The main way of handling it was to juggle the increasing calls from creditors, and make sure that no one knew that they were calling. I can understand this reaction. She didn’t want anyone to know how bad things really were, in hopes that she could resolve everything without anyone finding out how close they had been to the financial abyss. The problem is, she died.

Now, enter my brother-in-law. In a time of EXTREME hardship, he also has to handle a huge burden of precariously balanced debt, that is starting to make that Jingo-esque fall into a pile of financial rubble. He’s been hit by a double whammy now of family AND financial disaster.

Not the Cause, Just a Symptom

I’m not mad at my sister-in-law for doing this. It’s a pretty normal reaction for a lot of people. It’s akin to a drinking or substance-abuse problem as well. No one wants to actually ‘admit’ they have a problem until it’s well beyond their capabilities to handle it. Financial issues are no different. First it’s a couple of missed payments, which triggers increased interest fees/rates or collections actions, then it continues to spread like a disease across your other finances as you try to fight your way free of the situation. At some point, just like with a regular illness, you need outside assistance to get better.

The problem is that unlike going to the doctor for a shot of antibiotics, getting outside help for financial issues is a very touchy and sensitive issue in our society. Being seen as unable to manage your money and support the lifestyle you’ve been living in (unsustainable as it is) is still causes a social stigma in our society.

Interestingly enough on ‘Desperate Housewives’ last night (which I DON’T watch, but just happened to catch a segment of while casually flipping through the channels. No, really. I WAS channel surfing. Fine, don’t believe me.).  Gabrielle (Eva Longoria Parker) and Carlos (Ricardo Antonio Chavira) were discussing a debacle of a party they had been to, and Gabrielle was moaning about how their lifestyle had plummeted since they had gotten married and had kids. Carlos went on to talk about the good things in their lives that had nothing to do with riches or social standing, and that many of the people in the ‘high society life’ were completely miserable. Comparatively speaking, their lives were happy, they were comfortable with their money, family, home, and each other. Rich in every sense except money.

The perception though, that you’re less than perfect for having financial problems is a rampant issue throughout our society still. People are doing STUPID things just to keep everyone thinking ‘everything’s fine, nothing to see here’. My sister-in-law, fell into the same trap.

Don’t be Stupidly Considerate

If you’re the one in charge of the bills, the LAST thing you want is to hose things up completely. You’re typically responsible for keeping the finances afloat and working at making sure the future is considered, while juggling all of the issues and problems of today. But that doesn’t mean you have to do it alone!

Bring your spouse or SO into the situation. Bite the bullet and get them involved. In most cases, you’ll probably be pleasantly surprised at how supportive they can be, once they know the complete situation. Even if that isn’t the case at first, it’s a necessary step and has to be done. It’s their lives too, and at some point they have to ’step up’ and get with the game. It’s better to do it sooner rather than later, as in my brother-in-law’s case.

First Steps to Financial Well Being

1. Find out what you owe – As with anything, you don’t know where you’re going without knowing where you’re at. Get the whole picture together and figure out how bad things really are. I some cases, things might sound worse than they actually are. In others, it might be long past time to take emergency measures. Either way, get the whole picture.
2. Bring your spouse/SO up to date – This doesn’t mean sit down and throw a balance sheet in front of their face. It means have a talk (long, and or multiple) about the finances, how they got to where they are, and what needs to be done to get back in control. Ask for ideas, take their input, but keep on message. You have to solve this together, and that means coming up with the solution together.
3. Change the lifestyle – Once you’ve got a plan in place, make the necessary lifestyle changes to get it in action. Cut out the ‘fluff’, get a second job (or third), and sell that old stuff. Whatever it takes to get your finances back under control.
4. Track your progress – Just as with any other long-term lifestyle change (dieting, quitting smoking) you have to keep at it. Make sure you periodically re-assess your progress and keep yourself on track. It won’t do any good to go through all these steps, only to stop all progress a month or two from now. Keep at it.

