Todo aquel quien por su amor a lo nuestro quisiera cooperar con llevar el mensaje más allá, sera bienvenido. Los mismos estan dirigidos a la ciudadanía en general. Recuperar nuestros valores, es obra de todos.
Weary of Looking for Work, Some Create Their Own
SAN FRANCISCO - Alex Andon, 24, a graduate of Duke University in biology, was laid off from a biotech company last May. For months he sought new work. Then, frustrated with the hunt, he turned to jellyfish.
In an apartment he shares here with six roommates, Mr. Andon started a business in September building jellyfish aquariums, capitalizing on new technology that helps the fragile creatures survive in captivity. He has sold three tanks, one for $25,000 to a restaurant, and is starting a Web site to sell desktop versions for $350.
“I keep getting stung,” he said. And his crowded home office is filled with beakers and test tubes of jellyfish food. “But it beats looking for work. I hate looking for work.”
Plenty of other laid-off workers across the country, burned out by a merciless job market, are building business plans instead of sending out résumés. For these people, recession has become the mother of invention.
Economists say that when the economy takes a dive, it is common for people to turn to their inner entrepreneur to try to make their own work. But they say that it takes months for that mentality to sink in, and that this is about the time in the economic cycle when it really starts to happen - when the formerly employed realize that traditional job searches are not working, and that they are running out of time and money.
Mark V. Cannice, executive director of the entrepreneurship program at the University of San Francisco, calls the phenomenon “forced entrepreneurship.”
“If there is a silver lining, the large-scale downsizing from major companies will release a lot of new entrepreneurial talent and ideas - scientists, engineers, business folks now looking to do other things,” Mr. Cannice said. “It’s a Darwinian unleashing of talent into the entrepreneurial ecosystem.”
Even in prosperous times, entrepreneurs have a daunting failure rate. But those who succeed could play a big role in turning the economy around because tiny companies are actually big employers. In 2008, 3.8 million companies had fewer than 10 workers, and they employed 12.4 million people, or roughly 11 percent of the private sector work force, according to the Bureau of Labor Statistics.
Economists say there are some peculiarities to this wave of downturn start-ups. Chiefly, the Internet has given people an extraordinary tool not just to market their ideas but also to find business partners and suppliers, and to do all kinds of functions on the cheap: keeping the books, interacting with customers, even turning a small idea into a big idea.
The goal for many entrepreneurs nowadays is not to create a company that will someday make billions but to come up with an idea that will produce revenue quickly, said Jerome S. Engel, director for the center for entrepreneurship at the Berkeley Haas School of Business. Mr. Engel said many people will focus on serving immediate needs for individuals and businesses.
“It’s a very painful thing,” he said of the pressure people feel to find new ways to make money. “But it’s a healthy thing.”
Mr. Engel noted that the dot-com bust helped propel a pack of hardy companies. One of those, in fact, was Google. While it was started in the late 1990s, the company succeeded during the bust in part because it was highly focused and did not need much capital, Mr. Engel said.
Ryan Kuder, 35, understands the notion of scaled-down start-up fervor - and the worry and exhilaration that goes along with it. He was laid off in February 2008 from Yahoo, where he was a senior marketing manager. He job-hunted for a bit, then decided to start an Internet company that would let people do social networking at the neighborhood level.
Mr. Kuder and his business partner toiled until November, when he realized his big dreams had run headlong into reality. He needed money to pay the mortgage and buy health insurance for his family.
They transformed the company into a new one called Koombea that designs and builds Web sites for businesses. Koombea has grown to nine people, most of them in Colombia, where the cost of living allows them to do Web design relatively inexpensively.
Mr. Kuder and his wife agreed that he would give up working for Koombea at the end of January if he did not hit certain revenue goals. They narrowly missed the target. For a few days, Mr. Kuder sent out résumés. He found no work, so he is back investing himself full time in Koombea - and says he is feeling transformed.
“My sleeves are rolled up, and I’m dirtier than I’ve ever been before,” he said. “It’s incredibly nerve-wracking. I wake up nauseous everyday. But it’s probably easier right now to find a problem, solve it and charge people than it is to find a job.”
Monica Zamiska, 25, said it was “traumatizing” when she was laid off in January from her first postcollege job as a junior account executive with the public relations firm Ogilvy & Mather. After meeting with five recruiters, she began to realize how barren the job market was. “You can only send out so many résumés,” Ms. Zamiska said.
So she turned her full attention to a pet project called the Confoodant, a Web site with restaurant reviews written by a by-invitation-only network of food enthusiasts. Her main financial obligation is her rent, but with her savings and four weeks of severance pay, she is confident that she can devote at least six months to getting the project off the ground.
“I love working,” Ms. Zamiska said. “So I made work for myself.”
The surge of interest in entrepreneurship can be seen in the demand for related workshops and networking events. Monica Doss, director of FastTrac, an organization that offers training to aspiring entrepreneurs, said she expected participation to double this year from the 10,000 people it had last year.
“People are thinking, ‘These jobs aren’t going to come back in three years. I’ve got to find something else to do,’ ” Ms. Doss said.
Mr. Andon, for one, seems to have found his niche. He said he recently received an order for a large jellyfish tank that should sell for tens of thousands of dollars.
His entrepreneurial fever seems to be catching: at least four of his roommates are starting companies. Two of those - Erin Kitchell, 28, and her brother Andrew, 25 - are making laminated, fold-out language guides for travelers. In the next few days they plan to print their first 8,000 copies and start trying to sell them.
Ms. Kitchell took a voluntary buyout in June from Wachovia, sensing a layoff would come anyway, and is not sanguine about finding good work.
“This is as good a time as any to try something entrepreneurial,” she said. “There is not a lot of opportunity right now in finance.”
SAN FRANCISCO - Alex Andon, 24, a graduate of Duke University in biology, was laid off from a biotech company last May. For months he sought new work. Then, frustrated with the hunt, he turned to jellyfish.
In an apartment he shares here with six roommates, Mr. Andon started a business in September building jellyfish aquariums, capitalizing on new technology that helps the fragile creatures survive in captivity. He has sold three tanks, one for $25,000 to a restaurant, and is starting a Web site to sell desktop versions for $350.
“I keep getting stung,” he said. And his crowded home office is filled with beakers and test tubes of jellyfish food. “But it beats looking for work. I hate looking for work.”
Plenty of other laid-off workers across the country, burned out by a merciless job market, are building business plans instead of sending out résumés. For these people, recession has become the mother of invention.
Economists say that when the economy takes a dive, it is common for people to turn to their inner entrepreneur to try to make their own work. But they say that it takes months for that mentality to sink in, and that this is about the time in the economic cycle when it really starts to happen - when the formerly employed realize that traditional job searches are not working, and that they are running out of time and money.
Mark V. Cannice, executive director of the entrepreneurship program at the University of San Francisco, calls the phenomenon “forced entrepreneurship.”
“If there is a silver lining, the large-scale downsizing from major companies will release a lot of new entrepreneurial talent and ideas - scientists, engineers, business folks now looking to do other things,” Mr. Cannice said. “It’s a Darwinian unleashing of talent into the entrepreneurial ecosystem.”
Even in prosperous times, entrepreneurs have a daunting failure rate. But those who succeed could play a big role in turning the economy around because tiny companies are actually big employers. In 2008, 3.8 million companies had fewer than 10 workers, and they employed 12.4 million people, or roughly 11 percent of the private sector work force, according to the Bureau of Labor Statistics.
