Florida law requires debt collectors to:
Send a written notice within five days after you are first contacted, telling you the amount of money you owe. The notice must also specify the name of the creditor to whom you owe the money and what action you should take if you believe you do not owe the money.
Limit their calls to reasonable times, such as before 8 a.m. or after 9 p.m., unless you agree to a different time.
Stop contacting you if you write a letter to the agency telling them to stop. Once the agency receives your letter, they may not contact you again except to say there will be no further contact, or to notify you if the debt collector or the creditor intends to take some specific action, such as file a lawsuit.
Stop contacting you if you say you don't owe the money unless they send proof of the debt, such as a copy of the bill. Also, a debt collector can not harass or abuse anyone. They cannot:
Use threats of violence against the person, property or reputation.
Use obscene or profane language.
Advertise the debt.
Repeatedly or continuously make telephone calls with the intent to harass or abuse the person at the called number.
Tell you that you will be arrested if you do not pay; that they will seize, garnish, attach, or sell your property or wages unless the collection agency or creditor intends to do so and has a legal right to do so; or that a lawsuit will be filed against you, when they have no legal right to file or do not intend to file such a suit.
Also, debt collectors must accurately disclose their identities to the person at the called number. They may not use false statements, such as falsely implying that they are attorneys, that you have committed a crime, or that they operate or work for a credit bureau or misrepresenting the amount of your debt. They cannot indicate the involvement of an attorney in collecting a debt or indicate that papers sent to you are legal forms when they are not.
The Florida provisions are similar to those in place nationally under the Fair Debt Collection Practices Act.
sexta-feira, 18 de setembro de 2009
segunda-feira, 14 de setembro de 2009
O Brasil melhorou?
por Cláudia Trevisan.
O Brasil se tornou uma das coqueluches dos mercados internacionais e não há seminário no qual o país não receba elogios de economistas encarregados de aconselhar os endinheirados do mundo.
Cada vez que escuto essas análises, me pergunto o quanto a vida real dos milhões de brasileiros realmente melhorou. Estive em São Paulo há um mês e a sensação é a de que todos os dramas cotidianos continuavam intactos: a escandalosa desigualdade de renda, a pobreza gritante e a violência que paira sobre todos.
Sei que a renda aumentou e a desigualdade diminuiu, mas a distância que estamos de um patamar minimamente decente é tão grande que o país não poderia se dar ao luxo de não ter um sentido de urgência para enfrentar essas questões.
Na semana passada estive em Dalian, cidade do nordeste da China, para cobrir o encontro de verão do Fórum Econômico Mundial que realiza sua reunião mais célebre em Davos, na Suíça, durante o inverno europeu.
O Brasil foi um dos destaques positivos do relatório sobre competividiade da instituição, que basicamente mede a capacidade dos países de crescerem de maneira sustentável e eficiente e, assim, melhorarem a renda e a qualidade de vida de seus habitantes.
O Brasil subiu impressionantes oito posições e foi apontado como uma das nações que devem sofrer menos com a crise atual, ao lado de China e Índia, que tiveram melhoras mais modestas no ranking, de apenas uma posição. Mesmo com o salto, o Brasil está em 56º lugar em um universo de 133 países pesquisados, atrás da China (29º) e da Índia (49º). Entre os BRICs, só a Rússa aparece em pior posição, 63ª.
Mas o que chama atenção na performance brasileira são os setores onde o país NÃO melhorou ou avançou muito pouco: educação primária, saúde e segurança, essenciais para mudar a maneira como a população experimenta sua vida cotidiana. Todas são áreas básicas, sem as quais o Brasil não poderá ir muito longe, por mais sofisticado que seja seu sistema financeiro e seu mercado de capitais.
No quesito saúde e educação primária, o Brasil permaneceu na mesma posição em que estava no ano passado, a 79ª em um universo de 133, atrás de países como México (65), Malásia (34), Tailândia (61) e Colômbia (72). Entre os BRICs, o Brasil está atrás da China (45) e da Rússia (51), ganhando apenas da Índia (101). O país aparece em 93º lugar no item segurança, dentro do qual o “crime organizado” nos coloca em 111º.
