Pay Off Your Debt, Including Your Mortgage in Less then 10 Years!

On average, debt is usually relative to the income of the family who incurs it. When a young couple comes to see me about applying for an auto loan or a consolidation loan, I can pretty much guess within about $1000 what their revolving credit card debt runs based on their combined gross income. After you do a few hundred applications, the patterns start to evolve and repeat themselves. It’s kind of weird, but more often then not, I end up being pretty much right on the money (pardon the pun). One of the more common requests by my bank clients is a review of potentially refinancing their mortgage. At the writing of this post, mortgage rates are in the 4.5% range for a 30 year fixed. At times like these, those with mortgages in the 6% range often come into my branch looking to refinance.

One of the first questions I usually ask them is, “Are you currently comfortable with the mortgage payment you are making?”. Most say “yes”. This is because, in most of my client cases, they were approved for a mortgage balance “relative” (see my first sentence to this post) to their income and ability to pay. Yes, there are thousands more in other regions of the US who went over their heads, thus propelling the current economic crisis, however, in the area where I live, most of us were not affected by the real estate crisis (our local economy is partially supported by a large air force base). We then discuss their most valuable asset—their income. I’ll ask them if their request to refinance involves cashing out some of their equity, or if it is to simply reduce their overall payment. I then do a calculation to cost justify the the refinance closing costs using an average of 3% of the balance they are looking to refinance. For example, if we’re talking about refinancing $150,000, I’ll calculate the new payment based on $155,000, then divide the difference between the old payment and the new payment into the $5,000 closing fee to see how many months it will take to break even. Generally, a straight mortgage refinance is not cost justified if the balance is approximtely $180,000 or less.

I’ll then talk to them about ALL of their debt; this includes credit card balances, auto loans etc. By surfing over to my favorite debt-snowball calculator at What’s the Cost, and plugging in all of the debt items, then inputting the most they can commit monthly (in addition to basic commitments) to their overall debt, the debt snowball calculator will more then often kibosh any thoughts of refinancing, and transition their debt paradigm to conquering all debt, not just reducing the mortgage payment. About 9 times out of 10, I get a huge thank you and often a “The Lord must have sent you to me today….”. It all comes down to mathematics and information (or the lack thereof).

By using the YNAB
software combined with the gazelle intensity of getting into a debt pay-off zone using a debt snowball calculator, most people can easily become debt free in 10 years or less. Period. Try it.

If you’re not sure, email me your debt balances, the amount you can commit to your debt (total) each month, the interest rate of each item, and the minimum payments required for each item, and I’ll email you back your debt free date.

Shopping Around for Low Cost, High Value Auto Insurance? Read On…

One of the many areas of my YNAB budget that needs regular scrutiny is the transportation category. While groceries and utilities are two of my biggest areas of volatility (to be reviewed later), today I’m posting a very helpful article from the transportation category in the specific area of auto insurance. An insurance team from NetQuote were happy to help me out with the following guide. I think it’s very good, so I’m passing it along to you:

The Frugal Person’s Guide to Purchasing Auto Insurance

The words frugal and auto insurance may not be synonymous, yet saving money on a policy is not as hard as it once was.

We cannot drive a car without insurance, so we might as well swallow it and refocus that energy to find high quality, low cost insurance. Research is very important. Do not sign on the dotted line without comparing policies and quotes thoroughly. When you are aware of the laws in your state and the minimum coverage you need to operate your car, you can begin to navigate your way through the sea of information.

Research the Internet
The internet is a vast resource of information. Most, if not all insurance companies advertise their quotes online as they are looking to get your business. Because of the vast competition online, you can find some great rates. The downside is the lack of person to person contact. Be extra careful online as scams and frauds are as plentiful as cheap quotes. Never give your social security number or detailed personal information. Your name, phone number, email address, and basic automobile details are more than enough information to receive an approximate quote.

Higher Deductibles
If you are a safe driver and have not had any accidents, taking advantage of a higher deductible can lower your premium substantially. Calculate an amount you would be willing to pay towards a claim and see what kind of rates you receive with that amount as a deductible.

Clean Driving Record
No surprises here. Everyone knows their driving record directly affects their rates, but what they don’t know is that mistakes are common on driving records. Request your record from your local DMV and examine it for errors. Most minor violations should have been removed from the file after three years. If they are not removed, you can question it and request their removal.

Hidden Discounts
Aside from the most common discounts, insurance carriers offer unique and unknown discounts for drivers. For example, your teen child’s grades or new college acceptance letter could save you some money. Your “better than average” credit may also score you a discount as well. Don’t feel foolish to ask about extra discounts. Each company may have unique savings criteria, so speak up and save.

Safety and Location
Anti-lock brakes, air bags, and safety restraints are required to lower policy rates. Be sure to mention every safety feature in your automobile to maximize discounts. Where is the car located? Is it covered? These details are important to know. Covering your car with a garage or carport should be mentioned as well, as it protects the car and prevents automobile theft.

Bundle your Policies
If you have a home, a boat, or any other type of insurance, bundle your policies with the same carrier to save some money. Insurance companies would love to get your business, and are willing to offer a discount for policy bundling.

Car insurance and being frugal can go hand in hand. You just have to be a little smarter and do your research. No one said being frugal wouldn’t take a little extra time, but in the end you will be the one enjoying the spoils.

Check out some comparative quotes at NetQuote today.

NSF Fees Are A Silent Financial Killer — Cut Up Your Check Cards!

The other day, a woman stood at one of my tellers’ windows doing a transaction. She looked tired and down, and somewhat annoyed in general. I’ve seen this look before and it usually means I’m about to have to sit down with the “owner of the look” and have a very ugly discussion, usually about NSF fees. I overheard my teller say my name and nod towards me; I’ve gotten good at playing stupid and quickly picked up some paperwork in an effort to look busy and hope that woman wasn’t going to come my way. I really don’t know why I do this, because it never works. The customer is on a mission and she or he is going to teach me a lesson on how the bank has ripped them off, because their situation is different. Yeah right.

Well, this day was different. The woman came hesitantly towards my desk and, with a quiet sigh of resignation on my part, I beckoned her to come on over and sit down. She proceeded to remind me about a conversation I’d had with a couple of weeks earlier. I speak with hundreds of people per week, so the original conversation wasn’t registering. She reminded me that I had promised to show her how to avoid NSF fees. I quickly realized she was someone who actually wanted to learn a better way and had followed up on my offer. This is a rarity. Most customers want to complain, blame something or someone else, promise they’ll do better, but nothing ever changes. This woman was different. She was tired, depressed and at the end of her rope. She had 2 kids she was trying to feed and an unemployed husband. They were eeking out a life on her $2600 monthly take-home pay; 5% of her income was going to bank fees!

My first recommendation to people who want to stop the NSF bleeding is to get them back to the basics of banking in an attempt to help form better habits. This involves the temporary termination of the check card. Out of all the products and services a bank offers, the biggest gaping hole of financial misunderstanding is the introduction of the check card into the hands of a customer who has no clue how to balance a check register. The check card is a double-edged sword. While providing a lot of convenience, it also provides so much opportunity for convenience, most people never take the time to record all of the transactions, thus resulting in some overdraft situations in their accounts. At $25-$40 per overdraft fee, this makes a $1.50 order of fries in the local fast food drive thru VERY expensive.

