Robert Kiyosaki Blog

Couples frequently avoid talking about money before marriage. That’s unfortunate, because sharing perspectives about money can help couples resolve the financial issues that doom many marriages.

The following financial compatibility quiz can help couples planning to tie the knot discuss financial issues. Answer “true” or “false” to each of the following statements.

1.      We are aware of and comfortable with each other’s money personalities.

2.      We have discussed our short- and long-term financial goals.

3.      My spouse and I are well versed in personal finance.

4.      My spouse and I have discussed a plan to structure our finances.

5.      We have planned for the impact that marriage will have on our taxes.

6.      We have decided how to divide up the money management tasks.

7.      We understand the importance of establishing a realistic budget.

8.      I know my future spouse’s investment personality and risk tolerance.

9.      I know how much debt my spouse is bringing into our marriage.

10.     We have made a commitment to discuss money regularly.

Answering “true” to eight or more statements indicates that you and your spouse are on your way to a stable financial future. However, it’s still a good idea to continue to communicate and work together.

If you answered “true” to between five and seven of the above statements, you and your spouse need to devote more time to planning your financial future together. With a little luck, you can achieve financial compatibility.

 If you answered true to fewer than five questions, don’t call off the wedding yet. Instead, make a sincere commitment to discuss these issues and consider meeting with an experienced financial planner who can help you start your marriage on firm financial footing.

 Read on to learn more about the importance of each question.

We are aware of and comfortable with each other’s money personalities.
Some of us grew up in families where parents watched every dime; in other families money flowed easily. Some people measure self worth in terms of money and possessions. Some people are natural spenders; others are savers. Understanding your future spouse’s background and values can help avert problems down the road.
 
We have discussed our short- and long-term financial goals.
Setting financial goals helps you develop priorities and define the type of lifestyle you will lead. Break down your goals into manageable pieces. If you want to buy a house in five years, determine how much you need to save monthly to meet the down payment.

My spouse and I are well versed in personal finance.
Parents and schools rarely provide training in personal finance. Work together to develop your financial knowledge and build confidence by taking a course, meeting with a financial planner, or purchasing a reputable book.

My spouse and I have discussed a plan to structure our finances.
Will you pool all your resources into joint accounts, maintain separate accounts, or devise some combination of the two? There is no right or wrong answer; the key is to come up with a plan that works for you both.

We have planned for the impact that marriage will have on our taxes.
The marriage “penalty” means that you and your spouse together are likely to pay more taxes than you each did as singles. Check with a CPA or tax professional to ensure that you are prepared to meet your tax responsibilities and aware of any tax law changes in this area.
 
We have decided how to divide the money management tasks.
Decide who will be responsible for balancing the checkbook, filing taxes, and tracking investments, or better yet, set up a plan for rotating these and other financial tasks.

We understand the importance of establishing a realistic budget.
Couples without a budget tend to live and spend from day-to-day. A valuable budget helps you save regularly, utilize income wisely, and avoid misunderstandings about how money is spent.

I know my future spouse’s investment personality and risk tolerance.
Investing styles are different, ranging from conservative to risky. Take the time to arrive at a level of risk where you both feel comfortable.

I know how much debt my spouse is bringing into our relationship.
Couples must enter marriage knowing how much debt they each carry and how it will be paid.

We have made a commitment to discuss money regularly.
Differences are inevitable. How you handle them is important to your marriage.
Whatever your answers, honest communication is the key to a lifetime of financial compatibility.

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Couples Quiz: What’s Your Financial Compatibility

Jack M. Guttentag

As the unemployment rate rises, more mortgage borrowers must choose between default and making the payment out of savings. That can be an agonizing decision. See the letter below:

“I was laid off recently but am reasonably hopeful of finding another position soon… We have stayed current by drawing down our IRAs, but there is only about $4,000 left, enough to cover us for one more month…Our family is counseling us to keep the $4K left in our IRAs and not make the next monthly mortgage payments. Do you agree?”

Not making the payment will hurt your credit, but if the choice is between missing the payment this month and missing it next month, I would miss it this month and keep the cash. I would only use the rest of your cash to make the payment if you manage to get a job before 30 days after the payment due date. In that event, you have a reasonable hope of being able to work your way out of the jam you are in, so using your remaining money to save your credit makes sense.

