>> today we're talking about money. are you unemployed, do you need some quick cash? where to find it and how to avoid the most common mistakes people make when looking for quick cash. next on "significant insights." ♪ [music] ♪ hello and welcome to

significant insights. i'm jerry rose. are you one of the millions of americans who have been affected by the nation's economic problems? maybe you've lost your job or your healthcare, and on top of that, like a lot of people, you may be under water on your mortgage and, add to that, some other unexpected expense, what do you do? well, i talked with david blades recently to answer that question. he is a certified financial planner with over 30 years' experience specializing in working with placement firms assisting individuals as they're terminated from employment. we talked about what to do and what not to do if you need to find some cash quickly. thanks for being with me on the program. i've been looking forward to this. unemployment obviously is very high. more people out of work since world war ii. for some people, it's a done deal. they're out of work.

but for those who are not but could be, what are some of the things that they need to do to prepare for that possibility? >> that's a great question. first of all, i like the question because that is a step towards planning ahead. number one, i find that debt is one of the biggest stressors that we have. when we have people come in, they just lost their job, a lot of things center around debt. it's a huge stressor. so the first thing i would say is you want to keep your debt low. and there is good debt and there's bad debt. good debt would be a well-priced mortgage on your primary residence, where you can deduct that. it's providing a roof over your family. bad debt would be examples such as having $20,000 in charge card debt because you just can't control your spending. >> what about an auto debt? most people have to drive cars and so they incur debt for a

car, depreciation the day they drive it out, they start losing money on it, and a lot of times now, the only way they can afford it is to finance a car for like five years or so. is that bad debt? >> well, you opened it up when you said they really need a car. so that becomes good debt because it's a necessity. and with the interest rates being as low as what they are in this environment, the lowest that you and i have seen in our lifetime, stretching that out over four or five-year period is not a bad thing because it's keeping the payments low. now when we have interest rates that are high, like we saw back in the early 80s, when mortgages were 15% and car loans were 18%, that was the opposite. you wanted the debt period to be as short as possible to pay that off. but in today's interest rate environment, longer time periods is not a bad thing. >> somebody finds themselves out of work. where should they start looking for immediate cash? >> that's a great question. i think i would start that by

saying where should you not look. because where you should not look is the first place that i find everyone looking, and that's right at their 401(k) plan. that's easily done because that 401(k) was not available prior to termination of employment. but once you have termination of employment or separation of service, as they call it, your employer now gives you the right to take that 401(k). so it becomes very tempting. the problem with that is that every dollar withdrawn from your four sea401(k) plan is 100% tax. not only are you paying tax today, but in addition to that, if you're under the age of 59 1/2, you also pay a 10% penalty in addition to the tax. third and last -- >> wait a minute. you pay whatever percentage of tax, which could be what? is it based on your prior salary? >> it's based -- partially so, because your salary has to do with your highs highest marginax

bracket so the tax due on that withdrawal from that 401(k) plan will be at your highest margin. >> so you could plac end up payg close to 40% plus the 10%. >> which brings you up to 50%. so it's full tax at your highest marginal rate, and if you're under the age of 59 1/2, a 10% penalty in addition to that. a 10% penalty which is not deductible. i might add the most expensive part of this is not even the tax or the penalty, but rather it's the failure, the inability to receive tax deferred compounding interest on that money that goes to uncle sam, so if we have someone doing this at age 50, they don't really have to take that money out until they're 70 1/2, so in that case, they've lost the ability to receive tax deferred compounding interest on that money for 20 years. >> let me ask a question here. we've got a major unemployment

problem in america. >> sure do. >> you would think that the government would understand that we've got a major problem and that people are out of work, and rather than hitting them with another 10%, for a period of time, they would forego that, or is it a means of trying to keep people out of those 401(k)s because the government understands that they really need to hang on to it? there's got to be a reason -- >> the government understands -- >> for the piling on. >> the government understands -- might be a little bit of a stretch. the government doesn't want you to be dependent on the government for your own requirement. they want yo -- retirement. the best way is to take care of your own financial resources, which in essence would be the 401(k) and ira, so they want to incentivize you and motivate you not to use that money for other