But by temporarily taking the check card out of the equation, bank transaction planning is introduced. In other words, they have to come to the bank and make a good old-fashioned withdrawl. This usually results in less withdrawls because most people don’t want to come to the bank and stand in line any more then necessary. With cash in hand (instead of a check card) they will spend less and plan better.

The woman sitting at my desk was eager to learn. I looked at her file and noted she spent an average of nearly $100 per month in NSF fees, and this didn’t include the non-sufficient funds fees from the maker on the checks she was writing. This brought me to another observation: she was not using her check card at all! I asked her about this, and she said that she had stopped using her check card many months ago in an effort to reduce the number of mistakes she made when recording (or forgetting to record) her purchases. She further explained that while her NSF fees had been significantly reduced due to this, she was still struggling with trying to balance her check register.

So I asked her to show me her check register. Instead of using a check card, she was writing checks and recording the check number and the amount religiously. She would then go online and note the date the check posted in the column where she should have been keeping a running balance. In other words, this gal was doing a very thorough job of keeping an eye on her register and noting all checks, but was over-using the online banking as a source for rectifying her balance. This was the one small area where she was making a very expensive mistake. Instead of writing down the date the check posted, she should have kept a running balance on the day she wrote the check. The day it posts then becomes irrelevant.

I explained to her that the online banking was merely a value-added tool for noting posting dates of checks and check-card transactions; I showed her how to put a tick mark beside the check once it did post, and that the date of posting was irrelevant since she had theoretically authorized the amount being available on the day she wrote the check. I further explained that the online banking did not record transactions in the exact order of when the transactions where authorized or in the exact order of when they came through. So in other words, writing down the date of the posting had no effect on the balancing of her register. This minor detail was costing her almost $100 a month.

You see, the key to keeping your bank register accurately balanced is to record each “authorization” in the exact order in which it was made. By “authorization”, I mean check card use, ATM withdrawl, deposit, and/or check written. The moment these transactions are authorized by the user is the key to ensuring no unnecessary overdrafts are made in the bank account.

Here are some facts that you may or may not be aware, when it comes to check cards:

1) The bank records the date, to the minute and second, when the card is authorized to make a purchase. We can show you this when next you’re at the bank.
2) When your bank account runs out of money, your check card authorizations will keep paying to the tune of $25-$40 per transaction and anywhere from $500 - $1000 per day, until someone temporarily shuts down your card to stop the bleeding.
3) The moment you use your check card is the very moment you are communicating that the funds are in your account. Period. Trying to play games with the technology or timing debits is not a way to out play your bank or credit union.
4) The merchant (vendor from which you are purchasing) can take as long as they like to balance their credit card machine; relying on your memory or hoping they don’t balance daily (or that they do) is playing a game of roulette with your bank account.
5) The online banking format does not record the transactions in the same order as they were authorized or posted. They are merely recorded on a posting date. The “authorization date” is the moment when the NSF fee was posted.
6) You will never teach a bank or a credit union a lesson. They have provided you with a depository account and the tools to make access as easy as possible. You are the keeper of your account. Be responsible.
7) NSF fees are not as large an income stream as you think for the bank. For as many NSF fees they charge to your account, millions of people use the banks and walk away, leaving the bank to pay their bills in the aftermath of cavalier account usage.
8 ) Check card use for online shopping is the biggest source of bank account fraud. I see it every day.

I can’t tell you how many times people will try and tell me that they are moving their accounts to XYZ banking institution because their fees are less. WHY PAY A FEE? Who cares who has cheaper fees? If you know the rules of the game, then the NSF fees charged by a financial institution are irrelevant. Choosing your place of business by fee charges does not compel me to want to keep your erroneous habits at my bank. Go ahead and open an account with them.

I hope this clarifies some of the misunderstandings out there in regards to NSF fees.

The happy news for this woman is that she can now safely transfer nearly $100 a month into her savings account and start living a more financially sound life for her family. When I showed her how to properly balance her register, she could not thank me enough. She explained that I was an angel and that she’d be telling her counselor. Trust me, I’m not interested in being anyone’s angel. She was merely lacking some information that was costing her, and it was my job and my pleasure to show her how to correct her ways.

For me (because I’m human too, and no different then anyone else), I use a rewards credit card for all of my expenses and pay it off in full every month from my “buffer”. This minimizes any overdraft risk, and puts money in my pocket (rewards dollars). To keep the “convenience of using a credit card” at a minimum, I use YNAB
to ensure I never overspend unplanned dollars. In addition, for those items for which I do not use my credit card, I use my on-line bill pay. This keeps any potential fraud away from my bank account entirely. I have not used a check card in over 2 years.

Get $50 for Signing Up!!

For those of you who are thinking about investing with Lending Club, they will pay you $50 for signing up as an investor. Enter the referral code Maggie_Magpie and enjoy the benefits of 9.6% average returns on your investment. Make sure you read my review on Lending Club.

Why Dave Ramsey’s Baby Steps May Not Work

The YNAB forums are a very interesting place to hang out once in a while. The other day, I got involved in a discussion in the YNAB forums in response to a post by a woman wanting to talk her husband into using YNAB along side the Dave Ramsey Baby Steps. They had just started to follow DR’s baby steps and discovered YNAB. But the husband was still infatuated with the Dave Ramsey baby steps was not interested in trying YNAB. I tried to explain that it didn’t have to be an “either/or” situation.

In a nutshell, where I see the Dave Ramsey baby steps weakness is in the $1000 baby emergency fund. While DR’s baby steps are at least a great starting place for those who have never learned to save and become debt-free, if people don’t learn how to build a buffer along with starting an emergency fund there is still too much risk of falling off the wagon.

One of the responses in this particular topic resonated with me from a number of aspects including the psychology of spending and the intuitiveness of a proactive system like YNAB. I’m going to cut and paste it below. Please let me know what you think:

If we step back to the very, very basics of personal financial management, what is the most basic, fundamental skill needed? The one skill, without which all other skills and strategies fail?

There’s probably more than one answer to this question, but the basic skill I’d like to highlight is letting money sit unspent because it will be needed in the future. This skill is so basic and fundamental that most mass market articles on personal finance assume without discussion that every reader has this skill.

In the real world many people (including some I’m related to by blood or marriage, sigh) lack this skill. They get in trouble because they spend all their money on what looks good to them at the moment, then don’t have any money to pay the rent or the car repair bill or the bank overdraft fee. (sigh)

Now, it’s very difficult to tell people who lack the skill of “letting money sit” that they need to develop this skill. There is zero cultural support for even considering it a skill. So systems that address the very fundamentals and recovery from truly bad financial positions approach developing this skill in the context of the system being promoted.

