Other People’s Money

Making reward cards, introductory rates and points work for you.

“A penny saved is a penny earned.” – attributed to Benjamin Franklin

I walk a lot outside during the day. It’s rare that a day goes by where I don’t find at least a penny on the ground. On average, I find about a dollar in coins a week, and I still stop to pick them up.  When I was younger, there used to be a joke circulating about Bill Gates, (who is still one of the three richest men in the world). It ran along the lines of this: “If you average out all the money Bill Gates makes in a single year, he  earns over $500 a second. If he was walking down the street and found a $100 bill lying on the ground, it would cost him money to stop and pick it up.”  The most amount of money I’ve ever found lying on the ground at one time was a loose $50 bill half-buried in the snow on Liberty Ave. That was a long time ago, and I was amazed and shocked at my good fortune, but also I felt a little bad for whomever had carelessly lost that much money.  

At a certain point, picking up discarded coins in the street becomes more trouble than it’s worth to some people, but I’m still of the mind-set that every penny saved adds up. To that end, I still use coupons and reward cards when I shop. These are great ways to save a few cents or even a few dollars each time you used them, and over the course of a year that can add up to hundreds of dollars.

The Store Loyalty Reward Card

Using a store loyalty reward card is easy enough, you just have to swipe or scan the card each time you shop. My local grocery store also sells gasoline (petro). At least 3 to 4 times a year, I accumulate enough points to earn a 100% discount on fuel. Gas in the USA isn’t as expensive as it is in other countries, but it’s still a fantastic savings in my book.  Just always make sure when collecting point to check if and when they expire, or you may lose them with noting to show.

card savings

gas

Reward Credit Cards

Some credit cards have a point reward system as well. These can be as simple as 1% cash back on all purchases, to a range of categories which each  have a special point rating. Reward credit cards ONLY work for people with perfect credit and who pay their entire balance in full each month.  The reason for this is twofold.

  • You usually only receive these special offers if you have good credit. The better your FICO score, the better the offers you receive from credit card companies.
  • Failing to pay the balance in full each month will cost you interest fees which will negate any savings earned by rewards.

I once read a post online where a woman was complaining about how her reward credit card was worthless because she was being charged all these fees each month for interest, exceeding her limit, and late fees. Usually the problem is not with the card, it’s user error indicative of a much greater personal problem. Never give a loaded gun to a baby, or a credit card to a fool.

card savings2

Special Rates or Introductory Offers

card savings4

Another offer reserved for those with stellar credit are cards that offer 0% interest, fees, and balance transfers. There are great during the introductory period, BUT you must exercise extreme caution with these cards. In essence, you are playing with other people’s money. The issuing bank is allowing you to ‘play with their money’ with no fees, in the hopes that you will ring up a huge balance and not be able to pay the balance in full at the end of the promotional offer. People who lack self-control fall victim to this all the time. Interest is calculated from the time of the purchase. If at the end of the promotional period, a balance is remaining, you will incur the full interest charge of the purchase, even if you have a relatively small portion remaining. For instance: Every October, I take my car in for its annual  maintenance inspection. I get all the little issues resolved, buy new tires, replace worn parts etc. Till it’s all said and done, the bill for keeping my car running another year can range from $500 to $2000. I usually pay with my Firestone Store Credit Card. It has a six months same-as-cash special promotion rate for all purchases over $299. Although the minimum monthly payment is about $20, you’ll never be able to pay the balance off in time if you only pay the minimum. The key to these cards is to divide the balance into five equal amounts, and pay that amount each month for 5 months. This allows you ONE extra month in case you need it.  In the image shown below, the six-month promotion ends April 5th. Even though I’ve paid almost the full balance except for a measly $200, if I fail to send the full balance in by the due date, I will incur $54.46 in retro-active interest fees! No thanks! I (almost) never pay interest.

card savings3

If you are able to take advantage of special offers like the ones I covered, enjoy yourself but always remember:

  • Pay your balances in full each month.
  • Pay your bill early.
  • Never skip a payment, or pay the bill late.
  • Never spend more money than you can afford to pay back.

As always, I wish you happiness and success!

A Snowball’s Chance!

Eliminating debt is just that simple!

snowball

It never ceases to amaze me how people seem to just amass mountains of debt, and the ‘creative reasons’ they list for having done so. From the instant gratification of “gotta have it now!”, to keeping up with the Joneses,  or just the insidious swipe of the credit card to pay for our morning coffee on the way to work. Americans seem to have every excuse in the book for why they are in debt, and it’s always ‘not their fault’.  Now don’t get me wrong, emergencies do happen, and tragedies do occur, always at the worst possible time and in the most expensive manner.   Grabbing breakfast and a coffee on the way to work is NOT an emergency. A new bigger HDTV is NOT an emergency. A new outfit when you have a wardrobe bursting with unworn clothes is NOT an emergency. These are bad habits that you’ve fallen into and the credit card which has allowed you to charge up this mountain of debt was your responsibility.

