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Author Archives: Office for Financial Success

In the Starting Block

Over the years, I’ve talked with many young people about their desire to invest.  Almost to a person, they are interested in investing because there is a popular, new product or service that excites them.  This excitement helps them want to invest in that company, even if they are neophytes to the investment world. This does not bother me, as I love seeing people be motivated to become active in our economic system.  The issue arises, however, that what is a cool product may be an investment that is about to mature in its attractiveness.

My friend’s son has me manage some investments for him. When we began our relationship, he wanted to talk about investing in Tesla motors.  This was in the fall of 2014 and Tesla (TSLA) was selling in the neighborhood of $240 per share. Yes, in four years TSLA had become a ten-bagger, having risen to $241 from an October 2010 price of $21. To him, this looked like a great investment and, it would be, if that rate of appreciation had continued.  Instead, in the fall of 2015, TSLA was selling for $207 (a loss of 13.7%) and the good news is that, today, it is selling for $262 per share (a gain of 8.7% from the 2014 price). One does not know if the “investor” would have still been in the stock or would “the emotional trader” have sold when the price was low.

Have you ever eaten at a Chipotle (CMG)? They do have good food and, in the fall of 2014, their stock was selling at price of $638, having risen from a first month’s (January 2007) price of $45.60, or 1,299%!! Of course, we all want on that bandwagon but, had you purchased CMG in the fall of 2014 with the hopes of winning the race, you would now own shares worth 28.2% less than at purchase. You did not imagine that there would be an e coli outbreak at the fast-food chain.  As a result, it looks like you’re a little behind in the race – not winning.

Similar stories can be told about other stocks and, of course, there are real success stories where fortunes are made on the current, coolest thing to hit the market in years. Yet, for a beginning investor, looking for a way to invest in the market, I always recommend a couple of things.  One, I ask, “How long are you able to invest the money without needing the principal?”  Before you invest in the stock market, this time period should be no shorter than five years and, preferably, longer.  In the above examples, had you gambled your house-down payment-to-be on either of these single stocks, instead of the return you had hoped to receive you may receive less and, perhaps, lost some of your down payment if a house purchase is relatively soon. If the beginning investor believes that they can invest for over five years and they want to get started, I recommend that they consider an index mutual fund or exchange traded fund. What would have happened to this investment over the eighteen months from October 2014 to today?

In October of 2014, the Standard & Poor’s 500 Index ETF (SPY) was selling for $195.49 per share. Currently SPY is selling for $204.19 and sports a 2.1% dividend yield. This is approximately an annual yield of 4.96%, although in January of this year SPY had a price a little less than $193 per share for a 1.4% loss to be recouped by April.  Moreover, this return came with a lot less volatility than in either of the “cool” stocks above. Why? Diversification.

Purchasing a single investment is risky.  Being risky, you may make a lot of money, if it turns out to be a great company. Being risky, you may lose everything, if it is a poor investment. You do not know. On the other hand, by investing in an index mutual fund with a focus on the United States, you will have purchased a little of every company in the index and will have taken a position that represents the largest companies in the United States.  This reduction in risks, lowers your expected return, while reducing your risk.  Moreover, an investment in The Market of the United States, provides you with an investment for the long-run. (You will not have to worry about little things like food poisoning getting in your way.)

Never forget that financial success follows from your discipline to save money over a long period of time in a diversified portfolio. If you do this, while not as exciting as watching a rabbit zig-zag across the yard, you will be successful. For, just as the fable of the turtle and hare attests, slow and steady will win the race. Swinging for a home run with your investments may seem attractive. It is, however how most batters strike out.

The Missouri Veterans Commission – One of the Best Kept Secrets in Missouri

If you think you or someone you love may qualify for VA benefits and you don’t know where to start, there is a great resource that can help. I learned about this resource as I was struggling to navigate the VA bureaucracy to assist my 90-year-old mother, who survives my father, a World War II veteran.  She qualifies for aid and attendance benefits.  When we initially applied in late 2010, I submitted VA paperwork on my own and waited ten months to get a response, which asked for additional documentation in language that was difficult to decipher.  I gathered what I thought they needed and sent it in.  My husband and I were providing care for my mother 24/7 and I was still working full-time. We waited in frustration for another few months, got one more request for even more information and finally, after more than a year, my mother was approved for benefits so she could afford the assistance she needed.  Without that assistance, my family could not have provided in-home care for much longer.

