Banker Bryan

All too often I see younger people who don’t understand how to use a checking account in a responsible manner, constantly over drafting and racking up huge fees. I see the college student taking out a loan for a brand new car and/or racking up huge balances on credit cards. These poor people get over their head in debt so quickly and then don’t understand why they cannot afford to live on their own.

For these reasons, I have always been a huge advocate for educating children and young adults on the financial management and value. Why aren’t personal finance courses required in high school? Why do we learn how to count change in 2^nd grade math assignments and never again speak of money? These financial pitfalls can be prevented with proper education. They’re not getting it at school, but they can get it at home.

Parents: Do your children a favor and stop treating your finances as a private matter. Show your kids how to balance a checkbook, show them how to pay the bills and explain where the paycheck goes. If you want your children to have a better financial life than you, you have to show them yours first. If anything, they’ll learn what not to do.

Do you remember where you were on December 16, 2008? I do, I was in my office waiting to hear if the Federal Reserve Board was going to lower interest rates. The discount rate, the rate that banks have to pay to borrow money from the Federal Reserve Banks, was 1.00% and I had my money on a 0.50% reduction. Lo and behold, they blew my prediction away and lowered the discount rate to 0.25%, which means the Wall Street Journal Prime Rate was 3.25%! I turned to one of my co-workers and said “Pretty soon the Government will be paying us to borrow money!”

Well it finally happened. The Small Business Administration announced details on their new America’s Recovery Capital Loan Program last week. Basically, businesses can get an ARC loan from participating SBA Lenders to pay down existing debt and pay Zero interest! You may be wondering how the bank makes money. Well guess what, the SBA is going to pay the banks interest on your behalf! I can’t believe it! It finally happened, the Government is paying banks interest to borrow money. I love it!

There are a lot of details on the program and not just anyone will qualify. Basically, businesses who have been profitable in the past (either last year or 2 years ago) can apply for a loan up to $35,000 to pay down an existing loan, which includes credit cards. The loan disbursements will be made monthly over a 6 month period and initial repayment doesn’t have to begin until 12 months after the last disbursement. This is great, especially since many small businesses have fallen back on their credit cards to stay afloat when their cash flow dips. The business may repay the debt at zero interest for up to 5 years.

In turn, the SBA will pay the banks interest on the money borrowed at Wall Street Journal Prime plus 2.00%, which as of today would be 5.25%, and they will guarantee the debt 100% in case the borrower defaults. A downside is that the banks are faced with a bookkeeping nightmare. This may be why some larger banks like TD Bank have decided not to participate and why Bank of America and Citizens Bank are still undecided.

The SBA plans to release their initial list of participating ARC Lenders tomorrow. Check with your local community banks, they have smaller loan portfolios so are better able to handle such a complex program – plus, they’re always going to give you better service.

I was watching one of my favorites shows today, CNN’s “Your $$$$$.” On today’s show they spoke about stress testing your personal finances and I think this is such a great idea. You have probably heard about the government “Stress Testing” banks and have wondered what it is. A medical stress test is used to see how much stress your heart can take. A financial stress test is used to see how much stress your wallet can take.

You may be surprised to see how much of a pounding your wallet is actually getting every month. Before we look at your personal stress test, let’s look at what banks want to see. When you apply for a loan your bank does a bunch of calculations to see if you fit within low, medium or high risk profiles. Now, every bank is different but typically you will see the following:

• Monthly housing debt is less than 30%
• Total contractual debt (including housing) is less than 38%
• Savings has at least 3-6 months of expenses.
• Retirement savings is established
• Credit report is greater than 3 years old
• Zero missed payments

Now, you want to remain as conservative as possible so your goals should be even stricter than banks. If you find that you are above these limits, you would be deemed higher risk and may not be approved for a loan, especially loans with lower-quality or no collateral such as personal loans and car loans.

Check out CNN’s tool: http://cnnmoney.com/financialhealth

So, it’s 2:30 in the morning and I’m sitting here, bored out of my mind and wondering what I should do to occupy myself. I call up bankerbryan.com and take a look at a project I started and sort of let it die. I had thought long and hard for months about starting a blog about finance to share the wealth of information I’ve obtained over the years and I finally did it in November.

Yes I was having tons of fun playing with different Wordpress templates and plugins, researching information and writing articles. I was writing around 1-3 articles a day and another blogger warned me that I was going to burn out. I didn’t believe him, and I should have.

Christmas time zapped a lot of my energy, and then while heading into January I started a class that completely killed my creative drive. I took on too many projects, on top of working at the bank, volunteering with various organizations and school, writing became another task. I started losing track of the blogs I read, my RSS reader became overloaded with unread articles and my life in the blogsphere came to a halt.

Now, things are winding down and I’ve been wanting to write again. I’ve decided to give it another go and see what happens, but I will do so with a few ground rules.

1. I will not attempt to write every single day.
2. I will go back to reading the blogs I love, not the ones just for research.
3. I won’t Twitter anymore – I think it’s dumb anyway.
4. I will stop looking at my stats – I don’t care how popular my post on Monopoly is.
5. I’m not going to beat myself up for not posting.

In short, I’m going to go back to doing what I enjoy. I’m not going to try to keep up with my fellow bloggers – I have a life outside of this Wordpress window, and I will enjoy it.

