould never call you and ask you to verify your account number. It is probably a scam. If someone should call you saying that they are an employee and they want to verify youraccount information, ask for their name and the department they work in and hang up. Then,  call your bank and ask for that person. Don't call the number this person gave you. Look up  the number in your phone directory. Chances are good that when you ask this person for their name and department, they will just hang up. When you do call your bank, ask for thatperson. They probably don't exist. If there is someone by that name, they will verify if they called or not. There is a new scam added to the list every single day. It's unfortunate that we have to be so distrusting but, it's the world we live in today. There are a lot of people out there that will do anything to keep from earning a living the way that you and I are earning it and that's by working. People who would steal from you are the scum of the earth. Don't give them a chance to do this to you.

July 1, 2015

Q:

Why are banks pushing for their customers to get their bank statements electronically?

A:

The days are gone when you had to keep years and years of bank statements. If you are still keeping them, it's a waste of space and simply not necessary. If you own a computer, Smart Phone or iPad there is no reason for you to still be receiving a bank statement in the mail. At our bank, if you want it, we will still give it to you. However, you really don't need it. You  can pull up your deposit information on an electronic devise any time you want. Why take up drawer space with all those bank statements going back several years? I know about those because I used to keep them. If you are not currently using electronic banking to the fullest extent, you might want to talk with your banker and go over the options. You will be  surprised how much easier your banking will be. However, for our customers who do not useor want electronic banking, they are just as important to us as those who do.

Q:

My bank no longer returns my cancelled checks and haven't for some time. What was the thinking behind this?

A:

When banks decided to stop returning cancelled checks, it was very interesting. Customers thought they had to have them and it did not go well at first. You would have thought those cancelled checks were sacred. However, as is the case with most changes, everyone realized the checks weren't that important after all. Why did we quit returning the checks?There are numerous reasons. However, the primary ones are the cost of postage, storage space and the cost of employees maintaining them. We show images of the checks on the statement and the legal system has come around to accepting images of the actual document. In case you are wondering, the images are also available on electronic statements.   So, not receiving checks back in your bank statement has become a non-event and it has notreally taken anything of importance away from our valued customers.

Q:

Will we ever see interest rates stabilize on deposits and loans?

A:

The answer is no, we will never see stable interest rates. When I first started my career in  banking, rates were very predictable. Passbook Savings Accounts paid 5% and you paid 8% on loans and both the customers and the banker were fine with that arrangement. Rates justdid not change much for many years. Things changed drastically when rates werederegulated by the government. Having lived through the stable environment and the one we have today, I would have to say the stable rate environment was much better. The products banks offered were checking accounts and savings accounts and it was all very simple. Then, Certificates of Deposits were introduced and it changed things forever. Banksdidn't advertise all that much back then because they all paid the same rates and charged the same rates on loans. Those days are gone forever and rates will never be stable again. Bankers don't like unstable rates any more than you do. It makes budgeting much harder.           

June 24, 2015

Q:

If I file bankruptcy due to illness, will it damage my credit?

A:

Unfortunately, it will damage your credit. Credit Bureaus do not make a distinction betweenbankruptcy due to illness and someone who files just because they over extended financially.  Therefore, it will have an effect on your ability to obtain credit. However, if your record wasclean prior to the bankruptcy, some lenders may take your reason for filing intoconsideration and help you re-establish your credit. Be very careful about predatory lenders.  There are lenders out there that go after people who are trying to re-establish their credit and they do it because they charge very high interest rates. Some of them will actually seek out people who have recently gone through bankruptcy because they are easy prey. Bankruptcy due to a major illness can be an acceptable reason as long as it affected your ability to earn a living to pay your debt. I still believe some sort of restitution is in order after you have recovered from your illness and you are able to work again.

Q:

If someone had a car repossessed 5 or 6 years ago, is that long enough ago that I can get a car loan now?

A:

It might be long enough for a non-bank lender but, most banks will not consider it. The big question here is did the lender sell your car for enough to cover the debt or did they take a loss. If they took a loss, there is no amount of time that can pass for a legitimate lender to finance a car for you. If you are serious about re-establishing your credit, you will go back tothe lender and settle up the balance of the loan not covered by the sale of the car. You might be thinking, who does that? Well, not very many but, it's the right thing to do. For some reason, a lot of people think that since they took my car, I don't owe them anything which is not true. You borrowed the money and, you had the car and then let it go back to the lender.  You still have a debt if the car didn't cover the balance. In most cases it doesn't. 