Dave Ramsey has a $1000 baby emergency fund. It covers emergencies like car repairs, dental bills, and other stuff that beginners tend to leave out of their budgets. It lets people survive a small visit from Murphy without using a credit card, which would be a big no-no in the DAVE RAMSEY system. But that’s not the most important thing about the DAVE RAMSEY $1000 baby e-fund. The most important thing about it is, it’s a chunk of money that is supposed to sit there unspent. When an emergency pops up and all or part of that fund is used, replenishing the fund is a priority. In other words, less is spent on controllable spending in order to build back that baby e-fund.

That’s teaching the skill of letting money sit.

With YNAB, there are lots of places you’re supposed to let money sit. The big ones are the Rule 3 funds, so that the car repair or dental bill isn’t an emergency. But the very first one that is taught is building the buffer so you can live on last month’s income. It doesn’t look much like the DAVE RAMSEY baby e-fund, but it also serves the function of teaching the skill of letting money sit. The idea is that your pay just sits there waiting for the first of next month, at which time it gets budgeted.

For people who have moved beyond the struggle of letting money sit and do this easily, the YNAB buffer is more flexible than the DAVE RAMSEY baby e-fund. It scales to the individual’s income. If you think about it, someone who is having trouble making ends meet on $150,000 per year probably needs a bigger pile of money sitting around waiting for expenses to pop up than someone who is barely making ends meet on $24,000 per year does. It also flexes up and down in response to changes in income, and it isn’t designed to just sit there forever like the DAVE RAMSEY baby emergency fund. It sits there till the first of the month, then goes about its business of doing the various budget jobs that are needed.

That’s not only teaching the skill of letting money sit; it’s teaching the skill of taking time to think before spending. Taking time to think isn’t quite as basic a skill as letting money sit, but it’s still pretty basic. People who don’t have this skill will have great difficulty making their actual expenditures fit their budget.

Once the budgeter is somewhat comfortable with letting money sit and taking time to think about how to spend it, living in compliance with Rule 3 becomes possible (or easier, anyway). And that’s where a lot of the stuff that used to be emergencies becomes routine budgeted spending. That’s where the decision whether to eat pizza tonight gets made in the context of, “Do I really want this pizza worse than I want to be $20 closer to out of debt, or $20 closer to having a replacement car?” The point isn’t that the answer should always be “no;” the point is that a reasoned decision is made and the pizza isn’t purchased unless the $20 doesn’t endanger any goal more important than eating pizza tonight.

Coming back to the skill of letting money sit, sometimes people who are trying to get out of debt have trouble letting money sit without throwing it at a debt snowball. While throwing money at reducing debt may be more productive than buying pizza when you have a stack of credit card debt, there are limits. Money will still be needed for rent/mortgage, clothing, groceries, and numerous other things that are budgeted. Even when the emotions are screaming, “I need to throw as much as possible at debt reduction,” some money needs to just sit there waiting for budgeted expenses to happen. Part of that’s the buffer, and part of that’s Rule 3 funds for expenses that don’t happen every month. YNAB can help you quantify how much money you need to let sit, which lets you know in turn how much money you can throw at debt reduction. If you’re trying to both use YNAB and follow DAVE RAMSEY, I’d recommend you create a category called Baby E-Fund and build the amount remaining up to $1000. In DAVE RAMSEY speak, that’s a BEF. In YNAB terms, that’s a Rule 3 fund designated for unforeseen expenses. In either case, it’s there to bail you out for budgeting mistakes without sinking your budget entirely.

If you decide to use YNAB without Rule 1 while generally following DAVE RAMSEY, that’s not the end of the world. With DR, you might not get everything like the way you would with YNAB, but you’ll be in a much better position than you were before you were trying to budget and track spending. And you will be learning and practicing the vital skill of letting money sit.

How Banks Lend—A Simple View

Below this article is a review of my new Lending Club account. As I mentioned, people-to-people lending can be risky. There are a number of reasons why they have joined Lending Club to borrow, instead of the bank. We’ll look at personal loans and business loans.

Business loans: The conservative bank looks at business loans with the cold eyes of an eagle. A conservative bank will wisely look at a business loan as if they are actually going to be partners in the business with that owner. Amongst many measurements, the banks will require that the borrower put at least 20% of their own personal money into the venture. When you are looking at the Lending Club borrowers, you’ll start to see that the monies they are looking for at Lending Club is for the 20% (or more) their bank requires as a down payment. This is a concern to me. I see a lot of very conservatively funded loans defaulting at the bank where I work. The riskiest businesses are restaurants and retail businesses. Unless the owner has a long history of success in these types of businesses, you can pretty much count on a high percentage of failure within 3 to 5 years. So in reviewing loans at Lending Club, if you think you can get to the 3 year point (the point at which the loan is paid back in its entirety), then you’re home free. Lending Club loans have a limit of up to a 3 year term and $25,000 for the amount funded. This is one of the measurements in your risk analysis.  Also, business owners at Lending Club should answer your questions thoroughly and respectfully. If they do not, this could be a red flag. I asked a number of questions of one of the business borrowers at Lending Club and they came across a little covert and limited their answers to two or three words. I moved on.  Did I end up investing in a couple of businesses?  Yes.  However, ask lots of questions and feel very comfortable before investing.  Afterall, that is what you’re doing; you are investing in that business.

Personal loans:  I’m slightly (but not fully) more at ease about personal loans.  This may not be prudent, however, my observation has shown that defaulting on a loan hits the personal borrower harder, especially since they have nowhere to turn;  theoretically, they will generally work harder to avoid defaulting.  Ironically, for those borrowers with high revolving debt, when asked about that, they will tell you it was for a business that failed! So, in these cases, they are paying both personal and past failed business debt. But, if they have made the right sacrifices (eg., cut up all credit cards, tightened their budget), and are looking to get some ease on the high percentages they are paying the credit card companies, a Lending Club loan will give them some breathing space.  How can you tell they’ve made the right sacrifices?  Well, that’s up to you and your intuition.  There’s a lot of liars in the world, and coincident with the old adage that “…the road is paved with the best of intentions…”, it’s up to you to decide.

Keeping all of the above in mind, a conservative bank will give these types of borrowers a couple of choices for consolidation: 1. They will look at the equity in the borrower’s home (if they own a home) as a first place to go. The reason for this is because the home becomes the collateral and this diffuses the risk. 2. If there is no equity in the home (or no home because the borrower rents), the bank will consider an unsecured loan (some banks call these signature loans). An unsecured loan presents higher risk for the lender, therefore, the interest rate on this type of loan is typically 2-3 times higher then the collateral-based equity loan. Also, the banks will limit the amount they can lend on these loans. Most conservative banks will require a higher FICO score (in the 720-750 range), and will limit the amount of the loan to about 2-3 times the gross monthly income of the borrower. Eg., if the borrow makes $3000 a month gross, they will not lend more then $6,000.  Should you decide to invest at Lending Club this may be a formula for your own consideration.  Some of the borrowers need the full $25,000 limit (with more debt still left), some only require $2,000-$3,000.  Formulate the amount they require with their overall debt, and in conjunction with what they make on a monthly basis vs. all of their debt payment obligations.