purposes other than retirement, and they feel that if they're allowing this money to go into these 401(k)s without any tax, and they're allowing them to grow and compound each year without any tax, they have the right to tell you when you can take it without a penalty. so it's their way of motivating -- >> you can take it any time. the government is telling you not that you can't take it, but if you do, the government is saying you're going to pay a price for that. you're going to pay us the taxes that you didn't pay. >> as well as the potential penalty. >> as well as a potential penalty. >> great point. >> do you find that a lot of people you talk to, that's where they go? >> yes. it's the first place they go. and it's the most disastrous. it could only be compounded by hitting the charge cards unnecessarily. so there's actually some places, when we do seminars to people as they're about to be be let go, we tell them not only where they should not look at for money, ie

the qualified retirement as the, but where they should go. >> where? >> where, good question. perhaps your savings account, your checking account. mutual funds. with mutual funds, you pay a little bit of income tax on the gain on an annual basis. so when you go to take that money out, you're only paying tax on the unrealized gain. next we often see people who have cash value in their life insurance policies. that money can be borrowed out, and sure, there's interest charged on that, but normally at a very low rate. and you don't have to pay the interest on it. they will just accumulate that and take it off -- >> so you don't pay penalties on it. >> no penalties. stock is another place, and we typically will say let's look at stock that you've owned for more than one year, because then you get favorable long-term capital gain rates, and then stock that you've owned for less than one year, because that's taxed at ordinary rates. >> okay. so the number one place not to

look for quick cash is in your retirement plan. but there is a way to borrow money from your retirement account without getting hit with that 10% penalty. dave is going to talk about that and we'll also talk about the top reasons why people fail financially when we come back. stay tuned. ♪ >> investments are investments, insurance is insurance, and insurance, in my opinion, is a necessary evil and it should not be looked

♪ >> welcome back. today we're talking with certified financial planner david blades. with today's unemployment figures so high, a lot of people are looking for ways to find extra cash. in our last segment, david gave some suggestions on how to do that. but in addition to tapping

resources for extra cash, i also talked to david about ways to reduce expenses. take a step another direction. what are some ways people can reduce their cash flow when they find they're out of a job? >> excellent question. first of all, we look at the interest rate that they're paying on their mortgage. right away people think i'm not working now so i cannot refinance. that's not the case. many lending institutions will look at just the value of the real estate and how much equity you have on that, as well as your credit rating. now of course you can get a more favorable rate when you are working, but even when you're not, if you have enough equity, you can refinance. number two, oftentimes people will have a company-supplied car and now they don't have one. they need a car. rather than going out and paying cash for that car, using money from their savings, or even borrowing money for that, they can lease. and by leasing instead of buying, you're not required to have a down payment. allowing you to hang on to that

cash. because when you're not working, cash is king. if you have life insurance -- >> you need to think about the kind of car you have, the lease expense you have on a car, because now you're not talking about something that's so much of a status symbol as good transportation. >> necessity. >> necessity. >> necessity. there's various other ways. oftentimes when people leave employment, they have the luxury while they were working of having some group insurance. and now they don't. so we always want people to look towards term insurance instead of whole life insurance. unless there's a permanent need there, like forest tat for esta. term insurance is much more cost-effective than whole life insurance. another way of keeping the cash -- >> term obviously explains it, it's for a term, then it disappears. but explain the dirves in the dn

the whole life and the term. >> sure. it's interesting to note also if an individual buys a five-year term as your example for a term, that doesn't mean that the insurance lasts for five years. it simply means that the premiums are set for five years. so if an individual bought a five-year term and a year later, they're working again and they have good life insurance at work, they can always drop that. in the event that they need continued past that five years, they can continue to keep it, it just costs more. with term, once you stop with that last premium payment, you don't have any money built up in the insurance policy to give you any cash back. there's no cash value. whereas whole life or a permanent form of insurance, it accumulates cash within the policy, so some point in the future, if you need to get some of that cash out while you're alive, that cash is there in which to do so. the problem, if it's going to build up cash, then obviously that type of insurance costs more and it costs substantially

