Fortune Watch

President Obama signed a legislation last year that brought around many changes to the Credit Card companies and users. Starting early this year, the credit card companies need to comply with a new set of rules. From now on, credit card companies cannot raise interest rates on purchases you already made on your existing balance. The bank won’t be able to charge you for spending more than your credit limit any more. The credit card bills will be more user-friendly, with the payments due on the same day each month and the consequences of paying just the minimum monthly payment clearly printed on it.

From now on, banks will need to send you a minimum 45 days prior notice before raising cash advance and late fees. Mandatory fees (like the annual or application fees) should be less than 25 percent of the credit limit, a rule that puts an end to the credit card company’s pursuit of people with poor credit histories.

The new rules are going to make it increasingly difficult for students to get credit card. For a start, no one under the age of 21 can get a credit card unless they have a co-signer or offer substantial proof of their ability to repay the debt. This move assures that no irresponsible student ends up having a large loan on his credit card without any means of repaying it. However, there’s one fee that has not been curbed, in spite of drawing serious flak from numerous customers for over a decade. Of course, we are speaking about the foreign transaction or currency conversion fee, a fee that earns several million dollars annually for the credit card companies.

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A disappointed salesman of Coca Cola returns from his Middle East Assignment.

A friend asked. “why weren’t you successful with the Arabs?”

The salesman explained.

When I got posted in Middle East, I was very confident that I would make a good sale pitch as Coca Cola is virtually unknown there. But, I had a problem I didn’t know to speak Arabic.

So, I planned to convey the message through three posters.

First poster: A man lying in the hot desert sand….totally exhausted and fainted.

Second poster: The man is drinking our Cola….

Third poster: Our man is now totally refreshed…..

And then these posters were executed all over the places…”Then that should have worked!” Said the friend.

“The hell it should have!?” Said the salesman. “Didn’t realize that Arabs read from right to left”.

Weekend Humor

Weekend Humor!

The current mortgage rates are as good as they are going to be for a couple of years now. The current mortgage rate is 5 percent- a rate so good that it has forced people to rethink over paying off extra payments to pay off their debts well before their loan period is over. The Federal Reserve announced its decision not to buy mortgage-backed securities from now on last week. The rates are expected to go up once the Federal Reserve stops buying.

Your browser may not support display of this image. When rates used to be much higher at about 7 to 8 percent, it made sense to pay off extra payment to guarantee a return on your money. However, with the mortgage rate dipping low, it would be wise to invest your mortgage payments in someplace else where you can earn a greater return on your investment, especially when getting rid of your debt costs you much less.

Would you prefer to keep your money in a more liquid option than a mortgage? Having hit the lowest possible mortgage rates in years, would you be willing to invest your extra money in savings rather than clearing off your debt earlier than the mortgage requires.

The bottom line is this: Don’t make extra mortgage payments until you have cleared higher-interest debts. Speaking of higher-interest debt, credit card debt first comes to mind. Also, if you are not saving enough to get a full cover on your employer’s 401(K) or similar account, don’t rush to pay off the mortgage loans first. Increase your savings in that area first. Ensure that you have a decent emergency fund set aside before paying off the mortgage loans.

In reality, your interest rate is even lower than the 5 percent interest rate that you have. You get a part of your interest back each year in the form of a tax deduction. Picture this: Suppose your yearly income is $175,000. You pay 35 percent of it in taxes. If you pay $20,000 on mortgage interest each year on a 5 percent loan, that effectively brings down your yearly total taxable income to $155,000. That means that your total taxable income is lowered by a sum of $20,000. This in turn implies that you shall have to pay $7,000 (35 percent of $20,000) less in taxes per year.

This means that effectively, the after tax interest on your loan is brought down to 3.25 percent. So, any money that you have set aside for paying off the mortgage payments need to bring in a return of more than 3.25 percent. Seems quite feasible in current market situation, doesn’t it?

If you are worried that income taxes would cost you on the amount of money saved by not paying off the mortgage payments, all you have to do is to deposit the money into an account protected from taxes. A health savings account, a 529 college savings account, a Roth individual retirement account- all these would do the trick here. It is best advised to invest your money in some kind of tax-free investment. Otherwise, you may end up spending the money that you saved for paying off those mortgage loans.

The long-term rates for capital-gains taxes can well rise above the current rate of 15 percent. It is safe to have some of your savings in a taxable account though. In case you hit a long stretch of unemployment, banks won’t be willing to loan you money for a home equity loan without a steady income to repay it with. In case you need to sell your home and move quickly to a new town, why waste away extra amount of money on mortgage loan which you could have otherwise used as down payment for your new house.

Having said all this, one thing must be kept in mind. There is always a human factor involved when it comes to paying off the mortgage loan early. Many people want to ensure a good night’s sleep by repaying all their debts as soon as they can. This factor comes to play more strongly with people who are on the verge of retirement- many among them wish to retire without having a debt to their names. Many financial planners have taken this fact into consideration and helped their customers likewise. As one head of a major financial institution puts it- “The whole point of planning is to make life better,” he said. “It’s not to have more dollars at the end of the day.”

Weekend Humor!

Try a budget to keep yourself out of financial trouble!

Draw up a budget? What a mad suggestion. The average reader will find his eyes glazing over at the mere thought of something as hideous as drawing up a budget. That’s surely an activity reserved for geeks and weirdos.

And that’s the problem isn’t it. Most people don’t consider budgets a big issue. They will gladly perform a myriad of tasks daily that bring structure to their lives. Set the alarm clock. Munch through some horrid tasting cereal because it’s good for the digestion.

Get to work to perform boring and monotonous tasks. Live daily life in a totally structured manner until very few minutes in the day are available for spontaneous experiences. Yet, something as structured and necessary as a budget is frowned upon.

A budget provides the basic information to allow spending decisions to be made. Most people have a set income with which to work. It is only the monthly expenses where some control may need to be enforced.

It seems an almost impossible task for the average person to be able to work out what is left over after all set expenses have been deducted. Yet it is hardly a skill requiring an Einstein type of mind.

Fill in the amount coming in every month and deduct all expenses that come off every month such as mortgage repayments or rent, motor vehicle instalments or transport costs, costs of services such as electricity and gas and an allowance for food.

Don’t forget to allow for annual deductions such as licenses and memberships or pleasurable items such as holidays. The rest is available for arbitrary spending or saving.

This calculation seems to be beyond most people’s capability. In fact women in particular seem to roll their eyes in despair, fish out their credit card for some retail therapy and leave the bank account to look after itself.

So for the New Year’s Resolution number 2 in 2010 compiling a budget every month could be a novel experience. For those who find self-discipline a problem, putting away those credit cards, cancelling the bank overdraft could be a method.

Stop spending money when it runs out during the month. During the first few months it might even be necessary to eat with parents and friends. Making the drawing up of budgets a habit could be the best Resolution anybody could bring on board.

For those people with complex income structures and diverse expenditures a budget might need to be prepared by an accountant. Whatever the set-up, it is not an impossibility. It could certainly have helped such celebrities as entertainers Burt Reynolds and Mickey Rooney, Willie Nelson and Jerry Lee Lewis.

Industrialists such as Henry Ford and Henry John Heinz has similar fate befall them. Even Donald Trump mismanaged his budgets. Mind you, Donald Trump would probably not have been helped with a budget!

For Joe Average though a budget is a great tool to help with keeping their financial boat on an even keel. Try it in NOW.