Your Money Minute: Blog with Dennis Staaland

Being under the age 30 I don’t know if my goal should be paying off my home loan or investing more?

Hi Dennis, 
 
We are in a business that can bring a lot of relief to America. The high cost of driving is killing a lot of business, city, and personal budgets.  
 
All we need to do is connect with the right investors, the right marketing, the right company positioning and the right political assistance.  
 
 
 
We even have TWO brand new concepts for a 'cruise control' system based on MPG instead of MPH!  
 
Where we're stuck is trying to decide where to incorporate for best corporate/investor advantage, and where to find honest/ethical investments.  
 
With what we think are super products, super plans for super partnerships, and a super management team, we don't feel so bad having simple things confound us; even Superman was confounded by simple kryptonite!

I recently read an article that talked about Suze Orman's new advice: pay only the minimum on your credit cards, and stockpile cash in case you lose your job. What do you think?

Is the 1st time home buyer tax credit this year really worth it?

Is it a good idea to use a home equity loan or second mortgage to consolidate debt?

Thanks for your comment Larry. Ethics can certianly be subjective. As a start, there's an excellent site for researching socially responsible investing - check out this Social Investment Forum. That can at least serve as your foundation for ethical investing.  
 
 
 
As for the most advantageous location to incorporate for your investors, I'd recommend either a small business resource in your area (Northern Illinois SCORE) or legal counsel that can help you choose the best possible place to incorporate.

I wish I had a simple 'yes' or 'no' answer for you, Nicole. But there are several things to consider: (1)What is more important to you, peace of mind or the bottom line? – For some homeowners knowing their house is paid off (or paid down) is worth more than saving extra money. (2) Is the rate you are paying on the loan substantially less than the rate that your investments are earning? - Probably not right now, but something to think about in the future. (3) Taxes – Because mortgage interest is tax deductible, the effective tax rate on the mortgage may be less than the amount you could be earning in the market. 
 
Generally, for a young couple, with the option of tucking money into a tax-sheltered retirement account, it doesn’t make much sense to pay down your mortgage (if it is a non-jumbo, fixed rate loan). 
 

It’s important to note that Suze Orman is giving this advice only to those who do not have an emergency savings fund (enough to cover 8 months of living expenses). Having an emergency fund has become increasingly important during these troubling economic times when unemployment rates are reaching record highs. However, she clearly states that for those who do have an emergency fund, it should be your priority to pay off your credit card balances.  
 
Try re-evaluating your financial situation, and identifying areas of spending you could possibly cut back (going out for lunch, dinner and movie, etc). Most likely you can find a few areas to cut back and use those extra dollars to pay a little more than the minimum on your credit card balances.  
 
In an effort to educate and help consumers during this difficult time, the credit card industry has launched a new website (Help With My Credit). For those who are struggling to pay down credit card debt, this is a good place to start. The site provides step-by-step instructions for paying down your debt. 
 

The link for the credit card website I mentioned previously is www.helpwithmycredit.org

I’ll start by saying it’s always in your best interest to consult a tax advisor concerning any of your tax questions. The credit is available to qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. And, unlike the 2008 tax credit, this credit does not have to be repaid. Check out the Federal Housing Tax Credit website for more information.

There are certainly benefits of consolidating debt to a second mortgage. The interest you pay may be tax deductible (consult your tax advisor regarding the deductibility of interest) and your monthly payments could also decrease. Your debt would also be consolidated into one, simple monthly payment. Typically you’re allowed to borrow up to 90% of the value of your home minus the balance of your first mortgage. However, keep in mind if you’re converting unsecured debt, such as credit cards, to secured debt, such as a home equity, you’re putting your home at risk. When you move unsecured debt to an equity secured loan you use your home as collateral. If for any reason you are unable to pay the loan, your home can be taken from you for repayment of the debt.

I recently had a scare when I was denied credit at Lowes. After MANY hours speaking to Lowes' head offices and GE Money Bank (Lowes credit handler), I discovered there was already a Lowes account open with my SS number but another person's name and address. I also discovered that this person filed bankruptcy in 2005. I was told I would receive fraud documents to sign and file in 6-8 weeks. This was not acceptable. I eventually convinced someone to compare this person's actual SS number with mine. Yep, one number difference. This whole nightmare occurred because someone keyed in a number incorrectly. None of this was present on my credit reports. My question is: How concerned should I be about identity theft and what measures should be taken to be sure I am protected? This experience is as close as I ever want to be to losing my identity. Dianne

Dianne, this is a great question. Identity theft is a huge problem, fortunately it did not happen to you in this situation. In your instance, it happened to be a data entry error rather than an intentional case of identity theft, which thankfully didn’t damage your credit. To help steer clear of identity theft in the future, consider the following statistics and tips. 
 
It’s important to note that most ID theft takes place offline. ID thieves rely on paper documents by invading mailboxes, glove compartments, and trash cans to steal and misuse information. According to a 2009 survey by Javelin Strategy and Research, information breaches occurred in the following categories: 43 percent from lost or stolen wallets, credit/debit cards or checkbooks; 19 percent while conducting a transaction; 13 percent from friends, family, in-home employees and neighbors; 11 percent from home computers (hacking,viruses or phishing); 11 percent from data breaches; and 3 percent from stolen paper mail. 
 
You can use these tips to avoid becoming a victim: 
 
• Don’t give your Social Security number or other personal credit information about yourself to 
 
anyone who contacts you. 
 
• Tear up or shred receipts, bank statements, and unused credit card offers before throwing them away. 
 
• Keep an eye out for any missing mail. 
 
• Don’t mail bills from your own mailbox with the flag up. 
 
• Review your monthly accounts regularly for any unauthorized charges. 
 
• Go online to review your account as often as you’d like. 
 
