Invest in Yourself to Increase Your Worth

April 27, 2011 Leave a comment

It’s difficult to manage your money if you don’t have any money (or if you feel like you don’t have any money).   If you feel like you’re constantly treading water when it comes to managing your money, paying down debt and increasing your net worth, you may want to think about another aspect of money management called human capital.

Human capital is your ability to earn income and the value of that future income.  The younger you are, the larger your human capital because you have more time to work and earn money.  Developing and protecting your human capital is an important part of managing your finances.

The Wall Street Journal has a great article which discusses the importance of knowing what you are worth.  It looks beyond the standard idea of net worth (how your liabilities (e.g., mortgage, student loans, etc.) stack up against your assets (e.g., home value, retirement accounts, investments, etc.)) and discusses how your worth also means your human capital.

Building your human capital can increase your income and can increase your ability to reach your financial goals in the future.  Essentially, you are investing in you.

How Do I Cultivate My Human Capital?

Training and Education.  Is there a certification you’ve been eyeing that will increase your chances of getting promoted?  Is there a class you can take that will allow you to learn new skills?  Don’t overlook classes and trainings that will increase or diversify your skill set.  Are you interested in changing to a more lucrative career?  Take local classes during the weekends and in the evenings so that you can build skills that will allow you to become qualified to do the work you want to do.  Take on volunteer work that will make you more marketable.

Active Involvement in Your Career Development.  When I started my legal career, I went to work, got my assignments, put my head down and worked.  My academic success came from hard work so why change what works?  Because success in business is not just about who works the hardest.  Who you know, what you can offer your company and how you relate to people are all extremely important.  You could be the smartest person in the office but if people can’t relate to you, it’s unlikely that people will have your back when promotions are being discussed.  Cultivate relationships and seek out mentors.  Volunteer for new projects.  Become an expert in a new area.  All of these things will help you develop important human capital.

Network and Maintain Contacts.  You are more likely to get your foot in the door if you know someone behind the door.   Join a professional organization and meet new people.  Maintain contact with people and don’t wait until you need something to cultivate those relationships.  Make sure your relationships are a two-way street.  Offer to help people and you’ll receive help when you need it.

How Do I Protect My Human Capital?

Disability Insurance.  What happens if you become injured and can’t work?  You want to protect yourself and your family by having disability insurance.  Disability insurance will cover part of your salary when you are unable to work.  Disabilities can often have a devastating effect on your finances because not only are you not working but you are also running up medical bills to treat your injury. Protect yourself and your capital.


Free Resources in Your Community

April 12, 2011 Leave a comment

Perhaps no place in any community is so totally democratic as the town library. The only entrance requirement is interest.
– Lady Bird Johnson

Pssst…I know where you can find free resources in your own backyard.  Oh, and by the way, it’s National Library Week.  When is the last time you visited your local library to make use of its many resources?  I meet a lot of people struggling financially and they wonder where they can get cheap entertainment, learn new skills, figure out the steps for starting a business or work toward a career change.  Your local library can help with all of these things.  Many people think of libraries and envision lots of old dusty books, but libraries have so much to offer and these things are free.  You really can’t beat that.

I have a warm place in my heart for libraries.  Reading has been one of my favorite things to do since I can remember.  As a child, I would pull out a flashlight after my parents turned off the light so I could continue reading into all hours of the night.  I loved to watch Reading Rainbow on PBS.  I would watch as LeVar Burton would introduce me to new books and me and my Mom would head to the library to see which ones I could check out.  But somewhere between childhood and adulthood, I forgot about the library.  Whenever I needed a book I would visit Barnes & Noble or order books off of  When I rediscovered the library and all it has to offer, I wondered how I had been without it for so long.

Libraries are great sources of free entertainment. Reading is expensive!  I try to avoid buying hardcover books because of the price but even paperbacks can add up.  Much like coffee or cocktails, spending a couple of dollars here and there can do serious damage to your budget.  The library allows you to feed a reading habit for free.   But you don’t have to love books to get some use out of the library.  Many libraries have great DVD collections.  I’ve been able to cross recently released movies off of my Netflix list because I was able to pick them up at my local library.

