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Dollars and Sense

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.

April 29, 2015

Q:

I've heard you say wait as long as you can to draw Social Security. Some articles disagree.  Why?

A:

When to start drawing your Social Security benefits is a personal choice. Sometimes the decision is made based on health issues and the individual is forced to take it at the age of  62. My comments on waiting as long as you can are based on an individual with good health who wants to work a few more years. Or, maybe it's someone who wants to retire at 62 but, they are well off and don't need the Social Security check right now. Each year that you wait,your monthly benefit will be higher. Taking it at age 62 means you will receive the smallest amount. I believe it caps out at age 70. If you are someone who has paid in the maximum amount for many years, it could be quite a bit more by waiting until age 70. In either case, case, it's a personal choice and you should do what is right for you. Just don't buy into the stories that you have to take it as soon as possible because it won't be there if you wait.

Q:

What is the description of insider trading when it comes to buying and selling stock?

A:

The regulatory agency that oversees the stock market is the SEC (Securities and Exchange Commission). It is their responsibility, among other things, to insure that stock prices are not manipulated. For instance, if someone with authority in a company knew that a merger wastaking place soon and bought a significant amount of stock in anticipation that the merger would increase the stock value, this would be insider trading. They used information that only insiders knew to buy stock. The same would be in reverse. If someone inside the company knew some bad news was going to be announced on a company's financial  information and sold their stock before this news was announced, this would be insidertrading. This would even extend to someone outside the company. It happened to Martha  Stewart. She was serving on the board of a company and used insider information to her personal advantage. It's serious business and it could end up in a prison term for doing it.

Q:

My bank is encouraging me to pay my bills on-line. Is that really safe?

A:

One of the greatest products that banks have ever introduced is paying your bills on-line. Our product is called Bill Pay and it is safe. If you do a good job of keeping your information you have nothing to worry about. With postage cost going through the roof and most people wanting things to be as convenient as possible, what could be more convenient than sitting  in your living room and paying your bills on your computer? I started using it a few years ago. It is fantastic and it's very easy to use. We have been encouraging our customers to try it for a long time. Once they try it, they wouldn't be without it. You can choose to pay the bill immediately or, you can program it to come out of  your account on a certain day each month. People who have not tried it usually think it is probably too difficult or expensive. It's neither of these. Most banks do not charge anything to provide the service. I suggest you speak with your banker and see how easy life can be with Bill Pay.

April 22, 2015

Q:

Can you explain the compounding of interest on a deposit?

A:

Compounding of interest occurs when you add interest payments to the original depositrather than receiving a check for the interest. Let's say you purchased a CD from your bank   for $20,000 with interest paid quarterly at the rate of 2%. The interest for the first quarterwould be about $100 depending on the number of days in that quarter. That amount wouldbe added to the CD and now you have a CD in the amount of $20,100. At the end of the nextquarter, your bank would calculate the interest on the new balance of $20,100. This would  go on for the full term of the CD. Each quarter, the amount earned would be higher becauseyour balance continues to go up. In effect, you will be earning interest on your interest. If you don't need the interest check, this is the best way to purchase a CD.

Q:

 I see ads on TV for these Commemorative Coins. Is that a good investment?

A:

Who knows what something like that will be worth 40 or 50 years from now? However, if youare looking at it as something you can sell and make a profit on in 4 or 5 years, I wouldn't doit. These coins are mass produced which means there will be millions of them sold. I'm not even sure you could sell them the day after you bought them and get your money back. If    you want to own one just to say that you have it, that's fine. But, I wouldn't personally own  one for an investment. Do you remember the Beanie Babies? There are people who have lots of them and they hold on to them because they think they will be worth a fortune someday. I've never heard of anyone getting rich off of them. Most of the things purchased 75 to a 100 years ago didn't know it would someday be worth a lot of money. That's not how it happens. You can't predict future value on an item because it was not collectible when purchased.

Q:

When someone asks for your financial advice, do they ever get upset with your answers?

A:

  When I am asked for financial advice, I feel a responsibility to give it to them straight without concern as to whether they will agree with it or not. Obviously, they are not obligated to take the advice but, it doesn't make any difference. I won't tell them what I think they want to hear. I never have and I never will. This is not to say that my opinion is the only one that counts but, I try to use my 40 plus years of experience to help people make decisions. There is always the rare occasion where someone succeeds at something against the odds but, in most cases, outcomes are pretty consistent. To answer your question, there have been times when an individual was upset that I didn't give them the answer they wanted to hear. However, I would much rather someone become upset with me for not giving them the answer they want than to have them upset that I gave them bad advice and they experienced a financial loss. Don't ask questions if you don't want the truth. Most bankers would agree.

April 15, 2015

Q:

I heard someone talking about the amnesty for illegal aliens and they said these people will be eligible for tax refunds immediately even if they are not working. Is that true?

A:

This is a very hot topic right now. No matter which side you are on, it's very sensitive and I don't have the solution. However, even if it the right thing to do, I don't feel they should receive any kind of subsidy. They broke the law by coming here illegally. Why should they be reward by giving them welfare, tax refunds or any of the other multitude of handouts our government has become famous for. I assure you that if an American were to move to another country, they are not going to be given government money for not working. If you sitback and think this through, you feel like a terrible joke is being played on us. What right thinking person could ever believe this is even possible? Thankfully, there are still some politicians who are fighting this plan and all we can do is hope they are successful.

Q:

My bank places a hold on large checks I deposit that are written on other banks. Why?

A:

The reason is very simple. Your bank isn't getting immediate credit for the check when they take it in a deposit. More importantly, there are no assurances that there are funds in the account that the check was written on. When the payee bank receives the check back after it is deposited, they have a window of opportunity to return it for insufficient funds. Placing a hold on the check until it clears usually occurs when you don't have collected funds in youraccount equal to or greater than the amount of that particular check. Your bank has every  right to protect itself from loss. Not having a system in place to handle situations like this could result in a substantial loss to the bank. There is usually a very valid reason for a holdbeing placed on a deposited check.

Q:

Is it true that people who do their own tax returns have a greater chance of being audited than those who don't?

