Mortgage Payment Program

This past week the Federal Reserve announced the results of the financial “stress test” it conducted on the top financial institutions. Of the 19 reviewed, 9 came through with passing marks. I was personally pleased to see that our primary business banking partner J.P. Morgan Chase Bank came through with passing marks, but that was not very surprising. Jamie Diamond and group have outperformed their banking peers for several years in terms of both results and sound business decisions. It also confirms that we made a good decision in choosing them as a banking partner for our clients. Fed chief Bernake was quoted as saying “the results… should provide considerable comfort.” Even though more than half of the institutions tested need to raise capital, the quote makes sense in that the institutions are still viable and not at risk of being shut down. But I wonder if the average American who is banking with or has funds held by a small regional bank which was not put through the stress test is comfortable.

This past week, I was talking with a friend who has some financial problems and was looking for advice.  He recounted the same story I’ve heard him tell several times before: taking a new, better paying job, moving his family to a new state, only to find that he is making less than he was before.  It seems he and his wife did not carefully consider all of the factors for the new job.  Easy for me to say, looking back on events that happen to someone else, but these are common mistakes many people make today.

Some of the items that impacted him no one could have predicted. One big factor was the cost of commuting. In order to get a home in the school district he and his wife wanted their kids to attend, he had to accept a longer (57 miles each way) commute – a huge jump compared to his previous 7-mile commute. Prior to the move when gas prices were still low, the commuting cost seemed like it would fit in their budget.  Last summer and fall, gas prices rose significantly, the long commute, and poor fuel economy in his mid size SUV added up to a huge expense they had not accounted for.

However, the biggest impact was not taking into account the pay-cycle for his new employer.  He had always been paid semi-monthly and the budget he and his wife adopted over the years conformed to that 1st of the month and 15th of the month cycle.  His new employer used a biweekly, every-other-Friday pay-cycle. Sure, that means “2 extra paychecks a year”, but it also meant that his 10% annual pay increase for his new job did not actually show up on a month-to-month basis.  In fact, with the cost to commute, property and sales tax hikes all factored in, they actually made less money!

For years he would tell me, “I’m not sure why people would use your program” and I would always respond the same way “It is not right for everyone, but really works well for those who need it.”  He now understands exactly what I meant.  Cash flow is a key part of any budget.