You may or may not have heard the term ?ethical will?. But, for those who care about making their values and ethics part of their legacy, it is a tool to consider when planning your estate.

Unlike a ?last will and testament?, which provides for the distribution of a person?s material assets, or a ?living will?, which contains instructions for how you want to be treated medically at the end of your days, an ?ethical will? is designed to let someone preserve and share their values, principles and beliefs for heirs and future generations, though it?s not legally binding.

According to Personal Legacy Advisors? Web site, an ethical will is a letter that transmits the non-material assets that are also of great importance: your values, your story, the lessons life has taught you and the other information that is too valuable to risk being lost. Your ethical will is the tool that enables you to address the question, ?What do I want my loved ones to know??

As a concept, ethical wills are not new. The first written reference to ethical wills occurs in both the Hebrew and Christian Bibles. Examples are Genesis, chapter 49, and The Book of John, chapters 15-18. Over time, they evolved into written documents. While ethical wills were traditionally shared after death, along with the reading of an individual?s last will and testament, today they are often shared during the author?s life.

While exact figures aren?t available for how many people are writing ethical wills, they are on the rise, based on increased Web activity and sales of ethical will resources. They have gained impetus particularly in the wake of tragedies like the September 11 terrorist attacks.

Why create one? People are inclined to write an ethical will when facing a challenging event, or at a turning point in life. Some examples are facing the loss of a loved one, birth of a grandchild, expectant parents, becoming an empty-nester or approaching the end of life. Other reasons to create an ethical will include:

• Your reflections will confirm what?s important and renew appreciation of your life to date
• You will create a personal message to those you love, of priceless value in the event of your absence
• If you do not tell your personal (and family) stories, they may be lost forever
• Your material assets can be given within a personal context
• You will mitigate confusion and hurt feelings with a personal explanation of potentially controversial elements of your legal will
• Your spirit will be expressed on paper, living beyond you in a timeless way
• Your words will link the past, present and future generations of your family
• You will enjoy peace of mind knowing the most important things will have been said.

Pros and cons. The pros of an ethical include having an opportunity to influence future generations. Through the process of writing an ethical will, the writer can gain self-knowledge and come to an understanding of what?s most important to him or her. This is valuable information not only for their families but their professional advisers as well. Another pro is that ethical wills are private documents. Unlike a will, which if admitted to probate will become a matter of public record, an ethical will is a private communication and will not be made public unless the author (or recipient) so desires. The con is that an ethical will is not enforceable in a court of law. Those who want to provide specific instructions, such as who is to receive which asset or how assets are to be distributed and under what conditions, would need to put the instruction in a will or trust.

Setting up an ethical will. Ethical wills come in a variety of forms, from a short letter to a lengthy autobiographical statement, from an audio-recorded message to a bound album. There are three basic ways to create an ethical will.

1. Begin with an outline and list of suggestions. Once you?ve created a rough draft, you can review and personalize it as much as you wish.
2. Begin with guided writing exercises. For example, start with phrases such as ?From my grandparents, I learned?? or ?I am most grateful for??
3. Begin with a blank sheet of paper and write down whatever is relevant about your thoughts, experiences and feelings. This is an open-ended approach. Eventually you should be able to create a comfortable structure for your ethical will. For one-on-one help, an organization like the Association of Personal Historians may be of assistance.

Other tips from Personal Legacy Advisors include the following:

• Start today: If you were not here tomorrow, what is the most important thing you would not want left unsaid? Write it down - now you’ve begun
• Relax: You are not trying to write for the Pulitzer Prize. The letter is a gift of yourself, written for those you love
• Ask yourself: What do I want to make sure my loved ones know and have in writing
• Take it topic by topic: Don’t try to write it all at once
• Be yourself: You cannot bequeath what you never owned to begin with
• Be careful, be loving. The reach of this letter is unknowable.

Sharing your will. It?s a good idea to share your ethical will not only with family and friends, but also with your financial adviser and attorney. Knowing what you value and what?s important to you will help them to develop a personalized plan that can help you to leverage your values in the future.

An ethical will speaks to one?s posterity or descendants long after the legal will has been probated and forgotten. Of note, an ethical will is a dynamic document. Just as a will or living trust document needs to be revisited so does an ethical will, because events occur in ones’ life that have an impact on ones’ value systems.

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Well folks, we finally did it!  Just a few short months after I started this little blog in early 2006, I bought an engagement ring, popped the question, and got engaged.  Months and months of planning, picking photographers, florists, and fighting over the guest list, we finally did it!

I am now Mr. LA MoneyGuy.  Oh, wait a minute.

Well, nothing I hate more than, "sorry I haven't posted much lately" posts.  They're just so arrogant.  It presumes that everyone is sitting in front of their computers waiting for your next words of inspiration.  So, I'm not going to apologize, but just say that the wedding was awesome, and our honeymoon absolutely incredible.  We returned a couple of weeks ago from a two week trip to the Mediterranean, and moved in to a new apartment last week.  Busy times, indeed.