Economists say there are some peculiarities to this wave of downturn start-ups. Chiefly, the Internet has given people an extraordinary tool not just to market their ideas but also to find business partners and suppliers, and to do all kinds of functions on the cheap: keeping the books, interacting with customers, even turning a small idea into a big idea.
The goal for many entrepreneurs nowadays is not to create a company that will someday make billions but to come up with an idea that will produce revenue quickly, said Jerome S. Engel, director for the center for entrepreneurship at the Berkeley Haas School of Business. Mr. Engel said many people will focus on serving immediate needs for individuals and businesses.
“It’s a very painful thing,” he said of the pressure people feel to find new ways to make money. “But it’s a healthy thing.”
Mr. Engel noted that the dot-com bust helped propel a pack of hardy companies. One of those, in fact, was Google. While it was started in the late 1990s, the company succeeded during the bust in part because it was highly focused and did not need much capital, Mr. Engel said.
Ryan Kuder, 35, understands the notion of scaled-down start-up fervor - and the worry and exhilaration that goes along with it. He was laid off in February 2008 from Yahoo, where he was a senior marketing manager. He job-hunted for a bit, then decided to start an Internet company that would let people do social networking at the neighborhood level.
Mr. Kuder and his business partner toiled until November, when he realized his big dreams had run headlong into reality. He needed money to pay the mortgage and buy health insurance for his family.
They transformed the company into a new one called Koombea that designs and builds Web sites for businesses. Koombea has grown to nine people, most of them in Colombia, where the cost of living allows them to do Web design relatively inexpensively.
Mr. Kuder and his wife agreed that he would give up working for Koombea at the end of January if he did not hit certain revenue goals. They narrowly missed the target. For a few days, Mr. Kuder sent out résumés. He found no work, so he is back investing himself full time in Koombea - and says he is feeling transformed.
“My sleeves are rolled up, and I’m dirtier than I’ve ever been before,” he said. “It’s incredibly nerve-wracking. I wake up nauseous everyday. But it’s probably easier right now to find a problem, solve it and charge people than it is to find a job.”
Monica Zamiska, 25, said it was “traumatizing” when she was laid off in January from her first postcollege job as a junior account executive with the public relations firm Ogilvy & Mather. After meeting with five recruiters, she began to realize how barren the job market was. “You can only send out so many résumés,” Ms. Zamiska said.
So she turned her full attention to a pet project called the Confoodant, a Web site with restaurant reviews written by a by-invitation-only network of food enthusiasts. Her main financial obligation is her rent, but with her savings and four weeks of severance pay, she is confident that she can devote at least six months to getting the project off the ground.
“I love working,” Ms. Zamiska said. “So I made work for myself.”
The surge of interest in entrepreneurship can be seen in the demand for related workshops and networking events. Monica Doss, director of FastTrac, an organization that offers training to aspiring entrepreneurs, said she expected participation to double this year from the 10,000 people it had last year.
“People are thinking, ‘These jobs aren’t going to come back in three years. I’ve got to find something else to do,’ ” Ms. Doss said.
Mr. Andon, for one, seems to have found his niche. He said he recently received an order for a large jellyfish tank that should sell for tens of thousands of dollars.
His entrepreneurial fever seems to be catching: at least four of his roommates are starting companies. Two of those - Erin Kitchell, 28, and her brother Andrew, 25 - are making laminated, fold-out language guides for travelers. In the next few days they plan to print their first 8,000 copies and start trying to sell them.
Ms. Kitchell took a voluntary buyout in June from Wachovia, sensing a layoff would come anyway, and is not sanguine about finding good work.
“This is as good a time as any to try something entrepreneurial,” she said. “There is not a lot of opportunity right now in finance.”
|
Mortgages
Finding Cash in a Home
MANY older adults looking to extract cash from their homes have recently turned to reverse mortgages, rather than take on new monthly debt through second mortgages or home equity lines of credit. But these transactions can be expensive - closing costs can often run to $15,000 - and risky, since borrowers face big penalties if they move.
Now, financial institutions are starting to offer new alternatives to such loans. One particularly innovative idea is being offered by EquityKey, a San Diego-based company that is a division of KBC Bank, a financial services company with headquarters in Belgium. EquityKey’s service essentially offers a cash advance on the home, in exchange for the owner’s promise to share in the home’s future appreciation.
Owners 65 to 85 with good credit who live in homes valued above $400,000 (above $500,000 in New York and California) can receive a payment of up to 15 percent of a home’s equity. Those who move out within 10 years must pay back the entire amount - and 5 percent more if they move within the first five years.
If the house sells at any time after that, though, the customer or the estate pays EquityKey only if the home’s value has increased since the time of the payment. In that case, EquityKey receives half of the appreciation amount. If the homeowner dies within 10 years of signing the deal, the heirs owe nothing to EquityKey.
That is because the company takes out a life insurance policy on the client at the time of the transaction. “So, you need to be able to qualify for life insurance to do this,” said Jeff Nash, a founder of EquityKey. If that is the case, the transaction can yield significant benefits to those who are “house rich and cash poor,” he added.
Take, for example, the owner of a home appraised at $1 million. EquityKey conducts a credit check and otherwise evaluates the applicant’s financial ability to maintain the home. It also considers local market conditions in determining the likelihood that the home’s value will rise.
Assuming the applicant clears those hurdles, EquityKey writes the homeowner a check of up to $150,000 and refunds a $300 application fee. There are no closing costs. Mr. Nash said income and estate tax implications depend on each homeowner’s circumstances, but he said clients typically need not pay taxes until the home is sold.
Mr. Nash said a prospective client should speak with a financial planner before entering such a transaction. “If you have some reasonable likelihood of being forced to sell your home in the near term,” he said, “don’t do this deal.”
With its risk-sharing concept, EquityKey is similar to products recently introduced by Grander Financial and REX & Company - but neither of them imposes age restrictions. Grander Financial serves customers in New Jersey and Connecticut, but not New York.
REX & Company, which serves all three states, offers clients cash advances of up to 15 percent of the home’s value. But unlike EquityKey’s transactions, REX agreements require clients to repay part of the payment if the home loses value when it sells.
Michael Berman, REX’s chief executive, said the company had conducted about 175 transactions and disbursed about $20 million. The typical client, he said, is someone “who is very sophisticated financially.”
“They seem to really understand what they’re getting into, and know they’re choosing to forgo some of the change in value of their home for some good use of the money,” he added. “It’s definitely not an impulsive thing.”
Finding Cash in a Home
MANY older adults looking to extract cash from their homes have recently turned to reverse mortgages, rather than take on new monthly debt through second mortgages or home equity lines of credit. But these transactions can be expensive - closing costs can often run to $15,000 - and risky, since borrowers face big penalties if they move.
Now, financial institutions are starting to offer new alternatives to such loans. One particularly innovative idea is being offered by EquityKey, a San Diego-based company that is a division of KBC Bank, a financial services company with headquarters in Belgium. EquityKey’s service essentially offers a cash advance on the home, in exchange for the owner’s promise to share in the home’s future appreciation.
Owners 65 to 85 with good credit who live in homes valued above $400,000 (above $500,000 in New York and California) can receive a payment of up to 15 percent of a home’s equity. Those who move out within 10 years must pay back the entire amount - and 5 percent more if they move within the first five years.
If the house sells at any time after that, though, the customer or the estate pays EquityKey only if the home’s value has increased since the time of the payment. In that case, EquityKey receives half of the appreciation amount. If the homeowner dies within 10 years of signing the deal, the heirs owe nothing to EquityKey.
