Wisdom of Rich Dad

I have been laid off for seven months and am having trouble making my mortgage payments. I’ve seen a lot of ads from companies that offer to help with mortgage restructuring. Are they legitimate?

Maybe. Maybe not. Crooks respond to headlines and trends. When it became apparent that many Americans were having trouble paying their mortgages, the scam artists seized the opportunity to offer their own form of “help.” But instead of getting homeowners out of mortgage trouble, these crooks take your money and run — or may even take your home.

You may find them by reading a compelling ad or receiving a convincing phone call. Their tactics are varied and clever. Sometimes they search through the government’s public foreclosure documents and send you a personalized letter offering to help you save your home. The scam artists may offer to negotiate with your lender — then run off with your money instead.

In some of the worst cases, they may deceive you by claiming the documents you’re signing are to restructure the terms of your existing mortgage, but instead you unwittingly transfer the title of your house to the scam artists. Another ploy is to ask you to surrender the title and remain in the home as a renter, then buy it back over several years — but the contracts include outrageous buyback terms that make it nearly impossible for you to get your house back. Or they offer to find a buyer for your home and share the profits with you, but only if you sign over the deed and move out.

Beware of companies or individuals that charge a fee to enroll you in a government program to help you with your mortgage. You can do that yourself for free. Some may be out to steal your money; others are looking to gather important information to steal your identity.

Housing-related scams have become such a big problem that federal and state agencies started working together to crack down on the crooks. The Federal Trade Commission recently surveyed online and print advertising for mortgage-foreclosure rescue operations and identified 71 separate companies running suspicious ads, and states have brought more than 150 enforcement actions against mortgage-rescue companies. The FTC recently warned homeowners to avoid businesses that:

• Guarantee to stop the foreclosure process — no matter what your circumstances.
• Advise you not to contact your lender, lawyer, or credit or housing counselor.
• Collect a fee before providing any services.
• Accept payment only by cashier’s check or wire transfer.
• Encourage you to lease your home so you can buy it back over time.
• Tell you to make your mortgage payments directly to the business, rather than to your lender.
• Advise you to transfer your property deed or title.
• Offer to buy your house for cash at a fixed price that is not set by the housing market at the time of sale.
• Offer to fill out paperwork for you.
• Pressure you to sign papers you haven’t had a chance to read thoroughly or that you don’t understand.

But don’t despair. There are many sources of legitimate help. First, tell your lender that you’re having trouble making payments and find out if you can negotiate a new payment schedule. If that doesn’t work — or if you’re just nervous about approaching your mortgage company — contact a housing counselor approved by the Department of Housing and Urban Development, says Ted Beck, president and chief executive of the National Endowment for Financial Education. “Talk with them first so that you can get comfortable. They can give you guidance on how to get your information together and what assistance you might be eligible for — so you have a good, vetted source of information.” You can find a HUD-approved housing counselor in your area at the HUD Web site, or you can get help through the Homeownership Preservation Foundation (at www.995hope.org or by calling 888-995-HOPE).

For more information about the government’s new refinancing and loan-modification programs — including a valuable tool to help you see if you’re eligible for this assistance — go to MakingHomeAffordable.gov. This site also includes a lot of resources for people who don’t qualify for these government programs, and it provides alerts about recent mortgage-rescue scams. And check the FTC’s Scam Watch for information about all kinds of scams and how to report potential problems.

Keep in mind that the legitimate forms of help can take time. “Don’t assume this is going to be done over you lunch hour,” says Beck. You may need to prove hardship, prove your income and prove that you’re eligible for some of the government programs. “But if you can get all your information together, there may be some real potential for you if you qualify.” Be suspicious of anyone who promises otherwise.

Robert & Kim Kiyosaki will be appearing live in Sydney on 30-May to 1-June.

If you cannot or will not pay $600 to attend, at least we can get this “Wealth Accelerator Toolbox” for free.