I may write more about both later, as there is definitely a personal finance angle to both.

I know, I know... you all want to know where to send the gifts.  Tell you what, in lieu of gifts, please pay off your credit cards!  And if you don't have any credit card debt, take an old friend out to dinner.

The gaffe of the week goes to John McCain, when in an interview with Politico.com he was unable to remember how many houses he has.

Folks of all political stripes who read this blog will probably be willing to give Senator McCain a little slack on this one. We’re real estate investors and we buy and sell properties. We might not have married a $100 million heiress like Senator McCain (or made $4 million off a lucrative book deal like Senator Obama, for that matter) but we can understand how LLC’s and partnership purchases might turn a seemingly simple question into one that can be a little more tricky.

So my concern is not that Senator McCain was unable to rattle off the right answer. My concern was his startled, confused reaction. His rambling, mumbling response: "I think -- I'll have my staff get to you -- um -- its condominiums where -- I'll have them get to you.” In today’s complex world the ability to think on your feet and stay on message is an important prerequisite to being the President of the United States of America. The fact that Senator McCain was so visibly unhinged by this question will worry some voters.

I don’t’ think that the average American begrudges Senator McCain family their $100 million fortune; Americans don’t resent wealth – we aspire to it. But folks who are struggling to make ends meet want to feel that the President understands their challenges, and those who have invested in the ownership society want a leader who will get the economy back on the rails. When Senator McCain facetiously quipped last week that $5 million per year is the cutoff for being wealthy, a lot of folks felt left out of the joke.

I feel that we facing an immediate future of complex economic challenges – one in which prudent real estate investors will be comparatively well positioned. But in the end the returns that we realize will be linked closely to the fortunes of our fragile economy, which in turn will be heavily impacted by gas prices and – ultimately - oil.

Oil is an international fungible commodity, and therefore oil prices – the single more important driver in our economy – will be largely outside of our control. The biggest factor in what will happen with oil prices lies in direction of international stability, or lack thereof. Neither party talks much about this particular elephant in the room – the reason being that both parties realize, rightly, that there isn’t much that we can do about it. Our recent adventure to send our Armed Forces to the Middle East to spread freedom and democracy isn’t entirely to blame, but it has been an exacerbating factor that has undoubtably made things worse and weakened our influence, both politically and militarily.

In the future there will be a link between what we do overseas and our economic fate here at home – and it’s a new relationship that will be strikingly different from what we’ve seen in the past. As retired Army Colonel and Niebuhr scholar Andrew Bacevich writes in his excellent book The Limits of Power, our economy can no longer be sustained by expansion abroad enforced by our military. As a former military officer myself this is a new way of thinking. I now tend to put less of a premium on “experience” as traditionally defined; I want a leader who can see the new patterns as the world continuously rewrites the rules.

So while I can forgive Senator McCain the fact that he doesn’t know how many houses he has, I am more concerned about the prospect that having spent decades as a fabulously wealthy United States Senator has dulled his ability to identify the shifting currents of the new world economy.

Finance Findings is Binary Dollar’s periodic link dump.

• My Personal Saving and Investing System [Sun’s Financial Diary]
• What Have You Got Against Credit Cards? [Tao]
• Curb Appeal: One Of My Best Investments Yet Or How I Turned $80 Into $5,000 With Minimal Risk [Digerati Life]
• Understanding the Fine Print of a Loan Can Save You Money and Grief [Generation X Finance]
• Alternative Income Streams Progress - June 2007 [Lazy Man and Money]
• Are Real Estate Agents Worth the Money? [Money Smart Life]
• The Best Online Brokers [Free Money Finance]
• Eight Things To Consider When Buying Someone Out [Mighty Bargain Hunter]
• Four Reasons You Should Get A Payday Loan [Blueprint]
• Eco-Friendly Energy Savings [Five Cent Nickel]

Send your submissions for Finance Findings to henry@binarydollar.com.

Sponsor: Parlayer - Henry and Matt blog about sports and stuff.

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With a divorce rate of around 50% and many people not marrying until they are in their thirties, it is surprising to find that there are still many women who aren't financially educated. Most of this can be traced back to two factors: upbringing at home and society. In both cases, boys have often been given much more training and many more resources than girls have and the effects are damaging women financially today as they face a world in which they have to take care of monetary issues on their own but have never developed the skills to do so.

The Safe, Secure 1950's

In the 1950's most women quickly married and settled down to raise families. Very few of them worked outside the home, and finances were handled by the men. It was a financially prosperous time and women were expected to focus on the home and child-rearing. This focus on home-making was passed on to daughters while sons were groomed to the "breadwinners" of the family.

The obvious separation between girls and boys activities also managed to keep girls "sheltered" from financial concerns. They weren't expected to pay for anything on a date and parents didn't often expect them to hold down jobs. Boys, on the other hand, were expected to get a job at a young age, even if it was merely a paper route. The expectation was that a young man needed to "take on some responsibility" and "contribute."