Q:

I've read your past comments about bankruptcies and repossessions. If a bank takes my car,shouldn't that be enough without me paying more?

A:

There is a growing number of people who want to let someone else pay for their mistakes and misfortune. If they don't feel like working, let the taxpayers pay for my laziness. If I spill hot coffee at a restaurant and burn myself, let's get money from them for my clumsiness and stupidity. It's the same when this type of person borrows money. They promise to pay it backover a period of time. The loan papers don't say that you have to pay it back unless something in your life changes. It simply says you will pay it back and that is what your lender expects you to do. If your lender takes your car because you are not making your payments,  you didn't sell it to the bank. They didn't forgive your debt. If it sells for less than the balance,you are expected to pay the difference. Bankruptcy is a little different in that we are not  allowed to go after you for the deficiency. Our country is creating free-loaders by the thousands every day and it's time for it to stop. Teach your kids how to be responsible forthemselves instead of having their hand out all the time. Some may not like what I am sayingbut I think most of you will agree with it.

June 17, 2015

Q:

If I wanted to become a collector of something for future increases in value, what would it be?

A:

I'm not a collector. So, I am probably not the person to ask. I am aware that people do very well as collectors. However, they did not do it by being lucky. They have knowledge in the items they are collecting. To try to do it without the necessary knowledge will surely end up costing you money. You can pretty much count on that sooner or later. Even those individuals with knowledge and experience can make a mistake now and then. Most everyone has at  some point in their lives thought about getting into something that will make them money outside of their primary source of income. Unfortunately, it often ends up in failure simply because the individual did not have the necessary expertise to invest in the items. Ultimately, it's up to each individual to decide what they can and cannot do. However, if you choose to go forward, don't be fooled into thinking you know more than you really do.

Q:

What are your thoughts on U.S. Treasury Bills for an investment?

A:

Treasury Bills are safe and they won't cause you to toss and turn all night in fear that they  won't pay off when they mature. However, they don't pay much interest right now and even in better times, they were not high yielding investments. I certainly cannot discourage you from buying T-Bills if you are looking for safety. The same goes for CD's from a bank. It concerns me when I see individuals take risk when rates are low like they have been the past few years. The best advice I can give you is that you not make decisions on an investment based on what the person selling it to you has to say. They are not an objective person because they have something to gain by you taking their advice. Make smart choices with your money.

Q:

Have you ever seen interest rates stay as low for as long as they have during this most recent  low rate environment?

A:

No one has ever seen anything like this. We are nearing a decade of historically low interest  rates. I would never have believed it possible. Nearly 10 years later and interest rates are still near zero percent and it doesn't appear there will be much change any time soon. The odd thing about this is that low rates were supposed to encourage people to buy homes and other things to help stir the economy. It just hasn't happened at the level everyone hoped  for. During the most recent meeting of the Federal Reserve Board, the Chairperson hinted of an increase in rates. However, the latest jobs report and home sales report do not justify a rate increase and it's too soon to begin raising rates. At this point, I think people are being overly cautious. If you have job stability and want to do something, I wouldn't put it off.   Sooner or later, rates will go up and you may look back at this period in time and wish you  had done something.

June 10, 2015

Q:

I'm not well educated. So, how can I control my finances as easily as some others can?

A:

I have news for you. It's isn't about being educated. It's about using your head and making good common sense decisions. Some of the most highly educated people I have known weresimply awful with their personal finances. They had no common sense. On the other hand, Ihave known individuals without even a high school education who managed their income  well and have a good life. People sometimes try to make their personal finances more  complicated than it needs to be. If you can add and subtract, you have the ability to live within your means. What complicates matters is when people start spending money they know isn't there or they hope will be there. Yes, it's true that most wealthy people are educated. However, that doesn't mean you can't have a good handle on your finances  without one. Do the best you can and don't let money or material things control your levelof happiness.

Q:

With all the scams out there, how safe is it to use credit cards and debit cards?

A:

It is true there have been an increasing number of identity theft scams over the past few years. However, what we don't know is what percentage took place as a result of individuals  not taking the proper measures to protect themselves from this happening. We warn people all the time to guard their personal information very carefully. Thieves have become sosophisticated that they don't need much information to gain more information. Giving yourATM or debit card with your passcode to someone is not identity theft. It's a mistake. I can well remember years ago when a customer came to the bank and accused someone of taking  money from his account. It turned out that they had given their passcode to a teenage son and he had been taking money from an ATM for months to feed a drug addiction. I know we all have those we trust completely. However, figure out another way to do it. Don't give access to your money to anyone. It greatly decreases the risk of identity theft.

