Monthly Archives: March 2007

Getting Out of Debt – New Approach to Calling Credit Card Companies

Have you ever wondered why when you call the credit card companies that you can not get them to lower your interest rate? Why do financial experts make it look so easy to get lower credit card rates while you are just hearing “no”? It may be all in your approach. A few things to think about in deciding how to approach your credit card companies to get your rates lowered are:

Determination

Probably the biggest factor in getting your rates lowered is how determined do you sound. Most advice focuses on making sure that you do not take “no” for an answer and get to the supervisor who has more authority to lower your rate. However, determination is more than just not taking “no” for an answer. If you have children, you know that if you tell a child “no” in a wimpy voice that you are not going to get them to listen to you. The same is true for credit card companies who hear a wimpy “please lower my rate”. Alternatively, some people get angry and bite the head of the person they are talking to think that will get them what they want. However, this may just lead the other person to hang up on you.

Determination is about using a voice where the other person knows that you are not going to take a “no” for an answer. It is a clear, concise and powerful voice that demands respect. One thing that I find interesting is that most people would put calling credit card companies at the top of the list of things to do when it comes to debt reduction. Yet, if you feel overwhelmed by debt and do not have a plan to get out of debt (other than winning the lottery), how empowered do you think you are going to be? You may come off as sounding desperate. If you were a single woman, how would you respond to a guy that sounds desperate for a date (if pity was not involved)? Click.

You usually will feel more empowered when you see that you have a plan to get out of debt even if the credit card companies do not lower their rates (having lower rates will just make it easier). Thus, set up a plan of action first. Look for areas in your budget that you can cut back on so that you can repay the debt. Then when you see that you can repay your debt, call the credit card company from an empowered position. They have been charging you a high rate for months if not years, what is another week or two if it means being better prepared to get a lower rate? Just do not put if off to long. Get a plan in place.

Other ways to be more determined:

• Make the call when you are fresh and relaxed (not late at night when you are tired and frustrated).

• Sit up or better yet stand up when you are talking to them, otherwise your voice will come off as being more like “hey dude” if you are slouched in a couch watching TV while on hold.

• Be ready to be put on hold; do not let this annoy and frustrate who where you will give up before they do.

• Breathe – and even meditate – a good exercise is to focus on where your feet touch the ground and to imagine drawing the strength of the earth when you take a deep breath in (just focusing on taking a deep breath makes you feel more powerful and grounded in your task).

• No distractions – make sure that you are not going to have your younger child tugging on you to get your attention.

Love instead of Anger

Put yourself in the shoes of the person on the other end of the telephone. If you have had 3 straight hours of callers getting angry at you, how do you think you will respond to anger? Will you be willing to do the person any favors by lowering their rates? I do not think so. We sometimes can get what we want by getting angry. Yet, it is usually with people who do not want to deal with it and give in easily. Credit card representatives are not these people. They have heard it all the time and have developed a tough exterior that rebuffs efforts when someone calls them every name in the book to try to get their way.

Using a little bit of sugar can help (see True Story on Prosperity). Most people will get upset at credit card companies after hearing “no”. Thus, be different. And, being nice does not mean that you need to give up being determined. For example, I just had a repairman install a new hot water heater. After he removed the old one, he discovered the new one was bigger and he needed to rework the pipes to make it fit (another $300 in cost over the estimate). I responded very emphatically that $300 was not acceptable and this was something he should have measured and anticipated. I asked what he wanted me to do now, ask him to put the old heater back in? Needless to say, he did not charge me the $300.

Script

There are several scripts floating around of what you should say when trying to lower your rate. The basic script is a good place to start. However, I wonder what the people on the other end are thinking when they heard the same script 40 times a day. It must be like listening to Ben Stein in Ferris Bueller’s Day Off doing attendencel (“Bueller … Bueller”). They may even start a game guessing what is the next line you are going to use to try to get them to lower your rate as a way to stay awake during your spiel.

The issue with this is if you are using a script to lower your rate, you may be coming off as someone doing a checklist of steps to take to get out of debt, but not really determined to go beyond what the script says if they tell you no a few times. It is like a New Year’s resolution where someone wants to lose weight yet is not really into it, so they may just need to wait you out before you quit your debt plan and stop calling them. So understand what the script wants you to do, yet you may want to go off script so that the person you are talking to isn’t doodling waiting for you to end the script for them to say “no”.

Giving up too soon

The credit card company representatives are paid to say “no”, especially when 1,000s of people are calling them a day because a personal financial advisor just reminded all their readers to make this call. It may take you ½ hour or 1 hour, yet remember that a 5% drop in your interest rate on $10,000 debt will equate to approximately $500 saved in interest for the first year alone. How much time are you willing to put in to get this savings? Now, if you had your own company, how long will it take for someone to convince you to drop your price by $500 if they do not have any leverage to go down the street to get a better deal (especially if every one is reading the same script)? You set you price for a reason, you are not going to discount it to the lowest rate possible, after a one minute script is read.

Responsibility instead of blame

If you talk with someone who works on collecting delinquent payments, you will find that they hear the blame game all the time. People blame them for everything even for the high property taxes that the person is delinquent on. If someone is pointing the finger at you with blame, what would your reaction be (especially if you are the person who has no control over the situation, just the one answering phones)? You are probably thinking of one of two things (i) get out of my face or (ii) how can I convince him that we are right. So instead of getting someone to work with you, they are finding ways to get rid of you.

Just taking responsibility by saying you know that you got yourself into this situation and have created a plan to get out of debt, goes a long way. It is showing them that you have switched from a potential delinquent payment to someone who will follow a plan. Again it is something that they may not listen to, yet it is worth a shot to be a little different.

Potential to leave them

As with anything, the more leverage you have, the better. Even if you do not fill out the application form to get a lower rate until later, just saying that you have an offer from _____ for _____, gets them to believe that you have done your homework and will follow through with your threat to leave. However, if you have a bad FICO score (which they know what your score is), you will have a harder time getting a lower rate and thus may get a response of go try. There is a point where a bad FICO score is not worth the risk to a credit card company and they would rather you transfer the balance to someone else before you stop paying on it all together because if you can not make the payments they will sell the debt to someone else at a fraction of the cost.

