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Archive for May, 2009

Where to Stash Your Cash

May 28, 2009 Leave a comment

Creating an emergency fund is one of the basic tenets of financial planning.  Having six to nine months of living expenses is important to prevent surprises from derailing your financial health.   If you lose your job, have a medical emergency, need to make immediate car repairs or have any other problems that may creep up and become a major expense, it’s important to have money set aside so that you do not have to use your credit card or other high interest debt to meet your needs.

Generally, people have difficulty accumulating the funds for their emergency fund.  Saving that much money requires discipline and hard work and is often derailed by the very emergencies that you are saving for.  So I was surprised when I met a gentleman who had accumulated his six to nine months of living expenses.  His difficulty came in another important area.

The gentleman had informed me that he had about$10,000 saved up in his emergency fund but when I looked at his bank statements, it appeared that he had significantly less money than that. 

I posed a very simple question to him.  “Didn’t you say that you have $10,000 saved?  Your most recent bank statement says that you have less than $1,000 in your savings account.  Where is the money?”

The gentleman looked at me, smiled and said to me with utmost confidence, “Stocks.”

Stocks.  I was speechless.  As a financial planner, this answer makes my skin crawl.  Stocks are the last place a person should store their emergency savings.

One of the key characteristics of an emergency fund is that the funds be available with no delays and at no cost.  Please don’t forget this fact.  I knew a great deal about this gentleman’s situation and I knew that he would need this money soon.  Not having immediate access to it and having to pay what ever fees were necessary to access his funds put him at an extreme disadvantage.  Your emergency fund is your get out of jail card and if you can’t access those funds, you are doing yourself a great disservice.    

Please consider the following when setting up an emergency fund:

  1. An emergency fund should be placed in an institution that is backed by the Federal Deposit Insurance Corporation (FDIC).  Stocks are not backed by the FDIC.  So if your investment doesn’t perform well and you lose that money, you many never get that money back.  Deposits at FDIC insured institutions are insured up to at least $250,000 per depositor until December 31, 2013.   Make sure your money is there when you need it.
  2. An emergency fund should be placed in an account that offers high return so that it may keep pace with inflation.  Good options can be found in the “Savings” section on Bankrate.com. 
  3. Don’t become discouraged by the idea of saving six months of expenses.  Start with the goal of saving enough to cover one month.  Do this by putting savings on automatic.  Have an amount of money taken from each pay check and directed to a savings account.  This will making saving a little less painful and often times, you won’t even notice the money is gone. 
Categories: Saving

Home Sweet Home

May 20, 2009 4 comments

I recently attended a foreclosure program in the Bronx which discussed the effect of foreclosure on tenants.  One of the spearkers stated that  a tenant who has been evicted because his or her building was foreclosed on may have difficulty finding a new apartment because the eviction will show up on the tenant’s credit report. 

That doesn’t sound right, I thought.  I raised my hand to ask for clarification when a woman behind me asked my question before I could. 

“Can you clarify what you just said about a tenant having difficulty finding a new apartment because the landlord was foreclosed on?  If the tenant was evicted through no fault of his own, why would this stop the tenant from finding another rental?”

Unfortunately, there was nothing to clarify.  The fact of the matter is, yes, this type of eviction will show up on your credit report.   And while there are different types of evictions, it will not always be clear that the eviction was the result of a foreclosure. 

Throughout this economic crisis, we have all become acutely aware of the unfairness of life.  Innocent people are getting hurt.  So what do you do?  How do you avoid this same fate?  Make it your business to understand how things work (please note that much of the following information is specific to New York).

1. Have enough money in an emergency fund to make a move

  • Now, I’m a firm believer in a 6 to 9 month emergency fund (yes, it has increased from 3 to 6 months due to the economic downturn).  This number can be daunting to many people.  But if you can’t save up that much, try to make sure you have enough for first month’s rent, last month’s rent and moving expenses.  The foreclosure process in New York State normally takes about 6 months or more from the filing of the case to auction.  But guess what?  Tenants may not be notified of the impending foreclosure until very late in the game.  Have money saved so that you can decide to move rather than be evicted.

2. Do some research

  • Foreclosure information is PUBLIC information.  If you have any concern that your landlord may be in trouble,  look for his or her information online.  The Office of Court Administration has a website of active cases (www.courts.state.ny.us/admin/oca).  I realize that many people won’t take this extra step.  If you don’t know whether your landlord is in trouble, you aren’t going to spend a lot of your free time visiting this website.  But, if you do suspect something, it’s important to know that this information is readily available. 

3. Make sure your lease is current

  • It’s not unusual to see a tenant who hasn’t signed a lease in years.  Tenants and landlords become comfortable with each other.  The landlord isn’t raising the rent so the tenant is happy to continue living in the apartment without signing a new piece of paper each year.  This can be dangerous.  A lease is not a bullet proof shield against eviction.  However, a tenant with a lease generally has more rights and claims than a month to month tenant.  In some cases, a tenant with a lease may not have to move, even if the new owner tries to evict him.

4.  Know your rights!

  • Ok, this piece of advice applies to all situations.  If someone brings you some bad news, determine if there’s a way for you to fight back.  Don’t assume that you’re completely out of luck.  If you are completely blindsided by the information that your building is being foreclosed on, speak with a legal aid attorney (or any other attorney that offers free advice).  Tenants aren’t completely helpless in these situations.  For example, the tenant can often ask the court for time to move.  This may seem small but it may give a tenant time to save money and find a place on her own terms.  Find out what your options are and speak to an expert before you make a move.
Categories: Housing

It Happens Where You Least Expect It…

May 18, 2009 1 comment

The May 17th Sunday magazine of The New York Times has an story that I think most of us would be surprised to read.  It reminds me of the story of the shoemaker’s children going without shoes.  The article, My Personal Credit Crisis, is the story of an economics reporter for The New York Times.  The reporter’s name is Edmund L. Andrews.  Mr. Andrews who made a series of irrational decisions and ended up buying a home that he could not afford.  His home is currently in foreclosure.  The article can be found here: http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=1&em

This story bewilders me.  Here is someone who reported on the Federal Reserve and financial crises throughout the world.  How did he get himself in this kind of trouble?  Unfortunately, Mr. Andrews’ story is becoming more and more common.  He, along with Bernard Madoff’s victims, is educated with access to a great deal of knowledge and information.  They were all supposed to know better.  How did they fall into these traps?

I think most of us became swept up in the prosperity and high living that we experienced in this last boom.  And it’s not a bad thing to take risk or even gamble a little.  But we shouldn’t be making gambles that we cannot afford to lose.   And no matter what your level of knowledge, let us all remember that we are not invincible.  Mr. Andrews took a risk that his wife would land a job that would allow him to pay his mortgage.  This didn’t happen, things snowballed and his poor decisions caught up with him.  Can you afford for your luck to run out?

Think about your gambles and risks.  Have you made decisions that you know are wrong?  Have you brushed aside that little angel on your shoulder that is saying, this doesn’t seem right?  Now is the time to rethink our decisions and correct them if we can.  For many of us, it’s not too late.

Categories: Housing

How to Gain Control of Your Financial Life

May 9, 2009 Leave a comment

How to Gain Control of Your Financial Life

  1. Don’t Panic
  2. Determine Your Goals
  3. Create a Monthly Spending Plan
  4. Cut Back on Spending
  5. Know Your Net Worth 
  6. Build Your Savings
  7. Watch Your Credit
  8. Pay Off Debt
  9. Manage Your Investments
  10. Speak with a Financial Planner
Categories: Uncategorized