That is because the company takes out a life insurance policy on the client at the time of the transaction. “So, you need to be able to qualify for life insurance to do this,” said Jeff Nash, a founder of EquityKey. If that is the case, the transaction can yield significant benefits to those who are “house rich and cash poor,” he added.
Take, for example, the owner of a home appraised at $1 million. EquityKey conducts a credit check and otherwise evaluates the applicant’s financial ability to maintain the home. It also considers local market conditions in determining the likelihood that the home’s value will rise.
Assuming the applicant clears those hurdles, EquityKey writes the homeowner a check of up to $150,000 and refunds a $300 application fee. There are no closing costs. Mr. Nash said income and estate tax implications depend on each homeowner’s circumstances, but he said clients typically need not pay taxes until the home is sold.
Mr. Nash said a prospective client should speak with a financial planner before entering such a transaction. “If you have some reasonable likelihood of being forced to sell your home in the near term,” he said, “don’t do this deal.”
With its risk-sharing concept, EquityKey is similar to products recently introduced by Grander Financial and REX & Company - but neither of them imposes age restrictions. Grander Financial serves customers in New Jersey and Connecticut, but not New York.
REX & Company, which serves all three states, offers clients cash advances of up to 15 percent of the home’s value. But unlike EquityKey’s transactions, REX agreements require clients to repay part of the payment if the home loses value when it sells.
Michael Berman, REX’s chief executive, said the company had conducted about 175 transactions and disbursed about $20 million. The typical client, he said, is someone “who is very sophisticated financially.”
“They seem to really understand what they’re getting into, and know they’re choosing to forgo some of the change in value of their home for some good use of the money,” he added. “It’s definitely not an impulsive thing.”
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The Reverse Gear
GETTING credit is no simple task these days, even under the best of circumstances - just ask anyone who has applied for a mortgage. But it can be even more problematic for those who are retired, with many facing the triple whammy of declining income, falling home values and dwindling savings from Wall Street’s meltdown.
Looking for a way around the continuing credit crunch, more older people are exploring reverse mortgages, which allow homeowners 62 or older to borrow against their equity.
With reverse mortgages, lenders and brokers generally don’t consider credit history. Instead, they look at the applicant’s age, any existing mortgage and the home’s value.
“Many seniors have been able to use reverse mortgages to avoid delinquency or foreclosure, and to help fund their retirement,” said Regina M. Lowrie, a former chairwoman of the Mortgage Bankers Association and the chief executive of Vision Mortgage Capital in Montgomeryville, Pa.
Reverse mortgages have been around for a while, but because of recent changes now look more appealing. Last month, the economic stimulus package raised the maximum loan amount to $625,500 from $417,000, at least for this year.
New federal guidelines, meanwhile, expand the reach of the loans and make them slightly more affordable. They cap the fees, which had drawn many complaints for their size and even allow borrowers to use a reverse mortgage to buy a primary residence. Eventually, the program will be offered to co-op owners, although it will be up to co-op boards to decide whether shareholders can take part.
Although still small, the number of reverse mortgages rose 6.4 percent in 2008 from the previous year, to 115,176 loans - all from the home equity conversion mortgage (HECM) program run by the Federal Housing Administration, an arm of HUD, and offered through brokers and lenders. (The credit crunch put an end to private reverse-mortgage loans.) One of the top 10 markets is the New York area, where higher home prices often mean more equity to tap into.
Part of the reason that reverse mortgages have gained in allure, brokers say, is that it has become more difficult to sell a home and move to a less expensive one. Also, some elderly homeowners have been unable to refinance their mortgage or qualify for a traditional home-equity loan because they cannot meet tighter credit standards.
Elizabeth Gahart, 65, who owns a three-bedroom house and a horse farm on 19 acres in Bridgeton, N.J., with her husband, Ronald, 68, used a reverse mortgage to deal with a financial crisis. “This was the best solution for our situation,” Mrs. Gahart said.
Debt problems had forced the couple to file for bankruptcy protection, and they were in danger of losing their home - and quite possibly, their business raising Arabian horses - to foreclosure.
Because the property they bought nearly seven years ago had appreciated in value, they qualified for a reverse mortgage of around $225,000. They used the proceeds to settle the bankruptcy, retire the primary mortgage, and take out a $4,800 line of credit, which will go toward property taxes and insurance.
But reverse mortgages have their drawbacks. For one thing, they can be expensive, even with the recent caps on fees, which is why they make sense only for those planning to stay put for a while.
Total costs run from around $7,000 to $20,000, brokers say, though they are usually added to the loan balance, along with the interest. In addition to the regular mortgage closing costs, there is an origination fee (capped at $6,000). There is also an upfront insurance premium equal to 2 percent of the home’s appraised value or lending limit (up to $625,500), which protects borrowers if anything happens to the lender and guarantees that the total debt owed will never exceed the home’s value.
“Even if you live to be 130 years old, you’ll never owe more than the value of the house,” explained Eric Bachman, the chief executive of Golden Gateway Financial in Oakland, Calif., one of the nation’s largest reverse mortgage brokers.
Martin M. Shenkman, a lawyer in Paramus, N.J., specializing in estate and tax planning, considers reverse mortgages “a great tool, when the right circumstances exist.” But because of the high expenses and the myriad complexities of the loans, he urges homeowners to consider other alternatives first.
For some, he said, it might make better sense to downsize, or to try to refinance a current mortgage. With property values still declining, he added, homeowners may not be able to borrow as much through a reverse mortgage as they could have a couple of years ago.
Still, Mr. Shenkman acknowledges that the reverse mortgage industry has come a long way in attracting business and burnishing its reputation, which was sullied by stories from years past of nefarious lenders preying on the elderly. Strict federal guidelines protect borrowers today, and applicants are required to attend a counseling session before they receive any money.
Many industry and consumer groups, including the AARP (aarp.org), offer education programs for consumers.
“There were misconceptions about reverse mortgages - a lot of people thought they were giving up their houses, which is simply not true,” said Jonathan Pinard, the president of the Empire State Mortgage Bankers Association, which represents more than 100 mortgage-banking businesses in New York, and whose members speak to various senior groups throughout the year.
More recently, efforts have been made to establish additional industry standards for brokers. The Mortgage Bankers Association formed a task force last year for that purpose, while the National Reverse Mortgage Lenders Association plans to have in place by mid-June a certification program for loan officers.
“The reverse mortgage field is one of the few growth areas,” said Peter H. Bell, the president of the reverse mortgage trade group. “There are a lot of new people entering the field, and this helps the more experienced participants distinguish themselves from the newcomers.”
Mr. Bell and others see even more growth ahead, particularly as the reverse mortgage program continues to expand.
Few borrowers so far have taken advantage of a rule change that lets them use a reverse mortgage - instead of a traditional “forward” mortgage - to buy a home. The main advantage in doing so is that borrowers don’t have to use all the proceeds from a previous home sale, nor do they have to make monthly payments.
Co-op owners contemplating reverse mortgages, meanwhile, will have to wait until HUD completes some technical language, Mr. Bell said.
Mark Draper, a senior loan officer for the reverse mortgage department at Regional Home Mortgage in Clark, N.J., says the prospect of reverse mortgages on co-ops is generating plenty of interest. “My list is getting longer,” he said. “I’m adding at least one client a week.”