As the generation raised in the 1950's grew up and raised families of their own, they passed on the financial biases that had been instilled in them to their own children. Many of today's parents have made the same mistakes their own mothers and fathers did, ignoring the obvious need for women to understand and learn to handle their own finances in favor of hoping that their daughters wouldn't have to face the harsh financial facts of life.

The belief that men would take care of women's financial needs was so ingrained that many of the "big picture" financial lessons were overlooked. Women tended to learn how to shop for bargains at the grocery store, stretch the budget at the holidays and that was about it. More complex lessons such as long-term investments, retirement planning and stock portfolio development were not a part of the picture.

Boys learned how to manage their money, save for a rainy day, and make smart investments and a host of other financial strategies.

Play and School Contribute to Gender Gap

Interestingly, boys more than girls tend to develop habits that are more geared toward understanding numbers and how they relate to finances from a very young age. While girls tend to be "collectors," says Joline Godfrey, founder of Independent Means, "boys develop informal economies based on relative value from the age of six on while trading cards and other items. By the time boys start trading stocks and bonds, it's just another form of the game." Independent Means is a company which promotes economic independence and growth for girls and women aged 14 to 24.

Even in school settings, boys are rewarded more consistently for being risk-takers, and investing is often perceived as a risky venture. Girls aren't encouraged to take risks and aren't rewarded for these types of behaviors and instead are likely to be cautioned to be careful. When faced with the prospect of learning about investing in the stock market or learning about retirement options, these same girls - now women - are more fearful of making decisions and less sure of themselves in making choices for themselves.

Statistics Show Gender Bias

A recent survey showed some startling discrepancies even today between teenage boys and girls and how much education they have received in the very basics of finance. Some of the findings include:

* Many more teenage boys than girls report understanding of how to write a check and how a credit card works, including accrued interest. * Teenage girls are much more likely to be in debt than boys, with almost 50% reporting credit card debt as opposed to less than a quarter of teen boys having any debt. * Girls are more likely to report that learning about investing is boring, while boys report a real interest in learning about it. When asked to elaborate, girls often pointed out that this wasn't something they would be doing in the future, while boys indicated that it was important to learn so that they could be successful.

The perception that girls shouldn't have to worry about their financial future in the long term (based upon the faulty premise that a man will take care of her or that she can hire a financial consultant to handle all of the boring stuff) is still present in many homes. Fortunately, the balance is beginning to shift as more parents realize that women who are successful in their careers must also be able to guide their own financial futures, not rely on others to do it for them.

Programs Aim at Closing the Gap

Today's girls are more likely to learn how to handle money at a young age. Cautionary tales in the news and on talk shows about women left destitute and the fear that social security can no longer support an individual in their golden years has, perhaps, contributed to this. After all, with most women outliving their spouses and more than half of women divorced, it's likely that today's girls will be supporting themselves in their retirement years - understanding Roth IRAs suddenly becomes very important.

Companies and organizations are also stepping to the forefront with programs designed to educate teens in general and girls in particular. Boys and Girls Clubs of America, in collaboration with Charles Schwab, offer Money Matters: Make It Count programs in cities across the country.

Visa works with Girl Scouts of the USA to provide two resources, the Cashin' In workbook and the Makin' Cents web game, to teach girls aged 13-17 financial responsibility. The web game specifically challenges players to find real-world solutions for characters' financial challenges.

With such programs increasingly popular and the need for women to understand finances now a hot topic, it's to be hoped that this generation of fathers will teach their daughters as much about finance as they teach their sons.

Carrie Carter: Author of: Think Your Way to Riches Kids' Style

For more information or to arrange an interview with Carrie Carter at 810.252.2281 e-mail: carrie114cr@aol.com or visit: www.ThinkYourWayToRichesKidsStyle.com

Carrie's passion is to help people on their inner journey to discover their personal road map for abundance, peace, and happiness. Her main passion is to give children worldwide the "Tools" which are lacking in the normal educational system and understanding to create the abundant lifestyle they are all worthy of. Experience Carrie's educational seminars, workshops, and private life coaching.

About the Author

Carrie's passion is to help people on their inner journey to discover their personal road map for abundance, peace, and happiness. Her main passion is to give children worldwide the "Tools" which are lacking in the normal educational system and understanding to create the abundant lifestyle they are all worthy of. Experience Carrie's educational seminars, workshops, and private life coaching.

On Thursday I’ll be interviewing personal finance columnist Scott Burns. Burns may be best-known for his “Couch Potato” investment portfolio. He’s also the brains behind Asset Builder and the co-author of the new book Spend ‘Til the End, which explores the notion of “consumption smoothing”, or how to maintain a stable standard of living throughout your life. If you have you have personal finance questions you’d like for me to ask Burns, please let me know.

Meanwhile, here are a few recent personal finance articles from around the web.

First, Flexo at Consumerism Commentary believes that the idea of getting rich slowly may be a fallacy. Or does he? In “7 Ways to Lose Your Money”, he takes issue with a recent MSN article that promises seven ways to get rich a little more quickly. The problem? Flexo points out that these methods can also lead to financial ruin.

