When getting married and combining your lives, some things are easy…

“Umm honey, let’s not go with your artwork.”

And some thing, well, not so easy…

“You want me to give you MY on-line banking password?!?!”

Figuring out how you will handle your finances once you say I do may end up being just as hard if not harder than picking  your wedding colors, or what kind of flowers you’ll have, but it’s probably one of the most important decisions you’ll make. Money merging and future maintance is the one thing you cannot avoid discussing before getting married. Take a guess, what’s the number one reason why married couples divorce? Yep, it’s all about the Benjamins baby!

Here are a few tips to get the dialogue going.

• Come to the table with a copy of your credit report from the three credit agencies, (Experian, Equifax and TransUnion) make a list of your combined debt and note where there are trouble spots so there are no surprises going forward. Remember, once you say I do, you are responsible for his debts as he is for yours.

• Make a budget of your future expenses (if you don’t live together) and figure out who will pay what? Every couple is different. Some split it down the middle 50/50, some have one pay all of the bills and the other save their check. Find what works for you and commit to a budget and paying system.

• Talk about where your income will go. Will you keep your own accounts, merge everything into one, or just add each other’s name to all accounts. Many couples on this forum have separate checking and savings accounts. We tried that for a few months and found that it really was easier for us to merge our finances (that whole two become one theory works-lol). We use one primary shared checking account for our expenses, and have shared savings/retirement/insurance accounts.

• Set goals for your financial future. Agree on a set of short term and long term goals that you both want to meet. Short term goals may include money to celebrate an anniversary or upgrade a vehicle. Long term goals may include money for a down payment on a home, and money for retirement.

• Figure out spending allowances per month for personal purchaces. Maybe, it’s $250 a month, or maybe it’s an undefined amount with a discussion with your partner on what will be purchased.

So maybe it wasn’t as dramatic as what Donald would do on reality TV. But maybe you’ve have been recently laid off or even have had your job eliminated. Don’t fret, there is much that can be done to make sure that your bills stay paid.

Take stock of what you have to put yourself in the best financial position:

-Vacation/PTO time.

-Get all of the details on any severance package that is offered (if applicable).

-Find out when your medical benefits run out and file for COBRA (Consolidated Omnibus Budget Reconciliation Act). Currently the federal government will pay 65% of COBRA premiums for employees who are laid off from Sept. 1, 2008, through Dec. 31, 2009. The subsidy will extend for nine months. However, individuals with an annual adjusted gross income of more than $125,000 and couples with an adjusted gross income of more than $250,000 will not be eligible for the subsidy.

-File for unemployment. Each state has differentrequirements for unemployment insurance. If you’ve become unemployed through no fault of your own (such as being laid off/fired) and you meet your state requirements for wages earned or time worked during the defined period, you will qualify for unemployment benefits.

-If you have stock options or other time sensitive benefits, speak to HR about execution rules.

- Make list of your liquid assets including stocks, bonds, 401K, IRA’s, credit lines, and savings (see my last entry on how to plan to save for emergencies).

Cut back on your expenses:

-This means cable, going out, your gym membership and other extra luxuries.

Once you have all of your financial matters in order, it’s time to seek out new employment. Stay tuned for my next entry !

Career:

1) Stabilize Your Career: If you are early in your work-life and open to a new career path there are many sectors and career paths that are more recession proof than others as noted above. Health care, security, government, and education are a few sectors where jobs are will continue to be in demand. We will always need doctors, nurses, people to protect us (crime goes up in a recession, not down) and teachers. And, if you are in an area where their is significant population growth, the need for these occupations will be through the roof. These aren’t the only paths to stability but be sure when you plan your next career move take care in choosing your career path.

2) Get it right, get it tight: So you say you have a stable job and it meets your economic needs (stimulation is important too), then there is no reason that you should lose it. Step your game up and get your shine on. Take on additional responsibilities, learn new tasks, and procedures, and come up with ways to to add value to your company. While these actions may not lead you to more money tomorrow, it will allow management to see that you may be more valuable than your colleges. I see those posts on confession Friday about work. At the very least, look, engaged in the work you do and don’t slack off.  Bottom line, don’t give them a reason to dump you.

3) Pay attention: I’m not saying to become nosy Nancy, though many of you may already be there, I’m just saying it may be a good idea to watch what your boss or your bosses boss does. Tune into other departments in your company and build relationships. Doing this may provide you with hints about trends in the company (lay-offs, restructures) and can help best position you to be safe. It probably wouldn’t kill you to look at your companies press releases or quarterly filings so that you understand the “health” of company and know when things are going south.