Among his clients is Patricia DiLieto, 69, who owns a Westchester co-op. Mrs. DiLieto says a reverse mortgage would help to supplement her fixed income, which has been eaten away by health care costs for her husband, who is in a nursing home after a series of strokes. She said she had been given the go-ahead to take out a reverse mortgage by board members in her building.
Not surprisingly, though, some co-ops are apprehensive. “If someone is in that position, they are obviously in need of cash,” said Daniel DiBenedetto, the co-op board president at 15 West 11th Street in the East Village. He expressed doubts about a reverse mortgage as a permanent solution to financial problems.
But Elliot Meisel, a real estate lawyer from Manhattan, says that co-ops can easily monitor such borrowing. “I would encourage boards to permit them with appropriate safeguards and tight controls and oversight,” he said.
GETTING credit is no simple task these days, even under the best of circumstances - just ask anyone who has applied for a mortgage. But it can be even more problematic for those who are retired, with many facing the triple whammy of declining income, falling home values and dwindling savings from Wall Street’s meltdown.
Looking for a way around the continuing credit crunch, more older people are exploring reverse mortgages, which allow homeowners 62 or older to borrow against their equity.
With reverse mortgages, lenders and brokers generally don’t consider credit history. Instead, they look at the applicant’s age, any existing mortgage and the home’s value.
“Many seniors have been able to use reverse mortgages to avoid delinquency or foreclosure, and to help fund their retirement,” said Regina M. Lowrie, a former chairwoman of the Mortgage Bankers Association and the chief executive of Vision Mortgage Capital in Montgomeryville, Pa.
Reverse mortgages have been around for a while, but because of recent changes now look more appealing. Last month, the economic stimulus package raised the maximum loan amount to $625,500 from $417,000, at least for this year.
New federal guidelines, meanwhile, expand the reach of the loans and make them slightly more affordable. They cap the fees, which had drawn many complaints for their size and even allow borrowers to use a reverse mortgage to buy a primary residence. Eventually, the program will be offered to co-op owners, although it will be up to co-op boards to decide whether shareholders can take part.
Although still small, the number of reverse mortgages rose 6.4 percent in 2008 from the previous year, to 115,176 loans - all from the home equity conversion mortgage (HECM) program run by the Federal Housing Administration, an arm of HUD, and offered through brokers and lenders. (The credit crunch put an end to private reverse-mortgage loans.) One of the top 10 markets is the New York area, where higher home prices often mean more equity to tap into.
Part of the reason that reverse mortgages have gained in allure, brokers say, is that it has become more difficult to sell a home and move to a less expensive one. Also, some elderly homeowners have been unable to refinance their mortgage or qualify for a traditional home-equity loan because they cannot meet tighter credit standards.
Elizabeth Gahart, 65, who owns a three-bedroom house and a horse farm on 19 acres in Bridgeton, N.J., with her husband, Ronald, 68, used a reverse mortgage to deal with a financial crisis. “This was the best solution for our situation,” Mrs. Gahart said.
Debt problems had forced the couple to file for bankruptcy protection, and they were in danger of losing their home - and quite possibly, their business raising Arabian horses - to foreclosure.
Because the property they bought nearly seven years ago had appreciated in value, they qualified for a reverse mortgage of around $225,000. They used the proceeds to settle the bankruptcy, retire the primary mortgage, and take out a $4,800 line of credit, which will go toward property taxes and insurance.
But reverse mortgages have their drawbacks. For one thing, they can be expensive, even with the recent caps on fees, which is why they make sense only for those planning to stay put for a while.
Total costs run from around $7,000 to $20,000, brokers say, though they are usually added to the loan balance, along with the interest. In addition to the regular mortgage closing costs, there is an origination fee (capped at $6,000). There is also an upfront insurance premium equal to 2 percent of the home’s appraised value or lending limit (up to $625,500), which protects borrowers if anything happens to the lender and guarantees that the total debt owed will never exceed the home’s value.
“Even if you live to be 130 years old, you’ll never owe more than the value of the house,” explained Eric Bachman, the chief executive of Golden Gateway Financial in Oakland, Calif., one of the nation’s largest reverse mortgage brokers.
Martin M. Shenkman, a lawyer in Paramus, N.J., specializing in estate and tax planning, considers reverse mortgages “a great tool, when the right circumstances exist.” But because of the high expenses and the myriad complexities of the loans, he urges homeowners to consider other alternatives first.
For some, he said, it might make better sense to downsize, or to try to refinance a current mortgage. With property values still declining, he added, homeowners may not be able to borrow as much through a reverse mortgage as they could have a couple of years ago.
Still, Mr. Shenkman acknowledges that the reverse mortgage industry has come a long way in attracting business and burnishing its reputation, which was sullied by stories from years past of nefarious lenders preying on the elderly. Strict federal guidelines protect borrowers today, and applicants are required to attend a counseling session before they receive any money.
Many industry and consumer groups, including the AARP (aarp.org), offer education programs for consumers.
“There were misconceptions about reverse mortgages - a lot of people thought they were giving up their houses, which is simply not true,” said Jonathan Pinard, the president of the Empire State Mortgage Bankers Association, which represents more than 100 mortgage-banking businesses in New York, and whose members speak to various senior groups throughout the year.
More recently, efforts have been made to establish additional industry standards for brokers. The Mortgage Bankers Association formed a task force last year for that purpose, while the National Reverse Mortgage Lenders Association plans to have in place by mid-June a certification program for loan officers.
“The reverse mortgage field is one of the few growth areas,” said Peter H. Bell, the president of the reverse mortgage trade group. “There are a lot of new people entering the field, and this helps the more experienced participants distinguish themselves from the newcomers.”
Mr. Bell and others see even more growth ahead, particularly as the reverse mortgage program continues to expand.
Few borrowers so far have taken advantage of a rule change that lets them use a reverse mortgage - instead of a traditional “forward” mortgage - to buy a home. The main advantage in doing so is that borrowers don’t have to use all the proceeds from a previous home sale, nor do they have to make monthly payments.
Co-op owners contemplating reverse mortgages, meanwhile, will have to wait until HUD completes some technical language, Mr. Bell said.
Mark Draper, a senior loan officer for the reverse mortgage department at Regional Home Mortgage in Clark, N.J., says the prospect of reverse mortgages on co-ops is generating plenty of interest. “My list is getting longer,” he said. “I’m adding at least one client a week.”
Among his clients is Patricia DiLieto, 69, who owns a Westchester co-op. Mrs. DiLieto says a reverse mortgage would help to supplement her fixed income, which has been eaten away by health care costs for her husband, who is in a nursing home after a series of strokes. She said she had been given the go-ahead to take out a reverse mortgage by board members in her building.
Not surprisingly, though, some co-ops are apprehensive. “If someone is in that position, they are obviously in need of cash,” said Daniel DiBenedetto, the co-op board president at 15 West 11th Street in the East Village. He expressed doubts about a reverse mortgage as a permanent solution to financial problems.
But Elliot Meisel, a real estate lawyer from Manhattan, says that co-ops can easily monitor such borrowing. “I would encourage boards to permit them with appropriate safeguards and tight controls and oversight,” he said.
Home Swapping in Five Easy Steps
Become a member of a home exchange website.
Upload a description and photos of your home.
Browse listings of destinations you'd like to visit.
Contact other members or let them find you.
Begin a conversation, exchange details, and strike a deal.