Meanwhile, Five Cent Nickel notes that cheap is not necessarily frugal. Quality may cost more initially, but in the long term, it usually pays for itself. (But don’t confuse quality with “name-brand” — they’re not necessarily the same.)

Jim at Blueprint for Financial Prosperity recently had his home’s roof replaced, and in the process learned some lessons about finding contractors. One of his tips? It’s not all about price. Kris and I have learned this lesson, too, over fifteen years of homeownership. For us, it’s more important to find quality workers than cheap workers. It’s a balance.

Finally, Love Food Hate Waste recently shared 5 sure-fire ways to save money on your food bill. The average household with children in the U.K. throws away £610 in food every year. This article offers tips for buying and storing food sensibly.

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Related Articles at Get Rich Slowly:

• Daily Links: PearBudget Edition
• Daily Links: E-Book Edition
• Money Hacks Now at Get Rich Slowly
• links for 2006-09-12
• Daily Roundup: Bringing Home the Bacon Edition

With the economy in recession, the stock market down, and companies trying to turn a profit, a lot of employers have started to cut back. For some, it might mean eliminating the company Christmas party, while other companies are making massive layoffs or cutting pay.

I’ve noticed a few things getting cut from our regular company expenditures this year, and after talking to friends and family, I’m hearing of even more. For instance, our annual conference was canceled. We generally all head somewhere warm for a week to round up all of the employees in our division, hold workshops, get updates on the company, and do some team building. That’s out. In addition, there have been some little items eliminated such as holiday gifts for some clients. So, while it isn’t anything drastic, there are some cuts being made.

From others I’ve talked to, I’ve heard of canceled Christmas parties and other holiday events. But some are even going a step further and making changes to expense reimbursement limits. In some cases this is a lower limit allowed for expensing meals, or cutting back on mileage reimbursement. Depending on how much of your job involves traveling, this could become a significant burden.

So, I’m just wondering if anyone else has noticed any cutbacks where they work. If things are being cut, are they just little things, or will these cuts directly affect your bottom line?

Note: There is a poll embedded within this post, please visit the site to participate in this post’s poll.

Poll: Are You Noticing Any Cutbacks at Your Job?

How much of your money is in domestic stocks? What percentage of your portfolio is invested internationally?  If you’re like many average investors in the US the majority of your investments are in US companies.

Global Investing Seminar
I attended a seminar on global investing yesterday and it really made me think a little harder about our current exposure to international investments.  I had to keep in mind it was presented by a financial company that runs a global fund, so the point of the seminar was to reinforce the importance of international investing in the minds of current and potential investors.

However, they did cover some interesting statistics that apply no matter what investment vehicle you use to diversify overseas.  They fed us lunch so I didn’t get to write down all the statistics since I was busy feeding my face but I still remember the general concepts.

Global Growth Trends
One of the graphs was from a Morgan Stanley study that looked at the total value of US public companies compared to the total value of international companies.  The graphic showed the value in approximately 20 year time intervals: 1988, 2008, and 2030 projected. 

I wish I had the exact numbers but the overall trend showed a global economy that was dominated by American companies in 1988, maybe about 2/3 of the global corporate value was in the US,  but the estimates for 2030 approximated US companies making up only a quarter of corporate capital markets.

Of course the numbers aren’t exact but I think the trend is definitely accurate and that the US position as the world’s financial superpower is slipping.  While this may not be great news for us as consumers or workers, it does present an opportunity for us as investors.

Evaluating International Markets
The speaker worked for a global fund, his role is to fly around the world visiting and evaluating companies that the fund is considering putting money into. He walked us through his fund’s investment positions in the various global regions, explaining their reasoning behind being underweight in places like Great Britain and overweight in places like Taiwan and South Korea.  He definitely pointed to Asia as the region with highest potential for growth over the next two decades.

He gave some staggering statistics on the sheer size of the Chinese consumer and business market and the enormous potential for growth there.  He also commented on the enormous currency reserves the Chinese government has built up and all the money they need to spend on infrastructure.

However, the speaker went on to warn us that the Chinese markets are overpriced, in his opinion, due to a massive runup in the stocks of Chinese companies over the last few years.  He had the same caution for stocks in India, that the price earning (PE) valuations were higher than they wanted to pay.  His company is looking for opportunities in areas like Taiwan or South Korea where the PE ratios are much lower.

Risks of Investing Internationally
The truth is we live in a global economy and changes around the world can effect how US companies perform so even domestic investments are influenced to an extent by international markets.  However, if you decide to put your money in a foreign company your investment is suddenly influenced heavily by regional events, currency fluctuations, and the policies of the foreign government. 

If you’re investing in an emerging market where there is large amount of growth there’s also typically a lot of change both economically and politically that can potentially put your investment at risk. Although there are risks associated with global investing, in my opinion they are definitely worth the opportunity to benefit from the growth in economies around the world. 