4) Brush up your Resume: This may be the time to head back to school for a higher degree, or obtain certifications (CFA, CISSP, PMP), or just brush up on skills in your field through company sponsored training. Are you an active member of a professional organization like Society of Human Resource Management, The AICPA, or The National Society of Professional Engineers? If not consider joining, many of these organizations can provide training, discount to training, and great networking opportunities. I’m sure you’ve heard a million times that networking is key. It seriously is. Networking isn’t just about chatting it up at the coffee machine with a co-worker, it’s about getting connected with key people who can help you get a higher position or break into a new career.

Money:

1) Save. Then save some more, then save some more. We (Americans, African Americans especially) totally suck at saving, myself included. Unless you have some sort of golden parachute waiting for you, no paycheck is guaranteed. Build an emergency fund in case you and/or someone in your family loses their job. To calculate how much you will need, add up all of your expenses and multiple by 6.6. For example:

Rent: 750

Utilities: 150

Cell Phone: 50

Cable/Internet: 50

Food: 150

Car costs (insurance, gas): 120

Debt (Sallie Mae, Toyota Finance, Pookies Furniture company): 360

Total: 1930

1930*6.6=12,738

$12,738!!! Yep, that’s six months of expenses plus a 10% per month overage for other expenses. Don’t fret, even though you may feel like you need all of the money right now, start saving on a monthly basis and you will soon be on your way to an emergency fund. Savings interest rates are pretty low right now, but there are some good accounts with no service fees out there such as the ING orange savings, that may fit your savings need. You can also have an emergency fund from a home equity loan, credit card, or your retirement, but there are credit and tax implications with those route. I’m not recommending this route, but if you don’t have the money and times get rough, you have to do what you have to do.

2) Spread your risk: This may be the time to rebalance your portfolio. Like mama said “don’t put all of your eggs in one basket. There are many professionals who can assist you with this and many companies contract out assistance, contact your benefits department to see if your company does this.

3) Cut costs and debt: Consider dropping your cable package, cutting back on the number of times you hit up the cinema, and/or your high-end salon visits. This is something that is just about easier done than said. Try to cut down on some of the debt you have on your balance sheet as well.  Start with the debt that has the highest interest and start paying down.

5) Shop: No, I didn’t stutter, I said shop, but only if you have that emergency fund in the works and you aren’t inundated with debt. We all watched the Dow fall during the fall and winter months, and most experts think stocks won’t fall a substantial amount more. This may be the time to beef up your portfolio as stocks are at a discount. There has been much talk about first time home buyer credits in the works so this also may be the time to purchase a home as real estate prices are super low (as are rates). Do you need a new vehicle? As sales are down in the car industry, cars are cheap and there are deals to be had if it is something you absolutely need, no, I’m not talking about that E-class Benz.

Most of these actions are common sense, but you may not be practicing them. Take some time out with with your family to plan out a way to recession proof your life.

As always feel free to shoot me a pm with any questions you may have.  On the next installment, I’ll talk about what to do when when you do lose your job.

What and when it all went down:

A highlight of major events:

The last 4 years: As a result of lax underwriting standards, Americans began loaded their balance sheets (personal statement of wealth) with debt in the form of credit cards, mortgages, lines of credit, and car notes. Do you all remember that commercial where the guy is riding around his .05 acre home on a riding lawnmower gabbing about what material things he hand and that he was in debt up to his eyeballs? Well yes, that is what many Americans where doing. Many believed that with home prices raising the roof and their increases in salaries would keep up with the cost of the debt they were taking on.

As the average American was getting greedier, so were the investment bankers on Wall Street and the fly by night mortgage underwriting companies.

As mentioned before, underwriting standard became lax and subprime loans were being handed out left and right. A subprime loan is a loan given to a lender with a fico score less than 640 (640 is considered prime). Not only did many of these lenders have subpar credit, but in many cases they did not have to prove their income levels or collateral. Many Americans (and foreigners) were taken advantage of during this time, stories of people with lower fico scores and annual incomes of <$40K with mortgages of an upwards of $600,000 or more were being told more often. Some of you may now be asking how the heck can someone afford a $600,000 home, well, many lenders signed up for type of mortgage called an I/O ARM (interest only adjustable rate mortgage). From investopedia, an I/O ARM loan is a loan where during the interest-only period, only the calculated interest must be paid; no principal must be repaid. The length of the interest-only period varies with each mortgage type. After the interest-only period, the mortgage must amortize so that the mortgage will be paid off by the end of its original term. This means that monthly payments must increase substantially after the initial interest-only period lapse. Many times these mortgages had a initial teaser rates. 1%-2% for the first year or two and then would rise sharply to 10%, 12% or more. No need to go into an explanation here, this was a recipe for disaster.

