Taking Inventory

Take a look around at the people you hang out with.

Chances are, you will end up just like them. If they complain, you will complain. If they are ultra-conservative, chances are that you will acquire some conservative views. The actions and behaviors of the company you keep will be one of your largest influences in your life.

I've been trying to figure out where I want to go in life and while I may not have specifics, I do have a general idea of where I'm headed, what I'd like to do, and the types of friends that I would like to have. I've had my fair share of involvement with negative people...and no matter who you are (I like to think I'm rather positive) you can't help but be dragged down by them. If you are curious and don't hang out with curious people, you'll lose your curiosity piece by piece. If you have a dream of becoming financially 'free' and independent, you wont get there by associating yourself with blue collar employees that want nothing more than a weekend with a 6-pack. I'm not saying that there is anything wrong with a specific lifestyle, if it makes someone happy to do what they do, more power to them...but I have been trying not to associate with people who aren't on my wavelength and more importantly aren't on the wavelength that I want to be on.

I want to become financially literate and life a life free of the traditional worries. I am willing to take the steps that are needed to reach this point. I will read, study, and think about the implications that my actions have on my life. I will accept responsibility for the path I choose.

By writing my self-declaration, I have established what my goal is and the basic steps that I will take to accomplish this goal. Do you have a goal? What are the steps you would take to accomplish your goal?

Until next time,
Thor

David Bach Puts it Simply

David Bach's Yahoo Column manages to put things into perspective.

He writes of a conversation with a woman that is trying to save for retirement. She was overwhelmed when faced with the 'need' for large retirement savings. 'It's a marathon, not a sprint'...by starting the habit of saving and building on it, you can establish quite the nest egg for retirement, marriage, or a vacation. The whole point is that you shouldn't take a quick glance at the numbers and give up when faced with a large figure, you should begin chipping away at it as soon as possible. Every dollar you put in today is a dollar that will be working for your future.

I tried to figure out how simplistic my approach towards finance is. It may be a little difficult when shuffling around credit card bills and fiddling with how much to contribute to a 401K plan but once all of the item are set up, you can just sit back and relax. My goal is to save at least $30/day for my 401K plan (currently at ~$20) and $10/day for general savings. (currently at $20 since I'm building my emergency fund) Instead of sacrificing my savings in order to contribute to my 401K, I am contemplating the sale of some of my stock in order to eliminate credit card debt and simply apply the monthly credit card payments towards extra retirement savings, emergency fund building, and some towards having a little fun. The best part is that once the system is set up, I can just make that weekly run to the ATM for my spending cash for the week knowing that my savings/retirement/investment plans are all taking care of themselves; I'll just have to check in on them for a while.

"The secret to life is to stop worrying and start living." -Dale Carnegie

Until next time,
Thor

One credit card down!

One of the goals that I had set myself was to build up an emergency fund. I'd been doing rather well but I decided to modify my plan a little.

In my last posting, I talked about the Cashflow game and the concepts that it teaches you. One of the key concepts in the game is that you are more likely to succeed in the game if you eliminate credit card/retail debt and only use loans to secure the purchase of an asset that will make you money.

I have the ability to margin out funds from my investment accounts if I 'really need to' but my primary source of funding in an emergency would ideally be savings accounts/money market funds.

Well, I'm not in the ideal situation yet so I decided to take a small 'risk.' Instead of leaving my money in a savings account that is earning 4% interest, I flushed most of the funds out of one of my accounts in order to wipe out the balance on one of my credit cards charging me 11.75% and used the rest to pay down a card chargineg me ~14%. While I could have paid more towards the card charging me 14%, I decided to fully pay off one of my cards so that I have one less thing to worry about.

I wouldn't recommend flushing your saving account unless you have another source of emergency funds (like your parents/family or my margin account) but in some cases, it just makes more sense to use that $1,000 towards a debt costing you $100/yr as opposed to letting it earn you $40/yr. For me, I think it was the right decision.

One more step towards financial independence.

Until next time,
Thor

Cashflow

Cashflow- Definition


It is also a game that Robert Kiyosaki created.

The purpose of the game is pretty simple. You are a worker that is assigned a specific job (doctor, teacher, lawyer, etc...) you receive a paycheck, you have credit cards, and you roll the dice to see how many spaces you move. Depending on what square you land on, you can make decisions on what types of investments to make. You can buy houses, stock, and other businesses. Every time you make a transaction, you have to update your balance sheet in terms of income, expenses, assets, and liabilities. Throughout the game, you learn about your balance sheet and the impact that different decisions can have on your life via short videos that explain your choices.