To reel in exchange offers, in addition to listing your home on websites such as HomeExchange.com, HomeForExchange.com, or Digsville.com, or posting it for free in the "Housing Swap" section of Craigslist.com, Brazilian Couto recommends building a website where, he says, you can list "a lot more information about the region, about the house, [and] more pictures."
Become a member of a home exchange website.
Upload a description and photos of your home.
Browse listings of destinations you'd like to visit.
Contact other members or let them find you.
Begin a conversation, exchange details, and strike a deal.
To reel in exchange offers, in addition to listing your home on websites such as HomeExchange.com, HomeForExchange.com, or Digsville.com, or posting it for free in the "Housing Swap" section of Craigslist.com, Brazilian Couto recommends building a website where, he says, you can list "a lot more information about the region, about the house, [and] more pictures."
Thoughts on Walking Away From Your Home Loan
If you’re among the millions of people who will not qualify for the Obama administration’s program to help troubled homeowners, you’re probably wondering what you’re supposed to do now.
Perhaps you no longer have enough income to pay your loans. Or you can afford the payments but don’t qualify for refinancing under the new plan because the value of your home is too far below the balance of the loan. If you’re far enough underwater, you’re probably questioning the wisdom of writing a monthly check on a place that may take 10 or 15 years to get back to the value it had two or three years ago. It isn’t easy to come up with the answer, and if you have moral misgivings about not making good on your mortgage, a religious officiant may offer as much useful guidance as a financial planner.
In an economic environment like this one, however, the consequences of giving up on your mortgage may not be as painful as they were a few years ago. Yes, it’s almost always preferable to negotiate a better deal on your existing mortgage than to walk away. But if you can’t work things out with your lender, you probably won’t be sued. You shouldn’t receive a major tax bill either. And the damage to your credit will not be permanent or insurmountable.
Let’s look at these last three in order.
YOUR LENDER First off, let’s define what we mean by “giving up” on your current mortgage. It may mean trying for a short sale, where the lender allows you to sell your home for less than the mortgage amount. You may also hand over the deed to the home in exchange for the lender agreeing not to start foreclosure proceedings (a “deed in lieu” in industry terms). Then, there’s foreclosure itself, and the possibility that bankruptcy judges may soon have the power to adjust the terms of primary mortgages.
That said, just because you’re ineligible under the Obama plan doesn’t mean that your lender or servicer won’t ultimately adjust your mortgage anyhow. Collectively, there are enough people in trouble or under water on their loans that they have plenty of leverage if they’re willing to play chicken with their lender and threaten to stop paying.
The problem is, the lender can play chicken, too, by threatening to come after you for the balance of any money you owe - whether it’s the difference between what you sell the property for yourself and the remaining mortgage, or the loan amount left over after the lender sells your property in foreclosure.
The lender may not follow through, though. “What our membership is telling us is that it can be cost-prohibitive to chase down a borrower who is already in financial distress,” said John Mechem, a spokesman for the Mortgage Bankers Association. “You can’t squeeze blood from a stone.” They may, however, still come after people with high incomes who walk away from jumbo loans that are way under water or loans on investment properties.
Some states have laws that may specifically prohibit lenders from pursuing borrowers for the balance of many mortgage loans after foreclosure, though the particulars vary. Arizona and California are among these states, according to Steven Bender, a professor at the University of Oregon School of Law. It’s best to talk to a lawyer to determine your state’s rules.
In fact, if you want to be sure your lender (or a collection agency that it may sell your loan to) won’t chase you down, it’s a good idea to have a lawyer involved with any short sale, deed in lieu or foreclosure itself. “You must get the bank to agree in writing that any deficiency is waived,” said Chip Parker, a lawyer specializing in foreclosure with Parker & DuFresne in Jacksonville, Fla.
The biggest challenge here may simply be finding someone at the bank to help. Having a second mortgage will also complicate matters.
YOUR TAXES You also need to consider the taxman. Often, forgiven debts are taxable as income. Recent legislative changes, however, eliminate the federal tax burden through 2012 on most primary residence debt that a lender has reduced through loan restructuring or forgiven during foreclosure.
Mark Luscombe, principal analyst for CCH, a tax information service, said that people who sell their home through a short sale or give up the deed in lieu of foreclosure can also qualify for tax relief if they use a special tax form, 1099-C, that reflects the amount of debt that the lender has forgiven.
People who live in states with their own income taxes may avoid a big bill as well. Some states, like Arizona and California, have introduced or passed legislation that echoes the federal laws, according to the National Conference of State Legislatures. Many others tend to mimic most or all federal income tax laws as a general rule, according to CCH. Check with an accountant in your state to be sure.
YOUR CREDIT A short sale, deed in lieu or foreclosure itself will almost certainly damage your credit report and score, and the black mark will last for up to seven years. But the amount of damage it does will depend on how much other credit trouble you’ve gotten yourself into with other lenders.
If you’re giving up the home you own, you’ll probably need to rent soon afterward. Will landlords turn you away once they check your credit and discover your troubled mortgage? “If it’s the only thing marring their credit, it’s probably not a big issue,” said Clay Powell, the director of the Rental Property Owners Association of Michigan, who added that good tenants could be scarce in economic environments like this one.
In fact, Todd J. Zywicki, a law professor at George Mason University, predicted that FICO may have to adjust its credit scores to lessen the impact of a foreclosure or similar incident. “It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago,” he said. “To the extent that foreclosure doesn’t predict future behavior as much as it did in the past, you’d expect that the FICO algorithm would change to adjust for that.”
Craig Watts, a spokesman for FICO, said that was an interesting idea. “We try not to get involved too much in psychobabble around what is and isn’t predictive,” he said. “If the numbers show that foreclosure is less predictive, then we’ll take it into account in future redevelopments of the formula.” That would take a minimum of two to three years, though.
Some lenders aren’t waiting that long to initiate their own foreclosure destigmatization programs. The Golden 1, one of the nation’s largest credit unions, now has a mortgage repair loan for people who have lost a home to foreclosure but want to buy a new one.
It’s hard to imagine that there won’t be a parade of insurance companies, credit card issuers and mortgage lenders in Golden 1’s wake, even though Fannie Mae and Freddie Mac may be unwilling to guarantee the mortgages of such borrowers for several years. In fact, Aaron Bresko, the vice president of lending for BECU, another large credit union based in Washington State, is putting together a panel called “How to Lend to the Newly Credit Impaired” for a conference later this year.
“Good people have bad things happen to them, so how do you find those people and reach out to them?” he said. “As the year progresses, it’s going to be an emerging market.”
If you’re among the millions of people who will not qualify for the Obama administration’s program to help troubled homeowners, you’re probably wondering what you’re supposed to do now.
Perhaps you no longer have enough income to pay your loans. Or you can afford the payments but don’t qualify for refinancing under the new plan because the value of your home is too far below the balance of the loan. If you’re far enough underwater, you’re probably questioning the wisdom of writing a monthly check on a place that may take 10 or 15 years to get back to the value it had two or three years ago. It isn’t easy to come up with the answer, and if you have moral misgivings about not making good on your mortgage, a religious officiant may offer as much useful guidance as a financial planner.
In an economic environment like this one, however, the consequences of giving up on your mortgage may not be as painful as they were a few years ago. Yes, it’s almost always preferable to negotiate a better deal on your existing mortgage than to walk away. But if you can’t work things out with your lender, you probably won’t be sued. You shouldn’t receive a major tax bill either. And the damage to your credit will not be permanent or insurmountable.
Let’s look at these last three in order.
