This video is pretty inspirational! I first saw it on Christian Personal Finance.
Thursday, February 23, 2012
How to Improve Your Credit Score
Credit scores are mysterious, confusing, frustrating, but can be rewarding. If you have ever been confused by a credit score or wanted to know how to improve your credit score, then keep reading. First, let’s look at how a credit score can affect you!
**You are buying a $130,000 home and want to get a 30 year mortgage. The lender pulls your credit and you find out that your credit score is 690. This would mean that your interest rate would be around 4.25%. Over 30 years you would pay $230,227.87 total, $100,227.87 of this being in interest.
**Now let’s say that you are in the same situation, but your credit score is 730. With this score you would pay $223,430.36 over the 30 year period of time, $93,430.36 of this being in interest.
As you can see, a difference of 40 points can cost you $7,000. Credit scores matter!
What is a good credit score?
Credit Score | % of Americans with this score |
300-499 | 1% |
500-549 | 5% |
550-599 | 7% |
600-649 | 11% |
650-699 | 10% |
700-749 | 20% |
750-799 | 29% |
800-850 | 11% |
How is my credit score calculated?
Most lenders use the FICO score to evaluate borrowers. The actual formula that is used to calculate the score is considered a trade secret, but there are 5 important factors significantly impact your credit score
1. What is your payment history?
a. This makes up 35% of your total score
b. Regency- How recent was your last late payment
c. Frequency- How frequently do you have late payments
d. Severity- How late was your late payment
2. How much do you owe?
a. Makes up 30% of your total score
b. Keep the difference between your balance and credit limit at a wide margin
3. How long have you had credit?
a. Makes up 15% of your score
b. The longer you have had credit, the better
4. When was your last application for credit?
a. Makes up 10% of your score
b. Don’t open a lot of accounts in a short period of time
c. Don’t open accounts right before you apply for a loan
5. What types of credit do you use?
a. FICO wants a healthy mix of revolving credit and installment loans
b. Major credit cards are good for revolving credit, but you do not have to carry a balance
How do you get your score?
When retrieving your credit score make sure you go to a legitimate vendor. Also, make sure you do not sign up for credit monitoring. Many companies offer free credit reports, but these reports do not always include the score. My recommendation:
1. Go to Myfico.com
2. Pay about $40 to get your Equifax and Transunion report.
3. Do this once a year, or before applying for credit.
4. Pulling your own credit will not hurt your score.
5. Having a lender pull your score when applying for credit will affect your score.
How do you improve your score?
1. Pull your credit report
a. Check identity information
b. Review credit accounts
c. Examine inquiries
d. Look over any collections or public records
i. Chapter 13 bankruptcy stays on your credit bureau for 7 years
ii. Chapter 7 bankruptcy—10 years
iii. Lawsuits, judgments, or paid tax liens—7 years
iv. Late payments—7 years
v. Any negative information that is not yours
2. Pay your bills on time
3. Pay down debt
a. Pay down debts that have balances close to the credit limit.
b. Pay the debt down to around 30% of the limit and move to the next card of revolving credit line.
4. Don’t close revolving debt accounts
a. This will rarely help you!
b. You never want to narrow the gap between credit available and balance owing. Instead, you want to widen this gap by paying down balances.
c. Closing these accounts could also make your credit life appear younger than it is.
5. Apply for credit sparingly
a. If you don’t have credit, a credit card is a good place to start.
Credit scores may still seem very confusing to you, but I hope this explanation helps clear up some issues. The information for this post was primarily taken from Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number that Shapes Your Financial Future by Liz Pulliam Weston. For more information, this is a great book to get at your local library or bookstore. Another good resource on credit score information is a Youtube video titled Understanding Credit Scoring.