The goal of the game? To get out of the rat race by purchasing investments that increase your 'passive cashflow' to the point where you no longer have to work. Once you achieve this goal, you get 'out of the rat race' and move to the 'fast track' where you can travel the world, donate to charities, and other accomplish the 'dream' that you chose in the first round of the game.

The game is pretty interesting in the sense that it teaches financial literacy in a manner that anyone can understand. I played the game with both of my sisters, who aren't major financial dorks like me, and they were able to gather the concepts rather easily.
Good debt (makes you money by acquiring an asset) vs. bad debt (fancy dinners and speedboats that you purchase with your credit card)
Assets vs. liabilities
How a balance sheet works

All of these concepts are presented in a simplistic way that anyone can understand.

I really liked the game because it showed me how to explain basic financial ideas in a straightforward way.

I'd recommend checking out the game. It is a little expensive (~$90) but you can play the game as many times as you want and the knowledge presented is just as good as a $300 seminar and the best part? Your teacher isn't an ivy league graduate talking about how you should be like him, your teacher is a cartoon rat dressed in a suit with a worrisome turtle sidekick that blurts out phrases like "GOOD JOB!" and "I think I woulda passed on that one"

You can purchase the game here

Until next time,
Thor

Credit Card Comprimised...

So, I logged into my e-mail the other day and recieved a financial alert.

One of my credit card balances had gone above the alert setting. The problem? It was one of the cards that I didn't used.

I logged into my credit card account and there they were... five transactions from the same place that racked up to almost $250. I immediatly called my credit card company to tell them and they were quite helpful with my problem. They are going to send me a form that allows me to contest the charges and once I mail out the form, the credit card company will take care of the rest. The credit card company will check with the vendor to see when the transactions occured along with whatever other items might show whether or not I made the transaction. I was told that it could take as long as 60 days before the transactions are cleared and I recieve a credit for the transactions.

The only reason that I caught the transaction was because of my account alert. Otherwise, I may have somehow glanced over the statement and paid it without a second thought.

How often do you review your credit card statements for transactions that you may not have actually made? Now I know to check my statement on a regular basis...

Until next time,
Thor

Sites walking you through how to contest the charges/Avoiding credit card fraud

http://www.ftc.gov/bcp/conline/pubs/credit/cards.htm
http://www.tamingthebeast.net/articles2/card-fraud-strategies.htm
http://www.scambusters.org/CreditCardFraud.html
http://en.wikipedia.org/wiki/Credit_card_fraud

Taxes...

Tax time!

2006 is gone and now it is time to start getting ready for taxes. Starting in January, you should have started receiving tax documents from your banking institutions.

The type of documents that you should be receiving are listed here.

The most important documents you should receive are:
W-2s (from your employer)
1099s (for your retirement accounts, brokerage accounts, and savings accounts)
Mortgage interest paid (1098) (from your mortgage lender...tax deductible)
Student loan interest paid (1098-E) (this can lead to a huge deduction)
Job-related expenses (union dues, job education, uniforms) (tax deductible)
Summary of educational expenses (college tuition),
Social Security statement (1099-SSA) (if you are collecting social security yet)

There are may other documents that you may receive. Check the above link for a more complete list.

The easiest way to prepare your taxes is to make sure that you save all your documents.

Once you have received all of your documents, you have several options.

1) H&R block:
You can file electronically or visit one of their offices for help. They have experienced individuals that will help you file your taxes step-by-step and maximize your tax deductions.

H&R Block Tax Cut program: Cost is $10-$50


2) Turbo Tax
It only costs about $30 and will walk you through all of the steps
You can even get a demo of the program from the website to see how easy it is.
I've used turbo tax for the past several years and usually do my taxes with my family. If you have someone to help you get through the program, it shouldn't take you more than a couple of hours to file your taxes. Turbo tax is the program that I would recommend to most easily file your taxes.


Filing your taxes is pretty frustrating but once it is all done, it's only a couple of weeks before you get that tax refund. You might want to use your tax deduction to open a ROTH IRA or pay down credit card debt or even start building your emergency fund.


Other Links:

Bankrate Tax Record-Keeping Tips
Yahoo Tax Tips

Keeping tags on liabilities (Yodlee part 2)

What os the best way to grow your net worth?

