Consumer Finance Considerations


[ INTRO MUSIC ]>>HELLO AND WELCOME
TO “TALKING POINTS.” I’M DAVE KELLY, DIRECTOR OF
ADVANCED MEDIA PRODUCTION AT CAL STATE LONG BEACH. TODAY, WE’RE GOING TO BE TALKING
ABOUT CONSUMER FINANCE ISSUES AND ESPECIALLY HOW TO AVOID
SOME OF THOSE COMMON MISTAKES THAT OFTEN GET PEOPLE
INTO TROUBLE. MY GUEST TODAY IS ALETA OSTLUND. ALETA IS A THE OWNER AND BROKER
OF OSTLUND INSURANCE SERVICES AND SHE IS ALSO A
FULL-TIME LECTURER IN FAMILY AND CONSUMER SCIENCES. WELCOME, ALETA, AND THANK YOU FOR JOINING US ON
“TALKING POINTS.”>>HI, DAVE. THANK YOU FOR THE INVITATION.>>WELL, AS WE BEGIN THIS
CONVERSATION, WE SHOULD START WITH THE GOLD STANDARD
IN CONSUMER FINANCE, OR THE GOLDEN RULE IF
YOU WANT TO CALL IT THAT. AND THAT IS THAT
PEOPLE NEED TO MAKE SURE THAT THEY’RE NOT SPENDING
MORE THAN THEY’RE BRINGING IN ON A MONTHLY BASIS.>>CORRECT.>>AND IF THEY FOLLOW THAT
RULE, THAT WILL AVOID A LOT OF THE PROBLEMS THAT
WE’RE GOING TO TALK ABOUT.>>ABSOLUTELY.>>IN THE PROCESS HERE. SO HOW CAN PEOPLE PUT TOGETHER
A MONTHLY BUDGET THAT TAKES INTO ACCOUNT ALL OF THEIR
NEEDS AND YET STILL ALLOWS THEM TO HAVE SOME SPENDING MONEY?>>WELL, I THINK THE FIRST STEP
IS ACTUALLY MAKING A BUDGET AND FOLLOWING IT
ON A MONTHLY BASIS. I DON’T THINK MOST AMERICANS
ARE DOING THAT AND IT LEADS TO OVERSPENDING, LIKE YOU SAID. IF PEOPLE SAT DOWN AND
REALISTICALLY TOOK AN INVENTORY OF THEIR INCOME AND WERE
REALISTIC WITH THEIR EXPENSES AND ALSO MADE A NET WORTH
STATEMENT SO THEY HAD AN IDEA OF WHAT THEIR ASSETS AND
WHAT THEIR LIABILITIES AND DEBTS WERE, THEY
WOULD BE BETTER EQUIPPED TO SPEND MORE RESPONSIBLY. AND IF THEY DID HAVE SOME DEBT,
THEY WOULD BE ABLE TO COME UP WITH A PLAN AND SOME GOALS
ON HOW TO ELIMINATE THAT DEBT AND LIVE WITHIN THEIR MEANS
IN A MORE HEALTHY WAY.>>OKAY. WELL, THERE ARE
SOME SURVEYS THAT HAVE COME OUT RECENTLY THAT DON’T
BODE PARTICULARLY WELL FOR THE AMERICAN PUBLIC AND THE
WAY WE’RE SPENDING OUR MONEY. ONE OF THE SURVEYS WAS FROM THE
FEDERAL RESERVE BANK OF NEW YORK WHERE THEY ASKED PEOPLE IF
THEY COULD COME UP WITH $2000 IN AN EMERGENCY SITUATION AND
33%, OR A THIRD OF THE FOLKS THAT RESPONDED TO THAT SURVEY,
SAID THEY WOULD NOT BE ABLE TO COME UP WITH $2000 EVEN IF
THEY USED ALL OF THEIR SAVINGS, TAPPED INTO THEIR CREDIT CARD,
AND EVEN BORROWED AND BEGGED FROM FAMILY AND FRIENDS. AND THERE ARE SOME OTHER
SURVEYS THAT ALSO SUPPORT THAT. THERE WAS ONE THAT WAS DONE FOR
BANKRATE.COM RECENTLY WHERE 59%, ALMOST 6 OUT OF 10 AMERICANS, SAID THEY DON’T EVEN
HAVE $500 IN SAVINGS. NOW WE WANT TO BE CAREFUL HERE THAT WE DON’T MINIMIZE THE
FINANCIAL PAIN AND SUFFERING THAT A LOT OF PEOPLE
ARE GOING THROUGH.>>ABSOLUTELY.>>IN TODAY’S ECONOMY. BUT HAVING SAID THAT.>>YEAH, PEOPLE ARE
STILL RECOVERING FROM WHAT HAPPENED JUST, YOU
KNOW, ALMOST 10 YEARS AGO.>>EXACTLY. AND SO HOW CAN THEY STRAIGHTEN
THINGS OUT GOING FORWARD? WHAT ARE SOME THINGS TO DO?>>AGAIN, THE MOST
BASIC ELEMENTS OF FINANCIAL PLANNING
INCLUDE CREATING THAT BUDGET AND HAVING AN IDEA OF HOW MUCH
MONEY ARE WE WORKING WITH? HOW MUCH INCOME DO WE HAVE? WHAT IS, YOU KNOW, HOW SHOULD
OUR EXPENSES BE CARRIED OUT? BY DOING A MONTHLY BUDGET AND BY
ADDRESSING IT FOR SEVERAL MONTHS IN A ROW, COUPLES CAN
COME TOGETHER AND TALK ABOUT WHAT ARE OUR
GOALS, YOU KNOW, LOOKING AT HOW MUCH
WE’RE SPENDING TO LIVE. LIVING EXPENSES, YOUR FIXED