If you get a no, then find out what your options are (fill out the forms). If you get a good offer, call your company back saying they have one last chance to beat this rate before you switch. What do you have to lose at that point other than getting a lower rate and not paying a possible transfer fee?

Is there something you can do to convince them you are determined to follow a plan?

If you got a “no” after “no” and are about ready to quit trying, ask them why they are giving you a no. If it is because you had even 1 late payment in 12 months, see what they are willing to do if you can prove you are back on track on being responsible. Ask them what if you have 6 or 12 straight on time payments? What if you pay more than the minimum? Would they lower the rate then? If so, get it in writing. They may not do this, yet it is worth a shot. Again, someone with a plan is in better position than someone who is just reading off a script hoping that something will work out.

Have a friend or financial planner call for you

Financial planners seem to have a better success rate (or at least brag that their script works) maybe because they know what to say, maybe because they are not scared because it is not their situation, maybe because credit card companies know they will take you to the next step of finding a better offer (e.g., shows that you are determined to get out of debt by having an advisor). Whatever it is, it is worth a shot, especially if you have not gotten anywhere on your own. You may not need to hire an advisor to get the same results. A friend can say “I am working on behalf of _____”. The more they appear to be working for you, the better.

The key is if you have gotten a “no” before, then try something different. There are thousands of phone representatives and you do not know what it will take to get the one you are calling to agree to lower your rate. So be creative and trying different things until something works. And remember, once you have gotten a lower rate or have a 0% offer, see if it comes with conditions that new payments will be charged a higher rate while any new payments on the card will go to pay off old debt first. Thus, it may make sense to have two cards, one for the old debt at the lower interest rate and a new card that you pay diligently off every month otherwise be hit with higher interest rates on your new debt.

Alternative Conversations to Have with a Reluctant Spouse

For the 3rd article in the series of how to deal with a spouse who is reluctant to discuss finances, I will look at how we can have a more productive conversation. There are a million ways to have a conversation and everyone touts their way as the best. I won’t go that far, so view these ideas as alternatives and figure out what works best for you.

Drop the struggle

When two fighters go toe to toe, each one wants to win. Thus, they are trying to find the best strategy to get their point across while defending against the counter blow thus have less time if any to try understand the other’s point of view. So instead of finding common ground, they are concentrating on their next response while their defensive barriers become stronger and stronger.

The key is to drop this struggle because it is getting you nowhere. So, when you are in a conversation with your spouse, take a breath before speaking and understand if your next response is out anger, frustration or fear trying to defend yourself or is the thought out of love and compassion trying to find the middle ground. If it is out of anger, frustration or fear, you should consider changing your next response to one of how you feel about what your spouse just said. Describing how you feel is less threatening because there is nothing your spouse can refute. This is how you feel which only you can decide. It is a place to start building understanding. Your spouse may be mad because you took what he said the wrong way or because he is in a defensive mood himself, yet that is how he feels. So see it as an opportunity to come together to understand each other instead of staying apart.

Drop the need to fix the situation right then

One strategy that works for me is to get my point across as food for thought and then take a step back. If the other person wants to be right in that moment, there is nothing you can do to change his mind right away. Thus, I tend to leave my comments as clear concise ideas to think about and then drop the conversation. Given time, the idea may sink in where the other person may discover in the meantime what I said was actually useful. Remember the more we try to convince someone we are right, the stronger their defenses can become. Thus, I see a seed of thought as something that is none threatening that may actually take root and grow in the person I was talking to, given time.

Be clear with your boundaries

I found with boundaries that people love to set boundaries in one of four manners:

Strong boundaries that are inflexible where people become afraid to approach the other person because they realize the answer will be no use to the strong convictions. These barriers are good in physically or mentally abusive situations. We need good boundaries to hold our ground. However, in other situations, the barriers may get in the way of having healthy discussions if the other person does not see the use in making suggestions if they are just shot down.

No boundaries where the person is walked over all the time. This sometimes happens at work where we are afraid to stand up for ourselves out of fear of losing our jobs.

Collapsible boundaries where boundaries are set yet have no teeth to them. Parents get into these situations where they say “no” and the child does it anyways without any consequences. Thus, the child learns that “no” may not really be “no” and will test their parents boundaries.

Flexible boundaries where if a person comes close to the boundary, there is a warning shot (a watch out, do not cross this line). Then there is room to negotiate a win-win so that each person can get their needs met. Yet, if the boundary is clearly crossed with the warning disregarded, there are consequences.

Having clear flexible boundaries are good because many times a person does not clearly know where your boundaries are. Thus, as they get close to crossing them, be clear on what you want and what is not acceptable. Let them know there are consequences, so they know what you say is what you really mean. They will also know that you are willing to work them so that you both can get what you want.

Thus if you feel you are being treated unfairly at work or at home, see how clearly you have defined your boundaries and if they other person knows what they are consequences of breaking them are.

If needed, get help

As with any intense sporting event, it is good to have a referee (in this case a family/marriage counselor) who can mediate differences and point out when someone has crossed the line (committed a foul). For friendly conversations, a referee is not needed because each party is flexible and willing to give in to keep the game friendly. Yet, when it gets too intense which happens with money conversations at times, it is best to have a 3rd party present to give a clearer perspective to the both of you of what is going on.

Be curious

I was surprised one day listening to Kathlyn and Gay Hendricks who have a radio show about relationships. They pointed out that research is showing that the old way of improving conversations (such as using “I feel …. When you …. What I want is …..” method or repeating back what the other is saying method), does not really help out as much as we once thought it did. They say that the key attribute to a successful marriage is having curiosity. The more I thought about it, the more I realized that this made a lot of sense. In a marriage if we change the form of the conversation it does not really fix the root of the problem per se just fixes the outward hostility (symptoms) of how two people argue. However, having curiosity is about each partner really looking at themselves and their spouse wondering why each person is acting they way that they are. It is important for both spouses do this because if one spouse is having a bad day and is not really listening, the other spouse can step in to find the root of the problem (by being curious) to find out what is really going on.

So next time you have a conversation with your spouse become curious about what is going on and see the conversation from the other person’s point of view. By taking this approach and finding that it works, your spouse may be willing to become curious themselves (seeing it works).

