FTB = Failure To Budget. Many people run into financial problems like excessive debt because they haven’t made any concrete financial plans in their lives. Simply by setting a strong budget or using personal finance programs, people would be able to avoid financial blunders. Setting a budget is about putting all of your financial information down on a computer screen or a piece of paper so that there’s no subjectivity to it.

By having the hard numbers in front of you, major financial blunders can be avoided through some objective, prudent moves. So what are three common financial blunders caused by FTB? Let’s examine.

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In a study at Harvard Business School in 1979, business students were asked, “How many of you have set clear, written goals for your future and made plans to accomplish them?” As it turned out: 13 percent had goals but hadn’t put them in writing, 3 percent had specific goals and had put them in writing, 84 percent had no goals at all.

Ten years later, the study was revisited to see how each student was performing in the business world.

• The 13 percent who had made goals were earning about double, on average, of what the 84 percent who had made no goals were earning.
• The 3 percent who wrote their goals were earning ten times as much as the remaining 97 percent put together.

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We all realize that something needs to be done to help our economy, but I’m still not comfortable with what has been done. When the bill was first drafted, it was a wide open door for one man, Henry Paulson, to have unlimited power and control of all the bailout money. Limits have been added since then, but check the things out below that still remain in the bill.

As a reminder of how your government operates, the Senate cannot originate a spending Bill. Article 1, Section Seven of the Constitution says, “All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.” So what the Senate did was pass amendments to the H.R. Bill 1424 that was passed by the House of Representatives. The bill starts out with an amendment to the Employee Retirement Income Security Act of 1974.

When I heard that the bill is 451 pages long, I wondered how they had time to read it since they have been in meetings most of the time. Actually the bailout part is from page 2 to 113, so it is only 111 pages. That is still a lot to read.

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Do you ever worry about debt? Do you struggle just to make monthly payments? Do you and your spouse fight over money? Are you ready to live a better life with less debt and less arguments over expenditures? Start taking control now. There is no better time than the present to change your life for the better. A budget is nothing more than a plan. To make it a good plan you need to track all of your expenditures and all of your goals. That sounds more complicated than it is. You have to track your expenditures in some form, whether it is in your checkbook register, and notes written on your bill receipts, or on your computer. Why not consolidate them all in one easy tracking system? If you are married you need to agree on what is essential and work on the budget together. It may be difficult to agree on some things, but take the other person’s needs into consideration. What is the big goal? Focus on it.

Go From Stressed To Happy

Can you agree on where you want to be financially in 5 years or 10 years? What will it take to get there? This may sound like it will cause more arguments. But once you agree on your budget and your goals and both of you agree to stick to them, your marriage will be much happier and more peaceful.

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Recently a friend asked me the following question: “If I have 4 Visa cards, 1 American Express, and 3 Store Cards, is that too much? I am never late and pay off almost all of them. Should I be closing some or just keep them open without using them?” -Jeffery

The Answer
The amount of credit cards you have open do not directly impact your credit score. However, your amount of debt to credit ratio does. For example if you have $10,000 worth of credit and $2,000 worth of debt, then you debt to credit ratio would be 20%. The higher this percentage is, the lower your credit score will be. It is a good rule of thumb to use less than 30% of your line of credit on any single credit card.

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We have all heard about ARMs - Adjustable Rate Mortgages and Interest Only Mortgages and Balloon Mortgages, but how did this debacle start? In 1929 the Glass-Steagall Act was passed to prohibit banks from accepting both deposits and underwriting securities. In 1999, the Gramm-Leach-Bliley Act was passed which effectively repealed this separation for many large financial institutions.

Investment banks had previously assisted lenders in raising more lending funds. They had the ability to offer longer-term fixed interest rates by converting loans into bonds. The banks would make house loans in the form of a mortgage, and then use the investment bank to sell bonds to fund the debt. The money from the sale of the bonds can be used to make new loans. This is called securitization. The banks began to securitize loans themselves, and the investment banks also became lenders.

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There are many saying that Secretary Henry Paulson’s bailout plan is not the best way to deal with the credit crunch crisis. Paulson came from Goldman Sachs. Is he trying to protect his buddies? Are they taking advantage of the fact that the administration of the country will change soon and then the new leaders can blame their predecessors?

The bailout shifts the burden of the losses to the taxpayer. Another problem with that is that we are not even getting fire-sale prices. They say the bailout will not be effective if bottom dollar is paid. So they are trying to speculate on what it will all be worth in the future.

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Devil’s Advocate It’s funny how everyone has fallen into the credit world of credit cards and credit score. Credit cards are like tricky games of who can out smart who and credit scores are just silly numbers that companies and institutions with trust issues use to size you up. Wouldn’t your life be so much better if you never have to worry about juggling your money on credit cards or have to stress about getting a high credit score? Wouldn’t that be great?

If you think it is impossible, then I am glad to tell you that you are wrong because people live without credit every day.

The Secret
The secret to living without credit is…

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There is good debt and bad debt. Good debt is called good debt because it is tax deductible if you itemize your taxes. This includes mortgages, some types of student loans and business loans. It makes no sense to speed up paying off low-interest, tax-deductible debt if you have any other kind of debt. You should first pay off your highest-rate, nondeductible debt first. Do not pay more on your mortgage at the expense of not saving more for retirement. The sooner you start saving for retirement the more you will save because of compounding. Plus you can’t get back an opportunity to contribute to a tax-advantaged retirement plan once you have missed your chance. Withdrawing from your retirement early should never be considered. The money you will lose in the long run, plus the taxes and penalties that you will have to pay now make this a very bad choice. You will sacrifice 1/4 to 1/2 of what you withdraw to taxes and penalties. Borrowing from your retirement is a bad idea also. An additional risk to borrowing from your 401(k), is if you lose your job, you have to pay back the loan in a short amount of time or it will be taxed and penalized as a distribution.

A Mortgage is Good Debt - Don't Pay It Off Credit Cards are Bad Debt - Pay Them Off

If things get really bad and you end up in bankruptcy, the credit card debts can be wiped away. You don’t want to risk losing your retirement money also.

Focus on paying off bad debt which consists of credit cards, unsecured loans, and loans that are not tax deductible. Start with the highest interest bad debt and pay more towards it each month until it is paid off. Then focus on the next highest.

Hank Paulson the Treasury Secretary, and the government are working on a plan today to set up a government facility to take on bad debts from financial institutions to prevent the global credit crisis from worsening. They say that the problem is that companies who borrow to keep their businesses running cannot get credit. There are questions as to how fast the government can actually implement such a plan. Some say it could take weeks. I don’t know what the repercussions of a move like this would be other than we the American taxpayers would be taking on more debt.

White House spokeswoman Dana Perino questioned whether doing something in the middle of a market correction was wise and acknowledged it could be difficult to approve something quickly.

The government says that the facility would be similar to the Resolution Trust Corporation which was set up on 1989 to take on all the failed thrift assets during the savings and loan crisis.

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