Personal Finance Advice

Summer is a great time to take a step back and have a look at your finances. It’s early enough in the year to where you can reverse any bad financial trends you have gotten yourself into, but late enough in the year to where you can see if you’re heading along the right financial path. Before you hop into your car for your summer road trip this year, take some time to have a look at your personal finances to find out what you’re doing right and what needs some adjusting.

Goal 1: Divide Long Term vs. Short Term. It will be easier to get your financial goals straight if you divide them into long term and short term goals. This is easy to do; just take a piece of paper and divide it into two sections. Financial goals that can be accomplished before the end of the year go into the “Short Term” column and everything else becomes “Long Term.”

Goal 2: Get a Vacation. Your vacation doesn’t have to be an expensive getaway to a beach resort. Even if your budget only allows for a weekend trip to visit family in a neighboring state, as long as you’re able to get away from everything for a day or two, it qualifies as a vacation. Why is this a financial priority for summer? Chances are you have been working hard so far this year, and chances are you will work hard throughout the remainder of the year. What better time for a break than right in the middle of all that hard work?

Goal 3: Tweak Your Budget. How has your written budget been working for you so far this year? Are you saving as much as you would like to, or are your personal finances out of control? By the way, if you don’t have a written budget in place, there is no time like the present.

Goal 4: Examine Your Giving. Have you given as much money or time to charitable causes as you would like to? Many people have noble intentions to give a portion of their income to charity, but then when the end of the year rolls around they realize that they didn’t give nearly as much as they thought they did. Summer is a great time to examine whether you are on track for your charitable giving.

Goal 5: Reduce Your Debt. If you aren’t currently aggressively attacking your debt, now is the time to start. You’re in a great position to see just how effective a six month plan to reduce debt can work. Figure out which debt you want to reduce and by how much, and then get to work chipping away at the debt.

If your personal finances are all in line with how you want them to be, congratulations! If not, there is still time to make this the year that you gain control of your money and change the way you handle your finances.

Check scams have been making the news lately. These scams involve someone compelling someone else to deposit some checks which initially clear, but then after the money has been given to the other person, the bank notifies the depositor that the checks aren’t actually valid. This leaves the depositor owing all the money from the invalid checks that were deposited, and nine times out of ten the person who gave the checks to the depositor is long gone.

Knowing that these check scams exist is the best way to avoid getting involved with one and losing out on a bunch of money. After all, scammers involved in these things make the situation seem completely reasonable and logical, so unless you know to be on the defensive you may not realize that you’re involved in a scam until it’s too late.

It used to be that these scams involved a stranger approaching someone and explaining a problem and asking for help. Usually it went along the lines of the stranger saying, “I’m traveling through and my car has broken down. I have these cashier checks that will more than cover the cost of the repairs but I don’t have a bank account to cash them in, so if I sign them over to you, will you please deposit them into your bank account and then give me the cash? You can keep $100 for your trouble.” At this point, if you believe the story and have a desire to help, you head to your bank and deposit the checks. You figure if the checks are invalid, the teller will certainly catch on, so when the checks are deposited without problems you figure everything is fine. You give the cash to the stranger, keep the $100 for yourself, and probably feel pretty good about helping someone out.

The problem arises when your bank tries to collect the funds from the other bank. It turns out that the checks are fraudulent, or have insufficient funds, so the burden of paying the bank back the money you withdrew suddenly falls on you. Of course, the stranger with the car problems is nowhere to be found and your bank doesn’t care if you were fooled or not; you still owe the money.

With the Internet, these scams get much more complicated but are still scams nonetheless. You might be asked to collect payments on behalf of a foreign company and then wire transfer the funds overseas, keeping a portion of the payments for yourself. Other scenarios involve a plea for help from people from a foreign country who claim a coup or other unrest has forced them to flee the country and they want somewhere to stash their fortune somewhere, and you will receive a portion of the fortune for your help with the transfer of the funds.

These scams prey on people who actually have a desire to help other people, as well as people who are really looking to make some money for nothing. No matter what category you fall into, you should keep in mind that there is hardly ever a time when these requests are valid. It’s better to just assume that any time a person approaches you with a way to give you money that you haven’t earned -especially when it involves your bank account- is trying to scam you.

What does it mean to be “upside down” with a loan? You may have heard this term used lately with regards to both auto and home loans, and if you don’t understand what it means then there is at least a good chance that you know it means something bad. When people lament about being upside down with a loan, they never sound happy about it.

When you are upside down in a loan, this means that you owe more than the item you have the loan for is worth. This used to be much more common with auto loans than with mortgage loans, but with the economy in turmoil it has become much more common with mortgages than it used to be.

How does this happen? With auto loans, the rapid depreciation of most cars is usually enough to make force a borrower into upside down status until enough payments are made on the loan to pay down the principal balance substantially. On the other hand, with home loans, it can be a little more complicated. Homes are supposed to increase in value, also known as “appreciation.” The problem is that sometimes home values appreciate too much, which results in a real estate bubble where the home values start to plummet in some areas. People who bought the homes when they were valued at record highs -or people who took out equity loans on their homes when the values were high- can quickly find themselves upside down in their home loans as the value of the home goes down.

How can you avoid someday winding up in a position where you are upside down in your payments? Making a substantial down payment on whatever it is you’re buying (whether it’s a car or a home) may help you to avoid a bad situation in the future. Making additional principal payments can also help. Nothing is more important than not making a purchase that has the real potential to become upside down. Know the depreciation rate of a car before you buy it, and if possible, by a used car instead of a new car. Used cars have already taken the huge initial depreciation hit when they were first purchased by the original owner, so this can be a great way to try to keep from owing more than the car is worth.

With a home, things become a little trickier. If possible, buy a home with as much money down as possible, and purchase the home in an area with a long history of solid home value appreciation. This can be nearly impossible if you are buying a new home in a new development, but do your research nonetheless. Most importantly, try to avoid borrowing backed by the equity in your home. This can be a great way to borrow money because of the low interest rates and potential tax deductions, but you have to decide if it is worth it to place yourself in a position where you might find yourself upside down.