Friday, October 9, 2015

The Financial Lessons Of Donald Trump

Over the last 30 or so years, only a handful of people have entered pop culture simply because of their wealth. We know Warren Buffett, although he's more famous for investing than he is for being rich.  Bill Gates is famous for being rich in many ways:  He's referenced online in various scenarios revolving around the mathematics of his wealth -- people calculate how much money he'd have to find on the street to make it worth his time to pick it up.  But Bill Gates is rich because he co-founded Microsoft and his philanthropic efforts ensure he will be remembered forever in a way that someone famous solely for being rich would not.  Therefore, there are only a couple of pop culture figures who truly are famous because of their riches:  Paris Hilton and Donald Trump. 
This article is about the financial lessons of famous individuals, so we're going to ignore Paris Hilton, if only because the first rule would be "be born rich" and rule two would involve sacrificing every part of your humanity for fame.  Trump, however, is currently running for president of the United States, and the reason he has become part of the national conversation about the most important office in our country is the notoriety he has earned in the last 30 years for being rich.  So, what lessons can we learn from Trump's personal biography that can help the rest of us reach our goals? 

Stick to your guns - Whether you plan to vote for him or not, Donald Trump's career has been trending up for nearly three decades.  Not every famous person can run a reality show, not every reality show goes on to become incredibly successful, and even fewer can turn their reality show notoriety into a political career.

Trump attracts attention and popularity by speaking in bold declarations, whether that's on TV or during political debates.  He sticks to his guns by following a path that only he can see.  How many commentators thought he wasn't serious about the presidency?  How many still do?  You don't have to agree with him to understand that absolute certainty is a kind of charisma, and faith in oneself is an absolute necessity to getting rich.  How many great ideas have you had but never followed through on?  What about that great business idea you never pursued?  That project at work that you couldn't sell to your boss?  Even when you're wrong, believing in yourself carries a lot of gusto. 

Use someone else's money - Trump, like many of the other famous-for-being-rich celebrities, was born with money.  In fact, just about every article about Trump's money discusses the idea that he started with money and still had to file for bankruptcy, as if that were a sign that he'd made a mistake. In this country, we have a complicated system designed to assess risk and defray those risks throughout our system, which rewards risk takers and minimizes the negative outcomes of a mistake. Bankruptcy is sometimes viewed as part of that process, which is why so many European countries have modeled their bankruptcy procedures after ours.  We're not suggesting you go bankrupt or put yourself in such a position.  Instead, we're suggesting that Trump took a calculated risk using loans and investments to speed up the growth of his real estate business.  Understand your risks, and don't be afraid of them.  Use loans and investments, not your savings. Loans - when handled responsibly - can help you start a business, increase the value of your home or go back to school. If you wait until you can afford it, you may never get there.  Let us know what you want to do, and we'll find the loan that will help you get it done. 

Accept your limitations - Donald Trump continued to call for Barack Obama's long form birth certificate long after the rest of the country was satisfied with the president's documentation. When he offends people, he doubles down instead of apologizing. Perhaps nowhere does he teach us the lesson of not accepting limitations better than his hair.  Like many men of a certain age, he'd be better off bald than trying to hide his hairline. 

First, it might be time for an honest look in the mirror.  Second, it's time to identify your strengths and play to those instead of compensating for your weaknesses.

Don't be Donald Trump's hair.  If you take nothing else from this article, maybe that should be it. You need an honest friend who can tell you you're not hiding your weakness and help you figure out a better solution, like a trip to the salon. 

Whether you need help supporting your million-dollar idea, a loan to build up your investment in your home or an honest friend who can show you where your portfolio is weak, let us know.  We've got professionals ready to help. 

Please note:  Destinations Credit Union does not endorse any political candidate as an organization.  The intent of this article is to look at personal financial issues.