NO NEW DEBT!  

When I found myself in $50,000 worth of debt in 2001, I thought I’d never crawl out of the hole I had dug myself into. It took years of hard work and discipline to become debt free, and I was ridiculed by several know-it-alls who could not comprehend why I just didn’t file for bankruptcy and make it ‘easy’ on myself. Often times, the ‘easy way’ is the wrong way. Bankruptcy is FOREVER.  And if you refuse to change your behavior, you’ll find yourself back in the same situation as before. I’ve witnessed friends making the same mistakes after filing bankruptcy. Because THEY refused to alter their behavior, their chances of ever becoming debt free are the same as a snowball’s chance in a blast furnace. The first step towards recovery is NO NEW DEBT!  You can’t spend one cent on ANYTHING that isn’t essential. Don’t even charge a stick of gum. NOTHING! If you lack the willpower to stop using your credit cards, you MUST cut them up. I remember as a boy watching an old TV show from the late 70’s called WHAT’S HAPPENING!! A character named ReRun (played by Fred Berry) gets his first credit card, and quickly gets into trouble. One credit card quickly turns to a dozen, and soon he needs to finance his credit cards with a loan. In quick order, everything he owns including the Monopoly game and even his red beret  gets repossessed.  In the penultimate scene of the episode, ReRun and friends sell EVERYTHING in the apartment except his food processor, which he fills with his credit cards to make ‘credit card coleslaw’.  

 

The Debt Snowball

The level of intelligence which created a problem is never sufficient to solve the problem, and that’s why there are walls of self-help books in bookstores. It’s so that you have the ability to consult someone wiser than yourself and find a solution to your problem.  For me, that wise counsel came from reading books by Dave Ramsey.  While in a discount remainder store, I found a thin book titled Pricele$$ marked down to $2.99. What drew me to the book was the cover depicting credit cards in a blender which reminded me of the What’s Happening!! episode.

IMG_0047

While reading his book Pricele$$, I first learned about his debt-destroying weapon, The Debt Snowball. It is the opposite of the more convention debt stacking, or debt avalanche payment method.   In the traditional debt stacking method, you pay the bill with the highest interest rate off first. You dump all your extra cash into this bill while maintaining the minimum payments on all other bills. Like an avalanche of money just wiping that debt off the face of the Earth. Dave Ramsey instead advocates the opposite approach, which he dubs ‘The Debt Snowball’. Picture a small snowball rolling downhill increasing in size and speed as it gains momentum.  With this method, you list all of your debts in order from smallest to largest regardless of interest rate, and their minimum monthly payment.  You then use every extra penny you have to pay off that smallest of your bills first. As soon as you wipe it out, you apply its minimum payment and add it to the minimum payment of the next bill on the list. You repeat this process until all debts are paid. This method worked for me, and it will work for anyone as long as you follow three simple rules.

  • No new debt. You can’t charge anything.
  • All ‘extra’ money from cutting non-essentials must be used for paying down the smallest debt.
  • You MUST keep making the minimum payments on all your bills.

The last one is a real no-brainer. You can’t stop paying one existing bill to finance another. I tell myself that no one could be this stupid, but just this week, a friend-of-a-friend had her car repossessed for non-payment because she needed the car money to save for a down payment on a new apartment. I can’t fathom how she convinced herself that this was a great idea.  Like I wrote last week, few (if any) of my friends take my financial advice seriously, often choosing their own disastrous schemes over wise council. Like the old saying goes, “a fool and his money are soon parted.” As always, I wish you happiness and success!

 

Millions and Billions and Trillions, oh my!

The economy and tax cuts simplified!

 

crushing_burden_debt

The media often decries that tax cuts for the rich are unfair, and that the wealthy are greedy individuals who don’t care about poor people and don’t pay their fair share in taxes. We saw a lot of this in recent years from the Occupy Wall Street group as they tried to demonize the top 1%. The sad fact is that the majority of individuals in the USA do not understand the economy, personal finance, taxes, investments, or the stock market in general.

These are three undeniable facts:

  • Wealthy people create the most jobs and pay the most taxes.  
  • Poor people are poor because they don’t yet understand how to become rich.
  • Investing in the stock market has resulted in the largest creation of wealth in human history.