Belief

If you do not go into a conversation believing that it will not work, you will be more likely to give up at the first sign that it doesn’t work. Thus, your spouse learns that by holding their ground you tend to give up. This makes future conversations more difficult to have because you will need to teach an old dog some new tricks (the appropriate way to treat you) first before getting what you want in that situation.

Rotate Agenda

If one spouse is controlling the conversations, the other spouse will tend to lose interest easily. Thus, each person should bring at least one topic to the table to discuss. This keeps each party interested in the conversation which will increase the likelihood of have both parties engaged in dialogue versus one feeling being beaten up. And, if the meeting time is too limited to get to both of the issues, then rotate which spouse’s agenda item gets discussed on a particular night.

Set time, place and length of meeting

Some friends of mine are having differences in how to do a budget (one wants to be more detailed than the other). Thus, they decided that the spouse who is more eager to do a budget will handle it and the other spouse will give ½ hour or 1 hour on occasions to sit down and discuss it. The reluctant spouse was more willing to meet when there are set time limits versus being dragged into a 2 hour discussion over something that he wanted an easier process set up to deal with the budget.

Having a set time and place also helps in making sure that each party agrees to show up as a willing participant when there are no other distractions such as children or a favorite television show. Both parties should agree that the time is a good time for them and not a time when one is usually winding down for the evening or just getting home and wants to end it as quickly as possible to unwind. Thus, with hectic schedules, a conversation may have to wait until the weekend for both spouses to be fully engaged and undistracted.

Have consequences to agreements

Similar to having no boundaries, an agreement with no consequences will be violated frequently. Having punishments as consequences though can be viewed as a form of control (a parent/child relationship) where the other spouse will then tend to rebel against it. A friend of mine, Dr. Tim Jordan, uses a method in his home where if someone violates an agreement (child or adult) that they need to determine their own “make-up plan” as a way of saying “I am sorry” to the other person. The plan should be focused on the issue that was violated. In one example, because one of his children forgot to take the dog for a walk as promised, the child decided to pay to get the rug cleaned out of their allowance. Around finances if a spouse spent money that was not budgeted for and that was not in their discretionary fund, the payback may be to handle the budget duties for an extra month in addition to forgoing their next month’s discretionary fund. If a spouse missed a scheduled meeting about the budget, they may decide to cook dinner or give a massage to say I am sorry. This method works because the person who violated the agreement needs to first see how their violation affected the other person to create an appropriate “make-up” plan. This is not viewed as a punishment because it is a way for the party who broke the agreement to repay the person where it is proactive (I am sorry) rather than reactive (punishment).

There are million different approaches for getting through a difficult conversation about money. The key is to notice what is working and what is not working and adjust your approach accordingly. Lastly, it is important to understand what works for one person may not work for another.

For further information see Couples and Money, Why Money Conversations Are So Volatile and Our Part in Money Conversations with a Reluctant Spouse

Our Part in Money Conversations with a Reluctant Spouse

So what can we do about a spouse who does not want to cooperate when it comes to money? This is an age old question where a common response to it is to dump the spouse who is resisting dealing with the money issues. Yet, if you do not want to go to this extreme quite yet, what other options are there? Should you just give in? No.

Sometimes we get so excited about taking charge of our finances that we push it on our spouse too hard and they just shut down. We can see the benefits of doing a budget and getting out of debt while they may not be on the same page as us. However, because we are going 100 mph, our spouse feels like a truck just ran them over and they shut down instead of being open to our enthusiasm.

So, how can we get our spouse to become a partner rather than someone trying to sabotage our success? This is a difficult question because each situation and spouse is different. The key part of the answer is to see our part of our spouse’s resistance. We may feel justified in blaming our spouse for our financial mess. However, we usually have a role in it the situation as well, including:

Story

If we have bought into our story that our money problems are entirely the other spouse’s fault, there is little room to find common ground. The story is so good that it elicits a lot of sympathy from others which strengthens our beliefs. Our friends give us very few suggestions on how to change things because our problems appear to be a no win situation with no solution other than to dump our spouse. Thus, it is important to drop the story because it does not consider the other spouse’s point of view of things and because we can not solve an issue if we rather complain about the situation (tell our story) than fix it.

Codependency

We usually relate codependency to marriages where one of the spouses has a substance abuse issue. However, it can happen with money relationships as well. A spouse may be in a relationship in which they can not get their needs meet because they are so focused on helping (trying to fix) their spouse. Initially, we may think the best thing to do is to split right away. However, codependent people tend to end up finding another relationship with someone else with similar addiction issues whether it is work, money, alcohol, etc. where they end up in the same situation with their next spouse.

Thus, I tend to suggest to people in this situation to look at what is going on behind the money issues first because their issues of codependency need to be resolved whether in this marriage or the next.

Press/Retreat

When a spouse feels that they can not get their voice heard (in trying to solve the money issue), they tend to do a full court press to convince their partner in their point of view and then retreat when they get evidence that the situation of getting the other spouse to listen is hopeless. It is hard to settle money issues with this tactic because money issues develop over time and are not fixed overnight. The other spouse also has learned by then that if they survive the initial assault (argument) that they do not need to respond or to change. Thus, they are never held accountable and the money issues continue. So, look at taking a slower approach at first in preparing for the discussion around money and do not back down at the first sign of not getting what you want.

Nagging/Parental Figure

When the other spouse feels that they are being controlled by a spouse (over money or other issues), they rebel because it reminds them of being a child again. Often this rebellion (acting out) takes the form of being irresponsible, just like they were still a child living at home. Thus, if we want to have our spouse become more responsible, nagging is usually the worst tactic.

So, what else can be done? Asking the other spouse to report back how they are doing with their financial goals (that you agreed to before hand) without making any comments goes a long way. People tend to take responsibility over time, if they are not given an excuse to rebel.

Control

Many times arguments ensue over the power structure in a marriage. The arguments may end up being more about control than the actual issue. Thus, take a step back and consider “would I rather be right or happy?” If you rather be right, you may be focusing on controlling your spouse more than the money issue itself. Think about how much flexibility in solving your financial problems you are giving the other spouse. You can start being flexible by giving them the option on when to meet to discuss your finances and for how long. A spouse who feels required to sit down for an hour meeting to do a budget when football or golf is on (or if they wanted to play golf instead) is not going to be very cooperative.