A:

  I've heard it said over the years but, I have no idea if it is true. It probably isn't true but, if it  is, I could see why. A majority of tax payers do not file their own tax returns without assistance from an accountant or CPA. Most of them, including me, feel a little better about  an independent party putting the numbers together. As to whether this makes it easier to  not be audited, I don't have an answer. I've known individuals who went their entire lifehaving someone else do their tax returns and they were audited multiple times. My father did his own tax return his entire life and never experienced an audit. While I have no idea what triggers an audit, I'm pretty sure the IRS does have them in place.  If you have a very uncomplicated tax return and you feel you know what to do, go ahead and do it. Just be aware that tax laws change all the time and you need to know about these changes. If you are concerned about missing something, hire someone to do it for you.

April 8, 2015

Q:

I've heard just a small percentage of people pay income tax. Do you know the number?

A:

Based on what I've read, an estimated 53% pay income tax which means 47% do not pay  taxes. I can't tell you if that percentage is up or down or if it's even accurate. Taking it a step further, the article states that 68% of all taxes paid are from the top 10% of the taxpayers. While I can't prove these percentages to be true, I would not be surprised if they are. Thiskind of washes away the thinking of some who say the rich are not paying their fair share oftaxes. Our tax system is clearly outdated and in need of renovation. When the top 10% arepaying over two-thirds of all taxes paid, we have a problem. If you don't believe these numbers, just remember that 51% of the U.S. population is receiving some sort of subsidy or subsidies from the government. So, they likely pay no taxes. There are many problems facing  our elected officials but, I can't think of any two that are more pressing than overhauling the  tax and the welfare systems.

Q:

 What kind of investments are not subject to income tax?

A:

Not very many but, there are a few. The most common tax free investments are municipalbonds and not all municipal bonds are non-taxable. There are also some types of industrial revenue bonds that are tax free. Bonds that are designated tax free will have a lower interestrate than those that are taxable. So, depending on your tax bracket, they may or may not bethat helpful in avoiding taxes. If you are considering investing in tax free bonds, you should  speak first to your accountant to see if they would help you. Also, you should be aware that municipal bonds come with more risk than insured deposits. Getting your money back at the end of the investment period is reliant on the municipalities ability to pay back the debt.  There are rating systems in place that can help you with your decision but, I would not rely 100% on what a bond salesperson tells you. Do your own research.

Q:

I was told there was an article recently saying that there are millions of deceased people who still have active social security numbers. How does that happen?

A:

I saw the same article and I believe it was six million. The article did not state how many of those died while receiving Social Security payments. I would assume it was a high number.How does this happen? It happens because our government would rather waste time questioning athletes who took steroids, and other less important things, than to deal with more important things like protecting our Social Security fund. Although the article did not tell us how many of these deceased people were still getting checks, you would have toassume someone is getting them if their number is still active. This would be equivalent to banks continuing to pay interest to a depositor after they closed their account. We would not be in business very long if that were to happen. But, our government has a solution for the problem. They just print more money.

April 1, 2015

Q:

A couple of weeks ago, you said low income people can get tax refunds without paying into  it. Does this apply to those on welfare?

A:

Based on what I have read, it is possible for someone to receive a tax refund and still receive subsidies. A person can be on welfare, food stamps a housing allowance and still have a job.   They are limited on how much they can earn and still receive these subsidies but, they can  have some income. If taxes are withheld from their paycheck, they would essentially get it all  back when they file their tax return. I know it sounds unfair and it is. However, this is just one of hundreds of loopholes in our government system that allow individuals to receive  money unfairly. This will not change until voters start electing people committed to change.  Since votes are the most precious thing to a politician, we are not likely to see that happen.

Q:

What is it you know that politicians don't seem to know about our economy?

A:

I don't know anything that they don't know. They are very much aware that our economy is still not what it should be. The difference is they can ignore what they see and twist things to make it appear to be different. No matter which side of politics you are on, they all do it. They spin things to meet their own needs. The downside to our political system is that, once they are elected, they can say what they want and even bend the truth at our expense. If the economy is bad, the party in office will claim it is better than it really is because it is in their best interest to do so. I imagine most of our elected officials are intelligent people andand they have the ability to make good decisions. They just choose not to if it helps get them re-elected. We may as well accept it because unfortunately, it isn't going to change.

Q:

Why do I have to pay income tax on Social Security if I am still employed?

A:

There is a provision in the tax code that requires you to pay tax on a portion of your Social Security payments if you make over a certain amount of money from other sources. Youshould speak with your accountant about this to determine if you are affected. To answeryour question, I don't know why but, it doesn't seem right. After all, you are only taking back what you paid into the Social Security system so it doesn't make any sense that you are being penalized for having other income. It makes you feel like they are doing this tooffset some of the mistakes made in other areas where our tax dollars are given away forunacceptable reasons. It's just like everything else when it comes to taxes. They don't haveto explain why they do things that make no sense. We could probably write all day long onthe topic of why does our government do certain things but, as the saying goes, It is what it is.

March 25, 2015

Q:

Is it true that some families can receive a tax refund even though they haven't paid any  taxes?

A:

I addressed this subject a few years ago in this article. Yes, it is true that low income families can receive substantial tax refunds even if they had little or no withholdings from their paycheck for federal taxes. I've heard of instances where these returns are as high as $7,000. An example of how this could happen is a person with an income of less than $20,000 and 4 or 5 dependents. They could also be receiving food stamps and other subsidies. The word refund insinuates that you have paid too much in withholding tax and you are now getting a little bit of it back which is not the case in this situation. You can't refund what you haven't paid. So, why don't they just call it another government subsidy and be done with it. On the surface, you might think this is a way to shift money to the poor without calling it a subsidy. I will say this much for the people in my example. At least they are working. That's more than you can say for many able bodied people who are letting us take care of them.

Q:

I read somewhere that the U.S. Government is the largest land owner in the U.S. True?

A:

I'm not at all surprised. The government has millions of acres just in military facilities. I lived close to Ft. Riley for several years and it is 90,000 acres in just that one location. We havehundreds of facilities around the country, probably 4 or more per state. There are alsohundreds of non-military locations around the country. Then you have the National Parks.  It would not surprise me a bit if the total number of acres owned by our government were over 5 million acres and maybe much more than that. This doesn't even include the thousands of buildings on some of this land. There are likely a lot of people who are shocked at these numbers but, I don't believe they are over stated. It's very possible that no one in our government can actually tell you how much land the U.S. government owns.

Q:

Last week you said the government should cut unnecessary funding and give it to us as a tax break. How would that help?