“(It’s) the economy, stupid” – James Carville

Let’s start off by differentiating between the economy and the stock market. They are NOT the same thing.  February 5th 2018 saw the largest single drop in the history of the Dow Jones, 1175 points.  And the two week period from the end of January to mid February amounted to a market correction, which is to say, a 10 percent drop. You did not see 10% of the business in America hang a ‘closed forever’ sign on their doors, nor did you see them fire 10% of their employees, or find the shelves stocked with 10% less goods.  This is because the economy is just as strong today as it was before the market dropped. The economy involves the sum of all the goods and services produced in this country every day. The stock market is something very different and doesn’t have anything to do with the economy at all.  The market reflects speculations by investors on the potential values of various companies based on imagined future profits. Nothing is produced on Wall Street except wealth. When you buy a stock, you are actually really just loaning that company money in the hopes of a future return on your investment. The stock exchange just facilitates and records that transfer of funds. The influx of currency gives the company capital which it can use to expand and grow the goods and services it produces. Hopefully.  As the famous investing disclaimer goes “past performance does  not guarantee future earnings”. This is why tax cuts for business and the wealthy can cause the market to fluctuate.  The perceptions of investors change, and the market reflects that change.  

408chart

A median is the exact mid-point. In 2016 the real median household income was $59,039. That said, half of the households in the USA earned more, and half earned less.  The same can be said of tax payers. About 50% of the people in the country pay ZERO in federal taxes, while the wealthiest 1%  in the country account for a staggering  35% of all taxes collected. When you expand this group to the top 10% of wage earners, the taxes collected grows to 68%. Is it fair when a millionaire gets a larger tax cut? Absolutely! If taxes were ‘fair’ we’d all pay the exact same percentage regardless of our level of income.  

There’s no such thing as a free lunch!

On October 30th 2017, White House press secretary Sarah Huckabee Sanders kicked off a press briefing by reading an anecdote about reporters and a bar tab to try to explain who would benefit from the proposed Republican tax reform framework.  It was adapted from a piece that had been floating around the internet since the early 2000’s, Here is the original:

Suppose that every day, ten men go out for lunch and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men ate lunch in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily lunch by $20.00.”  So lunch for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes.  So the first four men were unaffected.  They would still eat for free.  But what about the other six men?  How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33.  But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to eat his lunch.

So the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% off).

The sixth now paid $2 instead of $3 (33% off).

The seventh now paid $5 instead of $7 (28% off).

The eighth now paid $9 instead of $12 (25% off).

The ninth now paid $14 instead of $18 (22% off).

The tenth now paid $49 instead of $59 (16% off).

Each of the six was better off than before.  And the first four continued to eat lunch for free.  But, once outside the bar, the men began to compare the amount they got off.

The sixth man said, “I only got $1 off out of the $20 while the tenth man got $10 off!”

“Yeah, that’s right,” exclaimed the fifth man.  “I only got $1 off, too.  It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man.  “Why should he get $10 off, when I got only $2?  The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all.  This new tax system exploits the poor!”

The nine men surrounded the tenth and told him they were angry that he got so much off while they each got very little.

The next day the tenth man didn’t show up for lunch, so the nine sat down and had their lunches without him.  But when it came time to pay the bill, they discovered something important.  They didn’t have enough money amongst all of them for even half of the bill!

And that is how our tax system works. The people who already pay the highest taxes will naturally get the largest benefit from a tax reduction.  Also, all of the taxes collected annually do not cover all of the spending by the Government the short fall of which is covered by borrowing money from foreign countries. Each year this deficit and the interest on the foreign loans adds to the growing national debt.  You can see this debt growing in real time at usdebtclock.org .  Currently we have a national debt of $20,633,000,000,000. This amounts to $63,000 per citizen OR $170,000 per tax payer ! The government needs to shrink the national debt and the only way to do that is by the elimination of all non-essential spending. We need to have everyone pulling their own weight. We can’t have half the country working and paying taxes for the other half of the country to sit home and not work. Government welfare programs must end. We simply cannot keep spending more money than we take in. You can spend your way into the poor house, but you’ll never spend your way into prosperity.    

TheNumbersDontLie

Now when you’re earning less than $60,000 a year, a million dollars is a lot of money.  Even if you earned $250,000 a year, a million dollars is still a lot of money. But when we talk about the US economy, the budget, and tax cuts, were are discussing billions (a thousand-million) and trillions (a million-million) and these numbers are larger than the average person can comprehend.  Let’s ignore the smaller numbers and shoot for the moon by explaining  the size of a trillion.

A single one dollar bill measures 6.14 inches. If you laid a trillion of them end to end, it measures 96,906,656 miles. This would exceed the distance from the earth to the sun. Even if you just stacked them one on top of the other, the distance would be 67,866 miles. This would reach more than one fourth the way from the earth to the moon. Mind blowing huh?

One of my favorite examples of explaining the US budget, taxes, and those ‘HUGE’ multi-billion dollar budget cuts is to shrink the example down to a household budget. You remove the 8 zeroes. I’m using numbers from the recent 2018 US budget and the current national debt .  