This question is heavily value-laden, which is why I answered it in terms of what I would do, which is not necessarily what someone else with different values might elect to do. Some, especially investors, could take the position that a borrower is morally obliged to make the payment if there is any possible way to do it. This is a defensible argument, but it assumes that the borrower’s only duty is to the investor. The borrower in question has a family to consider as well.

The issue of a borrower’s obligation to continue making payments out of savings after their income-generating capacity has been impaired arises in connection with the government’s Home Affordability Modification Program. See another letter from a reader:

“I have applied to have my loan modified, and am in process of filling out the financial questionnaire that my servicer sent me. It asks for the amounts in my bank accounts. Although my income has dropped, I have enough money in the bank to cover the mortgage payment for three years. Should I take it out, and where should I put it?”

To be eligible to have your payment reduced under this program, you must document not only that your income is insufficient to meet the payment but also that you do not have “sufficient liquid assets” to make the payment. I have scrutinized the specs for this program issued by Treasury, and could not find a definition of either “sufficient” or “liquid assets.” It is a thorny issue that Treasury elected not to deal with. In effect, this leaves it up to the servicers to decide, raising the prospect of widely divergent approaches.

Don’t expect me to advise you on how to avoid the intent of this regulation, but I am willing to advise Treasury on how it might have created greater certainty in the rule by defining terms. I would define “liquid assets” as deposits without a specific term plus money market funds, and “sufficient” as an amount exceeding six months of payments.

My guess is that few if any borrowers are going to get caught by the “sufficient liquid assets” rule, that Treasury knows this and put the rule in to cover its backside. It does not want to read press reports about a borrower with millions in the bank successfully obtaining a rate reduction. If it happens, it can be blamed on the servicer. From this standpoint, leaving the rule undefined makes perfect sense.

More:
How Deep Must You Dig to Pay the Mortgage?

When Edward Miller recently applied for a Charles Schwab Corp. credit card, a company representative asked him to fax in copies of his bank-account statements to verify his net worth.

It was “a bit of a hassle,” says the 64-year-old retired economics and finance professor from Bethesda, Md. He complied and was eventually approved for the card with a $5,000 limit.

After years of mailing cards out to just about anybody, banks are suddenly freezing out all but the most creditworthy customers. Those who do get cards have to jump through more hoops, such as sending in copies of their pay stubs. And they’re being hit with higher rates and fees.

Banks always tighten credit standards in an economic slowdown. But the recently passed Credit Card Act of 2009 is forcing the industry to rewrite the play book it has used for years. The new legislation aims to limit fluctuating interest rates, ban some controversial practices and arm consumers with more information on their debts.

Banks have until February 2010 to comply with the act’s key provisions, although some parts of the law have earlier deadlines. Beginning in August, for example, issuers have to mail bills at least 21 days before the due date and provide at least 45 days’ notice before changing any significant terms on a card.

The result: Many banks are tightening things up now before many of the restrictions go into effect.

For consumers, the tougher underwriting standards by banks may seem like a pendulum shift back to an earlier era when credit cards sported annual fees and double-digit interest rates.

In recent years, issuers cast as wide a net as possible by offering credit to millions of customers, knowing they could always raise rates on those who turned out to be bad bets. That pricing flexibility helped firms rapidly expand their operations, as those with less-than-stellar credit many of whom carried a balance or paid late fees and penalty rates generated millions of dollars in revenue.

Now, the industry is scrambling to figure out who its new profitable customer is. “Without the ability to reprice customers, raise fees or rates, the old profitability calculation won’t apply,” says Alan Mattei, managing director at Novantas LLC, a bank consulting firm.

In recent months, banks including Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co., have raised interest rates and fees, switched customers with fixed rates to variable ones, and dropped credit lines and closed accounts. Credit Suisse Group’s Moshe Orenbuch expects credit-card balances could shrink by 10% to 15% through 2012 as banks drop their teaser-rate offers and cut back on offering credit to riskier customers.

Charles Crawford of Grand Prairie, Texas, says that Bank of America raised the interest rate on his $19,000 balance to 23.2% from 12.2% starting with his June statement, citing his high balances. Mr. Crawford says the move nearly doubled his monthly finance charges to about $420 from about $220. “I feel so upset with them that I was thinking about not paying them,” says the 58-year-old engineer.

