“Real World” Personal Strategy Blog

The Truth About Credit Cards

You can use the fanciest computers to gather the numbers, but in the end you have to set a timetable and act.

- Lee Iacocca

How was your Memorial Day Weekend? Mine was pleasant…and, of course, sobering. With all of the news flying around this week (North Korea, budget showdowns, economic fear, etc.), it’s tempting to see our current troubles as the *worst* we’ve ever faced.

Our veterans have faced much worse–and prevailed.

The “Greatest Generation”, during WWII, had meat on a weekly basis, sugar monthly, and faced a level of sacrifice we haven’t had to even think about. So it’s right that we paused to consider the sacrifice of so many men and women who went without so much–so that we could live the lives we have now.

It’s a good reminder, during these turbulent times. Let’s not give up, in the face of our own fights.

Moving on… I wanted to weigh in this week, on the recent passage of the “Credit Card Accountability Responsibility and Disclosure Act (CARD)” (2009). There’s been a fair amount of commentary in the media about it, but little about how it will affect YOU. I aim to fix that in this week’s Strategy Note. I’m gonna go through the main parts of the bill, and break it down–what it REALLY means for you…and what I think of it all.

Enjoy…and leave feedback in my blog!

<strong>”Real World” Personal Strategy</strong>

<strong>”After Action” Report: CARD Act</strong>

Now that President Obama has signed into law this bill, it will mean some pretty significant changes, and I break these down–”Real World” style!

Here’s a summary of the major elements of the bill…and my “vote” on it (even though I’m not in Congress)!

APR Changes on Your Existing Balances: Credit card companies will no longer be allowed to raise interest rates on your existing credit card balance unless you are more than 60 days behind on your payments to them. If you get an APR hike because you were 60 days late, you will be able to get back your original rate, by making payments on time for 6 months in a row.

    * MY VOTE: As a planner, I love it! As long as you keep up with your payments, you will not face any surprise rate hikes. In other words, the bill allows you to plan ahead.

    * IMPACT ON YOUR WALLET: Credit cards will have higher interest rates and lower credit lines than they have now. In addition, you will see fewer 0% offers (especially on balance transfers) and all credit cards will have variable rates that will fluctuate up and down based on the Prime Rate. However, and most importantly, your credit card terms will not have any surprises.

APR Changes on New Balances:  Credit card companies will be required to give 45-days notice before increasing the interest rates. Increases made won’t affect your existing credit card balance–it will only affect the credit card balance that you accumulate 45 days after receiving the notice.

    * MY VOTE: Again, I like it. Allows you to plan ahead.

    * IMPACT ON YOUR WALLET: No direct impact.

Restricted Availability, for those under 21:  Credit card companies will be prohibited from issuing cards to consumers who are under 21, unless the application is co-signed by a parent, or guardian or proof of ability to repay the debt can be supplied.

    * MY VOTE: In my view, this is a bit much. You are capable at 18 years old to drive, go to war, carry a gun, vote, but you are not allowed to make the decision to get a credit card? This seems to verge on over-protection.

    * IMPACT ON YOUR WALLET: It will take longer to build up credit, because fewer people will be able to start the process when they are 18 years old.

Prohibits “Over Limit” Fees:  Unless you express to your lender your desire to go over your credit limit, you will not be allowed to go over, and therefore you will not be assessed any “over limit” fees.

    * MY VOTE: Love it! It’s hard to defend charging you a fee for something that they allowed you to do and that you did not ask for. Now, wouldn’t it be great to eliminate overdraft fees from debit cards?

    * IMPACT ON YOUR WALLET: If you have Fair Credit or Bad Credit, expect big increases to the membership fees.

Fair Payment Allocation:  You may have a balance transfer on your card at one rate, while your purchases accrue interest at a higher rate. Before this legislation, credit card companies applied your payment to the balance with the lowest interest rate first, so that your balance with the higher interest rate would keep racking up interest. Now, payments must first be applied to the balance with the highest interest rate.

    * MY VOTE: I love it! It made no sense that consumers could not pay down their most expensive debt, without first paying down all the other debt on their credit card.

    * IMPACT ON YOUR WALLET: Credit cards will have higher interest rates and there will be fewer 0% Balance Transfer Credit Cards, if any.