  • United States Tax revenue : $3,654,000,000,000
  • Fed budget $4,094,000,000,000
  • New debt $440,000,000,000
  • National debt  $20,633,000,000,000
  • Recent budget cuts which some politicians are proud about  $ 54,000,000,000

Now, remove 8 zeroes and pretend it’s a household budget.

  • Annual income $36,540
  • Annual spending $40,940
  • New debt on the credit card $4,400
  • Outstanding credit card debt  $206,330
  • Recent budget cut $ 540

Now look at those ‘household budget’ figures.  Knowing that you were in debt about 564% of your annual income, would you continue to spend 112% of what you earn? Would you decrease that by less than 1.5% and call that an accomplishment? You’d have to be way beyond crazy to think that was a good idea. Hopefully you now understand why we need to end the welfare state and stop demonizing the rich. As always I wish you happiness and success! 

A Wall Street Fairy Tale

Is the sky really falling?

chicken

Chicken Little lived in Storybook Land. He had a nice government job working for the King, Mr. T. Chicken Little wasn’t born rich, but he was smart and read a lot. He wanted to be rich someday like his cousin Goose Golden-Eggs. Money just seemed to drop out of Goose. She left a pile of wealth everywhere she sat. It didn’t seem fair that some people were  born rich and had more money than brains, but no one ever said life was fair. Chicken had feathered his nest with Index Funds from the Stock Market. He hoped to have a very nice nest egg when he retired. He always paid attention to what was happening with The Stock Market.

The Stock Market was co-owned  by Mr. Bull and Mr. Bear. No one had seen Mr. Bear in years, not since 2009. No one liked it when Mr. Bear ran the market, but thankfully he only did so about once every seven years, and he never ran it for very long. Mr. Bull did a much better job running the Stock Market and always managed to clean up the mess left by Mr. Bear. He even had a new friend keeping him company on Wall Street,  Fearless Girl who just showed up one day and has hung around with Mr. Bull ever since.

Now Chicken Little was always running home from work each day, because he always wanted to see what the Talking Heads on TV had to say. Everyone in Storybook land watched different Talking Heads. There were many of them and you could always find one you liked. The problem was that they all said something different, so you had to be really careful which ones you listened to. Some of them said some very bad and dumb things, and if you listened to them too much, you grew very sad and jaded, like The Old Witch.

The Old Witch liked to tell everyone how  smart she was because she was very old, and she watched the Talking Heads all day long, so she knew everything. As Chicken Little was passing her home, she waved him over.

“Hi Chicken, did  you hear what my favorite Talking Heads said today?”

“No Witch, I was busy working all day so I could have more money to feather my nest.”

“They said Mr. T the King is an idiot, his son is retarded, and he’s going to destroy the world.”

Chicken Little was aghast! He couldn’t believe anyone would say such terrible things, much less listen to them, so he decided to quickly change the subject.

“Say Witch, you’re old and know everything. What’s the best thing to do with your money? I leave ten percent of  my money in  The Stock Market with Mr. Bull and he takes great care of it.”

“The Stock Market?!” she yelled. “You’d have to be crazy to leave money in the Stock Market. Do you remember the big crash of 1929? Humpty Dumpty lost everything  in the Market and leapt to his death because he was so depressed. Only idiots put their money in the Stock Market. I hide all my extra cash in my mattress,  it’s safer than a bank, and I own a nice house, it’s made of Candy and Chocolate.”

Chicken Little didn’t own a house, he rented a nice apartment with a great view. He eyed her home skeptically. “Isn’t candy bad for you? I heard it makes you fat and gives you diabetes.”

 The Old Witch scowled and gave him an angry look.

“What do you know? You’re not as old as I am, and you’re not as smart. I watch the Talking Heads all day. Chocolate comes from cocoa, which is a bean.  Candy is made with sugar which come from sugarcane. So both come from plants and therefore they are both vegetables and vegetables are good for you. Now scat! I’m busy, my favorite TV show is about to start.”

Chicken Little walked away shaking his head. Next he came to the house of the Pigs.

Practical Pig owned a house made of Gold Bricks. He and his brother Fifer were in the yard gardening as Chicken walked past. He called to them.

“Hey Pigs! I was talking with the Old Witch about money, what do you do with yours?”

“All my money is invested in real estate and precious metals.” replied Practical Pig pointing at his house made of gold bricks. Fifer said nothing, he just smiled. 

Practical was older and smarter than his brother Fifer. Fifer lived with his brother and slept on his couch. Fifer  used to own a house made of sticks. It was built on a foundation of sand, and financed with a ‘Ninja’ loan. It was a variable rate mortgage which inflated quickly. Fifer eventually lost his house of sticks when the housing bubble bust, so now he had to live with his brother.

