Financial Rules of Engagement

Financial Rules of Engagement

This week, I attended a Financial Literacy workshop. The presenter talked about wanting people in the community to move from being financially stressed to being financially confident. 

The workshop focused on budgeting and credit literacy.

Some of the highlights from the Budgeting presentation included:

• Live within your means. We shouldn’t try to keep up with the Joneses and we shouldn’t cave in to the financial pressure we receive from family and friends.
• We need to budget, regardless of our income.
• We should set short-term goals (goals to achieve within the next 12 months), mid-term goals (goals to achieve within 1-5 years), and long-term goals (goals to achieve within 5 or more years). We need to write the goals down and evaluate our progress monthly, quarterly, or as needed to determine whether we are on track to accomplish our goals. We need to make sure our goals are realistic.
• Create a spending plan…. a step-by-step plan for meeting our expenses each month.
• When looking at our spending plan, we should look at our needs versus our wants. We need food to survive, but how much food and how much we spend on food is something within our power. We must have a car to get to work, but we have discretion regarding what type of car and how much we are willing to spend on a car.
• Keep a spending diary…. most financial advisors would advise that we track our expenses for a month, which is very hard. If we try doing it for just one week, we will probably be able to identify our problem areas. If we are spending too much on lunch…eating lunch out every day…cut back. We may need to eat lunch from home 3 days and eat out only 2 days a week, to save some money. If we are spending too much on clothes and shoes, we probably need to buy something once a month instead of once a week. Let’s cut back on our spending, so we can meet our financial goals.
• When we add our sources of income and subtract our expenses, we should get a positive number…have money left over after we pay all our expenses. If we have a negative number…. don’t have enough to pay our current expenses…we need to adjust our spending plan. We need to decide what we are going to cut from our budget…. Cable? Internet? We need to sacrifice something to pay all our bills.
• Most of us have two major expenses: mortgage/rent and car payment.

o   Our house payment/rent should not be more than 32% of our monthly income. ($1000/month income x 32% = $320/month for rent; I don’t know anywhere you can live for $320/month; so, you probably need a roommate if all you bring home is $1000/month).

o   Our car payment (total amount of car payments) should not be more than 20% of our income (preferably between 16-20%). ($1000/month income x 20% = $200/month is all you can afford to pay for a car if all you bring home is $1000/month.)

• We need to use spending plan tools: 1) envelope system- put cash in envelopes for each expense, 2) budget box system- use a small box with dividers for each day of the month, or 3) computer system- create a spreadsheet or purchase a personal finance program.
• Create a monthly payment schedule, noting when things are due. Transfer the schedule onto a monthly payment calendar. On the calendar: 1) document our paydays and amounts received on the day received, 2) document the date we move $25 to savings (a necessity), and 3) document bill due dates and amounts due on the calendar on the date they are due. Once we pay the bill, we can check the bill off on the calendar and shred the bill. If we get paid twice a month, pay the first half of the bills due that month with the first check and pay the bills due after the 15^th of the month, with the second check.

Some of the highlights from the Credit presentation included:

• Credit = our ability to get a loan.
• Our credit is “our word”. Can we be trusted to do what we say we will do?
• Some people try to avoid credit, but there is no way to avoid it. There are somethings we will need that we cannot save enough money to buy. We need a house…. we can save $10, 000 for a down payment on a $100, 000 house, but we cannot save $100,000 for a house in a reasonable amount of time….so, we need credit.
•   If we have a poor credit score, we may have experienced an increase in our homeowner’s insurance and/or car insurance recently, because in 2009 a law passed allowing insurance companies to increase our premiums if our credit score drops.
•  There are three (3) credit reporting companies: 1) Equifax, 2) TransUnion, and 3) Experian. We should go to www.annualcreditreport.com to get a free copy of our credit report annually. Instead of asking for a copy of all three reports at once, we should request one of each every four (4) months, because we get one free from each company annually (i.e. request Equifax in January; request TransUnion in May, and request Experian in September. By doing this, we can check to see what is going on with each report and we can compare them. The free report does not include the credit score. The credit score is usually $7.00. The free report allows us to see what is reporting.
• When we check our own credit report, a soft inquiry, it doesn’t impact our score. However, if a company checks our credit report, a hard inquiry, it takes points off our score, in anticipation of a new loan.
• Credit reports run two (2) months in arrears. We need to check our report to verify payments and check for errors on a regular basis, because we only have 60 days to address errors and if we don’t check until 60 days after a problem, there may not be any way to fix it. We may be able to make a statement about it, but not fix it. Call and get things removed that have been resolved, but not removed. Call/write to request that errors be corrected. Remember that once we fix something, it will take two (2) months to show up as corrected.
• When we get a bill and it tells us that we will incur a late fee 10 days after the bill due date, this does not mean the bill is going to report on our credit report as late. No bill reports late on our credit report, unless we pay it 30 days or more after the due date. Always pay all bills before the 30- days late deadline!
• The credit report contains three (3) crucial pieces of information:

o   Public Records- collections (late bills), judgments (by lenders who have acted via the court), and liens (by tax collectors or contractors). We don’t want anything in this section of our credit report. These drop our score 100- 200 points! If not paid, these stay on our report forever. If we pay them off, they stay on our credit report 7 years from the date they are paid off.

o   Bankruptcy- information about whether we’ve filed Chapter 7 or Chapter 13 Bankruptcy. We should try not to file bankruptcy. Consult a Bankruptcy Attorney, however, if we feel we need to file bankruptcy and they will answer any questions we may have.

o   Trade loans section-  seven (7) years payment history on installment loans (i.e. mortgage) and recurring loans (i.e. credit cards). It’s like a conveyor belt. Anything older than 7 years drops off the report. The older our trade line of credit the better. Opening new accounts drops our score 10-15 points. Don’t open new accounts unless it’s necessary. To have well established credit, we need something to always be reporting. This is the good thing about having credit cards.

•          The benefit of credit cards:

o   Same as cash; if we buy an item or pay a bill with it and we can pay it off within 30 days with no fees and no interest, which is what we should always do.  Do not purchase anything with a credit card that we cannot pay off in 30 days. Use credit cards for emergencies only. Do not use credit cards to go on vacations. Create a savings account to save for vacations.

o   The amount of our approved credit that we use, determines 40% of our credit score. If we have a $300 credit limit and we use $300 of the limit every month, even if we pay it on time and pay it off, this takes our credit score down, because we are using 100% of our approved credit. If we have a $800 credit limit and we use $300 of the limit every month and pay it on time or pay it off, this increases our credit score, tremendously. If we do the latter twice a year, just to keep an active account, we will improve our score. When we have a zero balance, it reports as paid on time, which helps our credit score.

o   If we don’t have credit, getting a credit card is what we can do to establish credit.

o   We can get a secured credit card from a bank (backed by our own money in a savings account) and after paying it on time for approximately 18-months, the bank may convert the card to an unsecured credit card. Some parents start doing this for their children in high school and/or throughout college so that when their children get out of college they have credit scores in the 800's. They understand the rules of engagement.

•         Payment of utilities is not on our credit report unless we fail to pay for three (3) consecutive months, then the bill is sent to collections.
•         There are five (5) C’s banks look at when considering whether to give us a loan:

o   Character- Will we pay them back? They determine the answer to this from our credit report (based on how we’ve paid other lenders).

o   Collateral- Do we have a house, a car or something tangible they can sell to recoup their money if we default on the loan/don’t pay them back?

o   Capacity- DTI (Debt to Income Ratio)- looking at our income…how much is already tied up on debt? This can’t be over 35-40% of our income, because they are aware that we have additional expenses that are not reporting on the credit report. Therefore, we can have a great credit score and still be declined for a loan, if the lender determines that we can’t handle any more debt based on our income. If we can, we may need to pay off something to improve our DTI.

o   Conditions- external factors that could pop up and change our situation, our ability to pay the loan, such as divorce, losing our job, major health issue, especially if you are married and everything is based on two incomes. Lenders ask themselves, “What are the potential risks for me not getting my money back?”

o   Capital- access to funds. Once they assess the possible conditions, they look at our assets = property/real estate, cash on hand, vehicles, etc. They will probably ask to see our bank statements. They are looking to see that we have savings. We should always keep 3-12 months of our total month’s expenses in savings. They also look at any investments we may have and/or the things we have in place to offset the possible “conditions”. All these factors are taken into consideration when making loan/credit decisions.

     There are some applicants who have plenty of money/income, but when lenders look at their credit reports, all their bills are paid late or not paid at all. They consider this a “character” issue. You have the money to pay, but don’t have the willingness to pay. Lenders don’t feel like character issues like this can be fixed, therefore, they almost always decline loan applications from these customers.