Como disse a economista Jennifer Blanke, uma das autoras do trabalho, o Brasil melhorou em áreas mais sofisticadas e avançou pouco ou nada nas mais elementares. O país ficou em 91º nos chamados “requisitos básicos”, que englobam instituições, infraestrutura, estabilidade macroeconômica e saúde e educação primária. É a pior posição entre os integrantes dos BRICs _a China aparece 36º lugar, a Rússia em 64º e a Índia em 79º.
“É difícil avançar no resto sem melhorar a qualidade da educação primária”, disse Blanke. O país também não avançou no quesito “educação superior”, ainda que registre posição mais alta, 58ª, a mesma que ocupava no ano passado.
No item “ética e corrupção” amargamos a 125º posição, o que deixa apenas sete países em situação pior. A ineficiência do poder público é outro flanco aberto, no qual estamos na 120º posição.
Os terrenos onde o Brasil avançou são importantes, mas estão a anos luz de distância dos moradores da favela de Heliópolis, em São Paulo, ou da Rocinha, no Rio. No item “mercados financeiros”, o país escalou 13 posições, para o 51º lugar, enquanto o uso de tecnologia subiu 10 pontos, para a 46ª posição.
Outra área em que o Brasil saltou 13 posições foi a “estabilidade macroecômica”, que inclui o tamanho da dívida pública em relação ao PIB, déficit público e inflação. Mas mesmo com a melhoria, nós estamos na 109ª posição, com apenas 24 países em situação pior.
O Brasil se tornou uma das coqueluches dos mercados internacionais e não há seminário no qual o país não receba elogios de economistas encarregados de aconselhar os endinheirados do mundo.
Cada vez que escuto essas análises, me pergunto o quanto a vida real dos milhões de brasileiros realmente melhorou. Estive em São Paulo há um mês e a sensação é a de que todos os dramas cotidianos continuavam intactos: a escandalosa desigualdade de renda, a pobreza gritante e a violência que paira sobre todos.
Sei que a renda aumentou e a desigualdade diminuiu, mas a distância que estamos de um patamar minimamente decente é tão grande que o país não poderia se dar ao luxo de não ter um sentido de urgência para enfrentar essas questões.
Na semana passada estive em Dalian, cidade do nordeste da China, para cobrir o encontro de verão do Fórum Econômico Mundial que realiza sua reunião mais célebre em Davos, na Suíça, durante o inverno europeu.
O Brasil foi um dos destaques positivos do relatório sobre competividiade da instituição, que basicamente mede a capacidade dos países de crescerem de maneira sustentável e eficiente e, assim, melhorarem a renda e a qualidade de vida de seus habitantes.
O Brasil subiu impressionantes oito posições e foi apontado como uma das nações que devem sofrer menos com a crise atual, ao lado de China e Índia, que tiveram melhoras mais modestas no ranking, de apenas uma posição. Mesmo com o salto, o Brasil está em 56º lugar em um universo de 133 países pesquisados, atrás da China (29º) e da Índia (49º). Entre os BRICs, só a Rússa aparece em pior posição, 63ª.
Mas o que chama atenção na performance brasileira são os setores onde o país NÃO melhorou ou avançou muito pouco: educação primária, saúde e segurança, essenciais para mudar a maneira como a população experimenta sua vida cotidiana. Todas são áreas básicas, sem as quais o Brasil não poderá ir muito longe, por mais sofisticado que seja seu sistema financeiro e seu mercado de capitais.
No quesito saúde e educação primária, o Brasil permaneceu na mesma posição em que estava no ano passado, a 79ª em um universo de 133, atrás de países como México (65), Malásia (34), Tailândia (61) e Colômbia (72). Entre os BRICs, o Brasil está atrás da China (45) e da Rússia (51), ganhando apenas da Índia (101). O país aparece em 93º lugar no item segurança, dentro do qual o “crime organizado” nos coloca em 111º.
Como disse a economista Jennifer Blanke, uma das autoras do trabalho, o Brasil melhorou em áreas mais sofisticadas e avançou pouco ou nada nas mais elementares. O país ficou em 91º nos chamados “requisitos básicos”, que englobam instituições, infraestrutura, estabilidade macroeconômica e saúde e educação primária. É a pior posição entre os integrantes dos BRICs _a China aparece 36º lugar, a Rússia em 64º e a Índia em 79º.
“É difícil avançar no resto sem melhorar a qualidade da educação primária”, disse Blanke. O país também não avançou no quesito “educação superior”, ainda que registre posição mais alta, 58ª, a mesma que ocupava no ano passado.