It consists of 3 audio tracks and 3 video, with total running time of 3 hours.

If you’ve seen the billboards and visit www.richdadgift.com.au, you’ll be asked to register your personal details to access the goods. I have done that and it seems like the stuff are located in an open webpage.

So I thought I’ll post it up here so that no one else needs to register.

>> http://www.richdadgift.com.au/toolbox.php  <<

Just send me a ”Thank-You” note in the comment if you find this gift valuable.  Cheers.

There is no doubt where the economy is now. “By any measure, this downturn represents by far the deepest global recession since the Great Depression,” the International Monetary Fund declared.

But there’s more than the usual uncertainty about where it is going. The key is the U.S. Even though its slice of the world economy is smaller than it once was, it’s still huge. The U.S. led the world into the abyss, and it will lead the world economy out of it.

But how fast and when?

The alphabet can help to imagine the possibilities and the path of the economy. There’s the letter V: the kind of quick rebound that usually follows a deep recession. Or U: a longer recession and slow recovery. There is L: years of painfully slow growth. And W: a temporary upturn as the economy feels the jolt of fiscal stimulus that quickly wears off. Finally, there’s the big D, not the shape but another Great Depression.

With history a guide, consider three starkly different scenarios.

The V

The late Victor Zarnowitz, a student of the business cycle, had a rule: “Deep recessions are almost always followed by steep recoveries.” The mild recession of the early 1990s and early 2000s were followed by mild recoveries. But the U.S. economy grew faster than a 6% pace in the four quarters after the deep 1973-75 recession and faster than a 7.75% pace after the even deeper 1980-82 downturn.

“In deep recessions,” says Michael Mussa of the Peterson Institute for International Economics, “there is usually a growing sense of gloom as the recession deepens.” Then the forces that triggered recession — say, plunging home prices — abate. The adrenaline of tax cuts and government spending kicks in. With inventories so lean, the slightest uptick in demand prompts a sharp increase in production, and the natural dynamism of capitalism reasserts itself.

“Experience suggests all of this should work, and I believe it will,” Mr. Mussa predicts. Governments have administered huge doses of fiscal and monetary stimulus. Home-building and car-buying are so low they can’t fall much further. Many consumers shy away from buying because they’re frightened, not broke, and that state of mind can change quickly and liberate pent-up demand.

But the Federal Reserve caused the deep recessions of the 1970s and 1980s when it put its foot on the brake to stop inflation; it ended them when it let up. This time, Fed has its foot to the floor and the economy is still slowing. And so much stock-market and housing wealth has evaporated that a quick turn in consumer spirits seems unlikely. Plus, the repair of the banks remains far from complete, restraining lending.

The odds of the V: 15%.

The Big D

If one asked a roomful of economists two years ago to put odds on a repeat of the Great Depression, nearly all would have said zero. In early March, The Wall Street Journal posed the question to about 50 forecasters — defining depression as a decline in output per person of more than 10%, four times worse than the decline the IMF anticipates. On average, they put odds at one in seven; several put them above one in four.

“This is a Depression-sized event,” says economic historian Barry Eichengreen of the University of California at Berkeley, citing the global decline in industrial production and world trade. The big difference: In 1929, governments dithered, or worse. In 2009, they’ve rushed to the rescue.

To go from today’s deep recession to a depression something would have to go wrong. It could be a financial catastrophe on the scale of last fall’s bankruptcy by Lehman Brothers or another panic-inducing event. Or a crash in the dollar, one that forces interest rates up at just the wrong moment. Or it could be political gridlock that stops governments in the U.S. or Europe from spending enough to fix the banks before a big one fails, or keeps them for doing more on the fiscal or monetary fronts as the economy deteriorates.

Or it could be virulent deflation that pulls down prices and incomes, making debts, which don’t fall when prices do, a heavier burden. The textbook remedy is easy money and big government deficits. But so much of that has been tried it’s easy to question its efficacy or to imagine resistance around the world to doing.