A:

There are 100's of programs out there, funded by taxpayers, and they serve no purpose. I'm all for protecting our environment. However, someone needs to explain to me why millionsare spent to study insects, plants, sea creatures, the mating habits of animals and many other things. These things may be interesting but, worthless information. The 100's of oddprograms we give billions of dollars to would absolutely leave you stunned. Why are the eating habits of cave men thousands of years ago so important? Does it make our lives better? Does it help with our healthcare or change our lifestyles? Of course it doesn't. So, why are billions spent every year for these things? Instead, put this money back in the  pockets of millions of American people in the form of tax cuts and it will turn our economy around. Some may say all this is for educational purposes. I understand that but, can we    really afford to spend money this way when the future of our kids and grandkids is at stake?  I don't think so.       

 

March 18, 2015

Q:

Did I hear right that the President has come up with a plan for free Jr. College for anyone who  wants it?

A:

According to reports, that's what he would like to see. However, I'm not sure it will ever  happen. It still has to be approved by Congress and I have my doubts if it will pass. As far as  I'm concerned, I hope it doesn't pass. Our country is already holding millions if not billions of  unpaid and delinquent student loan debt. Now, our government would like to add to thatmisery by giving free Junior College educations. I am not against helping those who comefrom poor families. However, to offer this to anyone regardless of their background is just wrong. Studies have shown for many years that people who work and pay for their own education are more apt to complete their schooling and to appreciate it more. Sometimes I get the feeling that politicians in D.C. sit around and dream up these ideas on how to throw money away. People in the business world lose their jobs when they misuse corporate funds.  When D.C. politicians misuse our tax dollars, they get re-elected.

Q:

Will our government offer another economic stimulus program like the one they had a few  years ago?   

A:

There have been various stimulus programs over the past few years to try and get our economy moving in the right direction and there is no proof that any of it worked. We spentbillions of our tax dollars to stimulate the economy from giving everyone a check for $250 to tax credits for winterizing our homes but, our elected officials get kind of quiet when they    are asked to show how it helped the economy. No one seems to want to do the one thing that would stimulate the economy the most. Take away billions of dollars in free money topeople who don't deserve it and give working America a tax cut with the savings. Put moremoney in the pockets of working people and they will spend it. That is not a popular opinion  and they will never do it. Part of the cut back would be in welfare benefits but, not all of it.  There are many other free programs out there that are totally unnecessary.

Q:

I keep hearing these reports that Social Security is going to be a part of the cut in expense by the Federal Government. Is there any chance of this?

A:

  I suppose there is always a chance when political idiots are making decisions for us but, myhunch is it won't happen. If our government starts playing games with Social Security benefits, it may trigger an uprising from the American people that is unmatched in thehistory of our country. Millions of people and their employers have paid into social security for their entire working lives and they will expect to get it back in retirement. Not only would it hurt the individuals, it would hurt the economy. We have seen some really ridiculous decisions made in D.C. but, a decision to take away any part of our social security benefitswould be going too far. The people we elected to office would have to find a very safe placeto hide from millions of people if they made a decision like this. The majority of retired  people have no other retirement income except social security. They won't take it away.      

March 11, 2015

Q:

Is it true that some people maintain banking relationships and never go to the bank?

A:

Over the years, banking has changed for many. We have direct deposit on payroll and Social Security checks, individuals can pay bills and get their bank statement on their computer and  we have mobile banking on cell phones. Our best guess is that 20% of our customers do most of their banking with no need to come into the bank. I think this percentage will continue to grow. However, the majority of our customers still like the hands-on approach so they come to the bank for everything and we are fine with that. We enjoy getting the chance to visit with customers. It really comes down to a personal preference. Some don't feel the need to have a 1 on 1 relationship with their banker and some do. Either way, we will never force our customers into electronic banking if they don't want to use it. That's what community banking is all about. We are happy to accommodate your preference for banking.

Q:

Is there an ideal length of time to purchase a C.D. due to current interest rates?

A:

No, there is not. It all comes down to your thoughts on how long rates will stay low and when you think they will start going up. The government has kept rates artificially low for much longer than anyone thought they would. Over the past 3 years or so, there have been numerous times when they have said it would be a certain timeframe for them to raise interest rates and those dates were passed with nothing being done. I deal with interest rates every single day and I would not make a prediction on when they will go up. The most recent comments from the Fed Chairperson are that rates will start going up slowly in the second quarter of 2015. Don't be surprised if that date comes and goes with no action being taken.When rates do start going up, it may be a manipulation for political purposes and not because of real economic growth because there hasn't been much growth.

Q:

I went to my bank recently to buy travelers checks and they don't sell them anymore? Why?

A:

  Over the past several years, banks have seen traveler's check sales falling off to the point that there were very few being sold. American Express was the leader in traveler's checks but, two products have made them nearly obsolete. Those products are ATM's and debit cards. It is not necessary for someone to carry hundreds of dollars in their purse or wallet these days.  Very few merchants and retailers do not accept debit cards for purchases and ATM's are on  every corner in or out of the United States. Plus, you don't have to worry about losing the traveler's checks which happened quite often. When was the last time you saw an ad to sell traveler's check on TV? It would be a waste of advertising dollars. They are no longer needed.

March 4, 2015

Q:

I heard that bankruptcies are removed from credit reports after 7 years. Can a lender still turn you down for credit after that?

A:

Bankruptcies are normally removed from your credit bureau report after 7 years. That much is true. However, this does not necessarily mean that lenders are going to forget the fact that you filed for bankruptcy and they can't be forced to forget it. With the exception of filing due to catastrophic illness or some other matter that's out of their control, most bankruptcies are caused by the inability of consumers to control their poor spending and buying habits. They can't pay the debt back so, they stick the lender with a charged off loan. A bankruptcy judge can force us to not come after you for the debt but, he can't make us forget that it happened and we can refuse to give you credit. As long as records are available to us, we are not going to knowingly lend you more money if a loss is taken by previous creditors. This may sound harsh but, it's the price you pay for not paying your bills.

Q:

I have always paid my payments within 30 days of the due date. Now my bank is hesitant to loan me more money. Why?