Libraries are a great source of free classes and information. Libraries are continuously holding workshops, seminars and classes on finances, home buying, investments, etc.  Libraries are offering help with career guidance, resumes and job-searches.  They also provide resources to small business owners.  I went to several classes on starting a business at the New York Public Library and it allowed me to learn a great deal about being a business owner.   And I have personally taught personal finance classes at the Brooklyn Public Library.  If you feel like you’re lost when it comes to investing your money, check and see if your library offers any classes.  Even if their aren’t any classes, they will most likely have a variety of books on the subject.  If your library is offering classes and information that would be helpful to you, don’t ignore such a great resource.

Libraries are a great source of free space. Starbucks and coffee shops have become home offices for many small business owners.  But your local library is also a great place to get work done and you don’t have to feel compelled to spend $3.00 on a cup of coffee.  I’m guessing that your library has computers, free wi-fi and lots of space for you to sit quietly and work or study.  We too often think that libraries are the domain of school children and college students.  But your library may have plenty of resources for you.   You may even be able to reserve an office or conference space in your library.  I’ve reserved a room at my local library in order to meet with clients on several occasions.  It’s clean, free and quiet.

The bottom line is that libraries have many great resources that are available to the community. If you’re looking to get a lot of information at no cost, the library is a great place to start.  If you’re on a tight budget with it comes to entertainment you shouldn’t ignore your library.  And if you have a little money to spare, don’t forget to donate to your library.  Libraries are an important part of our communities and have a lot to offer to anyone who is interested.

Categories: Saving Tags: , , , , , ,

Protect Your Information

April 8, 2011 Leave a comment

How many emails have you received this week telling you that your email has been exposed to unauthorized parties?  At this point, at least four companies have told me that Epsilon, a company that manages customer’s emails, has had a breach that puts me at risk for spam.  Epsilon is used by a wide variety of companies so there’s a good chance that you’ve received an email informing you about the breach.

At best, spam is an annoying part of internet life that you have to put up with from time to time.  At worst, it’s an invitation to have your identity, personal information and/or money stolen.  According to Consumer Reports, in 2009, 1 million households had lost money or had accounts misused as a result of phishing (the practice of trying to obtain sensitive information through fake emails that look trustworthy).

But there are several things you can do to protect yourself.  A Consumer Reports article lists 6 tips you should follow to protect yourself.  By taking some simple steps such as safeguarding your personal information and refraining from clicking on any links in any email, you can make sure you don’t become a victim.

For more ways to protect yourself, check out this article on Yahoo! from CBS   Make sure you’re doing everything you can to keep your information and your money safe.

Can You Be Too Frugal?

March 31, 2011 Leave a comment

Is it possible to be too frugal?  I think so. With most things, moderation is key.  An MSN article discusses several ways that bring too frugal can do more harm than good.  Cutting out certain items so you can save money may not be the best idea.  The article focuses on nine ways the being frugal can cost you including avoiding regular medical check ups and being underinsured.

But keep in mind that being overly frugal may not just have a negative impact on your finances, it may also have a negative impact on your mental well-being.  There are people who save and save and avoid spending money on enjoyable experiences because they believe that their financial goal is to amass as much money as possible.  But they end up missing out on a lot of fun things in life.  If you’re overly frugal you may want to ask yourself, “Why am I hoarding my money?”  I’ve been guilty of holding on to my money to the point where I’ve missed out on some great opportunities.  I’ve skipped concerts and other enjoyable events because I didn’t want to pay and I didn’t like the idea of parting with my money for something that was not a necessity.  But when I look back, I know that my money would have been better spent on an experience that would lead to great memories.  I wouldn’t have missed that money in the long run but I certainly regret missing the experience.  Now, I make it a point to think about my entire financial picture and understand why I may be hesitant to spend that money.

The point is that spending money isn’t a good or bad thing and saving money isn’t a good or bad thing.  You need to plan and save for your future but you also have to live your life.  You have to understand why you’re spending money and why you’re saving money to make sure that it makes sense for you.

Use Subtraction to Simplify Your Budget

March 9, 2011 Leave a comment

Have you ever been overwhelmed by  all the options that exist to manage your money?  There are a lot of programs and spreadsheets and some of they can be overwhelming.  Sometimes you really just need to simplify things.

I recently learned of an app that simplifies budgeting.  It’s called “Left to Spend” and it helps you keep track of what you spend on a daily basis.  It helps you decide how much you can afford to spend each day, it allows you to record amounts you spend as you go about your day and then it lets you know how much you have left to spend.  It’s so simple!