So there’s the “skinny” on lending. With the above stringent requirements for lending money, the bank’s rate on these loans will be in the range of about 6%+/- on the equity line, 13-15% on the unsecured loan, and around 8% on the business loan. So let’s use this information and extrapolate it to the rates at Lending Club;  if Lending Club is willing to lend up to $25,000 to a guy with a 720 FICO score, to consolidate his credit cards at a rate of around 11%, this would be equivalent to the bank lending this same amount at about 18-20%. With the current economy and the high level of defaulting loans, this makes the Lending Club proposition quite risky.  Banks are going out of business on an even more conservative formula.

It was very important that I illustrate how risky my personal portfolio at Lending Club is because I do not want anyone to be cavalier, should they decide to invest.  But don’t get me wrong: I think Lending Club is a brilliant concept.  Do your research and be conservative if you’re not experienced with the “people business” and lending money. The Lending Club proposition offers a great alternative for those who need to borrow. You can even borrow from yourself! It’s also a great way to lend to a friend or family member in a way that doesn’t introduce too much discomfort (I don’t recommend lending money to family; consider gifting any money and moving on with no expectation of getting the money back); this provides a great outlet for your family member to build up their credit history because Lending Club still requires the borrower to go through all the same processes any normal lender would require.

I wish you all the best in your Lending Club venture, should you decide to give it a try.

Rule of 72 Can Double Your Money!

Today, I took a look at my Lending Club account. My weighted average is 14.41% on all of my invested loan contributions. On the surface, this would seem like a nice high return. But I will caution you that I tend toward the risky side of investing, so do not follow my lead should you decide to pursue a Lending Club investment account. To dilute the risk, I took my invested amount of money and strategically broke it up into many, many “mini-loans” of between $25 and $50 each. This way, should any of the note holders default, my overall loss will be minimal. The overall process took me quite some time to put together because even after painstakingly reading, analyzing, asking the borrowers questions, and finally making the decision to invest, some of my choices never ended up funding; not only is this a sign that perhaps some of my choices may (or may not) have been solid (the reasons for loans not funding vary), it also meant that my overall portfolio took over a couple of weeks to settle; actually, some of my invested amounts are still in “funding mode”, so it may take a couple more weeks to acquire a final portfolio that is 100% in “outstanding ‘funded’ principal”. I’ll keep you in the know on how I’m doing, every once in a while, as the months roll around.

What I love about Lending Club is how they give you an up-to-the-minute review of all of your invested loans by monthly interest payment (gross profit from your investment), funded back into your Lending Club account. You also get to see the ongoing “play” of who’s defaulted (none so far, but I’m new at this, so time will tell). In today’s economy, with CD’s at an all-time low (average around 1.2% return), Lending Club gives you a great opportunity to do better with any surplus monies or, maybe, part of your emergency funds. The key is not to get too greedy. On the conservative side, you can pretty much safely make about 7.5% your invested money.

OK, so back to the Rule of 72. The Rule of 72 is a simple formula used to calculate the potential doubling of your money. The key is that you need to know exactly what your interest rate earned will be. So, let’s use a CD as an example: In today’s economy, a CD with a 1.5% rate will double its principal in 48 years. Therefore, the money I have invested into my Lending Club notes will double in 4.99 years (ok, let’s round that up to 5 years). Again, that’s 72/14.41%=5.

Again, I warn you not to get too greedy or make rash decisions. Notes go up towards 20% at Lending Club. The higher the interest rate, the higher the chance the loan will default. Some of the borrowers are very good at convincing you they will pay. For me, the numbers don’t lie. If there has been a delinquency in the last 3 or less years, ask the borrower for more information on the delinquency. You almost need to be good at reading between the lines, too!

In my next article, I’ll explain the basics about how conservative banks make decisions on approving loans, and the various types of popular loans you can get at the bank. Hopefully this will help you in benchmarking any potential loan decisions you make should you open a Lending Club account. This should show you just how incredibly risky my 14.41% portfolio is, compared to what a bank will do. So be extremely cautious and do your research thoroughly.

Finding Frugal Includes the 3 Keys to Finding Happiness

Today I ran across a wonderful article about the world’s oldest study that goes all the way back to 1937. I found this article on a very interesting blog called YEAH DAVE. I’ve listed this website on my blog roll under “Living in the Moment” because I truly believe that finding our frugality includes finding what makes us truly happy. I feel our consumer-based society has diluted happiness in our lives, making a journey back to a fulfilling and happy life imperative.

The study showed that finding happiness boils down to three basic things:

a) Having a diversion that serves as an emotional outlet. Examples include participation in events that include giving to others, having a hobbie, or participating in some sort of sports activity.
b) Having a sense of humor and not taking yourself too seriously, and
c) Sharing your life and your happiness with others.

So have a metaphorical garage sale and make the journey to finding happiness fun! Read Dave’s article in full here. I hope you enjoy his blog as much as I have.

Pay Debt Off Fast and Cheap

Payments annoy me. They have always annoyed me. Even a 0% loan payment is annoying because to me the payment I have devoted to the 0% loan is still cutting into our discretionary income; not only this, but in the back of my mind I’m always wondering if that “widget” we purchased at 0% wasn’t marked up to cover the 0% costs from the lending agency. For instance, we had our house insulated recently to save on our exorbitant electric bills. It wasn’t a huge amount, however, I will always wonder if I should have negotiated a lower price and just paid cash. The amount of the 0% payment could be devoted to something more productive like building the emergency fund bigger and faster, or increasing our retirement investments, or even better, it could be added to our mortgage payment for a quicker pay off date. In addition to the odd 0% loan payments, we’ve also had the odd auto loan which we’ve paid years in advance of the term, we’ve never carried credit card balances, but of course, we’ve always had an annoying mortgage payment.

So today I did some calculations using this great little debt snowball calculator with the goal of seeing how much we need to devote to our debt in order to pay everything (including the mortgage) in the shortest time frame and at the least amount of interest expense. It was enlightening. Our family’s debt consists of our mortgage and a balance on our equity line, left over from when we built an addition on our house. Our mortgage is at 6.125% and the balance on our equity line is at 3%. The cheapest way to pay off debt is to pay off the highest interest balances first, then when the first balance is paid in full, take the amount devoted to that balance and add it to the amount devoted to the next balance. Dave Ramsey recommends a more motivating and psychological recommendation that you pay off the small balances first; there is some credence to this, and it’s a method I’ve always employed, however it’s the most costly.

The true technical way to pay down debt is by high-interest balance first, no matter the amount of the loan balance. But I discovered something tremendously enlightening after plugging various amounts into the debt snowball calculator: I discovered that by adjusting the amounts that are minimally required for each debt, and by adjusting these up and down, the pay off date can actually be maintained, but the amount of interest paid can be significantly different. I then decided to see what consolidating and refinancing the mortgage would do for time and interest. I used 4.5% as the new mortgage rate and added in 3% of the new consolidated balance for closing costs. My debt pay off would actually be $1,000 more and 1 month longer! In other words, by simply using the debt snowball and drilling down on the mortgage payment, leaving my equity line at a minimal “interest-only” payment, we would save money and be entirely debt free in 5 years! This exercise solidified my resolve to pay off our debt with gazelle intensity—-another Dave Ramsey term that excites me more then an advertisement for a shoe sale at Macy’s!

