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Jewish World Review Jan. 06, 2000 /27 Teves, 5760

Bruce Williams

Bruce Williams
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Check references before hiring an advisor -- DEAR BRUCE: Seeing a financial consultant is something that you often recommend. What are some pointers when trying to find one? I presume that they are paid on commission. How does that work? Is it appropriate to ask for references to help determine reliability? -- C.L.M. Topeka, Kan.

DEAR C.L.M.: Addressing your last question first, of course it's appropriate and prudent to ask for references for people you will be working with. In some large measure, the amount of money that is involved here dictates the course of action. If you have a very small amount of money, the people interested in it usually do not have your best interest at heart. Many consultants work on commission. The danger in this is that they would be tempted to guide you towards products in their inventory. Others are fee-based and you would pay a fee -- anywhere from $2,000-$5,000. They lay out a road map, but they do not sell anything.

Commission-based consultants might argue that if commissions are being earned, why would you want to pay a fee? The fee-based consultants would argue that they offer no possibility of bias -- you pay your money and you take your pick. I do suggest to everyone that they take a little time and effort and become "financially literate." In other words, you should understand the language of investing. You can do this very quickly with a few nights in the reference section of your public library.

DEAR BRUCE: We have $22,000 in credit card debt. We make $4,500 a month but the money is going every which way. We could borrow $11,000 on our home, which we could invest in the market or use to pay off our debt. Please tell us which way to go. -- D.E., via e-mail

DEAR D.E.: The very first thing that you must do is to take control of your finances. The first order of business is to get yourself on a budget. In order to do this you are going to have to take the time and make the effort to make yourself knowledgeable about where your money is going. I bet you don't even know. You have a mortgage, insurance and other fixed payments that cannot be finessed. There are others, including food, clothing, entertainment, etc., that could probably stand a good deal of pruning. You will never know until you know where the money is going.

For the next 30 days, you and your husband should carry diaries and write down everything you spend, discretionary or otherwise. The fixed expenses you can list in a separate place. The toughest thing to itemize correctly is the supermarket, since half of the things they sell are not food items. Once you find out where the money is going then you know where the cuts can be made.

As for borrowing to pay the credit card bills as opposed to investing, that would be determined by how much interest you are paying on the credit cards. Borrowing to pay debt is seldom a good idea. Increasing your income is, and if this means one or both of you working a second job, then so be it.

DEAR BRUCE: We are currently paying 8.5 percent on our mortgage and would like to do better. We have contacted several companies that want outrageous closing fees -- as much as $10,000, -- to get us the lower rate. Since we will be in this house for several years, is it wise to go with an adjustable rate mortgage or stay with a fixed rate? -- S.G., Lewisburg, Pa.

DEAR S.G.: The current interest rates nationally are about 8 percent. It is unlikely that it will pay you to refinance to save only a half of one percent. I am wondering why you didn't make this move a few months ago, when 6 percent plus was available. No matter, it may happen again. In the meantime, it's very doubtful, unless you stay in that house for 20 years or more, that there would be any benefit to refinancing. As to the adjustable-rate mortgages where you can get a lower rate, you are gambling that interest rates will stay low. If you told me that you were only going to be there for three or four years, I would say the adjustable rates make sense. Over a longer period of time, if the interest rates go up -- as most people agree they will -- you'll be paying considerably more with the adjustable rate mortgage net.

Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).


01/04/00: Savings bonds a bad investment 12/31/99: Out of state ain't that great
12/29/99: Warranty rip-offs
12/27/99: Checking up on investment handlers
12/23/99: Options good only when company's strong
12/20/99: Capital gains tax sometimes best
12/17/99: Don't give up your nest egg
12/15/99: Small-claims court no panacea
12/13/99: Termite company not liable for termites?
12/10/99: Services provided must be paid for
12/06/99: How do we minimize house-sale gain?
12/06/99: Maximize your tax shelter!
12/02/99: My neighbor won't maintain even a modicum of civility
12/01/99: Long-distance rentals a bad idea
11/29/99: Mortgage strategy A-OK
11/18/99: Students can work and learn
11/16/99: Value is what will sell
11/11/99: Y2K: No big deal for real estate
11/08/99: Real life is tough luck
11/03/99: The right time to cash a savings bond
11/01/99: Slow road for savings accounts
10/29/99: What do you want from insurance?
10/27/99: You have a right to see your tax forms!
10/25/99: Why own a house at 65?
10/22/99: Online fine, but CDs?
10/20/99: Love, honor -- and separate credit
10/18/99: Find the value of your stocks
10/15/99: Property lien prevents trade
10/13/99: Clear up debt, only then tie the knot
10/11/99: If it ain't broke...
10/04/99: Should I stick with the company IRA?
10/04/99: Get a financial education!
10/01/99: Insurance: Not much one person can do
09/30/99: Lost tickets are lost cash
09/29/99: Trusting only one financial planner
09/27/99: Adult children should help out
09/24/99: Tips for first-time home buyers
09/21/99: Use the rule of 72s!
09/17/99: Legal strategy can be a pain
09/15/99: Teen drivers drive up insurance
09/13/99: Always use an attorney!
09/10/99: Whose taxes are they, anyway?
09/08/99: How do I roll over my 401(k)?
09/03/99: How can I work out my IRS payments?
09/01/99: When your company can't pay you
08/30/99: Beware of shady viatical investments
08/26/99: Landlords vary on security deposits
08/25/99: Educational IRAs must be spent on education
08/23/99: Finding out the value of old stocks
08/20/99: How to get an FHA refund
08/19/99: 100 percent financing is a scam
08/16/99: Will I have to pay a capital gains tax?
08/16/99: Thinking about PMI
08/13/99: Short-term mutual funds a-OK
08/11/99: It's your job to shop around
08/10/99: Sometimes, roots need to be uprooted
08/09/99: 'Pre-approved' doesn't mean a thing
08/06/99: Only you can determine your investments
08/04/99: Bank IRA the lowest-risk option
08/03/99: Reverse mortgages good for the elderly
08/02/99: Get the survey BEFORE you buy the house!
07/28/99: Get a lawyer -- it's worth it!
07/27/99: If it ain't broke...

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