Your net worth is calculated by taking your assets minus liabilities.

Net Worth = Assets Liabilities
Net Worth = [401K, savings, checking accounts] - [credit cards, college loans, auto loans]

Your net worth can grow by wither growing your assets or by reducing your liabilities. Right now, I'm concentrating on reducing my liabilities while my assets keep their automatic growth via automatic payments.

I've identified my credit card debt, my college loans, and my personal loans as my larges liabilities. Their priority is:
1) Credit Card Debt
2) Personal Loans
3) College Loans

It is unlikely that I will try and pay down my college loans ahead of schedule. The interest on them is a tax deduction, the interest rate is low (~8.5%), and to focus the task of paying down my college loans would take many years during which time I would rather plan on saving to buy a house and getting some travel in before tackling that beast.

One of the best ways besides tracking overall debt paydown is to monitor your expense transactions. This way, you can not only track your debt paydown, you can accelelerate it.

check it out yodlee here

Here, you can track all of your financial accounts and the website will even download individual transactions and allow you to categorize them.


As you can see, Yodlee will keep track of your liabilities in a simple pie graph as well as allow you to track the nature of your income/expenses.

This is a rather simple yet powerful tool that can allow you to gain the upper hand on your financial progress.

You can set budget goals and see how your goals match up against reality in a real-time basis. You can track your net worth progress in real time. This website will provide you with all of the help you 'need' in tracking your financial life. The actual steps that you take will be reflected in your account.

The account is secure and free. All you need to sign up is an e-mail address. It is an absolutly great site.

Until next time,
Thor

PS: My Fiance is now in London, I have set a goal of saving up enough money for the plane ticket (found for as low as $208.00) and will plan on visiting for a week or so in Feburary.

Setting the goal: When? How long? How much will I need? How much do I need to save /day/wk/mth to achieve the goal?

Investing with play money

Generally, you should start investing your real money with mutual funds and Exchange Traded Funds (ETFs) because your risk is diversified. In reality, your best returns will come with purchases of individual stocks...but what stocks should you buy?

I won't try and push stock tips on you but I will offer some helpful advice. Start investing with play money via a stock simulator. Essentially, you are given a set amount of imaginary dollars (from $1,000 to $1,000,000) that you can invest any way you want. You can gamble away your money on penny stocks or buy only the safest of investments...but the key is that your progress will be tracked in the portfolio.

Join the simulator here

Make any investment you want but try and make note of why you made the investment. Bought Microsoft because their Vista operating system is soon to be released? Sony because of demand for the PS3? Try and keep track of why you bought an investment so that when you monitor your progress, you can be aware of what worked and made you money but more importantly, why you lost money. Because if you can avoid losing money, you've done the best possible thing: protect your investment.

Warren Buffet's Rules for Investing
Rule Number One: Don't lose money.
Rule Number Two: Don't forget rule number 1.

If you don't lose your money and still learn from your mistakes, your success isn't in question...only your timeline is.

Until next time,
Thor

Opening an investment account

I have recieved a few inqueries from individuals curious about where they should open an investment account. I'll go through the process of opening up an account in this posting.

Of the several sites I've visited, I found E-trade to be one of the best.



They have a 5.05% yeild on their cash holdings.

There are no account minimums once you open the account.

There are no account fees.

Their trading fees range from $7-$13.

Start your account opening here.

For most individuals, I would recommend starting with a ROTH IRA account. This will keep your money in a completly tax-freee environment. The downside, you can't access it until you are 65. The best part? It will compound and compound and compound until you are ready to retire. The ROTH IRA is the best bang for your buck...but you are also welcome to open a taxable account. Do your own due dilligence to find out what type of account is best for you!

60 Second guide to opening an IRA.

Please have the following information avaliable:

Name

Address

Social Security Number

It shouldn't take you more than 5 mibnutes to open up your account. Once you are done opening your account. Access it online and start to read some of the information that is provided on finding investments. There is no rush, the fact that you have opened an account is great. Just let the money sit there until you find a suitable investment.

I'll cover more about searching for ideal investments in further postings.,

Until next time,

Thor

Social Security

I was browsing around on the US Department of Labor website today and came across an interesting report that gave a breakdown of expenditures of our citizens for 2002, 2003, and 2004. I'll be writing about several of the interesting facts that I found but number one was the expenditure on social security.

