YourCreditCompany.com Official Blog

Is it really worth it?  You know, all the stuff we seem to think is so darn essential for day-to-day living and our vision of a better tomorrow?  Why do we endure a life-time of suffering, poor judgment, sleepless nights, broken marriages, messed up kids, the list goes on forever; for a little bit of instant euphoria, satisfaction artificial as it may be? 

If it’s okay with you, we’ll let the head-shrinkers battle out the whys of human cognition and behavior while we devote our thoughts to “why not”, and the perceived need for true ownership and control.  If you are really severely honest with yourself, is it fair and even accurate, veracious to ever cast blame or responsibility on anyone or anything else for your over-consumption? 

Our premise is simply this, the short-term immediate psychic “income”/benefits of acquiring or consuming/buying/leasing/borrowing something which is not easily affordable within your existing, known net disposable income; is a recipe for disaster. Period.  This includes all forms of debit/credit INCLUDING your home mortgage. 

If you haven’t yet learned the lesson of negative cash flow and declining home values after all we’ve been through; when will you?  Anyway, we don’t want to harp too much like Suze Orman but “In God We Trust, but with everyone else bring your DATA!”  The data is abundantly transparent. 

Debt is a natural born killer.  Spending which equals or exceeds your income = instant and/or deferred debt; another sure fire accident waiting to happen.  Now for the hum dinger.  As you buy and spend, borrow and defer, acquire and accumulate stuff, you have assuredly built your house of cards on a big pile of sand; quicksand.  In fact the true economic cost of “non-investment” consumption (including non-savings) is mind boggling in its systemic, all-inclusive deadly impact upon families each of their members.

Consider this equation.  For every $1,000 that you spend today at age 35, you rob your retirement security of over $15,000 of capital before you reach 55.  Is it worth it?  Ask yourself!  A 15:1 ratio or higher?  For every $1,000 you borrow, go into debt for today’s “stuff” are you willing to sacrifice over $30,000 for “early retirement” even if you pay your debt every 2 years in full? Is it worth it? Do you have a budget?  Does it even remotely allow for this destructive behavior? Of course not.

Debt (Credit) has become a way of life for way too many Americans.  “Personal consumer debt in our country increases at the rate of $1,000 per second according to Crown Financial’s data.  There are only that only three admissible forms of debt.  “The following three criteria must be met:

1.      The item purchased produces an income or has the potential to appreciate

2.      The value of the item equals or exceeds the amount against it

3.      The debt is not so high that repayment puts undue strain on the budget.

In our opinion it is permissible to borrow for 1. home mortgage; 2. your business; 3. your vocation (NOT a vocation of vacation)” We couldn’t say it any better ourselves.  Please think about it.  

Learn more at Your Credit Company 

With so much attention paid to tax increases, health care reform and costs, retirement plan meltdown and job/income losses, we understandably focus on fighting off the alligators rather than draining the swamp of broad spectrum planning.  We thought this was a good a time as any to take a breather and review some traditional strategic blueprint.

First, we examined three quite popular personal “financial planning” type books.  Then we will attempt to summarize our take on some current periodical reporting and deliver a spin which hopefully connects with our readers. 

“All Your Worth, The Ultimate Lifetime Money Plan” is authored by the mother/daughter team of Elizabeth Warren and Amelia-Warren Tyagi; also co-authors of the very talked up “Two Income Trap”.  We like this book even more than the last and highly recommend it to our fans.  The overall theme of the truth and the “telling of the truth about your money” and necessity of “getting our money in balance”, the money blame game and the brutally candid distinction between must haves, wants and savings is refreshingly honest and wonderfully straightforward.   The elemental goal of the consumer’s peace of mind stands strongly and vividly throughout the chapters. In Chapter 3, they explain how and why to build your dreams “a little at a time” while living DEBT FREE.  Chapters4 4&5 concentrate on the fallacy of “borrowing your way out of debt” and why they take such a hard line against borrowing against your home equity…”Never, ever borrow against your home” (except for its first mortgage).  Chapter 5 deals with “how debt steals from your future” while Chapter 6 lays the ground work for “counting your DOLLARS and not your PENNIES; a very different opinion from other worthy commentators and writers.  Chapter 8 though is by far our favorite as it highlights the authors’