No item “ética e corrupção” amargamos a 125º posição, o que deixa apenas sete países em situação pior. A ineficiência do poder público é outro flanco aberto, no qual estamos na 120º posição.
Os terrenos onde o Brasil avançou são importantes, mas estão a anos luz de distância dos moradores da favela de Heliópolis, em São Paulo, ou da Rocinha, no Rio. No item “mercados financeiros”, o país escalou 13 posições, para o 51º lugar, enquanto o uso de tecnologia subiu 10 pontos, para a 46ª posição.
Outra área em que o Brasil saltou 13 posições foi a “estabilidade macroecômica”, que inclui o tamanho da dívida pública em relação ao PIB, déficit público e inflação. Mas mesmo com a melhoria, nós estamos na 109ª posição, com apenas 24 países em situação pior.
segunda-feira, 29 de junho de 2009
Investors bet on Detroit housing market
Real estate investors are flocking to Motor City for bargain housing prices.
NEW YORK (CNNMoney.com) -- As Detroit home prices crash, sales are heating up. But with all of the plant closings and layoffs, who's buying? Investors -- some of whom are snapping upfive and 10 houses at a time.
"I have investors from all over the country and the world," said Jeremy Burgess, co-founder of Urban Detroit Wholesalers, which buys undervalued homes to rehab and rent or to sell to other investors. "One Lithuanian woman just bought a second house."
"Most of the local investors are out of money," added Mike Shannon, who specializes in Detroit foreclosures and has clients from New Zealand, Australia, England and other places.
Recently a Californian purchased 178 properties, mostly one at a time, and most for under $10,000. Another has purchased six Detroit properties since September and hopes to begin buying five a month.
"The capital needed to get in the Detroit market is so low," said Jason Imbruglio, a 29-year-old from Tacoma, Wash., who has bought three homes so far.
Two years ago, he paid $12,000 for a two-family house with two bedrooms and a bath in each unit. He spent $18,000 repairing it for a total cost of about $30,000. Imbruglio has kept tenants in both apartments most of the time and charges $1,100 a month. After taking into account the 10% he pays a management company, plus utilities, property taxes and maintenance costs, he says he is making double-digit profits.
Plentiful opportunities
The city's average home price has sunk by a third to less than $80,000. But these cheap houses have got sales jumping, with volume up 23% in April compared with April 2008.
And there is no secret to finding cheap properties. Burgess said he buys through regular sellers and other investors and off the local multiple listing service.
Many are buying in buying in bulk, snapping up properties bundled together and sold by lenders. However, that is becoming less lucrative, according to Burgess. "The quality of the bulk stuff is significantly lower than it was a year ago," he said. "Back them 70% of the houses bought in bulk were nice. Now, 80% or 90% are not."
What he focuses on when selecting properties is the neighborhood. He looks to own in some of the city's stable, blue-collar communities with high homeownership rates, such as Warrendale, University District and Grandmont.
"In the good areas, rents are actually going up," said Burgess. "I just had a house rent for $950 that I was thinking I would get $850 for."
The bad areas, ones with vacant homes and foreclosed properties, such as the Brightmoor district, are no-go zones for Burgess. Rents and values are low in those communities -- and falling.
"I wouldn't touch anything, not even for a dollar, in those areas," he said.
Making it work
In general, Shannon said investors are "looking for long-term investment of five to 10 years. They sock away some profits [on rentals] and wait for prices to appreciate."
To make sure they have a steady rent roll, some investors are getting their properties qualified to be Section 8 housing, which is the housing voucher program run by the federal government to help low-income families. Under this program, some tenants can rent units in private housing with the government picking up part or all of the cost, which must be "fair-market rent."
"You put in a Section 8 tenant and collect $850 to $1,200 a month on a three-bedroom home," said Shannon, who specializes in foreclosure properties.
Another option is to work with local nonprofits to sell rehabbed units to credit-damaged - but worthy - buyers. These organizations identify families and offer them credit-repair counseling and assistance finding an affordable financing so that they can buy the investors' rehabbed properties.
"We shifted away from speculative investing into restoring affordable housing," said investor David Butler, who buys through Burgess.
The deals are often structured like a lease-option contract, with the tenant/buyers paying rent on the property plus a premium charge that is applied to the future sale price. They buyers complete the purchases when they get affordable mortgage loans.
