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  1. 1. Personal Finance Summary from Stuff Economics An educational and entertaining website with over 400 pages of free content, downloads, videos and more. Major Topic Areas Economics * Macroeconomics * Microeconomics * Personal Finance * Money & Banking * Bank Regulation * International * The Economists * Economic History * Economic Statistics * Basic Accounting * Stocks & Bonds Baseball * Baseball * Baseball Business * Baseball Statistics Computers * Computers * Search * Freeware * Freeware Office Apps * iPod Free Apps * Computer Security * Optimize Windows * Google Tricks 4 Students Other Stuff * Other Stuff * Study Tips * Scholarships * Get a Great Job * New York, New York * Over 200 Desktop Wallpapers * Over 200 Vids & Clips Find it and add it to your bookmarks or favorites: Google or Bing: “Stuff Economics” or Go directly to: ₤₣₧ $€£¥ $€ £¥₤₣₧
  2. 2. Principles of Sound Money Management 1) Use borrowing cautiously, especially when your home is pledged as collateral or your income is volatile or uncertain 2) When choosing investments: a) Decide your personal goals (ex. college, retirement, home, car…..) b) Classify your goals as short, medium or long term c) Target investments to each goal, so that the cash is there when it's needed d) Make sure that any debt incurred is easily covered by expected income e) Diversify your asset holdings 3) Seek competent, unbiased professional advice 4) Maintain liquid savings of 3-6 months living expenses in case of job loss or need to move 5) For long term protection, maintain a financial reserve equal to 5-10 times the yearly income of the principal breadwinner through various insurance & disability policies, as well as savings A Few Points for Emphasis • Invest Early and Often. Make consistent contributions to your own welfare Pay yourself as you might a major utility. If you don't pay them, they turn off your lights or water. If you don't make disciplined, regular payments to yourself, so that investments can grow, you'll not retire comfortably. • Diversify. Never place all your bets on one horse. Never place all your eggs in one basket. This should ensure the safety you desire while investing. • Credit Cards should only be used as a convenient substitute for cash. They should never be used to subsidize a lifestyle that you cannot support. Pay off all cards completely and promptly. Don't get stuck paying the highest interest rates possible. • Though each individual's portfolio will differ, there are certain investments which should be given serious attention by any serious investor, these include: Education, whose return raises income while fueling all other investments…..…Home Ownership, if payments do not differ widely from renting, then why not have something to show for all those payments?……401-k, IRA & Annuities…all of which provide varying degrees of tax-deferral and superior long term growth.
  3. 3. Save Thousands of Dollars Yearly Proposal Savings Stop Smoking $3,650 at a pack a day and 10 $ a pack Don't Drink $1,040 at 2 six-packs a week at 10$ a pack Don't Eat Fast Food substituting a couple of pieces of fruit or a homemade sandwich at 2 meals for 250 work days $2,500 should save at least 10$ a day Eat Less Americans are obese, overeaters; assuming a per-diem expense of 25$ trimmed by 20%, $1,825 calorically and otherwise, saves 5$ a day Never Buy Fancy Coffee at one cup a day with a differential of 4$ between Starbucks and McDonalds for 250 working $1,000 days Cancel Your Gym Membership $500 - instead, get a pair of sneakers and a pair of dumbells and use them $2,000 Cell Phone or Landline, NOT BOTH $480 - $600 cancel one and save 40-50 $ a month Cancel Your Cable Subscription $500 if you live in NY, you already have over a dozen channels of programming Buy Cheap Textbooks $600 save at least 300$ per-semester It may not be realistic to assume that any individual would follow all of the above suggestions, but if he had, there would be an annual savings of over 12,000$. Why bother saving at all? If you save 10,000$ by the age of 25, and never save another penny thereafter, then by the time you are 65 years of age, your savings would have grown to approximately 160,000$ to 640,000$, depending upon rates of return varying from 7% to 11%.
  4. 4. The Folly of Gambling The odds of winning the Lotto Jackpot are about 1 in 14 million. In other words, you are about 175 times more likely to be hit by a lightning bolt than to win the Lotto Jackpot. Or yet another way, if you purchased 250 Lotto tickets every week, you would win the jackpot about once every 1,000 years. Meanwhile…….. If you started with absolutely nothing, and saved 200 $ a month, every month, from the time you were 25 until you reached 65 years of age: At 8%, you’d have about 698,000$ At 10 %, you’d have about 1,260,000 $ At 12 %, you’d have about 2,350,000$ There is a difference between gambling and investing! Want to perform some of your own calculations? Check out this site: Never Co-Sign a Loan When you co-sign a loan, you are signing a legal contract that holds you responsible for the entire debt. If the borrower does not repay, it can be reported on your credit record. If it goes to a collection agency, the agency will try to collect from you. But the bank can do more than ruin your credit rating. It can sue you and get a judgment against you for the amount of the loan plus interest. You must go to court and disclose all your assets. It can even force the sale of your house. And, if the document is like most loan guarantees, it allows the bank to charge you its own legal fees in collecting the debt from you. A typical loan document is written in very small print on two sides of an 8” x 14” piece of paper. Very often people sign it without reading it, particularly when they want to help a child. They assume that the lender will exhaust every means of collecting from the primary borrower before it comes after the co-signer. But this is not the case. Agreements typically allow the lender to decide whom to pursue. Collectors go after the person who offers the best chance of recovering the money. If a loan becomes delinquent, a collector can choose to call you, harass you, rather than your friend or relative, especially if the collector sees that you have a stronger repayment record. Even if the loan is repaid on time each month, another lender may consider the amount of debt that you co- signed when determining if you already have too much credit. In other words, if you’ve added your good name to someone else’s debt, it could be counted against you if you need a loan.