Tuesday, October 6, 2015

10 Facts About Credit Unions

In preparation for International Credit Union Day, October 15th, we thought we would share a few facts about credit unions. Being a member of a credit union is a coup for your finances for many reasons. Here are just a few facts that make credit unions a great option. 
Fact #1: President Roosevelt signed the Federal Credit Union Act in 1934 to promote thriftiness and prevent usury during the Great Depression. 
Fact #2: Credit unions are insured. Most credit unions are insured by the National Credit Union Administration (NCUA), which provides essentially the same coverage on funds as does the FDIC. If the word “federal” is in the name, they are insured. If not, check with your credit union. It may be state-chartered and/or have private deposit insurance.  Destinations Credit Union is chartered by the state of Maryland and Federally insured by NCUA.
Fact #3: Eligibility is fairly flexible at most credit unions. Most require residency in a certain community, city, or state, or that you are employed by the credit union’s sponsor company, also known as a Select Employee Group (SEG). But requirements are pretty broad on most, making eligibility at a credit union a possibility for almost anyone. 
Fact #4: Credit unions are not-for-profit institutions and are owned by the people they serve, not by a few shareholders. 
Fact #5: Credit unions can offer better rates on savings accounts, lower interest rates on loans, and little or no fees on accounts because they return their profits to the member/owners.
Fact #6: The credit union’s board of directors, which is elected by members, can set loan limits in an effort to help the credit union grow. 
Fact #7: Credit union members have democratic control of the credit union and can attend and participate in regular and special membership meetings. 
Fact #8: Nonmembers benefit from credit unions too. Competition for low rates keeps banks’ fees in check, thereby benefiting nonmembers. 
Fact #9: With more than 5,000 credit unions across the globe and access to tens of thousands of ATMs, credit unions are increasingly convenient on a national scale.  Destinations Credit Union is part of a national shared branching network, giving you access to your accounts all over.
Fact #10: Once you are a member of a credit union, you stay a member for as long as you maintain your deposit account (share), regardless of whether or not you continue to meet the original eligibility requirements.

Friday, October 2, 2015

It's Almost Halloween, So Let's Talk Christmas

Football has begun, the leaves are changing and the kids are back in school. Clearly, it's time to start thinking about Christmas.  Some of you are reading this on your phone while waiting in line at Starbucks, preparing to buy your first Pumpkin Spice Latte of the season, but it's time to start thinking of peppermint mochas instead.  Even if you're the "Bah, Humbug" type of person who regularly posts Facebook rants about the neighbors putting up their lights before Thanksgiving, making financial plans for the holiday is still a really good idea.  It might be too early to hang a stocking, but it's never too early to sock money away.

Question: How much will I be spending on the holidays this year?

Answer:  Recent studies have pegged the price of the holidays at roughly $300 per child, while one in 10 shoppers admit to spending over $500 on gifts for their children.  Overall, Americans spent about $600 billion on Christmas last year, which comes out to around $2,000 per person. This includes decorations, hams, ugly sweaters, and whatever else you tend to buy.  That's a lot of money.

Question:  Ugh.  Why are we even talking about that money now? It's not even Halloween!

Answer:  Halloween is exactly why we should make plans now.  Since 2005, American spending on Halloween has spiked.  Last year, we spent about $7 billion on Halloween, including $350 million on costumes for our pets!  It's easy to overspend in October, let that lead into an indulgent Thanksgiving in November, and then find ourselves putting all our Christmas spending onto a high-interest-rate credit card.  Planning ahead is a necessary step to prevent you from a holiday hangover in the New Year.

Question:  How bad is it to put Christmas on a credit card?

Answer:  It might be worse than you think.  It'll cost you about $200 per month to pay off an average Christmas debt in time for next year if using a typical high-interest credit card. And if you don't pay it off by next year, you're suddenly trying to pay off two holidays at once. That's bad news.  Even if you think you can handle the extra debt load, remember that the Fed just raised rates, and it may do so again. Whenever it does, you can expect your credit card bill to go up.  On top of all that, paying around $400 in interest charges and fees over the course of the year is still $400.  That's probably enough money to turn your average Christmas into something worthy of a televised Christmas special.  If you have to use a credit card, make sure it's a low rate card like your Destinations MasterCard.

Question:  Is it too late to get ahead for this year?