As my mother’s health has continued to deteriorate, she has needed more care.  Last fall, I filed a request for additional benefits.  This time, I heard back within four months – with a request for additional documentation.  I was feeling emotional and overwhelmed and a local elder care manager suggested that I go to the Columbia Veterans Service Officer for assistance.

I just left his office this morning feeling relieved and grateful because he took the piles of paper I have accumulated over the last five years, read the VA’s latest request for documentation and, within an hour, had explained the situation to me in terms that made sense, completed the paperwork for me, and submitted it to the VA.  He assured me that we should have the additional benefits direct deposited within the next three months.

The Missouri Veterans Commission, through the Missouri Department of Public Safety, has 41 highly trained and accredited Veterans Service Officers located across the state.  I have worked in financial education for more than 23 years.  I was vaguely aware that there was a “Missouri Veterans Commission,” but I had no idea what a resource they are and I had never heard of Veterans Service Officers. Their job is to assist veterans or their dependents in filing for VA benefits. They offer counseling on available VA and state Veterans’ benefits and they complete and submit VA claims applications and necessary documentation on veterans’ behalf. There are Veterans Service Officers in every state. I cannot say enough good things about the Veterans Service Officer who helped me.

Don’t go it alone if you need to apply for benefits.  In Missouri, you can find a Veterans Service Officer near you at the service officer locator at http://mvc.dps.mo.gov/service/serviceofficer/. I wish I had known this five years ago!

If Home Repair Offer Sounds Too Good, Watch Out

Spring will soon be here, and so will warmer weather and more opportunities to enjoy the outdoors. Here in the Midwest, Spring can also bring storms, flooding, hail and tornados. Severe spring weather could leave you looking for help with home repairs. While there are many legitimate businesses that offer home repair services, it is important to be cautious in order to avoid home-related repair fraud.

This can be especially true when an area experiences severe weather that results in a large number of insurance claims being made. It’s also common for the elderly to be prime targets for these repair schemes, since many seniors own their homes and frequently need help with repairs. However, with damage left by flooding or other disasters, people of any age could become victims if they aren’t careful.

Warning signs to watch for include:

  • Someone comes to your door with materials left over from another job
  • Prices are much lower than other estimates
  • The price is only available today
  • The company uses a post office box and has no street address or telephone number
  • Full payment is due before the work is completed
  • The contractor will not give you references

In order to get the job done right, know what you want done before talking with legitimate, local contractors. Ask for identification before letting anyone into your home. Get detailed estimates, in writing, from several reputable, licensed contactors and find out if the contractors are insured and bonded.

It’s important to know who you’re dealing with and be aware that someone showing up on your doorstep may be targeting you. Ask for references, check them and ask about the availability of warranties on repairs or materials used. You can also find out more about potential contractors by looking them up on third party review sites such as www.angieslist.com or www.houzz.com, or see how they rank with your area’s Better Business Bureau (www.bbb.org).

Finally, get a written contract before the work is started to avoid surprises or misunderstandings, and make sure this includes the company’s address and telephone number. If you suspect fraud, contact local authorities immediately and your state’s Attorney General’s Office (in MO, the Attorney General’s Consumer Protection Hotline is 800-392-8222).

Remember, if it sounds too good to be true, it probably is.

– Janet LaFon, Family Financial Education Specialist, University of Missouri Extension

Bankruptcy

Bankruptcy

If you have reached a point where you can see no way to pay your bills and bill collectors are constantly calling you, bankruptcy might be your last option. It is not a step to take lightly because it will affect your perceived credit worthiness for years to come.

Before taking that step, it is a good idea to consult with a reputable consumer credit counseling service to see if they can work with creditors to restructure your debt payments and avoid bankruptcy. DebtAdvice.org is a website sponsored by the National Foundation for Credit Counseling. It has information to help you find the nearest reputable nonprofit credit counseling service in Missouri.

