‘Personal Finance’
Look In The Mirror
Amid the growing world financial and credit crisis, the one thing we don’t seem to have a shortage of is finger-pointing. However, with so much blame to go around, nobody (especially politicians) ever seems to point the finger at themselves.
This point was emphasized quite clearly in a September 19th, 2008 Wall Street Journal article.
The article was about the surge in the number of foreclosures of million dollar plus homes. The beginning of the article talked about a man named Robert Provost, who in 2003 purchased a $2.5 million villa with its own boat dock in Sarasota, Fla.
Mr. Provost earned more than $250,000 a year working for an auto-sales chain and had an impeccable credit history.
Then he lost his job and missed one $10,500 mortgage payment, then another. This month, he put his house on the market for $3.4 million, but the listing has attracted very little interest. Mr. Provost expects to receive a notice of default- the first step to foreclosure in the next month or two.
I kept reading the article, looking for some reaction to this, and waiting to see if someone, anyone, was thinking the same thing I was. However, the only two quotes I saw from people trying to explain this phenomenon of million dollar plus foreclosures were an economist from Wellesley College, Karl Case, who said, “If you’ve got a lender who pushed them to the limit and you have some change in supply or demand, you’ll have foreclosures.”
Hmmm, “the lender pushed them to the limit.” Sounds a little like Flip Wilson’s old routine, “The devil made me do it.”
Next we had Tom Lawler, a housing economist in Leesburg, Va. who said, “Loans were unbelievably risky in every category. We’re seeing the results of that lending in the high end.”
Are you seeing where I’m heading with this? No one asked the simple question: What the hell is an employee (not a business owner) who is making $250,000 a year doing buying a $2.5 million house? Plus, the fact that Mr. Provost stopped making mortgage payments right after he lost his job tells me he went into this with no cushion. Whose fault is that?
Oh, and if you’re thinking that some unscrupulous lender talked him into this let me give you one more piece of info that I withheld till now: Mr. Provost’s job with the auto-sales chain was that of finance chief! No wonder he’s out of work.
Let me tell you what happened to too many people. They saw friends, neighbors and people on TV making what looked like “easy money,” just buying, selling and flipping houses. You didn’t need any money or income, because the prices would just keep going up (where, in fantasy land) and all you need to do is sell and use that money for the next purchase, or maybe even buy two. Why work for a living, when there’s such a sure thing staring you in the face?
As you know the bubble burst and many of these people want to be bailed out. What about the vast majority of people who paid and continue to pay their mortgages on time? Nobody was asking for a bailout when they were making money and they certainly weren’t going to share it with the homeowners who weren’t speculating.
Investing is a risk, whether it’s real estate or the stock market (I own 1,000 shares of AIG and you know what? This won’t be the first time I take a beating, nor will it be the last. I bought it. I knew the risk. Hell, life is a risk. If you want to be successful you have to take chances. Success is as much about failing as it is about succeeding. But when those chances blow up in your face (and sometimes they will), stop looking for scapegoats (that’s the job of gutless politicians), just look in the mirror and move on.
Prospecting is Not Prejudging
My son Michael is 19 years old. Last May, after completing his first year of college, he decided to take a year off and work full time, which he’s been doing since June ’06. Right now he is working as a delivery driver for a local pizza parlor.
The other night he came home with a story about one of his customers that points out the problem of not only prejudging prospects, but judging people by such things as appearance, age or job.
Michael had just delivered $300 worth of pizzas to a local BMW dealership. As he drove up, he said two salespeople were hanging around outside. Neither one even bothered to acknowledge him.
After he parked in front, he now had to bring the pizzas into the dealership. Michael had to put the pizzas on the ground because nobody was even willing to hold the door for him.
Once inside he was barely acknowledged. The manager, who has seen Michael quite a few times on subsequent deliveries, couldn’t even be bothered to say hello.
It’s obvious to me the salespeople at this dealership look at Michael and see a teenager, dressed in shorts and a tee-shirt, working a low-level job, who couldn’t possibly afford to buy a BMW today. So why even bother to give him the time of day, let alone be courteous? But let me tell you what I see, and what they might have if they bothered to find out.
