Why a Financial Makeover?

Pam & Jack with Chad Burton

Most makeovers deal with superficial issues that are on the surface.  Financial makeovers are different because they focus on what matters, taking the best care of yourself and others.  Money is a key factor in how we achieve that. Statistics tell us that the average American's income is $43,000 per year, with a mortgage that will take 28 years to pay off, a car loan of $13,000 and up to 14 credit cards with a running balance of $8,000.  Most average Americans need to have a financial makeover to make better use of their assets and income to get to their long-term goals.

Pam & David Hall

Pam and David Hall, their three children and their guinea pig live in San Leandro, California.  They have been married for four years and want to send all three of their kids to college.  David has two full-time jobs, working 5:45 a.m. until after midnight each day.  Their house is in need of some repairs.  Pam took out a $20,000 car loan.  With the 12% interest on the loan, the car will end up costing $36,000 by the time it is paid up.  They purchased their home for $400,000 and have $80,000 in equity built up.

Financial expert, Chad Burton, looks at the Hall's situation and tells them that first they must get out of debt and into a positive cash flow.  

Long-Term Result of the Plan

The five step plan that Chad Burton gave to the Halls was created to free up some cash flow to invest for retirement and make some much-needed home repairs.

The Hall's Five Step Plan

1. Get a copy of your Employees Benefits Package.  David found out that he has a pension plan through his company that he did not know about.  His company offers a 401K program, but David is not participating in it.

2. Get an Equity Line of Credit.  This is to pay off all of the Halls' "bad debt," which is any debt that is not tax-deductible and has over 8% interest.  The Equity Line of Credit is tax deductible and has interest-only payments.  This means that the Halls monthly payments for these "bad debts" will go from $880 per month to $300 per month, freeing them up to use the difference to invest in David's 401K plan.

3. Get a Term Life Insurance Policy.  The rule of thumb is to get a policy that is equal to six times your income.  The Halls will need this policy until their youngest child is over 18 years old.

4. Invest Extra Income.  This money is put away in an Emergency Reserve fund and with the rest they will open up a Roth IRA with a No-Load fund.  Click here for more information about No-Load funds.

5. Educate Yourself on Types of Funds Available.  Click here for this information.

Working With The Plan

Tips to Make It Work

1. Obtain credit report.  Report any errors to company.  Your credit score is a three digit number that determines the amount of money you can borrow at what interest rates.  Click here to get information on obtaining free credit reports.

2. Pay bills only with a check or debit card.  Organize family's finances with software program.

Investing 101-Index Funds

Index Funds take the greed and fear out of investing.  They give you market returns at a low cost.  An Index Fund is a mutual fund that invests in the same stocks that make up a well-known Market Index.  Click here for a list of Market Indices.   

Index Funds are lost cost alternatives to other types of Mutual Funds.  Most Mutual Funds charge you 1%-6% per $100, which means you are actually only investing $96 out of each $100.  With Index Funds, you pay twenty cents for every $100, so more of your money actually gets invested.  Click here to find out more about Index Funds.

Scam Alert-Payday Predators in California

Sergeant Christopher Starks
U.S. Marine Corps 

The main Marine installation in the State of California is in Oceanside, California.  That is where Sergeant Christopher Starks, U.S. Marine Corps has gotten himself in a heap of trouble with his payday loans. He uses them to get from paycheck to paycheck. 

Many businesses are offering small, short-term, high-rate loans that go by a variety of names: payday loans, cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.  Most often, a person writes a personal check payable to the lender for the amount he or she wishes to borrow plus a fee. The company gives the borrower the amount of the check minus the fee. Fees charged for payday loans are usually a percentage of the face value of the check or a fee charged per amount borrowed - say, for every $50 or $100 loaned. And, if you extend or "roll-over" the loan - say for another two weeks - you will pay the fees for each extension.

A cash advance loan secured by a personal check - such as a payday loan - is very expensive credit. Let's say you write a personal check for $115 to borrow $100 for up to 14 days. The check casher or payday lender agrees to hold the check until your next payday. At that time, depending on the particular plan, the lender deposits the check, you redeem the check by paying the $115 in cash, or you roll-over the check by paying a fee to extend the loan for another two weeks. In this example, the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.

To combat this abuse of roll-overs by payday lenders, the California Department of Corporations, headed by Commissioner, William Wood, has put the Troops Against Predatory Scams or TAPS program into effect.  The Department of Corporations' TAPS program alerts and educates all military personnel and their families stationed at California's military installations about how to identify and avoid becoming a victim of inappropriate, harmful and fraudulent financial and investment products.  They also encourage military personnel to make formal complaints to possibly recover the interest they paid.  Click here for more information about the TAPS program.