“Real World” Personal Strategy Blog

Shoring up your credit

Success is the sum of small efforts, repeated day in and day out.

-Robert Collier

New rules went into effect this week, simple as a pen stroke. Most probably were not even aware. What it means simply is that there will be additional government oversight to oversee existing oversight. Confused?

Here are the main changes that could affect you and your money.

The new law creates a Consumer Financial Protection Bureau which will oversee just about every kind of loan, making sure for example that home buyers can afford the loans they’re granted. The law also requires lenders to give you a free credit score and merchants will now be able to set a $10 minimum for your credit card purchases. Plus, overdraft fees and interest rates will be regulated.

The banking industry will work very hard to make these regulations work to their benefit. So will the customer benefit?

There are going to be some things that come out of it. This will put an end to certain bank fees and may rein in Wall Street–but banks will find other ways to make money. Banks have made their livings on consumer checking or banking fees. So, naturally, they are going to have to go through a period of “withdrawal”–but they will soon figure out how to make their money.

Small banks and credit unions will have more flexibility to create customer-friendly services. Some consumers question the benefits of this new law. The banks are in a situation that they have created.

Some of the changes take effect immediately; however it could take more than a year before the full power of the law kicks in.

And at the end of the year if no action is taken there will be massive and hard-impacting changes to taxes. It’s too early to tell what they decide to do … but get ready.

So, because much of these changes will affect you, as tied to your credit, I’ve put together a primer to ensure you’re prepared over next few months.

5 Quick Ways To Shore Up Your Credit Score–Fast

Here’s where you start: If you want to fix your credit score, you need to know what your current score is. Most creditors rely on the three-digit FICO credit score, which range between 300 and 850, when determining your level of risk as a borrower. The higher your score, the lower the risk is for the lender and the better your interest rate will be.

On the other hand, low credit scores result in getting denied for credit, or getting credit at extremely high interest rates. Contact a credit reporting agency to obtain your FICO score to see where you stand. You can get a free credit report, but to get the actual credit score you will have to pay (usually around $25).

(By the way, the place for your reports is www.annualcreditreport.com, NOT www.freecreditreport.com.)

Once you have your credit report and score in hand, you can take the following steps to fix your credit score fast:

1. Pay Off Non-Installment Debt First

If you have credit cards, you’ll want to focus your debt repayments here first. Paying credit card bills on time, and paying down the balances or paying them off completely will improve your score faster and more than paying off installment loans (car, student, mortgage, etc).

2. Get Under This Threshold:

Focus on getting your overall debt below 30% of your available credit limit on each credit card and revolving account you have.

This increases the amount of your “available credit” and will improve your credit score as you will be seen as less of a risk. Look at your credit card balances and send higher payments to the cards with balances closest to the credit limit first–to work toward the goal of decreasing your overall debt to less than 30% of available credit limits. Once you’ve obtained that goal, you can focus on paying back high interest debts first.

3. Only Use When Necessary

Try not to use your credit cards, even if you’re paying your bills in full each month. Each month, the balance from your last statement is reported to the credit bureaus, and whether you made your payment on time. Using a card that already has a balance isn’t going to improve your score, so save yourself the extra interest and stop using the cards while you’re working to improve your credit score.

Definitely do not use credit cards from issuers who don’t report your credit limit. For example, American Express tends not to submit a credit limit, which means the credit bureau assumes your highest balance is your credit limit. This will make it look like you’ve maxed out your credit card, which affects your score negatively.

4. Check Your Limits

Verify that the credit limits shown on your credit report match your actual credit limit for each credit card account. If the report is showing a lower limit than you really have, it can cause artificially lower credit scores — because it will appear you’re using more of your available credit than you really are. If you find an error, simply ask the credit-card issuer to update the information with the credit bureaus.

5. Fix Your Reports!

Have your credit report corrected if there are errors with any of the following situations, as they negatively affect your credit score:

* Late payments, collections, charge-offs that you don’t think are yours

* Credit limits reported lower than they really are (as discussed above)

* Accounts which are listed as anything other than “paid as agreed” or “current”, including “settled”, “paid charge-off”, “paid derogatory”.

* Accounts listed as unpaid that were included in a previous bankruptcy.

* Any negative item older than 7 years that is still appearing on your report (it should automatically come off the report after 7 years –10 if you filed bankruptcy)

I hope this helps–feel free to forward along to your friends, esp. those who are considering a major purchase, such as a car or new home.

I’m personally dedicated to the success of your family–and to your finances! Can other tax professionals say that?

Incentivized to die?

Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude.

-Thomas Jefferson

Honestly, there’s just so much tax news out there, that I could write to you for many months about all of the changes (though I won’t).

