Here's another informative article we've found about managing your money and living a better life! You can't do it all, but just start doing a little every week!
by Stacy Johnson
Thursday, October 14, 2010
My 28-year-old niece and I were recently talking about money. She's (finally!) become interested in accumulating more and spending less, and because I've been in the personal finance business in one capacity or another since before she was born, she logically assumed that I've always done everything right and know exactly what to do at all times.
Confession time: I've blown it big on more occasions than I care to mention. In fact, most of what I've learned about money I didn't learn in books or by being a CPA, stock broker, or financial reporter. I learned it the hard way — by making stupid decisions and missing opportunities.
So for her sake, and maybe yours, I've put together the following list of 10 mistakes — most of which I've made — that you really should try to avoid.
1. Not having a goal
Whether sitting in your car or standing at the airport, you'd never start a trip without a destination in mind. The same logic applies to money. You should decide exactly what it is you'd like to accomplish, then remind yourself of that goal early and often. Are you trying to buy a house? Become self-employed? Save for your kid's college education? Retire in your 50s? Whatever it is, write it down, picture it and share it with anyone else who you're counting on to help you accomplish it. Your goal isn't money — money's paper. Create goals — both short-term and long-term — then decide how much money you'll need to reach them. Take it from someone who wandered aimlessly for years: goals work.
2. Not having a spending plan
If you have a job of any kind, you can bet that your employer tracks every dime they make and every dime they spend. Granted, they have an incentive to do so — both income and expenses affect their income taxes — but it's only logical to want to know where your money is coming from and where it's going.
Tracking and categorizing your expenses with a budget — or spending plan, as I prefer to call it — is the single greatest tool you have to accomplish your money-related goals. A plan that includes what you intend to spend on things like entertainment, food, housing, etc., vs. what you actually spend allows you to fine-tune your finances and find places to save. Not doing this is like driving with your eyes half-closed: You might reach your destination, but you're certainly going to take more time getting there.
If you're not writing down every penny of money coming in and money going out,
3. Attempting to derive self-esteem from possessions
Although we all know that money doesn't buy happiness, very few of us act that way. Instead, we seem to go out of our way to appear successful by driving the right car, living in the right house, and wearing the right clothes. Nothing wrong with nice things — if you can afford them.
But here's something that life has taught me. It's a quote from my most recent book, Life or Debt 2010: You can either look rich or be rich, but you probably won't live long enough to accomplish both.
Attempting to derive self-esteem from possessions is dumb on two counts. First, it's expensive.
More important? It doesn't work.
NOTE FROM HAPPY HOME SOLUTIONS: We can't tell you how many times we've gone in to clean up a property after a tenant has moved out, only to be amazed (and saddened/disgusted) at the purchases made -- and often left behind -- by people who couldn't seem to pay to keep a roof over their heads! A bunch of $100 shoes aren't going to do you any good if you're homeless -- especially if you charge them to your credit card, and then leave them behind when you you get evicted!
Almost all purchases except real estate go down in value over the long term (if not right away). Yes, real estate goes down sometimes too, but it ALWAYS goes back up.
The moral of the story is, if you're living in a $500 per month apartment, you shouldn't plan on throwing away money on a big screen TV and a different pair of Nikes for every day of the week (I've seen it done)!
I'm still watching the 25" TV I bought in '98 -- and it works just fine -- and so does the money I invested in real estate! Don't be dumb about material possessions.
4. Doing what everyone else is doing
One of the world's wealthiest men, Warren Buffett, said, "Be fearful when others are greedy; be greedy when others are fearful."
During the recession-induced stock market rout that began in the summer of 2008 and bottomed in March of 2009, the Dow Jones Industrial Average plunged all the way from 10,000 to 6,600. It was at that time that I bought most of the stocks I now own in my online portfolio. I didn't buy then because somebody on TV told me to — the "experts" were as fearful as everybody else. I bought then because I'd missed similar opportunities in similar downturns before, and I was determined to learn from that mistake this time.