Prohibits “Universal Default”:  Credit card companies will be prohibited from raising your interest rates due to late payments or defaults on other credit cards, loans or bills.

    * MY VOTE: A very welcome addition. This was a highly confusing and deceptive practice. For example, I might not pay a medical bill because I am disputing it.  So, why should my credit card rate go up?

    * IMPACT ON YOUR WALLET: No direct impact. Only a handful of the major issuers were using “Universal Default,” and they will now have to play by the same rules – just like everyone else.

No More “Payment Fees” for different payment methods: The legislation prevents companies from issuing a charge for paying a bill by phone or online.

    * MY VOTE: Again, I love it. It is hard to defend “increasing” the payment when you want to make a payment.

    * IMPACT ON YOUR WALLET: No direct impact to the credit card terms. It just won’t cost anything to avoid late fees.

Prohibits “Double Cycle” Billing: Credit card companies will be prohibited from calculating finance charges based on the previous month’s balance.

    * MY VOTE: I like it. This was a highly confusing and deceptive practice.

    * IMPACT ON YOUR WALLET: No direct impact since almost all of the major issuers had stopped using this practice. Discover might be the only major credit card company using it, and thus Discover cardholders that alternated from paying their balance in full on one month to not paying it in full the next month might get fewer finance charges assessed.

In short, this new law will significantly change the way credit card companies conduct business.  In the short term, though, consumers will see smaller credit lines, higher interest rates, higher membership fees and fewer 0% offers.  Rewards offers will likely stay the same.

While the effects of the legislation may seem restrictive at first, I strongly believe that the long term effects will result in a net benefit for consumers. This eliminates “gotcha” rate hikes and fees and will allow consumers to plan the selection and management of personal credit lines, without the worry of unforeseen surprises popping up along the road.

And that’s a good thing…and it’s now, the “Real World”.

<em>To more of your money in your wallet!</em>

Do This Automatically–And Thrive

“We come to love not by finding a perfect person, but by learning to see an imperfect person perfectly.”<em>- Sam Keen</em>

It’s a glorious spring morning, as I write this, and once again…I’m reminded of the newness of every week. It’s really true that no matter what happened the day before–we get a new day, NOW!

Imagine if we there were no “day and night”, and all we had was one lo-o-o-ong day. The phrase “having a bad day” would be much more serious!

Well, it’s not like me (a tax person) to get so philosophical so suddenly, but I’m simply grateful today for new beginnings. Remember…whatever happened yesterday (or whatever happens TODAY for that matter), there’s always <strong><span style=”text-decoration: underline;”>tomorrow</span></strong>.

Speaking of the future, could we be continuing to see the much-promised recovery? Not clear, but this article says the answer is … mixed: <a href=”http://bloomberg.com/apps/news?pid=20601109&amp;sid=aDyuaXtothZw&amp;refer=home”>http://bloomberg.com/apps/news?pid=20601109&amp;sid=aDyuaXtothZw&amp;refer=home</a> .

Further, I often get asked about what I see happening to the tax system over the course of the next couple years, and my short answer is that we won’t be seeing anything radical…but that the upper brackets will continue to be “unfriendly” (which, of course, is why it’s always so important to have a professional help you navigate them!).

Anyway, this article is helpful–it shows how the new budget proposals give some “tip offs” related to the administration’s thinking regarding the future of the tax code.

Finally, in this week’s Strategy Note, I’m picking up from last week’s initial primer on investing. Based on feedback, you seemed to like last week’s installment. As I mentioned last week, however, <span style=”text-decoration: underline;”>WARNING</span>: though basic, this week’s installment particularly requires some financial thinking.

But I promise it’s a good “investment” of your time!

<strong>”Real World” Personal Strategy</strong>

<strong>Simple Steps To Start Investing (Part 2)</strong>

As I mentioned last week, there simply isn’t a better time to invest than today.

I gave you two first steps for investing last week:

<strong>1) Getting investable money together.</strong>

<strong>2) Open an account where you can do your investing.</strong>

<strong>In step 3, get money into your investment account–regularly.</strong> Many brokers allow you to link your checking account to your investment account electronically so you can transfer money at any time. Better yet– set up an *automatic* monthly transfer. A day or two after your paycheck is deposited into your checking account, an amount you have designated is automatically transferred into your brokerage account.