more. >> it's going to cost more and you need to really look at it in terms of the time you cash it out, what's the difference in what you paid for it and how much you're cashing out of it. >> i agree. investments are investments, insurance is insurance, and insurance in my opinion is a necessary evil, and it should not be looked upon as a valid investment tool because very honestly, the commission structure within a whole life policy makes it very difficult for that policy to be a good investment, but with that said, i do want to disclose that the tax laws are very favorable within an insurance policy, allowing those cash values to grow and compound on a tax-free basis. >> let's talk about some of the top reasons people fail financially when leaving a job, and how to avoid some of those missteps. first of all, people spend more time planning their two-week vacation than a 20-year retirement, which really is true. >> it is. people don't plan to fail.

they simply fail to plan. and that's the number one reason i feel that people do fail financially. there's absolutely no plan in place whatsoever. a second reason would be procrastination. one thing that typically we're very good at, putting it off. i'll worry about it later as i get a little older and i get closer to retirement. >> do you find that people who are older are still procrastinating? >> yes, but not as much as the younger people. >> when does it really start connecting, i've got to start thinking about planning? >> in their 50s. and the number one comment that i received over the last 30 years, number one, i wish i would have started planning sooner. it's never too late, but the earlier, the better. >> cash flow motivated by fear, people make mistakes where they're grabbing money, we talked about that, and it causes short term decisions rather than

long term potential. >> sure. we have a tendency to sometimes want to take the easy way out, and that ties in to why people tap fo into the 401(k) plan rigt away. it's easy, it's readily available, but yet if they do that, there's really adverse long-term consequences to that. you don't want a short-term transitional issue to derail your entire long term plan. >> can they do that, could they get into a 401(k) without those penalties? is there a way to do that? >> that's an excellent question because actually there is. prior to looking at the 401(k), the irs requires you to move the 401(k) into a personal ira in your name. you do that via a direct transfer, so there's no taxes and no penalties whatsoever from taking the funds from the 401(k) and putting it into your ira. once it's in that ira, the irs will allow you to do something known as the irs 72t. the irs 72t says that i am going

to allow you to gain access to your ira funds even though you're not age 59 1/2 yet, and i'm going to allow you to do that, and as long as you follow my rules, i will forgive, i being the irs, the 10% penalty. the rules are quite simple. one, you have to base the payments over your life expectancy. that doesn't mean you have to take them for your entire life, just base the payments over your life expectancy. and then you also have to just continue those payments until the later of -- later of, very important -- age 59 1/2 or 5 years. >> so how do they get more details on this? >> living in the day of age of google, today you could probably google "how to 72t." >> say it again. what is it? >> 72t. it's an irs exclusion 72t. >> okay. >> and i did oversimplify it for the sake of this show.

it can get a little complicated because the irs says you can pick annuityization, amortization or a straight life method. you have to use a reasonable interest rate but you don't get to decide reasonableness. >> i've discovered working with the government is usually very complex and very complicated and you really have to sort through it. so it would be a good idea to get some sort of counseling with this, wouldn't it? >> it would, because those people that go -- that you would go to for the counseling, they have the software, it takes them 30 seconds to do the calculations. >> david, thank you for being on the program with me. i appreciate it. >> thank you. >> again, that irs exclusion david talked about is called a 72t, and he would suggest that you check with either an accountant or a certified financial planner to see if they have the software for that 72t exclusion. really to get more information about it, we weren't really able to discuss it in detail. you can get more information on

david blades at his website at rpi-online.com. when we return, pastor mark thomas talks about a subject a lot of us can relate to when it comes to our finances, and that's fear. we'll be right back. stay tuned. >> there is a spirit, and t bible says that if we submit ourself to god or, as we submit ourselves to love, and then we resist the devil, then he

