I will gladly pay you Tuesday for a hamburger, in a cartoon this was cute. For a state in the 21st Century it’s not. California’s budget woes will make the state start handing out IOUs. This is a very dire situation. People who depend on that money can’t give their creditors IOUs. What can they tell their creditors or utilities? We can’t pay you because we’re not getting my money. Even though the money isn’t directly for government salaries the vendors who deal with the state won’t receive payments which are used for salaries and their own business expenses.

Some states are notoriously slow in making payments to vendors but regular workers always had priority. Who will be next if the state won’t be able to pay its creditors? Furlough days for government workers is the pejorative buzzword that has been going around. The small vendors and businesses that aren’t getting money from the state will contribute to the further decline in the money problems.

If an agreement is reached before 4 p.m. CST then the IOU would just be nothing more than a bad dream. Otherwise, those who deal with the state of California as a customer may have to face some budget woes of their own.

The state’s long-term bond rating is in jeopardy, as well. It already has the worst credit rating in the nation.

Fitch Ratings last week downgraded the state’s long-term general obligation bonds to A-, from A, and placed them on a negative ratings watch, signaling the company’s concern about California’s ability to solve its liquidity crisis.

Just like individuals, those with the worst credit ratings have to pay more to borrow money which will cost the taxpayers more in the long run.

The government’s definition of rich is a household making more than $250,000 per year. Sounds great in theory but for someone making that much in a year in Montana as compared to someone making the same amount in Chicago or New York or LA the benefits of the largesse differ.

When President Obama said he would raise taxes on the wealthy, he set the increases to start at an income of about $250,000. Gov. Paterson recently worked out a rise in New York’s state income tax that takes effect at the same level. If all that those politicians mean by “rich” is the small portion of the population at the top of the economic heap, then households making over $250,000 is a fair definition: Only about 5% of U.S. households have annual incomes over $200,000. 

The people who are making more than 95% of the rest of the citizens may not feel right but they are. Since a quarter of a million dollars is just a starting point for the wealthiest Americans this is the upper portion of Americans. Most Americans who are making more than $250k annually do not have a problem with necessities as those making a tenth of that would, regardless of location. A family income of $25k annually struggles more than the more wealthy.

The increased amount of taxes that a person making $250k a year would pay is a small amount. The more you earn the more you pay in taxes – only seems fair.

Even if someone has millions of dollars and spends it unwisely – as we have seen many sports stars do – only to become impoverished in a short time after making huge salaries. Wise spending at any income level helps make a person wealthy.

Living well on less. It can be done. I don’t think you actually have to be a cheapskate to do it though.  Jeff Yeager, The ultimate cheapskate has tips for living on less that will save you $20,000 a year. Sounds great but some things you may not want to give up. A cell phone, dining out and sending your kid to college are things Yeager says people should give up.

And they are — let me say in advance — these are some fairly radical changes.
But, again, it’s probably not about sacrifice.
It’s about changing your life and maybe in the end being happier.

Does everyone want to make these radical changes? While it may be necessary to make some radical changes as Yeager advises, going cold turkey may not be the way. Slowly but surely or prioritizing what you really need or want in your life works just as well.

Sure you can save money by not eating out and always cooking at home, but going on for a special occasion is always fun and make the occasion really special. A cell phone is a necessity for many people for work, so cutting that out may not work for everyone. Dining out once a month at a nice place for book club is a social event and I have a great time, I don’t want to cut that from my budget but I have been cooking at home more often, which does save me a lot of money.

Priorities differ depending on your marital and familial status. Do what is right for you – when I make a decision to go to dinner and my other bills (including savings) are paid, then I can splurge a bit. I would make different choices if I had people depending on my salary.

If you’ve got a decent income, changing your brand of coffee or being the last person in your zip code to buy an iPod just isn’t going to get you very far. To make a real difference, you are going to have to cross out a major line item. The private school. The house with the great address. A parent staying at home with the kids. Or the plan to retire early. These are not frivolous, spendthrift things. Responsible grown-ups can choose among them. It’s just that most of us can’t choose every single one of them. 

The columnist makes a good point about making choices. Although certain incomes cannot afford private schools. Though the salary may be covered, there are also other extras, such as fund raising events, and other expectations from the school. Buying a home in an area you cannot afford is what happened to many people. Though a person might be able to pay the mortgage; it’s the extras that make a difference. In the case of a home, taxes, maintenance, and utilities add up to large extras. Other choices, require big changes and additional strains on your wallet that you may or may not be able to make. 

If people are truly living within their means and make changes to their daily living they can do things. A parent staying home with the kids if both parents are making minimum wage is very difficult. Early retirement, without a sizeable nest egg is not easy to do.

The private school. The house with the great address. A parent staying at home with the kids. Or the plan to retire early. 

All of these items seem like luxuries, because having a house with a great address does not mean that there is a less expensive house, in a safe neighborhood with an address that is less chic. Private school is more costly than public school because of tuition and even with public school there are fees to be paid, fundraisers, field trips and other expenses. If some of the people were responsible and honest with themselves about money and what they couldn’t afford, then they might not have to make those decisions after they have become entrenched in a certain lifestyle.

Making reasonable choices that do not affect the quality of life for people is a personal decision. Taking a child out of a private school to make new friends, depending on the age of the child can be traumatic. Changing schools can be stressful depending on the child. 

Balancing your budget realistically means that when you buy a home, utilities increase, taxes increase even if you have a fixed mortgage, tuition increases just as cost of living if you decide to retire early.

I disagree with the author, little changes really will make a difference. Yet, sometimes you have to make the hard decisions up front.

Your credit score may improve under the new rules outlined by the Fair Isaac Corporation. If you already had good credit and have low balances on your credit cards, have installment loans (e.g. car or mortgage) and make regular timely payments then your score may improve.

If you can pay, you are rewarded with more credit. If you have no credit history or one with only credit cards and large balances then your score will decrease. It doesn’t seem fair but that is what will happen.

The divide will be greater between those who were able to make better financial decisions (or chose to) and those who didn’t.

The new system has been in the works for over a year.

Having money makes a difference. If you have none or have bad credit, your credit score may decrease if you do not pay your bills on time or have only credit card debt.

Establishing a good credit history is also an important factor that a score cannot determine. A great salary does not mean that someone is fiscally responsible and having a small salary does not mean that someone is a deadbeat.

On paper you may look like a good credit risk but you may stop paying for an unknown reason. This makes a difference. For those who have difficulty repaying their mortgage loans, even if they had paid their bills before and seemed like a good credit risk, decreasing equity in their home may make people just walk away.

This is a hard decision to make but it will affect your credit score in the long run but by the time it really shows up on your credit in about three months or more by which time a person could already be deeper in debt.

Another change to the scoring is that “authorized users” will not be able to ride someone else’s good credit coattails to improve their credit. So if you are an “authorized user” and have used that to boost your credit score, this will no longer be included in the score calculation.

This is what Fair Isaac has to say about authorized users…

From our long experience working with credit card issuers and consumers, we believe that many authorized user accounts are held by family members. Unfortunately, consumer credit reports don’t indicate why an authorized user is being added to a credit account. So the FICO score is unable to distinguish between an authorized user who is a family member, and an authorized user whose only connection to the primary user is a desire to defraud lenders. To help protect lenders from fraudulent use of authorized user accounts, we decided to remove authorized user accounts from consideration by the FICO score, starting this fall [2007].

Basically, financial education and fiscal responsibility are important. There is a greater divide between the haves and have-nots. Have-nots who tried to finance their way into seeming like someone who had money will be in for a rude awakening when all of the changes to credit scoring take affect with all three of the credit reporting companies.