“Isn’t gold and real estate expensive?” asked Chicken.

“It can be, but everyone has to live somewhere, and gold had never been worthless so both are great investments.”  Practical replied.

Chicken alternated looks between Practical Pig and his homeless brother Fifer.

“Say Practical, do you ever hear from your other brother Fiddler?”

“Oh yeah. I spoke to him on the phone this morning. He just moved into a huge expensive mansion financed by BitCoin and Ethereum. It’s totally built out of Ones and Zeros. I worry about him, some day he’ll be sleeping on my couch too.”

Chicken waved goodbye at the brothers and hurried home to his maintenance-free apartment.

The first thing he did when he got home was to turn on the News to listen to what the Talking Heads were saying about the day’s business news. They were all screaming that the sky was falling because the market plunged nearly 666 points and that it was probably the end of the world.

Chicken Little was so shocked by the news that he passed out!

After he recovered from the shock, he reviewed the various news clips to see why the market fell.

Some of the Talking Heads blamed Mr. T the King  for constantly letting his pet blue birds The Tweets fly free,  and said that he didn’t play well with others. Some of the Talking Heads said the Market Fell because The Wicked Witch of the West was the rightful ruler of Storybook Land and the throne had been stolen from her. A few others blamed it on The Man in the Moon and yelled at the sky. A few blamed the Russians. A few said they had ‘no idea why, it was a mystery.’ A few said it fell because the market fluctuates and it’ll bounce back. Uncle Warren the Wise Wizard of Wall Street said he was going to buy lots of cheap stocks first thing in the morning.  Little Jack Horner  sat in the corner eating his pie. The Cheshire Cat smiled until he faded away,  leaving only his grin. Everyone seemed to react to the news differently.

In the end, Chicken Little checked that his nest was still intact, saw that his index stocks were still up for the year, and discovered that despite what some of the Talking Heads claimed, everything was going to be just fine. He decided to listen to Uncle Warren and pick up a few bargains at the Stock Market, and knew that one day, he too would grow up to be a Wizard of Wall Street.

The End

Fairy Tales were a traditional way to entertain young impressionable minds while at the same time conveying a moral lesson. Even Jesus Christ occasionally turned to parables when trying to covey complex ideas to the crowd. There are lots of individuals who have difficulty understanding  how the economy, the stock market, and even personal finances work.  Throw in politics and religion and people get real confused quite fast.

February 2nd, 2018 marked one of the largest drops of the Dow Jones Industrial Average  since 2009. The thousand point plunge from the prior week’s high probably scared the novice investor to death. It’s not as bad as some of the ‘experts’ are claiming. Investing in stocks still results in far greater returns on investment than real estate, precious metals, or even the dangerous new gimmick, crypto-currencies like BitCoin. I’d stay far away from that last one, when that bubble pops, it’s going to burst loud and hard!

The bottom line is that there are many factors which impact our day to day lives, and just as many pundits, cynics, and fools with opinions. Everyone has an opinion.  It can become quite the task to filter out the many voices and distill all the information to refine a pure source.  What do singers , athletes, and movie stars really know when they speak on a topic? For every one celebrity with an actual college degree, there are at least a hundred who barely even graduated  high school.  Check your sources, check your information, and review your facts before making a decision which could potentially ruin your future happiness. Just because everyone around you is telling you what you want to hear doesn’t mean it’s the truth. You just might be in an echo chamber surrounded by sycophants.   Tread carefully.  As always, I wish you happiness and success!    

WTF? (What’s the FICO?)

Understanding the 3 digit number that rules your finances.

The acronym  FICO stands for Fair Isaac Corporation.  FICO is a data analytics company which was founded in 1956 by Bill Fair and Earl Isaac.  Using data gleaned from your credit history, FICO generates a score between 300 and 850 which aids creditors in assessing your credit worthiness.  The higher your  score, the better the credit offers and terms you receive. Any number under 629 is a poor score. Fair to average ranges from 630 to 689. Good is between 690 and 719. Anything above a 720 is considered excellent. The scores reflect credit payment patterns over time with more emphasis on recent information. Scores automatically improve, as one’s overall credit picture gets better. That means showing a historical pattern of paying your bills on time and using credit conservatively.

In order to calculate a score, your credit report must contain recent enough info on which to base the number. The minimum amount of information needed is at least one account opened for at least six months or longer, and which has been reported to the credit bureau in the last six months. Adding to the confusion, there are three credit bureaus, Equifax, TransUnion, and Experian. The credit history reports from each of these companies may contain different information, and thus could result in three different FICO scores depending on the information contained within.   