The investment bankers on Wall Street also got in on the action. Mortgage backed securities (MBS) are a type of asset-backed security where cash flows are backed by the principal and interest payments of a set of mortgage loans. Payments are made monthly over the lifetime of the underlying loans to the investor. Investment bankers were bundling good mortgages and bad mortgages together in hopes that no one would really look to see what was inside of these MBS, and for a very long time, no one did. The investment bankers made money off of the fees attached to these investments; investors had no problems as Americans were generally making all of their mortgage payments so their investments were paying off. Then, foreclosure rates rose as a result of I/O ARMS loans resetting their teaser rates and the interest only period ended. Mortgage payments increased by 50%-100% post reset (take a minute and think to yourself how you would handle if your mortgage payment doubled, not many can swallow that). The MBS lost value as monthly payments stopped, and banks lost money. Foreclosure rates further rose as the economy got worse and people lost their jobs.

Early 2008: House values continued to fall as the housing bubble officially popped. Bear Stearns, a large investment bank, is bought by JPMorgan Chase in a deal orchestrated by and backed up by the government following a sharp decline in shares and a collapse in confidence in the company.

Summer 2008: The credit crisis is in full effect. Bank of America completed the purchase of Countrywide Financial. Countrywide is a financial services firm that was engaged mortgage banking that held many subprime mortgages. Federal regulators seize IndyMac Bank after it succumbs to the pressures of tighter credit, tumbling home prices and rising foreclosures. In early September, again as a result of a failing housing market, the government seizes control of Fannie Mae and Freddie Mac, two publicly traded companies that together hold or guarantee half of the nation’s mortgage loans. Lehman Brothers, another large investment bank, fails to keep its head above water and declares bankruptcy as the government refused to back a deal that would have saved the bank. Last week the U.S. government announced an $85 billion emergency loan to rescue AIG, saying a disorderly failure of the company could further disrupt already delicate financial markets and the economy.

Last Friday: The government announces a broad rescue plan for the financial system, including a program to buy hundreds of billions of dollars of bad mortgages and other forms of toxic debt that have been weighing down U.S. financial companies. Our treasury secretary estimates that this plan could cost an upwards of $700 billion (with a B people), but many experts estimate it could be much higher.

What the plan entails:

The bailout program being negotiated by the Bush administration and Congressional leaders calls for the government to spend up to $700 billion to buy distressed mortgages. After the Treasury Department buys up the troubled mortgages, it will try to resell them to investors. The plan is in early draft mode but if you would like to read details, visit http://www.nytimes.com/2008/09/21/business/21draftcnd.html. On the surface this plan appears to be difficult to execute and is receiving much criticism from the general public as it is obvious that money does not grown on tree and we (the taxpayers) will be responsible for flipping the bill.

What happens if this bailout doesn’t happen?

If Wall Street fails, you will fail as well, it’s just a matter of time before it affects you. Many in the banking world got a taste last week when the commercial paper market FROZE. The commercial paper market is the place that businesses go to get very (overnight) short-term loans to fund their daily business operations. If that were to continue, businesses would not be able to operate, for example, pay YOU your wages. Without wages, taxes cease to be collected, and services such as public schools would suffer.

What do I do now?

Retirement:

That depends on how close you are to retirement. If you are retiring in the next 10-30 years, continue to invest in your 401K. Prices are low! I’m going to pause for a moment to say if your employer has a 401k (401B etc), and you are NOT investing, we need to talk. If you are closer to retirement, you shouldn’t be in the stock market anyway. Speak to your financial advisor and more likely than not she will tell you to put your money in safer places (i.e. exchange traded securities) .

Career/Job:

Update your resume (you should always be ready with an updated resume), and if you know you’re in a dying industry, consider going back to school or making a change in careers. Other than that, perform well, as this isn’t the time to get fired. Many BABs can attest that this is not the job market to be in.

Buying a house?

Many experts believe the market hasn’t bottomed out, but if you have the cash, there are deals to be had!

Hopefully I provided you with a little knowledge to guide you through this mess. If there are specific topic you would like for me to cover in this blog, let me know. Also if you would like to go into more detail in private or if you have any questions, feel free to email me at rlassegue@hotmail.com or pm me.