Dear Mr. Advice Columnist

Dear Mr. Advice Columnist,

I have a family member in trouble and hope you can help.   It’s affecting our whole family.  My uncle is out of control and I am not sure how to deal with it.    He may be senile or possibly suffering from dementia.  He used to be a likeable guy, very popular, and really had his life together.   Don’t get me wrong, he made mistakes, but he was a better guy than most people.  He was extremely frugal and built up quite a large amount of wealth.  That’s where the problem begins.  He started giving money away, to the point that he cannot pay his own bills.  He gives it to family members, strangers on the street, and even people in other places he doesn’t even know.  He buys them all sorts of things they don’t really need or that they could buy for themselves.  He has been supporting many of them, buying groceries and even paying their bills for them.  I don’t mind him helping the ones who are really in trouble, but most of them could pay these things themselves with a little financial responsibility and realistic budgeting.  But, with him paying for so much, they aren’t learning how to take care of themselves; they just keep taking from him.

I wouldn’t mind so much, but we all live together on the same piece of land that we inherited from my great-grandparents.  And, since we all share title, his financial choices are affecting us all.  What’s more, we have a joint checking account and every time I get a little money, he takes half of it and gives it away to other people.  He has actually run out of money himself and has been borrowing great amounts of credit to keep giving money away.  I’ve tried talking to my family about all of this, but since so many of them receive money from him, they don’t seem to care that we are living on borrowed time.  My cousins all think it’s no big deal.  They say that by the time the money runs out from all the credit cards and bank loans that they’ll all be dead anyway.  They don’t seem to care that their children will be horribly affected by my uncle’s mistakes and they really don’t care that it is affecting those of us that are trying to pay our own way.

What can I do?

Anxious in Arizona

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 Dear Anxious In Arizona,

It’s your Uncle Sam, isn’t it.  I know that guy.  Well, the bad news is, the problem will never be fixed till your family works together to get each of themselves on a budget.  Then they can begin insisting that he cut his spending and get him on a realistic budget.  But, as long as so many of them receive money from his largess and won’t choose to be financially healthy themselves, you’ll never change anything.  I wish I could give you more hope, but as long as people act for their own selfish interests and take no personal responsibility, you are stuck. 

Mr. Advice Columnist

Wisdom Is Where You Find It

If you open your eyes, you can learn something just about anywhere. 

For example: A bus stop.

Or, in this case, two bus stops a couple hundred yards around the corner from each other.

I was driving down Thomas Road in Phoenix and passed the first bus stop.  The sign behind it said, “Some people are smarter than you.  Listen to them.” 

“Sage advice from a beer advertisement,” I mused, as I drove on down the road.

Then, as I turned the corner at 32^nd Street, I spied a second bus stop sign, also selling beer:

“The bulk of your life should be off the record,” this one touted.

More wise advice.  Beer advertisements have sure come up in the world in the past 20 years.  No Clydesdales playing football, no bikini clad women in the snow, and no vapid arguments over whether a beer tastes great or is less filling.  All things we can certainly do without.  Well, maybe not the bikini clad snow girls.  Definitely not without them.  Why would anyone drink beer if it weren't for the bikini clad snow girls.  But, I digress.

In this age of Googled answers and Facebook friends, when Snopes can’t keep track of the balderdash and Twitter can’t keep Weiners off the air; it’s refreshing to get some good old-fashioned wisdom from your friendly neighborhood brewery. 

There are people who are smarter than you.  Seek them out and listen to them.  Chances are they don’t live in Hollywood or Washington D.C.  Look for them in your neighborhood.  Most of them are over 70 and have lived long enough to learn a few hard lessons.  Get to know them.  Spend some time.  Learn from them.

And while you are at it, how about keeping most of your life off the record.  I still have to learn this one myself, but let me put it out there.  You don’t need to blather every inane thing in your day on Facebook.  No one cares.  They are too busy broadcasting their own frivolities.

Maybe it’s time to turn off the computer, tune in to the real people around us and drop out of the online world.