Consequences

Money issues tend to be complicated because the other spouse has never had any consequences in their life including around the money issue that you are arguing about now. Usually, we tend to avoid conflict and consequence because we do not want to be viewed as being mean or hurtful. Thus, we tend to let little money issues go unaddressed at first until the issue becomes too big to deal with ourselves. The other spouse will have a hard time adjusting at this time because their inaction in the past has never resulted in any consequences. Thus, we need to be patient and firm with what we want until the other spouse has had time to get on the same page and knows that they are consequences to being irresponsible and uncooperative.

Attraction

Many times there were signs of money issues that were ignored before a couple got seriously involved or married. The question is why did we attract that person into our life? It may be nothing. However, you may have liked how they lived carefree especially if we tend to be on the other side of the spectrum due to being tight with money. Yet, as we find out later, instead of meeting in the middle, both spouses remain on the opposite ends of the spectrum. People say that opposites attract. So understand this and see what you admire in your spouse. Looking for what brings you closer together may bring you closer together on your finances as well.

The question on whether a couple with money issues should stay together is always difficult. Many people who have gone through it would say to dump the other spouse immediately without knowing the whole picture. I tend to be on the opposite side of the fence in making an attempt to work it out. Many spouses will say that they have tried to sit down to work it out and nothing is working. However, many spouses have not looked at how they have contributed to the problem to find alternative solutions. Thus, it may help to look at the money issue with a fresh set of eyes. It may be beneficial to see a counselor, even by yourself, to get a fresh perspective on what can be done. It will not hurt and may actually help in seeing how we helped cause the problem. Then if we do move on, we do not follow the same patterns and get the same results in our next relationship.

For further information see Couples and Money and Why Money Conversations Are So Volatile

Why Money Conversations Are So Volatile

A difficult issue that couples struggle with is arguments around money. Many people blame money as the main reason for divorce these days. However, for those who read my blog, I tend to disagree with this. I see the reasons for divorce as more of how we approach the discussion around money. Seems like each time I suggest that a couples money issues are more about power, control, cheating, honesty, etc. which is where their focus should be, many people agree yet in the same breath say that money is still the main problem.

The problem is that money is a lightening rod for couples in their discussions and is also riddle with potential landmines. Thus, charging through these discussions with the same approach as you always take may not be wise decision. If you keep banging your head against a brick wall (trying to solve money issues), do you want to keep on banging away or look for another alternative? By looking for other issues that occurring in the marriage that relate to your money conversations, you may be able to find a place to start a win-win conversation that you can build on. For example, if you fight over money and sense that it is a control/power struggle issue, then look for another area in your marriage that you may have a power struggle. It may be with disciplining the children or where to go on vacation. Maybe using this topic as a starting point on how to deal with conflict of power struggles will be an easier conversation than using money which can lead to daily arguments around money.

What happens around money is that there are so many issues that come up that it is difficult to control if handled all at once. Thus, breaking the issues down into smaller pieces that are easier to resolve can be very beneficial. If the focus is always on money, we see many things tied into the conversation that we may be setting ourselves up for failure. If we focus on the individual issues, we can see the problem in more manageable pieces. For example, some of the other issues tied up with money are:

Trust – Next to infidelity, money is the area where once a spouse loses trust it is hard to get it back. If a spouse has run up a high credit bill, the other spouse will be constantly worrying if this is going to happen again.

Being right – We tend to see our way with dealing with money as the right way. Based on the books we read, we think there are one right way and a bunch of wrong ways to spend money, invest money or budget money. Thus, we get tied into getting the other spouse to agree with us while the other spouse is trying to get us agree with them. Other subjects like where to go on vacation or even how to discipline the children where we tend to see more of preferences than a singlet right way may be an area where we are better able to create an easier win-win to get the ball rolling than trying to practice win-win strategy on money issues first.

Lack – We worry if there is going to be enough money. Thus, to get our needs met first, we need to win the argument. Thus, there tends to be less room for compromising.

Fear – The nagging voice in our heads that are telling us how bad things are if they do not improve is always there. Thus going into the conversation, there is a driving force that is leading the way to solve the fear. So, instead of being more open to compromise, we start to see that there is only one way to solve the situation to ease the fear.

Shame – Some times when financially struggling, men will have a hard time discussing money out of shame. This is especially true when he see there is not enough money to go around because in his mind he is not making enough money. This can be also true for either spouse if their actions or inactions got the couple into the situation they are in now. Thus, instead of dealing with the issue and bringing up these feelings, they avoid the issue all together.

Alternatively, a spouse may want to buy something due to it representing a status symbol (house, car, large screen television, clothes, etc.). In these situations, the spouse is worried about what others will think of them if they do not measure up to what they believe to be the social norm.

Power – In our society, we relate money to power. In the previous generations, men tended to have had more power in a relationship because they who worked and earned the money. There are other dynamics around power, yet money has tended to be a main focal point. Now, with women taking a stronger role in marriages, there has been a shift in the power dynamic, especially when money is involved. If the issue of power is not addressed, conflict can easily arise.

Anger & Blame – Similar to trust, when there are resentments around how a spouse has used money in the past, these resentments tend to linger around in the marriage. Thus, when there is a potential for another incident, the other spouse tends to get upset easier because they have not forgiven their partner for the prior incident. Thus, issues around money tend to be more volatile.

Complexity – By the time that money issues need to be addressed, it is not due to a small issue. Typically, there are various issues that have been raised ranging from budgeting to investing. For example, if the issue is debt, it has usually gotten to the point where a couple needs drastic actions from several spending and budgeting issues to which debt to pay off first and to whether or not to cut back on retirement savings. Thus, it is not a clear defined issue to address rather various issues that tend to be link to each other.

Responsibility – When a person becomes an adult, they learn how to be more responsible for their own lives. Three areas that we learn responsibility around are jobs, children and money. With a job or a child, these areas of responsibility come with immediate consequences for being irresponsible by being fired or by having a child scream if their needs are not meet by the parents. For money, the consequences are not immediate due to the easy access to cash via credit cards and loans. Plus, consequences of money are not sometimes felt until there is an emergency or until retirement. So there are fewer controls to limit irresponsible behaviors when money is involved.