The average American spend $43,395 in 2004. Of this amount, $4,433 of it was spent on social security. That's 10.2% of our total expenditures! The best part? That was an increase from 2003 social security expenditures of $4,658...a 21.2% increase!

Come on...are you kidding me?

I got a little curious and decided to crunch the numbers... If social security expenses kept their current level (they won't...it will increase more) and one kept putting away $4,433/yr ($367.42/mth) that compounded at just 4% interest(current money market rate)...then, I tried 8% (stock market return) here's the breakdown... You can try it yourself on this calculator.

The amount after 40 years....

At 4%: $456,174.68 or enough money to take out $2,764.32/mth ($33,171.84 annually) for 20 years if the money kept earning 4% interest in cash accounts.

At 8%: $1,390,270.02 or enough money to take out $8,424.76/mth ($101,097.12 annually) for 20 years if the money kept earning 4% interest in cash accounts.

What is privitized social security?


I decided to google up some arguments against social security...I do have an open mind...

Top google result:

"What you get will depend on whether you retire when the market is up or down."
Idiotic statement. Ever heard of CDs? Bonds? Money markets? The approach would be simple. The traditional rule for investing is to invest 120 minus your age in stocks. That means that a 50 year old should have 70% of his money in stocks...easy enough...the system would have a preset limit of 80 minus your age so no matter what...you'd have a majority of your income in fixed investments. Economic recession? Economic boom? Who cares? Your money is invested in stocks while you are young and can take more risks and in mostly cash when you retire.

"Young people would be worse off"
Right...because the zero dollars that I'm currently standing to get is so much better than a change in the system that could have me retire with a pretty large chunk of change.

The best part? The author immediatly launches into a speel about George W. Bush. I'm not largely against the guy...I'm not largely for him...my opinion and the author's opinion og Bush is totally irrelevant. This is about THE IDEA of privatizing social security. It is much larger than one president...it is a change that would take DECADES to fully show the results of...the author merely decides to bash Bush in order to get the support of the masses. Sorry Greg...you're wrong on this.

And then...the arguments that argue for changes in social security:

One of the best
"There’s a $45-trillion gap, in present value terms, between the future money the government is expected to take in and what it’s promised to pay out, with Social Security and Medicare accounting for virtually all of the shortfall. That’s according to economists Kent Smetters and Jagadeesh Gokhale, who studied the issue for the U.S. Treasury Department"

Just to put that in perspective...as of 2:33PMN EST today, the national debt is at $8,680,607,671,207.50. That's six trillion, six hundred and eighty billion, six hundred and seven million two hundred and seven dollars and fifty cents...$28,873.68 for each American citizen.
That $8.6 trillion isn't looking so bad in comparison to what it will be ifUncle Sam is true to his word.

"Net tax rates would have to double to pay for all the benefits promised, Kotlikoff and Burns say. If you think you pay too much now, think about handing over twice as much."

And you think it is bad now.

Just remember, when you hear people talking about social security, who supports it...who doesn't... it is all irrelevant. It is plain and simple math.

We wrote a check that cannot possibly be cashed...and your future may be riding on it. Do you think that it might even be a little possible to think about maybe taking an itzy bitzy look at how the system might change when our current system is so obviously on a course that simply cannot end well?

At 8%: $1,390,270.02 or enough money to take out $8,424.76/mth ($101,097.12 annually) for 20 years if the money kept earning 4% interest in cash accounts.

If you are ok with people tossing away your 1.3 million dollars in your golden years...I can't even finish that statement...noone is ok with tossing away 1.3 million dollars...and if you were...donate it to charity...

Plain and simple, society would be much better in a privitized system.


Until next time,
Thor

PS: 1.3 million dollars!!! 1.3 MILLION DOLLARS!!!

401K Contributions

I talked to one of my sisters yesterday and she was making one of the most important decisions of her life yesterday. How much she should contribute to her 401K plan.

She got the following information from a co-worker:
1) Company matches 50% of your contributions for up to 3% of your total salary.
Basically, for every $1.00 she puts in, her company will put in $0.50 for up to 3% of her salary. (so if she made $100,000, her company would put in up to $3,000 if she put in 6%.

There is no easy solution for how much you should put in to your 401K. At the very least, an individual should put in AT LEAST enough to get the company match. A failure to do so is passing up on a 50% return on your investment...which I doubt you will beat anywhere.

After you are contributing enough for the company match, you should save up money for your ROTH IRA. ($4,000 limit for 2007, $5,000 if you are over 50) Once the ROTH is fully funded. Start bumping up your contributions to your 401K.