YOUR LENDER First off, let’s define what we mean by “giving up” on your current mortgage. It may mean trying for a short sale, where the lender allows you to sell your home for less than the mortgage amount. You may also hand over the deed to the home in exchange for the lender agreeing not to start foreclosure proceedings (a “deed in lieu” in industry terms). Then, there’s foreclosure itself, and the possibility that bankruptcy judges may soon have the power to adjust the terms of primary mortgages.
That said, just because you’re ineligible under the Obama plan doesn’t mean that your lender or servicer won’t ultimately adjust your mortgage anyhow. Collectively, there are enough people in trouble or under water on their loans that they have plenty of leverage if they’re willing to play chicken with their lender and threaten to stop paying.
The problem is, the lender can play chicken, too, by threatening to come after you for the balance of any money you owe - whether it’s the difference between what you sell the property for yourself and the remaining mortgage, or the loan amount left over after the lender sells your property in foreclosure.
The lender may not follow through, though. “What our membership is telling us is that it can be cost-prohibitive to chase down a borrower who is already in financial distress,” said John Mechem, a spokesman for the Mortgage Bankers Association. “You can’t squeeze blood from a stone.” They may, however, still come after people with high incomes who walk away from jumbo loans that are way under water or loans on investment properties.
Some states have laws that may specifically prohibit lenders from pursuing borrowers for the balance of many mortgage loans after foreclosure, though the particulars vary. Arizona and California are among these states, according to Steven Bender, a professor at the University of Oregon School of Law. It’s best to talk to a lawyer to determine your state’s rules.
In fact, if you want to be sure your lender (or a collection agency that it may sell your loan to) won’t chase you down, it’s a good idea to have a lawyer involved with any short sale, deed in lieu or foreclosure itself. “You must get the bank to agree in writing that any deficiency is waived,” said Chip Parker, a lawyer specializing in foreclosure with Parker & DuFresne in Jacksonville, Fla.
The biggest challenge here may simply be finding someone at the bank to help. Having a second mortgage will also complicate matters.
YOUR TAXES You also need to consider the taxman. Often, forgiven debts are taxable as income. Recent legislative changes, however, eliminate the federal tax burden through 2012 on most primary residence debt that a lender has reduced through loan restructuring or forgiven during foreclosure.
Mark Luscombe, principal analyst for CCH, a tax information service, said that people who sell their home through a short sale or give up the deed in lieu of foreclosure can also qualify for tax relief if they use a special tax form, 1099-C, that reflects the amount of debt that the lender has forgiven.
People who live in states with their own income taxes may avoid a big bill as well. Some states, like Arizona and California, have introduced or passed legislation that echoes the federal laws, according to the National Conference of State Legislatures. Many others tend to mimic most or all federal income tax laws as a general rule, according to CCH. Check with an accountant in your state to be sure.
YOUR CREDIT A short sale, deed in lieu or foreclosure itself will almost certainly damage your credit report and score, and the black mark will last for up to seven years. But the amount of damage it does will depend on how much other credit trouble you’ve gotten yourself into with other lenders.
If you’re giving up the home you own, you’ll probably need to rent soon afterward. Will landlords turn you away once they check your credit and discover your troubled mortgage? “If it’s the only thing marring their credit, it’s probably not a big issue,” said Clay Powell, the director of the Rental Property Owners Association of Michigan, who added that good tenants could be scarce in economic environments like this one.
In fact, Todd J. Zywicki, a law professor at George Mason University, predicted that FICO may have to adjust its credit scores to lessen the impact of a foreclosure or similar incident. “It just seems obvious that a foreclosure in 2008 or 2009 doesn’t have as much information value as a foreclosure five years ago,” he said. “To the extent that foreclosure doesn’t predict future behavior as much as it did in the past, you’d expect that the FICO algorithm would change to adjust for that.”
Craig Watts, a spokesman for FICO, said that was an interesting idea. “We try not to get involved too much in psychobabble around what is and isn’t predictive,” he said. “If the numbers show that foreclosure is less predictive, then we’ll take it into account in future redevelopments of the formula.” That would take a minimum of two to three years, though.
Some lenders aren’t waiting that long to initiate their own foreclosure destigmatization programs. The Golden 1, one of the nation’s largest credit unions, now has a mortgage repair loan for people who have lost a home to foreclosure but want to buy a new one.
It’s hard to imagine that there won’t be a parade of insurance companies, credit card issuers and mortgage lenders in Golden 1’s wake, even though Fannie Mae and Freddie Mac may be unwilling to guarantee the mortgages of such borrowers for several years. In fact, Aaron Bresko, the vice president of lending for BECU, another large credit union based in Washington State, is putting together a panel called “How to Lend to the Newly Credit Impaired” for a conference later this year.
“Good people have bad things happen to them, so how do you find those people and reach out to them?” he said. “As the year progresses, it’s going to be an emerging market.”
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Financial Freedom
Have a money problem?
You can be a new money
makeover winner.
Click-on & Send it to:
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Credit Card Debtors Can Make a Deal
More lenders are accepting partial payment to settle delinquent accounts
Credit card issuers are increasingly offering settlement deals to delinquent borrowers, in what may be an unprecedented attempt to salvage a fraction of the account balances they are owed.
Carol Kaplan, a spokeswoman for the American Bankers Association, calls lenders’ efforts to bargain “a fairly recent development.” With cash-strapped consumers facing high unemployment, record home foreclosures and shrinking personal wealth, Kaplan says banks are trying to curb widespread default on credit card debt.
‘What banks are doing is very prudent. They can either not get paid at all, or get paid something.’
“We’re seeing the nearly highest delinquency rates on record, and we do expect it to get higher,” she says. “What banks are doing is very prudent. They can either not get paid at all, or get paid something. I don’t know that we’ve ever seen such a proactive approach at stemming losses.”
The increase in delinquencies over the past year has been dramatic. While only 1.32 percent of bankcard holders were at least 90 days late on a payment in the first quarter of this year, that marked a steep 11 percent climb from a year earlier, according to TransUnion, a credit-reporting agency. Average card debt also increased, to $5,776 in the first quarter of this year from $5,548 over the same period last year.
And it looks like the squeeze will continue for some time. TransUnion predicts that credit card default rates won’t peak until early 2010. At that time, unemployment is expected to fall and the drop in disposable income should level off, so debt may become more manageable, the agency says.
Meanwhile, credit card issuers have written off billions of dollars in bad debt in the past year, according to the Nilson Report, the credit industry journal. The report says that from October 2007 to October 2008, JPMorgan Chase wrote off 5 percent of more than $183 billion in delinquent debt; Bank of America, 6 percent of $166 billion; and Citigroup, 8 percent of $107 billion.
No easy street
Banks are reluctant to provide details about settlement offers.
“Issuers are becoming much more accommodating, even though they don’t wish to admit it publicly,” says Adam Levin, cofounder and chairman of Credit.com, a consumer and education website. “Their chance to get anything is enhanced by moving quickly as people lose their jobs.
“But this shouldn’t be viewed as easy street,” he says. “There are ramifications to these settlements. You’ll take a hit on your credit score—it’s the highest negative you can get on your report.”
You also have to pay taxes on the amount of debt that is forgiven. For example, if you’re in the 25 percent tax bracket and negotiate to pay half a $5,400 balance, you’ll owe taxes of $675 on the unpaid amount of $2,700.
“The general rule is that anytime debt is forgiven, it’s considered income to you, like someone gave you a [cash] gift to repay the debt,” says Bill Smith, national tax director with the business consulting firm CBIZ MHM.