  5. 5. Worst Investments In some sense, there are no perfect investments and no terrible ones. Any investment may be a more or less appropriate choice, depending on the specific circumstance or individual involved. Having stated that, there are some investments that are much more likely to result in a combination of unnecessary risk and below normal returns. These include the following: Vacant Land – It is usually vacant for good reason, like there is a lien on the property, or a biohazard that needs cleaning, or a location that is unfavorable for business. Beware. Time-Shared Real Estate – This may be a luxurious way to have a part-time summer retreat, but almost never represents a good investment, as cost is often prohibitive. Insurance as an Investment – Whole Life Insurance consists of two components, an insurance component and an accumulating savings component. You can easily get the same protection from a Term Insurance Policy at a much lower premium, while replacing the lousy return on the savings component with anything that gives a better return. Specific Stocks or Bonds – Recall, one of the first lessons of investment is diversification. If you place all or most of your eggs in one basket, and that basket should happen to drop, you will lose all your eggs. Timing the Market – Anyone who claims they know just which particular investments to buy, when to buy them, how long to hold them, and when to sell them, is either a liar or a fool. No one can predict the future with that level of specificity and confidence. Entrust your money to neither fools nor liars. Precious Metals, Gems, Antiques or Art – Again, could any of these pay off? Yes. Are they likely to pay off, especially when compared to more predictable assets to which one may have alternatively allocated funds? No. An emphatic, No! Deals to Avoid One of the most important things a successful investor needs to learn, is how to smell a rat or a skunk. While investing, seldom but occasionally, you’ll cross paths with a rat, someone who wants to steal your money or trick you out of it. On occasion, you may encounter a skunk, a deal which smells bad, sounds implausible, and is likely a bad idea. If you can develop discipline in detecting and resisting these poor creatures, you’ll grow less frustrated and richer simultaneously. The simple guidelines here may serve as a primer: Avoid Deals: When you don’t understand the details – This does not mean you should become complacent in your ignorance. Rather, it means you will seldom regret passing on a deal you do not understand, since they lead to fear, confusion and usually a loss of funds. When you feel rushed or manipulated – Any legitimate source of an opportunity will respectfully take time to clarify and explain things to a prospective investor. When they do not, it’s a red flag that you are dealing in dangerous waters with a disreputable individual. When you don’t know the person or company with whom you are dealing – On this score, you can certainly perform due diligence and inform yourself with character references, letters of recommendation, annual reports, etc. But if you can’t or won’t satisfy yourself as to the trustworthy nature of those involved, skip it entirely.
  6. 6. When company bankers, accountants, or other insiders have recently left in droves – Insiders always know more about the day-to-day workings and fortunes of an enterprise. If they’ve left in large numbers and rather hurriedly, why are you in any rush to trust the company’s prospects? If they require big money up front – Legitimate investments don’t ask you to front enormous sums before assuring and/or performing to standard. Don’t trust those who want you to part with money, prior to receiving service. If it is a pyramid scheme – Many tricky ventures are based on an unsustainable premise, that new investors will be funding the returns of older investors. Avoid these like the plague. When they involve unconventional tax-sheltering – The key word here is “unconventional”. It’s your right to honestly and legally avoid taxes you do not owe. It is, after all, your money. However, anything that sounds too unique or exotic should be viewed with extreme distrust. Tax fraud is a serious crime, and you will pay dearly for it. Ignorance of the law will not protect you. When they sound too good to be true – 99 out of 100 times, they are. You may have heard the old saying, “You can’t cheat an honest man”. The reason this aphorism rings true, is that an honest man starts by being honest with himself. If someone claims they can make you rich by working a few hours a week, or by putting no money down, or working from home, then be very, very wary. If it sounds too good to be true, it generally is. PROTECTING YOUR ID Identity thieves rob more than 500,000 Americans every year. These steps will help you reduce your risk of identity theft. 1. Guard your Social Security number. It is the key to your credit report and banking accounts and is the prime target of criminals. 2. Monitor your credit report. It contains your Social Security number, present and prior employers, a listing of all account numbers, including those that have been closed, and your overall credit score. After applying for a loan, credit card, rental or anything else that requires a credit report, request that your Social Security number on the application be truncated or completely obliterated and your original credit report be shredded before your eyes or returned to you once a decision has been made. A lender or rental manager needs to retain only your name and credit score to justify a decision. 3. Shred all old bank and credit statements, as well as "junk mail" credit-card offers, before trashing them. Use a crosscut shredder. Crosscut shredders cost more than regular shredders but are superior. 4. Remove your name from the marketing lists of the three credit-reporting bureaus. This reduces the number of pre-approved credit offers you receive. National Registry to Fight Annoying Phone & E-mail Marketing 5. Add your name to the name-deletion lists of the Direct Marketing Association's Mail Preference Service and Telephone Preference Service used by banks and other marketers. 6. Do not carry extra credit cards or other important identity documents except when needed. 7. Place the contents of your wallet on a photocopy machine. Copy both sides of your license and credit cards so you have all the account numbers, expiration dates and phone numbers if your wallet or purse is stolen. 8. Do not mail bill payments and checks from home. They can be stolen from your mailbox and washed clean in chemicals. Take them to the post office.
  7. 7. 9. Do not print your Social Security number on your checks. 10. Order your Social Security Earnings and Benefits statement once a year to check for fraud. 11. Examine the charges on your credit-card statements before paying them. 12. Cancel unused credit-card accounts. 13. Never give your credit-card number or personal information over the phone unless you have initiated the call and trust that business. 14. Subscribe to a credit-report monitoring service that will notify you whenever someone applies for credit in your name. Minimize your risk: Don't be an easy target Never purchase e-mail-advertised products. Aside from encouraging the spammers, this also proliferates your e-mail address and any personal-identifiable information to other spammers, such as name, address, phone number, credit-card numbers and more. Always protect your personal information. Only share your credit card, Social Security number or other personal information when making purchases from a company or financial institution that you know and trust. Never respond to requests for personal information via e-mail. You will never be asked for a password, credit card or social security number from a legitimate source via e-mail. Beware of official-looking notices that require you to "give up" your personal information or face dire consequences. Verify every transaction. If a Web site address looks different from the name of the organization that you're dealing with, or if you have any concern whatsoever about your transaction, look for a phone number on the Web site and contact the organization to verify that it is valid. Do not do business with any organization that doesn't clearly identify itself on its Web site, including providing a physical address and phone number. Beware of get-rich-quick schemes. If it sounds too good to be true, it probably is. Never pay "up front" for loans or credit. Legitimate lenders never "guarantee" a loan or credit card before you apply. Refrain from replying to a spam e-mail at all — even to ask to be removed. Legitimate companies will remove your e-mail address as requested, but disreputable senders use this as validation that your e-mail address is, in fact, "live." They can then sell your address to others. A better response is to forward spam e- mail to the Federal Trade Commission at Use an e-mail filter to help eliminate unwanted spam. Secure your computer against other risks, such as viruses, hackers, etc.