You can use the following calculator to figure out how much of a difference even 1% of your income makes in the long term.

I personally am contributing 15% of my salary (a bump from 11%) and have aspirations to contribute 20% after my next raise. The main reason I bumped it? Because over 41 years (currently 24, start withdrawls at 65), the 4% difference in my contributions will end up making a difference of ~$1,473859.19 if I assume an 11% return.

Until next time,
Thor

Educating your children about finance (Part 1)

I decided to put together some information on how to educate children and other about money.

This will be the first of many installments.


Most of the links will simply be websites and exerpts from the sites. There is a lot of really valuable information out there.


18 Ways For Children or Grandchildren to Learn The Value of Money
Best comment:
"18) Using a calendar, establish a regular schedule for a family discussion about finances. This is especially helpful to younger children. the time when they count their savings and receive interest on their savings. Discussion topics should include the difference between cash, checks and credit cards and also wise spending, how to avoid the use of credit and the advantages of savings and investments growth. With teenagers also discuss the effects on the economy - of inflation versus deflation - on how to economize at home, and alternatives to spending money. Some examples are borrowing an item, bartering, making it yourself, or a one-time rental or buy used, etc."

Another one of my favorites...it is all about starting the savins as soon as possible!
6) When giving children an allowance or income, give the money in denominations that encourages saving. For example if the amount is $5, give out five $1 bills and encourage at least one be set aside in savings. (Just saving $5 a-week at six percent interest compounded quarterly will total about $266 in a-year, $1,503 in five years and $3,527 in ten years.)

Their 10 Commandments.
Some of the best:
3) Begin saving early to take advantage of compound interest.

7) Focus on the relationship between the risk and projected return of investments.

Income of only $150,000/yr...200 million financially illiterate people in America?

This was a story that I found rather odd...the story can be found here.

"It's a statement that an awful lot of Americans can make these days. About two-thirds of families need their next paycheck to meet their living expenses, according to a recent survey by the American Payroll Association. "

Two-thirds??? Two-Thirds??? There are 300 million Americans. How can one of the richest nations in the world have over 200 million individuals that cannot make it a single month without their paychecks before entering the sleazy world of credit cards, personal loans, and payday loans?

Why can we teach of the now 8 planets (still steamed about that one) but we are unable to have our children graduate from COLLEGE (where you are meant to learn meaningful life lessons) and not grasp the basic concept of saving. I'm not mad at the individuals anymore than I could be at someone that thinks there are 9 planets (there are) because it is what the system taught us. How can the system be so skewed towards producing only one-third of its citizens with only the most basic knowledge.

Are parents meant to teach their children? The same parents that are products of the system? Where are they meant to learn? From books? Before or after they are thinking of filing for bankruptcy?

There isn't even a basic finance book on summer reading lists for children yet there are many books that are meant to teach financial literacy to children of all ages. Why are those books there? Because the one-third of semi-financially literate individuals might buy the book for their children. These children move into their lives with saving/investing engrained in their brains...it’s a habit just like not to bite your nails or to say thank you when someone does something nice for you. I'm not concerned about them...they can go into their lives and succeed... But what about the 200 million others that are going to debt finance and boot strap their ways through life.

You are reading this post. You are 100% doing the right thing. Tell your child about the importance of savings and why they shouldn't rack up debt...in doing so, you will have given them a step up over 2/3 of America...the best part? It doesn't cost a thing...just 5 minutes of your time...once a month...

Another step towards financial independence.

Until next time,
Thor

Dividends

Dividends are a very powerful aspect of investing that are often overlooked.

What is a dividend?

When a company makes a profit on their goods, the must decide what to do with it. If they decide to reinvest in their cmopany to research new products/open new stores etc...that is called retained earnings. Or, they can decide to reward shareholders of their company with a dividend. A dividend is a cash payment that is paid based on the number of shares that you own. Most companies will only pay out dividends if the cannot see a better place to invest their money. For this reason, dividends are usually paid out by large companies that have an established market share and do not have large annual costs for research and development or product restructuring.

Some of the most famous examples of a dividend stocks include Altria and Coca-Cola. The most famous large company to NOT pay dividends is Berkshire Hathaway. Berkshire Hathaway has always had better places to invest their money and for this reason, Warren Buffet has not seen any reason to pay a dividend on the stock because there are better places (with higher returns) to invest the money.