For example: Businesses will soon be scrambling to comply with new, extremely-meticulous requirements for tracking spending; the estate tax is still unresolved (to the benefit of George Steinbrenner’s (RIP) heirs); the new financial regulation bill will significantly impact investors; … and there’s much more.

Here’s the good news: unlike the majority of tax professionals, we invest a bunch of resources into continuing education, and I make it part of my job to monitor Congress and the media on your behalf. So, I try to avoid getting too technical in my weekly notes to you.

The best part? Unlike many unfortunate souls out there, you know you’ll be protected from these new codes and regulations since we’re helping navigate them for you–especially when you take the time to sit down with us to make smart planning decisions.

There’s a limit to what we can do without your input, but the SKY is the limit for what can be done when you actually carve out space to meet with us now before the “crunch” of tax season comes in the winter. Tax pros can be good at “historical” work, but we thrive when we can get ahead of the calendar and set you up to take fullest advantage of the newest changes.

Now, to the subject of this week’s Note: George Steinbrenner is only the latest in a series of very wealthy individuals who have passed away, in the midst of a “no estate tax” situation. Unfortunately, because of Congress’ inaction, it’s almost as if there is an incentive to die this year. Just another perverse “unintended consequence” which we often see from legislation (or in this case–the lack of it).

However, this situation WILL change–you just know the Treasury Department is raising a stink about the fact that they’re not getting estate tax revenue right now (Steinbrenner’s would have been around $600 million).

But preparing your estate plan is not something to be rushed–especially for your children’s sake. So, I’ve put together a guide for you in this.

Your Estate Plan In Focus

Thoughtful estate planning can make your heirs’ lives easier. And open communication with them about it can increase the value of that gift, in ways beyond the financial and asset-oriented. Not every family has fostered the ability to speak openly in love–I’ve written about that necessity in the past. But if you have begun that process, here is an outline of what grown children need to know about their parents’ affairs.

(As an aside, adults of any age should update their estate plan every year; and this piece may help for thinking through some of that.)

And, as a parent, if you are willing to share some of this information with your children–especially if one of them is also the executor of the estate–they’ll appreciate having the facts and be more prepared emotionally when the time comes. They will know your wishes ultimately anyway, and good communication will lessen any surprises ahead of time. They will benefit from knowing the answers to the following questions:

Do you have enough saved for a comfortable retirement? Many financial planners use a safe withdrawal rate by age to make sure their clients will still have enough money toward the end of their retirement. But this isn’t always the case, and it’s worth looking into.

If your spending is under this withdrawal rate, you have more than enough and probably can leave a legacy to your heirs. But if you are over this rate, you may run out of money and have to compromise your standard of living abruptly. It may be uncomfortable, even embarrassing, for parents to share their finances with their children, but grown children often want to know how their parents are doing.

Where are the important documents? The five documents your children should be able to retrieve quickly are a will, a living will, a power of attorney, a directory of basic information and the latest end-of-year financial statements.

The directory of information should list the assets of your estate along with account or policy numbers and contact phone numbers. It also helps to indicate your intentions for the distribution of each asset, which will help confirm you have the correct titling and beneficiary designations on every portion of your estate.

You may have structured your will to divide your estate equally among your children. But if you have tried to make it easy for one child to access your bank accounts by adding his or her name, you have overridden your estate plan and left that child joint tenancy with complete rights of survivorship. This can be a problem.

Titling and beneficiary designations are legal estate planning actions. It’s best to review them with your legal advisor. Various types of assets are best designated differently in the estate plan. This is not the occasion for do-it-yourself thrift. It is a rare family that has compiled and reviewed a complete list of estate assets: bank accounts, investment accounts, retirement account, real estate holding, life insurance, health savings accounts and so on.

Are there any special bequeaths? Any promises you want kept should be documented. Your good intentions won’t matter if you aren’t around to implement them. If you have promised money to a charity and want that obligation kept, document it. If you have promised to loan a child money, document it. If you have promised to help fund your grandchildren’s college education, document that. Without documentation, none of these promises can be kept if you aren’t around to make the decisions.

Are there plans to remarry? If parents have remarried, intergenerational estate planning is even more critical. Prenuptial agreements and careful estate planning are required in the case of second marriages to avoid disinheriting children or grandchildren from the first marriage. The default is rarely a good option.

Do you have any prepaid funeral arrangements? Do you want to be buried or cremated? Do you have any preferences for a memorial service? Although it may seem macabre to plan your own funeral, a memorial service takes time and thought. It will be that much more special and comforting to your family when it is filled with your favorite music and readings.

Encourage your children’s interest in your estate planning. Most of the time, their intentions are honorable. They may simply want to understand your values, and therefore your wishes.