Q:

What would happen if the government would just stop having these special loan programs?

A:

Our government should not be involved in special loan programs at all. The average person would be stunned at how many government backed loan programs there are out there that should not exist. I suppose they would tell you that it is done to stimulate the economy but, I don't buy it. A substantial number of these programs make loans to individuals and  businesses that would otherwise not be able to get loans just because they are a minority.  Lending is my profession and I still hear of ridiculous loan programs that I did not know existed. Our government should stayed out of the lending business and let people who know what they are doing take care of it. Putting someone in business for themselves because they are classified as a minority is not a good enough reason. Some do succeed but, there are plenty who are incapable of running a business. If the government would stay out of the  lending business, it would shift those sales to someone who has their own money investedand have a proven record of running their own business and the economy would not suffer.

June 3, 2015

Q:

My wife and I have very different views on financial matters. How do we compromise?

A:

I made this comment some time ago and it still stands. Every young couple should address this issue before marriage not after. It's the number 1 cause of breakups. You don't need a banker. You need a marriage counselor because this is not about compromise. It's about  respecting and admitting who has the most knowledge about money and who has the most common sense to take the lead on this and it's not always the man. Sometimes the woman in the relationship is better at financial matters. Spending too much money can rise to the level of an addiction. I've known of situations where a spouse was spending large amounts of money through internet shopping with a credit card and the other spouse didn't know it until it was too late. I don't know how extreme your differences are with your spouse but, it'sevidently enough that you asked the question. If you can't come to an agreement, get some third party help. This goes beyond what a banker can help you with.   

Q:

There is a lot of talk about raising the minimum wage. Is it good or bad for businesses?

A:

The minimum wage conversation has gone on forever. There have been periodic increases mandated by our government. I think the big question right now is if this is a good time toraise it while the economy is still very weak. This will force a lot of small businesses to do this when they are already struggling to make ends meet. I think American workers should always be treated fairly when it comes to wages paid. However, I think it can be taken too far and it can end up hurting the small business person who, in some cases, can't take enough out to pay themselves minimum wage based on the number of hours they have to work. If we get  carried away with the minimum wage issue, it will force many small business owners to downsize their staff to compensate for the expense which is not good for the economy either. This is a very delicate topic which requires a lot of thought before decisions are made. Historically, our politicians have not been very good at putting a lot of thought into anything.

Q:

Is it common for commercial property to be found in residential areas and will it hurt myproperty's value? Also, does this apply to rental property?

A:

I believe it is more likely to happen in small communities or, very old neighborhoods in larger communities. Newer areas tend to do a better job of dividing commercial and residential. However, I don't believe that residential rentals qualify as commercial property.  If someone moves out of their home and wants to rent it, I don't think you can be kept from doing so. As for someone using their home for retail purposes like a repair shop or motel, I   don't believe that this is permissible in a residentially zoned area and the local government could end this by enforcing the Code. They are usually very specific about what you can and cannot do on certain properties. I would suggest you get a copy of the code to see if there are violations in your neighborhood. Financially speaking, the only thing I am qualified torespond to is regarding your property value. I believe it is affecting your property's value. Any time you mix residential with commercial areas, it reduces the number of potential buyers because some will prefer not to live there.

May 27, 2015

Q:

Why do some politicians still refer to Social Security as a subsidy?

A:

People who refer to Social Security as a subsidy are either uninformed or they are not that intelligent because it is NOT a subsidy. A subsidy is something received without having doneanything to get it or, in the case of government subsidies, money received without havingpaid into it. Welfare is a subsidy as is food stamps and other things received by those on welfare. Social Security is a fund that most of us have paid into for our entire working lives.  If you are receiving your Social Security benefits, you don't have to apologize to anyone for it. You earned it. You paid for it along with your employer. I think referring to it as a subsidy started when we learned that the fund was in trouble. That's not our fault. Our governmenthad to help the system with funding because they are the very people who got it into trouble by distributing money from it to people who did not pay into it. Enjoy every last dime you receive from your Social Security check. It's your money.                   

Q:

Do many people wait until the age of 70 to maximize Social Security payments? 