By the time, you add all these issues together, it can create a volatile conversation that becomes difficult to understand all the issues involve and impossible to solve in a single conversation. That is why looking at another issue to solve some of the underlying issues in a marriage can be beneficial. Alternatively, seeing a marriage counselor to help you unbundle all the issues may be required.

For further information see Couples and Money

What Your Net Worth Statement Doesn’t Tell You?

Many people are tracking their net worth monthly to see how they are doing. Are they up or down? How did their investments do? When will they hit the millionaire mark? In my perspective, we can be overly concerned with our net worth statement while losing sight of our real value (our self-worth and even our future earnings). If we pay too much attention to the dollar and cents, we forget to make the right decisions and investments to secure our future.

I suggest people calculate their net worth statement to see how they feel about what they see. For many who are in debt, it is a starting point to creating a plan for getting out of debt. For others, knowing what our net worth is serves as the starting point in creating a financial plan for the future (especially for retirement).

However, a net worth statement does not tell the whole story. If we look at the stock market, stocks can have an intrinsic value (market value) considerably more than their net worth (assets less liabilities). The difference is their potential value based on how their past investments will pay off in the future via name recognition or new technologies/products.

A company looks at their net worth as a status of where they are at a certain point of time. However, they look more towards their future. Have they made the right investments that will pay off? Are their product offerings in line with what the market is demanding? What are their potential future earnings? Are they improving how others view them?

A person’s net worth does not tell us if they have properly invested in themselves (e.g. education) or if the debts are good or bad. The question is what are we doing now that can not be measured on a net worth statement?

• Are we investing in continual education to improve our financial future?
• Are we protecting our name for the future by offering a quality product/service instead of compromising quality now just to make a buck?
• Are we working a job that we love to protect our future income stream?
• Are we being innovative where we are bringing ideas to our employer to increase future employment opportunities?

Keeping an eye on our net worth is important because it can signal problems if we have too much debt or have fallen behind with saving for retirement. However, sometimes an eye on our intrinsic value is more important than the numbers and cents of our net worth.

We forget that we are more valuable than just what is behind our net worth. If we get caught in trying to maximize our net worth, we can put our intrinsic value in jeopardy by selling our soul to make a buck. We have seen many companies come and go because they lost their honor with the public (e.g. Enron). It is important to be socially responsible because that is what people remember and what is rewarded long-term. Life isn’t about our net worth rather about who we are (self-worth). If we lose our self-worth, our net-worth doesn’t really matter because our soul is already sold to the devil.

And in the end, no one will remember us for our net worth rather by the impact that we had on others. Our tombstone will not say that our net worth was $xxx,xxx, rather it will say something of the type of person will be remembered for.

So remember our value is more than a number on a piece of paper. Look at how you can increase your value more than what is at your net worth:

• What do you want to offer people?
• What skills do you possess (or want to get) to help others?
• How are you of value to others?
• How do you want to be remembered after your time here is done?

How Honest Is Your Performance Review Sessions?

I was kind of struck over the weekend reading in the Cleveland Plain Dealer that 83% of Americans consider themselves above average workers. I was kind of shocked to see it that high. Comparing to using a typical breakdown where 1/3 are above average, 1/3 are average and 1/3 are below average, 83% seems to be way out of whack for the number of above average employees. I am curious if is this one of the reasons why we have a conflict in the corporate world these days with so many people feel that they are underpaid?

There has also been recent press coverage of the concerns about the inflated self-esteem of Generation Y where they have been given praises for everything that they have done and now are expecting it from their employers. This got me to think what is self-esteem/self-worth?

Per the Merriam-Webster dictionary self-esteem is a confidence and satisfaction in oneself. So are these 83% of American workers self-confident? In my mind, I do not think so. I think it is the lack of self-confidence that keeps performance reviews from being totally honest and from people looking at their performance in an unbiased manner.

In giving performance feedback, it seems like everyone is cautious on what they say, fearing that the one receiving the feedback will not like it. In doing a suggestion exercise for a class that I help with, it is difficult to get participants to give direct suggestions to other peeple for fear of offending them. Thus, sometimes the real issues during a performance review at work are sometimes glossed over.

This raises the question if the managers are at fault for not giving honest feedback (the good and the bad)? Listening to managers, they talk about some employees are not open to negative feedback. The employee may take it personally and be emotional while other employees try to defend themselves by refuting the feedback. From the employee perspective, it is understandable because we put so much emphasis on living paycheck to paycheck that the slightest hiccup in their financial status including having a bad bonus or being fired would send many families into financial chaos. Thus, some employees may not want to hear bad news fearing that worst. They may want to hear that they are doing well so that they do not need to fear losing their jobs.

Are employees being realistic? It seems like a paradox that most workers believe that they are better than average employees and at the same time complain that their managers are too negative about their performance (only hearing the bad new and not the things that are going well). Thus, managers have been making a point to give more balance feedback which may drown out the performance areas that employees need to concentrate on.

The key to understanding this whole process is that some employees may define their self-worth by how they are doing at work. They want positive feedback from their manager to feel better about themselves. However, self-esteem has nothing to do with feedback from others. In actuality, those with good self-esteem want to hear honest feedback from their managers because they know that honest feedback is the only way to improve and their performance has nothing to do with who they are. They know that their manager’s comments are not a reflection of them personally rather a reflection of their behavior.

Understanding what self-esteem is should be important to the American worker because it affects their personal financial bottom line. It is important to understand that the more open we are to feedback and to modifying our behavior accordingly, the better our future performance and job outlook will be. However, we need to detach ourselves from the negative feedback in order not to take it personally. Taking it personally can turn it into a downward spiral where we are less motivated to work because we believe that our boss does not like us. The key is to know that feedback is about our performance and not who we are (our real self-worth). Lastly, it is understandable that fear of losing our job comes up when we hear negative feedback. However, negative feedback should actually be a blessing in that we can address it early enough before it gets to the point of being fired for poor performance.