EXPENSES INCLUDING YOUR MORTGAGE OR YOUR RENT, REALLY SHOULDN’T
BE MORE THAN 70% OF YOUR INCOME. AND I THINK IN LA
COUNTY, ESPECIALLY, PEOPLE ARE SPENDING 100% JUST
TO GET BY AND THEY MAY NEED TO MAKE SOME ADJUSTMENTS
WITH THEIR LIFESTYLE.>>WELL, LET’S TALK ABOUT
COASTAL CALIFORNIA BECAUSE, AS WE ALL KNOW, RENT
IS VERY HIGH HERE. THE COST OF BUYING A
HOME IS ALSO VERY HIGH. PUTTING ASIDE THE IDEA OF
THE LOWEST INTEREST RATE ON A MORTGAGE BECAUSE EVERYBODY
WANTS TO PAY THE LEAST AMOUNT OF INTEREST POSSIBLE, BUT OTHER
THAN THAT, HOW CAN WE SAVE OR HOW CAN WE STRETCH
THAT DOLLAR WHEN IT COMES TO PAYING RENT OR
BUYING PROPERTY?>>WELL, ONCE PEOPLE DO MAKE A
BUDGET AND ARE REALISTIC WITH IT AND ARE FOLLOWING IT
FOR SEVERAL MONTHS AND HAVING FULL TRANSPARENCY
WITHIN THE HOUSEHOLD ON THEIR SPENDING HABITS,
THEY REALLY NEED TO LOOK AT HOW MUCH THEY’RE SPENDING
ON RENT OR ON THEIR MORTGAGE. AND IF IT IS TOO MUCH, THEY
MAY NEED TO MAKE SOME CHOICES. THEY MAY NEED TO EITHER
DOWNSIZE THEIR HOME, YOU KNOW, THERE IS A LOT OF ROOM FOR
CREATIVITY WITH REAL ESTATE. IF THEY DO OWN THEIR HOME, THEY
MAY WANT TO CONSIDER RENTING IT OUT AND CREATING A RENTAL
INCOME AND DOWNSIZING AND BUYING A SMALLER HOME MAYBE IN A MORE AFFORDABLE
AREA OF CALIFORNIA. THEY MAY NEED TO
POSSIBLY MOVE MORE INLAND FROM COASTAL CALIFORNIA OR THEY
MAY NEED TO LOOK FOR ROOMMATES OR LOOK FOR WAYS TO
CREATE MORE INCOME.>>AND WHEN WE DO SOLVE ALL
OF THESE FINANCIAL PROBLEMS THAT HAVE BEEN THE TROUBLING US,
WE THEN GO TO APPLY FOR A LOAN AND THEN THE DREADED
FICO SCORE COMES UP.>>YES, YES.>>SO WHAT DOES THE FICO SCORE
MEASURE AND WHAT CAUSES IT TO BE LESS THAN IDEAL?>>WELL, PEOPLE NEED TO REALIZE
THAT CREDIT IS VERY IMPORTANT AND CREDIT CAN’T BE AVOIDED. SOME AMERICANS DON’T HAVE CREDIT
ESTABLISHED AND THAT LEADS TO PROBLEMS AS WELL BECAUSE YOUR
CREDIT SCORE IS DIRECTLY LINKED TO THE COST OF MONEY. WHEN PEOPLE WANT TO BUY A HOME,
THEY NEED TO GET A MORTGAGE AND THEY NEED TO
APPLY FOR A LOAN. AND THE INTEREST RATE
THEY WILL QUALIFY FOR IS LINKED TO
THAT FICO SCORE. AND WHAT THE FICO
SCORE IS REALLY LOOKING AT IS A COMBINATION
OF ABOUT FIVE AREAS — 30 TO 35% OF YOUR FICO SCORE IS
COMPRISED OF YOUR CREDIT HISTORY AND HOW MUCH DEBT YOU
HAVE AT THAT MOMENT. AND THEN THE OTHER THREE
AREAS ARE REALLY A COMBINATION OF WHAT TYPE OF DEBT DO YOU
HAVE, IS IT ALL CREDIT CARDS OR IS THERE A CAR LOAN,
IS THERE A STUDENT LOAN? HOW MUCH CREDIT HAVE YOU APPLIED
FOR IN THE LAST YEAR, YOU KNOW, YOU CAN’T KEEP APPLYING
FOR MORE AND MORE CREDIT, THAT ACTUALLY HURTS YOU. AND YOUR CREDIT HISTORY AS FAR AS HOW LONG HAVE YOU
BEEN USING CREDIT? PEOPLE WHO ARE SEASONED
CREDIT USERS — THAT LOOKS BETTER THAN PEOPLE THAT ARE NEW TO THE
CREDIT MARKET.>>SO TO SUMMARIZE SOME
THINGS THAT YOU’VE MENTIONED, IF YOU APPLY FOR TOO MANY
LOANS OR TOO MANY CREDIT CARDS IN A SHORT AMOUNT OF TIME
THAT’S GOING TO HURT YOU.>>YES. AND IF YOU ARE
DECLINED FOR A CREDIT CARD, YOU REALLY NEED TO STOP
APPLYING FOR ANY CREDIT FOR AT LEAST SIX MONTHS.>>AND IF YOU’RE
CARRYING A HIGH BALANCE ON SEVERAL CREDIT
CARDS, THAT’S NOT GOOD.>>NO. PEOPLE DON’T NEED TO
HAVE SEVERAL CREDIT CARDS. REALLY, THE RULE OF THUMB IS
TO HAVE NO MORE THAN THREE. TWO CREDIT CARDS IS IDEAL. IN MY OPINION, PEOPLE
REALLY DON’T NEED TO HAVE GAS STATION CARDS
OR DEPARTMENT STORE CARDS. A VISA, AMERICAN EXPRESS, A