♪ >> today's program was specifically geared to those who are facing possible unemployment or those who are currently unemployed, and if that's you, then you might be feeling fearful or have anxiety about your financial health, and about your future.

pastor mark thomas from the heart of the bay christian center has these final thoughts on the subject of fear. >> in this day and in this hour, all you have to do is read a newspaper or listen to the news media, and what you're going to hear on a continual basis is fear, fear, and even more fear. well i've got good news for you today. 2 timothy 1:7, the bible says that god did not give us a spirit of fear, but of power and of love and of a sound mind. god wants you to be stable in these unstable times by putting your faith in god. one of the greatest reasons why we can be free from fear is because god loves us, you know, it's very important to believe in the god that loves you and have faith in his love.

in 1 john 4:18, the bible says that there is no fear in love but perfect love casts out fear. when you get an understanding of how much god really loves you and how much he favors you, fear, then, will be able to be put under your feet once and for all. believe in his love, have faith in his love, and then start actively resisting fear. you know, fear is a spirit. and the bible says that as we submit ourself to god or as we submit ourself to love, and then we resist the devil, then he will flee from us. i know that thoughts come to all of us and thoughts may persist in our minds and in our thinking. thoughts of failure. thoughts of dying young, thoughts of just not being able to make ends meet. i want to encourage you today to rise up with the name which is

above every name, the name of jesus and put fear on the run. actively resist fear, for fear is not of god. you know, there are people that tell you that everyone needs to be afraid sometimes, but did you know that fear is not natural to the born-again believer? the bible says in romanc romans, you have not been given the spirit of fear which brings bondage into your life. jesus wants you to be free from fear. another thing that will help you to maintain freedom from fear is live a life of praise and live a life of worship to god. you know, the bible says in psalm 34, he said i will bless the lord at all times. and his praise shall continually be in my mouth. then he went on to say, oh magnify the lord with me, let us

exalt his name together. as you exalt his name, as you lift up the name of jesus, he will deliver you not from having your fears -- not half of your fears, but all your fears. praise and worship brings god on the scene. the bible says that he inhabits the praises of his people. right there where you are today. i encourage you to lift up your voice, lift up your hands and praise your god and god will set you free from the spirit of fear. have a great day, and mayd go's richest and best be yours. >> i appreciated what our guest hs to say today about, really, a balanced financial picture in your life. not only should we look at how we can get more money, but we need to look at everything we're doing. all of our spending. this is one of the things that my wife shirley and i do frequently, is you sit down and

look at what we're spending, and look at it in terms of is this really necessary? can we do this a little bit differently? and i think when we begin to look at that, there's a lot of areas where we can have some savings, even sometimes when perhaps we think maybe we couldn't. but for those of you who are going through some deep financial struggles and you're just not sure about the future, pastor thomas, i think hit the mark perfectly, and there is a place in christ where we trust him with every aspect of our life. and it's easier said than done, quite frankly, because in the natural, when these difficulties come along, when the big struggle comes along, whether it's a child that has gone wayward or some other aspect of our life that is presenting a major difficulty, a major

struggle, it's easy to succumb to that and to have all of the anxiety and all of the fear that the world will have, and the point that i think is important here is to understand, god has not promised us a problem-free life. he just hasn't. there's nothing in the bible that says -- in fact, there's a lot in the bible that says we will have struggles and we will have difficulties. here's the difference. he's with us through every difficulty. he walks beside us, he stands beside us, the bible says, my god shall supply all of your needs according to his riches and glory. so we can trust god with the difficult times of our life. we can trust god with our finances. we can trust god with our children. we can trust god with our health, with everything in our life. and that's one of the great joys of knowing jesus christ. thanks for joining us. we'll see you next time. god bless. ♪ abououmarriage

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