I love this idea but unfortunately I’m have an Android and this app is only for iPhones.   Also, it costs $0.99 and I generally don’t pay for apps.  But that’s okay!  You really don’t need an app for this.  I manage my money this way everyday.   And while I would love to have an app for it, pen and paper work just fine.

First, decide how much you can afford to spend each month by taking your monthly income and subtracting out all the fixed expenses (housing expenses, utilities, gym, car insurance, cable, etc.).  Include a category for savings to make sure you pay yourself first.  Take the rest and divide it by 4 and this will give you an amount that you can afford to spend each week.  Once you know how much you can afford to spend each week, subtract your expenditures as you go through your week.

Example:  If I make $2000 per month and my fixed expenses are $1000,  I have $1000 left to spend for the month.  If I divide that by 4, I have $250 to spend each week.  If I spend $20 on Sunday, then I have $230 for the rest of the week.  If I spend $30 on Monday, I have $200 for the rest of the week, and so on and so forth.

Why do I use this method?  Because it means that I don’t need to set aside money in specific spending categories.  Some weeks I like to take my lunch to work but other weeks I get really busy and enjoy eating at some of the local restaurants.  I can change my mind from week to week and spend money in different places.  It’s okay as long as I don’t go over the weekly amount.  Once I spend that money, it’s gone.

Give this method a try and see if it works for you!

Categories: Budgeting, Saving Tags: , ,

Why the HAMP “Enhancements” Won’t Help Stem Foreclosures

March 31, 2010 Leave a comment

It’s pretty clear that the housing crisis is a huge part of this economic downturn.   In my foreclosure prevention work, I have seen the difficulty homeowners are having as a result of job loss, reduction of income, medical expenses and other hardships.  About a year ago, the Obama Administration trotted out the Home Affordable Modification Program (HAMP).  The plan set forth a process for servicers to modify mortgages to help homeowners who suffered a hardship and were unable to make their full monthly mortgage payments.  HAMP is a voluntary program, but just about all the large banks and servicers signed up for it.  Despite participation by most of the big players, it’s also pretty clear that HAMP has been minimally effective at preventing foreclosures and will not come close to reaching its goal of assisting up to 3 to 4 millions homeowners by the end of 2012.

In an effort to  meet its goals, the Obama Administration offered several changes and additions to HAMP on March 26, 2010.  Details of the changes can be found here, but the basic changes are as follows:

  1. Temporary assistance for unemployed homeowners while they look for work
  2. Servicers will be required to consider principal write-downs
  3. Improving servicer procedures in order to reach more borrowers
  4. Help for homeowners who need to move to more affordable housing

I applaud the Administration for addressing the fact that increased unemployment is a large reason homeowners are struggling.  It’s also good to see that they are (sort of) addressing the need for more principal write-downs (being “required” to “consider” something is not very useful in my mind).  But here’s the problem:  These “enhancements” will do little to improve the effectiveness of HAMP.  Why?  Because the failure of HAMP is directly tied to the failure of the servicers to properly carry out the program and those problems have not been addressed by the recent changes to HAMP. 

Problem #1: Servicers have not hired enough people to work on modifications and those they have employed are overworked, underpaid and poorly trained.  Homeowners are waiting months to get answers to their modification requests.  It’s very difficult to get someone on the phone who can actually help a homeowner. Servicers are using incorrect financial information which is resulting in eligible homeowners being denied a modification.  Homeowners have also had a great deal of difficulty getting straight answers regarding their situation and the program when they contact their servicer.  If the servicers do not train their employees properly, the program will not work.  I don’t care how many enhancements you throw into it.

Problem #2:  The servicers are not being held accountable for the incompetence that is coming from their offices.  Servicers have been able to ignore the rules of the program and there are no negative ramifications.  Homeowners are ignored, given misinformation, and treated with gross disrespect by the servicers and there is little anyone has been able to do to stop this.  Until there is some way to enforce the rules, this program will not be successful.

Problem #3: Principal write-downs are not mandatory.  Principal write-downs are currently voluntary under HAMP.  The enhancement will require the servicer to run the homeowners through a program that forces them to look at principal write-downs.  But servicers can still decide not to offer write-downs to homeowner.  I don’t expect write-downs to become a common practice without the Administration penalizing servicers for not writing-down mortgages.  Under the enhancements, there are incentives for servicers that offer principal write-downs.  However, it doesn’t look like servicers respond to carrots.  They respond to sticks.  I don’t expect to see significant changes simply because the Administration is prodding the servicers to consider this option.