“It’s always going to be a good deal,” he says, because the tax bill is less than the amount of debt owed. “The problem is that it comes as a surprise because people don’t think they have to pay anything.”
Avoiding a suit
A negotiated settlement also prevents issuers from filing suit against you for the debt. If a suit were filed, you’d be responsible for the balance due and interest, which could accrue until the debt is repaid.
Larry Feinstein, a Seattle bankruptcy attorney, says that a majority of his clients who file for bankruptcy protection have credit card debt ranging between $30,000 and $80,000. Typically, a job loss or underemployment is the reason for the choking debt, and even if part of the debt is forgiven, people can’t pay it.
“A lot of them will come to me with these settlement offers for half the amount. But they say, ‘Where am I going to get that money?’ I’ve had very few clients who’ve been able to take advantage of these offers.”
More lenders are accepting partial payment to settle delinquent accounts
Credit card issuers are increasingly offering settlement deals to delinquent borrowers, in what may be an unprecedented attempt to salvage a fraction of the account balances they are owed.
Carol Kaplan, a spokeswoman for the American Bankers Association, calls lenders’ efforts to bargain “a fairly recent development.” With cash-strapped consumers facing high unemployment, record home foreclosures and shrinking personal wealth, Kaplan says banks are trying to curb widespread default on credit card debt.
‘What banks are doing is very prudent. They can either not get paid at all, or get paid something.’
“We’re seeing the nearly highest delinquency rates on record, and we do expect it to get higher,” she says. “What banks are doing is very prudent. They can either not get paid at all, or get paid something. I don’t know that we’ve ever seen such a proactive approach at stemming losses.”
The increase in delinquencies over the past year has been dramatic. While only 1.32 percent of bankcard holders were at least 90 days late on a payment in the first quarter of this year, that marked a steep 11 percent climb from a year earlier, according to TransUnion, a credit-reporting agency. Average card debt also increased, to $5,776 in the first quarter of this year from $5,548 over the same period last year.
And it looks like the squeeze will continue for some time. TransUnion predicts that credit card default rates won’t peak until early 2010. At that time, unemployment is expected to fall and the drop in disposable income should level off, so debt may become more manageable, the agency says.
Meanwhile, credit card issuers have written off billions of dollars in bad debt in the past year, according to the Nilson Report, the credit industry journal. The report says that from October 2007 to October 2008, JPMorgan Chase wrote off 5 percent of more than $183 billion in delinquent debt; Bank of America, 6 percent of $166 billion; and Citigroup, 8 percent of $107 billion.
No easy street
Banks are reluctant to provide details about settlement offers.
“Issuers are becoming much more accommodating, even though they don’t wish to admit it publicly,” says Adam Levin, cofounder and chairman of Credit.com, a consumer and education website. “Their chance to get anything is enhanced by moving quickly as people lose their jobs.
“But this shouldn’t be viewed as easy street,” he says. “There are ramifications to these settlements. You’ll take a hit on your credit score—it’s the highest negative you can get on your report.”
You also have to pay taxes on the amount of debt that is forgiven. For example, if you’re in the 25 percent tax bracket and negotiate to pay half a $5,400 balance, you’ll owe taxes of $675 on the unpaid amount of $2,700.
“The general rule is that anytime debt is forgiven, it’s considered income to you, like someone gave you a [cash] gift to repay the debt,” says Bill Smith, national tax director with the business consulting firm CBIZ MHM.
“It’s always going to be a good deal,” he says, because the tax bill is less than the amount of debt owed. “The problem is that it comes as a surprise because people don’t think they have to pay anything.”
Avoiding a suit
A negotiated settlement also prevents issuers from filing suit against you for the debt. If a suit were filed, you’d be responsible for the balance due and interest, which could accrue until the debt is repaid.
Larry Feinstein, a Seattle bankruptcy attorney, says that a majority of his clients who file for bankruptcy protection have credit card debt ranging between $30,000 and $80,000. Typically, a job loss or underemployment is the reason for the choking debt, and even if part of the debt is forgiven, people can’t pay it.
“A lot of them will come to me with these settlement offers for half the amount. But they say, ‘Where am I going to get that money?’ I’ve had very few clients who’ve been able to take advantage of these offers.”
Rent N Sell Realty (RNSR) does not get involved in disputes between property owners, renters, buyers or any third parties using our websites. If a dispute develops between owners, renters, buyers or third parties of any of our websites (www.RentNSell.net and http://RentNSell.mobi), you hereby release and hold harmless RNSR from claims, demands and damages (actual or consequential) connected in anyway to such disputes.
Delinquent on your credit card account?
Options for a Deal
If you are delinquent on your credit card account, you don’t have to wait to hear from your lender. Consider contacting your credit card issuer directly to try negotiating a settlement.
Possible plans include:
• A lump-sum settlement, in which you and the lender agree to a reduced balance, and you pay that off at once.
• A work-out arrangement, in which the bank cuts or eliminates your interest rate and (often) stops issuing late fees and other charges until the balance is paid.
• A forbearance plan, which offers a few months without payments until you get back on your feet, but does not reduce the balance owed.
Train your brain to behave financially
In money, and in life, you are very often your own worst enemy. You promise yourself you're going to diet, then eat not one or two french fries but a whole plate. You decide to really commit to saving for retirement, only to wind up with a new pair of shoes in your closet.
When it comes to your finances, your brain's natural inclinations may not always work in your wallet's favor.
Why does self-sabotage happen no matter how hard you try to prevent it?
At least part of the blame lies with your brain. It spends a lot of time working for you -- it's involved in everything from breathing to buying shoes -- but it can also work against you.
"Your brain will give you a lot of emotional signals, and some of them are not very useful. In fact, they can be quite misleading," says George Loewenstein, a professor of economics and psychology at Carnegie Mellon University.
Knowing how to interpret the signals and trying to ignore ones that may lead to trouble is key to getting your finances in order.
Use your willpower
You probably think of willpower as a renewable resource. Yet, "psychologists have found that there's this thing called eco-depletion, where you have that 'umph' for controlling yourself, but it's like a muscle -- you can wear it out and run out of willpower," says Princeton University professor Sam Wang, co-author of "Welcome to Your Brain."
That means if you're trying to stop shopping or smoking, you shouldn't try other changes that also require willpower. You'll have the most success if you concentrate your efforts: Stop smoking, curb your shopping, then work on a diet. The order is up to you. Oprah.com: 25 tricks to keep money in your wallet
Save automatically
I've said this countless times: If you make automatic contributions to your 401(k) or other savings accounts, the money is out of your hands, out of your wallet, and you're less likely to spend it before you can save it.
But there's another reason: Your brain may not do well planning for the future. It may be programmed to want something now, not later. "You can basically trick people's brains into doing the right thing by setting up situations where they don't quite feel the bite of what they're being asked to do," Wang says.
Put all your savings on autopilot, and you won't likely notice the missing cash.
Haste makes waste
"Your brain doesn't give you very reliable signals about when you should spend and when you should save, and the implication of that is that you really need to think it out," Loewenstein says.
That's why impulse buys are a no-no. How many times have you bought something only to regret it? You can return it, but that's energy -- and often money, in the form of shipping or gas -- wasted. Oprah.com: How to be a master shopper
Focus
Research shows we tend to get more pleasure from experiences than things.