So, how do we get a more honest performance feedback from our managers?

• Realize that performance feedback may be softened because a manager is worried about being too negative thus may avoid issues until it is too late

• Relax before going into the meeting because if we are too stressed we will have a tendency to overreact to negative feedback or want to rush through the feedback session.

• Breathe because it helps to relax us instead of immediately try to defend ourselves from negative feedback

• Defend ourselves with future actions instead of trying to convince our manager that their belief of past events are inaccurate; usually trying to prove the manager wrong will end up making the manager believe that we are not aware of our behavior or willing to change

• Ask for more examples of how we can improve our performance; this makes it safer for the manager to be more open by showing our willingness to listen and to improve our performance

• Know that what someone else says about our performance has no impact on our self-esteem; self-esteem is only affected if we believe that our past actions impact who we are in the present moment, in that we can not change our behavior to be a better worker or a better person.

For more, see Ask for a Pay Raise Discussion Instead of Demanding a Raise

A New Look at Good Debt versus Bad Debt

Normally, when we look at the balance sheet, we try to distinguish good debt from bad debt. We think that good debt are things that better our financial situation (purchase a home or student loans). Thus, we think of bad debt as things we purchase that depreciate in value (clothes, vacations, etc.) which have little impact on future financial growth. I even wrote about it in a previous article on debt. This is an easy way to explain how some debt is good while other debt which should be avoided. However, there are a few issues that we are mixing in when we discuss good debt and bad debt in this fashion. Technically, once you incur debt, it does not matter what the debt was for because debt is debt which I will explain below. What gets mixed in is whether the debt was for a good investment or purchase or not. When looking at debt, the key determination is how it fits into your net worth and income. We sometimes overlook this when discussing good debt versus bad debt.

Investment

Some debt is considered good when it is used to generate a good investment return. For example, a student makes an investment when paying for a college degree on the premise that the degree will help him generate a higher income after graduation than if they did not get the degree. As with any investment, the analysis should look at:

Return from investment / cost of investment

The return on investment is the expected present value of a higher salary due to having the degree. The cost of the investment = present value of cost of college education + cost of books + cost of loss earnings while attending school + cost of debt.

For the most part, a college degree is a good investment. However, there are downside risks with an education that should be considered because they can reduce the return of the investment, including:

• Not getting a job in a chosen field (either due to an oversupply of candidates or due to lack of jobs for the degree like art history major)

• Not using the investment to its best potential by sitting on ones laurels (a degree can get someone in the door, yet college graduates still need to prove their worth)

• Not enjoying the career and deciding to take a different career track outside what he has a degree in

In addition, the lower the cost of the investment the better the return will be. Thus, a high cost private college that does not increase the return from the investment compared to the return from a lower cost public school education will lower the investment return by increasing the cost of the education. Thus, it is important to look at the investment to see if it is worth making whether or not the student loan debt is considered good debt or bad debt.

If the investment in college education is good, the second decision is to determine if the debt is good or bad. A debt at a low fixed interest rate can be a good debt. A debt at a low variable interest rate (e.g., initial 12 month credit card offer) can be a bad debt when the interest rate spike up to 12%. Thus, it is important to look at each part of the equation separately, the investment and the debt instead of combining into one decision where some college students believe that credit card debt is good debt just because it is an investment in their college years.

Purchase

A purchase either decreases cash or increases debt/liability. Whether a purchase is good or bad in itself is independent of whether you use a credit card to pay for it or cash out your retirement fund. A purchase that fits into a budget comfortably whether for a need or a want is fine. A purchase that can not fit into the budget is robbing Peter to pay Paul. If a purchase (e.g., furniture) that does not fit into the current budget are usually the ones that have a problems getting paid off. If a family is living pay check to pay check where their money is already allocated, a purchase on credit card or payment plan will have a hard time being paid off. If it can not fit in the budget now, it will be hard to fit into future budgets. Thus, even if a purchase is made with a 0% payment plan (e.g., car loan), the debt may be viewed as good due to the low interest rate, however the purchase should be considered bad because it did not fit into the budget. Thus, it is important to separate out the difference of the purchase from the debt itself. Purchasing a car that you can not afford is a bad purchase whether or not you get 0% financing.

Debt

A debt is a liability that needs to be paid in the future. Once there is a debt on your net worth statement, the history of what it was for doesn’t really matter (except for if it qualifies for tax exempt interest for mortgages and student loans). The real issue with good debt and bad debt is in the key aspects of the debt itself (not what it was used for):

• Interest rate (adjusted for an tax benefits)

The higher the interest rate the worse the debt is. A low interest rate a few percent above inflation is good. For example, student loan debt around 2 to 4 percent is a great deal while credit card debt at 16 percent is a bad deal.

• Variable vs. fixed interest rate

For most families who are living paycheck to paycheck, variable debt can be disastrous. A slight increase in the rate can push a family over the edge. Even though fixed interest rates tend to be a little higher, the rate is stable, a necessity for someone living on the edge. The last thing these families need is something that rocks their financial life-raft over the edge from an increase in rates. However, for some families who can take the risk of higher payments, the lower interest rate can be beneficial. Currently, a 5-year ARM has a 0.25% lower rate than a 30-year fixed rate (which is $250 for $100,000 loan before any tax deductions). For someone who is most likely not going to be in their home in 5-years, this may be a good option (extra $250 saved) if he can handle the risk of living there past 5 years and having an increase in rates. For others, the $250 is a small price to pay to eliminate the risk of interest rates increasing. So a variable interest rate debt is bad debt for those who are living on the edge and can not handle the risk, yet can be good for families that have enough extra room in their budget to handle the risk of a variable rate for the benefit of lower payments at the start of the loan.

• Debt to income ratio

The higher the debt to income the more risk the loan has. Some say that a debt ratio should be less than 40 percent of gross income. However, the ratio really depends on your other expenses. If you pay higher costs for other things like health insurance, food, special schooling for a handicapped child, etc., even a lower debt ratio may be a problem. Thus, how the debt fits into the budget now and in the future is critical. And, you should consider what happens if your income drops. Will there be enough room in the budget to modify your expenses to fit in with your change in income? If there is a high debt ratio, this leaves little room in the budget for anything else. Thus, a higher ratio is always more riskier and considered as bad debt.