You wouldn’t want to put all of your money into international companies, just make them a part of your investment portfolio.  Several years ago about 10% of our portfolio was in international funds when I increased it to around 15% and now I’m looking to raise the percentage even higher.  How much exposure you want to international markets is up to your situation but it’s definitely something you should at least look into.

How to Invest Internationally
So how can you put your money into companies overseas?  The easiest way is to buy an international ETF or mutual fund.  The approach I decided to take several years ago was to invest in multiple international funds.  I choose an option from my 401k, Dodge & Cox International Stock (DODFX), one from my wife’s 403b, American Century Intl Growth (TWIEX), and also opened a non-retirement account with Oakmark International (OAKIX).

Dodge & Cox International Stock has done the best for us. American Century Intl Growth has been decent but nowhere near the performance of the Dodge and Cox fund.

Oakmark International had been going gangbusters until last December when it took a big hit.  I had been debating between the Oakmark fund and the Vanguard Total International Stock Index Fund (VGTSX) back in early 2003. 

Our financial advisor recommended Vanguard but I went with Oakmark instead.  As the graph shows, I’d be wealthier if I’d have listened to her, I guess hindsight is 20/20.  The Total International Stock Index Fund is actually composed of investments in three other Vanguard international indexes:

• Vanguard European Stock Index Fund
• Vanguard Pacific Stock Index Fund
• Vanguard Emerging Markets Stock Index Fund

The fund is a simple way to gain exposure to a variety of markets all over the world.  There are many other international funds available so you have lots to choose from.

One other option I’m considering for investing overseas is opening an account with ETrade to take advantage of their online global trading.  This would be a different approach than the mutual fund route which would require more research and carry more risk.  It would allow me to invest directly in companies in Canada, France, Germany, Hong Kong, Japan and the United Kingdom.

International Investing Summary
Whatever approach you decide to take, I’d recommend at least reading up on the growth of economies outside our borders and how you can invest in them.  As I mentioned in the beginning, the long term trend is that international companies are growing to compose more and more of the investment options available to you and all the other investors in the world.  In order to diversify your portfolio and benefit from global growth consider taking a look at your international investment options.

Even Though Real Estate is Gloomy, Opportunities Will Present Themselves

The negative news in the real estate market continues. Every week it seems like a new report is out highlighting record drops in home sales, lower home prices, and more difficulties in obtaining a loan. For those who already own a home, or are trying to sell their home, this is obviously a difficult time. I don’t want to dismiss the hardship that this crisis has created, but I am glass is half full kind of guy, so I wanted to highlight some of the positive aspects of what is going on.

Looking Ahead a Few Years

When will the real estate market settle down? That is the million dollar question right now, and there are a lot of different thoughts. And to make things more difficult, some areas of the country will begin to rebound faster than others, so without a crystal ball, the best we can do is guess. That being said, I think it’s fair to say that it will be a while before we see any significant improvement. Whether it’s a year or two, or five years from now, it doesn’t really matter. Trying to pick the absolute bottom is like trying to pick the day the stock market bottoms out. If you’re a little early or little late to the party, you’ll still be fine.

So, if you’re thinking about buying a house in the coming few years, you have a tremendous opportunity in front of you. In many cases, you could buy a home right now at a 25% or more discount from just a year or two ago. As prices continue to fall in coming months and years, you should find even steeper discounts. The good news is that there is no rush in buying. Even if home prices do begin to stabilize earlier than expected, they won’t immediately spike back up, especially with the excess inventory out there. This means that you’ll have a pretty long window of time where you should be able to buy your home without being concerned about skyrocketing prices or strong demand.

Start Getting Your Credit in Order Today

Even if you don’t plan on buying a home for another few years, it is never too early to begin thinking about your credit score and the effect it will have on your ability to secure lending. Banks have learned their lessons (at least I hope so), and that means we’re returning to times where credit is harder to get, and those with poor credit will find it extremely difficult to obtain financing, or may pay a significantly higher interest rate. This makes having a clean credit history more important than ever.

When it comes to improving your credit score, it’s important to have time. This is why it’s a good idea to start planning as early as possible. For one, if you have negative marks on your credit report, the only thing that will remove them is time. In most cases, seven years, or ten if a bankruptcy. So, check your credit report and look for negative marks. How long ago were they? If you have a late payment showing up five years ago and think you’ll be buying a house in about three years, it looks like that would be removed, and improve your score once it’s time to apply for a loan.

Even if you do have more recent dings on your score, the good news is that their importance diminishes over time, so that is still in your favor. Just make sure you don’t make any more late payments! In addition, if you have a few years yet and you currently have very little credit, you have time to open or close lines of credit as needed in order to maximize your score. Remember, length of credit history is also very important, as well as what types of credit you have, and the credit utilization. This gives you time to maximize those aspects of your report as well. Use this time wisely, and don’t wait until just before applying for a loan to begin thinking about your credit score. And don’t forget to check out these tips on how to improve your credit score.