Wednesday, February 22, 2012
Get Started Investing
Many people consider investing their money, but they just do not know where to begin. One option is to go to a financial planner and earn a modest return, at what many times is a fairly high price. Another option many people choose is to do nothing at all. Between these two, obviously you should choose the first. However, there is another way. Index fund investing is easy, efficient, effective, and will cost you a fraction of what a professional would charge. There are a few things to consider before you begin to put together your asset mix. First, what kind of time frame are you considering? You will need a minimum of five years to make my portfolio mix recommendation work for you (a minimum of 5 years). You will also need to ask yourself how risk adverse you are. If you are not sure how risk adverse you are, there are online questionnaires to help you figure this out.
Next, we will determine how you should allocate your savings between stocks, bonds, and cash.
For a normal amount of risk
· Take (100-Your age). The remaining number is the percentage of your savings you should allocate to stocks.
· Take (Your age/2). This percentage of your savings goes into a bond index fund and an interest bearing checking account.
For more risk—A larger return, or a larger loss
· Take [{100-(Your age x .5)}/2]. This number is the percentage of your savings you should allocate toward both a foreign stock index fund and an American stock index fund. You are just cutting your age in half.
· Take (The remaining percentage x 60%). This is the percentage you should allocate toward a bond index fund.
· The remaining percentage should be allocated toward cash in the form of an interest bearing checking account.
For less risk—A smaller return
· Take (100-[Your age x 1.5]). This is the percentage you should allocate toward an American stock index fund. For some older folks this number will be negative, in which case you should put no money in the stock market. You are making yourself older by half of your life.
· Take [(100-1st %) x 30%]. This percentage should go into a bond index fund.
· The remaining percentage should go into an interest bearing checking account.
*Now let’s do an example of all three.*
--Fred is a 40 year old who has $50,000 to invest, but does not know where to start. Fred is investing for at least 25 years. Fred will use four investing mediums to achieve his financial goals:
Example 1: Normal Risk
· (100-40)=60%
· 60% x $50,000 = $30,000 in Vanguard Total Stock Index Fund (VTSMX)
· (40%/2) = 20%
· 20% x $50,000= $10,000 in Vanguard Total Bond Market Index Fund (VBMFX)
· 20% x $50,000= $10,000 in Bank of Bolivar Ultimate Free Checking account
Example 2: More Risk
· {[100-(40 x .5)]/2}= 40%
· [(40% x $50,000)/2] = $20,000 in Vanguard Total Stock Index Fund (VTSMX)
· $20,000 in Vanguard Total International Stock Index Fund (VGTSX)
· (100%-80%)=20%, (20%x 60%)= 12% or ($50,000 x 12%)= $6000 into Vanguard Total Bond Market Index Fund (VBMFX)
· Lastly, (8% x $50,000)= $4,000 in Bank of Bolivar Ultimate Free Checking account
Example 3: Less Risk
· (100-[40 x 1.5])= 40%, or ($50,000 x 40%)= $20,000 in Vanguard Total Stock Index Fund (VTSMX).
· [(100-40) x 30%]= 18%, or ($50,000 x 18%)= $9,000 in Vanguard Total Bond Market Index Fund (VBMFX)
· (100-(40+18))=42%, or ($50,000 x 42%)= $21,000 in Bank of Bolivar Ultimate Free Checking account.
**As you can see, Fred can adjust his portfolio according to the risk he is willing to take and his age. I chose Vanguard because it offers my favorite index funds and has a very low expense ratio with no up-front load fee. Before you consider investing you should pay off any credit card or high interest rate debt. You should also first set up an emergency fund with 3 to 6 months expenses. I know that many people do not have $50,000 setting around to invest, this was just an example. If you are starting small, save up $3,000 in your Bank of Bolivar account and open the Vanguard Total Bond Market Index Fund (VBMFX). Save $3,000 more and open the Vanguard Total Stock Index Fund (VTSMX). Then begin the process of investing a fixed amount of money every month and allocating it the way we discussed above. This type of investing is not for a short-term gain, but should be done over a long period of time. I first read about index fund investing in Money Made Simple, which would be beneficial to read for more information. You will be well-diversified and will earn a modest return on your savings. If you do want to seek financial advice, I would suggest visiting Bank of Bolivar’s financial services offered through LPL. The representative in Bolivar is Mike Campbell. I hope this is helpful. I am not a professional financial planner and my ideas should be taken with a grain (or lump) of salt, but I do enjoy reading and writing about the subject.