I see a young man driving an Infiniti. Yes, it’s a used Infiniti, but if someone would have taken the time to ask they would have found that it is Michael’s and he paid for it. So now we know he owns his own car. That dealership sells used BMW’s; hmm, blown opportunity for a possible trade-in.
I see a young man working a full time job, who’s been working since he was 15, making his own money and if someone would have asked, they’d have found out that he makes around $500 a week, has saved over $8,000 in the last 8 months and is planning to go back to college in the fall.
There’s no doubt that someone like Michael, over the course of his life, will probably buy around 10 cars, if not more. He might also get married one day and I’m sure his wife will buy cars. How about his kids; do you think at some point in their lives they’ll buy cars? What about Michael’s friends; do you think they’ll ever have a conversation about cars and the best places to buy one? Guess who’s not going to get any of this business?
I don’t know about you, but I’m not psychic. I can’t determine how much a person can afford or whether they’re a good prospect just by looking at them. Well, let me ask you: what does a millionaire look like? Have you ever known anyone who dressed like a bum and had millions? I know I have. On the other hand, I’ve known lots of people who look like a million yet couldn’t rub two nickels together.
I also know that teenagers become adults. Young people in low paying jobs get raises and better jobs as they get older. But most of all I know that I don’t know a thing about you until I take the time to talk to you and ask questions.
Planning for Retirement: The Cost of Travel
A couple of months ago, I was on vacation in Singer Island, Florida with my wife, Linda. One night we went out to dinner with an old college friend of mine and his wife. They live nearby in West Palm Beach.
The conversation turned to their plans for retirement. They were going to move to Tennessee, where they had just bought a piece of property, and build a house.
Aside from the fact that they really liked this area in Tennessee, another reason they wanted to leave Florida was to substantially lower their cost of living in their retirement years. As his wife said to us, “We’d like to be able to travel.”
And then it struck me.
Everybody always says that about retirement: “When we retire, we’re going to travel.” My wife and I are guilty of it too. But does anyone ever realize how expensive it is to travel. I must admit, up until that point, when I really started giving it some thought, I never did either. When I started thinking about it, it hit me like a ton of bricks, especially when I recalled a business trip I had recently taken.
Last November, I keynoted a sales meeting for 300 insurance agents in Junction City, Kansas. I arrived there on October 31st, spoke on November 1st and flew back home on November 2nd. I flew on Southwest Airlines, stayed one night at a Courtyard Marriott in Junction City, the next night at a Courtyard Marriott at the Kansas City airport. I rented a car from Avis for one day and ate dinner at a local joint in Junction City one night and at Ruby Tuesday’s the next.
Not exactly an extravagant trip, yet when I turned in my expenses the bill was around $1,000! Can you imagine how much a real vacation would cost? I’ve never given it much thought, because whenever we have gone on vacation, we’ve never paid for airfare!
My family and I have traveled all over the world on frequent flyer tickets and hotel points. Once I retire, or cut back drastically on my travel schedule, good-bye miles and hotel points, and my wife and I are not the type who likes to rough it. Yes, I love outdoor activities like hiking, biking and kayaking. But I also love hotel rooms, room service and especially private bathrooms with toilets that flush. 
I realized if this is what we want, we better start planning for it. Luckily, the beginnings of a solution were right in front of me. At the time, we were staying in our Marriott time share on Singer Island. We talked to our salesperson there and realized if we invested now in buying another week, every year we could trade in one of our two weeks for 90,000 Marriott points. We could then use those points to travel, for free (hotel room and airfare), all over the world. Over the course of time, we would easily recoup our initial investment.
I’m not writing this to plug a Marriott time share; that’s just part of our solution. The other part is, of course, to keep saving your money: something we’ve always done. But most of all, it’s to define what “We’d love to travel,” really means. Do your research. List 10 places you’d love to see and then figure out how much it will cost (adding in for inflation and price increases), so that you can formulate a plan to achieving that goal.
Thinking long term entails more than just a wish list. It takes a lot of thought and careful planning.
The Simplest Way to Save Money: ASK!