One of the workshop participants commented during the workshop that he has heard that Blacks are denied loans and credit at a disproportionate rate.  I propose that the real issue is that Blacks are unaware of the Rules of Engagement at a disproportionate rate. The rules have not always been the same for both races, all ethnicities, etc. But, in 2016, when the rules that define the conditions or way you play the game/engage in the process of obtaining a loan or credit are the same for all, how many minorities or poor people, know the rules? If you don’t know the rules of the game, how can you win the game? Whose responsibility is it to teach anyone the rules? It’s no one’s responsibility; but each individual person is responsible for themselves. You must research, ask questions, study, and practice, until you learn the rules of the game, and can successfully play the game. And, when you learn…. you teach others. Teaching others is the intent of this post.

You must know where to go to research (find answers); you must know the right people to ask questions to get the right answers; finances must be a subject that you are interested in mastering, for you to spend hours, months, or years gathering information and practicing the techniques learned. When you don’t know where to go to find answers (i.e. bankers, financial advisers, Barnes and Nobles); when you don’t hang out with people who have the answers (or, you do, but you are too ashamed to ask; or, they are too intent on succeeding while you fail; or, they don’t think that you are serious enough about changing to waste their time telling you); when you don’t want to study…you have always hated studying and reading and writing (but, you know all the stats on athletes or know all the details about a TV series); when you don’t have time to practice….you need it now (i.e. most of us want immediate gratification, but some things take time….take thinking about it and planning for it years  before you need it)….what do you do? You fail…. you lose.

Some would argue that the game didn’t start out fair…it didn’t. Others would argue that because the game didn’t start out fair, the rules of the game need to be changed for those at a disadvantage…. they won’t. So, what’s the next step? Research, ask questions, study, and practice, until you learn the rules of the game and master the game.

I also propose that one of the major hindrances to mastering the game is pride. If you want to purchase a $100,000 home (most people want to purchase a $200,000 or $300,000 home, but we will use $100,000, for this example to keep the math simple), you need a $10, 000 down payment (10% of the cost of the home) and a good credit score, unless you go through a special program. Credit scores can range between 300- 850, with a score of 700 or above being considered “good”; a score of 800 or above is considered “excellent”. Most credit scores fall between 600-750. High scores mean you’ve made good credit decisions and repaid debts like you’ve agreed to pay them, when you sign the application or contract. And, this is more likely to happen when you know the rules of engagement. Well, to save    $10, 000, you must make enough money to pay your bills and put $1000 aside for 10 months, or $500 aside for 20 months, or $250 aside for 30 months. If you are not in a situation where you can pay all your bills on time, pay off delinquent credit, save the capital we talked about earlier, and save the down payment…. not to mention, save for furniture to go in the house…you may not need to renew your lease, but go stay with your parents, siblings, or friends for a year or two to get the ball rolling in the right direction. Watch House Hunters on HGTV and see how many smart young people do this every day. You may need to hold on to your old car and not buy a new car, because buying a new car changes your debt-to-income ratio. If you qualify for a $100,000 home, you will now only qualify for a $90,000 home, if you purchase the $10,000 car. Get the car after you purchase the house…and, only as much car as you can afford. The goal is financial confidence and freedom, not financial stress. If you don’t want to shut down your place and move with someone, you may have to take on an extra job. But, you must be realistic and work the numbers on paper to determine whether taking on an extra job will produce the same results …the things outlined above, in a reasonable amount of time. If you can manage to pay your bills on time and save what you need, this may still require adjustments like turning the cable off, not eating out, not buying another stitch of clothing. Do you have too much pride to move, cut off the cable, etc.? What will others think? Will your kids think you are a failure because they don’t have cable? Will your friends decide not to hang out with you because you don’t wear Ralph Lauren? Whatever! Do you want to win the game or not? There is no ‘have your cake and eat it, too’ in this game.

Lastly, you may need to factor in the fact that most mortgages are 30-year commitments. How old are you? At what age, do you plan to retire? When you retire, you may only bring home 60% of your current salary (another rule of engagement). Most people try to have their homes paid off before they retire. What ages are your children? What are their financial needs? Daycare? College? Even if they get grants, scholarships and loans for tuition, they will need $200-300 per month allowance and $600- $1200 per semester for books. You don’t want them making the mistakes you made, by taking out more student loans than needed, increasing their debt to income ratio. They should only borrow what they need to pay for classes. How would you know this? Because you have researched, asked questions, studied, and had enough personal experiences, that you know the game and now you are teaching your children the rules of the game.