“The 8 Golden Rules of Money and Relationships”, is an invaluable tool for couples and families.  Leonard Sloane penned “The New York Times Book of Personal Finance” we think mostly from a collection of his germane columns over the years as a NY Times Financial columnist.  While we found the book to be instructional, its contents were very parochial and really historical in perspective with little guidance for the NOW times.  If you catch it in the library go ahead and give it a scan, but don’t’ buy it.  In fairness though, Chapters 4 & 5 dealing with “use of credit” and “rights as a consumer” do merit mention and help prepare a credit consumer with sound ammo, especially with belligerent creditors.

“Financial Planning for the Utterly Confused” 5^th ed. by Joel Lerner is a gem for 5 main reasons. 1. The author is a teacher NOT a self proclaimed guru; 2. These chapters deal with gold, silver, diamonds, and precious metals; 3. Chapter 8 Bulls, Bears and Pigs (use your imagination); 4. Chapters 12, 13, 15, and 16 covering all types of government, savings, corporate, municipal bonds; 5. Chapter 21 “mortgages in reverse an abrupt counter-intuitive (largely negative view on reverse mortgages and the agents of their ilk). 

Finally, for now, the best piece of news paper writing is a great piece by Glenn Ruffenach “Have You Learned Your Lesson Yet”; a Money Matters special, published in the 11/14 and 11/5 Wall Street Journal Weekend Edition.

Go To Your Credit Company  

Sometimes the exercise of figuring out the cost of getting out of debt or making up for investment losses is simply too much to swallow.  Capital which you have carefully accumulated for retirement, a second home, travel, paying off the mortgage on your primary home; whatever your objectives may be, is without question sacred. 

Have you ever taken the pencil to paper along with your calculator to determine the true but cruel cost of the loss of principal?  The exponential multiplier effect of first getting even, back to square on, then crawling out of your negative hole is staggering.  Climbing out of debt is a similar and probably more frequent, monthly reminder of living pay-check to pay-check and literally being one disaster or two away from thorough financial ruin.

 Let’s look at the real impact of capital loss by way of an example.  Assume you had $50,000 of your 401k invested in aggressive stock funds which lost 25% on paper but you monetized this loss by selling out and transferring to bonds and money market.  Your $12,500 capital loss looks bad enough on first blush, but the real damage is worse. Not only did you go backwards by this amount of money but you forever lost the earnings and/or gains this money would have created.

Next, inside of an IRS tax qualified retirement plan such as your 401k, the loss is NOT tax deductable nor can your $12,500 deprival offset taxable gains elsewhere.  Next comes the inverse truth of the beauty of compound interest. Capital Loss.  Ouch! For your new balance of $37,500, to get back to $50,000 you need to grow 33% not 25% because your starting balance has been depleted.  Then add the earnings which you DID NOT earn and your actual loss is much closer to 50% at the end of only ONE YEAR.  After that, the toll for reversal just keeps getting uglier.

 Investment losses are nearly impossible to completely avoid, but the key is to steer clear of large losses as the math clearly proves.  In fact many financial advisors insist on a portfolio’s ZERO tolerance for capital loss at any time (the entire portfolio, not a position; a certain stock or bond or fund); and they substantiate their no loss posture on pure math models which explicitly validate their point of never going backwards, at all costs.

If you owe $20,000 at an average rate of 18%, how much do you need to earn in the 25% tax bracket to pay this off?  $20,000 x 1.18= $23,600 owed for the first year only.  So, for the short-term indulgence of consumer satisfaction, you must earn at least $30,000 to pay your $20,000 debt in the first year alone (adding the 25% tax on top).  What’s the message?  1. Never go backwards with your personal net worth; your nest egg.  2. Use cash or debit cards and pay off any credit instruments each month or don’t buy “IT”.

Go To Your Credit Company