Plastic Surgery Pays Me the Big Bucks, Dave Ramsey!!

Here’s how I use credit cards to never be in debt, and to make additional cash: But first, click here and read about how to live without credit cards. …..are you back from reading that? Great. Something I’d like to emphasize is that when most people use a credit card, they are using “future” payroll dollars, plus interest (if they carry a balance). As we all know, this can spin into an uncontrollable leveraged nightmare.

Now, using a high percentage yield rewards card (there are many), you can actually integrate a rewards credit card into your YNAB system and be able to pay off your card in full whenever you’d like (I don’t necessarily wait until the bill is due); then, when your rewards are flush, convert them into cash, thus increasing your discretionary income.

For me, I use the Chase Freedom card because it gives me 1% back on all my purchases PLUS an extra 3% on my top 3 spending categories (eg., groceries, gas and utilities). When I let my rewards accumulate to $200, they pay me an extra $50 for waiting.

In my YNAB registry, I have a register set up entitled, “Credit Cards”. Every few days, I go online and review my credit card usage and enter each transaction into a category in my YNAB register. You can see it in action here
by watching the tutorial at the YNAB site. Basically, I’m using last month’s income to pay next month’s credit card…..how’s that for a great twist! Excuse me while I go count all my extra cash!

The credit card becomes a leverage tool for me, pays me back cash, and with the help of the YNAB system, I’m always ahead of the credit card ballgame. In addition, my credit card usage (using it and paying it off in full) is sending my FICO score through the roof. Woohoo!

Dave Ramsey preaches “plastic surgery” through the cutting up of credit cards and never using them again, and I very much appreciate his wisdom. However, using the YNAB system helps me do “plastic surgery” in an entirely different kind of way. There is absolutely no temptation to leverage credit cards EXCEPT with money already earned, not to mention the extra cash I get to skin out of the hide of the credit card company!! Rock on Dave Ramsey, however, I’m just fine with my credit card over here!

How I Increased My Deposits by 140% Without Thinking About It!

The guy (or gal?) who said making money is not about ‘what’ you make, but more about your attitude towards money and spending, really knew what he was talking about. Today I did a calculation on how much my deposits have increased since March 1, 2009 with YNAB.
Basically, in the 3.5 short months of using it, my deposit accounts have increased 240%. Yes, you read that correctly. If I had, as an example, $100 sitting in deposits, they are now at $240 (my actual deposits are many thousands, this is merely an illustration).

In order for you to understand what I’m talking about, let’s go back to my deposit habits, pre-YNAB. Basically, I used to have operating accounts and an assembly of various savings instruments which I called my ‘emergency’ funds. That was pretty much it. I would pay my bills out of my operating accounts and whatever was left went to my credit card bill and whatever crumbs remained built my emergency funds. Like most Americans, I jimmied my bills around payday and pretty much lived on the fly. Whenever a big ‘emergency event’ took place financially, I paid for this event by, again, jimmying between my credit cards, emergency savings and paydays. One personal rule of thumb was always that I pay my credit cards in full each month. So, subconsciously, I must have been calculating my credit cards because for some reason, paying them in full was never a huge hassle.

Despite all the aforementioned hatchet work, I managed to build a satisfactory emergency fund over the course of many years.

Back to my original calculation: Even if my 240% calculation resulted in half the percentage increase (120%, instead of 240%), I would have been ecstatic. When I saw 240% I was beyond myself and really wanted to share this with you.

The YNAB software intuitively helps you save money painlessly. Soon thereafter, you actually build substantial sinking funds, and a REAL emergency fund. I can see where we will be entirely debt free within the next 5 years. Seriously.

Please, if you have never thought about budgeting in your life, or the very word made your eyeballs glaze over, do yourself a favor. Check out YNAB
and take advantage of the free 60 day opportunity to give it a whirl. Even if you feel you’re flush with funds, why not increase them?

FIDC Insured Deposits

As a banker, I would be remiss if I did not tell you about how easy it is to insure your deposits with any bank beyond the simple $250,000 temporary limit the FDIC gives us until December 2013. In simple terms, you can multiply the FDIC insurance on your depository accounts with any one bank, depending on how each account is titled. In other words, if you have large deposits, do not feel like you must spread your money across a number of banks to take advantage of the FDIC insurance. You can keep most of your money with your favorite bank, depending on how you title it.

In the simplest terms, you would basically title one account either singly or jointly (with a spouse, as an example). You would then title your other accounts “payable on death” to your spouse and also to your children.

Here’s an example of a family of four which includes one set of adult parents and 2 children. The parents have one joint account with a single banking institution holding $500,000 on deposit in this “joint” account. Then, each parent has a separate account owned singly with a POD title to each child, each holding $250,000 in each of the POD accounts. This would add up to 4 accounts in total, each with $250,000. The entire total is $1,500,000 fully FDIC insured. To synthesize this example, I’ll outline it below:

#1: Joint account both parents, $500,000.
#2: Single account, parent #1, with $250,000 POD to child #1.
#3: Single account, parent #1, with $250,000 POD to child #2.
#4: Single account, parent #2, with $250,000 POD to child #1.
#5: Single account, parent #2, with $250,000 POD to child #2.

Here is an example of a recent deposit I titled for a widow. She only has one beneficiary heir, her daughter:

Account #1: $250,000 single account (this can be a number of accounts, but the total of all of these accounts cannot add up to more then $250,000 under her single SSN).

Account #2 (or various totaling up to $250,000): This/these are titled in her name as a single sole owner, however it’s “payable on death” (POD) to her daughter.

This gives her a total of $500,000 fully FDIC insured. If she had more children, we would duplicate the account #2 titling for the other children.

To check this information, go to the FDIC’s website here: FDIC EDIE

The key to ensuring “Edie” at the FDIC site is accurate, make sure you enter everyone’s name exactly the same with the same spelling. Otherwise, if you have a typo in their name, Edie thinks it’s somebody different and your calculated result could be an over-estimation of FDIC insured money.

Growing Your Emergency Fund Mindlessly—It’s Easy!

The other day, I took my car in for an oil change. I had been saving a nominal amount of money through my new spending plan under the category of Car Repairs. I’d only been saving for 3 months (since starting my new spending plan), but I knew I had more than enough, in case they said I also needed to rotate my tires. Well, sure as shootin’, the mechanic came into the waiting room and said I definitely needed to rotate the tires for an extra $29.99. No problemo! As mentioned, I had more then enough money in my auto repair category. I mean, even it I end up paying $60’ish, who cares? It all needs to be done anyways, right? Ten minutes later, the “tire rotator guy” comes into the waiting room and explains that my brake pads needed to be replaced….and the story goes on. To make a long story short and a long list later, my $30 oil change turned into about $266. With a 4 hour drive and a week’s vacation starting the next morning, I signed the bill and went on my merry way. I do not give my SUV much attention and take it to the limit of its life on wear and tear; so while the long list of repairs was not planned, my subconscious knew there would be a day of reckoning. At $266, I was still making off like a bandit. That poor SUV of mine is severely neglected and I realize this is not very wise of me. OK, I’m starting to digress here….