The odds of the big D: 20%.

The L

For a decade after its stock market and real-estate bubble burst in 1990, Japan bumped along at an annual growth of just 0.5%. It was dubbed the Lost Decade, and it could happen here. The recession ends but the economy plods along, growing too slowly to bring down unemployment for years.

As the IMF observed this week, recoveries following recession caused by financial crises are “typically slower.” Those following recessions that occur simultaneously across the globe “have typically been weak.” Back in the 1990s, as U.S. banks struggled, the Fed talked a lot about “financial headwinds.” Those were zephyrs compared to the gale-force winds that the economy confronts today.

If financial markets stabilize but don’t improve steadily, or if housing prices continue to drift down, or if confidence remains shaky, the U.S. economy could languish for a time. American consumers, once known for spending in the face of prosperity or adversity, could finally decide to prepare for retirement by saving more, having just learned that neither 401(k) retirement accounts nor home values rise inexorably. And the U.S. can’t count on increasing exports, the solution when emerging-market economies run into financial trouble and the reason Japan didn’t do even worse in the 1990s. The rest of the world is in no shape to buy.

An unfolding depression could scare Congress to act boldly, but the L is less ominous — and perhaps more likely as a result. There would be months when the economy appeared to be strengthening so the temptation to wait-and-see would be strong.

Put the odds of the L at 55%. That adds to 90%. So put 10% odds on the U, less pleasant than the euphoric V but far less painful than a Lost Decade. That’s the rough consensus of economic forecasters; it means U.S. unemployment grows for another year and a half.

Bottom line: The odds favor a long slog.

~ Robert Kiyosaki

The other day a friend of mine approached me excitedly, saying, “I found the house of my dreams. It’s in foreclosure and the bank will sell it to me for a great price.”

“How good is the price?” I asked. 

“Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?” she asked.

“How would I know?” I replied. “All you’ve given me is the price.”

“Yes!” she squealed. “Now my husband and I can afford it.”

“Only cheap people buy on price,” I replied. “Just because something is cheap doesn’t mean it’s worth the cost.”

I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don’t like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he will accept. I know some people love to haggle; personally, I don’t. If a person wants to sell, they will sell. If I feel what I am buying is of value, I’ll pay the price. Value rather than price has made me rich.

Against my advice, my friend sought financing for her “dream” home.

Fortunately, the bank turned her down. The house was on a busy street in a deteriorating neighborhood. The high school four blocks away was one of the most dangerous schools in the city. Her son and daughter would either have to go to private school or take karate lessons. She is now looking for a cheaper house to buy and has asked her father, who is retired, for help with the down payment. If her past is a crystal ball to her future, she will likely always be cheap and poor, even though she is a good, kind, educated, hard-working person.

My Point of View

What follows are some thoughts on why my friend will probably never get ahead financially — especially in this market.

1. She and her husband have college degrees but zero financial education. Even worse, neither plans to attend any investment classes. Choosing to remain financially uneducated has caused them to miss out on the greatest bull and bear markets in history. As my rich dad often said, “What you don’t know keeps you poor.”

2. She is too emotional. In the world of money and investing, you must learn to control your emotions. When you think about it, three of our biggest financial decisions in life are made at times of peak emotional excitement: deciding to get married, buying a home, and having kids.

My dad often said, “High emotions, low intelligence.” To be rich, you need to see the good and the bad, the short- and long-term consequences of your decisions. Obviously, this is easier said than done, but it’s key to building wealth.

3. She doesn’t know the difference between advice from rich people and advice from sales people. Most people get their financial advice from the latter — people who profit even if you lose. One reason why financial education is so important is because it helps you know the difference between good and bad advice.

As the current crisis demonstrates, our schools teach very little about money management. Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who followed this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.