Never assume each credit bureau has your identical credit history. They receive only the information supplied them by lenders, collection agencies, and court records. One bureau may have more up-to-date information than another because some lenders report credit information to the credit bureaus at different times,  resulting in discrepancies. The credit bureaus may record, display or store the same information in different ways. You should review your credit history at least once a year, and you are entitled to ONE free annual report from EACH of the three agencies. You can request a copy from AnnualCreditReport.com this is the ONLY real site to check, don’t be fooled by look-a-likes or fake phishing sites that want to steal your identity.  

Keep in mind the following:

Not all credit scores are “FICO” scores. Some credit agencies may use an internal scoring system of their own creation. FICO scores are ONLY generated by the FICO corporation. Over 90% of major creditors use FICO scores to determine your credit-worthiness.

Your FICO score will change over time.  Just because you had an 810 three months ago doesn’t mean it’s that today. This is caused by changes in your credit history report. Each time your  debt ratio on  your credit cards change, your score can change. A major purchase that brings your card close to its limit will drop your score until the balances snap back to somewhere near $0.00  and the new lower balance is reported.

Some creditors report your credit info very frequently to the credit bureau while others may only do so on a quarterly basis, and this can change your numbers as well.

ficocomposit

How is the FICO number determined?

You FICO score is based on the following:

35%- Payment History

30%- Outstanding Debt

15%- Total Credit History

10%- New Credit Requests

10%- Credit Type Diversity

If you want to raise your score, you need to pay your bills on time, every time, keep your balances low, and apply for new credit only when necessary. NO EXCEPTIONS, NO EXCUSES.  Late payments are reported to the credit agencies, as well as your total balances, and new credit requests. Adding negative information to your credit history will cause your FICO score to drop  like a rock! Any negative information will stay on your history for up to seven years. It is imperative that you do everything possible to avoid anything which will compromise your good credit.

Here are some suggested tips to follow:

DO:

  • Pay your bills on time! I can’t stress this enough .
  • IF you mess up and miss a payment, get current and stay current! The longer you pay your bills on time, the better your score. Every time you mess up, you sabotage everything you’ve accomplished to that point. SO DON’T MESS UP!  
  • If you are so deep in debt that you can’t make ends meet, contact your creditors and seek help from a legitimate credit counseling service. You need to get your debt under control before you can fix it. You can’t run or hide from your creditors. It will make things worse. Trust me. I speak from experience. Re-establish your credit history if you have had problems. It will take time, but it can be done. I did it, you can too!
  • Keep balances low on credit cards, (under 10%), and avoid carrying a balance.
  • Pay off debt rather than move it around.
  • Open new accounts only when needed.
  • Check your credit history once a year.

DON’T:

  • Close unused credit cards, it will lower your score.
  • Open new credit cards that you do not need. This could lower your score.

I know all of the above information can seem a bit daunting. If you’re overextended in your financial circumstances because ‘life happened’, I get it. It’s no fun having collection companies calling your home and harassing you because THEY want THEIR money.  I’ve had poor credit.  Now I have excellent credit.  I can tell you from experience that life is great when you have all your bills paid on time, are debt free, have cash in your wallet, money in the bank, and a FICO score over 750. It took time and persistence for me to accomplish this. It didn’t get fixed overnight, but it did get fixed because I stuck to the plan. I tell you this not to brag about my wealth and success, but to encourage you to follow my lead. I did it, and you can too. I believe in you. As always I wish you  happiness and success!

You Can’t Time The Market!

The ‘right time’ to invest was yesterday.

The Dow Jones Industrial Average (DJIA) often simply called ‘The Dow’ was founded on May 26, 1896. It was created by Wall Street Journal editor Charles Dow, and is named after both Dow and statistician Edward Jones.  It is one of popular financial guides used to track how well investment stock markets are doing.  Other popular indices used by business and finical watchers include:

  • The Standard & Poor’s 500 – often abbreviated as the S&P 500, or just the S&P was introduced in 1923, but fully realized in its current form on March 4th 1957.   
  • Nasdaq Composite  – created on February 8, 1971 by the National Association of Securities Dealers (NASD)
  • CBOE Volatility Index or VIX –   a  measurement of  expected  volatility implied by S&P 500 index options, created by the Chicago Board Options Exchange on January 19, 1993. This last one is sometimes referred to as ‘the fear index’, and moves inversely to the S&P. You want this one to plunge.

I will be limiting the scope of this blog post to the American stock markets and  economy.  I have very little experience with foreign stocks and markets. One important thing to note, the stock market is driven by investment expectations and is an ’emotional’ response to the economy. It is not the same thing as the economy, but it can impact it. There are many factors that impact the market that can include everything from oil prices to politics to weather.  Ultimately, shrewd investors study multiple factors before committing their stock trades as past performance is  never an indication of future earnings. No one can know the future, but we can study the past and make an educated guess.