MAJOR CREDIT CARD IS ESSENTIAL FOR EMERGENCIES AND
FOR TRAVELING.>>ALL RIGHT. SO LET’S SAY THAT WE’VE
GOTTEN OURSELVES INTO TROUBLE WITH OUR CREDIT CARDS AND OUR
LOANS AND THAT SORT OF THING. OKAY AND WE DECIDE TO GO TO ONE OF THESE SO-CALLED
CREDIT FIXING COMPANIES THAT YOU HEAR ADVERTISING ON
THE RADIO AND ON TELEVISION AND IN NEWSPAPERS AND SO ON, SO WHAT ABOUT CREDIT
FIXING COMPANIES? ARE THEY DOING ANYTHING
THAT WE CAN’T DO OURSELVES?>>NO. AND I’M NOT A FAN
BECAUSE WHAT YOU JUST SAID IS ABSOLUTELY TRUE. THESE AGENCIES CAN’T
ELIMINATE DEBT. THEY CAN TRY TO NEGOTIATE
WITH YOUR CREDIT PROVIDERS, WHICH IS SOMETHING
CONSUMERS CAN DO ON THEIR OWN. IT’S A TIME-CONSUMING
PROCESS FIRST OF ALL. THEY CAN HELP YOU ELIMINATE
ERRORS ON YOUR CREDIT REPORT — AGAIN, SOMETHING A CONSUMER
CAN DO BY SENDING A LETTER IN. THE CREDITOR HAS 90 DAYS
TO RESPOND TO THE LETTER. SO AGAIN, IT’S A
TIME-CONSUMING PROCESS. IF THERE ARE ERRORS ON
YOUR CREDIT, IT’S SOMETHING THAT YOU CAN TAKE
CARE OF YOURSELF. AND KEEP IN MIND THAT THESE — THERE’S USUALLY LAWS TO PREVENT
THESE CREDIT FIXING AGENCIES FROM CHARGING UP FRONT
BUT MOST OF THEM DO. THEY WILL HAVE PEOPLE
SIGN A CONTRACT. THEY PAY $99, ON AVERAGE,
A MONTH TO DO SOMETHING THAT PEOPLE CAN DO ON THEIR
OWN OR THEY CAN SEEK HELP THROUGH A NONPROFIT AGENCY. THE FEDERAL TRADE COMMISSION
HAS CREDIT REPAIR AGENCIES THROUGH EVERY CITY THAT IS A
FREE SERVICE FOR CONSUMERS.>>SO IF OUR FICO SCORE IS LOW,
BUT WE HAPPEN TO HAVE A LOT OF CASH IN THE BANK FOR
ONE REASON OR ANOTHER — NOW USUALLY THAT’S
NOT A COMBINATION THAT YOU NORMALLY SEE. IF PEOPLE HAVE A LOT
OF MONEY IN THE BANK, THEY’VE USUALLY TAKEN CARE
OF THEIR CREDIT ISSUES.>>RIGHT, RIGHT.>>BUT LET’S SAY IT HAPPENS. FOR EXAMPLE, SOMEONE HAS A
LONG PERIOD OF UNEMPLOYMENT, WHICH CAUSES THEM TO GET
BEHIND ON THEIR BILLS, OR PERHAPS THEY HAVE A MEDICAL
EMERGENCY THAT WAS COVERED BY INSURANCE OR SOME TRAGEDY
BEFELL THEM WHICH WAS UNFORSEEN. OKAY, SO — BUT ON THE
OTHER SIDE OF THE COIN, PERHAPS THEY CAME INTO
A SMALL INHERITANCE, PERHAPS THEY’VE RECEIVED
A SETTLEMENT FROM THE INSURANCE COMPANY
OR FROM A LAWSUIT THAT WAS FOR SOMETHING THAT WAS
NOT OF THEIR OWN MAKING, OR MAYBE THEY JUST GOT
LUCKY WITH A SCRATCHER CARD FROM THE LOTTO, WHICH
DOESN’T HAPPEN VERY OFTEN OR WHAT HAVE YOU, BUT DOES THAT
STASH OF CASH OPERATE AS A HEDGE AGAINST A BAD FICO SCORE?>>IF IT’S DOCUMENTED,
IF IT’S DEPOSITED IN A BANK OR A CREDIT UNION. IF IT’S IN A COFFEE CAN IN
THE KITCHEN CABINET, NO, IT’S NOT GOING TO HELP YOU. SO AMERICANS NEED TO HAVE TRUST
IN BANKS AND DEPOSIT THAT STASH OF CASH THAT YOU’RE
TALKING ABOUT AND, SURE, THAT SERVES AS COLLATERAL THAT WILL HELP SOMEBODY’S
CREDIT SCORE. BUT THAT BALANCE SHOULD, PART
OF IT SHOULD, GO TOWARDS PAYING DOWN SOME OF THOSE DEBTS.>>OKAY. AND, ALL RIGHT,
SO LET’S SAY THE STASH OF CASH IS OFF THE TABLE
OR IT DOESN’T EXIST.>>RIGHT.>>ALL RIGHT. SO NOW WE’RE TALKING ABOUT
BAD DEBT THAT’S GOING TO A COLLECTION AGENCY. WHAT HAPPENS WHEN BAD DEBT
GOES TO A COLLECTION AGENCY? WHAT IS THE COLLECTION
AGENCY TRYING TO DO AND WHAT’S THEIR GOAL?>>WELL, THE COLLECTION AGENCY
HAS BEEN HIRED, USUALLY BY A LOT OF MOM-AND-POPS, YOU KNOW
THERE’S NEIGHBORHOOD DENTISTS AND DOCTORS AND TIRE STORES THAT
PROVIDED A SERVICE OR A PRODUCT AND THEIR LIVELIHOOD
IS DEPENDING ON COLLECTING THE MONEY
THAT’S OWED TO THEM. SO MOST OF THESE BUSINESSES