I got paid my first 2007 dividends yesterday. Each of these dividends is reinvested and are acccounted for as assets in taxable accounts.
Value of holding Dividend
(% of mthly income) (% of mthly income)
Spain Fund: 49% 0.35%
Korea Fund: 22% 0.15%
Wal-Mart: 22% 0.08%
TOTAL: 92.75% .057%

Not bad...an extra 0.57% of monthly income for January 2007 just for holding dividend investments. It may not look like much now...but that extra .57% of my income was reinvested in those stocks...and by the time I'm actually up and running, they should be providing me with a decent amount of income...along with the other dividend stocks that I will accumulate.

If you have a little extra money saved...check out a few dividend stocks...I doubt you will be sorry.

Until next time,
Thor


Helpful Links:
http://en.wikipedia.org/wiki/Dividend
http://www.winninginvesting.com/dividends_plus_appreciation.htm
http://moneycentral.msn.com/content/P101819.asp
http://www.businessweek.com/bwdaily/dnflash/feb2005/nf20050222_6434_db014.htm

Retained Earnings:
http://en.wikipedia.org/wiki/Retained_earnings

How a FICO Score is Calculated

A FICO score is pretty easy to calculate...the equation is simple, avaliable, and only made up of 5 pieces. Raising your FICO score can be easy...most of the time it is...how quickly it happens is a different story.

Your FICO score is made up of the following:

Quote from Wikipedia:
"35% punctuality of payment in the past (only includes payments later than 30 days past due)
30% the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
15% length of credit history
10% types of credit used (installment, revolving, consumer finance)
10% recent search for credit and/or amount of credit obtained recently "

1) Your first goal for raising your FICO score: PAY YOUR DEBT ONTIME. Most banks now provide you with the ability to access your account online. There are also a number of free programs that will send out your bill payments for you. If your bank does NOT provide this... switch your bank. If you have the money to pay your bills, there is absolutly NO EXCUSE for making a late payment. Set it up to be paid electronically...check it once a month to make sure your payments have been and are scheduled to go through...and forget about it. Paying your bills on time is the easiest way to improve your score...and if you aren't paying ontime...it won't really matter what you do...your score will go down.
2) The percentage of your credit used. Basically, if you have a credit card with a $5,000 limit and a balance of $4,000...your credit score will go down...the quickest way to improve your score...call your bank and ask for a credit limit increase. Most banks will immediatly approve your request for one simple reason. They want you to charge your cards up and pay them interest...Ideally, you will charge up your cards so much that you will pay and pay and pay...until you have nothing...and must declare bankrupcy (some banks aren't so evil...most are) If you get an increase to say...$10,000...you will only have 40% of your card limit taken as opposed to 80%. This will start to improve your score immediatly. After that...agressivly pay down credit cards with the highest percentage of avaliable credit used...your score will improve.
3) Credit history. Not much you can do there. Keep paying bills on time and don't charge up new debt and the history will take care of itself.
4) Credit used...Keep your credit to credit cards, small personal loans, and mortgages and avoid the payday loans.
5) Recent credit. Don't apply for a dozen credit cards at once. Don't apply for a new mortgage each month...don't buy a new car each month. Just be smart about the type of credit you take on.

So. Pay on time, pay it down, wait, don't get new debt, don't apply for more credit than you need.

Follow those lessons and your FICO score will improve.

Until next time,
Thor









Helpful Links:
http://en.wikipedia.org/wiki/FICO

My FICO Score

What is a FICO Score?

A FICO (Fair Isaac Corporation) score can range from 300 to 850; the higher the score, the more worthy you are of credit. That means that the higher your score, the more likely you are to repay debt on time, keep smaller amounts of debt that you can easily handle, and have an established history of doing so. The average FICO Score is around 670 and the best deals are open to those with a FICO score above 720. The bets deals include pre-approved offers for loans and credit cards and credit at a lower interest rate than average. Since these individuals have a history of repaying debt on time, lenders are willing to offer them money at a lower interest rate because of the reduced rate of risk in doing so.


My FICO score has changed quite a bit over the past year. I moved into a new apartment (which of course needed furniture and decoration form one of America's top decorators) and that caused my credit score to dip down to the 710 range. After that, I continued to aggressively repay debt until I bought an engagement ring in November. At that point in time, my score dipped to 694 and rebounded when I sold some assets to repay that debt. From a purely financial standpoint, I didn't necessarily make the correct decisions...but what is the point in having a great credit score if you can't use it to your advantage once in a while? There isn't one. The reason you try to maintain a high credit score is so that it is there to provide you with great deals when those big (and great) opportunites come around.