What is bankruptcy?

Bankruptcy is a legal proceeding that may allow someone who cannot pay his or her bills or debts to get financial relief and avoid some or all of those debts. Bankruptcy cases are filed in federal court because federal law grants the right to file bankruptcy.

What are the different types of bankruptcy?

There are four types of bankruptcy:

Chapter 7 is also known as personal bankruptcy and is the most common type of bankruptcy. It often results in the total elimination of nearly all of a person’s unsecured debts and it stops debt collectors from trying to collect more money.

In a Chapter 7 bankruptcy, a trustee is appointed to take over your property and sell off any assets of value (except in some cases, varying state by state). The money made from the sale of your assets (property, cars, etc.) goes to pay some of your creditors.

As soon as your bankruptcy petition is filed, the law prohibits most collection activity. If a creditor continues to try to collect the debt, the creditor may be cited for contempt of court or ordered to pay damages. This applies even to the loan that you may have obtained to buy your car. If you continue to make payments, it is unlikely that your creditor will do anything. However, if you miss payments, your creditor will probably petition to either repossess the car or renegotiate the loan.

Chapter 11 is a type of bankruptcy that applies mostly to businesses. It allows the business to stay in operation, but mandates a plan to pay off debts.

Chapter 12 applies only to family farmers or family fishermen. It allows families to keep their assets, but it appoints a trustee to take over the budgeting and pay the creditors over time.

Chapter 13 bankruptcy allows individuals and families to keep their assets, but similarly to Chapter 12, it requires a trustee to oversee the repayment of debts. To qualify for this type of bankruptcy, you must have a regular and steady source of income and agree to pay a portion of your income to your creditors.

Your bankruptcy will be on your credit file for up to 10 years and can affect your ability to receive credit in the future — so consider all your options before you file!

Will bankruptcy get rid of all my debts?

Probably not. Bankruptcy cannot clear debts for:

  • Taxes
  • Child support
  • Alimony
  • Most student loans
  • Court fines and criminal restitution
  • Personal injury caused by drunk driving or driving under the influence

If you have secured debts with collateral (like a house), you will have to continue to pay those debts.

What are the advantages of filing for bankruptcy?

The biggest advantage is that you can get a fresh financial start. If you are eligible for Chapter 7, most of your unsecured debts may be forgiven. A secured debt is one that the creditor can collect by taking back and selling the collateral that secured it if payments are missed, like a home mortgage or car loan. With those two major exceptions, most consumer debts are unsecured.

You may be able to keep some of your assets depending on your situation. You cannot be fired from your job solely because you filed for bankruptcy.

What are the disadvantages of filing for bankruptcy?

Since your bankruptcy will stay on your credit record for up to 10 years, it may negatively affect your finances in the future. A bankruptcy is a blemish on your credit record, but often people who file already have a troublesome history.

In one respect, bankruptcy may improve your credit records. Because Chapter 7 provides for a discharge of debts no more than once every eight years, lenders know that a credit applicant who has just emerged from Chapter 7 will not be able to file for bankruptcy any time soon.

Research in this area is mixed. A study by the Credit Research Center at Purdue University found that about one-third of consumers who filed for bankruptcy were able to get lines of credit within three years of filing, and one-half were able to get lines of credit within five years. That new line of credit, however, may have a high cost because of bankruptcy. Although you may have been eligible for a bank card with a 9 percent rate before bankruptcy, the best card that you can get after bankruptcy might carry a rate of 20 percent or higher. Another option would be a card secured by a cash deposit that you make up front with the credit card issuer.

How do I file bankruptcy?

You will need to work with a bankruptcy attorney. The Missouri Bar and some local bar associations in the state’s bigger cities have lawyer referral services to assist in finding a lawyer. To find a local lawyer who handles bankruptcy cases, call either your local lawyer referral service listed in the Yellow Pages (in St. Louis, Kansas City and Springfield) or call The Missouri Bar Lawyer Referral Service at 573-636-3635. You also may use the Find a Lawyer feature on The Missouri Bar’s website (mobar.org) to find a bankruptcy lawyer in your area. You may want to talk to more than one lawyer to find the one you are most comfortable dealing with.