ARE GIVING THEIR CUSTOMER SIX TO NINE MONTHS TO
PAY BACK THE DEBT. IF THEY ARE UNSUCCESSFUL AT
THAT PROCESS, THEY THEN TURN TO A COLLECTION AGENCY. THE COLLECTION AGENCY USUALLY
THEN GIVES THE PERSON A GOOD THREE TO SIX MONTHS BEFORE
THEY START MARKING BAD MARKS WITH THEIR CREDIT SCORE. ONCE THEY DO REPORT
THE PERSON’S DEBT TO THE CREDIT RATING
COMPANY, THEY’RE HOPING THAT THE PERSON WILL
NOT RUN FROM THE DEBT, THAT THEY WILL COOPERATE AND TRY
TO COME UP WITH A PAYMENT PLAN TO PAY BACK SOME IF
NOT ALL OF THE DEBT. ONCE THAT IS DONE, THE COLLECTION AGENCY WILL
THEN CONTACT THE CREDIT RATING COMPANY AGAIN TO REMOVE
THE DEBT FROM THE FILE.>>OKAY, WE JUST HAVE A
COUPLE OF MINUTES BEFORE WE GO TO THE BREAK BUT I WANT TO
ALSO TOUCH ON PAYDAY LOANS AND QUICK CASH LOANS, WHICH
ARE NOW ACCEPTING YOUR AUTO AS COLLATERAL, THE
EQUITY IN YOUR AUTO.>>OR A PAYCHECK.>>OR A PAYCHECK.>>YEAH.>>WHAT ABOUT THESE?>>NOT A GOOD DEAL.>>NOT A GOOD DEAL?>>I’M NOT A FAN AT ALL. THERE ARE SEVERAL STATES
THAT HAVE ACTUALLY RULED THEM AS ILLEGAL TO OPERATE
IN THEIR STATES. THE OTHER STATES THAT
ARE ALLOWING THEM TO OPERATE ARE TRYING TO
CONTROL THE APR TO BE UNDER 40%. BUT WHAT I THINK SOME CONSUMERS
ARE NOT UNDERSTANDING IS THAT THEY ADVERTISE THEIR
INTEREST RATE ON A WEEKLY BASIS AND IF THEY DO NOT PAY BACK
THE SMALL LOAN OF, LET’S SAY, 100 TO $500 IN A
COUPLE OF MONTHS, THE INTEREST CAN
GROW TO 500 TO 1000%. SO TO BORROW, LET’S
SAY, $100 FOR ONE WEEK, THERE’S A $15 PROCESSING FEE AND
LET’S SAY A 30% INTEREST RATE. SO TO BORROW $100 FOR
ONE WEEK, YOU’RE LOOKING AT A 45% INTEREST RATE.>>NOT A GOOD DEAL, OBVIOUSLY.>>NOT A GOOD DEAL AT ALL,
SOMETHING TO STAY FAR AWAY FROM.>>WE JUST HAVE A MINUTE
NOW BEFORE THE BREAK. I WANT TO JUST TOUCH
ON INTEREST RATES. INTEREST RATES REALLY CAN
HURT US A LOT IN THIS CASE THAT WE’VE BEEN TALKING ABOUT
BUT INTEREST RATE CAN HELP US IF WE’RE MAKING INTEREST WORK
FOR US IN TERMS OF INVESTMENT.>>ABSOLUTELY, ABSOLUTELY.>>SO IN 30 SECONDS,
TELL US A LITTLE BIT ABOUT INTEREST RATES,
THE PLUS AND MINUS.>>OKAY, COMPOUND INTEREST
IS WHEN INTEREST GROWS ON THE PRINCIPAL
PLUS THE INTEREST. SO WHEN A PERSON BORROWS MONEY
OR CHARGES ON A CREDIT CARD, THAT INTEREST IS REFLECTED
IN AN AVERAGE DAILY BALANCE. SO EVERY DAY THAT A
CONSUMER CARRIES THAT DEBT, THE INTEREST IS COMPOUNDING. THE ONLY WAY TO STOP THAT IS TO
PAY THAT DEBT OFF COMPLETELY.>>OKAY, ON THAT NOTE,
WE’RE GOING TO COME BACK AFTER THE BREAK AND TALK ABOUT
THE POSITIVE SIDE OF MONEY. AND STAY WITH US,
WHEN WE COME BACK, WE’LL TALK ABOUT
INVESTING AND THE FUTURE. STAY TUNED. [ MUSIC ]>>SHOULD YOUR COMPANY
BUY OR SELL? EXPAND OR NOT? RELOCATE? OR SIMPLY
STAY THE SAME? IF YOU’D LIKE TO EXAMINE PAST AND PRESENT PREDICTIONS
INTEGRATING FINANCES AND PEOPLE AND MAKE FUTURE PREDICTIONS
ON ALL THAT INFORMATION, A CAREER IN ECONOMICS
IS FOR YOU. YOU CAN BECOME A PART OF THIS
EXCITING FIELD WITH A DEGREE FROM CAL STATE LONG BEACH. [ MUSIC ]>>WELCOME BACK TO
“TALKING POINTS.” I’M DAVE KELLY AND MY GUEST
TODAY IS ALETA OSTLUND. NOW ALETA, BEFORE THE
BREAK, WE WERE TALKING ABOUT ALL THE NEGATIVE
THINGS AND NEGATIVE BEHAVIORS THAT PEOPLE ENGAGE THAT
GET THEMSELVES INTO A LOT OF TROUBLE FINANCIALLY
AND EXTRICATING THEMSELVES FROM THAT CAN BE DIFFICULT
BUT IT CAN BE DONE. SO WE’VE RESOLVED THAT.>>YES.>>OKAY, NOW LET’S TALK