  8. 8. When to Buy: Most people should buy less of everything; however, we all buy things from time to time. With that in mind, why not buy when the time is right, when prices are likely to be at their lowest? Airplane Tickets When to buy: On a Wednesday, 21 days (or a couple of days earlier) before your flight. Why: Airlines make major pricing changes (and run fare sales) every week, typically on Tuesday evenings and Wednesday mornings. About 21 days out from your flight, you'll see plenty of deals out there as airlines scramble to fill seats. Prices jump significantly from 14 to seven days ahead of departure. Appliances When to buy: During a holiday weekend. Why: You'll find sales on select models all year long, but retailers bring out the big guns for holiday weekends. Baby Clothes When to buy: During your pregnancy. Why: Once you know your due date, keep an eye out for end-of-season clearances. You can pick up newborn essentials for less than half price. Broadway Tickets When to buy: Hours before the curtain rises. Why: How does a $25 front-row seat to the smash musical sound? Several musicals offer same-day ticket lotteries that offer up orchestra seats at inexpensive prices. If you'd rather not gamble on getting a seat, wait in line at the famous TKTS booth2 in Times Square. There, you can get tickets for hit musicals for up to 50% off. Cars When to buy: Weekday mornings in September. Why: By September, all the next year's models have arrived at the lot, and dealers are desperate to get rid of the current year's leftovers. It's the prime time of year for incentives and sales, not to mention bargaining. Heading to the dealership on a weekday morning also helps because there's low foot traffic, meaning you'll have ample time to negotiate and fewer people trying to buy the same car. The more demand, the less willing a salesman is to go down on price. Champagne When to buy: December Why: Most people assume that because everyone wants a good bottle of Champagne for New Year's Eve that prices go up during the holidays. But due to fierce competition among the Champagne houses, prices are actually lower during the holidays than they are at any other time of year. Clothing When to buy: Thursday evenings, six to eight weeks after an item arrives in stores. Why: After an item lingers in stores a month or more, retailers start dropping its price to get it out the door. Hitting the mall on a weekday ensures you'll get a good selection. By Thursday, most of the weekend sales have begun. Computers and electronics When to buy: Just after a new model is launched. Why: When the latest and greatest of a product is released, you'll often see prices drop on what had previously been the best thing out there. Time your purchases for after big annual technology show like MacWorld6 or the International Consumer Electronics Show usually held just after the New Year. Gas When to buy: Early morning or late evening on a weekday. Why: Time your trip based on whether prices are rising or falling. Stations tend to change their prices between 10 a.m. and noon, so hit the pump in the early morning if gas prices are on the rise. Go later in the day if prices are falling. Try not to buy gas on the weekends. Gas prices are often slightly elevated, as stations try to profit from leisure travelers.
  9. 9. Gift Cards When to buy: A day or two before you give it. Why: These days, gift cards carry a plethora of hidden pitfalls, from expiration dates to dormancy fees. That countdown to fees starts as soon as you buy the card. Groceries When to buy: Sunday evenings. Why: Store sales tend to run Wednesday through Tuesday. On Sunday, you'll also have the latest round of manufacturer's coupons from your morning paper. Heading to the store close to closing time means you'll have access to sales on fresh items that must be sold by the end of the day, such as meats and baked goods. Of course, you'll also benefit from in-season items that can be frozen for use later in the year. Buy turkeys at Thanksgiving and hams at Christmas and Easter. During the spring and summer, buy fresh produce. Peaches bought at $1 per pound now can be kept frozen for smoothies and pies throughout the winter. Shrubs, Trees and Other Plants When to buy: Fall Why: Take a break from raking up leaves to purchase trees, shrubs and other perennials for your yard. Prices nosedive after midsummer, as garden supply stores and nurseries try to clear out their stock. Televisions When to buy: Six to 12 months after a particular model is launched. Why: A new TV drops in price after a few months on the market. Although there will be newer models out there, it's unlikely they'll offer any significant improvements to justify that brand new price. Wedding Dresses When to buy: Between Thanksgiving and Christmas. Why: Boutiques are stocked up on dresses for the post-Christmas rush (many people get engaged over the holidays), yet traffic is low. It's not a busy time to buy a wedding dress because people are thinking about the holidays. You'll also have room to bargain. Wine When to buy: Early fall. Why: For best selection, you can't beat the fall harvest season. That's when most vineyards release their latest vintages. Advice to Eliminate Debt Step No. 1: Make a list of what you owe. This first step may be the hardest part of dealing with your debt. Put all your bills in a pile. Then list your debts in order, starting with the largest balance first. Next to the amount, list the minimum monthly payment, and the interest rate you’re paying on that card. Now you know where you stand. Step No. 2: Prioritize your repayments. If you have one or two small balances, you might want to apply extra money to pay them off, while continuing to pay the minimums on the cards with larger balances. Or you might want to pay off the card with the highest interest rate first. When you’ve paid off the smaller balances, attack the larger ones. Here’s a trick that can save you years of interest charges. Simply double the minimum monthly payment -- and don’t charge another penny. That should get you out of debt in less than three years. You can also use the debt evaluation tool at MSN Money. It will help you evaluate your situation and prioritize your payments. Step No. 3: Eliminate credit cards and don’t roll over balances. When you pay off a card, notify the company that you want to close the account. Don’t just stick the card back in your wallet where it will tempt you again.