A vacation gives you memories you can think about over and over. A new watch you may not really need? Not so much. That doesn't mean a ban on buying, but when money is tight, you need to put more thought into not only whether you spend it, but how you spend it. Oprah.com: Take a vacation for much less
The peanuts effect
If an expenditure is small, it may feel like we're not spending at all, Loewenstein says. In your brain, these don't register as purchases.
While it's true a small treat won't blow your budget, indulging every day could -- the same way a slice of cake probably won't hurt but, if you make it a daily habit, you may have trouble fitting in your pants.
This may be some of the best advice you will ever receive, free of charge.
Read this and make a copy for your files in case you need to refer to it someday.
1.... Do not sign the back of your credit cards. Instead, put 'PHOTO ID REQUIRED.'
2. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the 'For' line. Instead, just put the last four numbers. The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.
3. Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home address. If you do not have a PO Box, use your work address. Never have your SS# printed on your checks. (DUH!) You can add it if it is necessary. But if you have it printed, anyone can get it.
4. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel...... Keep the photocopy in a safe place.
I also carry a photocopy of my passport when I travel either here or abroad. We've all heard horror stories about fraud that's committed on us in stealing a Name, address, Social Security number, credit cards.
Unfortunately, I, an attorney, have first hand knowledge because my wallet was stolen last month... Within a week, the thieves ordered an expensive monthly cell phone package, applied for a VISA credit card, had a credit line approved to buy a Gateway computer, received a PIN number from DMV to change my driving record information online, and more.
But here's some critical information to limit the damage in case this happens to you or someone you know:
5. We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them...
6. File a police report immediately in the jurisdiction where your credit cards, etc. were stolen. This proves to credit providers you were diligent, and this is a first step toward an investigation (if there ever is one).
But here's what is perhaps most important of all: (I never even thought to do this.)
7. Call the 3 national credit reporting organizations immediately to place a fraud alert on your name and also call the Social Security fraud line number. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over the internet in my name.
The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit.
By the time I was advised to do this, almost two weeks after the theft, all the damage had been done. There are records of all the credit checks initiated by the thieves' purchases, none of which I knew about before placing the alert. Since then, no additional damage has been done, and the thieves threw my wallet away this weekend (someone turned it in). It seems to have stopped them dead in their tracks.
Now, here are the numbers you always need to contact about your wallet, if it has been stolen:
1.) Equifax: 1-800-525-6285 1-800-525-6285
2.) Experian (formerly TRW): 1-888-397-3742
1-888-397-3742
3.) Trans Union : 1-800-680 7289
1-800-680 7289
4.) Social Security Administration (fraud line): 1-800-269-0271 1-800-269-0271
If you are willing to pass this information along, it could really help someone.
In money, and in life, you are very often your own worst enemy. You promise yourself you're going to diet, then eat not one or two french fries but a whole plate. You decide to really commit to saving for retirement, only to wind up with a new pair of shoes in your closet.
When it comes to your finances, your brain's natural inclinations may not always work in your wallet's favor.
Why does self-sabotage happen no matter how hard you try to prevent it?
At least part of the blame lies with your brain. It spends a lot of time working for you -- it's involved in everything from breathing to buying shoes -- but it can also work against you.
"Your brain will give you a lot of emotional signals, and some of them are not very useful. In fact, they can be quite misleading," says George Loewenstein, a professor of economics and psychology at Carnegie Mellon University.
Knowing how to interpret the signals and trying to ignore ones that may lead to trouble is key to getting your finances in order.
Use your willpower
You probably think of willpower as a renewable resource. Yet, "psychologists have found that there's this thing called eco-depletion, where you have that 'umph' for controlling yourself, but it's like a muscle -- you can wear it out and run out of willpower," says Princeton University professor Sam Wang, co-author of "Welcome to Your Brain."
That means if you're trying to stop shopping or smoking, you shouldn't try other changes that also require willpower. You'll have the most success if you concentrate your efforts: Stop smoking, curb your shopping, then work on a diet. The order is up to you. Oprah.com: 25 tricks to keep money in your wallet
Save automatically
I've said this countless times: If you make automatic contributions to your 401(k) or other savings accounts, the money is out of your hands, out of your wallet, and you're less likely to spend it before you can save it.
But there's another reason: Your brain may not do well planning for the future. It may be programmed to want something now, not later. "You can basically trick people's brains into doing the right thing by setting up situations where they don't quite feel the bite of what they're being asked to do," Wang says.
Put all your savings on autopilot, and you won't likely notice the missing cash.
Haste makes waste
"Your brain doesn't give you very reliable signals about when you should spend and when you should save, and the implication of that is that you really need to think it out," Loewenstein says.
That's why impulse buys are a no-no. How many times have you bought something only to regret it? You can return it, but that's energy -- and often money, in the form of shipping or gas -- wasted. Oprah.com: How to be a master shopper
Focus
Research shows we tend to get more pleasure from experiences than things.
A vacation gives you memories you can think about over and over. A new watch you may not really need? Not so much. That doesn't mean a ban on buying, but when money is tight, you need to put more thought into not only whether you spend it, but how you spend it. Oprah.com: Take a vacation for much less
The peanuts effect
If an expenditure is small, it may feel like we're not spending at all, Loewenstein says. In your brain, these don't register as purchases.
While it's true a small treat won't blow your budget, indulging every day could -- the same way a slice of cake probably won't hurt but, if you make it a daily habit, you may have trouble fitting in your pants.
This may be some of the best advice you will ever receive, free of charge.
Read this and make a copy for your files in case you need to refer to it someday.
1.... Do not sign the back of your credit cards. Instead, put 'PHOTO ID REQUIRED.'
2. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the 'For' line. Instead, just put the last four numbers. The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.
3. Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home address. If you do not have a PO Box, use your work address. Never have your SS# printed on your checks. (DUH!) You can add it if it is necessary. But if you have it printed, anyone can get it.
4. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel...... Keep the photocopy in a safe place.
I also carry a photocopy of my passport when I travel either here or abroad. We've all heard horror stories about fraud that's committed on us in stealing a Name, address, Social Security number, credit cards.
Unfortunately, I, an attorney, have first hand knowledge because my wallet was stolen last month... Within a week, the thieves ordered an expensive monthly cell phone package, applied for a VISA credit card, had a credit line approved to buy a Gateway computer, received a PIN number from DMV to change my driving record information online, and more.
But here's some critical information to limit the damage in case this happens to you or someone you know:
5. We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them...
6. File a police report immediately in the jurisdiction where your credit cards, etc. were stolen. This proves to credit providers you were diligent, and this is a first step toward an investigation (if there ever is one).
But here's what is perhaps most important of all: (I never even thought to do this.)
7. Call the 3 national credit reporting organizations immediately to place a fraud alert on your name and also call the Social Security fraud line number. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over the internet in my name.
The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit.
By the time I was advised to do this, almost two weeks after the theft, all the damage had been done. There are records of all the credit checks initiated by the thieves' purchases, none of which I knew about before placing the alert. Since then, no additional damage has been done, and the thieves threw my wallet away this weekend (someone turned it in). It seems to have stopped them dead in their tracks.
Now, here are the numbers you always need to contact about your wallet, if it has been stolen:
1.) Equifax: 1-800-525-6285 1-800-525-6285
2.) Experian (formerly TRW): 1-888-397-3742
1-888-397-3742
3.) Trans Union : 1-800-680 7289
1-800-680 7289
4.) Social Security Administration (fraud line): 1-800-269-0271 1-800-269-0271
If you are willing to pass this information along, it could really help someone.
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