Tuesday, February 21, 2012
Cookin' with Court: Chicken with Caramelized Pears
I recently realized that Court makes many recipes that I really like, and I need a way to document these recipes for the future. I have decided to call these write-ups "Cookin' with Court." Tonight we made Chicken with Caramelized Pears. This recipe comes from December 2011-January 2012 Edition of the Taste of Home Simple and Delicious magazine on page 18. It is a great meal that is full of flavor. The following is copied from the magazine:
Chicken with Caramelized Pears
Prep/Total Time: 30 minutes
Serves 4
Chicken with Caramelized Pears
Prep/Total Time: 30 minutes
Serves 4
- 4 boneless skinless chicken breast halves (6 oz. each)
- 1/2 tsp. salt
- 1/2 tsp. pepper
- 3 Tbsp. butter
- 1 Medium red onions, halved and thinly sliced
- 2 Medium pears, thinly sliced
- 2 tsp. brown sugar
- 1/2 cup balsamic vinaigrette
- 1/2 tsp. dried thyme
- 2 pkg. (8.8 ox. each) ready-to-serve long grain wild rice
Return Chicken to skillet. Bring to a boil. Reduce heat; simmer, uncovered, for 4-6 minutes or until chicken juices run clear. Meanwhile, cook rice according to package directions. Serve with chicken.
(This also works with pork loin chops and thinly sliced apples)
Dr. David Kohl Seminar
I recently attended an agricultural economics seminar at the University of Missouri. Dr. David Kohl put on the seminar and did a great job of informing and entertaining. He mainly spoke in regards to the agricultural sector, but many of his lessons can be applied to all areas of business. Dr. Kohl writes for the Corn and Soybean Digest, Ag Country, Ag Choice Farm Credit and many other agricultural resources. I would recommend going to see Dr. Kohl speak if you ever have the chance. Here are my notes from the seminar. I have additional resources if anyone is interested. I especially like the quotes at the bottom of the notes!
Dr. David M. Kohl
Professor of Agricultural and Applied Economics
Virginia Tech, Blacksburg, VA
§ The top 20% of agricultural producers have maintained a ROA >10% for the last 15 years
§ The 50-100-70 Rule
o By the year 2050 the world will require 100% more food, and 70% of this food must come from efficiency-improving technology.
§ Develop an advisory team
o Meet 3 to 4 times per year
o Studies show that an advisory team can make a farm 30% more profitable
o Have a “but what if” lender on your advisory team, not a “yes” lender
§ Use scenario planning
o Develop scenarios to determine what shape your business would be in if the worst were to happen. Create a plan to cope with these scenarios.
§ Trends for the United States:
o Public Debt
o Aging Population
o Entitlements and a simplified tax code
o Interest rates should stay low through 2014
§ If core inflation goes above 2% or unemployment nears 6%, the interest rates will begin to rise.
§ Top challenges/risk to the agricultural industry in the next 5 years
o Volatility and global markets
o Asset bubble vs. Credit bubble
o Normalization of deviation
§ A “new normal” will always lead to a surprise.