To keep costs down, Butler looks to pay no more than $45,000 for a property, including repairs and any back taxes. When finished these homes typically appraise for about $80,000. Because his company partners with a nonprofit, it accepts narrower margins, about 12%. Normally, buy-rehab-flip investors prefer margins of 35% or more.
NEW YORK (CNNMoney.com) -- As Detroit home prices crash, sales are heating up. But with all of the plant closings and layoffs, who's buying? Investors -- some of whom are snapping upfive and 10 houses at a time.
"I have investors from all over the country and the world," said Jeremy Burgess, co-founder of Urban Detroit Wholesalers, which buys undervalued homes to rehab and rent or to sell to other investors. "One Lithuanian woman just bought a second house."
"Most of the local investors are out of money," added Mike Shannon, who specializes in Detroit foreclosures and has clients from New Zealand, Australia, England and other places.
Recently a Californian purchased 178 properties, mostly one at a time, and most for under $10,000. Another has purchased six Detroit properties since September and hopes to begin buying five a month.
"The capital needed to get in the Detroit market is so low," said Jason Imbruglio, a 29-year-old from Tacoma, Wash., who has bought three homes so far.
Two years ago, he paid $12,000 for a two-family house with two bedrooms and a bath in each unit. He spent $18,000 repairing it for a total cost of about $30,000. Imbruglio has kept tenants in both apartments most of the time and charges $1,100 a month. After taking into account the 10% he pays a management company, plus utilities, property taxes and maintenance costs, he says he is making double-digit profits.
Plentiful opportunities
The city's average home price has sunk by a third to less than $80,000. But these cheap houses have got sales jumping, with volume up 23% in April compared with April 2008.
And there is no secret to finding cheap properties. Burgess said he buys through regular sellers and other investors and off the local multiple listing service.
Many are buying in buying in bulk, snapping up properties bundled together and sold by lenders. However, that is becoming less lucrative, according to Burgess. "The quality of the bulk stuff is significantly lower than it was a year ago," he said. "Back them 70% of the houses bought in bulk were nice. Now, 80% or 90% are not."
What he focuses on when selecting properties is the neighborhood. He looks to own in some of the city's stable, blue-collar communities with high homeownership rates, such as Warrendale, University District and Grandmont.
"In the good areas, rents are actually going up," said Burgess. "I just had a house rent for $950 that I was thinking I would get $850 for."
The bad areas, ones with vacant homes and foreclosed properties, such as the Brightmoor district, are no-go zones for Burgess. Rents and values are low in those communities -- and falling.
"I wouldn't touch anything, not even for a dollar, in those areas," he said.
Making it work
In general, Shannon said investors are "looking for long-term investment of five to 10 years. They sock away some profits [on rentals] and wait for prices to appreciate."
To make sure they have a steady rent roll, some investors are getting their properties qualified to be Section 8 housing, which is the housing voucher program run by the federal government to help low-income families. Under this program, some tenants can rent units in private housing with the government picking up part or all of the cost, which must be "fair-market rent."
"You put in a Section 8 tenant and collect $850 to $1,200 a month on a three-bedroom home," said Shannon, who specializes in foreclosure properties.
Another option is to work with local nonprofits to sell rehabbed units to credit-damaged - but worthy - buyers. These organizations identify families and offer them credit-repair counseling and assistance finding an affordable financing so that they can buy the investors' rehabbed properties.
"We shifted away from speculative investing into restoring affordable housing," said investor David Butler, who buys through Burgess.
The deals are often structured like a lease-option contract, with the tenant/buyers paying rent on the property plus a premium charge that is applied to the future sale price. They buyers complete the purchases when they get affordable mortgage loans.
To keep costs down, Butler looks to pay no more than $45,000 for a property, including repairs and any back taxes. When finished these homes typically appraise for about $80,000. Because his company partners with a nonprofit, it accepts narrower margins, about 12%. Normally, buy-rehab-flip investors prefer margins of 35% or more.
Plenty Savings, no investing strategy
The problem: They have way too many funds, but not enough diversification
(Money Magazine) -- The Aquinos live by a simple rule: "If we can't pay for something, we don't buy it," says Liz, 34. In the eight years she and Tony, 36, a systems engineer, have been married, the couple have socked away more than $400,000.
Their goal is a comfortable retirement for themselves and college for little ones A.J., 3, and Annabelle, 1, while still allowing Liz, a former school-teacher, to stay home with the kids.