When will my first new post be? I don’t know, I’ll get back to you.

Despite what the media would lead you to believe, banks are in fact lending. They may not be handing out piles of money like they did a year ago, but they are in fact lending. If you are ready to buy a house, or need to buy a car, go ahead and apply for those loans. However, be realistic.

One of the biggest problems with our economy, with Americans in general, is that we tend to live beyond our means. We don’t think of a new car as a $35,000 purchase, instead we think of it as a $500.00 per month purchase. You may think that you can swing the monthly payment, but your bank disagrees. What do you do when your bank says “No?”

If you’re like most people, you’re crushed. You’ve already started living your life imagining yourself driving around in that brand new car, the places you’ll go, the hot girls (or guys) that you’ll pick up. Now all of a sudden, you feel entitled to the new vehicle. And your bank is telling you that you can’t have it.

So you go somewhere else and the next bank may say no, but you continue on… Eventually, you will find someone that will say “Yes!” I guarantee that you WILL always find someone who says you can have that new car, but I’m telling you – don’t.

Banks writes loans every single day, they know what works and what doesn’t. They know when a loan has a higher probability of default, and they deny those loans. It’s not an assumption. It’s a fact, backed up by years and years of statistical truths.

What you may not realize is, the bank accounts for your total debts – some of which you may have forgot about. If you make $30,000 per year, the IRS is going to take 20% right off the top, so you only have $24,000. Then you have to take off your expenses like rent, credit cards, other loans, etc. So let’s say that totals $1,000 per month (if you’re lucky). Now you only have 12,000 left over per year. That’s $1,000 per month to pay your utilities, phone bills, groceries, gas, etc. So if those expenses total $500 per month, then you would be left with only $500 extra per month.

You may assume that you can afford the car but the bank knows that shit happens.

If you spend every extra penny on the new car, then you won’t be able to save. So when you lose your job or become ill or have an emergency – you won’t be able to pay your bills. Hell, it doesn’t even have to be so morbid, most people like to take a vacation every once and a while. If you get this loan, you won’t even be able to afford a hotel room.

Do yourself a favor, the next time a bank says no, ask why and learn from it. Don’t go from bank to bank to bank until someone says “yes.” They’re not approving the loan because you can afford it; they’re approving it because they want to make a lot of money on you with high interest rates and late charges.

I have to admit, these past couple weeks have been crazy busy for me. I’m hoping things will wind down this week. The typical end of year crap takes a lot of my time, everyone searching for interest calculations, HSA and IRA contribution and distribution figures for their taxes, errors on 1099s and 1098s, people coming in with their new year’s resolution to save money and want to refinance their homes, get home equities, etc… It’s been exhausting, don’t get me wrong, it’s great! I love that people seem to be coming out of their house again, I swear everyone was literally hiding from the economy.

In the short time I did have to peruse the blogsphere, I found a few articles that you may find interesting.

JD at Get Rich Slowly talks about the importance of knowing what’s in those agreements you sign. 

A guest poster at Lazy Man and Money gives some tips on how to get VIP treatment on a slim budget.

If you’re ready to file your taxes, make sure you don’t miss any deductions, take a look at Free Money Finance.

Hundreds of Thousands of people are out of work, Blueprint for Financial Prosperity tells us how to deal with job rejection, and what about paying for services you can do yourself – like LifeLock?

Just a few articles I found interesting, what are some of your favorite blogs? Feel free to leave a comment with a link to your favorite blog.

I remember, just five years ago in fact, when no one knew their credit score. Today, whenever someone submits an application for a loan, many of them are telling me their score as well. Of course, some of them are right, and some, not so much. But the point is, people are paying for their scores and wearing them like badges of honor – even when they probably shouldn’t.

This brings me to my question, “do you really need to know your score?” Currently, Fair Isaac doesn’t allow consumers access to their credit scores for free, you have to purchase them from the bureaus. Is it really worth $15+? Everyone is entitled to one free copy of their credit report, from each bureau, annually. You can check out annualcreditreport.com to look up each, each bureau is about the same, so only pull one every 4 months and you will constantly be on top of your credit.

When you view your report, know what steps you can take to improve your credit and view your history. If you have some credit cards, installment loans and a mortgage or two – all of which have been around for more than a few years and all of which – you’ve never missed a single payment – it’s a good guess that your score is 750+ which is great.

If you’re lacking a mortgage, only have a couple installments and carry balances on your credit cards, then your score will probably be lower. Lastly, if you have limited credit or delinquent accounts or worse – collections and court judgments, your score will be quite low.

Do you really need to pay for it? Furthermore, do you really even need to know your score? As a banker, I’m less concerned with the score, sure I look at it – but if your score is 600 because you filed bankruptcy 8 years ago, but you’ve never missed a single payment on anything since and handle all of your existing lines responsibly, I’m still inclined to approve a car loan. I’m more inclined to grant Mr. 600 a loan because I know that if it weren’t for the bankruptcy which is 8 years old, his score would be much higher.

The point I’m trying to make is, if you want to know your score – fine. Be aware that the score you get today at 1:00pm is probably going to be different than the score I pull a week from now. Scores change all the time, they are calculated based on the data the report contains the moment the report is requested. Don’t get caught up in scores, concentrate on paying your bills on time and using credit responsibly and you won’t go wrong. I promise.