Likewise, when the housing bubble was at its zenith, many of my friends were buying as many houses as they could possibly borrow for, even though it should have been apparent that prices were over-inflated. Now they're broke — and I'm shopping for real estate. Again, not because I'm smart, but because I've also missed that opportunity before. Hence this recent story Why You Should Buy Stocks and Houses Now.
It's common knowledge the economy runs is cycles of boom and bust — yet when times are good, everyone seems to believe that trees grow to the sky. When they're tough — like they are now — the same people stand like a deer in the headlights.
If you're convinced the economy is going to zero, buy guns and canned goods. But if you can reasonably expect a recovery some day, invest — even if that day is a long way away, and even if it's possible things could get worse before they get better.
5. Starting to save large and late rather than small and soon
If you're 25 and you save just 5 bucks every day ... call it $150 a month ... and earn 10 percent, by the time you're 55, you'll have $340,000.
If you wait till you're 45 to start accumulating that same 340 grand, you'll have to save $1,700 every month for 10 years. True, you can't earn 10 percent today, at least without risk.
But over time and by taking a measured amount of risk, you can.
6. Paying interest to buy things that drop in value
There are only two situations where paying interest makes sense, at least mathematically. The first is when the purchase goes up in value at a rate greater than the rate of interest you're paying to finance it. Example: You borrow money at 5 percent to finance real estate that you think might return 8 percent on your overall investment. Other examples might include a business loan or a student loan — in other words, something that's going to return more (at least potentially) than it costs in interest payments.
The other situation where paying interest makes sense is when you can earn more on your cash than you're paying in interest. Example: After taxes, I'm only paying about 3.5 percent to finance my house. Since I think can make more than 3.5 percent after-tax in the stock market, I'll forgo paying off the mortgage, even though I have the cash.
Obviously there are times when we have no choice but to borrow. The point is that unless the math works out, the less you borrow, the better.
7. Turning down free money
If your employer is offering matching money when you participate in your company's 401k or other retirement plan — and you're not participating to the extent necessary to get the full match — you're literally refusing free money, not to mention ignoring an opportunity to get a tax deduction and grow your retirement savings tax-deferred.
There are only two kinds of people who turn down free money: people who really, truly can't afford to put up the money to get the match, and people who aren't thinking it through.
And yes, I've been one of those people.
8. Buying a new car
Everyone knows that cars drop 15-25 percent before you get them home from the showroom. Which makes it odd that so many people continue to buy one. My girlfriend just bought a 2009 BMW that still smells new for $26,000 — about $7,000 less than a new one would cost, and they look pretty much identical.
This is one mistake I can happily say I haven't made — I've never spent even that much on a car — or owned one that new.
If you're buying a car for transportation, it doesn't have to be either new or fancy. Cars are depreciating assets: the less you spend on one the better, especially if you're borrowing money to do it.
9. Buying more house than you need or can afford
It's practically gospel: spend 25 percent of your gross income on a mortgage, regardless of what size house you really need. While spending the maximum possible amount you can afford will make real estate agents happy, will it make you happy? When you buy more square feet than you're going to actually live in, you're required to insure them, furnish them, clean them, heat them, and cool them. All of that costs money, time and stress.
Buying a big house makes sense if you're trying to make a leveraged bet on the future of housing prices — or if you're trying to impress your friends.
If you're not doing either, buy what you need and put the money you save into more productive things, like meeting your financial goals.
10. Not protecting your good credit
Credit is like lots of things in life: simple to screw up, a bear to fix. And even though you may think it doesn't matter, some day it might, and probably will. If you've already messed up your credit, take the time and steps necessary to fix it and then keep in good shape.
That was my list of dumb moves to avoid, but I'll bet there are plenty of things that you could add. So let's hear it!