• Emergency fund

Having an adequate emergency fund lowers the risk of default and makes a debt more manageable in case something happens. In other words, having an emergency fund for times where you may hit a bump in the road is beneficial to reduce the overall risk of having a debt. Not having an emergency fund makes any debt a bad debt (because you can not handle the risks).

I bring this up because it can be easy to look at what is perceived to be good debt (mortgage and student loans) and be caught with too much debt even though educational debt and mortgages are perceived as “good” debt. The issue for debt is not what kinds it is rather how it fits into your budget. What it was for is deemed either to be a good investment and/or purchase or not. A good investment is going to make you money long term (like a college education). A bad purchase is robbing your future in the hopes of having more enjoyment now (putting vacation on credit cards without paying it off at the end of the month).

From a financial planning perspective, managing debt is just about numbers (interest rates, % of income, risk, etc.). The better we manage the numbers, the better off we will be with our debt. However, many people beat themselves up because they made a bad investment or bad purchase in the past. This guilt hinders them from managing their debt because their focus is somewhere other than on managing the numbers. The key is to learn from the lessons of the past (how to invest and make purchases) and to manage your debt in the present as if they were just numbers. Instead, of looking at what caused the debt, you need to ask how do you get out of bad debt and use good debt to your advantage. Yet, if you are beating yourself up for a bad decision (paying on a student loan for law school where you dropped out in the last semester), guilt and shame is not going to help you in managing your debt. Thus, take a look at your overall debt on your net worth statement and see how you are managing it to reduce your risk instead of looking at it as “good debt” if it was from a student loan or mortgage.

Why Confusing Net Worth and Self Worth Is a Critical Mistake

Each month, I have been writing a few articles on a particular topic of financial planning. This month’s topic is net worth. You may think that there is not much to write about because net worth is a relatively easy calculation. The calculation is simply the difference between your assets and your liabilities (debt). Right? If it was so easy, then why is it that people avoid calculating their net worth?

In the article If Numbers Were Just Numbers, I explained that if numbers did not hold any meaning than doing a budget would be an easy task that everyone would be able to do within a few hours. However, it is the feelings that come up around a budget that deters us from doing it. We avoid a budget to avoid the feelings we associate with numbers (such as shame and guilt). As Lasertroly said: about my article:

Excellent point …. Maybe that’s also true of so many of our other numbers as well: our home’s market value, our salary, the price tags on our gifts and other purchases, etc.
Well, it is right on point. Many people avoid looking at our net worth out of shame. We avoid looking at investment statement when there is a down turn in the market. We avoid credit card statements if we can not afford paying even the minimum payment. We think we may feel better by avoiding the pain caused by looking at our debts and declining investment returns. However not looking at these statements will not make the situation better; it can actually make the situation worse by avoiding. We would be better off looking at our numbers and see them as numbers. However, we try to hide them and avoid tackling the problems. We also prop up a mask to show the world to hide our problems, for example

• Bigger home than we comfortably can afford

We say the home is our castle. It is the first impression that people see when they come to visit. Thus, some people look at a bigger home as a sign that they have made it in the world.

• Buy a car for its name (BMW, Lexus, Jaguar, etc.)

The issue is that it is not just one car that we get for the fancy name. Once we have the car, what is the next car we get? Probably a car that is similar or better even if we have hit some hard times. Once you own a Lexus can you go to a Saturn?

• Keep up our activities even if we hit a bump in the road

When there is a bump in the road, we are slow to act hoping that our finances will get better. If we need to cut something from the budget it is hard to do because wee see it as a loss of our financial status that we are afraid to face.

• Avoid selling stocks or homes for a lose

I have had discussions with people reluctant to sell their homes recently fearing that they may lose money from when they had bought it. Even though, they want to buy a bigger home, the thought of losing money brings up shame even though it is a good time to find a better deal on a bigger home.

This is because we equate our net worth as a sign of our self-worth. Thus we also let our salary affect our self-worth, we feel like it is a slap in the face if

• If we do not get a large of a bonus as we feel we deserve
• If we get paid minimum wage
• If we need to take a pay cut even if it is for a better job with more opportunity for growth (we are afraid to sacrifice take a short-term pay cut for long-term opportunity)

So can you look at your net worth as just a number? Some people may look at it with pride. Note, this is dangerous as well because if we are proud of how much we have, we will feel a hit to our self-worth (pride) when we lose money due to a downturn in investments or needing to pay a large medical bill.

What does your net worth mean to you? Why does our net worth have an affect our self-worth? For our net worth sake, we should start seeing that money does not make us who we are. When our net worth affects our self-worth, we will be depressed when our investments decline (like they did last week) and eagerly try to fix it by stopping our losses instead of being patient and riding out the ups and downs of the market. In addition if we have a loss of a job, having our self-worth tied to our job and money will lead us to a downward spiral just at the time that we need a high self-worth and confidence to land the next job. So, it is important not to base our self-worth based on our net worth (no matter how good it is now).

When You Are at Your Wits End with Aging Parents over Finances

The other day, I was asked about how deal with elderly parents who are financially irresponsible and in serious debt. I have also heard from other readers whose parents expect them to be responsible for them financially as they age. With an aging population, there have been a lot of discussions on the basic financial decisions that need to be made. There are has also been articles on how to have a financial discussion with aging parents, such as Talking with Aging Parents about Finances. However, what do you do when the standard financial discussion goes nowhere because parents refuse to listen?

The key is to understand the minefield that you are traveling down. As a child, you feel some sort of responsibility to take care of your parents for all they have done raising you. Even if you blame them for a bad childhood, you would feel some sort of guilt if you see them sitting on a street corner eating beans. Your parents want their independence and self-worth. Being told how to deal with their finances from a child (in their eyes) can seem like a slap in their face.

Many would focus on their parents to solve the problem; however the best place to start from the perspective of the adult child.

