The Word of God tells us to know the state of our flocks (see Prov. 27:23), which means to know the state of our affairs. The first step is to assess your financial condition.
Go to my Web site (www.catherineeagan .com/freefinancialinfo.html) for a free personal financial statement, and then complete it. List all your assets and review their values.
During the last two years, the value of many homes in the U.S. dropped, resulting in equity depreciation. Concurrently, homebuyers in significant numbers obtained no-money-down, interest-only and adjustable-rate mortgages and are now in "upside down" positions. The outstanding mortgage is greater than the value of the house.
Equity depreciation is made worse by negative amortization—a situation that occurs when the mortgage payment does not cover the interest and principal payment. The unpaid difference is added onto the back of the mortgage, causing the outstanding balance on the mortgage to increase monthly rather than decrease.
Spring-cleaning is a very good time to evaluate the appropriateness of your current mortgage, particularly in light of the following data provided in a Barron's article by Lon Witter:
- 32.6 percent of new mortgages and home-equity loans in 2005 were interest only, up from 0.6 percent in 2000
- 43 percent of first-time home buyers in 2005 put no money down
- 15.2 percent of 2005 buyers owe at least 10 percent more than their home is worth (negative equity)
- 10 percent of all homeowners with mortgages have no equity in their homes (zero equity)
- $2.7 trillion in loans will adjust to higher rates in 2006 and 2007
- 323,102 properties nationwide entered some stage of foreclosure in the first quarter of 2006, a 72 percent year-over-year increase from the first quarter of 2005 and a 38 percent increase from the previous quarter, according to the RealtyTrac U.S. Foreclosure Market Report.
These statistics are compelling and warrant evaluation to keep more money in your pocket.
Day 2: Review monthly statements and expenses. This includes bank statements, credit card statements, investment reports and recurring bills such as those for utilities and telephone service.
On itemized statements, look for any accounting errors or inappropriate fee charges. Last year alone, credit card companies made $17.1 billion in penalty fees, according to USA Today. Credit card companies can waive fees as a courtesy for over-the-limit, late and sometimes renewal fees.
Review your credit card interest rates. They are negotiable, particularly if you have a timely payment history in the last 12 months.
In the Bible, James encourages us to ask; you have not because you ask not (see James 4:2). Check competitive rates at www.bankrate.com.
Day 3: Analyze annual documents. These include your Social Security statements, home/condo/apartment insurance policies, health and disability insurance coverage, life insurance policies, credit report and tax returns.
Get your Social Security Report by going to www.ssa.gov/mystatement. Oftentimes, my clients notice inaccuracies upon receipt of the statement. Waiting until retirement to prove to the Social Security Administration that you actually earned income is a formidable task. Verifiable income statements such as W-2s, 1099s and old tax returns aren't always easy to locate. Don't leave money on the table.
Insurance policies are important. The Word of God says, "A wise man hides himself while the simple keep going and suffer" (see Prov. 22:3). Though we are to put our trust in God, life, health, disability and other types of insurance allow for transferences of risk.
Their purpose is to share or shift risk to optimize and maximize the use of our capital. Review deductibles, limits, expirations and loans against whole-life policies settlement clauses to know where you stand.
Shop for competitive policies online. Make sure that beneficiaries are accurate on all policies.
Credit scores are as valuable as money. The median FICO score is 723. Anything less will cost you money in interest rates, mortgages, car loans, insurance policies, loans, business opportunities and today even employment. (FICO is an acronym for the Fair Isaac Corporation, a leading source for calculating and reporting credit scores.) MyFICO.com is a great Web site with tools to help you understand how the score is determined and how to clean it up.
If you have an excellent score, maintain it aggressively, check your credit report annually, and guard against identity theft, a rapidly growing crime.