The principle here is to “<span style=”text-decoration: underline;”>pay yourself first</span>.” You deserve to build wealth, and wealth is what you save and invest, not what you spend.

In fact, it’s helpfully to think of a very rich person simply as a poor person who has saved a lot of money. Invest as little as $100 a month for 46 years earning 10%, and you can retire with a million dollars. And $500 a month grows to an astounding $5 million.

Those 46 years of investing ideally take place between ages 20 and 66. If you are beginning later in life, you may have to invest more to save the same amount. In fact, for every seven years you delay saving and investing, you cut your retirement lifestyle in half (this is, of course, according to averages–there’s always exceptions. One significant exception is the reward many individuals reap from starting their own business.)

So here’s my challenge: <span style=”text-decoration: underline;”>Today is the day to decide if you want to be financially free!</span> I can’t emphasize enough that time <span style=”text-decoration: underline;”>in</span> the markets is more crucial than <span style=”text-decoration: underline;”>timing</span> the markets. Who among us doesn’t wish we had invested as much as possible in the markets at the prices 46 years ago?

Push yourself to invest as much as you can, automatically each month. This seems harsh, <em>but no one should save less than $100 a month in their taxable savings</em>, and this taxable savings is in addition to any work-related retirement accounts.

After you have begun adding money into your taxable savings account, it’s time for <strong>step 4, the actual investing.</strong>

Knowing the best mix of investments requires a great deal of research and analysis. Investment advisors can add significant value for large portfolios. But for small amounts when you are just getting going, how much you save each month is more critical than the asset allocation you select.

To pick a fund, go to <a href=”http://www.maxfunds.com/”>www.maxfunds.com</a>. This is an excellent “layman’s” site for fund analysis. In the drop-down box “Show me these funds” select the category you want to purchase. I will tell you which categories to purchase later, but for now assume you know. Next, in the drop-down box “That are sorted by,” select “Highest MAXFunds Rating.” Finally, click “Go.”

The tool lists many investment choices, ranked from their highest score downward. If you can invest at least $2,000, buy an exchange-traded fund. These funds are purchased with a transaction fee ($8 to $20). The amount you are purchasing should be significant enough so the transaction costs to purchase the fund are well under 1% of your initial investment. For amounts less than $2,000, consider waiting and accumulating more to invest or else purchase a no-load mutual fund without any transaction fee.

The site puts a yellow star next to their favorite fund, which is a good place to begin. If you are evaluating funds on your own, look for a fund where the TYPE is ETF and the expense ratio (EXP) is as low as possible. That is often the best choice of a fund. The lower the costs, the more you will keep of the return.

Now…that’s the limit of the expertise which I can pass on, and for what works in an article like this. If you want FURTHER advice, please do contact me–we’ll be able to point you in the right direction.

See you next week, in which we won’t get so technical!

<em>To more of your money in your wallet!</em>

Beat Back The Debt

“Don’t say you don’t have enough time. You have exactly the same number of hours per day that were given to Helen Keller, Pasteur, Michelangelo, Mother Teresa, Leonardo da Vinci, Thomas Jefferson, and Albert Einstein.”

<em>- H. Jackson Brown</em>

Government debt is clearly on the rise. Right now, the government is borrowing almost 50 cents for every dollar it spends this year. That is certainly scary.

(Source article: <a href=”http://finance.yahoo.com/news/White-House-Budget-deficit-to-apf-15199183.html?.v=8″>http://finance.yahoo.com/news/White-House-Budget-deficit-to-apf-15199183.html?.v=8</a> )

My opinion, though, is that it’s not yet clear exactly what this will mean for our future. The stated hope in the recent stimulus packages was that, yes, there would be much higher spending–but it would be offset by the short and mid-range gains brought about as a result of that very spending.

We’ll see, on that one.

<strong>But, what can you do about it?</strong>

That’s exactly why I’m here–to be your “port in the storm”, and give you real world, actionable advice.

So, despite the chaos and future-fear, I suggest you do something positive to shift your financial future. Even if it’s just one small step…I will repeat my refrain that getting out and doing something profitable in your personal life will shift your mindset–however small the step.

In this week’s Strategy Note, I’ll put forth a basic primer on getting started with investments. And, though I’m not an investment advisor per se, we can put you in touch with somebody that can help you in this path, should you want it. Contact our office, and we’ll put you in touch with someone good.