With times as hard as they are now, you should get others involved as soon as a problem comes up. Don’t be ‘considerate’ of other’s feelings, only to have to tell them of worse news later.

Do the considerate thing, tell them now!

Do you hide your finances from your family? Leave us a comment and tell us your story.

(ARM’s) and Reverse Equity Mortgages to move to a fixed-rate mortgage. Advertisements are appearing like mushrooms after a spring rain, touting “You can be pre-qualified in 10 min.” and “We can pre-approve you for the home of your dreams.”

So, what’s the difference?

Here’s the definitions of pre-qualification and pre-approval:

• Pre-qualification: Pre-qualification is an estimate of how much you can afford to pay for a home based on your stated income, recurring debt, and any other factors/information you provide.
• Pre-approval: Pre-approval is a written commitment from a lender to finance your home purchase up to a set amount. The lender or bank has done a background and credit check, and has calculated the maximum amount they believe you can afford on any home loan.

One is only an estimate of how much your home should cost, while the other is a (temporary) loan offer up to a set amount.

The Pre-Qualification

There are a number of web sites that can give you pre-qualification estimates. Depending on various factors such as; Income, Interest Rate, Down Payment, Total Monthly Debt, and Home Price (to do a reverse qualification, giving you the amount of income, debt or down payment you’d need for a home of that price). None of these calculations are a firm offer from the bank, so they can’t be used as a lever to help with the purchase of the home. You must still get approved for a loan prior to either buying or offering to buy a house.

Pre-qualification formulas differ from lender to lender, and web-site to web-site. A ‘rule of thumb’ estimate is that the entire home price should be no more than three times your Gross Income.

Total Home Price <= Gross Income * 3

Additionally, assuming you fit into this formula, the total Debt to Income Ratio should be less than 33%. This means that of the net income you have, all debts (excluding the mortgage itself) should add up to less than 1//3^rd of the total.

Total Non-Mortgage Monthly Debt <= Total Net Income / 3

These are conservatively the MAXIMUM amounts you should consider for housing, based on your income and bills. Many personal investment counselors even consider THESE to be too high.

The Pre-Approval

Mortgage companies offer a pre-approval process to allow their borrowers some leverage when making an offer on a house. By getting pre-approved for a certain amount. The buyer can offer a (possibly) lower price for a house, but with a guaranteed loan attached. With the market like it is now, many home sellers go with the guaranteed lower price (‘a bird in the hand’) than take the risk of losing the sale through accepting a higher bid, but have the contract fall through because the buyer couldn’t get the financing they planned on (the ‘two in the bush’)

The Mortgage companies perform their own pre-qualification (as above) and verify income, credit history, and then apply their own risk management/mitigation guidelines to decide whether they should offer the loan. The loan itself isn’t for a particular property, but is based on the assessed value of the home that the offer is (eventually) made on. If the house is less expensive, the pre-approved loan covers it completely. if not, the buyer either has to come up with the difference or go through the whole approval process again.

Buying Strategy

Being pre-approved is only one strategy for getting the best price on your new home, but its one of the easiest and safest first-steps for the home buyer.

Having the bank pre-approve you, at a minimum shows that the bank believes you to have the right ratio of debt, income, and credit history to be a good credit risk.

Tags: prequalify, preapprove, mortgage, housing

Now I know a Health Savings Account doesn’t expire, which is one of the wonderful things about it, so I’m assuming that the clerk (who works in a medical office remember) must have mixed this up with a Flexible Spending Account which DOES forfeit any unused money at the end of the year. If it’s that easy for someone dealing with medical billing on a daily basis to confuse, I imagine it’s pretty difficult for normal everyday people to keep all the different accounts straight too.

So, What’s the Diff??

A Health Savings Account (HSA), is an additional account that is offered for those that have a high-deductible health insurance policy (generally at least $1500 for individuals and $3000 for families). This HSA provides many different benefits that are attractive to those individuals and families that don’t have too many health related expenses.