Problem #4: Treasury does not require that the servicers fully disclose the numbers and information that are used in the Net Present Value  Test (NPV).  The NPV is defined as the present value of the estimated future cash inflows minus the present value of the cash outflows.  The test is a crucial part of HAMP and is used by the servicers to determine whether they should modify a mortgage.  A positive NPV means that it is in the best interest of the servicer and investor to modify for the mortgage.  A negative NPV means that it is not in the best interest of the servicer and investor to modify the mortgage and they are free to deny that homeowner a modification.  Variables included in the NPV include the borrower’s monthly income, the unpaid principal balance of the mortgage, the current value of the home, home price appreciation forecast and many other numbers.  The numbers that are included in the NPV are crucial, but there is a lack of transparency regarding the numbers that are used.  There is also no one overseeing the process to make sure that correct numbers are being used in the calculation.  As a result, homeowners who are eligible for the program are being turned away because the servicers are using incorrect information.

Problem #5:  The program to help address the burden of second liens, the Second Lien Modification Program, or 2MP, has yet to have an impact.  The program was announced in 2009 but details have been slow to surface and servicers (Wells Fargo, J.P. Morgan Chase & Co., Bank of America and Citi) have only recently signed on to the program.  I don’t have much hope for the effectiveness of this program because 2MP will require coordination with HAMP.  How can a supplemental program be successful if the primary program has been a flop?

I hope I’m wrong about these problems persisting.  I hope these enhancements get the banks to provide more help to responsible homeowners who are just looking to get through a rough patch.  But I believe the servicers need to be held accountable for their failure to properly implement the rules of the program as they have been laid out by the Administration.  Until there are ramifications for failing to follow the rules, it will be difficult for this program to succeed.

Categories: Housing

5 Tips for Dealing with Money Roadblocks

March 29, 2010 Leave a comment

A couple weeks ago I was interviewed by Radio Disney on 910 AM which broadcasts in Detroit, MI.  I was asked to give some tips on how a person can eliminate debt.  I wasn’t able to get through all of my suggestions in the 30 minute interview so I’m posting them here.  These are some out-of-the-box tips to help people who know what to do but need some help with will power or motivation.

1) Form or join a support group. Most of us have grown up being very secretive about money.  We don’t share the fact that we’re having problems or let people know that we are in above our heads.  We often feel shame and let our debt spiral out of control.  One solution to this problem is to join a support group for people who are dealing with financial problems.  Many people find that participating in a small group helps them to address their financial demons and get on the right track.  They learn that they are not alone and that they are not bad people.  With support, they can put themselves on the right track.

2) Stop hanging out with people who will encourage you to sabotage your financial future.  You don’t have to dump your friends but if you tend to rack up debt because you and a particular shopping buddy encourage each other to spend until you drop, you are enabling each other.  Find a different activity for you and your friend.

3) Eliminate temptation.  If you’re the type of person who gets out of debt, just to get back in a couple months later, stop signing up for coupons and email lists for your favorite stores.  When they ask you for your email, say that you would rather not share it.  If you get put on their email lists anyway, unsubscribe right away.   Don’t sign up for sales website that will constantly email you about their latest bargain.

4) Determine if you are an abstainer or a moderator (this is from Gretchen Rubin of the Happiness Project.  Some people have more self control if they completely refrain from participating in an activity (abstainer) while some people have better self control if they allow themselves to indulge a little (moderator).  Knowing what type of person you are goes a long way in controlling your expenses and understanding why you’re spending.  I know that I’m an abstainer and knowing this helps me make decisions.  I’m not good at having a little bit of something and then moving on.  It’s best that I refrain from indulging in the first place.

5) Determine if you need to seek professional assistance with your internal financial demons.  For many people, reducing debt is not just about tracking your expenses and paying off your credit cards in a timely manner.  It’s often about internal issues that cause us to spend and rack up debt in the face of all things that tell us we shouldn’t be behaving in that manner.  Consider speaking with a therapist or a financial coach who can help you work through your attitudes toward money.

Categories: Cost cutting tips, Saving