FAIR WARNING: though basic, this week’s note requires some financial thinking. But I promise it’s a good “investment” of your time!

<strong>”Real World” Personal Strategy</strong>

<strong>Simple Steps To Start Investing (Part 1)</strong>

There isn’t a better time to invest than today.

The way to build real wealth is by living well below your means, and then investing the difference. You see, the poor “buy” things; their homes are cluttered with them. The middle class buy liabilities–like second homes and boats, and then they are obliged to make payments and upkeep on them for years.

In contrast, the rich buy investments that appreciate and pay them dividends and interest for decades.

Despite recent market turmoil, historic long-term returns still average 10% to 12%. At a 10% rate of return, your investments should double every seven years. So $100 invested today becomes $200 in 7 years, $400 in 14 years and $800 in 21 years. Even at a modest 7% rate of return, your investments should double every 10 years.

Getting started can seem daunting, like embarking on any new hobby–but, on average, this is the kind of hobby which *pays* you money rather than costing you! Every hour you spend learning about investments is an hour of free entertainment. It is an hour you are not spending money at the mall or on a more expensive pastime. And, ultimately, investing properly can be your engine of income and appreciation. It will subsidize what might otherwise be a subsistence lifestyle based solely on Social Security checks during retirement.

<strong>The first step is getting investable money together.</strong> In the beginning, the amount you save is most important. Later, after you have amassed a significant multiple of your annual spending, the amount you make on your investments will become much more significant. At that point, it’s time to seek a personal financial planner in the area. But we’ll put that aside for now, and move to the next step.

<strong>In step 2, open an account where you can do your investing.</strong> Here are some good options:

– E*Trade (<a href=”http://www.etrade.com/”>www.etrade.com</a>) is a discount firm. Account minimums are $2,000 with less than $50,000 in combined assets, and stock trades cost $12.99.

– TD Ameritrade (<a href=”http://www.tdameritrade.com/”>www.tdameritrade.com</a>) offers accounts with a $2,000 minimum and trades of $9.99 each.

– Scottrade (<a href=”http://www.scottrade.com/”>www.scottrade.com</a>) offers $7.00 per trade with a minimum of just $500.

– Charles Schwab (<a href=”http://www.schwab.com/”>www.schwab.com</a>) offers trades at $12.95 with a $1,000 minimum account size.

– Fidelity (<a href=”http://www.fidelity.com/”>www.fidelity.com</a>) charges $19.95 per trade with a $2,500 minimum.

Competition continues to force brokerage companies to adjust their charges on a regular basis, so verify the fees before signing up. Be sure to ask about any monthly inactivity charges. Avoid any account with monthly or annual fees.

Plan first on investing in a balanced portfolio and then do some “fishing”. You don’t want to be charged for the 11 months between now and your annual rebalancing. Make sure you know what the account minimums are too. They should never be more than a few thousand dollars. Although you don’t plan on transferring your account, ask what the charges are to do so, and make sure they are reasonable, typically about $75.

Each broker has special promotions that may offer free trades, cash or electronic goods. Taking the best promotion is tempting, but evaluate brokers without considering the promotion.

Setting up an account is easy, and you may be able to do it online. If you need to sign account agreements, read them carefully. Not only should you understand what you’re signing, but this is the first step in your financial education, and your goal is to gain wisdom and experience.

Half of any area of expertise is learning the vocabulary, which gives you both a shorthand for discussing finance and possibly a new a way of thinking about the world of investments. If you don’t understand something, check it out at Investopedia (<a href=”http://www.investopedia.com/”>www.investopedia.com</a>) or call your broker’s toll-free number.

I’ll discuss steps 3 and beyond next week. Getting started can be intimidating, but these simple steps will help you through your first few years of investing!

<em>To more of your money in your wallet!</em>

‘Loopholes’ Are My Job

“The measure of a man’s real character is what he would do if he knew he would never be found out.”

