After reading Carl Richards simple but powerful book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money, I realized that a better title for my ebook would have been, The 10 Simple (But Not Easy) Truths About Money. As Richards says, “We often resist simple solutions because it requires us to change our behavior.” Thus, the behavior gap.

Richards displays a true understanding of human nature with his words, but also with his disarmingly simple sketches that portray powerful truths about people’s behavior around money. You will recognize yourself in many of them. With amazing insight into how our brains work, he uses real-life stories and humor to show how we are our own worst enemies when it comes to money management. He also offers up great advice on how to make better money decisions.

Some of my favorite “behavior gap” insights include:

• Investments don’t make mistakes. Investors do.
• Figure out which emotion is the bigger issue for you—fear or greed—and invest accordingly. You can’t have it both ways.
• Planning for your financial future is a balancing act rather than a single-minded pursuit of the highest return.
• There is no such thing as the best investment.
• Planning for your financial future is personal. A good plan will be unique to your situation.
• No one knows what the future holds.
• Our real task is getting to know ourselves and our goals, making choices aligned with those goals, and adapting to the surprises that are bound to come along.
• Financial decisions are almost always life decisions. Before you decide on your financial goals, you need to choose your life goals.
• Focus on your personal economy and stop worrying about the global one.
• Our deepest instincts will tell us that money doesn’t mean anything, it’s simply a tool to each our goals.

Two thoughts kept running through my head as I read Carl’s book: “I wish I had written this” and “All of my clients need to read this.” Even if you don’t have time to read the book, flip through and take in all the sketches. They tell the story of our behavior gap just as well and may just motivate you to stop doing dumb things with your money!

Many of these investors are just ordinary folks who pay their bills on time, have good credit scores and would no more consider defaulting on a debt than they would stop brushing their teeth every day! But “walking away” is now on their short list of options to consider.

“Walking away” – also known as voluntary foreclosure or strategic default – occurs when a borrower decides to stop paying a mortgage even though they can still afford the payment. Why would someone consider such a controversial course of action? Because of the following unfortunate circumstances:

• Market values are way less than the mortgage balance (often referred to as being “underwater”).
• Refinancing to current lower rates is not an option due to lack of equity.
• Experiencing negative cash flow (rents are not covering expenses) each month.
• Selling isn’t an option with prices as depressed as they are, without bringing in cash to close.
• Difficulty raising rents in current economic environment.
• No clarity on when real estate market values will recover.

You’ve heard the expression “throwing good money after bad”?

What Happens if You Walk Away?

When you walk away from a mortgage, your credit score will drop. If you have a secure job, own a home with a decent mortgage loan or are happy renting, you may not need a mortgage loan for many years. But if you do plan on buying a home, it will be up to seven years before banks will lend to you, and you may be required to make a bigger down payment or pay higher interest rates.

You will also need to deal with your tenants. Fortunately, their rights are protected by the “Protecting Tenants of Foreclosure Act of 2009.” This legislation requires the new owner to let the tenant stay at least until the end of the lease; month-to-month tenants are entitled to 90 days notice before having to move out.

If you live in California (laws vary by state), as long as you first mortgage is a purchase money loan used to buy a one- to four-unit residential property, you won’t have to worry about  the lender coming after assets other than the property itself. Anti-deficiency statutes exist that protect borrowers in non-recourse states. The same protection doesn’t exist for refinanced loans. In either case, banks in California rarely go down this path due to the time and legal expense involved (at least for now).

If you took out an equity line or HELOC and it was used to buy the property, then it is also considered a non-recourse loan. Otherwise, most equity loans and HELOCs are recourse loans and you will be personally responsible for paying them back after the foreclosure. The lender can pursue you for a deficiency balance.

Under federal law, a lender must report to the IRS any forgiveness of debt in an amount larger than $600. So, as a real estate investor, you will owe tax on the amount of debt forgiven.

There is some “good” news: If you aren’t a professional real estate investor and you have owned the property for several years, it is likely you have accumulated capital loss carryovers. You will be able to deduct those losses from your taxes in the year of the foreclosure.