A:

It's probably because you didn't keep your commitment to pay on time. When your loan  contract calls for payments to be made on the 10th, that means you pay them by the 10th You will not find anywhere on your loan contract where it tells you to take up to 30 days to pay. Technically, your loan is past due and delinquent the next day. The credit bureau may not record delinquencies until they become 30 days past due. However, your bank keeps  records. If they see a pattern of payments coming in well past the due date, they may get the impression that your finances are tight and one unexpected expense would make it difficult for you to meet your obligations.  It's never a good idea to change the date you  make your payment without discussing it with your lender. I'm sure they will work with you if you need to adjust your due date.

Q:

Is it true that someone can have a foreclosure on their home and still get a home loan?

A:

  The Obama administration has approved a new program for people who have done short sales or foreclosures. A short sale is when a home owner strikes a deal with the lender to sell a home for less than is owed and the lender forgives the rest. Some lenders did this when home prices fell drastically. I'm sure you know what a foreclosure is. This new government backed program allows people in either situation to apply for another home loan if it has been 5 years since the event. This is a dumb idea and I won't participate as a lender.  D.C. politicians have the audacity to say it will help the economy by creating more home sales. Let me put it this way. If a dog bites you once, you don't go back and stick your hand out for him to do it again. The majority of these people lost their homes because they couldn't afford to be a home owner and they had very little money invested. This program could put us back in the same situation we were in a few years ago. It's ridiculous.

February 25, 2015

Q:

Is there one characteristic that distinguishes middle aged people today and the previous generation from a financial perspective?

A:

In my opinion, middle aged adults in the previous generation were less materialistic than  today's middle aged adults. Bigger and newer homes, multiple cars in the garage, expensive vacations and bigger wardrobes just to name a few. The generation of our parents did not have as much as we do today even if they could have afforded it but, it's not all our fault.  There are a lot more options available to us today. Technology has created many more opportunities to spend money that our parents and grandparents did not have. The currentgeneration has not been able to resist the temptations this has presented. I read a book a few years ago written by Tom Brokaw the newscaster. It was titled The Greatest Generation. He wrote about the people of the World War II and Korean War era. After reading it, I believe that it was truly the greatest generation. These people, through a truly difficult time, learned how to save and how to spend money. Many of today's middle aged adults have sadly notlearned the importance of this. A lot of our countries financial difficulties can be traced back to this issue.

Q:

Several months ago, you mentioned how difficult it is for friends to go into business together.Is it any easier with other family members?

A:

 I have seen many family owned businesses that have been highly successful. I've known a few friends who have been successful in business together. They have all had one thing in common. One person was in charge. No business can survive without someone in charge. If that isn't clear from the start, the business will fail. It doesn't matter if it's family or friends. If you have a business with several employees and a lot of decisions to be made, someone has be a leader. That doesn't mean only one person can make decisions. It just means when there are differences of opinion, someone has to be in charge. These kinds of things need to be addressed before you go into the venture. Not after you have started. How do I know? It's from dealing with 1,000's of businesses over a period of 40 plus years and witnessing what   goes on. There are always exceptions but, they are rare. Human nature and egos come into play and that affects how well things work.

Q:

A friend of mine told me he tried to open a bank account at a local bank and they refused to allow him to do so. Why would this happen?

A:

  I don't know if this applies to your friend but, it could be that he or she had some problems  with an account at another bank. In recent years, the banking industry have begun to shareinformation on losses they have incurred as a result of a relationship with someone. Banks can and do share bad experiences with each other and it's perfectly legal. Being a part of  this system has saved the banking industry millions, if not billions of dollars by being able toavoid doing business with people who evidently have no problem in defrauding banks. Chances are pretty good that if a person is refused service in the form of a bank deposit account, there is another bank out there that has already taken a loss from overdrafts and insufficient funds to cover checks they have written. In some cases it may not have been anattempt to defraud. It could have simply been their inability to handle a bank account and tokeep it balanced. In either case, the information is shared.

February 11, 2015

Q:

If the government is so interested in saving energy, why don't they put more restrictions on  the fuel economy of cars being produced?

A:

Our government has imposed fuel economy on the auto industry for years and it has gotten better. However, I don't believe they will ever pressure the auto industry to do as much as they could. First, there is the political commitment to oil producing countries that ship oil to us for consumption. They will not do anything that would damage those relationships. In addition, the auto industry has one of the largest lobbying groups in our country. If buyerswant a car with power that uses a lot of gas, so be it. They want to build it. Because of the  restrictions on fuel economy to produce better mileage, we have many vehicles that get 35 or more miles to the gallon. However, I don't think we will ever see all cars and trucks get  that kind of mileage.

Q:

What will my mortgage lender do if I have a dispute on my real estate taxes and don't pay it?

A:

 A mortgage lender is not going to get in the middle of a dispute over your tax bill and they  will expect you to pay it when due. It is not all that unusual for someone to dispute realestate taxes but, I imagine the county will expect you to pay it while it is being disputed andso will your lender. As I have mentioned in the past, real estate taxes is the only thing that  can come between your lender's mortgage from the standpoint of a lien. If your taxes go unpaid, it increases the amount needed to clear  your mortgage. I would not advise you to just stop paying the tax bill while you dispute it even if your dispute is legitimate. If youdecide to not take this advice, rest assured, you will hear from your lender and they maybegin foreclosure on your property if you let the taxes go without being paid for very long.

Q:

Is it unfair for me to expect my kids to help out with their college education?

A:

  I will make the assumption that you cannot afford to pay it all yourself. If that is the case, it's not unusual for parents to ask that their son or daughter help out by working part time whilein school and during the summer. Even some people with plenty of money require their kids to participate. I have seen situations where parents could have easily written a check for theentire four years of college yet they still required their kids to work a part time job. In most ofthese instances, the parents felt that requiring them to participate financially would promotegood work ethic and I think that is a legitimate reason. It will probably make them appreciate their education more. I fully understand that most people want to provide their children witha trouble free education. However, it is your decision as a parent as to whether you require them to participate in the finances. If you can help, you should. Whether you choose to pay a part of it or all of it, that's a personal decision.  

February 4, 2015

Q:

Have you heard numbers on how much giving amnesty to illegal aliens will cost tax payers?