ABOUT THE SUNNY SIDE OF LIFE AND INVESTING IN PARTICULAR. SO WE’VE GOT EVERYTHING
TAKEN CARE OF, WE’VE MANAGED OUR BUDGET,
WE HAVE EXTRA MONEY, WE CAN NOW START INVESTING. WE WANT TO THINK ABOUT THE
FUTURE AND HOW TO PREPARE FOR RETIREMENT AND LET’S
SAY WE’VE STARTED EARLY AND WE HAVE 30 YEARS
TO WORK WITH. WHAT SHOULD WE BE IN — WELL,
FIRST OF ALL WE SHOULD TALK ABOUT INTEREST BECAUSE WE
TALKED ABOUT, BEFORE THE BREAK, HOW INTEREST CAN REALLY HURT
US IF IT’S WORKING AGAINST US.>>RIGHT.>>BUT BY THE SAME TOKEN,
COMPOUND INTEREST WORKING FOR US CAN BE A GREAT ADVANTAGE. MAYBE TALK ABOUT THAT FIRST.>>WELL, COMPOUND
INTEREST HAS BEEN KNOWN TO BE CALLED THE SEVENTH
WONDER OF THE WORLD. ALBERT EINSTEIN HAS BEEN
QUOTED THAT HE SEES GREAT POWER IN COMPOUND INTEREST BECAUSE OF
THE FACT THAT THE INTEREST IS LIKE A SNOWBALL EFFECT,
THE INTEREST GROWING ON THE PRINCIPAL AND
INTEREST EARNING ON INTEREST. SO WITH TIME ON SOMEBODY’S
SIDE, THAT SNOWBALL IS GOING DOWN LET’S SAY A
BIGGER MOUNTAIN. SO IF A STUDENT HERE AT CAL STATE LONG BEACH
STARTS INVESTING RIGHT WHEN THEY GET A JOB, YOU
CAN TRACK THAT MONEY AND SEE THAT EVEN $25, YOU KNOW,
A WEEK COULD END UP BEING ABOUT $1 MILLION BY
THE TIME THEY RETIRE. TIME IS ESSENTIAL WHEN IT
COMES TO COMPOUND INTEREST.>>ALL RIGHT. AND SO THAT LEADS INTO THE WHOLE
IDEA OF INVESTING AND PLANNING FOR THE FUTURE AS
I STARTED TO TALK ABOUT BEFORE I REALIZED WE
NEED TO DISCUSS INTEREST AND COMPOUND INTEREST FIRST. SO ALL RIGHT, I KNOW THAT I’M
GOING TO GET COMPOUNDED INTEREST IF I START NOW AND I
START INVESTING AND FOR 20 TO 30 YEARS IT’S
GOING TO ADD UP, OKAY, WHAT SHOULD I BE THINKING
ABOUT IN TERMS OF INVESTMENTS? WHERE CAN I GET THE BEST RETURN
ON THAT MONEY THAT I’M GOING TO BE INVESTING NOW
ON A REGULAR BASIS?>>THAT’S A GREAT QUESTION
AND IT REALLY DEPENDS ON WHAT PEOPLE’S GOALS
ARE AND THEIR BUDGET. AND WHEN THEY DO SIT
DOWN TO DO THEIR BUDGET AND LET’S SAY THEY HAVE
BEEN ABLE TO PAY OFF SOME OF THOSE DEBTS, THEY
REALLY NEED TO LOOK AT HOW MUCH THEY’RE GOING TO SAVE PER MONTH
AND FOR WHICH GOAL. RETIREMENT PLANNING
PEOPLE NEED TO UNDERSTAND THAT THAT MONEY IS GOING TO BE
LOCKED AWAY UNTIL THEY’RE 59 AND 1/2 OR OLDER, WHEREAS
IF THEY HAVE OTHER GOALS, LET’S SAY TO BUY A HOME
OR CHILDREN’S COLLEGE, YOU WOULD NEED TO ALLOCATE THE
CORRECT INVESTMENT TO MATCH THAT GOAL ALONG WITH
THE TIME HORIZON. WHEN YOU DO HAVE 20, 30 YEARS ON
YOUR SIDE, SUCH AS RETIREMENT, YOU WOULD REALLY WANT TO MAXIMIZE YOUR TAX
ADVANTAGED SAVINGS OPTIONS THROUGH PENSION PLANS AND
QUALIFIED PLANS LIKE AN IRA IF YOU DON’T HAVE A PENSION
PLAN THROUGH YOUR WORK. BUT FOR SOMEBODY WHO’S
LOOKING TO BUY A HOME OR THEIR COLLEGE — THEIR
CHILD IS GOING TO GO TO COLLEGE WITHIN 10 YEARS — MUTUAL FUNDS
WOULD BE A GREAT PLACE TO LOOK.>>OKAY. AND IF WE HAVE A
LOT OF TIME TO WORK WITH, WE CAN BE MORE AGGRESSIVE.>>ABSOLUTELY.>>IN THE WAY WE INVEST. AND WHAT DOES THAT MEAN,
BEING “MORE AGGRESSIVE?”>>WELL, THERE’S A KIND OF RULE
OF THUMB IN FINANCIAL PLANNING THAT IF YOU TAKE THE NUMBER 100
AND SUBTRACT SOMEBODY’S AGE, THE DIFFERENCE WOULD BE
INVESTED MORE AGGRESSIVELY. THEN THE OPPOSITE WOULD BE
A INVESTED A LITTLE BIT MORE MODERATELY OR SECURELY. SO IF YOU TAKE A 40-YEAR-OLD,
60% WOULD BE INVESTED MORE IN THE STOCK MARKET AND MORE
AGGRESSIVE TYPES OF INVESTMENTS, 40% WOULD BE MAYBE IN SOME
INCOME OR BOND TYPE FUNDS. BUT IF YOU TAKE A 65-YEAR-OLD, 65% SHOULD BE INVESTED