Two Sides to the Moral Dilemma Debate

Since 2007, the rate of foreclosures has sky-rocketed, and there is no end in sight. A national debate has ensued regarding the decision to walk-away. One side believes that underwater property owners are acting in their financial best interest to walk while the other believes it is shameful and unacceptable.

No matter which side you are on, the decision to stop paying your mortgage is not one to be made lightly. But it’s one that any financially intelligent person would consider with the right circumstances. The most prudent course of action is to get educated, understand all of the repercussions as thoroughly as possible, consult financial professionals as needed, and make a well-thought out decision for yourself and your family.

Carol Moretti (seated) and Lisa Deane

In my living room sat an architect, a CPA, a healthcare executive, a innovation consultant, a marketing and branding expert, a retired attorney, a writer for the Huffington Post, a clutter coach, an interior designer, a home staging specialist, a jewelry designer, a technical writer, and a newspaper columnist. We were joined by an IT manager, a freelance interactive producer, an owner of a cooking-party company, an owner of a company specializing in culinary health education for kids, a development director, a yoga instructor, a marketing consultant, a personal fashion stylist, a trade marketing manager and a business student. All women. All interesting and accomplished.

Women are as diverse as any other group of people in their career choices and in their lifestyles. But women also share distinct attributes: They are great communicators, relationship builders and nurturers. They also share unique financial planning needs. For example, many women are concerned that they will be old and poor and alone. Look at these facts:

• Eighty percent of American women will find themselves the sole keepers of their personal finances at some point during their lives, However, most of those women feel financially insecure, despite controlling more wealth, having more education and being more involved in financial decisions.
• Women still make less than men make in similar occupations.
• Women’s careers are often interrupted by family needs, such as childcare and eldercare, which limits their opportunity for income and retirement savings growth.
• Many women fear losing everything and becoming bag ladies (and it doesn’t seem to matter how much money they have or make).
• Two-thirds of women over age 65 rely on Social Security as their primary source of income. Consequently, women are twice as likely as men to live out their golden years at or below poverty levels.

In my living room, we nibbled bites of grilled salmon covered in sesame seeds, ginger chicken, and artichoke frittata while sipping champagne cocktails. Everyone listened attentively to presentations on serious topics such as the 2010 tax relief act and the new healthcare law, but also to fun topics such as the top ten wardrobe essentials and how to save money on your wardrobe. In between speakers, we women did what we are great at: connected, made new friends and perhaps got a business lead or two.

About Cathy Curtis
Cathy Curtis, the writer of this blog and owner of Curtis Financial Planning, specializes in the finances of women, their families and their businesses. You can find out more about her on her website www.curtisfinancialplanning.com and follow her on Twitter @curtisfinancial, on Facebook Women and Money and on LinkedIn Women and Money.

If you don’t know your credit score, do this:

Pull your credit report from each of the three credit reporting agencies: Experian, Equifax and TransUnion. You can do this by going to annualcreditreport.com, which is a government-approved site that will get you free access to your credit report. Warning: Ignore all solicitations to buy anything when you are accessing your credit report on annualcreditreport.com. Just get your free report.

Unfortunately, you won’t get your credit score on the credit report. But you can get that information for free from websites such as Credit Karma or myfico.com. Remember, don’t buy anything you don’t want when visiting these sites!

At this point, you have access to what lenders see when they pull your credit report. What is your score? If it is below 700, you have some work to do. If it is above 700 — congratulations! Keep up the good work, but be ever vigilant and know that 750–850 is considered excellent, so you have something to strive for if you aren’t there yet.

Fortunately, Your Credit Score Is in Your Hands to a Great Degree. 

If your credit is less than stellar, you can turn it around with some work. Most importantly, always pay all your bills on time. Then, establish a secured credit card with a bank. This is a card backed by your savings, and will help you to reestablish a good credit history. 

If your credit is not excellent (in the 750–850 range), do this: pay off all cards in full every month; don’t leave cards idle, regularly use them even for just small purchases;  and apply for a new credit card each year for five years. 