A:

The plan to give amnesty to illegal aliens is a very controversial subject and I know there are  two sides to the issue. However, I think it would be foolish for anyone to think that it won't  be expensive. Where will these people turn for help if they are unemployed? Where will  they get the money for health care? They will turn to our government and add to the millions  who are already on government subsidies. I think the fact that our country has a history of  allowing people to come here and enjoy our life is great. However, they should not be allowed to do it illegally. They should be made to do it the proper way. If your personal  finances are in trouble, you don't go out and buy some expensive item. Our government is in  serious financial trouble. Adding the expense of millions of illegal aliens is not making sense. Our President tells us they will add benefit to our economy by spending money. Someone  needs to tell him what we already know. They will get this money to spend from us, the  taxpayer. That doesn't add to our economy.

Q:

Do you know how much of our tax dollars are used to protect former Presidents of the U.S.?

A:

 I've read this information some time ago but I'm not sure of the number. At present, we are  caring for 4 former Presidents. Aside from providing Secret Service protection, I believe there  is a pension, an allowance for office space, an office assistant or secretary and several other  benefits. I think a conservative guess for all 4 would be $5 million per year. However, plenty  of other expenditures that our government makes concern me a lot more than taking care of  former Presidents. Whether we approve of the job they did or not, I think they deserve the  benefits they receive after leaving office not to mention giving them protection against those  who might still want to harm them. We need to concentrate on other wasteful spending. Dowe give them too much? If you compare it to what CEO's of large national companies receive,  it is not too much. 

Q:

Years ago, banks used to give out little passbooks when you opened a savings account. Noneof them do it anymore. Why?

A:

I remember in my earlier days of being a banker when we gave those little books out to a  new savings account holder. What customers did not know is that it was for the customer's  benefit and not the bank's because it was not an official record. Anyone could post a depositin those books whether they actually made the deposit or not. It was not proof of a deposit.The passbooks stopped being used when we began using computers that generated areceipt for your deposit which is real proof of your deposit. They may have been kind of niceto open up and look at but they're not official. Some banks, including ours, offer customersa ledger made of thicker paper material to keep track of their deposits, withdrawals andbalance. However, just as with the little passbook from years ago, it is not an official receiptof payment. Some banks don't even offer that. Your official proof of deposit is the receipt  generated by the teller.  I would not expect your bank to accept your entries in the ledger asproof that you made a deposit. You need the receipt.

 

January 28, 2015

Q:

My employer matches half of my 401K contributions up to 6% of my salary. So, why would I contribute more than they will match?

A:

Many employers graciously offer a 401K match like yours does and they usually put a cap onhow much they will match. While there are rules on how much you can contribute, there are other factors, such as a "catch up" provision, that could allow you to do more. If you are interested, speak with your accountant to see if you qualify. If you do qualify, it doesn't matter whether your employer will match it or not. It's still money that can avoid taxes until you retire and begin to take withdrawals from your retirement program. For those who have an employer who matches any part of your contributions, you are very fortunate. This can add up to a significant amount someday depending on how aggressive you are in your contributions. If you can, take advantage of this opportunity to the fullest extent.

Q:

Are time-share vacation homes still a popular thing today?

A:

They might be but, you don't hear as much about them as you did 20 years ago. Time-shares, for those not familiar, are a way you can share ownership with several other people and you get the use of the home a certain amount of time each year. If you don't see yourself spending 3 to 5 months a year in a warmer climate, it's another option for 2 to 6 weeks a year. I know there are a lot of people who own time-shares. Personally, I don't care for the concept. Most of these arrangements do not allow you to pick and choose when you want the use of the property. Instead, you are given a window of opportunity when you can use it and you are co-owners of a property with people you don't know. I've also heard that they are difficult to sell if you ever want to get out of the deal. If you can't afford to own a vacation home, you might consider renting. There are reports out that, due to the downturn in the housing market, rental housing in warmer climates are plentiful. If time-sharing works for you, that's fine. I just don't care for it.

Q:

Aside from the basic salary or hourly wage, what are the additional costs of an employee totheir employer?

A:

The total cost of an employee goes beyond the base salary or hourly wage. Some  of the expense is mandatory like the Social Security match your employer makes on your behalf.However, most of the additional expense is voluntary. If you contribute to a 401K or other retirement plan, most employers match your contribution up to a certain percentage. Your employer likely contributes to the cost of your health, dental and vision insurance. Some even contribute to your education when it relates to your job. Even vacation and sick days are a cost to your employer. Depending on how many benefits your employer offers, the additional expense could be from 25% to 40% of your salary or hourly wage. If you apply either of these percentages to your income, you will see that it is substantial. For those who sometimes say negative things about their compensation, try to remember all the additional cost your employer pays for you or gives to you. Some employers share this type of  information with employees at the end of each year.

January 21, 2015

Q:

Are there any guidelines on how much to spend on a wedding compared to your income?

A:

I don't know of anything in writing but, there is an unwritten guideline and all it takes is common sense to figure it out. Don't spend more than you can afford. Daughters are very special to us. However, I would think a reasonable approach is don't spend more than you have in cash or, don't borrow more than you can pay back within 12 months. I've seen it,even in my own family, where it took years and second jobs to pay back what was spent on a wedding. That doesn't make a lot of sense to me. No child should expect their parents to destroy their finances for a wedding especially with the rate of failure in marriages today. How much you care about your kids is not based on how much you spend on them and the amount you spend is not going to determine how tight the marital knot is tied. Weddings are no different than anything else you spend money on. You need to use your head. In case you are wondering, I've paid for two.

Q:

Why won't banks make long term fixed rate loans unless they can be sold in the secondary  market?

A:

Your reference is to mortgage loans and the reason is very simple. The funds used to make  loans comes from customer deposits. Depositors have always been unwilling to accept long term fixed rates. Therefore, we have to match terms on loans as closely as possible to terms on deposits. If a banker does not do this, it could cause a very bad effect on earnings. Therefore, unless the banker has a significant amount of deposits with rates fixed for a longtime, he can't afford to take a rate risk by fixing a rate on a loan for a long term. Therefore,if someone desires a fixed rate for 20 to 30 years, it will be sold in the secondary market and it becomes a part of thousands of loans that are packaged and sold in the bond market. Back in the early 1980's, the Savings and Loan industry was nearly wiped out because of this very situation. They made billions of dollars in 30 year fixed rate mortgages with money that came from CD's invested for less than 4 years on average. When rates got very high on deposits, it  created a situation that made them unprofitable.

Q:

I heard a news report that said small banks will become non-existent. Do you agree?