Think About the Down Payment

In the past, it was common to put 20% down on a home. In the 90s, with rapidly increasing home prices and easy access to credit, this became less common, and many people were able to get attractive financing with little or even no money down. Of course, when your home is expected to increase in value by 20% each year, it made sense. As we’ve seen lately, having equity in your home from day one has many advantages, especially when it becomes clear that home values don’t always increase each year. Not only that, but putting 20% down can get you out of paying private mortgage insurance, or PMI. This keeps your monthly payments low, and helps you put more money in your pocket.

That being said, more banks are now requiring money down. There are still plenty of offers out there for zero or low down payment loans, but you’ll need even higher credit scores, and might pay a premium for those loans. Bringing money to the table will help you if you have less than perfect credit, and will help ensure you’re getting the best rate.

This doesn’t mean you have to spend years and years trying to scrape together $50,000 or more, but you have enough time to begin thinking about a down payment and to start saving up now. If you’re looking at a home purchase in the next few years, just saving a couple hundred a month can make a good dent in your down payment over time. Again, time is on your side here, and the sooner you can begin taking advantage, the better off you’ll be.

Don’t Screw This Up

If you don’t own a home and want to buy, or are thinking about upgrading in the coming years, this is a tremendous opportunity. You have just enough time to get your financial house in order so that you will be able to take advantage of the decline in home prices. Use this time wisely, and don’t screw it up. If you wait until the last minute, you’ll miss out on plenty of areas where you could maximize your purchase.

And above all, don’t make the same mistakes people have made in the past. Once the economy begins to recover, the stock market takes off, and home prices begin to rise again, it’s easy to forget about what got us into this mess. Remember, you buy a home for a place to live first and foremost. Find a home that is suitable for your needs, and understand exactly how much home you can truly afford. Don’t borrow too much, and don’t put yourself at further risk by taking on an exotic mortgage. And most of all, don’t go into your home purchase expecting the value to double in five years.

If you plan ahead, stick to the basics, and don’t get greedy, you’ll find yourself in a fantastic position. You’ll have a nice roof over your head, you’ll be able to weather future economic troubles, and since you were able to buy at a significant discount, you might even stand to make some money when you sell in the future. Opportunities to learn from past mistakes and to take advantage of relatively low prices don’t come along that often, so make the most of it.

Image credit: TheTruthAbout

Prospective Home Buyers, This is an Opportunity of a Lifetime - Don’t Screw it Up

With the whole mortgage meltdown and ensuing credit crisis, there is plenty of blame to go around. Even with shady lenders, complex loans, and loose lending requirements, most of this could have been avoided if people took the time to read, and more importantly, understand what they were signing. Most people simply don’t want to spend the time to sit there and read all of the fine print and those who do actually read it may not fully understand everything.

Don’t Be Embarrassed if You Don’t Understand

When someone explains something technical or difficult to grasp and then asks, “Do you understand?”, the response is typically “yes.” Either it is because you want to get through the process quickly, you don’t think it is very important, or you don’t want to feel embarrassed that you don’t understand a concept. This could end up being a costly mistake. If you don’t understand something or if you see conflicting information, it is in your best interest to stop and ask questions. It’s much easier to take a moment before signing to get clarification than to learn the hard way at some point in the future.

Information Included in the Fine Print

Most people are concerned with a few key areas of a loan such interest rate and length of the loan, but it is within the fine print of the promissory note or security agreement that contains the information that can really cost you money. The most common information included throughout the text will include:

• The promise you make to pay the lender a certain amount of money plus the agreed to interest rate.
• Whether the interest rate is fixed or variable — if variable, when does the rate change and by how much.
• The payment schedule.
• Charges for late payments.
• Any applicable grace period.
• If the loan can be paid off early and if any penalties are incurred for doing so.
• Whether or not security or collateral is required.
• Whether or not the loan can be extended.
• What happens if you default.
• What happens if you pay with a bad check.
• Can the lender take money from other accounts you may have with them to repay the loan.
• Who pays legal fees and collection costs.

Don’t Sign Anything Until You Completely Understand

While it pays to make sure you get a good interest rate with good terms, it is equally important to make sure you understand everything about the loan even if you don’t think it will ever apply to you. You have nobody to blame but yourself if you make a late payment and find out there is a $40 late fee. It would come as no surprise if you took the time to understand what you agreed to. In the event of a problem with your account, ignorance is not a defense. It may seem like a waste of time to spend an extra ten or fifteen minutes to read multiple pages of small text, but it could end up saving you money or problems somewhere down the line.

And finally, don’t feel pressured by the person sitting across the table who’s urging you to sign. Not everyone is out there trying to trick you into a shady loan, but you shouldn’t feel rushed if they are just trying to quickly get you through the process. They can wait, and you should take as much time as you need. If they brush off certain sections saying it isn’t important, just explain that you want to take a moment to look it over. A couple extra minutes will ensure that you aren’t missing some key terms on the loan and help you completely understand what to expect, and what the consequences will be if something goes wrong.