If you are feeling like it’s too late to win the game, yourself …commit to helping your children win! However, it’s never too late…it just takes energy, commitment and discipline that you may not have right now because you are feeling so beat down from suffering the consequences of not knowing the rules of engagement for so long. Life is a game, play it! And, play it to win!

Lead Us Not Into Temptation

I received a call from an ole’ beau’ via my Psychology Today business posting, a couple of months ago. My husband and I were watching TV around 11:00 p.m. on a Sunday night when the call came in. We discussed the missed call. The following morning, I returned the call. Because I know the person is married, has children, and is pastoring a church, I dialed the number and said, “Hello, Reverend, I see that I missed a call from you lastnight. Is everything okay? Is there some type of emergency?” He responded by asking me if I’d forgotten his name in the twenty-plus years since we’ve spoken and inquired about why I was calling him “Reverend”. I told him I had not forgotten his name (and thought to myself… I just want to keep you reminded of who you are). He then proceeded to ask, if he were having an emergency, was I coming to his rescue. Hence, the “Reverend” reminder wasn’t working…the question was coy (playful) and flirtatious. I responded by asking him why he was calling. He explained that someone brought up my name and he thought he’d find me and see how I was doing. He asked why I was being tense and standoffish. I apologized and explained that I am married, with two children, and my husband and I are in marriage ministry and that I usually admonish couples of the dangers of relationships or friendships with old girlfriends and boyfriends. I asked how he advises members of his congregation via pastoral counseling and he shared his perspective which was….”if a person is going to cheat, they are going to cheat regardless of who they are in contact with on or off Social Media sites”….”you have to be mature enough to have a friendship”. He went on to say that he was “sorry I wasn’t mature enough” to have a friendship with an old friend. I didn’t take the “bait”. I wished him the best and hung up. A month later a Facebook friend, former college beau’ emailed me that he was impressed with my postings and proud of the woman I’ve become. He didn’t make the comment on the posting, but inboxed me via my business email account – a simple, sincere, “I’m wishing you well” or “bait”... it’s hard to tell. Hence, I responded with a polite “thank you”.  I can tell by Facebook postings, pictures, comments, etc. that people have different and sometimes mixed thoughts about whether to be friends with ole’ loves now that they are married. Some of us are okay with being Facebook friends and not actual friends, some want to be both, and others don’t want to be either. My husband and I decide together on a case by case basis, with the scripture, “….lead us not into temptation, but deliver us from evil (Matthew 6:13) in mind.

I think married people should avoid friendships with people they have had strong feeling for and/or a strong attraction to in the past. So, even though I came across as mad at my old friend, I wasn’t mad, I was protecting myself, protecting my marriage, protecting my children and all of the growth and progress I’ve made as a Christian woman. I am mature enough to understand and know what things, people, etc. I should avoid. It’s dangerous to pretend we are not human, that we would never, ever be attracted to anyone else, or that our bond is so strong that no one can break it. Sometimes the danger lies in our flesh, but other times the issue/danger is even larger than our flesh. Ephesians 6:12, reminds us: “For our struggle is not against flesh and blood, but against the rulers , against the authorities, against the powers of this dark world and against the spiritual forces of evil in the heavenly realms” (NIV). What do you think?

Empire State of Mind

‘Empire’ State of Mind

Wednesday night, I watched the Fox Network show “Empire” with my husband; it’s not a show that I watch on a regular basis. Those of us who watched saw Andre Lyon have a ‘manic episode’. He suffers with Bipolar Disorder. It was difficult to watch, not just as a mental health professional, but as a human being. I felt helpless as a viewer; his TV family members stood around him, watching him and feeling helpless. And, most of the time, this is how we feel in reality when we interact with a family member or friend who is suffering with a mental illness. Yes, sometimes we feel helpless, but there is hope!

Yesterday, I attended a NAMIWalks North Carolina event; a pep rally hosted by the National Alliance for the Mentally Ill to gear up for a fundraising event….NAMIWalks NC on Saturday, May 2, 2015 in Raleigh on the Dorothea Dix campus. The speaker for the occasion was Katie Knowles, Miss Statesville 2015. Katie shared her story of being diagnosed with Major Depressive Disorder and Anxiety Disorder when she was 8 or 9 years old. She shared that her mother accessed the treatment that she needed, medication and psychotherapy. And, she still takes her medication and goes to therapy, but is moving forward with her life, attaining her goals. You go, Miss Statesville. She got teary at the thought of what she has accomplished and I had to ‘check’ myself….I felt a shout coming on, on her behalf. There is hope!