A:

I believe it's a small percentage. Most Americans retire before the age of 70. For those who may not be aware, the least amount you will draw is if you begin taking it at age 62, It goesup again if you wait until 66 and it hits the highest point at the age of 70. The difference is pretty substantial. For those who have paid in the maximum amount, it could be up to $500 a month more. As I mentioned, most individuals do not wait for the maximum amount at age 70 either because of health issues or simply because they don't want to work that long.  As with most things in life, it is a matter of choice. If you can afford to retire early and you don't want to work any longer, then you should take the smaller amount and do it. Justbecause someone takes it at 62 doesn't mean they are wrong or right. It's just a choice.

Q:

Do families eat out less than before due to the economy?

A:

I'm sure there are some families who have scaled back eating in restaurants. However, it's  like everything else, it depends on the severity of the families economic crunch. Obviously, ifa family's income has been decreased, they are not likely to eat out as much. If the economy  has not directly impacted household income for a family, they probably still eat out as much as they ever did. However, if you make a comparison to dining out habits today vs. 50 years  ago, that is where a big change has taken place. Eating outing for my parents with 5 kidsconsisted of a rare trip to a McDonalds several miles away in another town. This is backbefore McDonalds had seating inside. You ordered at the window and ate in your car.  Hamburgers were 10 cents each and French Fries and drinks were 9 cents each. Dad could feed the whole family for under $3. I honestly don't recall our family ever eating in a sit down restaurant while growing up. It was too expensive. Today even people with large  families occasionally eat in nicer places. Things have really changed.

May 20, 2015

Q:

I've heard that the government is going to take away the rights of banks to charge an  overdraft fee to their customers. Can you comment?

A:

The primary functions of a bank are to safe keep your money and lend money to qualified  borrowers. There is nowhere in any deposit document that states it is OK to take more  money out of your account than you have deposited. When someone does this, it creates  another step for your bank in maintaining your account. There are always some politicians in Washington who want to stick their nose into private business and tell them how to runit. They think this will make them look good to voters. Banks charge fees. They have done so for many years. It's essential to their being profitable for their shareholders. If Congress  passes a law eliminating a bank's right to charge on overdrafts, banks will be forced to seek  other ways to offset the loss in income. I have a message for our politicians. Tell your voters to live within their income and don't write checks on your bank account if there is no moneyin it unless you have a prior arrangement with them. This will eliminate overdraft fees.

Q:

How can a young person just out of school get their credit established?

A:

For many young people who have no credit experience, a co-signer is the way it begins. It'susually a parent. Some establish credit by getting a credit card with a small balance limit. This  can also get young people in trouble if they are not careful. As a young person, my Dad signed on the first couple of car loans I had. So, that's how I established my credit. Sooner orlater, every person will need to establish credit in their own name. It will become importantthroughout their lives. Having a good credit rating is extremely important and young peopleneed to guard against damaging their credit rating by always making payments on time. The credit reporting system has become very sophisticated and it's very easy for a potential lender to find out how you have handled past obligations. If you have a son or daughter who is of age and has not established credit, you should encourage them to do so even if you have to be responsible for it the first or even the second time. Stress the importance of paying as they agreed. 

Q:

We have an opportunity to buy a property on land contract with no down payment. Is there  a risk?

A:

Buying property on land contract is always a risk if you do not do it properly. Never do it without having your attorney or a title company conducting a title search. You need to know if the owner has a mortgage on the property and if so, how much is it and will it be paid in full before or on the same date you complete the contract. Just as importantly, why is theseller willing to do it with no down payment? Unless it's a close relative, the owner is taking a big risk also. Maybe he is asking way more than the property is worth. Or, maybe there are some hidden problems with the property. Most owners who are willing to do a land contract sale will want a down payment. So, why is he willing to do this for you? It's a fair question.  However, if you are going to do it, get a good contract prepared by an attorney and have your payment to the seller applied directly to the seller's loan. This is the safest way to make sure the owner's balance is going down as fast or faster than yours. There have been cases where the buyer lost all the money he paid because of this.

 

May 13, 2015

Q:

What is expected on farm land values in the coming year or so?