Showing posts with label rebuild credit. Show all posts
Showing posts with label rebuild credit. Show all posts
Thursday, October 14, 2010
Wednesday, September 29, 2010
The Road to the Worst Credit Score Ever
by Amy Fontinelle
Wednesday, September 29, 2010
Your credit score can range from 300 to 850 — the higher, the better. Most articles about credit scores focus on how you can improve your score to get approved for loans and get the best possible interest rates from lenders, but here, we're going to take the opposite approach and tell you how to achieve the worst credit score ever.
If any of these behaviors apply to you, watch out — you're in the process of doing some serious damage to your financial reputation.
1. Don't Pay Your Bills
The most important part of your credit score is your repayment history, so if you want to have terrible credit, don't pay your bills.
Did you get a bill in the mail from your credit card company today? Don't open it. Leave it in the envelope and throw it on top of the growing pile of paper on your dining room table. By refusing to pay even the minimum monthly payment, the repayment history on your credit report will look terrible, showing that you have bills you haven't paid for 90-plus days. Eventually, your account will go to collections, making your score plummet further.
Better yet, throw your unopened credit card bill in the trash. That way, a thief might be able to acquire enough information about you to steal your identity, leaving you with a gigantic financial mess to clean up and completely trashing your credit score.
While you're at it, don't open your monthly mortgage statement, either. Keep doing this month after month. Eventually, you'll lose your home to foreclosure. Between the unpaid mortgage and the credit card bills, you may even have to declare bankruptcy. Bankruptcies and foreclosures are a great way to ruin your credit not just in the short term, but for years to come.
2. Charge It!
The second most important factor of your credit score is how much you owe. So if you want to ruin your credit score, make sure to max out all of your credit cards. Better yet, try to spend past the limit! Then, don't pay the bill — ever. Let the interest and late fees rack up. Instead of keeping your credit card balances below 15-25% of your total available credit, as credit experts like Liz Pulliam Weston recommend, see if you can manage to owe $10,000 on a card with a $5,000 limit.
3. Apply, Apply, Apply
Ten percent of your credit score is based on how many new accounts you have applied for recently. So if you want to mar this component of your score, why not surf the web and see how many credit card applications you can fill out in a single day? Best of all, if you get approved, you'll have new tools to dig yourself into an even deeper financial hole.
4. Be a One-Trick Pony
Your credit score tends to be higher if you use a mix of different types of credit, such as credit cards, store accounts, an auto loan and a mortgage. Of course, to get approved for a mix of credit in the first place, you'd have to be responsible with your money. If you want to look bad, don't mix it up - stick with credit cards. These are one of the easiest types of credit to get.
5. Assume That It's Hopeless
Once you've thoroughly destroyed your credit, there's no sense in hoping that things could get better one day. After all, a bankruptcy can stay on your credit score for up to 10 years. So don't visit a nonprofit credit counseling service for help. Don't work out a budget to help you manage your money better. Don't cut up your credit cards or freeze them in blocks of ice. And don't take any baby steps toward paying off your debts. Just resign yourself to a life on the streets - it will be harder for your creditors to track you down if you don't have a job, an address or a phone number. Don't believe anyone who tells you that you can turn your situation around in a year or two if you're motivated enough.
What Won't Affect Your Score
While you're hard at work destroying your credit and ensuring that your life will one day revolve completely around clawing your way out of debt, please keep in mind that there are a few destructive behaviors that won't have any impact on your credit score.
Unless you do it so often that your bank sends your account to collections, overdrawing your checking account won't have any effect on your credit score (though it will be very expensive). Getting divorced, in and of itself, will not affect your credit score, so don't think that stepping out on your spouse will get you any closer to a 300. Losing your job won't directly impact your score, either, nor will receiving unemployment checks or signing up for food stamps.
Credit bureaus don't care if you're on public assistance, and they don't care if you have a job — they're only interested in whether and when you pay your bills, not how you derive the means to pay for them. But hey — why stop at just destroying your credit when you could destroy your entire life?
The Bottom Line
Please don't follow the tongue-in-cheek tips in this article - we really don't want to see you ruin your finances, your relationships or your sanity.
___
We've reprinted this excellent article from Yahoo Finance.