About a week ago, my wife called our local heating/cooling/plumbing service company to send someone to our house to check out the problem we were having with our water heater. Naturally, it was not good news (is it ever?).
The plumber informed us that we needed a new water heater. After going over our options, on both water heaters and warranties, we found that the bill would come to $1,933. Naturally, the first thing both my wife and I wanted to know was: “What can you do for us?”
The plumber gave us the name of the right person to speak to and the next morning I got on the phone with the office manager. By the time I got off the phone I had obtained a discount of almost $350. All because I asked!
The point of this story is that most people just accept any price thrown at them. They’re either too afraid or ashamed to ask. There’s no shame in saving money. Besides, what’s the worst thing that could have happened to me when I asked for a discount? They could have said “No.” So what, I’m still no worse off than I was before.
They don’t put you in jail for asking for a discount, and also no one is putting a gun to the seller’s head to give one to you. I’m amazed at how much money both consumers and business people leave on the table.
Call all the companies you do business with and find out if there are any special deals going on. Call your phone company, cell phone company, utility company and find out if there are ways to lower your bills. And don’t forget to check your bills thoroughly each month; companies make mistakes. In the last four months, I found over $200 worth of mistakes on my cell phone bills. Better off in my pocket than theirs.
Now, let’s look at this from the salesperson’s or business owner’s side. As a business owner, I always have prospective clients asking for discounts, either on my fee or on my products (audios, videos, books). My policy is this: On my fee I never discount unless someone is willing to book me for multiple engagements. On products the policy is the same: bulk orders get the discounts.
This does force me to say "no" to many prospective clients, but remember it is the client’s responsibility to ask for a discount. They want to get the most they can for their money. However, as a salesperson or business owner, it is not your responsibility to cave in.
Once you start dropping your price too quickly and easily, be prepared to always drop your price. There’s a great old expression from my days as a salesman in The Garment Center in New York City: “The way you break them in, is the way they’re always going to be.”
Don’t be so quick to drop your price. Usually, when a client asks for a discount, they’re testing you to see how much they can get away with. You’d be surprised how many people back down when you say, “No.”
Quick note: I just asked for and received my first ever senior citizen discount at the movies (I turned 55 in October). On second thought, I should have started asking when I was 40. Most of the people working at movie ticket booths are teenagers and to them everyone 40 and above looks 60 anyhow. 
Don’t Make These Money Moves
Sticking with the personal responsibility theme, personal finance is the area where people need to practice the highest level of responsibility, but seem to show the least.
I came across a great article at MSN Money by Liz Pulliam Weston, "The 3 Worst Money Moves You Can Make." In it she claims that “Some of today’s most common personal-finance decisions also happen to be some of the most destructive.”
She then goes on to list 3 of the primary pitfalls – and how to avoid them. Here they are with some excerpts:
1. Using a home equity loan to pay off credit card debt
Americans borrowed a total of $826 billion from home equity as of the end of 2004, according to the Federal Reserve, up from $416 billion in 1997. Low home equity rates and high credit card rate, have convinced millions this is the way to go.
The problem is, the only way this maneuver helps you is if you stop using your credit cards to run up debt. Otherwise, you’re just digging yourself a deeper hole.
Nearly two-thirds of the people who borrowed against their home equity to pay off credit cards had run up more card debt within two years, according to a study by Atlanta research firm Brittain Associates.
2. Borrowing from your 401K
People who borrow from their workplace retirement accounts love to think it’s a smart move, since when they repay the loan they’re essentially paying interest to themselves rather than to a credit card company or other lender.
But here’s the problem with that thinking: If you borrow from your 401K account and lose your job or get fired, the loan must be repaid, typically within weeks. If that’s not possible, the outstanding loan balance is taxed and penalized as a premature deduction.
3. Stretching to buy a house
Your real estate agent wants you to buy the most expensive house you can: the higher the price, the bigger her commission. Your lender knows a larger loan will rack up more fees and interest, and that you’ll move heaven and earth to pay your mortgage even when you’re falling behind on other bills.
Buying too much house could mean giving up other things you want: vacations, eating out, a college fund for your kids, a sufficient retirement kitty. Or it could mean ever more debt, as you borrow to try to maintain your lifestyle.