For more information on credit scoring, visit www.myfico.com or www.creditkarma.com, or read these recent articles:

• “What’s a Credit Score? An Intro to Credit Reports and Credit Scores,” from The Get Rich Slowly blog
• “In Search of Perfect Credit: How You Can Boost Your Score,” from USA Today, Personal Finance
• “Products of the Pros: Credit Score,” from The New York Times, Your Money

Contrary To Popular Opinion You Were Not Born To Shop

I’m a financial planner. But I’m also a normal person just like you, and I know how difficult it is to be an American and somehow not feel it’s your duty to shop. Our economic and social system is based on capitalism, which is partly defined as the creation of goods and services for profit in a market. The consumer (you) is a very important part of this equation because if there are no buyers for the goods and services – what happens to the economy? Economists watch consumer spending like hawks – and no wonder:  it fuels about two-thirds of total economic output in the U.S. Talk about pressure! Consumer spending is so important several indexes have been designed to measure it. The most widely used index is the Conference Board Consumer Confidence Index and amongst other factors is used to determine the direction of the economy.

The perfect agent for promoting consumption is the advertising industry. Advertisers want us to consume. Their mission is to make products and services as enticing as possible so we buy them whether we need them or not. Watch a few episodes of Mad Men to learn the tricks of the trade. Watch T.V, drive down the freeway, listen to the radio, log on to a website and you’re bombarded with advertising messages. It’s almost impossible to escape from the influence of advertising unless you live like a hermit. A quote from Wikipedia describes advertising as the “pillar of the growth-oriented free capitalist economy” and states that “contemporary capitalism could not function and global production networks could not exist as they do without advertising.”

Born To Shop?

No wonder we sometimes feel we were Born to Shop! The problem: economists and advertisers aren’t concerned about your personal bottom line. Just like you, they’re concerned about their jobs, their families, their standard of living and their ability to retire comfortably. We need to adopt a “me vs. them” mentality. When we open our wallet to buy something…..let’s stop and think: do I want “them” to have my money, or do I want “me” to have my money? The person on the other side of the cash register doesn’t know if you can afford the item you are about to purchase – nor do they care. Think of shopping as a psychological battleground – that’s how advertisers think of it.  Do you want to be the victor or the vanquished?

Feeling vanquished when it comes to your personal finances isn’t a good thing.  It probably means that you’re in debt; you’re anxious about your future and you feel stuck. Is all the stuff worth it? Probably not. Excess stuff clutters your environment and the collective environment and excess debt can ruin your credit score and your relationships. So it’s time to denounce popular opinion, admit you weren’t Born To Shop, stop spending more than you earn, and live within your means.

Like anything psychological or emotional, it isn’t easy to change. Read simple truth #2:  “Your Money Personality Affects Your Money Behavior“  for more insights on this topic. But there are things you can do to take control of your spending.

Here’s a strategy to get your started:

Balance Your Budget

1.  Using an excel spreadsheet list all of your expenses subtotaled as follows:  fixed and necessary expenses: these expenses are the same every month and/or are necessary to keep you housed, clothed, groomed, healthy, fed and mobile; other committed expenses: child related expenses, pet care, fees to professionals, adult education, gym membership, insurance premiums, debt payments;  discretionary expenses: vacations, dining out, entertainment, hobbies, electronics, gifts, home improvements, furnishings;  auto-savings: retirement contributions and other savings.

2. Total all the subtotals to come up with your total monthly expenses. Subtract this amount from your total monthly income. The outcome will either be a positive or a negative number.

3. If it’s a positive number, congratulations. You are living within your means.  If you know you’re saving enough for retirement and other financial goals and have no debt to pay off, then you have some discretion as to how you use the money. If the outcome is negative, go back and rework your expenses until it comes out even or positive. A hint: you will have the most flexibility to adjust on discretionary items, but you can also try and negotiate savings with service providers or increase deductibles on insurance policies to save on premiums.   Note: it’s important that you pay off your high interest consumer debt as fast as possible, so if you can increase debt payments do so.