A Thank You to Jon Stewart

Speaking of finance experts, I personally want to thank Jon Stewart of ‘The Daily Show’ for taking on Jim Cramer and CNBC. Jon Stewart did an incredible job of representing the millions of people all over the world who have lost their savings in the market. He was right in saying he thought it “disingenuous” to advise people to invest for the long term through their retirement plans while knowing full well that traders could steal Americans’ retirement money by trading in and out of the market. Most traders like Cramer realize that investing in mutual funds for the long term is financial suicide. Cramer should have spoken up, but we all know why CNBC won’t let him tell the truth. If he did, the station’s advertisers would leave.

While I applaud Cramer for going on ‘The Daily Show’ and facing the music, I’m afraid he was marginalized by Stewart — certainly outgunned — and he has lost his credibility. He may pay an even bigger price if the SEC decides to dig deeper.

Jim Cramer is a very smart man. I watch his show. I just do not follow his advice.

In closing, I will say what I have said for years: We need financial education in our schools. Without it, we cannot tell the good advice from the bad.

Gold’s popularity over the centuries has endured wars, plagues, civil unrest and all sorts of other perils. But would gold prices hold up well in a prolonged deflationary spell?

For the first time in several decades, we’re starting to find out.

With the economy shrinking sharply over the past two quarters, inflation pressures have faded. The U.S. Consumer Price Index has dropped in four of the past six months, and the inflation rate for 2008, at 0.1 percent, was the lowest reading since 1954.

Gold prices also have retreated, slumping from a 2008 peak of $1,011 an ounce to a current price of about $915.

“Gold is unusual in that it’s an asset that likes inflation,” Natalie Dempster, head of North American investments for the World Gold Council, an industry group, said during a recent stop in Phoenix.

Even so, gold has bounced back from a low near $700 an ounce in November. The metal has held up better than many other commodities amid the deflation headwinds.

Demand for gold isn’t just a function of inflation and deflation, of course.

More than anything, gold is used in jewelry, with 68 percent of the metal destined for this use, Dempster said.

Industrial uses such as electronics take an additional 19 percent, leaving a fairly small remaining slice for coins, bars and the like.

Much of the demand, especially from places such as India and China, isn’t directly tied to U.S. consumer-price levels.

The supply side of the equation, meanwhile, is affected by mining activity and new discoveries, of which there haven’t been many lately.

“Mine production has been in a downtrend since 2001,” Dempster said.

Supplies also are influenced by the amount of gold recycled as people sell jewelry to raise cash.

“A fair amount of scrap has been coming back onto the market,” she said.

With the economy showing signs of life, some observers think we may be near a crossroads where inflation picks up.

Diversification suggested

Russell Biehl, a chartered financial analyst at Classic Investment Management in Scottsdale, sees higher inflation ahead as the economy works through its rough patch and government spending kicks in.

He suggests investors diversify a slice of their holdings into inflation-sensitive assets, including gold.

“Eventually, the Federal Reserve will gain traction (in inflating the economy) with all the money they’re printing,” he said.

Jay R. Penney, a chartered financial analyst in Scottsdale, also sees an investment role for gold.

‘A compelling story’

“As a dollar hedge, it is a compelling story for a portion of a portfolio,” he said. “I do expect inflation to rise, and dramatically so in the future, if things continue in Washington as they are headed.”

A case could be made that investors generally are underexposed to gold.

Dempster estimated in 2007 that, on average, individuals and institutions held only about 0.5 percent of their portfolios in gold.

Long-term demand for the metal would increase to the extent that investors add to their allocation.

Volatility in the financial markets and extreme uncertainty over the economy have raised awareness of gold as something worth holding to supplement positions in stocks, bonds and the like. 

Economic uncertainty

Because gold doesn’t move in sync with the financial markets, the metal provides a hedge in times of instability and unease.

So, how much gold should you hold?

“If you’re concerned about future inflation, you might want 8 to 10 percent of your portfolio in gold,” Dempster said.

“But even 2 to 4 percent can have a diversification impact.”

