Tuesday, February 5, 2013
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Have You Kept Your Financial Resolutions?
How many New Year's resolutions have you already forsaken as we enter the second month of 2013? If you're like most folks, you probably tossed that list into the trash two weeks ago.
People use the new year as opportunity for growth. They resolve to become a healthier and wealthier version of the person who celebrated the passing of another calendar year overnight.
It's a recipe for failure. Change and growth take time. You don't wake up one morning with an entirely new set of priorities, tastes or resolve.
As those promises you made to yourself fall by the wayside, it's too easy to abandon all those good intentions you had just a week earlier. Failure clouds the big picture.
Change and growth take time. Did I say that already? It bears repeating.
The key to success is setting a specific long-term goal, breaking it down to manageable components and focusing on each step along the way. This advice holds true no matter what project you're preparing to tackle. The only way to reach your destination is by moving one step at a time.
So let's get back to those financial resolutions you set. Determine your overall goal. Are you trying to reduce debt? Save for a new home or your child's education? Prepare for retirement?
These goals can all seem lofty when it takes all you earn to merely survive week-to-week. Yet small steps, one at a time, can make any of them reality.
And the small steps you need to take to achieve any of those goals are identical. They all boil down to proper money management skills.
Learn to differentiate between what you want and what you need. Unless you're Bill Gates or LeBron James, you can't have it all. Do you really need a 52" TV or can you scrape by with a 40" model?
Your hard-earned dollars must go first to wherever they are most needed. Life's basic necessities.
And that's where it starts to get tricky. We can all agree on food, shelter and clothing. Transportation. Medical supplies.
Yet any of these areas offer options. Choosing wisely between them allows your money to stretch beyond life's basic necessities.
Plan out your week's meals in advance. Easier to say than do with our hectic lifestyles, but you'll at least have an outline for those days that actually do go according to plan. Use the store's sale ads to create your menu.
Make a list. Shop monthly for non-perishables, weekly for perishables. Clip coupons. No time to cut them out? Do it while you're watching TV. Or expect to pay 25 - 30 percent more at the checkout counter between savings on weekly specials and coupons. Use those coupons for items on sale and pay even less.
Now you've saved enough to add entertainment to your priority list. How depressing life would be without a break from the day-to-day toil!
There's plenty you can enjoy on the cheap. Volunteer at sporting events, the theater or a museum to enjoy the festivity free of charge. Join a group of others who share your interests. Go to local high school plays or concerts.
Once these steps become habit, take another look at your budget. It's time to pay the most important person on your list - yourself! Put aside enough out of each pay to reach your long-term goal within your desired timeframe. Automatic payroll deductions assure the money goes where it's targeted.
You may not be able to afford the full amount right away. But with your new money management skills, it will become easier to reach your objective over time.
Consider a zero-based budget. Every dollar of income goes toward specific expenses. Include whatever events you plan to attend or birthday gifts you'll give during a given month. Dave Ramsay, author of "The Total Money Makeover", says that folks who use zero-based budgeting pay off 19 percent more debt and save 18 percent more money than those that don't.
You might surprise yourself and keep those New Year's resolutions after all.
DOJ To S&P: Bad Boy!
The U.S. Department of Justice (DOJ) yesterday filed suit against the ratings service Standard & Poor's (S&P) for their role in the Great Economic Collapse of 2008.
The DOJ claims S&P defrauded investors by inflating ratings and understating risks associated with mortgage securities in order to gain more business from the investment banks that issued the securities.
First, a basic primer. S&P is a brand of the McGraw-Hill Companies consisting of three divisions.
S&P Indices includes the S&P 500 stock market index, the S&P/Case-Shiller Home Price Indices measuring U.S. home prices, and various other measures of global commodity and bond markets.
S&P Capital IQ provides research and analytical data to institutional investors, investment advisors and wealth managers worldwide. It gives them tools to track performance, identify new trading and investment ideas, and performs risk analysis and mitigation strategies.
The branch in trouble with the feds is the Standard & Poor's Ratings Services. This arm provides market intelligence in the form of creating ratings, indices, investment research, risk evaluations and solutions.
At issue is the way they rated mortgage-backed securities in 2007, as the housing bubble began to burst.
Primer number two: Attempting to make home ownership more available, mortgage companies created new types of loans catering to those who did not qualify for a mortgage under conventional means. These subprime loans carried a higher level of risk.
Mortgage loans are not always held by the institution you originally contracted with at the closing table. They're often purchased by other banks so the originating institution gets their money back quicker. From there, they're collected in a pool and securitized by issuing mortgage-backed securities.
These mortgage-backed securities made subprime loans possible by pooling them with their conventional counterpart, thus balancing the risk taken by any one lending institution.
Wanting to gain more business from the investment banks that issued those securities, the DOJ claims S&P kept their ratings high. Higher ratings allowed conservative investors, pension administrators and other banks to purchase them with confidence.
They couldn't rely on the credit worthiness of the homeowner to gauge risk. These securities bundled hundreds of mortgages together. Investors relied on ratings firms to research and grade the security.
Two other ratings firms are equally as pivotal in this process. Both Moody's and Fitch are key players. Both gave these mortgage-backed securities triple-A ratings as did S&P.
Yet the DOJ has only pointed their finger at S&P. At least, for now.
S&P believes the lawsuit frivolous, that the government is looking for someone to blame. Being the most recent ratings service to downgrade the U.S.'s credit worthiness made them the perfect target.
They further state that nobody could have predicted the burst of the housing bubble. The federal government did not predict it, the other ratings services did not, nor did the mortgage companies who wrote loans to people who did not have the means to repay.
Let's pause for a collective Duhhhh...... moment here. Certainly someone should have noticed something amiss before issuing $84 billion of bad debt.
S&P states that they have spent over $400 million in revamping their evaluation system since 2008, brought in new leadership and enhanced risk management. They think it will be hard for the government to prove intent of fraud, particularly after so much time has elapsed.
Unfortunately, it may be too little too late for those that lost their homes during the debacle.
The U.S. Department of Commerce released the fourth-quarter 2012 advance estimate of our nation's Gross Domestic Product (GDP) for the period. The output of goods and services produced by labor and property decreased 0.1 percent over the previous quarter. What is GDP and what does this number indicate? Find out in GDP Unraveled published in the July 31, 2012 edition of GCFlash.
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