Read the Fine Print Before Signing Any Loan - You Might be Surprised at What’s in There

By all accounts it seems the banking lobby will get everything they’ve been ask for from Congress over the past decade and in do so may legislate mortgage brokers out of existence.

A little history lesson is in order to understand all the political and media spin designed to sway their and public opinion away from mortgage brokers the banking industry orchestrated for the last 10 plus years.

During the 70’s and early 80’s, banks dominated originations carving out a whopping 80% of the retail loan applications. Brokers quickly picked up the slack and by the early 90’s the numbers reversed. The market, especially real estate investors, liked the idea of a personal mortgage broker who understood their goals scouring the landscape for the best products and rates.

Banks have never been know for the best customer service or pricing and the public punished them by fleeing to the broker community. During this time brokers enjoyed about 75% of all originations leaving the crumbs for the banks.

They didn’t take that lying down. The quickly got their lobbyists working on legislation that passed in 1999 to poison the market against broker by demanding brokers show their “yield spread premium” income while the banks were allowed to hide their own. The thought was the public upon seeing this often times enormous “profit” that was heretofore hidden would put brokers in a bad light with consumers and they would come running back to the banks.

It didn’t happen.

As it turns out consumer either didn’t know or didn’t care. Some critics ( myself included) would say the brokers decided one “dirty trick” deserved another and devised ways of obfuscating the YSP. After all banks were getting away with setting up an un-level playing field in the first place so they could claim they were just “evening the score”.

Undaunted in their pursuit of the killing off their competition, many believe the banks decided upon a “scorched earth” plan to rid themselves of retail mortgage competition once and for all.

The Plan was one they pulled from the S&L playbook a decade earlier. Give the mortgage brokers just enough rope to hang themselves just like the Savings and Loans did.

Remember the Savings and Loan crisis of the late 80’s?

Banks wanted the S&L’s out of the way back then too. When a few greedy large S&L’s decided they wanted “deregulation” so they could make commercial loans it was the banking lobby who helped them get it.

At the time it seemed like “strange bedfellows”, but it only took a few years to see the banking industry genius behind their “assistance. They knew the S&L’s were unprepared to thwart their own greed and would create a “banking and real estate crash” lawmakers and the public would rightfully lay at their doorstep.

All the banks had to do this time around was find an equally stupid idea, attach a lot of money to it, and let the brokers commit a little “banker-assisted” suicide.

Enter the subprime loan.

Bankers priced them, marketed them, and feed them to a stupid, greedy bunch who cobbled them down with out the knowledge they’d just been had.

It worked.

Lawmakers and the public are clearly laying the current real estate and banking debacle at the doorstep of mortgage brokers. Legislation will pass making mortgage brokers all but extinct.

It worked so well that the banks may have succeeded in taking down not only the brokers but the mechanism that put them in business in the first place…the GSEs…Fannie Mae and Freddie Mac.

On Friday there were cries to bailout the GSEs since they too got caught in the bankers web of greed. The infection of subprime losses it seems put both GSEs on tilt. With them out of the way, the broker have no hope of staging a comeback since it’s Fannie and Freddie’s pathway to the money markets that give brokers something to sell.

The banker planted subprime virus not only killed brokers and the GSEs, but will likely kill the real estate industry and economy for the next few years too.

But when the dust settles a few years from now, every one will go to a bank to get a mortgage because that is all that is left.

Mission Accomplished!

If investors thought getting a loan was hard before, just wait. You ain’t seen nothin’ yet.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

Are Mortgage Brokers An Endangered Species?

What now? I’ve put off writing this article for a while. Like many of you out there I’ve watched the Dow retreat in huge, wealth-destroying, multi-hundred-point chunks. Every time it looks like the end is in sight it takes another single-day 5% lurch in the wrong direction. Not a pretty sight.

A couple of weeks ago I attended the annual meeting of the National Association of Business Economists in Washington D.C.. The event featured some interesting speakers, including recent Nobel laureate Paul Krugman and Fed Chairman Ben Bernenke. After a day of hearing smart guys w/ lots of letters after their name wax poetic about credit default swaps, mortgage backed assets, and government bailouts I came away with a single conclusion: no one knows how this thing is going to turn out. There was some suggestion in using the word “bailout” the Treasury did a poor job in selling the $700billion plan to the American public – perhaps “rescue” would have been more appropriate. Krugman added some levity by suggesting some media-friendly nicknames: how about “Bailie May?” Or perhaps “Hanky Panky” after Treasury Secretary Henry Paulson.

So I came away from the three day event with a more profound understanding of my failure to understand this whole mess; but I don’t feel particularly bad about it because no one else really understands it either. Bernenke’s reassuring message: we don’t really know how we’re going to price these distressed assets that the Treasury is gonna be buying with your $700 billion, and we don’t know who we’ll by them from or how we’re going to do it. This will be a trial and error process. But we’ll work it out.

Mmmmmkay. But Bernenke delivers the message with such an aura of academic cool that the audience seemed assured that he’ll succeed in making the best of a bad situation.