With a record-high number of Americans collecting unemployment benefits, job seekers are being forced into heated competition for openings. Indeed, the number of people who have been unemployed for 27 weeks or longer has leapt to 3.2 million from 1.3 million at the start of the recession. The pressure is proving too much for some: Last month there were nearly 700,000 Americans that the Labor Department counted as discouraged workers–folks who have given up on looking for work because they don’t believe they’ll find it.

If you are unemployed and you think you’ve tried everything–sent hundreds of resumes and gone to numerous networking events, talked to every person you know and lots of people you didn’t know. If you’ve worked on improving your resume, and cleaning up your cover letter — and you still haven’t been able to find work, then don’t count yourself out. You still may have some options.

Here are some alternatives for the beleaguered job hunter:

Start your own business. Economic downturns and lousy job markets can prompt some workers toward entrepreneurship. Tight credit is a hallmark of this downturn, however, so capital-intensive businesses will be more difficult to launch. Good news for the jobless: Some states offer help for the unemployed to become entrepreneurs. Residents of states including Maine, New Jersey, and Pennsylvania, may be able to enroll in their state’s self-employment assistance program. To qualify, you’ll need to be eligible for unemployment benefits, and you’ll likely need to meet a couple of additional criteria, such as being likely to exhaust your benefits. You’ll also need a viable business plan. These programs pay out the same amount of money as you would have received through traditional unemployment, but generally also provide help in developing a business plan and financial assistance for training courses. One note: A program may require that enrollees be collecting unemployment for a limited period of time. Pennsylvania limits it to those who have been receiving benefits for no more than 10 weeks.

Do an unpaid internship. Most adults shake their heads at this option because they can’t afford to work for free. But if you’re already unemployed and your days are taken up with job searching, an internship can take up some of those hours without derailing your job applications. Katy Piotrowski, author of The Career Coward’s Guide to Career Advancement, recommends doing an internship at a smaller business that may be glad for your help. Approach the company with an offer to work a specific number of hours each week and arrange to split your time doing work that uses skills you already have–to their benefit–and work that trains you in new skills–to yours. It’s a low-risk offer for the company and a good way to improve your resume and skills while you look for paid work. Plus, Piotrowski says, a number of her clients who have done this have been offered full-time jobs at the companies. The trick is to treat the internship as seriously as you would a paid job.

Change direction. It may be time to totally rehab your work talents and build skills that are more in-demand and marketable. Research is crucial if you’re going to try something new. Career Voyages, a website set up by both the Labor and Education Departments, has tools for finding information about various careers. Perhaps most useful is their map of the most in-demand occupations for each state. Click on links associated with the occupations and you’ll find options on charting a path toward a new career, including possibilities for registered apprenticeships, information on community colleges, or details on obtaining necessary certifications.

Keep in mind that just because a career is “in demand” doesn’t mean it’s necessarily going to be the right fit for you. Michael Duggan, a counselor and professor at the College of Dupage in Glenn Ellyn, Ill., says job seekers need to consider not only the careers that are in demand but what work would be consistent with their skills and interests. Unemployed workers will often want the quickest training program the school can provide, Duggan says, but it’s important to take the time to understand all the options so time isn’t wasted in the wrong program.

Find non-traditional income–but beware. If you have exhausted your unemployment benefits, your financial worries are running high. You might consider renting a room in your home or selling items on eBay. If you can paint homes, walk dogs, fix bicycles, or design websites, then you should consider finding non-traditional ways to build income. The goal is to get creative with part of your time, although your job search should continue to take up most of your time.

Keep in mind that whatever efforts you make to boost your income, danger is lurking online. Job scams are everywhere–phishing for your personal information, trying to get you to pay for career advice, even setting you up with interviews that are really sales pitches. Many of these scams pitch work-at-home options. Before you leap on any unusual opportunity, check it out with the Better Business Bureau.

By Liz Wolgemuth