4. Now that your cash flow is neutral or positive, this becomes your working budget. Need help staying on a budget?

Some Tips for Staying The Course

-Use mint.com – software that tracks all of your expenses, income and savings on line. You enter your budget and it will send you an email when you overspend on a budget item.

-Try the envelope system: place your budgeted amount for discretionary items such as clothing and food-out in an envelope in cash. When the cash is gone, you can’t spend on those items again until the next month.

-Leave your credit cards at home. Become more conscious that the money you spend is from a finite source. Try paying cash or using your ATM card whenever possible.

-If you are tempted to buy an item that you don’t really need, leave the store, walk around the block and think about it. Nine times out of ten you won’t buy the item.

-Print out a copy of your budget. Post it somewhere that is visible to you regularly. Keep it top of mind.

Remember: It’s “me vs. them”. Who gets your money?

Reward yourself

Each month that you stay within budget, reward yourself in some small but significant way. Indulge in a nice lunch out, get a pedicure; order a nice glass of wine with a meal.

Earn More

If after completing the budget exercise you find that it’s impossible to balance your cash flow or you don’t want to live so frugally – look at the income side. Can you ask for a raise at work? Find a higher paying job?  Freelance?  Start a small business? Rent a room out? Sell belongings to raise cash?  Explore all avenues. Exercise your capitalist gene by thinking about all the ways you can produce goods and services for profit – for yourself!

Below are some additional resources to help you start living within your means:

Read Your Money Or Your Life by Vicki Robin, Joe Dominguez and Monique Tilford
Read I Will Teach You To Be Rich by Ramit Sethi

Blog to Follow:
Get Rich Slowly

Please feel free to share your comments about how you keep on a budget and/or what you have done to bring in extra income.

Ten Simple Truths About Money

In the course of my financial planning practice, I meet many people who share similar attitudes, fears or misconceptions about money management. It turns out that most people make money way more difficult and scary than it needs to be. So in response to all this, I came up with 10 Simple Truths About Money in order to point out and identify some critical financial concepts that are easy to understand and implement. My next 10 blog posts are meant to inspire you to incorporate these truths into your actions around money.

Ready? Let’s go!

Simple Truth #1:   Procrastination is the Cause of Financial Fuzziness
Does any of this sound like you?

There’s 10 months of accumulated mail  – all unopened – that contain your investment account statements and they are all dumped into a drawer you never open.

You have $30,000 sitting in a savings account at the bank earning 0.15 interest.

You refuse to automate your monthly bill paying on-line, even though you often forget to pay your bills and end up with late fees.

You sold all your stock mutual funds in March because you couldn’t stand to watch them go down anymore and now they are sitting in a money market account earning 0.35% interest.

You know you need to do something, but you don’t.  This is called procrastination.  And, it doesn’t feel good. It generates feelings of confusion, guilt and worry – fuzziness!

If it makes you feel any better, you’re not alone.

However, that doesn’t make it better or okay. This type of procrastination can have serious consequences for your finances:  the spending power of your dollars gets eroded by inflation, your credit score gets downgraded, and you have constant fights with your honey about money. Not good, and even more to the point, not necessary.

Being up to date and clear about your finances can relieve so much stress, and really, it’s just a matter of making it a priority.  This is a great time of year to get started. 2009 is almost over, and January 1 is right around the corner.  If you want to call it a New Year’s resolution, go ahead.  If that doesn’t do it for you, get started anyway!

Here are some tips to get started:

Most time management experts will tell you that the best way to tackle a big hairy project is  to do a little each day, or divide the big project up into smaller ones.
So for a great first example, let’s take that pile of mail.

First day:  Take all the statements out of the envelopes and arrange them in date order, the oldest date on top. See! You’re already making progress!

Second day:  Starting with the oldest statements, glance at the first page which summarizes what’s inside.  Pay careful attention to any deposits or withdrawals – if anything looks strange – investigate.  If not, move on to the next statement. Keep going until you have reached the latest statement and set aside.

Third day:  Spend some time on the latest statement, as it should summarize what went on in your account year-to-date: total withdrawals and deposits, investment gains or losses, total interest or dividend interest earned.