 Just for a while…

Wisdom is where you find it.

Financial Tip # 2 - Don't Ask A Barber if You Need A Haircut

Don't Ask A Barber if You Need A Haircut

This cowboy wisdom can be applied throughout your financial life. Don’t ask a realtor how much house you can afford and don’t ask a banker how much of a loan you need.

Don’t get me wrong, good advice is a thing to be treasured, but you always have to consider what someone’s motivation is. Are they working for your benefit or for theirs? When it comes to your realtor and banker, you don’t usually have to wonder.

This housing boom and the following bust came largely because people trusted their banker and real estate agent on what they could afford instead of educating themselves and proceeding with caution.

The biggest issue is that they base what you need on what they think that you can afford.

Let’s look at a little banking term called DTI (Debt to Income). This is a ratio of how much money you have going out the door compared to how much you have coming in the door each month. It seems like an easy concept until you consider that different banks, mortgage companies, finance companies, credit card companies and other lenders look at this amount differently and NONE of them look at it realistically.

Here is our example today:

Mr. Jones has a job where he makes $50,000 a year. After taxes, 401k, insurance, and other payroll deductions, he actually brings home about $37,000 a year. Divide that by 12 and you get a monthly income of $3083.

Let’s say that Mr. Jones is a normal guy and has a car payment of $420 (average American car payment) and car insurance payment of $145 (average American car insurance payment). He also has a home phone bill, cell phone bill, gas, water, and electric bills totaling $600 per month. Let’s not forget cable television and internet of $120 per month. Groceries are about $300 a month and he eats out a few times a week totaling another $200 a month. He also has credit cards with a total minimum payment due of $115. His rent at this time is $1000 a month. That brings him to a total of $3083 coming in each month and $2780 accounted for in spending each month. This doesn’t take into consideration that cup of coffee at Starbucks every morning, his medicine and clothes as well as other extraneous impulse buys.

To calculate his Debt to Income ratio, you divide his debt ($2780) into his income ($3083) to get 90.2%. That’s very high. Of course the rent would come out when he buys the house, but then he’ll have a house payment, plus property taxes and mortgage insurance, so that will likely be higher. Let’s say that totals $1200 a month. His DTI is now 94.1% He’ll have no cushion in case of emergency. Kind of scary, Huh? No lender in their right mind would offer this guy a loan. Except…

Different types of lenders and banks look at his DTI differently. Most don’t count utilities. So that automatically knocks off the $600 a month from their calculation. They also don’t think about groceries and payment history as well as that cup of starbucks every day, medical expenses, etc. So that knocks off another $500 a month from their calculation.

Then, the kicker: Most of them use Gross income, not Net income. So they take the $50,000 per year and divide by 12. Now the calculation works like this:

$50,000 divide by 12 = $4167. Total expenses used in calculation: $1880. $1880 divide by $4167 = 45.1% DTI!!! Now he’s looking good. Heck, he can afford way more than a $1200 a month payment now. Let’s get him into a bigger home. Incidentally, I think that politicians use this same methodology for balancing the budget.

As a consumer, it is YOUR job to be brutally realistic about your finances. Look at your real budget. Include those cups of coffee from starbucks. Don’t forget medical expenses, cell phones, and utilities. Groceries really do cost money and so does eating out all the time.

Calculate your own DTI before deciding what you can afford and don’t trust your banker or realtor on this. You don’t need as big of a house as you think you do.

I’m not telling you that your banker or realtor is dishonest, only that they are working in their interest too and you need to be aware of that. Don’t shut off your brain and blindly accept what they say.

Think for yourself and do the math for yourself.

And be careful where you get a haircut.

Disclaimer: I am not a trained financial advisor, I just play one on this blog. Seriously. Get good financial advice in life. My information comes primarily from personal experience, working in consumer lending in the banking industry, and watching friends, family, and parishioners struggle. But, much of this is common sense, most people just don't use their common sense when it comes to financial matters.