Excerpt from:
Banks Get Picky in Doling Out Credit Cards

The Rich Dad Real Estate Summit 2009

• September 12-13, 2009
• Scottsdale Plaza Resort – Scottsdale, Arizona

How to find and analyze great investment opportunities in this economic climate.

Great investments are made when you buy…not sell. This is the time to be buying. To achieve success in real estate you have to know how to find great investments, analyze, finance, and manage property. That kind of knowledge isn’t inherent – it has to be learned. Develop your inner real estate genius at the Rich Dad Annual Real Estate Summit.

Regardless of whether you are an expert or just beginning in real estate, this event is for you. This event is exclusively designed for investors looking for long-term, positive cash flow.

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The Rich Dad Real Estate Summit 2009

Earn more and desire less. These are the words that have utmost importance when you want to achieve financial freedom. No matter how small your income is, if you desire less, definitely you will spend less and you can consider yourself to be “wealthy”.

I believe our lifestyle determines whether we will be wealthy and financially free. There are a lot of persons out there who earns a lot but still because of their high lifestyle, however how huge their income is, all are spent and nothing is put into savings.

I always say to some people whom I know that despite their huge earnings, they cannot save to remember the saying in Filipino: “Ubos ubos biyaya, bukas ay nakatunganga”. You might be lucky earning that huge income now but how sure you are that you will continuously receive it for the rest of your life? Life is full of uncertainties. Therefore, you must take advantage of that huge earnings. There are very few people who might be rich forever. There are few Paris Hilton, Tiger Woods, Ayala Zobel, Henry Sy, etc.

I remembered during the financial planning seminar I conducted in our office, there was one person who asked me: “How can I save if there are a lot of bills to pay and other expenses and my income is not enough to support these? I just answered the four words – EARN MORE and DESIRE LESS.

Earn more from its very essence means to have another source of income. You may take a second job, take a part-time job, or transfer to a job with a higher pay. But the great secret of the rich according to Robert Kiyosaki is not to earn more from active income but to earn more from passive income. For those of you who are new to these words, active income is you work for money and passive income is your money working for you. I wrote an article about active vs. passive income.

But shifting from active income to passive income requires hard work. There is no other way to go to passive income directly except if you are born rich or inherited wealth. So for most of us, we need to educate ourselves about financial intelligence especially the cash flow patterns of the poor, middle class and rich persons. Remember that for the poor and middle class, they always buy liabilities that they think are assets so all their income eventually goes to expenses while the rich only buy assets that will provide them enough passive income in the future.

It’s always us who are making our own destiny. So you choose. It’s your decision. Remember to always watch your thoughts, for they become words. Watch your words, for they become actions. Watch your actions, for they become habits. Watch your habits, for they become character. And watch your character, for it becomes your destiny.

On the other hand, desire less means “downsizing” your needs and wants and prioritizing your needs more than your wants. As you analyze your needs and wants, consider downsizing them. Do your own housework instead of employing a maid or a house helper. Keep food to the simplest and least costly but still nutritious. Lessen those eating out habits. By choosing a good but more reasonably priced school, you can cut on education costs.

Check all your assets. Chances are you can sell some of them and perhaps even reduce your maintenance expenses. Do with one TV set instead of two. Sell your car and take public transportation. Move to a smaller place to reduce you rent and the need for some of your stuff. Sell your jewelry. Downgrade your mobile phone. Unless you are a complete beggar in the street, you can do something about downsizing.

Lastly, why do we need financial freedom? If you are not yet convinced why you need financial freedom, then ponder and ask yourself the following questions:

“Will you be willing to work for the rest of your life?

“Who gets rich in the end if you keep on working: Is it you? Is it your boss? Or is it the shareholders of the company?”

“Did you ever notice that as your pay increases as you work your way to climb that corporate ladder, your income taxes increases too?”

“Did you hear stories of some top executives who committed suicide or risked their health because of too much stress they faced from their jobs?”

“Did you hear stories of children whose lives were misled because of the lack of guidance from their parents who didn’t have enough time for them because of work?”

So do you want to achieve financial freedom? Then just remember the four powerful words – EARN MORE and DESIRE LESS.

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Earn More Desire Less