A:

I don't agree with that at all. However, I do think it is becoming harder for community banks to maintain profitability unless the government eases up on some of the requirements that were meant for large regional and national banks. A significant amount of the newer laws imposed on banks have very little if anything to do with how a community bank operates. Yet we are expected to abide by them just the same. It is very costly. In the future, I think you will see more partnering of small banks to pool their resources to combat the heavy cost of  regulatory issues. However, the most important reason why I think smaller banks will always exist is that we provide a level of service that big banks cannot offer.  Large banks have become so impersonal with customers that they truly are no more than a number to them.  Our customers know their bankers and we know them. I think that is important to people and it will help us survive. If you have ever dealt with a large bank, you know this is true.

January 14, 2015

Q:

Bank stocks in general haven't done well in recent years. What's causing it?

A:

In general, you are correct. Bank stock prices have been down over the past few years. However, not proportionately more than any other types of stock. Unfortunately, stock  markets do not differentiate much when it comes to the size of banks. Therefore, small banks were adversely affected because of the problems in large banks during the housing crisis and Wall Street issues. The other thing that has hurt banks, especially smaller ones, is the flood of new regulations the government has placed on our industry many of which do not apply to small community banks yet we have to comply with them anyway. The stock market sees this as an additional cost to banks in order to keep up with the new laws and regulations passed in recent years. With all this being said, I think bank stocks have done fairly well and they continue to pay dividends. This is my opinion and not an encouragement from me to buy bank stock. That decision is all yours.

Q:

I've heard you mention bank regulations. Do you have to abide by all of them?

A:

Banking regulations are created by politicians most of which have never managed a business of any kind. Many have never held a job outside of politics yet they write laws and regulations for industries with no expertise or understanding of that industry. Bank depositsare insured by a government agency (The FDIC). Therefore, we have no choice but to comply with all laws and regulations pertaining to banking. It can be a criminal offense if we don't comply with them. It is very frustrating and time consuming for us to keep up with all of these regulations because there is reporting that goes along with it. More often than not, people are told that these laws and regulations are made to protect them. However, in many cases, they are senseless and they don't accomplish anything. All they do is frustrate people and we are left to try to explain why we have to do it.

Q:

When a city has a special event, like a convention, they talk about economic impact. How is  this calculated?

A:

We often hear these kinds of numbers in the news reports. It's not rocket science and it's  not completely reliable. It's an estimate. Basically, they try to determine what each person will spend on things like a hotel, meals, tips, cab fare and other normal expenditures. If that number is $900 for a 3 day convention and there are 1,500 people attending, they figure aneconomic impact of $1,350,000. This may not include the money earned by workers who redistribute it through purchases in the community. For the municipality in which it is held,  it's a windfall of income if they have a city sales tax. Depending on the tax structure in that state, it might help them as well. This is why you see a lot of big cities and the states lobbying to get events scheduled. It can mean a great deal of money to them. Regardless of how small of an event it is, there is always an economic benefit to the community. Although it's small, there is even an economic impact on something like the Chamber of Commerce Summer Fest.

January 7, 2015

Q:

Can people make money collecting things to recycle?

A:

I suppose recycling is a good thing whether it's for money or for the environment. Most  people who collect scrap metal, pop cans, plastic bottles and other things do not do it for the environment. They do it for the money. They are cleaning up the environment without realizing it. Contrary to what you might believe, recycling is not something that just started in recent years. I remember my first cheap car in high school. It leaked oil badly. Service stations used to take the oil from cars when they changed it, poured it through a strainer and resold it in Mason jars for 10 cents a jar. Since it seemed like I was losing a quart of oil every   25 miles, I would buy the recycled oil 5 jars at a time. Did those station owners believe that it was helping the environment? Probably not but, it was helping anyway. Recycling for the sake of the environment is a very good thing. However, when you consider the time people invest in collecting recycled goods to turn into cash, it's probably not very cost effective. I've never heard of anyone getting rich from doing it.

Q:

My kids think it is crazy for me, as a senior citizen, to buy a different home this late in life? Is  it?

A:

Not at all. It happens often for different reasons. It might be a downsizing issue or selling one home and buying a new or newer one for less maintenance. Often this is done even if there is a mortgage involved. Regardless of the reasons, I don't see any problem with it as long as you can afford it. The only circumstance in which it is your kid's business is if they are helping you financially. Then, I would think they are entitled to some input. If not, do what you want. You earned the money and you can spend it as you choose. Unless you have become mentally incapacitated, you can make decisions for yourself without an OK from your children. Maintaining an older or larger home becomes more of an issue as we get older and even if it  is difficult to give up a home you have lived in for a long time, it is the practical thing to do.

 

Q:

We are beginning a new year. Do you have any tips for making financial adjustments?

A:

Probably the same ones I would give someone every year. If you are in debt for credit cards,you should commit to reducing or eliminating it. If you have an automobile loan, check to see if the current value is greater than what you owe on it. If not, increase the amount you pay each month to create some equity in your car. This will help you when you go to trade it or sell it. The same goes for your mortgage loan. If you owe more than 80% of the value of your home, pay extra until you get it back in line. I know some will find these tips hard to do but, if possible, this should be your focus. If you are not in debt for anything, you are one of the more fortunate people but, you can still have goals. Do some tax or estate planning to make sure you have sufficient income in retirement. Or, look at the investments in your retirement fund to make sure you are comfortable with your decisions. Some individuals fail to do this and regret it later. The first of the year is always a good time to check your finances.

December 24, 2014

Q:

How much of a part do finances play in getting people elected to public office?

A:

Unfortunately, it plays a huge part especially in national politics. Many Americans don't make an effort to decide who is the better candidate or the most qualified and that's a shame. Instead, they make a choice based on who is the most visible through TV and newspaper ads.The dollars being spent to get elected just seems to grow. There are laws that have been passed limiting the size of the contributions. However, at least on the national level, they have figured out a way to get around it. It would be great if candidates could be elected based on real qualifications. In the business world, people are hired based on experience and qualifications. In politics, we elect people based on how much money they spend. Most of them have no financial experience and yet they spend trillions of dollars every year. Then, we wonder why our country is in such a financial mess. How could it possibly end up differently?

Q:

Will we ever see CD rates above 10% again like in the 1970's?