A year from now, when I’m a seasoned “spending planner”, I will be a better automobile owner and more attention will be paid to its maintenance. These types of additional expenses will be considered sinking fund expenses due to their being “known” future expenses. But for the purposes of this particular day, a good portion of the bill will be paid from my emergency funds. Because I’m just getting into the rhythm of things with my new spending plan, the tire rotation and brake pads were not “known” future expenses due to their having arrived way sooner then later. If you review my rules, you’ll remember No. 4, “Roll with the Punches”. Again, because this new spending plan is finding its way into my heart, I need to roll with the punches of some additional car repairs until I figure out my true and realistic requirements in my various expense categories (as an example, my Auto Repair category).

As a follow up to my previous article on “sinking funds”, I wanted to stress the importance of keeping an emergency fund as the next natural evolution of your money plan. My story about the oil change is typical of so many of us. A $266 bill wouldn’t put the average American family into bankruptcy, however, when you start to organize your earned income through a budget or “spending plan”, the $100 and $200 known and unknown expenses start to evolve through the categories. As a newbie, these types of expenses are emergencies ONLY until you find your rhythm.

There was a time, not so long ago, when I would have put this on my credit card and when the bill came in (along with the myriad of other various credit card charges), I’d basically move some funds from my savings, and combined with timing the payment around the next payroll, get the bill paid. I’ve always paid my credit cards in full every month, but it usually required some kind of depository gymnastics of sorts.

An emergency fund, in the formal sense of the word, is four to six months of your household net income, deposited in a high yield deposit account. It needs to be kept in an account that is fairly easy to access. Where the account is located may depend on your access to a line of credit (eg. Credit card), in case your emergency requires payment faster then the ability to get a hold of the funds to pay for it. But generally, your emergency fund will be available for REAL emergencies such as temporary job loss, medical bills, or house repairs. A $266 car repair bill would not normally be categorized as an emergency once you find the rhythm in your spending plan. I’m giving myself a good solid year on the YNAB plan to find my emergency fund rhythm. By that time, I’ll be able to look back over my last year’s budget and calculate a more accurate and realistic amount for each category, including the Auto Repair category.

As part of saving into an emergency fund, you need to assign the dollars to that fund and make it a very easy amount that you wouldn’t really miss. If every dollar is proactively assigned, you won’t miss it. For example, giving up a latte (or five) per month and putting $50 into your new emergency fund would be a great start. In addition, any newly found funds like an unexpected bonus at work, or your next tax return can slowly be added. You’ll be shocked at how fast it all adds up over time. Once you start to see a significant balance in your new emergency fund account, the extra money you begin to deposit into it will start to grow due to your newly found motivation; saving into your emergency fund becomes a directive more than a scramble. Money attracts more money, and before you know it, you’ll be on your way to a healthy emergency savings plan!

Credit Repair Lawyers ONLY When Necessary

At the bank, I get asked a lot of questions in regards to credit and credit repair. I try to share as much knowledge as I can, however, there is so much information and so much mystery about the credit bureaus. People assume that because I work for a bank, that I am a credit expert, but I am not. I am only good at saying “No, we cannot approve your loan at this time due to some negative activity on your credit report and a low FICO score”. Most blemishes on your report can be removed on your own. The first thing I recommend you do is join a monthly subscription service like Equifax 3 in 1 or MyFico. Once you’ve reviewed your 3 reports, do your best to clean up as much as you can on your own.

But in case there is too much and the verbage is overwhelming, there is an alternative way to get help. There are a number of good credit repair services on the market. But be careful because there’s even more scam artists. I highly recommend Lexington Law. Even with a credit repair service, cleaning up your credit is going to take some time and money. Should you decide to go the credit repair service route, they’ll want you to join a credit monitoring service to help them get access to the information they need as they work through repairing your credit. While Lexington Law can legitimately help and will usually save you time, do not expect Lexington law to do all the work for you. Do not hire Lexington Law or any credit repair service if you think your only role in the repair is to pay their fees and your credit will be miraculously restored. Stay in the loop through every step. They are there for you to leverage their expertise, and they are very good.

Lexington Law Firm will NOT negotiate legitimate debt with your creditors. they WILL assist you in removing negative items that are incorrect, misleading, inaccurate and unverifiable! Lexington Law will also help push through the stall tactics many creditors will pull.

Cutting Your Mortgage Off to Spite Your Pocketbook

The other day, a woman was sent to my desk from one of my tellers. She was someone I’d dealt with previously. She and her husband are high-income professionals. Whenever she came into my branch she came across as assertive and slightly demanding and nothing she asked of me was basic, straightforward or easy. I have a tendency to quickly judge, and subconsciously I had previously categorized her as “high-priority, high-maintenance, minimal profit, get her out of the branch asap”! [and you thought bankers were unaware and boring....right?!]. On this particular day, she wanted to close out her checking account. Big surprise (”…minimal profit…”). She went on to explain that it was an account she opened 2 years ago to take advantage of some mortgage incentives at the time, but never used the account. So, on this particular day, as usual, she pushed the envelope and asked that I reimburse her the $28 in fees that were incurred on the account in error. Being the frugal kind of gal that I am, I quickly pulled up the account and saw that, indeed, there were some maintenance charges on the account from October 2007. I explained to her that I could not go back that far to reimburse her and asked why she didn’t speak to us about it at the time. She said she did, but the bank associate must have forgotten to reimburse her. She then went on to explain that she never kept up with the account, so never bothered to check up on it at the time

It’s at moments like these that I begin to twitch, start looking at my watch, and wonder how my life brought me to this point. Since this was a lost cause, I decided to entertain myself and asked her why she had decided upon a competitor for her mortgage instead of refinancing with us.

She explained that our Good Faith Estimate was $2 more then the competitors. Huh? Yes, you heard me correctly, $2….not $200, not $2000, but $2.00. I thought I misheard her, but when she repeated herself a couple more times, I decided to ask her how the closing went with the competitor [this was getting funnier and I couldn't resist at this point]. She said that she should probably have closed with us, after all, because as they were sitting at the closing table, the new mortgage company (one she called from a TV ad) explained that due to some kind of “mortgage mumbo jumbo”, they had misquoted her and they’d have to refinance another $10,000 onto her balance in order to close on time. Instead of backing away from the closing table (remember, this was a refinance, so there was no pressure to proceed), she and her husband went ahead and signed the paperwork and paid $20,000 (total) in closing costs, instead of the $10,000 minus $2 originally quoted. Her original mortgage balance was $363,000…..it’s now $383,000!

More things that make me go, “Hmmmm…….”. I realize now that I was completely wrong about her. She is, indeed, a high-profit client……just not “my” high profit client.

