Everywhere we go today, someone has a friend or neighbor who has either filed bankruptcy or is contemplating bankruptcy. If your friend or neighbor has lost a job, lost their savings in the stock market crash or has a house hopelessly underwater, there may be no other option.
However, for most of us, bankruptcy need not be part of our future. However, it will take careful planning and constant vigilance. We are bombarded everyday with marketing trying to convince us that things are necessary today whether a new car, kitchen or mattress. In order to avoid the pitfalls of overextending yourself, here is a easy to remember guideline.
Cash is King. If you don’t have cash, you don’t buy it. This principle should apply to all purchases with the exception of a house. If don’t have the money to purchase that car outright, you shouldn’t be purchasing it. A new car loses between 20-30% of their value when they are driven off the car lot. In the old days, we were told to be a new car because it was more dependable. You didn’t know the history of the car. However, we the development of Car-Fact and more dependable cars, used cars should be considered and encouraged. If you are able to save enough money to buy a new car outright and you still want to use that money to buy a new car, that is up to you. However, it is my experience, that a person who is able to save enough money to buy a new car will use that money for something else.
A House is Shelter. It is not an investment. An investment is something other than your shelter. It may be good investment for your heirs, but for you, it is just shelter. As long as we cannot eat our homes, they are not an investment. The goal should always be to pay off your home so you have a place to live once you no longer working. A good rule of thumb is that a home loan should never be more than 2-2.5 times your household gross income. Therefore, if your family’s gross household income is $100,000., the home loan should never exceed $250,000. As a percentage of your income, a house payment including principal, interest, taxes and hazard insurance and mortgage insurance should not exceed 30% of your take home pay. Also, remember that if you have an interest only or option arm loan, you are in reality renting your home. You can only own your home if you are paying off the principal. We know that if the home loan is kept to reasonable amount, there will be no need to for credit card use or other uses of credit.
While these simple principals may seem obvious right now in the middle of the current economic crisis, we should try to think more about them for the good times ahead. Credit will again flow easily and there will be marketing people on every corner trying to sell us the newest shiny products for us to consume today. However, let us try to be a little older and wiser the next time through. Remember, cash is king and house is just shelter. We make a house a home, not the other way around.
WE ARE A DEBT RELIEF AGENCY. WE HELP PEOPLE FILE BANKRUPTCY RELIEF UNDER THE BANKRUPTCY CODE. THIS INFORMATION IS NOT PROVIDED AS LEGAL ADVICE AND SHOULD NOT BE RELIED UPON IN MAKING ANY DECISION REGARDING A SHORT SALE OR FORECLOSURE. THIS INFORMATION IS NOT A SUBSTITUTE FOR OBTAINING TAX & LEGAL ADVICE REGARDING AN INDIVIDUAL SITUATION.
© 2010 Joan Grimes