A:

For all of our sakes, I hope not because it will also mean high loan rates. Rates topped out on Certificates of Deposit at around 15% in the early 1980's. It was a very difficult time.  Lenders had to price loans on mortgages at close to 18% and commercial loans at Prime rate plus 2% which totaled about 21% in order to pay these competitive rates. This was not a  good thing back then and it would be even worse today. I know people are frustrated over low interest rates on deposits. I never thought we would see the day when they would be this low for this long of a period but, when it comes to the economy, nothing is for sure.  However, I feel safe in saying that we won't see 15% CD rates again because a lot has changed since then to keep that from happening. 

Q:

I have quite a few collector coins. Could you tell if they are valuable by looking at them?

A:

I'm afraid I won't be any help to you on this topic. A lot of people probably think a banker would keep up to speed on rare coin values but, we don't. People also assume that banks take in all kinds of valuable coins which is not the case. Back when I was a young banker, we  did see a fair amount of old coins come through the bank. Although I did not do this, it was not uncommon for bankers back years ago to go through coins looking for rare ones. As with other types of collectibles, most older coins have been taken out of the market and they now lay in someone's collection. I could go through every coin that comes through the bank for a week and not find one collectible coin. Maybe I should have shown more interest when they were plentiful but, I didn't and now it's too late. From the little bit of knowledge I have, the condition of the coin has a lot to do with the value it will bring. If you start collecting coins, do it for fun. You won't be able to accumulate enough to get rich from it because most of them have been taken out of the system.

December 17, 2014

Q:

I signed on a loan for a friend. I was notified he isn't paying as agreed. What is my liability?

A:

It's unfortunate but, this is a question you should have asked before you signed the loan  document. I can't speak for all banks but, I can tell you that we make a point of making sure  the guarantor understands what his or her liability is before signing the papers. Claiming you  didn't understand what you were signing is not going to solve your problem. You agreed to  make the payments if the primary borrower failed to do so. The lender will hold you just as responsible as the person you signed documents for. When the lender asked for a guarantor,they felt there was more than a normal amount of risk that the borrower may not pay as agreed. It always amazes me when guarantors often become angry with the lender when  called upon to pay. Be angry with the borrower, not the lender. You might have just lost a friend if you had refused to sign on the loan. Now you have lost a friend AND your money.

Q:

What does it mean when an individual sells a loan at a discount to a lender?

A:

It doesn't happen very often but, I have been involved in a few of these over my career. Here is an example. Let's say you sold real estate and financed it for the buyer at a rate of interestway below the market rate. They have been paying for 5 years on schedule but, you have a need for some cash. Your banker, who you have a good relationship with, has offered to buy the loan from you at 90% of the face value. The banker takes over the loan and gives you 90% of the amount owed. You get your cash and the buyer of your property now owes the bank. The reason for the discount is that it will make up the difference on buying a loan with a low interest rate. This is rarely done these days but, it was a common practice years ago. If the seller didn't really want to sell the note, he could pledge it as collateral on a loan. The key to this is that the person selling the note must have a properly prepared documents and mortgage or the banker would not buy it.

Q:

I heard an economist say that you need 50% of your working income to retire. Is that true?

A:

I don't think much of that advice from the economist. To start with, no one can give a flat percentage needed for retirement. This is a good example of why I caution people about  taking advice from someone on TV. Your lifestyle and the amount of debt you have will  dictate how much you will need. That figure could be 30% or 100% of your working income needed in retirement. Depending on your situation, it could very well end up being 50%. However, that would just be a coincidence. So, it's irresponsible for someone to state that you need that figure in order to retire comfortably. That question is like asking how much gasoline you will need to drive from New York to Los Angeles. No one can answer that unless they know if you are driving a compact car or a 16 wheel truck. I used to have these conversations with my mother when she closely followed a well-known TV economist. Don'taccept everything you hear or read. 

                   

 

December 10, 2014

Q:

This Black Friday sales event after Thanksgiving, do retailers really make money from it?

A:

You have heard the old saying, "There's a sucker born every minute." Retail marketing experts came up with one of their best schemes ever when they created Black Friday. They lure you into the store with a few things priced very low knowing full well that many of the people who show up will buy other things. If they were not making money from Black Friday they wouldn't do it. All you can do is just shake your head when you read about fist fights, people being knocked down and injured or in a couple of instances, it resulted in death. I would think I had lost my mind if I ever agreed to participate in Black Friday. I think it has become a game for a lot of people who just want to brag that they were able to get that one item priced well below normal pricing. Is it worth it to go through this mess of people and traffic? Not for me.

Q:

With the stock market the way it is, I'm thinking about just putting money away in a savings instead of my 401K. What's your opinion?

A:

I understand your concern but, there is a bit more to it than that. Contributions to an IRA or 401K is taken from your pay check before taxes are calculated. In other words, employers calculate tax liability on the lower figure after the contribution to your retirement. It doesn't matter if your return on the investment ends up being zero, you are still going to avoid paying tax on those contributions until you begin drawing from your IRA in retirement. If you choose to have a portion of your pay check going to a savings account, taxes will be calculated before the savings deposit and not after as in an IRA. In my opinion, your idea will not benefit you even though the stock market is down. Maybe you should consider talking to your IRA administrator for advice on how to avoid the ups and downs of the stock market by going into more stable investments. As I have said many times before, the 401K and IRA are such great tools for retirement and reduction in taxes that I'm surprised the government has not taken it away from us. Let's hope that never happens.

Q:

In the type of job I have, I receive a sizeable year-end bonus from my employer. Should I have a contribution to my 401K withheld just like normal pays?

A:

Why not? Unless you have some significant thing that you need the money to accomplish, I would make the contribution. It will save taxes on your bonus and, if your employer matches a portion of your contribution, this is an added incentive to do it. I cannot express strongly enough the importance of taking advantage of every opportunity you have to make these contributions. Ask anyone who is within 10 years of retirement and they will all tell you they wish they had done more when they were younger. The 401K was passed into law by our government in the mid 1970's. I remember it very well. We trained our staff on how it worked and how significant this was to their future. The tendency for people under the age of 35 is to think there is plenty of time for them to save for retirement. I can assure you there is never enough time. The years will pass quickly.

 

December 3, 2014

Q:

Is there a general rule of thumb when making a large purchase to either borrow the money or, if you have it, pay cash for the purchase?