If you decide to refinance or if you are purchasing a new home, go to a lender who can physically show up at your closing. I don’t mean that they MUST show up, but if they are willing to attend the closing, they will usually stand behind their good faith estimate. A good faith estimate is the final word on a mortgage quote. So don’t let mortgage mumbo jumbo deter you from ensuring a fair deal.

Sink Your Funds, Not Your Heart

My Heart Sank, And So Did My Funds

I wanted to talk to you about sinking funds. But before I go there, let me tell you about a conversation I had the other day with a bank client. He came in to see me about savings account rates. He had just retired and wanted to start planning his income [better late then never, I thought to myself]. I sat him down and proceeded to ask him about his general financial situation. His various pensions [retired military, retired civil service, and social security] would bring in a net income of $9,500 per month! His wife didn’t work and his kids were long gone. He did not bank anywhere else, so I could see that his current savings of $300 and a checking account with $4,000 left a lot of missing information before discussing savings account rates. So I asked him about his current mortgage and other debt. All told, he had an $88,000 mortgage at 6.75% with 18 years left on it, and various and sundry credit card balances and an auto loan totaling about $50,000. After tapping zealously into my $2 calculator, it was concluded that he should refinance and cash-out a new conventional mortgage at 4.25% with a 15 year amortization, in order to pay off all of his debt and consolidate. His new mortgage would be $140,000. My concern, however, was that he would eventually get himself back into debt and we’d eventually have to reconsolidate [over 90% of those who consolidate their debt get right back into it]. So the focus was diverted to general cash management, instead of the .25% rate on a low deposit savings account. I then explained that he could easily pay off his mortgage in 5 years. His eyebrows raised at this. With a net monthly income of $9,500, he could easily reserve $3,000 for his mortgage payment, another $1,000 for his emergency fund and about $1,000 towards sinking funds. This would leave he and his wife $4,000 for groceries and sundries. All told, the savings account rate conversation just turned into a virtual $3,000 per month return!!

Which leads me to a discussion around sinking funds.

While this is a common term amongst bond traders, it may not be a very common term to those reading this blog. After all, most of what I discuss here is about saving money and paying off debt.

Here’s the traditional definition of sinking funds with an example, from the website investopedia:

First, understand that a sinking fund provision is really just a pool of money set aside by a corporation to help repay a bond issue. Typically, bond agreements (called indentures) require a company to make periodic interest payments to bondholders throughout the life of the bond, and then repay the principal amount of the bond at the end of the bond’s lifespan.

For example, let’s say Cory’s Tequila Company (CTC) sells a bond issue with a $1,000 face value and a 10-year life span. The bonds would likely pay interest payments (called coupon payments) to their owners each year. In the bond issue’s final year, CTC would need to pay the final round of coupon payments and also repay the entire $1,000 principal amount of each bond outstanding. This could pose a problem because while it may be very easy for CTC to afford relatively small $50 coupon payments each year, repaying the $1,000 might cause some cash flow problems, especially if CTC is in poor financial condition when the bonds come due. After all, the company may be in good shape today, but it is difficult to predict how much spare cash a company will have in 10 years’ time.

To lessen its risk of being short on cash 10 years from now, the company may create a sinking fund, which is a pool of money set aside for repurchasing a portion of the existing bonds every year. By paying off a portion of its debt each year with the sinking fund, the company will face a much smaller final bill at the end of the 10-year period.

Now, let’s apply this to saving money. Sinking funds are monies set aside proactively for future known expenses. For example, you know that in 6 months your car insurance will be due and you will need to pay $600. So in this example, if you don’t have the $600 to save for that future date now, you’d allot, as an example, $100 per month to the sinking fund. Or as another example, perhaps as part of your drill-down on debt, you’d like to save $6000 to pay towards the principle on your mortgage in 12 months. So again, if you’ve decided to target a 12 month due date for this, you’d put $500 per month aside into your sinking fund account. By following this method, you’ll start to see your sinking funds account build up quite fast, through conscious planning of your money.

Saving money is not just about putting money aside for an unknown anomaly. It is about assigning your savings for various future known and unknown uses.

If you’d like to start training your subconscious to consciously save for your sinking funds, I recommend you check out this very helpful and intuitive software here

Watch for an upcoming post about the Mamma of all Savings ventures—emergency funds.

Free Credit Score—No Gimmick—Increase Your Score

FREE CREDIT SCORE — NO CHARGE — FOR REAL—read on…

There are some misunderstandings out there as they relate to credit score sources. There are a number of companies who offer monthly subscription services for a nominal $6.95 (+/-) per month. They are very good services, and I can highly recommend a number of them.

But before I give you a couple of great little “free” sources for acquiring your ongoing monthly score, allow me to give you a little inside scoop on the 3 main credit bureaus and how they operate (I’ll keep it simple). TransUnion is owned by an American company based in Chicago, Illinois. Equifax and Experian have head offices in England. Some lenders will rate you based on an average of all three bureau scores, others will only use the lowest rate, whilst others will take a look at all three, but only use Equifax because of its normally being the most conservative of the three.

OK….back to the head offices in England. Let’s think about this. The entire North American, multi-trillion dollar consumer consumed economy hangs by a thread based on the grading of companies that don’t even reside in America. Equifax is the most commonly used of the three…..and again, their head office resides in England. …..more things that make me go “Hmmm……”.

There’s no point in my providing you with free sources for getting your FICO score without giving you the skinny on how to raise your scores once you see them. Now, I know you’ve probably done a lot of research on ways to keep your scores heading higher. So let’s review:

1. Pay all of your loans and credit cards on time. This is your #1 priority, out of all the rest of the advice. ON TIME. This affects about 30% of the scoring.

2. Do not use more then 33% of your available credit limit. For example, if you have an available line of credit in the amount of $10,000 on a credit card, do NOT use more then $3,300.

3. Use and pay off credit cards in full every month. If possible, do not carry balances on your cards. If you can even put all of your expenses on a rewards card, then pay it in full every month, this will significantly raise your FICO score and a rewards card will put a few bucks back in your pocket. I just ordered another $250 reward check from my Chase Freedom card today. You can see how the YNAB system helps you to really use and pay off your credit card in full here
For those of you here for the first time, check out the system to which I refer and watch the mini videos in regards to the 4-rule software system here

4. Reduce as much of your debt as possible and get rid of department store credit cards. Department store cards are even more evil then the regular evil credit cards!

5. DO NOT terminate the credit cards you’ve had for many years. If you’ve had a certain VISA card for many years and want to reduce the number of credit cards in your portfolio, get rid of the newer cards first. Then cut up or hide the long-term cards to reduce the temptation to use them. The long-term relationship credit cards in good standing are “gold” to the bureaus.

OK….that last line just flew from my dancing fingers as if to imply the credit bureaus WANT you to have long-term relationships in good standing with your credit cards. Not!