Wednesday, September 29, 2010
Your credit score can range from 300 to 850 — the higher, the better. Most articles about credit scores focus on how you can improve your score to get approved for loans and get the best possible interest rates from lenders, but here, we're going to take the opposite approach and tell you how to achieve the worst credit score ever.
If any of these behaviors apply to you, watch out — you're in the process of doing some serious damage to your financial reputation.
1. Don't Pay Your Bills
The most important part of your credit score is your repayment history, so if you want to have terrible credit, don't pay your bills.
Did you get a bill in the mail from your credit card company today? Don't open it. Leave it in the envelope and throw it on top of the growing pile of paper on your dining room table. By refusing to pay even the minimum monthly payment, the repayment history on your credit report will look terrible, showing that you have bills you haven't paid for 90-plus days. Eventually, your account will go to collections, making your score plummet further.
Better yet, throw your unopened credit card bill in the trash. That way, a thief might be able to acquire enough information about you to steal your identity, leaving you with a gigantic financial mess to clean up and completely trashing your credit score.
While you're at it, don't open your monthly mortgage statement, either. Keep doing this month after month. Eventually, you'll lose your home to foreclosure. Between the unpaid mortgage and the credit card bills, you may even have to declare bankruptcy. Bankruptcies and foreclosures are a great way to ruin your credit not just in the short term, but for years to come.
2. Charge It!
The second most important factor of your credit score is how much you owe. So if you want to ruin your credit score, make sure to max out all of your credit cards. Better yet, try to spend past the limit! Then, don't pay the bill — ever. Let the interest and late fees rack up. Instead of keeping your credit card balances below 15-25% of your total available credit, as credit experts like Liz Pulliam Weston recommend, see if you can manage to owe $10,000 on a card with a $5,000 limit.
3. Apply, Apply, Apply
Ten percent of your credit score is based on how many new accounts you have applied for recently. So if you want to mar this component of your score, why not surf the web and see how many credit card applications you can fill out in a single day? Best of all, if you get approved, you'll have new tools to dig yourself into an even deeper financial hole.
4. Be a One-Trick Pony
Your credit score tends to be higher if you use a mix of different types of credit, such as credit cards, store accounts, an auto loan and a mortgage. Of course, to get approved for a mix of credit in the first place, you'd have to be responsible with your money. If you want to look bad, don't mix it up - stick with credit cards. These are one of the easiest types of credit to get.
5. Assume That It's Hopeless
Once you've thoroughly destroyed your credit, there's no sense in hoping that things could get better one day. After all, a bankruptcy can stay on your credit score for up to 10 years. So don't visit a nonprofit credit counseling service for help. Don't work out a budget to help you manage your money better. Don't cut up your credit cards or freeze them in blocks of ice. And don't take any baby steps toward paying off your debts. Just resign yourself to a life on the streets - it will be harder for your creditors to track you down if you don't have a job, an address or a phone number. Don't believe anyone who tells you that you can turn your situation around in a year or two if you're motivated enough.
What Won't Affect Your Score
While you're hard at work destroying your credit and ensuring that your life will one day revolve completely around clawing your way out of debt, please keep in mind that there are a few destructive behaviors that won't have any impact on your credit score.
Unless you do it so often that your bank sends your account to collections, overdrawing your checking account won't have any effect on your credit score (though it will be very expensive). Getting divorced, in and of itself, will not affect your credit score, so don't think that stepping out on your spouse will get you any closer to a 300. Losing your job won't directly impact your score, either, nor will receiving unemployment checks or signing up for food stamps.
Credit bureaus don't care if you're on public assistance, and they don't care if you have a job — they're only interested in whether and when you pay your bills, not how you derive the means to pay for them. But hey — why stop at just destroying your credit when you could destroy your entire life?
The Bottom Line
Please don't follow the tongue-in-cheek tips in this article - we really don't want to see you ruin your finances, your relationships or your sanity.
___
We've reprinted this excellent article from Yahoo Finance.
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