Answer:  Not at all.  You have a lot of options to save yourself from your own spending.  You can sign up for a Holiday Club account, a High Yield Account or a variety of other plans.  But that's not the only approach.  You can also get ahead of the rate hikes by moving all of your credit card debt into a home equity loan (check out our rates) or signing up for one of our low-interest credit cards.

But even all those options don't represent all the various ways to save money. Remember that Christmas spending doesn't have to be an all-or-nothing proposition.  You can combine savings, credit cards and budgeting to attack the holiday from several angles.  Start now, and by Christmas you'll have a well-stocked war chest, or in this case, toy chest, to give you a variety of options.

Question:  What about the holidays between now and then?

Answer:  Between Halloween and Thanksgiving, Americans spend around $150 per person on average, which is far more affordable than Christmas. But that can still add up quickly, especially in larger families.  It can also be difficult to tighten the belt at this time of year, because it can mean less candy and less family time for the kids.  If you're worried about this spending, one way to rein it in is to make a combined holiday budget you pay into every month.  Figure out how much you plan to spend on birthdays, holidays, anniversaries and the like, then divide that by 12.  That's how much you need to put away every month.  Does that sound like a lot of money?  Then you can cut down all year long.  Maybe you don't need to send birthday gifts to as many people or your anniversary can be a smaller occasion this year. The bottom line: If you start planning ahead, you can keep your holiday spending from being an obstacle to your financial future.


Tuesday, September 29, 2015

High Yield Investment Fraud

Whenever the stock market takes a hit, unscrupulous individuals will try to find a way to use the misfortune of worried investors to make a quick profit.  In light of this year's problems on Wall Street, it's no surprise that old scams are coming back, and like all of the classic scams, this one is based on the oldest premise there is:  make a lot of money, really fast, with no work.

High yield investment fraud is most commonly found on the Internet, where it's much easier to put together a website that appears trustworthy and professional than it is to create the same appearance in person.  Such sites claim to provide amazing returns, sometimes as much as 40 or 50% per month, and are supported by dubious charts and testimonials from people who may not actually exist. Between a quality website, impressive charts, and some meaningless investment buzzwords describing a "magic pill" of an investing philosophy, unwary consumers can be easily fooled into forking over a chunk of their savings to an investment broker who is not licensed by the SEC and makes claims the SEC would call illegal.

The clearest warning signs of these scams are easy to remember, just like avoiding them should be simple to do: don't trust anyone who offers to-good-to-be-true returns, dismiss cutting-edge investment opportunities if they come from anyone but an investment professional with whom you've worked before, and ignore any evidence of success that can't be verified by an outside party.

Big returns are appealing.  You want to retire someday, send your kids to college, or start a business to get away from the morning commute, and the more money your investments make, the quicker you can do so.  But it's important to trust the process.  Return on investment is tied to the risk involved in spending money on that investment.  The stock market offers better returns than treasury notes because it's far riskier to bet on United Airlines than on the United States.  High-yield investment scams are successful because we want to believe that someone can beat the market so well and that we can have returns that are better than the stock market with risks that are lower than treasury bonds.  It just doesn't happen that way.

At Destinations Credit Union, we believe we've created a nice sweet spot with our savings products. No matter what your preferences are, we can fit into your investment portfolio. In times that the market does well, the money you have with us will keep you moving towards retirement, but when the market slows down, you don't have to worry about losing your financial security because the money your entrust us with is safe.

To put it another way, the U.S. economy has traditionally done three things very well:  lower prices, create jobs, and price risk.  The last recession was caused by doing a poor job of pricing risk, and that hurt our ability to do the other two.  But that's exactly the point.  As an economy, we are so good at pricing risk that when we screw it up, it's an enormous, world-altering event.  If you find someone who can price risk so much differently than every other investment professional in the world, you need to also be ready to bet that the economy is going to take a radical shift in an entirely new direction, because that's what happens when we do a bad job pricing risk.

Finally, if you want to avoid all kinds of investment scams - and the SEC, FTC, and all have many pages listing the variety and creativity of these scams - the best thing to do is remember why you bank with us.  We're part of your community, not a giant multinational corporation.  We share our revenue with our members, not shareholders who may not even be connected to our local community. Our kids go to school with your kids and you can always come in to talk to us for helpful advice. 


