jdean3 - Tales of Transformation

One small (but noteworthy) benefit of this period of economic downturn is what we learn about creative financial events. For those of us in Michigan, we’ve clearly learned more about corporate bankruptcy than we probably wanted to know.  I’m also not talking about TARP loans or other government bailout issues (I try to stay out of politics, but we have certainly seen all sides of the creative financial maneuvers of Wallstreet).

I’m really talking about personal creative finances. During unique periods, it seems, we also find a greater willingness to consider options we might have previously dismissed.

I have heard from dozens of friends here in Michigan that have shared concepts with me that I’ve never heard of previously.  Granted, I’m not in the banking business….but I’ve bought and sold 8 different homes in almost as many States and I’ve never imagined some of the creative financial maneuvers I’ve learned about this year.

Everything from mortgage “short sales” which are allowing thousands of people to walk away from homes that they owe more for than they are worth to credit card “cancellation of debt” negotiations which are allowing unemployed/under-employed family write off debt, there are multiple alternatives that I never knew existed for families to consider.  It seems that anything is possible and we shouldn’t be constrained in our curiosity for solutions.  Talking with your banker might yield more than you think. It’s not the “all or nothing” philosophy I’ve grown up to believe.

There is also a changing landscape with our banking institutions. Not to mention the fact that mortgage rates are at historic low levels (I am hearing that banks are now actually writing more loans after a lengthy dry spell)….people are restructuring their debt loads to levels they never thought possible.

The downside to low mortgage rates, however, is also low investment rates.  These days it doesn’t pay to save (outside piece of mind to have liquidity)–making debt reduction the name of the game.

Anyone who has tried to renew a bank CD in the last 18 months have come to the shocking realization that the ANNUAL interest rates for them have been near or under 1%.  Saving at a rate less than inflation won’t get you very far.

One growing trend that I personally hope thrives in this next generation is the formalization of personal lending (peer-to-peer loans). I can’t think of any better by-product of difficult times than the closer union of family members and/or friends through direct lending.  Why shouldn’t we match family (or a small group of people) with money to invest with family wanting a loan?

Use a third party to facilitate the transaction (online documentation, EFT funds transfer, year end tax reporting, etc).  There are many, but I found one that is simple to understand called CircleLending.com (now it is VirginMoney.com).  Quite simply, it facilitates skipping the middle men (banks, agents, etc) and uses electronic fund transfers to handle the transactions every month.  As long as there is full transparency, documentation of all the “particulars” and annual statements provided, these 3rd party companies serve a terrific void in the market.

Note:  I found this company when researching options for someone with rental properties that complained about losing a good tenant who bought another home down the street from the one they were renting.  It seems to me that holding a mortgage for 30 years would be better than finding 10-15 tenants over the same period (the house is paid for).  At any rate, it is worth considering as an investment alternative for the right people.

Others to read about:

http://www.lendingclub.com/home.action

http://www.prosper.com/

http://www.kiva.org/ [facilitates lending to low income entrepreneurs]

Clearly, there are multiple silver linings in economic downturns…some of them are even financially related.  Creativity, innovation and character are all entering a period of explosive growth during these times.  Don’t be shy…encourage those around you to find these upsides to an otherwise lousy recession.  The road ahead will be so much more enjoyable.

[Note:  I am intentionally breaking this post into multiple entries this week.  It was far too long, and I'm not skilled enough to be succinct.]

Start with Priorities:

This “Great Recession” we are experiencing will certainly have many lessons on life for at least another generation.  From learning to save for rainy days like these, to taking charge of your career, to creating the lifestyle that you can afford, to simply re-aligning our priorities; difficult times can provide terrific opportunities for learning and fresh starts for each of us.   I want to share a few revelations of my own as my focus these days has been on the silver linings of difficult events.

Nothing is more unsettling than learning for the first time that the rock solid institutions you once believed would always prevail are forced into bankruptcy (or the proverbial “mergers of equals” – Takeovers).  When the first couple occurred it was easy to rationalize them (Enron, K-Mart, etc), but when the massive wave of unexpected foundations crumbled (GM, Chrysler, Lehman, Fannie & Freddie, WAMU, etc) it finally awakened the reality that no fixed business is sustainable by design.  This state of fluidity is now the norm and has multiple positive by-products if we embrace it.

As I’ve mentioned, one of the most obvious positive outcomes is the ability for each of us to realign our priorities.  Chasing something we don’t really value is silly, yet we’ve all been guilty (at one time or another) of unnecessarily increasing our debt or frivolously spending what we’ve earned  which ultimately restricts our ability to achieve what we value most.

I once thought it would be easy to sit down and FORCE RANK all of my priorities.  I was wrong, it is an incredibly difficult task. Go ahead–give it a try.  The more you write down, the more more difficult it will be to justify and rank.

Start by listing all the things you like to do rather than all the bills you pay.  It will be easier to identify the things that you are passionate about and value most.  Include things you’ve never done, but always wanted to do (and believed you would do one of these days).  The list will be long, but that is ok.  If you stick with this exercise (it will take you a couple of weeks if you’re like me), you will start to categorize the list in separate buckets and ultimately start to see a few trends or ideas arise that might surprise you.

Once you’ve successfully listed all of the things you value…force rank them.  This is kind of impossible (it’s akin to saying you love one person more than another), but it will force you to make decisions that must be made.  For me, it reinforced the importance of enjoying every opportunity (events, days, family gatherings, etc) rather than just looking forward to the next “big thing”.  When you have 20 something #1 priorities, like I had when I first sat down to do this, you will come to realize no one is in control.

It is painful to come to terms with the fact that we often allow life to unfold around us when we could have made different choices that may have resulted in outcomes closer aligned with our real priorities.  Knowing and ranking our priorities is the first step to correcting this inequity.

Bankruptcies allow companies to make a fresh start (sort of) without the encumbrances of debt. It allows them to redefine or re-engineer their mission, plans, priorities and strategy.  As painful as it is during the process, it facilitates a second chance.  We all deserve and have this same opportunity even without the financial protections this process affords.  It simply starts with a personal list of ranked priorities.

Happy Listing.