o Young lenders and producers have never faced a downturn
o Making decisions on tax returns rather than of accrual-adjusted records
§ There is, on average, a 64% difference
§ Oil
o Six of eight recessions in the past fifty years are due to oil
o Consumers lock up at $3.00 to $3.50 per gallon
o Consumers shut down at $4.00 per gallon
o Oil needs to be around $85/bbl for good economic growth
§ Words to remember:
o “Family living expense is like concrete: Once it sets up, it is difficult to change”
o “If it grows like a weed, it probably is”
o “Be a but what if lender”
o “Better is better before bigger is better”
o “Future problems are created during good times”
Monday, February 20, 2012
The Richest Man in Babylon by George S. Clason
George S. Clason wrote The Richest Man in Babylon (1926) is written in the form of a parable. The book begins with two men talking about there struggles with working so hard, yet not acquiring any wealth. They decide to go to the richest man in Babylon, Arkad, for advice. The rest of the book is Arkad's experience and advice on acquiring wealth. The premise of The Richest Man in Babylon is the idea that "Money is governed today by the same laws which controlled it when prosperous men thronged the streets of Babylon, six thousand years ago." The table of contents of The Richest Man in Babylon is as follows:
- The Man Who Desired Gold
- The Richest Man in Babylon
- Seven Cures for a Lean Purse
- Meet the Goddess of Good Luck
- The Five Laws of Gold
- The Gold Lender of Babylon
- The Walls of Babylon
- The Camel Trader of Babylon
- The Clay Tablets from Babylon
- The Luckiest Man in Babylon
- A Historical Sketch of Babylon
- Start thy purse to fattening: This is the most important step. Save at least 10% of what you keep for yourself. I would add that tithing should come first, then paying yourself.
- Control thy expenditures
- Make thy gold multiply
- Guard thy treasures from loss
- Make of thy dwelling a profitable investment
- Insure a future income
- Increase thy ability to earn
- Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.
- Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
- Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.
- Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.
- Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.
Money Made Simple: How to Flawlessly Control Your Finances in Minutes a Year by Stacy Johnson
Money Made Simple is a book that covers nearly every area of personal finance. This book was one of the most applicable personal finance books I have read. The lessons taught in the book were easy to apply and fairly conservative. The table of contents of Money Talks is as follows:
- A Tale of Two Pities
- Understanding Investments, Once and for All
- The Only Chapter of a Book About Investing in Stocks You'll Ever See Whose Title is Longer than the Information It Gives
- Buying Stocks the Right Way: Mutual Funds
- Bonds
- Stupid Investment Tricks I: Futures and Options
- Stupid Investment Tricks II: Other Stuff
- Dividing Up the Dough: Asset Allocation
- The Only Investment System You'll Ever Need
- Investing for Retirement
- Investing for College
- Deflating Inflation
- Setting Goals
- Getting Organized
- Making Your Life Less Taxing: Income Taxes
- Insurance
- Real Estate
- Estate Planning
- Bring It All Together
- Stacy Johnson gives a very simple, but effective way of dividing up your savings. First take 100 minus your age (this is the percent of your savings that should be in the stock market). Next divide up the remaining percentage equally between cash and bonds. In my example, 100-23=77% in stocks, 11.5% in bonds, and 11.5% in an interest bearing savings account.
- According to Money Talks, dollar cost averaging (investing fixed amounts of money at regular intervals over periods of time), is the only investment system you will ever need. By investing this way, you'll find that you can create wealth even if your investment does not increase in value over time. Just set up an index fund and invest a set amount at the same time every month. Simple, but effective.
- Stacy Johnson recommends buying stocks in the form of index funds. One of the best index funds is the Vanguard 500 Index Fund (VTSMX). This fund has an expense ratio of only .18% compared to an industry average of 1.12%. The fund does not have a front-end load fee. Vanguard also has a Total Bond Market Index Fund (VBMFX), a Total International Stock Index Fund (VGTSX), and a Prime Money Market Fund (VMMXX).
- The last thing I would like to highlight is the getting organized chapter. Stacy Johnson highly recommends getting all of your important paper work together and organizing it in one central place. When a disaster happens, the last thing you want to be doing is searching for your insurance plans. Courtney and I recently organized all of our important paperwork into a three-ring binder. It has already proved to be beneficial. It takes time, but it will save time down the road.
Subscribe to:
Posts (Atom)