But although they have the saving side of the equation in order, their investment plan is in disarray. It's not that the couple got off to a slow start. They just never decided on a game plan.
Instead, the Aquinos read stories about hot funds and grabbed them up. As a result, they are now sitting on a hodgepodge of more than five dozen once-popular funds, many of which own the same stocks.
With so many holdings, says Liz, "it's difficult to keep track of whether our portfolio is too heavy in one sector or if we have an appropriate mix."
The solution
1. Diversify their strategy. This couple can afford to be aggressive, keeping 80% of their money in stocks and 20% in bonds, says planner Gordon Bernhardt of McLean, Va. But they need to boost their stake in small-cap funds and foreign holdings.
2. Trim their portfolio. The Aquinos are in 62 funds, 18 of which own GE shares. They can pare that list to about a dozen by selling high-cost holdings and funds sitting on losses. The planner also suggests replacing some holdings with low-cost iShares ETFs, which can be bought through their brokerage.
3. Roll over old 401(k)s. To further simplify, the Aquinos should roll over Tony's old 401(k)s into an IRA. That will also give them better fund choices.
(Money Magazine) -- The Aquinos live by a simple rule: "If we can't pay for something, we don't buy it," says Liz, 34. In the eight years she and Tony, 36, a systems engineer, have been married, the couple have socked away more than $400,000.
Their goal is a comfortable retirement for themselves and college for little ones A.J., 3, and Annabelle, 1, while still allowing Liz, a former school-teacher, to stay home with the kids.
But although they have the saving side of the equation in order, their investment plan is in disarray. It's not that the couple got off to a slow start. They just never decided on a game plan.
Instead, the Aquinos read stories about hot funds and grabbed them up. As a result, they are now sitting on a hodgepodge of more than five dozen once-popular funds, many of which own the same stocks.
With so many holdings, says Liz, "it's difficult to keep track of whether our portfolio is too heavy in one sector or if we have an appropriate mix."
The solution
1. Diversify their strategy. This couple can afford to be aggressive, keeping 80% of their money in stocks and 20% in bonds, says planner Gordon Bernhardt of McLean, Va. But they need to boost their stake in small-cap funds and foreign holdings.
2. Trim their portfolio. The Aquinos are in 62 funds, 18 of which own GE shares. They can pare that list to about a dozen by selling high-cost holdings and funds sitting on losses. The planner also suggests replacing some holdings with low-cost iShares ETFs, which can be bought through their brokerage.
3. Roll over old 401(k)s. To further simplify, the Aquinos should roll over Tony's old 401(k)s into an IRA. That will also give them better fund choices.
quinta-feira, 19 de fevereiro de 2009
The meaning of living within your means
Below your means? Within? Regardless of the difference, if you follow these simple steps, you're living a financially responsible life.
NEW YORK (Money) -- Question: I've been having an argument with a co-worker about the difference between living "within your means" and living "below your means." I'm hoping you can settle the issue for us. What do see as the difference between the two terms? --Mark E., Peoria, Illinois
Answer: I think the conversations that you and your co-worker are now having touch on an important issue that many Americans are now having to face after more than a decade of frenzied borrowing and spending -- namely, the need to downsize a lifestyle that's proven to be unsustainable.
Whether it was by racking up huge credit-card balances, taking out mortgages with low teaser rates or using a line of credit to tap the equity in a home, many of us were able to bankroll a way of living that was out of line with what we could actually afford based on our earning power.
But the party has come to an end. And many Americans must now deal with the inevitable hangover. For better or worse, some will get government help. Wednesday, for example, president Obama announced a $75 billion plan aimed at helping up to nine million homeowners avoid foreclosure. Many more people will have to make a variety of other painful adjustments to live a more modest lifestyle, if they haven't begun doing so already, voluntarily or not.
So, to put it in your terms, does that mean more of us will have to live "within our means" or "below our means"?
I don't know of any universally accepted definitions for these concepts. But if by "means" we are referring to someone's resources, I think you could plausibly say that someone living below his means is spending less than he can actually afford to spend given what he earns. Which means he is saving some money. Someone who is living within his means, on the other hand, would be spending all he earns, but no more.
But that distinction is too simplistic. I think it's perfectly reasonable that someone might consider regular saving a necessary annual expense. A person who thinks that way could very well see meeting that expense as a natural part of living within his means, not below his means. In other words, for some people living within their means might automatically assume the need to save.
