Time for change is here. Yes I borrowed the line from our next president, but why not - it fits. To be successful in anything you have to be ready to accept change. In fact one of my favorite sayings is "if you always do what you have always done then you will always get what you have always gotten".
Now it’s 2009 and I really don't think that we can wait any longer to make these changes. We have been living as a nation of spenders and now we are forced to start living as a nation of savers. I recently read that the piggy bank - that’s right the good old fashioned piggy bank – is making a comeback and people are starting to save again for the first time in decades. That's what needs to happen but you also need a plan; you can't just run out and start saving with no plan for the future.
A plan is like a road map; imagine if someone said to you, “I need you to drive to Alaska tomorrow” and you happen to be in Florida. Well it would be a long drive without a plan. For the trip to be easy, develop a plan, know how you are going to get there and once that is done you’ll arrive without a problem. Your financial future is no different.
The Dow was down about 34% in 2008, the S&P 38% and the NADAQ 40%. It’s going to be hard to make money in that kind of market, and you can be certain that it will continue to be volatile. Your plan is going to be unique and completely different for everyone else because each one of us has a different set of values and goals. If we try to create a plan outside our own value system we will fail. So take a moment and write down your goals, long term and short term, then start developing the right mind set to accomplish these goals. Make sure you write them down as that will embed them in the subconscious mind.
Now that you have a plan you have to figure out how to carry out your personal strategy; your mission is to change your financial future so that it works FOR you and not against you. Here are a few things that your plan will need to have for 2009.
Own a home, that's right I said it - if you don't own a home now then buy one. Home ownership is still the greatest investment opportunity in America. If you already own a home there are a few things that you will need to do. Long term rates are at historic lows and moving lower. Obtain a 30 year fixed rate and pay extra principal payments each month, if you can. This really needs to be one of the only things you need credit for; other than that, stick to a debit card. One other thing, if you can't afford to buy it – then don’t. That’s what got us in this economic situation in the first place.
If you already have a home then you will want to consider refinancing soon. If you are upside down in your home there are a few things that you can do. First, if you have any extra cash lying around you may want to consider making a lump sum payment to your mortgage company so that you can refinance at a lower rate. Since our home is probably our largest investment, anytime we can lower our interest rate by at least two percentage points, we should do so. More than any other strategy, you could probably save on your mortgage by lowering your rate and paying down your principal.
If you don't have the cash to pay down your mortgage (thus not being able to refinance your property) start off by calling your mortgage company’s loss mitigation or loss prevention department. Tell them that it's time for them to help you and that you need some assistance or your payments are going to start getting ugly. The mortgage companies are trying to help and, I assure you, it is in their best interest to help you as well. Let them know that you want a mortgage modification; your rate lowered and locked in to a 30 year fixed. You can even ask them to reforecast your loan which means that they will lower the principal so that you are not upside down on the loan. This works in both your favor and the mortgage company's favor because now they have a collateralized asset that is worth what the market says it worth and the mortgage company can now sell the asset if they need to.
The next step in becoming debt free, and a top priority, is to eliminate credit card debt and start using your debit card exclusively. It works great and remember if you can't afford the purchase then don't buy it. Remember, if you are saving money you are making money. The cash you have sitting around earning no interest at all may actually work to your advantage when you use it to pay off high interest rate credit cards and loans. This is especially helpful since most of your credit cards at 18% or more.
Let's say you have $10,000 sitting in your savings earning you one percent a year. That's $100.00 a year interest. Let's say you have $10,000 in credit card debt that you pay 18% interest on, that's 1800.00 per year. So your $10,000 sitting in your savings account can be immediately invested by paying off the credit card and essentially you make 1700.00 a year for that investment. It’s a great deal and keep in mind that you also just paid off your credit card and now have it for emergencies.
There are literally hundreds of simple financial strategies that anyone can use to increase their net worth and become financially fit. It is a common sense type approach but perhaps it’s not common knowledge. There are many people out there that talk about these financial strategies and they all have relatively good ideas and plans but what you need to do is find that one person who you have a connection with and then get motivated. You have to start changing the way you think of money and the methods of handling your personal financial affairs. It only takes one motivating person to help you change your financial life forever. If I am that person then I am blessed to do so and thank you for your confidence. If I am not, I sincerely hope you find your financial mentor soon. I look forward to our financial journey together.
Until next time have a happy prosperous 2009.