Planning Starts with the BasicsWritten by Jonathan Citrin
When developing a plan for your finances, toughest question often is: “Where do I begin?” Before investing in stocks and bonds or buying life insurance, before implementing any change or making any decisions, you first need to analyze and understand your entire financial picture. Two documents allow you to do just that. A Balance Sheet and a Cash Flow Statement enable you to take an in-depth look at your current financial situation and make better decisions about future. With a little work, you can develop these two tools and be on your way to a solid plan for your finances.Balance Sheet A balance sheet is a snapshot of your personal finances at one point in time. It contains two main elements: what you own (assets), and what you owe (liabilities). Your net worth is expressed as: Net Worth = Assets – Liabilities. That is, what you own minus what you owe. A balance sheet clearly lists all assets and liabilities. Examples of assets include: house, investments such as stocks and bonds, savings and checking accounts, 401(k), IRAs, business interests, artwork, and jewelry, among others. Liabilities include mortgage balances, credit cards, education loans, and any other debt. Once you have created a list of everything you own and everything you owe, simply subtract sum of assets from sum of liabilities- this is your net worth. The ultimate goal of most investors is to increase their net worth. The balance sheet is a very useful tool to identify strengths and weaknesses in your current finances, as well as to determine your goals for future. Someone with a disproportionate amount of liabilities might set a goal to eliminate this debt. On other hand, someone with a positive net worth (more assets than liabilities) might plan to save and invest towards retirement, college, or another goal. Cash Flow Statement After analyzing your balance sheet and determining your goals, you need to decide how to fund these goals. A well formulated plan is one not only with realistic goals, but also a sensible means of achieving them. That is, having goals is good, but you must be able to pay for them. Using a cash flow statement will enable you to determine how to pay for your goals.
| | Home Equity Loans – Beware of Appraisal FraudWritten by Charles Essmeier
A new report by independent Demos group has revealed what may not be a surprise to many people – corruption is rampant in home appraisal industry. The bust in dot-com market of some five years ago has left would-be lenders with a surplus of cash to lend. This has led to a huge boom in both mortgage and home equity loan lending. That’s not a bad thing; a record 69% of Americans now own their own homes. Owning a home is easier than ever; in 2004 average down payment was a record low of only three percent.
So if everyone is buying a home, and loans are easier to obtain than ever, what is problem? The problem is that nearly 55% of appraisers polled in survey said that they had been pressured by lenders to deliver appraisals that met a “target” value. The appraisers said that failure to meet “target” value resulted in either their not being paid, or not being hired again. Since most appraisers want to keep working, they have had a tendency to meet target value, even if it means that they have overestimated value of property. This drives prices artificially higher and leaves many homeowners with mortgages that may be worth more than homes they were meant to finance. This problem becomes acute should owner need to sell home, only to discover that it isn’t worth as much as he or she owes on it.
The worst-case scenario to result from this would be a burst in current real estate “bubble” and a nationwide collapse in home
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