(1) Deal with fear

As the adult child, there is a lot of fear of what may happen with your parents and what role you will have in helping out. Because you do not understand the financial commitment you may be making, you feel fear when you see your parents making what may appear to be stupid financial mistakes. However, unless you have seen your parent’s finances and understand their plan to afford retirement, you may not know the whole story. The key to this situation is to make sure you understand all the facts instead of making assumptions. You may have heard about their debt which brings up fear in you. The fear is about worrying what may happen to your parents and how much you need to help out when the time comes. Knowing the nature of your financial responsibilities is a reason why planning your parent’s retirement is so important.

Note, upon their death, if there are more debts than assets in their estate, their debts will die with your parents. If there are more assets than debts, the inheritance will be paid out after the debts are settled. So do not worry as much about their debts rather their cost of living less Social Security payments.

Also note, with Social Security and other programs (e.g., heating assistance, Medicaid, etc.), the poverty rate for the elderly is relatively low. So, if your parents need assistance, understand all the programs available in your area. You can check with AARP to learn more about such programs.

(2) Deal with the guilt

As an adult child, you may feel guilty if you disappoint your parents and are not able to help them. You may want to help out now before things get too bad, yet sometimes you parents will not want our help until it is too late. This guilt will drive you to try to fix the problem which is the wrong attitude to have.

(3) Give up the need to fix

If you go to your parents trying to fix them, the situation will go from bad to worse. Your trying to fix the situation can drive a wedge between you and your parents. Parents do not want to be fixed unless they ask for help. It is best to understand your fears and guilt and express your worries about their finances to your parents without the need to fix them. Needing to fix them will only lead to frustration if they reject your offers. Persistence is the name of the game here. Have ordinary conversations with your parents to build up trust and to let them start seeing how their finances can adversely affect them and your siblings long-term.

(4) Understand your parents

Parents can be balking at accepting help for a variety of reasons:
a) Prefer to ignore their problem than address the shame and guilt they feel about their own debt
b) Do not feel comfortable talking about their finances with their children
c) Feel that their situation is hopeless and just want to hang on as long as possible
d) Want to remain independent in making their own decisions

By figuring out why your parents are resisting your help makes it easier in finding a solution that you can suggest to get help for your parents. For example, if your parents are not comfortable talking about their finances with their child, then suggest having them see a financial advisor (you can even give them a free introductory session with an advisor).

To better understand what their parents are going through, you should consider that they:

(5) Are set in their ways

After 60+ years, parents tend to be set in their ways and have little incentive to change. As they say, it is hard to teach an old dog, new tricks.

(6) May see the situation differently

Trying to convince a parent to take the umbrella for a walk around the block if they see blue skies is hard when you see a stormy sky. You need to see the same situation to get to an agreement. The parent may have cataracts that blur their visions; however they see what they see and it is hard to convince them otherwise. So be patient with them because until they see what you see, little will be resolved. It may not be as hopeless as it seems. The key is to have conversations early on.

So what do you do?

(7) Get on the same page

As parents age, it is important that someone (especially their executor and person designated by their power of attorney) know their complete financial situation. If the parents have an accident, a sibling may need to step in with the power of attorney immediately. Thus, sit down for a conversation around setting up these forms with your parents. Then use it as an opening to make sure everyone is seeing the same budget and net worth statement so further conversations about retirement planning can be about facts instead of assumptions.

(8) Understand responsibilities

Find out what your parents are expecting out of their children as they age. Some parents may expect that their children will step in to help out because that is how their generation did things. Younger generations may have a different understanding, thus it is important to sit down and discuss these expectations. It may be important for the parents to understand that their child’s finances can not support their unlimited needs in their old age. Parents may want their child to step up thinking that they may need only $2,000 a year in support when the number can be closer to $20,000. If your parents do expect support, you can ask them how much support, when and for how long. Then ask if someone else has looked at their plan to verify that this is a reasonable estimate.

(9) Express feelings of the situation

Now that the numbers are out on the table, each party should express how they feel about the situation. You can express your fears of what may or may not happen. This may help convince them to explain their financial situation further to help ease your fears.

(10) Make boundaries known

You have a responsibility to step up and explain what you are willing to do and not willing to do with your parents. I have seen situation where children loan their parents money and then get angry when their parents did not pay them back. Part of this is the child did something that they were not willing to do knowing their parents would not pay them back. However, they felt guilt and gave in hoping for the best. Know your limits and make sure that your position is clear so that you can work on a solution instead of getting angry at them when they take advantage of you.

There are different methods for these conversations

(a) Financial advisor

To get the numbers on the table a financial advisor can be a valuable resource. Look for one that has experience in elderly issues that can provide an education on what Medicare, Medicaid and other assistance programs will and will not cover.

(b) Family meeting

A friend of mine recommended this strategy once every quarter. There are family counselors that can act as mediator so that cooler head prevail.

(c) Intervention

In my opinion, interventions are usually for life or death situations such as with drug or alcohol abuse. Money abuse usually does not fall into this situation. Your parent’s financial problem probably took years to create and can wait a few months to build up to a solution. It is usually better to bring up these issues in a family meeting because an intervention can leave parents resentful. Your parents may need to move in at some point with one of the children. If they harbor resentments from how an intervention was handled, this may create an even more volatile situation.

Keys to Success

(1) Understanding

Recognizing each person’s point of view and moving towards a comprise takes time and is the reason for a family meeting. These issues are probably not going to be fixed in one meeting, so do not expect too much at first. Having a conversation about their finances is a start.

(2) Plan

Much of the fear is of the unknown. The more everyone knows of a plan of action, the more the fear is eased. However, parents are not use to sharing their intentions with their children. It is important to show the parents the benefits of planning ahead, especially in regards to respecting their wishes how they will live the last few years of their lives and how their estate is handled. Yet, this is a hard conversation to have because your parents will need to face their own mortality.

(3) Cooperation

This is a team effort to take care of elderly parents. Siblings need to be on the same page and understand who is going to take care of what part of the plan. Some siblings may be able to offer more financial support while other siblings may be able to offer day-to-day support. Make sure you understand what each sibling is willing to do and find middle ground, including at what stage assisted living or nursing home will be considered.

The key is to get everyone to the table to talk about the issues. If they do not want to cooperate, then let them know how you feel about them not participating (e.g., fear and worry). If this does not help them to get a discussion, then you have every right to set boundaries now with them on what you are willing and not willing to do when the time that they may seek your assistance.