MORE SECURELY AND 35% WOULD BE STILL TRYING
TO ACHIEVE SOME GROWTH.>>SO REALLY IT DEPENDS ON HOW MUCH TIME YOU
HAVE IN YOUR HORIZON. SO IF WE HAVE.>>WELL, THERE ALWAYS NEEDS
TO BE DIVERSIFICATION. AND YOU MAY HAVE HEARD THE
PHRASE, “DON’T PUT ALL YOUR EGGS IN ONE BASKET,” THAT’S
A POPULAR SAYING. WITH YOUR MONEY, YOU DON’T
WANT TO HAVE ALL YOUR MONEY IN THE STOCK MARKET OR ALL YOUR
MONEY TIED UP IN REAL ESTATE OR ALL YOUR MONEY UNDER
YOUR MATTRESS EITHER. YOU KNOW, THERE IS
RISK EVERYWHERE. YOU CAN’T AVOID ALL RISK. EVEN FOR PEOPLE WHO ARE AFRAID
OF THE MARKET, IF THEY WERE TO PUT $10,000 INTO LET’S SAY
A 10-YEAR T-BILL, YOU KNOW, WE THINK OF T-BILLS
AS BEING VERY SAFE, THEY’RE VERY LOW INTEREST
PRODUCING INVESTMENTS, HOWEVER, THERE’S INTEREST RATE RISK,
THERE’S INFLATION RISK, YOU KNOW, THE MARKET COULD
GO UP, RATES COULD GO UP AND THEIR MONEY’S TIED IN
THIS VERY LOW PRODUCING, YOU KNOW, 3% T-BILL.>>RIGHT. SO WHEN WE TALK
ABOUT BEING AGGRESSIVE OR BEING CONSERVATIVE, AGAIN, IT DEPENDS ON HOW MUCH
MONEY YOU HAVE AVAILABLE, HOW MUCH TIME YOU HAVE.>>SURE.>>AND THE WHOLE RANGE
OF YOUR PORTFOLIO. AND AS WE TALK ABOUT THE STOCK
MARKET AND THAT IS CONSIDERED — IT CAN BE A VERY
AGGRESSIVE WAY OF INVESTING, DEPENDING UPON HOW YOU
PLAY THE STOCK MARKET — BUT PEOPLE SAY THEY DON’T WANT
TO INVEST IN THE STOCK MARKET BECAUSE THEY’RE AFRAID
IT’S GOING TO GO DOWN. IT’S BEEN HISTORICALLY VERY
HIGH OVER THE LAST SEVERAL YEARS AND PEOPLE ARE CONCERNED
THAT IT’S GOING TO DROP — OF COURSE, IT’S GOING TO DROP.>>SURE.>>IT ALWAYS HAS A CORRECTION.>>IT ALWAYS HAS, YES.>>BUT IF YOU HAVE A LONG-TERM
OUTLOOK, YOU’RE STILL GOING TO COME OUT AHEAD EVEN IF
TODAY’S STOCKS GO DOWN BECAUSE IF YOU SET UP A PLAN OF
CONTINUOUS INVESTMENT OVER TIME, AUTOMATIC CONTINUOUS INVESTMENT,
YOU’RE GOING TO BE AHEAD. EXPLAIN WHY THAT
WOULD BE THE CASE.>>YOU KNOW, DAVE, THE FIRST
STEP FOR PEOPLE IS TO CREATE THAT BUDGET AND TO MAKE
A COMMITMENT LONG-TERM TO COMMIT 2, $300
EVERY MONTH TO SAVING. SO IF A PERSON IS GOING
TO PUT, LET’S SAY $200 INTO THEIR 401(K) PLAN OR
THEIR IRA PLAN, THEY ARE GOING TO PICK WHAT TYPE OF UNDERLYING
INVESTMENT GOES INTO THAT PLAN. SO, MORE THAN LIKELY,
IT WILL BE MUTUAL FUNDS. AND EACH MUTUAL FUND SHARE
IS CONNECTED TO A VALUE AND THAT VALUE DOES GO UP
AND DOWN ON A DAILY BASIS AND PEOPLE NEED TO
UNDERSTAND THAT. BUT KEEP YOUR EYE ON
YOUR LONG-TERM GOAL. IF YOU HAVE 30, 40 YEARS HERE,
YOU NEED TO BE COMFORTABLE WITH THOSE FLUCTUATIONS. BECAUSE IF YOUR $200
IS BUYING A SHARE AT LET’S SAY $20 PER
SHARE, THEN FOR EVERY $100, THAT PERSON GETS FIVE SHARES. WELL, WHEN THAT SHARE GOES UP, PEOPLE APPLAUD AND
THEY’RE HAPPY. HOWEVER, IF IT GOES UP TO $25,
NOW YOU’VE ONLY GOT FOUR SHARES. ON THE REVERSE, WHEN IT PLUMMETS
DOWN TO LET’S SAY $10 A SHARE, THERE’S ALL THIS PANIC,
BUT WAIT A MINUTE, YOU’RE NOW GETTING
10 SHARES PER $100. YOU GOT IT HALF PRICE. IT WAS ON CLEARANCE
BASICALLY, RIGHT? SO AS TIME GOES ON, AS YOUR 30
YEARS PROGRESSES, YOU’RE PUTTING THAT MONEY IN, ELECTRONIC FUND
TRANSFER IS WHAT THEY’RE ALL DOING, EVERY PAYCHECK
THAT MONEY’S GOING INTO YOUR FUND, IT’S
BUYING SHARES. SO AT THE END OF THE DAY,
WHEN YOU FINALLY ARE READY TO USE YOUR MONEY, YOU’RE
GOING TO HAVE A LOT OF SHARES. AND WHATEVER THE VALUE IS
ON THAT DAY, THAT’S GOING TO BE THE PRICE PER VALUE