  10. 10. Step No. 4: Make a spending plan. Now is the time to change your free-spending ways. To do that, track the money that’s coming in and going out. Fortunately, there are easy ways to do that. One thing worth spending money on is personal finance software such as Microsoft Money and Quicken. Both programs let you track all your check writing by category and make monthly comparisons of your actual spending to the amount you’ve budgeted. Step No. 5: Be careful about the equity in your home. In the past few years, Americans have withdrawn billions of dollars worth of equity in their homes. The ads and commercials are tempting, because the rates on home equity loans are typically lower than the rates charged on outstanding credit card balances. And the interest on a home equity loan may be deductible. But there are dangers in home equity loans. Frequently, the money is used to pay down credit cards, which are then charged up again. The banking industry calls this “reloading”. Be very careful about digging into this last reserve. There’s no guarantee that home prices will always rise. And if you have future problems that require cash, you’ll have no place to turn. Instead, you’re putting your house on the line *FICO Score definition – the Fair Isaac Credit Organization. A consumer will have three FICO scores, one from each national credit bureau. FICO scores are a measure of a consumer’s financial responsibility, based on their credit history. Most lenders will look at FICO scores when evaluating a consumer’s loan applications. 12 Mistakes Made with Credit Cards: 1. Paying late. Your timeliness is the single biggest factor in determining your FICO score, so always pay your bill on time, even if it is just the minimum balance due. Besides, if you are late on a low-rate card, it gives the card company the right to increase your rate. You could see a zero percent card jump to 15 percent or 20 percent, just because you didn't get the check to them on time. 2. Going over your credit limit. Not only is there a fee of $35 or so, but it also gives the card company the right to change your interest rate. You can say goodbye to any low rate you may have had. 3. Paying a high interest rate. There is no reason to pay the 15 percent to 18 percent interest rate charged on many cards. If your FICO score is at least 700 you should negotiate for a better rate, or transfer your balance to a low-rate deal. 4. Canceling a credit card account. Your "history" in making payments on your card is a factor in determining your FICO score. Cancel the card and you have wiped out important history; that can send your FICO score lower. 5. Charging up a new balance on a card you used for a balance transfer. The great no or low interest balance transfer offers are just for the amount you transfer. All new purchases are going to be charged a different rate that can be above 10 percent. 6. Using a card where the billing method is the two-cycle average balance. If you tend to carry a balance, you are far better off with a card that uses the Average Daily Balance method; it will reduce your interest costs. 7. Using your card like an ATM. Cash advances are a horrible deal, carrying interest rates that are often above 20 percent. And the card company will make you pay off your regular balance first, before allowing you to tackle the advance balance. 8. Co-signing for a friend's credit card. That'll make you financially responsible for their charges, and their credit card behavior shows up on your credit report!
  11. 11. 9. Paying off credit card debt with a home equity line of credit (HELOC). Card debt is "unsecured"; housing debt is "secured," which means you can lose the house if you can't make the HELOC payments. Obviously, it makes no sense to put your house at risk to get rid of an unsecured debt. 10. Not paying off the card with the highest balance first. When you have multiple cards with balances, always pay off the card with the highest interest rate first. 11. Not having a credit card. Without a card, you won't have a credit history, and it's that history which lenders use to decide if they want to give you a loan. You need the payment history that comes with owning and using a credit card to qualify for other loans. 12. Screwing up paying on any cards. Don't think that one card cannot affect the others, because it can. The credit card companies usually keep a close eye on your FICO score. If you miss payments on one of your cards and thereby reduce your FICO score, your other card companies may use this FICO decline to justify raising your rate on the card you have with them, even if you have never been late. Pay Off the Balance on Your Credit Cards You may not realize it, but your best investment may be to pay off your credit cards as soon as possible. Then keep the balance on the card at “zero”. If you are one of the millions of Americans who carry a balance on your credit card, you can give yourself a great investment return by paying off that balance. Whatever interest rate you are paying is your "gain" by reducing your balance to zero. For example, if you pay 18 percent, that's an 18 percent return for getting your balance paid off. The average credit card balance these days is about $10,000 and the typical interest rate is about 18 percent, with many people paying even more. Let’s do some simple math. An 18 percent interest rate on an $10,000 balance is $1,800 a year. How can you afford to throw away $1,800 a year? Instead of paying $1,800 a year, suppose you had $1,800 to invest every year for the next 20 years and you earned an average return of 8 percent a year. Care to guess what that would be worth in 20 years? Answer: $88,353.06. Free Credit Reports A credit report contains information on where you live, how you pay your bills, and whether you’ve been sued, arrested, or filed for bankruptcy. Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home. There are three nationwide consumer reporting companies — Equifax, Experian, and Trans Union. Why would I want to get a copy of my credit report? You may want to review your credit report: • because the information it contains affects whether you can get a loan — and how much you will have to pay to borrow money. • to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance • to help guard against identity theft.