So, generally speaking, I’m not feeling to great about all of this. Basically I think we’re headed into one of two possible scenarios:

• Scenario 1: We’re already in a recession but we’ll muddle through. The market is cyclical. This is a particularly brutal cycle we’re dipping into, but fundamentally no different than those we’ve slogged through before. We’ll get some discouraging GDP numbers, the Dow with flit around 9,000 for a while, but eventually the market will give back some of that money it’s taken out of your 401k plan.
• Scenario 2: The wheels are about to come off. The banking system is not just in a superficial funk fueled by poor investor-confidence; it’s really in trouble. As banks write down toxic mortgage backed assets their balance sheets will be fundamentally damaged to the extent that credit will continue to tighten, consequentially decreasing spending, chopping profits, raising unemployment, and fueling foreclosures – which in turn worsens the state of the mortgage backed assets which started the whole mess. Repeat. Deflating prices, which initially feel kinda good (who can argue with $2.50 gas?) accentuates the woes of the business community which will be unable to justify new investments at lower revenue levels, further cutting business spending and jobs, pushing down demand, and deflating prices further. Repeat. Once you’re in this spiral it’s tough to engineer an exit.

Now I think (hope) that we’re in scenario #1. That’s the best case. I don’t think we’re headed towards the meltdown case, but it is something that I worry about. As further evidence that I believe in scenario #1 I recently made two long term trades, buying exchange traded funds (ETF) that track the S&P (RSU) and the Dow (QLD). Someday we’ll look back at 2008 and realize that the dow in the 8,000’s was a buying opportunity.

A few observations:

• You know this already, but if you’re going to need your retirement money in the next few years then you can’t have it socked away in the stock market.
• If your company 401k plan automatically loads you up with company stock, then you need to periodically go in and rebalance. I never cease to be amazed at smart, educated folks who have 40% of their wealth in a single stock. This is goofy.
• Rethink “diversification”. I have stocks divided between small-cap funds, large-cap funds, value funds, growth funds, and international funds. They’re all in the same toilet now. One lesson of the current crisis is that markets are now linked like they’ve never been linked before.

And yes, this is a real estate blog, so a few thoughts here:

• Hooray for Texas: We didn’t run up during the boom so we’re not getting whacked right now, but I’m expecting flat prices for a while. My strategy for finding and investing in long-term value projects is treating me pretty well right now. Plus, that’s a hunk of money I have in properties instead of in the stock market. This is effective diversification.
• Some markets really are feeling the pain. I was in Minneapolis last weekend, and as I walked the streets of some of these neighborhoods it seemed like every third house was a foreclosure. It’s gonna take a while for the market to absorb this carnage.
• All real estate is local – that is, unless the economy is melting down. I won’t be feeling so smug about Texas property values if we got into the doomsday economic scenario that I outlined above. If the banking system goes into the tank then we’re all gonna be in the same boat.
• A buying opportunity? I’m nervous about our economy, but I’m not quite ready to bury my life savings in coffee cans in my back yard. Investors who can still get loans should think about investing now, depending on how your local market conditions look.

Since reading some comments on my last post, I had been thinking about what this whole deal with “personal finance” is about; is it about making the most amount of money? or is it about saving the most amount of money? or is it about spending the least amount of money? or is it about reducing stress due to money matters? or is it about this obscure concept called “financial freedom”?

The more I think about it, the less specific I get about possible “correct” answers to that question. In fact, looking back at my life, it seems that at different times, a different answer suited me depending on my financial and personal situation at that time.

What came out of this thought process was the realization that personal finance is not just about “maximizing money” - as I used to think earlier - and like most people probably think about it.

It’s not about maximizing. It’s about optimizing.

Given a financial situation, personal finance is about making the best of that situation. Sometimes it means trying to make as much money as you can, and at other times it means trying to make your money work to make you more efficient by reducing your stress, and at some other times it means that you save every penny to make sure that your children don’t inherit your burden of debt.

There is nothing wrong in trying to “maximize money”, but it is important to realize that, depending on your personal situation, there are costs (in terms of stress and time) associated with trying to do that.

Examples are numerous (but vague and difficult to explain) in this area, but a simple one would be to think of a job in which you are paid overtime. Every extra hour you work might mean that you will become richer than the previous hour, but it does not mean that you would be stress-free - or that you would be able to devote enough time to your family. If you overdo it, it wouldn’t be too hard to make yourself and your family feel miserable even with the extra money you earn.

Working your ass off for a few extra bucks might be a good idea when you are a bachelor with hardly any cares in the world, but if you are a family man, then you might be better off by working a little less in lieu of spending a little more time with your family. Now, just because you gave up that little extra money to spend time with your family or to reduce your stress, it does not mean that you are careless or frivolous with your personal finances. In other words, just because you chase every penny, it does not mean that you are an epitome of financially astute people.

In general, for the sake of the betterment of the whole universe and your own self, try optimizing your money instead of maximizing it. It also helps to reevaluate our understanding of “personal finance” in perspective of our changing personal situation and revise our money-chasing efforts accordingly.

Duh!