The credit bureaus make most of their money from ensuring your FICO scores are as low as possible. They do not want or care if your FICO score is high. They make a lot more money from selling your information, especially if it’s mediocre, to companies who make even MORE money on people with low to mediocre FICO scores. So the name of the game for YOU is to outsmart the measurement systems. Some of you reading this have already discovered how difficult it is to communicate with the bureaus to correct the incorrect information on your records. So even MORE money is made by companies who can help you with this; these companies have cracked the communication code with the bureaus and will charge you from $500, up to thousands of dollars to help you fix your scores. Many of these companies are shady and unscrupulous. But there are legitimate companies that can help you; basically you’re paying them to save yourself the time it would normally take to improve a poor credit history on your own. Learn about scores and enjoy the journey of doing it yourself before you resort to this.

Having said all of the above, there are many other bits of advice I could share on improving your scores; but the websites I’m about to share with you will give you all the information you need, no gimmicks, no caveats. Just FREE!

…..one more VERY important piece of information that gets confused a lot. You are allowed to access your credit information and score once or twice per year (depending on your state). The best website for doing this is: Annual Credit Report I do an annual review on or around my birthday every year. It will attempt to sell you some services, but just say “no thanks” and continue with your free report. This website often gets confused with the one that replaces ‘annual’ with the word ‘free’, so don’t go there. The free one is not FREE. It’s a free trial. www.annualcreditreport.com is free, but only for your allotted once (or twice) per year. Also, many banks offer their longtime clients a free fraud alert and credit report (not score….report). So check with your bank also.

The two websites that I’ve signed up with and have experienced absolutely no gimmicks or hitches are www.creditkarma.com and also www.quizzle.com . They each use different bureaus, but you can enjoy a free ongoing score with these sites.

Remember that your credit score changes almost daily, just like the stock market. So when you go into these sites and are surprised at your score being higher or lower then expected, it could be based on a 30 or 60 day look back. The point of the exercise is to get a basic “snapshot” and take a look at each website’s perspective grading charts. Is your score fair? Good? Excellent? If it’s 790 and you thought you had an 820, well it’s still an “excellent” score. You probably won’t get a better loan rate at 820 vs. the 790, but if it really bothers you, then do some research and follow some of my tips in this blog to get your 790 higher. But if one score is 700 and the other is 760, I’d wait another month and see if they line up more closely in time. If not, you’ll need to check the report of the bureau with the lower score in case they have wrongful information on their records.

Boring Canada and It’s Boring Banking System

The following article was written in February 2009 by Fareed Zakaria, and I wanted to post it in an effort to share with you a little about some of the differences between our two countries. The banking system in the US was a huge eye-opener for me when I first moved to the US. Ironically, my career path lead me to banking. I welcome your thoughts on this article.

Worthwhile Canadian Initiative

By Fareed Zakaria
For more articles by Fareed Zakaria, visit his articles at www.fareedzakaria.com

The legendary editor of The New Republic, Michael Kinsley, once held a “Boring Headline Contest” and decided that the winner was “Worthwhile Canadian Initiative.” Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada’s virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it’s Canada. In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th.

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn’t grown in size; the others have all shrunk.

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada’s more risk-averse business culture, but it is also a product of old-fashioned rules on banking.

Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn’t deductible up north. In addition, home loans in the United States are “non-recourse,” which basically means that if you go belly up on a bad mortgage, it’s mostly the bank’s problem. In Canada, it’s yours. Ah, but you’ve heard American politicians wax eloquent on the need for these expensive programs—interest deductibility alone costs the federal government $100 billion a year—because they allow the average Joe to fulfill the American Dream of owning a home. Sixty-eight percent of Americans own their own homes. And the rate of Canadian homeownership? It’s 68.4 percent.

Canada has been remarkably responsible over the past decade or so. It has had 12 years of budget surpluses, and can now spend money to fuel a recovery from a strong position. The government has restructured the national pension system, placing it on a firm fiscal footing, unlike our own insolvent Social Security. Its health-care system is cheaper than America’s by far (accounting for 9.7 percent of GDP, versus 15.2 percent here), and yet does better on all major indexes. Life expectancy in Canada is 81 years, versus 78 in the United States; “healthy life expectancy” is 72 years, versus 69. American car companies have moved so many jobs to Canada to take advantage of lower health-care costs that since 2004, Ontario and not Michigan has been North America’s largest car-producing region.

I could go on. The U.S. currently has a brain-dead immigration system. We issue a small number of work visas and green cards, turning away from our shores thousands of talented students who want to stay and work here. Canada, by contrast, has no limit on the number of skilled migrants who can move to the country. They can apply on their own for a Canadian Skilled Worker Visa, which allows them to become perfectly legal “permanent residents” in Canada—no need for a sponsoring employer, or even a job. Visas are awarded based on education level, work experience, age and language abilities. If a prospective immigrant earns 67 points out of 100 total (holding a Ph.D. is worth 25 points, for instance), he or she can become a full-time, legal resident of Canada.

Companies are noticing. In 2007 Microsoft, frustrated by its inability to hire foreign graduate students in the United States, decided to open a research center in Vancouver. The company’s announcement noted that it would staff the center with “highly skilled people affected by immigration issues in the U.S.” So the brightest Chinese and Indian software engineers are attracted to the United States, trained by American universities, then thrown out of the country and picked up by Canada—where most of them will work, innovate and pay taxes for the rest of their lives.

If President Obma is looking for smart government, there is much he, and all of us, could learn from our quiet—OK, sometimes boring—neighbor to the north. Meanwhile, in the councils of the financial world, Canada is pushing for new rules for financial institutions that would reflect its approach. This strikes me as, well, a worthwhile Canadian initiative.

Rules for Being Human — Are There Any More?

The following just about sums up rules that can be applied to just about any situation you find yourself in. Whether you struggle repetitively with debt, your attitude towards money, your relationships, if you find yourself on the merry-go-round of crisis or even joy, it’s probably due to the guidance of of these rules [or not]. My favorite is No. 4. The “rules” link at the top of this page, derive themselves from the human rules below. Rules were made to help, guide, and grow, not to conform and suffocate as their role in our lives often gets misunderstood. So enjoy! This is my first post in my new blog…..yeah!

Rules For Being Human
1. You will receive a body. You may like it or hate it, but it will be yours for the entire period this time around.
2. You will learn lessons. You are enrolled in a full-time, informal school called life. Each day in this school you will have the opportunity to learn lessons. You may like the lessons or think them irrelevant and stupid.
3. There are no mistakes, only lessons. Growth is a process of trial and error; experimentation. The “failed” experiments are as much a part of the process as the experiment that ultimately “works”.
4. A lesson is repeated until it is learned. A lesson will be presented to you in various forms until you have learned it. Then you can go on to the next lesson.
5. Learning lessons does not end. There is no part of life that does not contain its lessons. If you are alive, there are lessons to be learned.
6. “There” is no better than “here”. When your “there” has become a “here”, you will simply obtain another “there” that, again, looks better than “here.”
7. Others are merely mirrors of you. You cannot love or hate something about another person unless it reflects to you something you love or hate about yourself.
8. What you make of your life is up to you. You have all the tools and resources you need; what you do with them is up to you. The choice is yours.
9. The answers lie inside you. The answers to life’s questions lie inside you - all you need to do is look, listen, and trust.

~ Author Unknown ~