  12. 12. How do I order my free report? To order, click on or call 877-322-8228. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order from only one or two. The law allows you to order one free copy each year from each of the nationwide consumer reporting companies. How long does it take to get my report after I order it? If you request your report online at, you should be able to access it immediately. If you order your report by calling toll-free 877-322-8228, your report will be processed and mailed to you within 15 days. Improve Your Credit Score Pay down your credit cards. Paying off your installment loans (mortgage, auto, student, etc.) can help your score, but typically not as dramatically as paying down, or paying off, revolving accounts like credit cards. Use your cards lightly. Racking up big balances can hurt your score, regardless of whether you pay your bill in full each month. You typically can increase your score by limiting your charges to 30% or less of a card’s limit. Use an old card. The older your credit history, the better it is. But if you stop using your oldest cards, the issuers may stop updating those accounts at the credit bureaus. The accounts will still appear, but they won’t be given as much weight in the credit-scoring formula as your active accounts. So use your oldest cards every few months to charge a small amount, paying it off in full when the statement arrives. Correct significant errors. Your credit score is calculated based on the information in your credit report, so certain errors there can really cost you. Examples of items that should be corrected with the bureaus include: late payments, charge-offs, collections or other negative items that aren’t yours, credit limits reported as lower than they actually are, and accounts listed as “settled,” “paid derogatory,” “paid charge-off” or anything other than “current” or “paid as agreed” if you paid on time and in full. Don’t ask a creditor to lower your credit limits. This will reduce the gap between your balances and your available credit, which could hurt your score. If a lender asks you to close an account or get a limit lowered as a condition for getting a loan, you might have to do it, but don’t do so without being asked. Don’t consolidate your accounts. Applying for a new account can hurt your score. So can transferring balances from a high-limit card to a lower-limit one, or concentrating all or most of your credit-card balances onto a single card. In general, it’s better to have smaller balances on a few cards than a big balance on one. Don’t apply for new credit if you’ve already got plenty. On the other hand, applying for and getting an installment loan can help your score if you don’t have any installment accounts, or you’re trying to recover from a credit disaster like bankruptcy.
  13. 13. 10 Credit Card Ripoffs Fees and More Fees In any given month, you may pay a late payment fee, an over-limit fee, a cash advance fee, a balance transfer fee, a foreign exchange fee, a bill payment fee, a Western Union fee, and whatever else your lender can devise. Not to mention monthly and annual fees. Tricks to Make You Pay Late These come in many varieties. If you’re late you’ll pay a hefty fee and your interest rate may go up. Check each statement carefully and pay your bill as soon as it arrives. Changing Due Dates – Your bill will not be due on the same day every month. Early Due Dates – Bills may be due just a few days after you receive them. Weekend Due Dates – If your due date is on the weekend and your payment arrives on the date, it won’t be processed until Monday and you’ll be considered late. Morning Due Times –Your payment may be due at 9am on the due date, not 5pm. Approved Over-limit Charges If a purchase puts you over your limit, your credit card company will approve the charge then hit you with an over-limit fee and maybe even raise your interest rate. Keep careful track of your balance and know that even approved charges may put you over-limit. Universal Default Pay Card A on time but pay late to Card B (or anything else monitored by your credit score) and your interest rate on Card A may jump! “Any Time for Any Reason” Changes Most contracts include this ominous phrase. It means just what it says – they can increase your interest rate on a whim. Teaser Rates That Don’t Stick – An introductory 0% interest rate can jump to 30% with a late payment or if you go overlimit. Don’t bank on keeping that 0% rate for the entire promotional period. Retroactive Application of Higher Interest Rates To make things worse, if your interest rate increases, they can apply the higher interest rate to the entire existing balance, not just to new charges. Allocation of Payments If you end up with two or more different interest rates, they will apply your payments to the balance with the lower interest rate first. The rest of your balance will continue to generate high interest charges until the low-rate balance is entirely paid off. Tricky Interest Calculations For some cards, you can pay interest on purchases from previous cycles. This is known as double cycle billing. Look for a card that uses the “Average Daily Balance” interest calculation method. Credit “Protection” Services like this may sound good, but they’re usually useless. The fee for the service likely exceeds the minimum payments it would cover if you became sick or lost your job. Avoid add-on products like this. Binding Mandatory Arbitration (BMA) This provision requires that you resolve any conflict with an arbitrator selected by the lender, which means you give up your right to take the credit card company to court. Scan your contract and terms and conditions to see if they apply to you. Don't worry. If you try really really hard, it's possible to understand your credit contract.
  14. 14. Ways to Trim Your Budget Rent or mortgage: Moving is not something you're going to do tomorrow. But if your castle is eating up more than 25% of your income, start making long-term plans. Add extra money to pay down your mortgage. Think about moving to a cheaper home or apartment. Tax law provides an incentive to trade down: $500,000 in tax- free capital gains on a home, no matter what your age. Utilities: Turn down the heat and air conditioning. Use energy-star appliances. Use energy efficient fluorescent light bulbs. Do you need so many phone lines? Is your cell phone essential? Insurance: If your term life insurance policy is five or more years old, you're in for a pleasant surprise. Term rates have been heading straight down over that period. You can almost certainly get a better rate. Increase the deductibles on your auto and homeowner's policies, too, to save money, and drop collision insurance if your car is paid for. But don't skip disability insurance. If you can't work due to a disability, you could jeopardize everything without insurance. Groceries: Prioritize foods that you find pleasurable and healthful. Don't cut corners there. But how about bottled water? Is there any difference between the brand for $1.99 and the one for $3.99? Do you need bottled water at all? Do you really enjoy the prepared foods you buy? Do you need to gorge yourself with unhealthful snacks, or would a piece of fruit from home do the trick? Could you make something fresh, simple, healthier -- and cheaper? Clothing: Make a list of what you need. Shop from your list. Think about all the stuff you have hanging in your closet, that you have worn only once or twice.. Donate unneeded articles to the Poor and Needy, and enjoy the extra closet space. Transportation: Seek for bargain airfares at one of the many online sites, like Travelocity or Cars are better made and last much longer than they used to. Get one that has a good reliability record, and then take care of it. Keep it two or three years longer. Walk first, then bus or subway, and try to avoid taxis at all times. Credit: Pay down and use cards you keep as a convenient substitute for cash you have and would have spent anyway. Pay down cards completely, keeping no outstanding balance on them at all. Taxes: Contribute to your 401(k) and make use of health-care and dependent-care spending accounts at work. Unnecessary Frills: Do you really need a café latte’ from Starbucks? Do you need the latest fashions….the electronic gadgets…..the health club membership…..the cell phone…..etc…? Consider each, and then cut the ones you don’t need to save cash.