Under the law, you must have credit counseling before filing for bankruptcy and more financial counseling before your debts are cleared. A filing fee is required for all bankruptcy cases and the amount of the fee varies depending on the type of case.

You may not qualify for Chapter 7 bankruptcy if your income is too high, and instead have to repay some of your debts under Chapter 13. In order to figure this out, the courts will do a means test to see if you qualify for Chapter 7 bankruptcy. If you have more than a certain amount of money left over each month after paying all bills, you may have to file for Chapter 13 bankruptcy and continue to pay some of your bills.

Remember, filing for bankruptcy is not a minor decision. Be sure you have fully researched all your options and that you understand all the implications before you make the decision to file. If bankruptcy is your best option, it can provide a fresh start for you. Seek out financial education even after you file to help you avoid finding yourself in a precarious financial situation in the future. Your local University of Missouri Extension Center can direct you to family financial educators.

If the Foundation of Personal Finance is the Budget, Then What is the Survey?

When trying to explain personal finance to people, metaphors and analogies are often helpful in conveying ideas.  One of the most common examples is comparing a budget, or spending plan, to the foundation of personal financial practices.  A foundation in a home or building is the strong, basic structure upon which the more diverse, complex pieces are organized to ultimately combine into a full building which provides shelter, comfort, safety, entertainment and many other attributes for those who use it.  This is exactly why a budget is considered the foundation of personal finance, it is not glamorous and generally is very basic, but without a good spending plan (strong foundation), the remaining financial plans & goals (roof, walls, cabinets, and furniture) are virtually destined to fall apart.

However, one aspect often overlooked, is the lack of a performing a good survey of the land before beginning to build.  Google’s definition of a survey is: “examine and record the area and features of (an area of land) so as to construct a map, plan, or description.”  That sounds like it could be relevant!  Next step, tie it to personal financial practices.  How about “getting organized”?

Getting organized can mean different things to different people, and different people will certainly have different levels of organizational skills and habits.  Therefore, I would like to propose four simple measures everyone may benefit from.

  1. Establish a location for important documents.  Is this a binder?  A filing cabinet? An accordion folder?  That is completely up to you and dependent on your situation in life.  A young college student will likely have less need for space than say a middle aged business owner.  It could include such things as contracts, bills, pay stubs, tax documents, bank records, and important receipts.
  2. Create a checklist of your documents.  Do you have your will completed?  Who are the beneficiaries on your accounts?  What are your financial obligations and to whom are they owed? What numbers do you call if you lose your credit cards?  This is a quick reference list and may prevent having to rifle through the whole lot of records to get a small piece of information.  Just be sure to update it when you change your records.
  3. Create a schedule of your obligations.  Bills are pretty much just a fact of life, but getting lost in the “who, what, where, when and how” can result in much more than a headache.  Late payments are a major blow to credit reports and scores.  To help yourself avoid this, list out your obligations such as phone bill, utility bill, student loan payment, and any other place your money goes on a recurring, constant basis.  Consider things like “Who” the bill is paid to, “What” the amount is, “When” it is due, “Where” you send it, and “How” you pay it.  This can also be used monthly to keep track of what bills have already been paid.  And, you may even find places to cut back on spending!
  4. Clean it out every so often.  This may be one of the more touchy aspects to this tip, because everyone has different motivations for keeping the things they think are important.  I can only recommend educating yourself on what suggested time lines are for maintaining documents and using your own judgement.  Ideally you strike the happy middle ground between not keeping enough, and keeping too much, which on either side can result in the inability to properly plan and weather a strong financial storm.

Those are four relatively easy steps to help get started with, or shore up, healthy personal financial practices.  Sometimes though, the challenge of figuring out where to get started can prevent taking any action.  If you find yourself in that situation, you may benefit from seeking the guidance of others who are skilled in this area of expertise.  One FREE resource available to the Students, Staff, and Faculty of the University of Missouri is the Office for Financial Success (OFS).  The OFS is staffed by highly capable, compassionate volunteers who understand these types of problems and seek to help others unravel the mysteries of personal finance.  To make an appointment for yourself, or to learn more about us, please visit OFSMizzou.org.