Friday, September 25, 2015

Rethinking Your Money With Apple Math

When it comes to your finances, it can seem like all the advice you get is deadly boring, unbearably abstract or both.  For example, when it comes to paying off debts, how can you be expected to make a dent without first having a spreadsheet that compares all your credit cards and loans with columns for principal, interest rate, fees and maybe even frequent flyer miles?  It's intense. At the same time, when it comes to spending, you're no better off. How do you compare the value of a fancy dinner to buying a new outfit for the kids?

In 1986, The Economist created "The Big Mac Index" as a way to compare currency values across eras and national borders.  The index shows how many hours of labor it takes to earn the cost of a Big Mac. So, if it took you 10 minutes to earn the cost of a Big Mac last year and it takes you nine minutes today, you are - in theory - better off than you were before. That's true whether those gains come from getting a raise, moving to a town with a lower cost of living or improvements in McDonald's supply chain to save consumers money. While the value of a dollar changes over time, the value of a Big Mac to a hungry customer remains constant.

We're going to use the same Big Mac concept here, but we'll use it to explain personal finance. If you're a fan of Apple products, fabulous. If not, feel free to substitute other luxury goods of your choosing.  As an added benefit, if you're looking to talk about money with a young person, you may find the Apple index to be a helpful tool for starting a conversation.  After all, that young person is probably staring at their phone, tablet or laptop right now. 

The price of luxury 

If you're carrying an iPhone, it's probably the most expensive thing you carry every day.  You might not think so, because you might be used to those two-year contracts that artificially decrease the price of a phone by several hundred dollars.  In reality, though, a lot of companies, from your service provider to the handset manufacturer, stand to make money by concealing the price from consumers.

Even then, you could be skeptical.  "After all," you might say, "I'm currently wearing a very expensive watch.  This Omega Speedmaster Moonwatch is the same model as the one that's been on the moon." Or maybe you're glancing at your Herm├Ęs Clemence Birkin purse, believing no phone could cost as much as a bag for which a noble alligator gave its life.

Actually, it does.  You see, when a person buys a luxury watch, he or she usually expects to hand it down to their son, daughter or whomever so they may stay in a family for generations.  The same is true for Hermes bags, particularly because they have to last long enough to get back to the top of the waiting list.  A Hermes reservation can last a family for generations, too.  A $10,000 watch or bag that lasts 100 years actually costs $100 per year.  Similarly, a basic two-year phone contract typically came with a $200 credit toward a phone purchase, so even a free phone on that plan costs $100 per year, the same as an Omega watch or Hermes bag.  A $649 iPhone 6s costs more than three times that much. 

The price of five bucks 

Most phones sold this year don't have 2-year plans.  Instead, AT&T, Verizon and many of their competitors offer plans that can be canceled at any time, with the cost of the phone spread over two years or more, disguising the total price of the product.  After all, the difference between spending $25 per month and $30 per month seems negligible. If you're already writing a check to your service provider for $200 worth of data, talk, taxes and fees every month, what's another five bucks, right? Of course, that difference over two years comes out to $120.  If you have three lines on your account, the bill comes to $360.

When are you planning on paying off that smartphone?  When do you expect to not have to pay another phone bill?  The smartphone manufacturers assume a two-year lifecycle, and intentionally do not design their phones to last forever. Five years ago, one of the best selling phones was the original Motorola Droid. Go back another year, and it's Nokia at the very top of the sales charts, capping over a decade of the company's dominance.  It's hard to remember that environment, but it included 3G networks and sliding keyboards.

Phones have short shelf-lives, so you can probably expect to make payments on a phone for most of the rest of your life.  If you made that $5 payment into your savings account instead, that would be around $16,000 in time for your retirement.  That's an expensive five bucks.

It's not a Big Mac, but hopefully the iPhone works just as well to explain the value of money when it's difficult to understand.  Buying a product that lasts a lifetime can actually be quite affordable in the long run.  On the other hand, a mindlessly squandered five dollars can be quite expensive.  We've got a lot more lessons from the Apple index coming up, so stay tuned!