  15. 15. Repairing Credit: 21 Things You Should Never Do 1. Don’t supply too much information. You may accidentally verify the negative items in your credit history. This makes them impossible to remove later. 2. Don’t deal with collectors, a debt planner, or a credit reporting agency over the phone, unless you are extremely confident and have nerves of steel. A paper trail is important! 3. Don’t close accounts for the sake of closing accounts. Some of these accounts may be helping your credit history. 4. Don’t dispute an account without verifying and double-checking the account numbers. You may accidentally dispute or delete a wrong account. 5. Don’t dispute positive information (long history account, paid-on-time accounts, etc.). Those positive lines can accidentally get deleted from your credit history if you’re not careful. 6. Don’t sign anything sent to a collection agency. At shady collection agencies, signatures have a habit of jumping from one document to another. 7. Don’t ignore your state’s statute of limitation. 8. Don’t confuse statue of limitation with the reporting time limit on your accounts. Just because a debt has passed the time limit for a lawsuit does not mean the accounts will no longer be reported on your credit history. 9. Don’t attempt to dispute a negative entry in your credit history (that’s incorrectly positive on another report) by using the claim “This other reporting agency shows it as positive.” Credit reporting agencies share all negative information. If a negative is incorrectly positive, they will inform the other agencies of the inaccuracies! 10. Don’t send your bankruptcy paperwork (or any part of it) to credit reporting agencies! 11. Don’t add the 100-word “personal statement” to your credit files. They will generally do more harm than good. 12. Don’t give the collection agencies your banking account information or anything with your financial information on it (bank statements, post-dated checks). Shady collection agencies will have no qualms about withdrawing funds from your account. 13. Don’t pay the collection agencies with a personal check. Use a money order. 14. Don’t send written communication to collection agency via regular first-class mail. Use certified return- receipt requests for all of your correspondence. You will need proof that you’ve sent or requested certain information. 15. Don’t send any payment in until you have a clear written agreement on what will occur after you make payments. 16. Don’t assume your credit scores and history will improve just by paying off a collection. As with the above tip, ensure that you have negotiated for the removal of the negative item in question before you pay a collection agency! 17. Don’t call a collection agency with your home phone number! If need be, use the many available VoIP services out there. 18. Don’t send a cease-and-desist letter to a collection agency unless you have done your homework. If you leave out important key words, and the account in question is still within the statue of limitations, you may be forcing a collection agency to sue you! Leaving room for further correspondence through mail may be a better option than a complete cease-and-desist letter. 19. Don’t take the word of a customer service representative from a collection agency or credit reporting agency as fact. Remember to always do your own research before taking a specific course of action. 20. Don’t give up and don’t get discouraged! Repairing a credit history from bad credit to excellent credit is entirely possible as long as you have the will, discipline, and patience. 21. Never pay for a collection over the phone!
  16. 16. Other Credit Scores Here are nine ways you are scored, some that seldom see the light of day: Credit-Risk Scores: These are the credit scores most of us know. The leading credit score, the FICO, was created by Fair Isaac and ranges from 300 to 850, with Scores over 700 generally considered to be low risk. Response Score: This score predicts the likelihood a consumer will respond to an offer of credit, such as a new card or a balance transfer offer. Credit card issuers use response scores to decide whom to target and how to customize offers to appeal to particular consumers. Application Score: This score scoops up data from your credit application that's not included in your credit scores. Those data include how much you earn, how long you've lived at your current address and how long you've worked for your current employer. Application scores are typically used in combination with other scores, such as credit and bankruptcy scores, to determine whether to open an account, what rate to offer, and how much credit to extend. Bankruptcy Score: Credit scores typically predict the chance you'll miss a payment in the next two years. Equifax produces the leading Bankruptcy Navigator Index or BNI. BNI's range from 1 to 300, where higher scores predict lower risk. Most lenders use both credit scores and bankruptcy scores to help assess the risk that you won't pay. Revenue Score: Lenders want to maximize the profitability of each account. A revenue score helps them gauge how much money each account is likely to generate. Attrition-Risk Score: Attrition risk refers to the likelihood a user will stop using a card, and attrition-risk scores are typically used in combination with other scores to determine how to proceed if you threaten to cancel a card. For example, if your account generates a lot of revenue and is deemed at low risk of default or bankruptcy, the issuer might aggressively try to keep your business by raising your credit limit or lowering your rate. Behavior Score: These focus on a single account in a broad way. Does the user pay off her bills every month, carry a balance occasionally or frequently pay only the minimums on her cards? A behavior score might be used in conjunction with other scores, such as credit or bankruptcy scores, to decide whether an overdue payment is an aberration or a sign of impending financial crisis that needs to be addressed. Transaction Score: These are the scores run each time you use your credit card to determine whether the transaction should be approved. Issuers are typically looking for signs the transaction might be fraudulent. Collection Score: Suppose you've failed to pay for long enough that your card has been turned over to a collection agency. These agencies use collection scores to assess the likelihood that you'll be able to pay them and sort their list of debtors accordingly. It works as a sort of triage system, whereby those with small indebtedness or horrible prospects are dealt with last. Priority is given to harassing those with significant but manageable debt.