A:

There is no rule of thumb. This is mostly a decision that gives you the most comfort. There are some who get comfort from having cash in reserve for an emergency. There are others who really don't handle being in debt very well. Each individual's situation is different. The other consideration is how much cash you have. If this purchase just makes a small dent in your savings, paying for it makes sense. If it will virtually wipe out your cash, maybe borrowing makes better sense. From a financial perspective, these are the things I would consider if it were me making the decision. What makes sense for one person may not make sense for another person. There is no right or wrong. Do what keeps you from losing sleep.

Q:

Do all your financial questions come from people writing you and what was the most interesting question?

A:

Some come from people writing or stopping me on the street. Others come from listening to people talk in groups. They mention something about financial matters that bother them and it occurs to me that this may be something that concerns a lot of people. You would be surprised what you hear if you listen. Between these sources, it seems like there are a never ending number of questions people have about financial matters. If I can help someone by answering a question, I have accomplished what this is supposed to do. I've had people tell me they don't understand how someone could not know the answer to some questions because they are so easy. My response to that is very simple. There are varying levels of financial knowledge. What might seem simple to you may not feel that way to someone else. All questions are welcome.

Q:

Is there one reason, more than any other, why people develop financial problems?

A:

The reason most individuals and families get into financial trouble is they don't understand their financial limitations. They don't make plans for the unexpected things in life. They spend every dime they make and give very little thought to what they will do in the event of an emergency or an unexpected expense. Living this way will catch up with you sooner or later. Part of becoming mature as an adult is taking responsibility for your own finances. A lot of the blame for young people's financial difficulties can be traced back to their parents who never allowed their son or daughter to grow up financially. They know if they mess up, Mom and Dad will cover them. People don't just suddenly become bad managers of money. They start this trend at a young age and it builds from there. I might not have felt this way at the time but, I am thankful my parents taught me at an early age that they would take care of my needs but, I would have to work for what I wanted. If you care about their future, you will teach your kids the difference between the two.

 

November 26, 2014

Q:

What is the #1 reason a business or company chooses a community for their location?

A:

I think the #1 reason for a manufacturing company would be the availability of a work force. Most manufacturers do not depend on the local community for sales so they are not that concerned about it. They just need to know that there are enough people looking for employment to have a staff of workers. For retailers, it's different. They do depend on the local people for sales. So, people and traffic flow are the most important things to retailers. From a community standpoint, we need to make sure both manufacturers and retailers are getting what they need. We need to do everything we can to keep people in business whether they are making a product to sell or stocking their shelves with things for customers to walk in and buy. A successful community will have a mixture of both. There are small towns across the country that have turned into ghost towns because they were unable to meet the needs of manufacturers and retailers. We don't have that problem.

Q:

What is the failure rate for small businesses?

A:

It depends on the type of business. Some have a higher failure rate than others. Statistics are not kept on small town business failures. However, they are tracked in larger market areas. The last numbers I recall seeing put bars/night clubs and restaurants a close #1 and #2 in failure rates. Historically, these businesses have a short life. While we all know of successes in these categories, the overall closure rate is higher than any other retail or service business. While Fort Wayne is not a large city in comparison to many others, you have probably seen a lot of these establishments come and go over the years. Many of these closures were from national chains. These two categories are far and away the two most likely to fail in large market areas. The next in line for failure is a little broader and that is retail stores that deal in specialty items. In other words, stores selling a limited number of different items. Owning a business can be difficult even in the best of times.

Q:

Has the house and apartment rental business gotten any better than it was 2 or 3 years ago?

A:

From what I hear, the rental business is better. However, it's better for some than others. Owning rentals can be a tough business especially if you do not know what you are doing. Those who are the most successful have been at it for years and they are able to do most of the repair work themselves. This, plus keeping the rentals in good repair and being selective on tenants are the keys to success. It may look easy to those who do not own rentals but, it isn't. Multiply the difficulty 10 times if you have too much debt against the properties. I would suggest to anyone thinking about getting into the business to think it through carefully and talk to someone who has owned rental property for a long time before making a decision. We have seen individuals get out of the rental business in short periods of time after purchases because they didn't realize what they were getting in to. Use caution.

 

November 19, 2014

Q:

What does the most harm to the economy, inflation or recession?

A:

There is an old saying that goes, "It depends on whose ox is getting gored." In other words, who is getting hurt the most? Poor and middle income families are getting hurt the worst during inflation or recession because they don't have much excess money to throw around. Higher income families may grumble over inflation but, they will still eat and spend on the things they need or want. All the others will limit their spending based on necessities. I don't think inflation or recession are good for extended periods of time like the one we are in now. However, some of these periods are for corrective purposes. The housing market is a good example. Things got out of hand for a few years when home values were going up by double digits every year. That had to stop. So, the recession served as a corrective period where homes lost values. It's a bitter pill to swallow but, I firmly believe it was needed. We will continue to have ups and downs in the economy. There's nothing we can do to change that.

Q:

I heard on the news that frivolous lawsuits impact the economy. How is that possible?

A:

Frivolous lawsuits are very costly. Unfortunately, they are filed by the thousands every day. An example of a frivolous lawsuit would be someone suing their neighbor because their roofline blocked sunlight to their flowers. I made that up but, you get the point. How does this affect the economy? Well, the lawsuits usually end up in the hands of insurance companies who sometimes cover the one being sued which drives up insurance rates for everyone. We have all read stories in the newspaper where one individual sued another for some ridiculous reason. Remember the lady that sued the fast food restaurant for serving coffee too hot and she spilled it on herself? I believe Great Britain has a system that works. If someone files a frivolous lawsuit and loses in court, they must pay the legal fees for the person they sued. I wish we had that system here in the U.S. The insurance issue is the only thing I can think of in terms of lawsuits hurting the economy and I don't think it's that big of an impact.

Q:

News reports indicate auto loan delinquencies are up. If the economy is improving, why would this happen?

A:

I don't think it has anything to do with the economy. Loan demand for banks and other lenders has been down as a result of the recession. Some banks, not ours, have loosened credit requirements to make loans. This has occurred mostly with large banks and other non-bank lenders. They are now starting to pay the price for making these marginal loans. There have been reports for several months that this situation might develop. Not only did they lower credit requirements, they also offered very low rates. You may have seen TV ads from auto dealers in larger markets stating that they can get you financed even if you have had credit problems. It may be considered conservative but, I have always felt that if someone did not pay another financial institution as they agreed, why should I think they will do any better for me if I made the loan? Having answered your question, I don't think the problem has become an epidemic yet but, it could develop into one.

 

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