And there are other issues to consider, such as debt. Suppose you cover all your expenses from earnings and you also manage to save regularly, but a large chunk of your budget goes to make the minimum payment on huge credit-card debts you've racked up. Are you living below your means? Within your means? Above your means?
All of which is to say that I don't think I can settle your argument with your co-worker. Terms like within your means, below your means and above your means can mean different things to different people.
What I can do, however, is throw in another phrase, "leading a financially responsible life" -- which I would loosely define as arranging your financial affairs so that you have the best shot at creating financial security for you and your family now and in the future -- and suggest two actions you should take to lead such a life.
Make regular saving a priority. There are two main reasons you need to save. One is to build a reserve to help you deal with normal financial setbacks such as a layoff or big unanticipated expenses that you can't meet from your salary. To create such a cushion, you've got to plow some money into a secure stash like a savings account, CD or high-quality money-market fund. People can disagree about how much is necessary, but three to six months' worth of living expenses is a reasonable guideline.
But you also need to save so that you can support yourself later in life. You know that at some point you'll no longer be able or willing to work. The only way to assure you'll have resources to fall back on at that time is to spend less than what you earn today so that you can spend it in the future.
Essentially, that's what the Social Security program is all about. The payroll taxes deducted from your paycheck go to current retirees who have previously paid their payroll taxes. But unless you don't mind living on Social Security alone -- which isn't very cushy, as you can see by checking out the Social Security Administration's Retirement Estimator tool -- you also need to save on your own.
Of course, there are other reasons to save: to buy a house, educate yourself or family members, start a business, to name a few. And, admittedly, some people may simply not make enough money to cover even their basic expenses. But such dire circumstances aside, if you're not at least saving regularly for the two main reasons I've mentioned, then you're not being financially responsible.
Control your debt. I like to divide debt into two categories: good debt and bad debt. Good debt is the money you borrow for something you truly need or that can enhance your financial security or that of your family. Here, I'm talking about a mortgage to buy a house, a loan to buy a car, borrowing to fund a college education or a business.
Bad debt is the debt you take on for things you could do without. Tapping home equity to fund lavish vacations would be an example of bad debt.
Of course, the line between good debt and bad debt can get blurry. For example, the money you borrow so you can have a car to get to work certainly would constitute good debt. Borrowing for a $70,000 Statusmobile when you're earning $50,000 would push that debt into the bad category. The same principle applies to buying a more expensive house than you can actually afford, even if some stupid or unscrupulous lender is willing to give you the loan.
By the same token, it's not as if every time you borrow for something that's not an absolute necessity that you're being financially reckless. An occasional splurge is fine; indeed, it can make life more pleasant. While I certainly don't advocate using credit cards as a way to live large, as a practical matter it would be unrealistic for most of us to live our lives completely on a cash basis.
The key when it comes to debt is to avoid clear abuses like borrowing heavily for things you don't need or can't afford and, most important, making sure that you're able to comfortably manage the payments on whatever amount you borrow. People can disagree about what portion of your budget should go to debt service. But I think warning flags should go up once you start devoting 40% or so of your income to repaying debt, if not before. (To see how your debt holdings compare with those of other Americans, check out the debt section of the Fed's Survey of Consumer Finances).
There are certainly plenty more things you can do to improve your financial prospects -- work hard, manage your career, invest prudently, monitor your finances periodically. But if you save on a regular basis and avoid bingeing on debt, you'll be living in a financially responsible way. As for whether this constitutes living within your means or living below them, I'll leave that to you and your co-worker to settle.
NEW YORK (Money) -- Question: I've been having an argument with a co-worker about the difference between living "within your means" and living "below your means." I'm hoping you can settle the issue for us. What do see as the difference between the two terms? --Mark E., Peoria, Illinois
Answer: I think the conversations that you and your co-worker are now having touch on an important issue that many Americans are now having to face after more than a decade of frenzied borrowing and spending -- namely, the need to downsize a lifestyle that's proven to be unsustainable.
Whether it was by racking up huge credit-card balances, taking out mortgages with low teaser rates or using a line of credit to tap the equity in a home, many of us were able to bankroll a way of living that was out of line with what we could actually afford based on our earning power.