  17. 17. Car & Home Insurance Tips Shop Around Take fifteen minutes and get a few quotes on your home and auto insurance from other carriers. There may be a considerable difference in rates among different providers. Raise your deductible Most Americans have a home insurance deductible of $500, but they very rarely make claims on that insurance. If you raise your deductible to $1,000, you can save as much as 25% on your insurance. The same applies to auto insurance. If you don’t make claims very often, consider raising your deductible to reduce your payments. Look for package deals The majority of Americans have different providers for their home and automobile insurance. See whether or not you can get a reduction in your premium if you take all of your business to one provider. Install a deadbolt and smoke detectors Call your insurance provider and ask for their recommendations for deadbolts, smoke detectors, security systems, and other equipment that might reduce your premium. If they’re cheap the items are inexpensive, buy them, install them, and get that reduction in your premium. Check for other discounts Many insurance companies offer reduced home insurance rates if someone works at home or doesn’t work at all. Auto insurers will offer lower rates if you have a stable, socially responsible job. Both will offer a lower rate if you have a good credit rating. Explore these avenues with your insurer. Car Related Sites: contains reports of the annual cost of gas for all car models locate and report best and worst gas prices for all areas of North America comprehensive auto related site….quotes, financing, new & used etc….. Kelley’s Blue Book Online Edmunds Blue Book Online Carfax trace the history of any used vehicle by VIN #....don’t get stuck with a lemon
  18. 18. Reduce Your Mortgage Most people are not aware that while they are paying down their mortgage, they will pay more in the form of interest than principal. One sure way to reduce total payments over the life of the mortgage is to reduce total interest paid. Indeed, those who refinance at a lower rate are trying to achieve just that; however, refinancing costs are comparable to closing costs in many cases, and are therefore a prohibitively expensive and impractical means by which to reduce your liability. A good alternative is to make additional payments to principal with each mortgage payment. As long as your particular mortgage agreement allows it, and most do, and you inform your creditor in advance of your intentions, even a 100 or 200 dollars extra per month will make an enormous difference. For example, in the table below, we've considered an individual who has taken a $300,000 mortgage at a fixed rate of 7% for 30 years. One readily observes that adding $100 per month can shave over 4 years and nearly $70,000 in payments, while adding $200 per month goes even farther, shaving over 7 years and over $100,000 in total interest expense. So, if you can, speak to your creditor about the possibility of making extra payments each month toward the principal of your loan. Impact of Making Additional Principal Payments Mortgage payment Mortgage payment 30-year fixed plus $100 plus $200 per month per month Loan balance: $300,000 $300,000 $300,000 Interest rate: 7.00% 7.00% 7.00% Loan term (months): 360 310 275 Monthly payment: $1,995.91 $2,095.91 $2,195.91 Total payments: $718,527.6 $649,732.10 $603,875.25 Total interest: $418,527.6 $349,732.10 $303,875.25 Interest Savings 0 $68, 795.50 $114,652.35
  19. 19. Predatory Lending Most banking and financial institutions are loath to create unsound loans and are equally reluctant to foreclose; however, there is a growing body of research confirming that predatory mortgage lending does occur and disproportionately among communities of color, the elderly, women, and those in rural settings. Predatory mortgage lending involves a wide array of abusive practices. Below you find brief descriptions of some of the most common. When securing a loan, be on the lookout for any and all of the following: Excessive fees Points and fees are costs not directly reflected in interest rates. Because these costs can be financed, they are easily disguised. On competitive loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common. Abusive prepayment penalties Borrowers with high-interest, sub-prime loans have a strong incentive to refinance as soon as their credit improves. But almost 80% of all sub-prime mortgages carry a prepayment penalty, a fee for paying back a loan early. An abusive prepayment penalty typically is effective more than three years and/or costs more than six months’ interest. In the prime market, only about 2% of home loans carry prepayment penalties of any length. Kickbacks to brokers (yield spread premiums) When brokers deliver a loan with an inflated interest rate, the lender often pays a “yield spread premium", a kickback for making the loan more costly to the borrower. Loan flipping A lender "flips" a borrower by refinancing a loan to generate fee income without providing any benefit to the borrower. Flipping can quickly drain borrower equity and increase monthly payments. Unnecessary products Sometimes borrowers may pay more than necessary because lenders sell and finance unnecessary insurance or other products along with the loan. Mandatory arbitration Some loan contracts require "mandatory arbitration," meaning that the borrowers are not allowed to seek legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms. Mandatory arbitration makes it much less likely that borrowers will receive fair and appropriate remedies in cases of wrongdoing. Steering & Targeting Predatory lenders may steer borrowers into sub-prime mortgages, even when the borrowers could qualify for a mainstream loan. Vulnerable borrowers may be subjected to aggressive sales tactics and sometimes outright fraud. Fannie Mae has estimated that up to half of borrowers with sub-prime mortgages could have qualified for loans with better terms.
  20. 20. 10 Banking Fees • Checking Account This is the privilege-of-using-your-own-money charge that many banks did away with years ago. But such fees are starting to creep back into the system, experts warn. Consumers shouldn't assume their checking accounts are fee-free or, if they are, that they will always continue to be so. Charges vary from a flat monthly fee to one that is dependent on how many transactions you have or on a minimum account balance. The type of checking account to now look for is one that does not have a monthly service charge, minimum balance requirement or limit on the number of transactions you can make. • ATM If you use an ATM that doesn't belong to your bank or doesn't have an agreement with your bank, you could get charged twice -- once by your bank and once by the bank whose ATM you're using. Fees typically range between $2 and $4. And the bite is getting bigger. • Overdraft Charges can add up when you unknowingly bounce a check or go over your account balance. Many consumers argue that banks should deny them cash at the ATM if the withdrawal is going to overdraw the account. But most banks don't do so because allowing the transaction to go through and charging the subsequent penalty brings in money. • Deposit Returned If a check deposited in your account bounces, you're charged a fee just as if you had bounced the check yourself. • Tellers Banks drew fire from consumers in the 1990s when they tried charging a fee if human interaction occurred when depositing or withdrawing money. There are scattered reports of these fees popping up again, mostly for "excessive" use of tellers. Some banks give you two free teller visits per month, but charge you after that -- say, $2 or $4 for each extra visit. • Inquiries This is the phone version of teller fees. Make a call to ask about your account balance, a charge or to order new checks and you could get hit with a service fee ranging from 50 cents to $5. • Closing Accounts Many banks will charge you a fee if you close an account within 90 days -- and sometimes within six months -- of opening it. Bankrate has seen fees between $5 and $25. • Currency Conversions Fees to convert currency are on the rise -- both what you're charged when withdrawing local currency from a foreign ATM and what you pay to convert any unspent money back to dollars at your local bank. • Credit Cards Legislation going into effect next year will put caps on some credit-card late and over-limit fees and on how they're charged against old and new balances. Until then, expect to see them grow. Grace periods also are expected to end or be severely restricted. • Annual Membership In the early days of credit cards, issuers charged consumers a yearly fee for the right to use the card. Competition drove most annual fees away, but it looks like they may make a comeback. An annual fee could cost you $29 or more.