As you can see, my FICO score has ranged between 782 (January 2006) to 694 (November 2006). The best interest rates are given to individuals with a FICO score above 720. I expect to keep my FICO score above 720 for the time being as I am in the process of eliminating debt...not accumulating it.

Next posting, I will go in indepth on how a FICO score is calculated.


Also, small update on using credit to your advantage. I recieved a bonus of 3.96% of one months income from USAA as my cash back bonus. That amount doesn't account for much because I held a balance on the card...but if I had paid the balance in full each month...it is a nice little bonus once a year...

Until next time,
Thor


Helpful Links:
http://en.wikipedia.org/wiki/FICO

Better Filing- A Great New Years Resolution

Don't you hate it when you are filing your tax returns and you can't find the paperwork you need?

Everyone should have a filing system for keeping their financial documents. Trying to keep track of it all in your head just won't work. If you don't have an organized filing system, you won't be able to find the information you want when you want it...and you will more often than not, end up shuffling through a huge stack of papers for hours to find a single piece of information that you could have found in several minutes if you had been organized.

1) It doesn't matter if it is a folder or filing cabinet...but it can't just be a huge stack of papers and unopened envelopes.







2) "Base filing on retrieval, not storage. Instead of asking yourself, "Where should I file this?" ask yourself, "Where would I look for this if I need it?" Then label the file accordingly"
http://www.powerhomebiz.com/vol46/filing.htm




3) Use different color files for each category:
This will help you file your papers even more easily every time you get a statement. Perhaps you would use green for asset accounts (checking/saving/investment), yellow for loans (personal/college loans/mortgage), red for bad debt (credit cards), blue for tax documents (prior year filings/tax deduction receipts/all tax documents), and purple for other important documents (passport/birth certificate/insurance papers)


In 2007, you are going to receive monthly statements for every account you hold. Whether it is paper or electronic (or both), you will receive checking, saving, retirement, investment, credit card, mortgage, student loan, and other documents that will track your financial progress and will help to gauge where you stand.

Also, during the month of January, you will recieve documents that will be essential for filing taxes. If you use Turbo Tax, and accountant, H&R Block, or just do it the old fashion way, you will need these documents to accurately report your taxes. Failure to do so could cause you to forgo a rather hefty tax refund and on the opposite side of the spectrum, a tax audit.

So the question is simple. Do you prefer chaos or an organized system?

Do you think you would like to have an organized system? If you would like an organized system...when do you plan on starting? Why not start today?

"Make room for the new you. You may not have totally determined who the new you is going to be, but you probably have decided that there are some things about the current you, that you want to change. Well while you are working on what the new you will be, start 'cleaning out a room' for the new you to live in. Get rid of the junk in your life both physical and mental that doesn't fit you anymore. Take things out of your schedule that are taking your time away from finding out what you want to do. By making room for the new you, you will create a vacuum that the new you will rush in to fill and you will be on your way to the top." Edward W. Smith




Until next time,
Thor

Helpful Links:
http://sbinfocanada.about.com/cs/management/qt/filingsystemjc.htm
http://self-help.vocaboly.com/archives/1086/financial-records-create-an-effective-filing-system/
http://www.bankrate.com/brm/news/bankruptcy/bankruptcy-update.asp

A whole blog on getting organized:
http://getorganizednow.typepad.com/get_organized_now_weblog/

My ROTH IRA Contribution

I decided to transfer $4,000 from a taxable account towards my ROTH IRA contribution for 2007. I plan on making some nice safe investments that I will plan on staying with for at least 5 years.

It just doesn't make sense to have money in taxable accounts while your retirement accounts sit empty. Don't put off until tomorrow what you can accomplish today.








“Knowing is not enough; we must apply. Willing is not enough; we must do.”

Johann Wolfgang von Goethe

“Take up one idea. Make that one idea your life - think of it, dreamof it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. This is the way to success, that is way great spiritual giants are produced.”

ROTH IRA Funding

First...What is a ROTH IRA?

A ROTH IRA is a type of investment account that is used for retirement. It is very similar to a 401K, SEP IRA, or a TSP in that the account is intended for withdrawal after retirement. First, the disadvantage. A ROTH IRA must be funded with AFTER-TAX dollars. What that means is that Uncle Sam gets to tax your money before you put it into the account.