“The sad fact is that people are poor because they have not yet decided to be rich.” —Brian Tracy

The Time is NOW!

Quite often  a few misguided friends and co-workers tell me that they are waiting for the right time to invest in the market.  Fear of a correction or a crash keep them from potential earnings. Poor spending habits hamper their ability to invest. Ignorance and the refusal to seek wise counsel on fiscal issues keep them in poverty. You cannot spend your way into prosperity, the only sure-fire way to get rich is by making diverse, informed investments over a long period of time. You can’t achieve this if you spend every penny  you make on food, ‘toys’, and entertainment.   You need to first get your financial house in order because the money you use to invest must be disposable income not earmarked for essential monthly expenses. Refer to my many earlier blog posts on finances, planning,  and budgeting.   

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“Whenever I hear people talk pessimistically about this country, I think they’re out of their mind.” — Warren Buffett, Berkshire Hathaway chairman

But a crash is coming!

Maybe. Maybe not.  And, so what? There have been 14 crashes in the history of the Dow. The market has ALWAYS rebounded usually within a matter of months. The longest recovery period was from  the Great Crash on October 24th 1929 which lasted four years and then led to the Great Depression.

Three examples of why uninformed and/or misinformed investing is dangerous:

 #1 On November 8th 2016, Donald J. Trump became the 45th president of the United States. (Full disclosure,  I’m a Christian first, and a lifelong Republican second. I FULLY support the current President. I voted for him in both the primary and general election, and will vote for him again when he runs for his second term in 2020. I’ve lost friends because of this fact, but I stand my ground.)

When Trump won the election, there were a lot of newscasters , Democrats, and entertainers who said the country was DOOMED! I had a discussion with a very upset friend at work who thought that this was the end of the world. On Nov 07, 2016, the day before the election, the Dow closed at 17,994.64. I was hoping and praying that Trump won, because I fully believed that a Clinton win would be the death of the U.S.  and a disaster for its economy. Being precautious, I moved all of my investments out of the market, just in case the unthinkable happened and ‘That Woman’ won. (I had done the same thing in the 2008 election, more on that later.)  Fortunately the best man won.

The Dow shot up nearly a 1000 points over the next week, a gain which I missed out on because I couldn’t move my investments back fast enough.  It kept going up. About two or three weeks after the election, I told the same co-worker that I had read several financial analysts who predicted the Dow would hit 30,000 by the end of Trump’s first term, and 50,000 by the end of his second term should he win again in 2020. I EVEN showed him the articles stating this. He didn’t believe it, not a word, and dismissed it as propaganda.  As of Friday January 5th 2018 the Dow closed at 25,295.87!

#2 There’s an old Investment adage – Sell in May and go away, but remember to come back in September! It’s meant to avoid seasonal declines in the market, and I’ve used it more often than not. Sometimes I’ve benefited, other times I missed out on an unexpected spike in the markets during the Summer.  You can’t time the market, but you can attempt to lock in gains and minimize losses. You see market sell-offs all the time. These are mini corrections and just people trying to time the market because they think it may go down, then they plan to jump back in and capture the dip. In May of 2008, the Dow ran between 12,818.34 and 12,638.22, so it was pretty flat that month. I don’t remember the exact date I got out of the market that May, but It was probably near the end of the month. In either case it was a presidential election year, and I was not 100% thrilled with John McCain, but I absolutely HATED the other option and I’d sooner vote for Satan than a Democrat. (Unfortunately my guy didn’t win that year.)  The Dow closed at 9,625.28 On November 4th 2008. It plunged 500 points two days later and kept dropping. Fortunately as I knew that presidential election years are very unpredictable, I chose to stay out in May and remained out as I kept watching the market drop, and drop, and drop! It hit a low on Mar 05, 2009 of 6,544.10 before it started its long climb back. During this time I was still buying new shares of stock in my 401k, and even increased my paycheck deductions to 20% to capture these incredible bargains, all the while, my original balance total from May 2008 was locked away safely earning interest in a no-risk bond fund. When it got to May 2009, I uncharacteristically moved my nest egg back into the market and rode that elevator to the top! A co-worker wasn’t so lucky. He stayed in during the plunge, got out at the bottom and stayed out missing the rebound because of fear.

 #3 I was speaking about the market with a friend on December 16, 2017. He had his investments in a no risk fund, because he was fearing a crash, and was waiting for the ‘right time’ to re-enter the market. My investments were all in the high risk C Fund, or Stock fund. They still are, and probably will be for the foreseeable future. Anyhow, I told him there wasn’t anything to worry about and that the market would keep going up. December 15th 2017, the Dow closed at 24,651.74. Three weeks later on Jan 5th 2018 it closed at 25,295.87, up over 600 points.

