Your Financial Health vs. Foreclosure
By Michael Delaware, REALTORŪ
In our American consumption based economic environment it is all too easy to go astray on ones finances. One of the greatest omissions in our school systems today is the fundamentals of managing one’s own finances. Too often priorities become inverted, altered or at best poorly executed in determining the best plan of action on personal finances.
A lack of basic financial common sense has led to many of the foreclosed homes we see on the Real Estate market today. When you come across foreclosure notices in a newspaper, have you ever wondered what was at the root of all of these disturbing losses? The missing financial education is at the source. Where does ones financial education come from? Most often parents, friends, family, spouse or it’s a solo invention. This is okay when the advice is well founded, but in many cases it is littered with false information that can lead one off the road, into the trees and sometimes off into the abyss as in the case of foreclosure.
With a foreclosure it is common knowledge that a person did not pay their mortgage payment and fell so far behind that the lender pursued legal action to seize the house and sell it off to recover all or part of the funds loaned to the borrower. Prior to the train going off the tracks, we know that something must have occurred earlier to lead to the disaster.
Lack of common sense basics in prioritizing payments to creditors is among the most common causes. Extravagant out of budget purchases is another. For example, I once met a young couple that bought a house, and within the next year they bought two new cars. Both cars were over $30,000 each, and both required monthly car payment and an increase in insurance. Their payments for their cars were set up on automatic debit from their checking account, and their house payment was not. Each month when the car payments came due, they were paid automatically, and the mortgage became secondary. They were also active members of their bowling team, and bought many uniforms and equipment on charge cards. Any accountant examining their monthly expenses versus their income would have turned purple with anxiety, as they were clearly setting themselves up for economic disaster. This couple did not give any importance to savings, or setting aside reserves. They had no old school financial basics, and often spent more than they earned. They ultimately fell three months behind on their mortgage and went into foreclosure. Ironically enough, their car payments were always on time.
Following a plan each month with ones income and expenses makes sense for long term financial health. Recognizing that your mortgage payment is the most senior of all the bills you pay. It is more important than car payments, trips to the bowling alley, block-busters, the hair dresser and the electronics store. Most importantly not running up debt on credit cards, second mortgages and home equity loans is good advice to avoid future trouble.
At the root of it all is the operating basis of a high consumption lifestyle of buying consumer goods, and not investing in assets and reserves. In short, spending all your earnings, and putting nothing away for tomorrow. For long term financial health, one must work towards building up real assets, and spend less on consumables.
I have a short reading list that I often suggest to friends to help change one’s financial viewpoint.
‘The Millionaire Next Door’ by Thomas J. Stanley, Ph.D. and William D. Danko, Ph.D.
‘Creating Wealth’ by Robert Allen
‘Multiple Streams of Income’ by Robert Allen
‘The Guerrilla Guide to Credit Repair’ by Todd Bierman, Nathaniel Wice and Andrea Coombes
I have always been a firm believer in learning as much as I can from others to improve my own condition. I have a more expanded reading list here at: Michael’s Reading Library
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