So, if you make $100 and are in the 25% tax bracket, you can only contribute $75 of those dollars towards your ROTH IRA. This differs from a 401K or equivalent plan in that their contributions are made BEFORE-TAXES so is you were making a $100 contribution...$100 would go into the plan.

Why on earth would you choose to contribute to an account that taxes your money before it is contributed instead of an account that isn't taxed before contributions?

The answer isn't really that simple. A ROTH IRA withdrawal is 100% UNTAXED once you retire. That's right. Your $75 contribution can sit there and compound away until the day you retire. After that, you can make as many withdrawals as you want and EVERY SINGLE CENT is tax free. That is a huge advantage!!!

If you had but your untaxed $100 into a 401k or equivalent plan, your $100 would grow to $732.81 over 20 years if it had a 10% Return On Investment (ROI).

The problem? When you take that money out, it gets taxed at whatever your current tax bracket is. (you have increased your income enough to be in the 35% tax bracket) So, your $732.81 is really only $476.33 after taxes.

But what if you had put that '$100' into a ROTH IRA? You would have taken the initial tax hit of $25 so your actual account contribution would have only been $75. If that $75 compounded at 10% interest for 20 years, you would have $549.61...that is a difference of $103.28...and that is only with a $100 investment.

The ROTH IRA limits for 2007 are $4,000. you must be single making $110,000, married filing jointly making less than $160,000, or married filing separate making less than $95,000 to qualify.

I make less than $110,000. I am 24. What will the difference in my $4000 contribution be if I am in the 25% tax bracket now and will be in the 35% when I retire?

IF 401K 2007 Contribution: $5,333
Value in 2048 if compounding at 10% (wow...) : $316,373.96
TAXES AT 35%: $110,730.89
Actual value: $205,643.07

IF ROTH IRA: 2007 Contribution: $4000 ($5,333 taxed at 25%)
Value in 2048 compounding at 10%: 237,295.30
Taxes at 35%: ROTH IRAs don't get taxed!!!
Actual Value: $237,295.30
401K vs ROTH IRA = Difference
$205,643.07 237,295.30 $31,652.23

THE WINNER IS!!! ROTH IRA!!!

That is over a $30,000 difference just on one years decision on whether or not to contribute to a ROTH IRA vs a 401K. It only assumes 10% return (average) and if I were to make the same decision every year...the overall effect on the endgame account values would be very large.

But...if you have a 50%-100% company 401K match on ANY percentage of your salary, you should take it. I get a 100% match for 6% of my salary so I 'have' to contribute at least 6% of my salary before I can even consider contributing to a ROTH IRA...basic logic...because I have a GURANTEED 100% instant return on the first 6% of my salary that I contribute.

So, my rules are as follows:
1) Contribute enough to get whatever match your company provides in your TSP/401K/SEP IRA
2) Contribute any extra after that to max out your ROTH IRA. ($4,000 in 2007 or $5,000 if you are over 50)
3) After you have your match and your ROTH contribution, continue to max out your 401K plan or the equivalent.

It should take a while before accomplishing this. (I haven't...but plan on it eventually)

Open a ROTH IRA...TODAY!
1)Max your 401K plan to get the company match
2) Make as much of your your 2006 contribution as you can($4,000; $5,000 is over 50) before April 15th 2007
3) Focus on your 2007 contribution.($4,000; $5,000 is over 50)

Do this and you have taken your next step towards financial wealth.

Until next time, Thor


More information:
http://en.wikipedia.org/wiki/Roth_ira
http://www.fairmark.com/rothira/roth101.htm
http://www.moneychimp.com/articles/rothira/rothintro.htm
Calculator:
http://www.moneychimp.com/articles/rothira/rothcalc.htm

Happy New Year!!!

Happy New Year!!! I hope that everyone has a great 2007!!!

My New Year's Resolutions
1) NO NEW CREDIT CARD DEBT!
2) Keep my apartment clean
3) Keep building the emergency fund at my current automatic saving rate (increase as debt goes down)
4) Build my blog on a personal website (registered at www.financialspiderplant.com and still under construction.)
5) Eliminate ALL credit card debt (should be by September 2007)
6) Bump up my 401K savings to 15% of my income. (ACCOMPLISHED 01/03/07)

What are your New Year's resolutions?

Next post, I will be writing about ROTH IRAs.

Until next time,
Thor