But the party has come to an end. And many Americans must now deal with the inevitable hangover. For better or worse, some will get government help. Wednesday, for example, president Obama announced a $75 billion plan aimed at helping up to nine million homeowners avoid foreclosure. Many more people will have to make a variety of other painful adjustments to live a more modest lifestyle, if they haven't begun doing so already, voluntarily or not.
So, to put it in your terms, does that mean more of us will have to live "within our means" or "below our means"?
I don't know of any universally accepted definitions for these concepts. But if by "means" we are referring to someone's resources, I think you could plausibly say that someone living below his means is spending less than he can actually afford to spend given what he earns. Which means he is saving some money. Someone who is living within his means, on the other hand, would be spending all he earns, but no more.
But that distinction is too simplistic. I think it's perfectly reasonable that someone might consider regular saving a necessary annual expense. A person who thinks that way could very well see meeting that expense as a natural part of living within his means, not below his means. In other words, for some people living within their means might automatically assume the need to save.
And there are other issues to consider, such as debt. Suppose you cover all your expenses from earnings and you also manage to save regularly, but a large chunk of your budget goes to make the minimum payment on huge credit-card debts you've racked up. Are you living below your means? Within your means? Above your means?
All of which is to say that I don't think I can settle your argument with your co-worker. Terms like within your means, below your means and above your means can mean different things to different people.
What I can do, however, is throw in another phrase, "leading a financially responsible life" -- which I would loosely define as arranging your financial affairs so that you have the best shot at creating financial security for you and your family now and in the future -- and suggest two actions you should take to lead such a life.
Make regular saving a priority. There are two main reasons you need to save. One is to build a reserve to help you deal with normal financial setbacks such as a layoff or big unanticipated expenses that you can't meet from your salary. To create such a cushion, you've got to plow some money into a secure stash like a savings account, CD or high-quality money-market fund. People can disagree about how much is necessary, but three to six months' worth of living expenses is a reasonable guideline.
But you also need to save so that you can support yourself later in life. You know that at some point you'll no longer be able or willing to work. The only way to assure you'll have resources to fall back on at that time is to spend less than what you earn today so that you can spend it in the future.
Essentially, that's what the Social Security program is all about. The payroll taxes deducted from your paycheck go to current retirees who have previously paid their payroll taxes. But unless you don't mind living on Social Security alone -- which isn't very cushy, as you can see by checking out the Social Security Administration's Retirement Estimator tool -- you also need to save on your own.
Of course, there are other reasons to save: to buy a house, educate yourself or family members, start a business, to name a few. And, admittedly, some people may simply not make enough money to cover even their basic expenses. But such dire circumstances aside, if you're not at least saving regularly for the two main reasons I've mentioned, then you're not being financially responsible.
Control your debt. I like to divide debt into two categories: good debt and bad debt. Good debt is the money you borrow for something you truly need or that can enhance your financial security or that of your family. Here, I'm talking about a mortgage to buy a house, a loan to buy a car, borrowing to fund a college education or a business.
Bad debt is the debt you take on for things you could do without. Tapping home equity to fund lavish vacations would be an example of bad debt.
Of course, the line between good debt and bad debt can get blurry. For example, the money you borrow so you can have a car to get to work certainly would constitute good debt. Borrowing for a $70,000 Statusmobile when you're earning $50,000 would push that debt into the bad category. The same principle applies to buying a more expensive house than you can actually afford, even if some stupid or unscrupulous lender is willing to give you the loan.
By the same token, it's not as if every time you borrow for something that's not an absolute necessity that you're being financially reckless. An occasional splurge is fine; indeed, it can make life more pleasant. While I certainly don't advocate using credit cards as a way to live large, as a practical matter it would be unrealistic for most of us to live our lives completely on a cash basis.
The key when it comes to debt is to avoid clear abuses like borrowing heavily for things you don't need or can't afford and, most important, making sure that you're able to comfortably manage the payments on whatever amount you borrow. People can disagree about what portion of your budget should go to debt service. But I think warning flags should go up once you start devoting 40% or so of your income to repaying debt, if not before. (To see how your debt holdings compare with those of other Americans, check out the debt section of the Fed's Survey of Consumer Finances).
There are certainly plenty more things you can do to improve your financial prospects -- work hard, manage your career, invest prudently, monitor your finances periodically. But if you save on a regular basis and avoid bingeing on debt, you'll be living in a financially responsible way. As for whether this constitutes living within your means or living below them, I'll leave that to you and your co-worker to settle.
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