Can any one of you by worrying add a single hour to your life?  Matthew 6:27 NIV

Let me tell you, I’ve been broke and deep and debt, and I’ve been debt-free and financially sound. Rich is better than broke. I’ve been investing for my retirement since I started working. If you keeping putting off investing in your 401k and building your savings because you’re afraid, you’ll always be broke. The USA has endured many disasters and tragedies which have impacted the stock market since its inception, yet it always rebounds and yields an average return on investments of above 10.5% over the long term. The fact is, if you let your life be ruled by fear and doubt, you will second guess everything, become skeptical with anything and succeed at nothing except making yourself miserable and poor. The decision is up to you, choose well. As always I wish you happiness and success!

A new year, a new you!

Make the most of the coming year.

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As we count down the final hours of 2017 on this last day and final blog post of the year, let’s pause a moment and take stock of the past twelve months.  It may not have been a perfect year  for most of us, but when we reflect back, in most cases we’d have to agree that there were far more good times than bad.  There will always be a small percentage of people we know who had a rough year. These people constantly exclaim ‘I can’t wait for this year to be over’.   For me, the only real part that I dislike and am ready for to end is always winter. I’m not a fan of the snow  and ice. I dislike the short days of early darkness and sub-freezing temperatures.  In North America, winter spans the end of the old year, and the beginning of the new.  Seasons change, and winter exists in part to make us appreciate spring, summer and autumn all the more.   

Raindrops keep falling on my head!

We have no control over the weather, just how we prepare for it. We carry an umbrella in case it rains. We have a coat or jacket in case it gets cold. Only a foolish person curses the weather because they chose not to plan accordingly. We don’t always have to like circumstances beyond our control, but realistically we know that the situation will change in time, and with proper planning and precautions, we can weather the storm. Make it your goal to accept the things you have no control over, and make positive changes over the things that you can control.

Zip-a-dee-doo-dah, zip-a-dee-ay!  My, oh my, what a wonderful day!

Every day each and every one of us gets 86,400 seconds to spend however we choose, with just two exceptions. The day we’re born and the day we die. Excluding those, our days are all the same length, yet some people never seem to get anything done, while others accomplish an incredible amount.  The difference was the result of the choices made, and the attitude behind them.  Planning your day out ‘saves time’.  Procrastinating wastes it. Being miserable makes the day drag, but time flies when you’re having fun.  Did you dwell on the past instead of planning for the future? Keep a positive attitude and try to find one good thing to be thankful for each day. Then focus on that. A positive attitude will attract like-minded people and soon you’ll be surrounded by a positive support group to help keep you encouraged. Remember, no one likes a sad sack.

Time is on my side, yes it is.  

Plan ahead, and plan early. Don’t put off for tomorrow what can be done today! Prior proper planning prevents poor performance .  Manage your time, manage your expenses. Make positive changes in every aspect of your life, and multi-task when you have complimentary goals.     

The great thing about New Year’s is that it’s a reminder that we can start over. If you didn’t like the way this past year went, you can look back on what went wrong, and make changes to fix the problems. You can make New Year’s Resolutions for every item under the sun. The key though, is that you must complete the goal to achieve the result. If you change nothing, nothing will change. You can do it if you stay motivated. One key way to achieve this is by seeing positive change over a period of time.  If you have a fitness goal, such as losing weight, break it down into smaller, easily achievable goals.  Instead of focusing on the sixty pounds you want to lose this year, focus on the five pounds you need to lose in each of the twelve months and be consistent. Track your progress so that you can see how far you’ve come. And if you reach the goal early, go the extra mile and get ahead of the game. This way if you hit a plateau, or a stumbling block, you’ve got breathing room to regroup and recover from the setback. The same thing applies to financial goals. Slow and steady wins the race.  Baby steps forward are still progress.

I faced it all and I stood tall And did it my way!

The Man in the Mirror is a book written by Patrick Morley in 1989. I recommend reading it, as well as exploring any self-help books pertaining to the area of your life that you wish to change.  In  The Man in the Mirror , the author attempts to  teach us to solve 24 problems every man faces in life. Although geared for men, this book applies to everyone. The title is the clue to the cause of the problems, and the solution is to live our lives in a more godly manner.  How many of the problems we face in our lives are a direct result of our stubbornness to do  it ‘our way’ instead of the right way? How many times do we repeat the same mistakes and expect different results? An honest person is forced to admit that the larger portion of our misfortunes are self-made.   Blaming the year and wishing it were over is a very childish way to deal with one’s problems. After all, if you don’t effect positive changes in your life, most likely next year will be a repeat of this year,  or maybe be even worse.  The choice is up to you!  Are you ready for more of the same, or a fantastic new beginning?  You decide.  As always I wish you happiness and success!