- Thomas B. Macaulay

We start this week with a big announcement from President Obama about how he is seeking to close “tax loopholes”. (Full article here: http://www.google.com/hostednews/ap/article/ALeqM5gpKlcN2oB5og6-h34ilV1flq338wD97VGQH01)

And though I try to steer clear of politics here–I did want to say this:

Finding legal “loopholes” in the tax code, to ensure that you’re receiving all the money you’re due to keep, is *exactly* what we do. Now, the word “loophole” carries some emotional baggage to it, and is often associated with negative and unethical behavior, so this could seem like a controversial statement, but here’s the thing about “loopholes”…

They’re built into the tax code. Our current system is FULL of loopholes! They’re also called “legal deductions”. Now yes–there’s some shysters out there whose sole tax strategy is to take unethical advantage of every possible item in the code, thereby NOT paying their legal obligations.

But don’t you agree that you’d like to have a tax professional be able to find EVERY legal method for you to save on taxes? That’s what we do…and we spend a lot of time and money making sure we know that tax code like the back of our hands, so you don’t have to.

So this announcement this week simply means that the tax code could be changing in the future. So there’s no better time to have somebody on your side…steering you through the storm, as it were.

On to this week’s Strategy Note. I’ve heard that many of my clients and friends are looking at this strange phenomenon called “vacation”. Well, thought I’d pass along some great ways to save some moolah on booking something wonderful–AND affordable.

“Real World” Personal Strategy

Five Ideas for Cheap Summer Vacation Travel

If you can afford a summer vacation without going into debt, you should certainly take one. Chances are, you’re working harder than ever at work, and are feeling the stress of the economy and everything else. Because of all of the economic turmoil, there’s great news! This year provides rare opportunities to take dream trips, or at least luxury trips, without breaking the bank.

Yes, The Timeshare Promotions–They’re NOT Scams…

If you’re a homeowner, then you can take advantage of a timeshare promotion. Most of them offer weekend or three night summer vacations at a screamingly low price, usually less than $300. You can’t get a decent hotel room anywhere for less than that. Of course you’ll still have to pay for food and entertainment, but most timeshares also include fridges, microwaves, and maybe even a cooktop so you can make your lunches and eat breakfast in your room. Of course, you’re trading your time for this offer. They’ll give you hard sell for about 90 minutes and pressure you to sign up right then. I’ll leave it to you to decide if you buy…but they’re not always the best investment. But they DO give you a chance for nice travel–on the cheap!

Europe’s on Sale

Although the dollar is still weaker than the Euro, Europe is seriously suffering from a drop in tourist traffic, from both Europeans and overseas travelers. You can score five-star hotel rooms for four-star prices (or less). You can get into most restaurants without a long wait. Airfares offer great deals, especially if you use national airlines that make stopovers in major cities on their way to other places. Money Magazine also recommends looking at second-tier cities. For example, instead of Tuscany, go to Umbria. Obviously, there’s no substitute for Paris and London, but rather than a week in the big cities, schedule a few days there and then head to a less-popular but still fabulous location for the balance of the week.

Local Summer Vacations

Just don’t tell anyone that’s what you’re doing. This year, you might even be able to wangle a couple nights at a swanky hotel for 50% off. Museums, amusement parks, and other popular locations are offering specials to lure more people in. Investigate carefully to take advantage of the best deals. If you have an Entertainment Book, look for coupons to sweeten the deals further.

South and Central America Deals

The dollar still goes very far in South and Central American countries. If you want to visit them and aren’t familiar, consider using a site like LuxuryLink for amazing deals. Most of the offers are for off-season or shoulder-season, but summer is actually their off-season. Try to avoid the really wet season, but you should be able to find something affordable with decent weather and reasonable humidity. Before you bid, email the resort to confirm that there are rooms available during your vacation dates, then bid the minimum. It’s very rare to be bid against. Since most flights must travel through the US to reach these destinations, you can usually find decent airfares, too.

Last-Minute Vacation Packages

If you have the flexibility to get away with a few days’ notice, then sign up for last-minute deal alerts from the major travel sites, like Priceline and Travelocity. You can usually find an offer for less than 50% of the full price, often less than you’d pay for booking six months in advance. You can find cruises, hotel/air packages, or whatever else you’re looking for. I also recommend a site called: www.TravelZoo.com, and signing up for their “Top 20″ email promotions. Essentially, they scour the ‘net and send you the best deals of the week!

If you plan right and use all your resources, you can score some really great travel deals this summer. Just make sure you’re not creating debt when you travel, but if you’ve got the money, this is the year for that dream trip to Paris.

To more of your money in your wallet!