• Order copies of your credit report once a year to ensure accuracy. 
 
• Choose to do business with companies you know are reputable, particularly online. 
 
• When conducting business online, make sure your browser’s padlock or key icon is active. 
 
• Don’t open email from unknown sources and use virus detection software. 
 
• Protect your PINs (don’t carry them in your wallet!) and passwords; use a combination of letters and numbers for your passwords and change them periodically. 
 
• Report any suspected fraud to your bank and the fraud units of the three credit reporting 
 
agencies immediately. The fraud unit numbers are: 
 
TransUnion (800) 680-7289 
 
Experian (888) 397-3742 
 
Equifax (800) 525-6285 
 
There are also services available to monitor your credit. Visit our Fraud Prevention area in the Resource Center on our website for more information on Identity Theft, ordering your free credit report, and protecting your debit/ATM cards.

Dianne, 
 
The Fraud Prevention link to our website is: http://www.bankatfirstnational.com/education_center_fraud_prevention.asp

Will the winner of the $100 award be required to claim it as income when filing 2009 Federal and State taxes?

Where exactly does "lost" money go that business,banks,stock market,etc. claim as losses? 
 
Thanks

Dianne, 
 
It is the responsibility of all recipients of any prize/lottery/gambling winnings to claim it as income on their state and federal income taxes. We, as the issuer of the prize, are not required to report it on a 1099 to the IRS unless total prize value is at least $600. Generally the IRS won’t tax you on anything under $600 either, but I would consult your tax professional in any of these cases.

Bob, the answer to your question can vary from general business to bank to stock market, so I’ll use the stock market as one example. Stock market losses, unless realized, are market value losses. They do not “go” anywhere. The stock market is a bid and ask system where something is worth only what someone else is willing to pay. So losses, like gains, come from the willingness of someone to pay for the stock. The best example that I could use would be that if I bought an SUV for $40,000 and a huge gas crisis hit, then no one would want to own it, so if I wanted to sell, I would only get what someone is willing to pay. It is a market driven decision. However, when the stock market goes down, and someone sells stock at a lower price than they bought, then money is lost to that person. This is called a "capital loss" and is reported on income taxes. 
 
Here’s an article you might find interesting: When Stock Prices Go Down, Where Does the Money Go?

with credit cards rushing to beat the deadline by raising interest rates and fees,along with the fed.gov. taxing all things energy. add to that our bankrupt states and their massive tax increases lead me to ask two questions. 
 
1. How many more bankruptcies and foreclosures will this cause? 
 
2. If we counted all the the people out of work instead of just the ones eligable for u.c. compensation what would be the true unemployment rate ?

How exactly do you define a Depression and is that definition an accurate benchmark in todays economy?

Thanks for the stock market suv story. I foolishly thought the big institutional investors sold off at the highs, thereby locking in profits and driving prices down, starting the panic selling thats taking us where we are today. I wonder, would these be the same good people who lobbied the fed to create 401ks 20 years ago?

Thanks for your questions, Bill. We can expect to see an increase in credit card interest rates, minimum payments, and fees due to the new credit card legislation; however, it’s impossible to tell what impact these changes will have on bankruptcies and foreclosures without more detailed figures on household debts and the credit card rate changes. And I wouldn’t count on massive state tax increases everywhere. The fiscal conservatives in Illinois’s state legislature have stood firm against Governor Quinn’s proposed tax increases, and now the state is instead preparing to make budget cuts. Those cuts will likely affect some state workers, but this amounts to far fewer people than would have been affected by a hike in personal income tax. 
 
As for your question about unemployment, the rate is calculated by the U.S. Bureau of Labor Statistics using data collected by a monthly survey called the Current Population Survey. This technique allows the Bureau to collect information about a large number of employed and unemployed workers, not just those who collect unemployment insurance. The national unemployment rate as reported by the Bureau at the end of June was 9.5%. The Bureau’s widest measure of unemployment, which also includes discouraged workers who want to work but are no longer looking for jobs as well as workers who want and are available to work a full-time job but had to settle for a part-time schedule, was 16.5% at the end of June. 
 
There isn’t one definition of a depression that’s widely agreed upon as there is for a recession. A recession is typically defined as two consecutive quarters of contraction in real GDP. A depression is longer, usually 3 or more years, and more severe, characterized by a decrease in GDP of 10% or more. Everyone agrees that we’re currently in an economic recession, but we certainly haven’t been for 3 years, and our GDP hasn’t fallen by 10%. For the sake of comparison, real GDP dropped by 3.3% from second quarter 2008 to first quarter 2009; during the Great Depression from 1929-1933, real GDP fell by 26.5%. The basic characteristics of a depression (recession of 3 years or longer and GDP contraction of 10% or more) are still an accurate benchmark in today’s economy; in fact, they underscore that we’re still far from an economic depression.

Thanks Dennis, for the standardised defination of a depression. could you tell me how the GDP compares to what it was 5 and 10 years ago? I think that might be a more accurate assessment as to where we stand economically, especially when you consider that we import most of the things we use. Besides in the 30's they didn't fog the indicaters with life support, I mean stimulas money

What prevents foreign influence from being funneled through multi-national corporations onto domestic lobbiests and straight to our elected officials campaign coffers?

What percentage of stock market is made up of 401ks and iras?

In the past recessions, recovery was brought on by consumer confidence and spending. With over 600,000 americans losing their livelyhoods every month, I'm curious as to what will fuel the next one? perhaps another world war, preceded by a trade war?

Over the last 20 yrs., as a direct reaction to NAFTA and GATT, we have watched our higher wage/benefit producing industries forced from our shores in order to survive. These type business's usually offered health care. Would it be accurate to assume that this loss of contributers has indirectly caused health care costs to skyrocket out of reach for most americans?