Short Sale - A short sale is a process entered into by three (sometimes four) primary parties:  1.) a person who owns a property that is worth less that the mortgage,   2.) the lender who provided that mortgage, and 3.) a potential buyer of the property.  Often, there may be real estate lawyers or short sale consultants involved to negotiate the terms of the transaction.  Short sales are negotiated and executed on a case by case basis - the outcome is uncertain until all parties agree and the deal is done.  

There are many resources a person could turn to in order to learn about short sales. The FDIC, Freddie Mac, Fannie Mae, and state housing agencies all have educational resources available. Also, banks often provide resources, but be careful because banks are in the business of selling mortgages and other financial services. You have to understand that just about everyone in the financial services world is marketing themselves in one way or another, so be aware. 

Sometimes, especially during the housing crisis that began in 2007 or so, borrowers can get over their heads with their debt obligations and become simply unable to pay back their loans. A short sale can be a way out of this mess. The lender or bank will be willing to consider a short sale application only as a last resort before foreclosure. 

For a lender, a short sale is making the best of a bad situation: either the lender accepts a short sale, or the homeowner completely walks away from the mortgage (that is, stops paying, permanently) and the bank is stuck owning a vacant house. The short sale can be a slightly better (though still bad) solution. 

So if this unhappy situation arises, the borrower (homeowner) may contact the lender and explain how they just cannot afford to pay anymore. The lender may decide to begin the short sale process.

Unsolicited editorializing: Let’s just remember bankers are the ones who created and pushed through these inappropriate mortgages in the first place. In this author’s humble opinion, the scale of blame tips decidedly toward the financial industry, who made a helluva living selling mortgages, mortgages, mortgages.

Tonight's webinar is open to the public, not just RISD alums.  Hope you find it helpful!
 
Click here to register.

First of all, if you are in a desperate financial crisis, let me just say how sorry I am that you find yourself here.  It is probably not your fault.  The system is rigged against you  (not to sound like a conspiracy theorist, but the retail financial consumer is treated pretty damn terribly by the big players out there!).  You have work to do, but stick with it, you can make it if you take deliberate careful steps.

And as you dig out of the hole you're in, you will probably think about seeking help.  There are many credit counselors and bankruptcy lawyers out there who advertise themselves as people who can help you in your time of need.  Some of them are legit.  Many are not (and, might I just say, that anyone who takes advantage of people who are in financial trouble is a complete scumbag and should be publicly embarrassed and prosecuted).

To find out who's worth talking to, start here:  

1.)  For credit counseling, go to the National Foundation for Credit Counseling (NFCC.org).  They can help you figure out who might help you in your local area.
2.)  For personal bankruptcy, go to the National Association of Consumer Bankruptcy Attorneys (NACBA.org).  They can help you find a lawyer and help you understand the complicated personal bankruptcy process: who should you hire, how much will it cost you, should you file, should you seek Chapter 7 or Chapter 13?  Tough questions.

And as always, be careful.  Be skeptical of all the people you talk with.  There are good folks out there who will help you, but unfortunately not enough of them.  Take time and care to find help.  Remember, you are the one who needs to be the boss of this process .  Take time to learn.  And good luck.  

Peace 

Interest: Compound and Simple - Simple Interest is when the rate is calculated on the same base, every year. So, if you have (or owe) $1,000, the simple interest of 5% on that is $1,000 multiplied by 5%, or $50 per year.   It’s the same every year: if the base amount is $1000, and the interest rate is 5%, then you earn (or owe) $50 every year.

With Compound Interest, the interest is calculated on a base that accumulates (or compounds) each period, say each year. So, the amount you earn (or owe) each year increases. Using compound interest on our example above, with the same $1,000 base and 5% rate, in year one the 5% is calculated on the base of $1,000, which equals $50. No change there. In year two, that $50 is added to the base, so the same 5% interest is calculated on a base of $1,050. This means the amount you earn (or owe) is now $52.50. In year three, this is added to the base so the same 5% interest is calculated using $1,102.50 as a base. 5% times $1,102.50 equals $55.125.  

Note: interest can be divided up and calculated daily, weekly monthly, annually, depending on the particular situation. We don’t go into that level of detail here. For now, we’re just introducing the basic concept. So, for you math wonks out there who want to argue about when the rate is charged and what is the difference between current yield and yield to maturity, you’ll have to wait until we write the chapter on fixed income securities.

Many people find the topic of credit scores intimidating. Think about it. There is a grand infrastructure in place designed to track your every financial transaction and then that information is used to pass judgement about you. It’s like the old joke: you’re not paranoid if they really are out to get you.
 
But, that’s the world we live in. Lenders, vendors, and other businesses do indeed have a legitimate need to understand who they are doing business with. When big companies spend vast amounts of time and treasure to compile information about you, you should really try to understand something about what they gather and why. Don’t you agree?

So how do credit scores work?

For starters, the most widely used credit score (or FICO Score, see more on this in Chapter One) is actually a combination of scores developed by three different companies: Transunion, Equifax, and Experion. These three companies, called credit bureaus, each have their own networks for gathering information, and their own processes for turning your information into a rating or score. An excellent score is over eight hundred; a score in the low five hundreds isn’t so good; below that shows you’re in real financial trouble.