By now, you should have a pretty good idea of the activity in your investment account over the time period that the statements covered.

Fourth Day:  Determine whether you need to make any changes to your investments (or find a financial advisor that can help you with this step). For example, if one of your mutual funds is down 50% year-to-date…go to Yahoo Finance and type the symbol in the search box….read up on this dog-of-a-fund and see if there is a good reason to hold on to it, or chuck it at the soonest opportunity!

From now on, when you receive your monthly investment statement in the mail, open it immediately, glance at the afore mentioned items and file it (in date order) with the others.

I suggest keeping a year’s worth of monthly statements, but hold on to your December statements for 3 years.

I can feel that fuzziness clearing up already, can’t you?

Women in the Food Business at the San Francisco Commonwealth Club - From left to right: Kathy Wiley, Christine Doerr, Malena Lopez-Maggi and Mindy Fong

I recently hosted two panel discussions that focused on women entrepreneurs in the food business. Participating were eight vibrant businesswomen in their 20’s and 30’s.  Each had the entrepreneurial bug from an early age, each has boot strapped their business and most had no written business plan before they launched.

Of Passion and Practicality

Molly Fuller of Hands On Gourmet and Kathy Wiley of Poco Dolce are self-described pragmatists. “I wanted to make money,” said Molly. “My father always told me to do it myself, that was the way to make money.” Kathy Wiley said her decision “came down to the stable shelf life and high price point” of high-quality artisanal chocolate. Other participants cited their love of good food, and their lifelong desire to start a food business.

Fire, Ready, Aim

Kika Besher of Kika’s Treats and Christine Doerr of Neo Cocoa are graduates of La Cocina, a food business incubator in San Francisco where eligibility requires a business plan. Kika’s current business profile no longer resembles her first plan and she wishes she had a new one. “So many things change,” she said. Christine Doerr said her plan has changed and there’s a lot of “fire, ready, aim” in her business.  Kathy Wiley (Poco Dolce) started a number of business plans, only one of which she came close to finishing. Malena Lopez-Magg of The Xocolate Bar said, “I did write a long business plan but it was obsolete as soon as it left the printer.”

Recurring Themes

-    Understand the numbers, but don’t get hung-up on producing a document.
-    If you make a plan, be aware that things change and the plan may need updating.
-    Pay attention as you go and you’ll learn.
-    If you are self-funded, the decision to create a business plan is in your hands.

A Different Take

I have no doubt that these amazing women will succeed. Street smarts and passion can take a business a long way. However, as a financial planner I see what bootstrapping can do to a business owner’s personal finances and I am duty bound to counsel caution. Here are  my three reasons why you should consider developing a business plan.

Writing a business plan compels you write down the numbers and
decide which are most important to your particular business – then it’s
up to you to watch them like a hawk.

Taking shortcuts doesn’t work when it comes to growing a business.
Writing a plan helps you to think strategically and decide what’s best for the company in the long term. This can even include an exit strategy.

Assumptions change and circumstances change, but don’t make that an excuse to avoid having a plan.  Even if you launched on sheer gut instinct, step back and create a plan now. You’ll be rewarded with clarity and peace of mind.

What do you think?  Is a business plan an integral first step to launching a business? As always, your comments are welcome. If you have any topics you’d like to see here, feel free to let me know.

Women Entrepreneurs in the Food Business Panel
Molly Fuller, Hands On Gourmet http://handsongourmet.com
Nona Lim, Cook! S.F.  http://cooksf.com
Gabrielle Fuersinger, Cake Coquette http://www.cakecoquette.com
Kika Besher, Kika’s Treats http://www.kikastreats.com

Women and Chocolate – A Natural Combination Panel
Malena Lopez-Maggi, The Xocolate Bar http://www.thexocolatebar.com
Kathy Wiley, Poco Dolce http://www.pocodolce.com
Christine Doerr, Neo Cocoa http://www.neococoa.com
Mindy Fong, Jade Chocolates http://www.jadechocolates.com
Dayna Macy, Author  http://daynamacy.com