  21. 21. College Savings for your Family: 529 and 530 plans The income tax advantages of the following programs have made them popular college savings tools. A 529 Plan is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary. Advantages: * All money grows federal and state income-tax free * The account holder retains control of the assets within the program regardless of beneficiary's age * The beneficiary can be changed at any time to another member of the beneficiary's family * Many states exempt withdrawals from state income-tax for qualified higher education expenses * Money can be used virtually everywhere -- over 8,000 schools in the U.S. and over 800 foreign schools * Money can be used to pay for tuition, fees, room, board, books, supplies and required equipment * High maximum contribution limits * Account owners can contribute up to $60,000 per beneficiary or $120,000 if married filing jointly * Assets within 529 plans are protected from bankruptcy * Most plans have very low minimum monthly contribution limits making them attractive to all families regardless of income level * Each state offers a no-fee, low cost option that can be opened by contacting the plan directly Coverdell Education Savings Accounts , also known as 530 Plans or Education Savings Accounts, allow money to grow tax deferred and proceeds to be withdrawn tax free for qualified education expenses at a qualified institution. However the definition of qualified expenses in an ESA includes primary and secondary school, not just college and university. Important differences with 529 plans: * Coverdell ESAs have lower contribution limits; currently $2,000 can be contributed per year per child, while 529 plans generally have no restrictions on contributions. (Gift tax rules apply) * Coverdell ESAs can allow almost any investment inside including stocks, bonds, and mutual funds, while 529 plans only allow a choice among a number of state run allocation programs. The rules for investments allowed in ESAs are the same as those for IRAs. * Balances in a Coverdell ESA must be disbursed on qualified education expenses by the time the beneficiary is 30 years old or gifted to another family member below the age of 30 in order to avoid taxes and penalties; there is no age limit for 529 plans. * Coverdell ESAs allow withdrawing the money tax free for qualified elementary and secondary school expenses; 529 plans do not. * The income level of a donor may affect contributions into a Coverdell ESA, but would not affect contributions to a Section 529 plan. Important similarities with 529 plans: * Generally, money in both a Coverdell ESA and a 529 plan would be considered the child's (beneficiary's) money when applying for federal financial aid. This could reduce the amount of aid that would otherwise be awarded. * The custodian of both an ESA and a 529 plan can designate a new beneficiary without incurring taxes or penalties provided that the new beneficiary is an eligible family member of the previous beneficiary.
  22. 22. Assorted Tips Retirement Do not touch retirement money, until you retire. There's rarely a good reason to borrow against your retirement accounts, and almost never a reasonable excuse for cashing them out. Look elsewhere to find money to pay your debts or buy a home. Let your retirement money keep working for you undisturbed. Someday, you'll be glad you did. Student Loans Your total borrowing shouldn't exceed what you expect to make your first year out of school. Many graduates have learned to their chagrin that student lenders will gladly loan you far more money than you can comfortably repay. Students and parents need to put their own limits on how deeply they go into debt, or they could face a literal lifetime of student-loan payments. College Savings Saving for retirement is more important, but try to put at least $25 a month per child in a college savings plan. Contributing even a small amount each month will help reduce the amount of debt your child eventually incurs. Thanks to recent tax law changes and reductions in fees, 529 college-savings plans have emerged as the best way for most parents to save. Cars Buy used and drive it for at least 10 years. This one rule of thumb easily could save you tens of thousands of dollars over your lifetime compared with what you would pay buying cars new and owning them just five years. Not only will you buy half as many cars, but you'll avoid the 20% loss to depreciation that happens as soon as you drive a new car off the lot. Today's cars are better built and will last longer than ever before, so buying a used car isn't the gamble it used to be. Debt Repayment Pay off maxed-out cards first. When paying down credit card debt, the argument used to be between those who advocated paying the highest-rate card first (to save the most money) and those who argued for paying the smallest balance first (for a faster feeling of accomplishment that can motivate you to keep going). These days, though, you should first tackle any card that's close to its limit, since maxing out cards hurts your credit scores and can trigger penalty rates and fees. Insurance Cover yourself for catastrophic expenses, not the stuff you can cover out of pocket. Insurance isn't meant to cover the normal expenses of daily living. That's why you want high limits on your policies -- but high deductibles, too. Life Insurance Those who need it typically need five to ten times their income. Most people need to answer only two questions about insurance: "Do I need it?" and, if the answer is yes, "How much do I need?" You probably need life insurance if other people are financially dependent on you. You probably don't if you're single or your kids are grown. If you do need life insurance, the most important thing is to buy enough. Term or "pure" insurance is usually the way to go, since insurance that includes an investment component can be as much as 10 times more costly. Mortgages If you can't afford to buy the house using a 30-year fixed-rate mortgage, you can't afford the house. There are good reasons for choosing less traditional loans, but buying a house you couldn't otherwise afford isn't one of them. Too many people today are facing foreclosure because they used an adjustable or interest-only loan to buy too much house for their means.
  23. 23. Tax Document Checklist Get a large Manila envelope or binder of some sort, and use the checklist below to be sure that everything is in order. -Social Security numbers and birthdates for everyone included on your return, including all dependents -A copy of last year’s return, to access information like last year’s taxable income and taxes paid -All forms that say W2, 1098, 1099 or (Schedule) K-1 -Complete records of other income received or other expenses incurred in the previous year (ex. Wages not reported on W2, gambling, rental, alimony, etc.) -Purchase dates and total investment in any stock or property you sold -Expenses related to your investments -Records of any contributions you made to IRS’s or other retirement plans -Records for mortgage interest, real estate and property tax -Amounts donated to any churches, schools or other charitable organizations -Records of non-cash charitable contributions -Number of miles driven for charitable or medical reasons -Amounts paid to healthcare professionals, hospitals and health insurance -Records to corroborate childcare or higher-education costs -Employment related expenses (ex. dues, subscriptions, uniform cost or cleaning) -Job search expenses and unemployment income if applicable