These scores focus on several categories in your personal financial life. In rough order of importance, they are:

1. Your payment history: do you pay everything on time? Are you delinquent with anything? If you’re delinquent on even the smallest little department store card, you hurt your overall score.

1. How much do you owe in total? Obviously, having a huge amount of outstanding debt can be seen as a problem. 

1. Evidence of financial hardship. If you have any tax liens on property or if you have sought credit counseling (see section below on credit counseling), your score will be negatively affected.

1. The length of your track record. A brief track record might mean you have less experience with money. This may or may not be true, but credit bureaus only react to data they can gather. 

1. The type of debt you have. If you have a preponderance of revolving credit, such as credit cards, then your score would be lower.

1. Amount of new debt. If you are frequently opening new accounts, it could be a red flag for lenders. Be very careful and deliberate about what new accounts you apply for. Don’t overdo it.

Hey folks,
I'll be hosting a financial literacy webinar this Thursday evening.   It's open to all, not just RISD grads, so please join in if you're interested!

Register here.

Been meaning to for a while... made some major updates to the website.  Content is the same, and growing... but I updated the graphics and layout.  Hope you like it!

Peace!

On Kobobooks.
On Amazon.
On Smashwords.
Also, go search for it in the iTunes Store or on the iBook Store on iPad. 

I was interview by cool thinker, artist, and Fellow Goddard alum, David Vanadia.  Click this link.

Money. Budgeting. Net worth. Credit repair. 

Some people find these words exciting - concepts that fill them with enthusiasm and purpose.  If you are one of these people, then this article is not for you.  

Because there are many people for whom these words are boring, wicked boring.  And for all of you creatives out there: the writers, artists, musicians, designers, and other right-brain thinkers, these concepts not only bore you, they drain you, erode your vitality and all that gives you joy (okay, okay, overstatement here, but you get the point). 

You may be one of the many people out there who don’t like the concept of money: don’t want to deal with budgets and bills and debt ratios, credit scores, and such. You have more important and compelling things to do with your life force.  Like live, love, and create. 

But, alas, there’s no way around it.  There are some things you just have to know. Money is one of those things.  You can ignore money - but it won’t ignore you (I cannot claim authorship of this great quote... but I can’t find who originally said it).

For all of you who hate money, here are some tips on how you might want to approach the topic, make it work for you.  I hope this helps:

It’s them, not you - Some people blame themselves for not knowing enough about money.  But this isn’t fair.  The financial advice industry has proven itself in recent years to be as broken and dysfunctional as you suspected all along.  There are many great people working for financial firms, and they can help you.  But make no mistake, the upheaval that is occurring in this industry is well-earned. 

You already have the tools you need - You already know much of what you need to know in order to manage your finances.  You know how to read, add, and subtract.  You deal with complex situations every day in your life and work.  Topics of personal finance are not so complicated that you can’t understand them, completely.  And don’t let anyone tell you different.

Engage with the topic - Avoidance is expensive.  People have all manner of visceral reactions to their own money that have nothing whatsoever to do with actual dollars and cents.  People look at their finances and feel: proud, ashamed, guilty, boastful, resentful, confused, canny, self-righteous, none of these, all of these, and so on.  There are a lot of reasons why people don’t want to think about money.  But, as I’ve already said, you can’t ignore it or avoid it.  Avoidance ultimately leads to late fees, penalties, missed premium payments, delays, defaults, or worse.  Whether your personal financial story looks good or bleak, you can only make it better by digging in and dealing with it.  

Seek your own information - There are lots of places to turn to if you want to educate yourself about personal finance.  You’ll probably want to use a blend of online resources, books (such as, ahem... mine), and personal conversations to learn what you need to learn.  Friends can be a good starting point for information.  Ask what they do to manage things.  But remember, whatever your friends do might not work for you at all.  You’re unique so ultimately you’ll need to find solutions that are a fit for little old you.  Who cares if the plan that works for your genius brother or sister or roommate or colleague is a disaster for you?  You need what works for you.  Not what works for them.

Make them speak English - As you gather information, you might decide that you want to talk with, or work with, a financial advisor, planner, consultant, or whatever their firms calls them.  You’ll of course take the time to find someone who will understand you and make every effort to address your unique needs (selecting the right one is a topic for another column on another day).  Whomever you end up working with, remember, they’re working for you - so make them take all the time you need.  As they explain things to you (their process, their fees, the products they use), you have every right to make them slow down and explain things in language that you can understand.  If they can’t use simple language, then something is wrong.  The smartest people make complex topics easy to understand.  Don’t let industry jargon prevent you from grasping what you need to know.  Don’t let them use jargon that they understand and you don’t.

Take the long view - Of course you want to fix all of your problems quickly. There may be some problems in your financial profile that can be addressed in the short term.  Maybe you need to refinance your mortgage, transfer balances to credit cards with better terms, need to allocate some of your savings toward debt reduction, need to finally update your resume and begin to find a new job.  But many financial problems take much a long time to resolve.  Don’t get discouraged by this, just understand that things can take time.  If, for example, you want to get out of debt, you can get organized in the short term, you can make a dent over the course of three years, and over the course of five years or more you can make a major difference.  Just stick with it.

I hope this can be helpful for you.  The main point, in summary, is that you are the boss.  It’s your money and your life.  No one else is going to fix your problems if you don’t.  And, though it’s easy as heck to avoid things day after day, don’t.  Find resources and people that work for you, and use them.  Dig in.