AS YOU START TO TAKE IT OUT TO LIVE ON IN RETIREMENT.>>SO YOU’RE NOT LOSING
BY INVESTING IN A STOCK THAT HAPPENS TO BE GOING DOWN.>>YOU’RE DOLLAR COST AVERAGING, ACTUALLY IS WHAT
IT’S CALLED, YES.>>IT’S THE COLLAR
COST AVERAGE, RIGHT.>>AND IT’S ACTUALLY A
REALLY SMART WAY TO INVEST OVER A LONG PERIOD OF TIME.>>SO IT’S EITHER A HIGH VALUE
PER SHARE AND A LIMITED NUMBER OF SHARES OR A LOWER
DOLLAR VALUE FOR EACH SHARE BUT
LOTS OF SHARES.>>CORRECT.>>SO IT’S ALL GOING
TO WORK OUT.>>IT’S ALL GOING TO WORK OUT.>>OKAY, WELL LET’S TALK ABOUT
REAL ESTATE BECAUSE A LOT OF FOLKS SAY, WELL, REAL ESTATE
IS REALLY WHERE THE ACTION IS. AND THERE ARE A LOT OF
PROGRAMS ON TELEVISION NOW THAT INVOLVE HOUSE FLIPPING
AND IT LOOKS EXCITING, IT LOOKS DRAMATIC, IT LOOKS
LIKE FUN TO A LOT OF PEOPLE AND, YOU KNOW, IT CAN BACKFIRE THOUGH IF YOU DON’T KNOW
WHAT YOU’RE DOING.>>SURE, IT’S A LOT OF HARD
PHYSICAL WORK AND IT LOOKS LIKE FUN TO SOME
PEOPLE BUT NOT TO OTHERS AND IT CAN BE A LITTLE SCARY BECAUSE SOME PEOPLE
AREN’T VERSED IN HOW TO BUY REAL ESTATE. NOT EVERYBODY HAS A
REAL ESTATE LICENSE. BUT WHAT I CAN SAY IS WHEN
YOU INVEST YOUR MONEY, YOU DO NEED TO EDUCATE
YOURSELF ON YOUR INVESTMENT. IF SOMEBODY WANTS TO
STUDY THE STOCK MARKET, THEY CAN EDUCATE THEMSELVES. SAME WAY WITH REAL ESTATE. MOST REALTORS ARE SELLING IN,
LET’S SAY 10 NEIGHBORHOODS. WHEREAS A PERSON, IF
THEY WANT TO BUY A PIECE OF RENTAL PROPERTY OR WANT
TO BUY THEIR FIRST HOME, THEY REALLY NEED TO BECOME AN
EXPERT IN THAT NEIGHBORHOOD. FIND YOUR NEIGHBORHOOD. ONCE YOU’VE DECIDED, OKAY,
LONG BEACH IS MY NEIGHBORHOOD, I WANT TO BUY A HOME HERE,
YOU CAN STUDY THE VALUES OF ALL THE HOMES
IN THE AREA BASED ON THE PRICE PER SQUARE FOOT
AND, YOU KNOW, THERE’S GOING TO BE SOME FLUCTUATIONS THAT
ARE BASED ON THE CONDITION OF THE HOME, DOES IT
HAVE A POOL, YOU KNOW, WHAT TYPE OF UPGRADES
DOES IT HAVE? BUT REALLY BECOME AN EXPERT AND UNDERSTAND THE PRICE PER
SQUARE FOOT IN THAT AREA. AND AGAIN, THIS IS
TIED YOUR FICO SCORE. RATES ARE REALLY LOW RIGHT
NOW ON LOANS BUT IT’S GOING TO BE CONNECTED TO YOUR CREDIT. IF YOU HAVE GOOD CREDIT,
YOU’RE GOING TO BE ABLE TO QUALIFY FOR A GOOD LOAN. IF YOU’RE A FIRST-TIME
HOME BUYER, THERE’S STILL A LOT
OF OPPORTUNITY THERE. FIRST TIME HOME BUYERS ONLY
NEED TO PUT DOWN 3 1/2% AND THEY CAN GET A DECENT LOAN.>>SO PROBABLY NOT THE BEST IDEA
TO INVEST IN COASTAL CALIFORNIA WITH YOUR FIRST REAL
ESTATE INVESTMENT, MAYBE GO FURTHER INLAND. LOOK FOR SOMETHING THAT
IS IN A LOWER PRICE RANGE.>>SURE.>>IN TERMS OF MAKING
THAT INVESTMENT.>>IT DEPENDS ON HOW
MUCH PEOPLE SAVE. IF YOU CAN SAVE AND HAVE
20% DOWN, YOU’LL AVOID SOME OF THE PRIVATE MORTGAGE
INSURANCE AND SOME OF THOSE OTHER, YOU KNOW, EXPENSES THAT BANKS
WILL TAP ONTO THE LOAN.>>SO LET’S TALK ABOUT HOUSE
FLIPPING VERSUS BEING A LANDLORD FOR A LONGER PERIOD OF TIME. IS IT BETTER TO FLIP THE HOUSE
AND MAKE THE BIG PROFIT UP FRONT OR IS IT BETTER TO HAVE A
PROPERTY THAT’S GOING TO, OVER TIME, INCREASE IN VALUE? MEANWHILE, YOU’RE
COLLECTING RENT. HOPEFULLY, YOU ACTUALLY GET SOME
POSITIVE CASH FLOW OUT OF THAT. WHAT’S THE BETTER STRATEGY?>>AGAIN, THERE’S A LOT OF ROOM
FOR CREATIVITY WITH REAL ESTATE AND THERE’S A LOT OF
DIFFERENT WAYS YOU CAN GO. BUT WHEN SOMEBODY BUYS A
STOCK, ALL OF THEIR MONEY IS IN THE VALUE OF THE STOCK. SO THE DIFFERENCE OF REAL ESTATE
IS YOU’RE PUTTING 20% DOWN, OR IN THE CASE OF FIRST-TIME