I am committed to sharing what I know about mental illness to raise awareness and to hopefully free someone from the bondage of silence.

So, back to Andre (“Empire”)…he appears to be suffering with Bipolar Disorder. Bipolar Disorder is a mood disorder; a severe form of depression.  Some of us experience depression as “down in the dumps”, “sad”, “tired”, “don’t feel like going anywhere, doing anything”. We feel this way for a day or two then snap out of it. But, when you haven’t snapped out of it in two weeks and have five or more of the following symptoms: 1) you feel depressed almost every day, 2) most days, you don’t feel like doing any of the things you usually love doing, 3) almost daily, there is a significant change in your appetite (decrease or increase), 4) you have difficulty sleeping or sleep excessively most days, 5) other people comment that your movements seem to be sped up or slowed down, 6) most days you feel tired and don’t have any energy, 7) most days, you feel worthless or feel guilty about things that are not your fault, that you shouldn’t feel guilty about, and 8) you have difficulty concentrating/thinking… you may be experiencing Major Depressive Disorder (Episode). There are a few additional criteria for the diagnosis: 1) either depressed mood (#1) or loss of interest in things (#2) must be one of the five symptoms, 2) the symptoms must be causing significant problems for you at work, in your social relationships, and/or at home, 3) the symptoms are not due to a medical condition, substance use (including alcohol or prescription drugs), and 4) the symptoms are not a result of the loss of a loved one (bereavement) in the last couple of months. Major Depressive Disorder can be mild, moderate, severe with psychotic features (includes delusions or hallucinations), or severe without psychotic features (no delusions or hallucinations, but severe interference with work, studying, socializing, daily living). A delusion is a strong belief in something even after you are provided evidence that it is not true. And, a hallucination is the experience of seeing (visual) things that are not real or hearing (auditory) things that are not real.

Sometimes people with Depression start having “manic” episodes that may last a week or longer. Manic symptoms include heightened self-esteem, increased activity/busyness, and pressured speech. These symptoms are usually over-the-top and very noticeable. You will appear to be very happy and do lots of laughing and having a good time. Your self-esteem can become so outrageous that you think you can solve problems you can’t solve and/or have connections and influence you don’t have; you may get involved with many different projects and get little to no sleep; you may exhibit risky behaviors (bad business decisions, sexual escapades, out of control spending, unusual religious connections); you may talk too fast, too loud and too much; sometimes your thoughts may seem to be racing; and you may be easily distracted.

Andre bought a Lamborghini (out-of-control spending); he was unable to make decisions about what needed to happen with Empire because his thoughts were racing; he had an inflated sense of self and was arguing that he should be made Chief Executive Officer at Empire; he was agitated, then he would change moods and start laughing; he appeared to be hallucinating in a couple of scenes; and, he was hyper/busy- pacing, walking, running, and falling.

If you have Major Depressive Disorder and then have at least one ‘manic’ episode that includes the manic symptoms indicated above, you may then meet criteria for a Bipolar Disorder diagnosis.  When you have Bipolar Disorder you cycle back and forth from manic to depressed mood or you may have a mixed episode.

Sometimes when you are suffering with a mental illness, people don’t believe you are sick. They think you have control of your decisions when you don’t. Unfortunately, sometimes hospitalization is required to help stabilize your mood. This is when people finally believe you are sick and then they feel afraid and helpless. There are many people who take their medicine and see their therapists and live positive, productive lives. Keep hope alive!

I will probably watch the show again next week, so I can see how the family deals with the diagnosis. I hope you will, too. And, if you or someone you love is suffering with mental illness, please seek help.

Seeking Magic, Seeking Miracles

I am always amazed that we spend some much of our time and energy seeking magic, seeking miracles. I guess I’m amazed because we are the magic; we are the miracle. As a clinician, I see families who come to me with problems and when I present them with things to do to address the problems, they give me the ‘what about the magic’ look.  Again, we are the magic! It’s the God in us. God working through us, along with our doing the work needed to resolve our issues. This is in line with what Mahatma Gandhi said so many years ago: “Be the change you want to see in the world.” I say, “Be the change you want to see in your own life.”