A:

I think most everyone is aware that per acre values on farm ground have sky rocketed over  the past 4 to 5 years. We have seen values go from $5,000 per acre to over $10,000 in some instances. There have been rare occasions where prices have been over $12,000 per acre.  Unfortunately, for those who paid these prices, corn and soy bean prices have fallen greatlyin recent months. This means that lower grain prices will likely mean lower land prices. This isn't to suggest that those farmers who paid the higher prices made a mistake. Many of those who paid these prices leveraged other farm ground they own to make the purchase which is their justification for buying it. Farm sales will not continue rising and if grain prices continue to stay low, we may see a decline in per acre values. As has been the case for years, we go through these up and down cycles but, good farmers will survive them.

Q:

Your career spans several decades. Which one was the most difficult for the economy in youropinion?

A:

 That's a tough question. There have been highs and lows in equal numbers over the years.   Everything goes in cycles. In the early 1970's, farming went through a rough time and it negatively impacted the economy. The 1980's were better. However, in the late 1980's and early 1990's farming experienced some of the worst times in this century. Farms were going into foreclosure and many lost everything. From the late 1990's into the early 2000's, timeswere good. Almost too good because stock prices were going crazy and residential housing values increased by margins never seen before. Considering all aspects of each decade I haveto say the worst one was the 2000 to 2010 years. Foreclosures on residential property were at record levels and the unemployment rate was in double digits. The stock market fell so far  that people put off retiring because of retirement fund depletion. It was a terrible time for everyone. So, I have to say that the most recent recession has been the worst.

Q:

Last week you mentioned that we should get financial advice from someone who doesn't  have something to gain by your decisions. What does that mean?

A:

I offered a personal opinion when I wrote that. Let me give you an example. If you thought that I was being paid to keep your interest rate lower on CD's would you feel uncomfortablebuying a CD through me? Probably not but, that certainly is not the case. There are many reputable and experienced bond brokers out there. However, I personally would want the advice of a financial counselor who has nothing to gain by selling me a stock or bond. Brokers get paid based on what they sell. They are on a commission basis. All I am suggesting is thatyou consider getting an opinion from someone who is not going to make money from yourdecision. Brokerage services have been in the news a lot the past few years and you need to be aware. Just be careful where and from whom you get your advice. If you don't understandan investment, don't buy until you do. That just makes good sense.

 

May 6, 2015

Q:

When our government gives the Jobs Report each month, how do they get the numbers?

A:

The Department of Labor gives the report based on several sources such as the number of people filing for unemployment benefits compared to the previous month and information from payroll companies like ADP. Therefore, when they give us a number like 290,000 new jobs added, it's an estimate. There is no way they could be 100% accurate. Also, the numbers are politically influenced. The numbers can be easily manipulated to reflect more jobs being created than there actually are and I don't think that one party is more guilty than the other.  Both sides do it. Therefore, take the information for what it is. A politically influenced estimate. It's anybody's guess how far they will go to change the numbers but, it doesn't take much to figure out that this is not an exact science and it's something that we cannot easilytrack for accuracy.

Q:

If I am near retirement, should I think about taking my retirement funds out of stocks and  bonds and put them in CD's for safety?

A:

That's a personal decision that only you can make and I won't advise you either way. It's not the first time I've heard someone suggest this but, there are too many personal factors to consider to make that decision for you. Is your retirement fund larger than you will need to live comfortably the rest of your expected life? Or, do you have what you feel is just enough to get by? Are you currently investing in risky stocks and bonds or, are you very conservative. I remember many years ago when deposit rates were very high, a lot of people put their entire retirement fund in CD's. This trend changed a lot when interest rates got really low a few years ago. Your question is a good one for anyone nearing retirement. However, as you  can see, one answer will not fit everyone. If you have a financial advisor other than the one who sells you stocks and bonds, it might be a question for them but, it should be someone who does not gain from their advice.

Q:

Should I consider investing in bank stock?

A:

For many years, up until the last 8-10 years, bank stocks were doing very well. The value pershare was going up in proportion to other stocks and everyone was happy. When the recession and residential mortgage crisis hit our country, it affected the earnings of banksand stock values began to fall as did all stocks in every industry. Increases in stock values, or appreciation, is only one part of the equation. The other part is dividends. Banks usually pay about 1.5% to 3% in dividends which today is better than a lot of investments. The bottom line is, everything goes in cycles. There are ups and downs in the stock market andyou should not buy bank stock, or any other stock for that matter, for a short term profit inyour retirement fund. You are likely to be disappointed in the result if you do. You have to be willing to ride the waves up and down and hopefully, you will be satisfied over the years.  I am not advising you to buy bank stock or any other stock. I am simply telling you stocks canbe good if you can be patient.

 

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