HSA Good Points

• Smaller Insurance Premiums – Insurance policies with high deductibles, generally have much smaller payment premiums. Some have up to the maximum allowed ($5420/year/family) before they pay ANY money. At first it sounds like a lot, but if you take a look at how much you spend on doctor visits and medicine in a year, many people don’t even spend that much. Paying high premiums for insurance you never use is a waste.

• Deposits to an HSA are Pre-Tax – A family can put a maximum of $5420/year into their HSA account. All payments into an HSA can go in pre-tax (depends on your job) and can stay there forever, or be withdrawn tax-free for medical expenses. (As Borat would say, "Niiiiice".)

• HSA Money can be Invested – Once money is put into the account, it acts like a typical IRA. It can be invested in various stocks, bonds, mutual funds, or other investment vehicles. You can think of this as your "Health IRA". If you build it now, when you’re healthy, and let the wonderful COMPOUND INTEREST do it’s magic over the years, you could have hundreds of thousands of dollars in your later years for those growing health expenses.

• Personal Responsibility – Because the individual is responsible for paying out-of-pocket or from the HSA account for the first $5400 of medical expenses, most people will ’shop around’ some and try to get the best deal for their money. Not all doctors charge the same, and not all service is worth the money. Competition causes price reductions. I’m not in favor of driving doctors out of business, but I’m also not too fond of financing that third house in the Bermudas either. Many people that have comprehensive insurance go for the ‘carte blanche’ approach; Since I’m not paying for it, I’ll take EVERYTHING you’ve got. Tests, exams, x-rays, DNA analysis, full body Nano-structure comprehensive bio-analysis and mutological/pathogenalogical exam, etc. This drives up the overall cost of insurance, as the insurance companies pass these costs off to the general population through increased premiums. Remember; the insurances companies are a BUSINESS. They aren’t here to LOSE money, but to MAKE money.

Now, in comparison, a Flexible Spending Account (FSA) is a different type of beastie. Originating before the HSA, the FSA resembles it somewhat. Flexible Spending Accounts were originally created to address some of the same issues as the HSA, but because of legal considerations, couldn’t go as far as the HSA.

Differences Between FSA and HSA

• No Insurance Needed - Because this is a ‘Spending’ account, it isn’t actually tied to a health insurance policy like the HSA. You can have a FSA without any health insurance if you wanted to.

• Covers Medical AND Child-Care Expenses – The FSA can be used for both medical expenses and child care expenses, whereas the HSA is only for medical.

• Use it or Lose it – You can select any amount (up to a certain percentage, determined by your employer/IRS) and have that amount automatically deposited into the account, but if you don’t USE it by the end of the year, any remaining funds are lost. (The company offering the FSA gets to keep it).

FSA Good Points

• Deposits to an FSA are Pre-tax - Like the HSA, deposits into an FSA can be made before tax is take out of your pay, reducing your overall tax burden.
• Covers Medical Procedures Insurance Doesn’t – Many health insurance plans won’t cover ‘voluntary’ surgeries (lasik eye surgery, plastic surgery, etc). The FSA doesn’t differentiate between voluntary and mandatory medical. Many people can negotiate a flat-fee for procedures, then have this amount taken into their FSA account and then on to the doctor/medical practitioner. That way, you save some money and reduce your taxes. (Note: HSA accounts can also do this, but since you’re only limited to $5400/year putting INTO the account, it might be better to leave the money there to grow and use the FSA instead.)

Both HSA’s and FSA’s have their places and roles, and both are valuable tools to help you with your finance. Neither precludes the other, so you can mix-and-match, as your needs dictate.

Technorati : Flexible Spending Account, Health Savings Account, medical insurance, personal finance

]]> http://www.creditwithdrawal.com/wordpress/2007/10/01/whats-the-difference-health-savings-account-vs-flexible-spending-account/feed/ 1