HOME BUYERS, 3 1/2% DOWN. IF IT’S A RENTAL PROPERTY, NOT ONLY DO YOU COLLECT THE
RENT BASED ON THE TOTAL VALUE OF THE PURCHASE PRICE, BUT HOPEFULLY YOU
ALSO HAVE APPRECIATION IN THE VALUE OF THE HOME. AND IF YOU ASK MOST RETIREES IN AMERICA TODAY WHAT
THEIR BEST INVESTMENT WAS OR WHERE THEY MADE THE
MOST OF THEIR MONEY, ALMOST ALL OF THEM
WILL SAY REAL ESTATE. THEY WILL SAY, I BOUGHT THIS
HOME, YOU KNOW, BACK IN THE ’20S FOR $20,000 AND NOW
IT’S WORTH $300,000. THERE’S A LOT OF OPPORTUNITY IN
REAL ESTATE FOR APPRECIATION. AND FOR PEOPLE WHO ARE BUYING
UNDERVALUED PROPERTIES, PROPERTIES THAT MAY HAVE BEEN
ABUSED OR IN BAD AREAS OF TOWN, THERE IS A LOT OF OPPORTUNITY
THERE TO FIX THE HOME UP AND TAKE CAPTURE RENTAL INCOME. MY HUSBAND AND I HAVE
ACTUALLY HAD A LOT OF SUCCESS WITH BUYING THE UGLIEST HOUSE
ON THE STREET SO TO SAY, FIXING IT UP, AND
PUTTING IT ON SOME OF THE VACATION RENTAL WEBSITES, WHERE YOU’RE ACTUALLY
GETTING A PRICE PER NIGHT TO RENT THAT HOME. AND WE HAVE FOUND THAT YOU CAN
COLLECT MUCH MORE RENT THAT WAY VERSUS HAVING A FULL-TIME,
30 DAY, YOU KNOW, TENANT, LONG-TERM TENANT.>>SO YOU’RE TALKING ABOUT THAT
CREATIVITY AND THAT FLEXIBILITY WHEN YOU GO INTO REAL
ESTATE INVESTING.>>SURE.>>WE’RE STARTING TO
RUN OUT OF TIME AGAIN. UNFORTUNATELY, TIME REALLY FLIES WHEN WE’RE HAVING
THESE CONVERSATIONS. BUT IF WE’RE TALKING
ABOUT ANOTHER KIND OF REAL ESTATE INVESTMENT, THERE IS THE REAL ESTATE
INVESTMENT TRUST PROCESS.>>YEAH.>>COMMONLY REFERRED
TO AS A REIT.>>A REIT. IT’S VERY.>>YEAH, WHAT IS A REIT?>>IT IS VERY SIMILAR
TO A MUTUAL FUND. IF PEOPLE HAVE CONFIDENCE
IN THE REAL ESTATE MARKET, A MONEY MANAGER JUST LIKE A MUTUAL FUND MONEY MANAGER
WOULD ACTUALLY BUY PORTFOLIOS OF EITHER RESIDENTIAL
HOMES, COMMERCIAL, RETAIL, INDUSTRIAL PROPERTIES AND POOL
MONEY TOGETHER FROM PEOPLE THAT ARE INTERESTED
IN COMBINING THIS. AND YOU CAN ACTUALLY PUT A
REIT INSIDE A PENSION PLAN. AND ONE THING I DIDN’T
MENTION IS THAT PEOPLE, FOR THOSE LONG-TERM GOALS SUCH
AS RETIREMENT, REALLY DO NEED TO BE LOOKING AT THEIR PENSION
PLAN OPPORTUNITIES FIRST BECAUSE MOST AMERICANS ARE
PAYING A COMBINED INCOME TAX OF LET’S SAY 30%. SO BY PUTTING A DOLLAR
IN YOUR 401(K) PLAN, YOU’RE IMMEDIATELY
MAKING A 30% RETURN. AND MOST EMPLOYERS ARE OFFERING
A MATCH, LET’S SAY 50% MATCH FOR EVERY DOLLAR THAT PERSON
PUTS IN UP TO 6% OF THE INCOME. THOSE PEOPLE THAT AREN’T
PARTICIPATING IN A PENSION PLAN THAT HAS A MATCH,
THEY’RE LEAVING A LOT OF MONEY ON THE TABLE.>>WELL, WE HAVE RUN OUT OF TIME
BUT I’VE GOT 30 SECONDS LEFT. WHAT IS THE POINT OF
INVESTING LONG-TERM? WHAT IS THE END GOAL
FOR OUR INVESTING?>>YOU KNOW, I THINK THE END
GOAL FOR MOST AMERICANS IS TO LIVE IN SECURITY
IN RETIREMENT AND NOT BE A BURDEN
TO THEIR FAMILIES. I DON’T THINK MOST
PEOPLE WILL SAY, I WANT TO GET RICH
AND LEAVE A LEGACY. I THINK THEY WANT TO
HAVE A COMFORTABLE, SECURE LIFE TO HAVE THE ABILITY
TO MAKE FINANCIAL CHOICES IN RETIREMENT AND LEAVING MONEY TO THE HEIRS, THAT’S
JUST A BONUS.>>AND ON THAT NOTE,
WE’RE GOING TO HAVE TO BRING THE PROGRAM TO A CLOSE. BUT THANK YOU FOR
BEING HERE TODAY.>>YOU’RE WELCOME.>>AND THANK YOU FOR JOINING US FOR THIS EDITION OF
“TALKING POINTS.” PLEASE JOIN US AGAIN SOON
FOR THE NEXT EPISODE. UNTIL THEN, I’M DAVE KELLY. HAVE A NICE DAY. [ MUSIC ]

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