I’m personally dedicated to the success of your family–and to your finances! Can other tax professionals say that?

How to know the best time to buy…

“Create a definite plan for carrying out your desire, and begin at once, whether you’re ready or not, to put it into action.”

- Napoleon Hill

I hope your weekend was as good as mine! I’m not sure if it’s that I have Seasonal Affective Disorder, or that I just love warm weather–but there’s just something about summer sunlight…

Anyway, speaking of summertime, it’s a fantastic time to get savings on a variety of family items. As you know, I’m here to be your resource and guide for much more than just taxes…it’s my pleasure to point you in the right direction for creating (and *preserving*) wealth, however I can.

So, while many folks are simmering in the doldrums of economy-induced depression, I say, when the going gets tough–the tough go out and score some sweltering deals!

So, check out this list of stuff that you should put on your list for the next two months…

“Real World” Personal Strategy

The “When To Buy” Guide

The lazy days of summer may be in full swing, but if you know where to look, there are quite a few deals to be had for those willing to plan ahead on major purchases.  Knowing the best time to buy that new car, house or lawn mower could be the difference between saving hundreds (if not thousands) of dollars every year.

Read on for your best bets in July and August–use them wisely, and then kick back with the knowledge that while temperatures may rise, your bills don’t have to.

Broadway Tickets

New Yorkers flock to new shows in the fall and consider summer performances “tres gauche.” That means theaters are more likely to fill empty seats in July with cut-rate tickets. On the other hand, some truly good theater closes quickly, so availability depends on a show’s popularity.

Best time to buy Broadway tickets: July

Furniture

New furniture is typically released bi-annually. Retailers like Crate and Barrel slash prices in January with anticipation of new furniture arriving in February. Prices are lowered again in July for the arrival of new furniture in August.

Best time to buy furniture: January and July

Computers

Computers have become essential items for students–which is why most retailers have big back to school sales in August. You can also get a good deal on a computer during the run up to Christmas.

Best time to buy a computer: August and December

Garden Plants and Flowers

Prices on plants and flowers fall drastically after midsummer when nurseries and garden supply stores are trying to clear inventory.

Best time to buy garden plants and flowers: August

Lawn Mowers

Once summer is over stores begin preparing for Fall products, which means big sales on lawn mowers. Stores need to make room for new inventory and lawn mowers take up plenty of space.

Best time to buy a lawn mower: August

Swing Sets

Swing sets go on sale at summer’s end, when children have abandoned outdoor play for indoor pursuits. Swing sets also take up a lot of floor space merchants are just itching to fill with holiday merchandise.

Best time to buy a swing set: August

I’m personally dedicated to the success of your family–and to your finances! Can other tax professionals say that?

*Real* independence

The optimist sees opportunity in every danger; the pessimist sees danger in every opportunity.

- Winston Churchill

The fireworks are over (mostly–my neighbors seem to not have gotten the memo that July 4th is passed!), the BBQ leftovers are sitting in the fridge. Another national holiday come and gone.

But, in my opinion, this year’s celebration of our nation’s independence touches some deep issues for my clients and friends. I’ll get to that in a moment.

Before I do, here’s some info I bet you didn’t know:

The Declaration of Independence was actually approved on July 2nd, and most of the delegates didn’t sign it until August 2nd. While John Adams expected Americans would celebrate July 2, the date on the publicized copies of the document was July 4th … so that’s why we celebrate it then!

Some other facts you may not know about our just-passed holiday…

* Three presidents died on July 4th: Thomas Jefferson and John Adams in 1826, and James Monroe, in 1831. Calvin Coolidge was the only president born on July 4th, in 1872.

* The Massachusetts General Court was the first state legislature to recognize July 4th as a state celebration, in 1781.

* The first recorded use of the name “Independence Day” occurred in 1791.

* The U.S. Congress established Independence Day as an unpaid holiday for federal employees in 1870. They changed it to a federal paid holiday in 1931. So for those of you who enjoyed a paid holiday on Monday–thank the Great Depression-era Congress!

Anyway, as I mentioned, “independence” is a scarce commodity these days for too many families. Which is why I’ve written some thoughts about what it really takes to achieve *financial* independence–not just political.

Roger Menden’s

“Real World” Personal Strategy

How To Achieve Financial Independence

Because this economy has thrown so many family financial plans into chaos, we can focus so much of our energies on surviving this storm–and forget that what we’re really seeking to accomplish in wealth-building requires us to keep our head on straight, and to avoid all of the negativity which surrounds us.

After all, what is it we’re trying to accomplish by earning wealth? For me – and for many others – the answer is Financial Independence.

Here’s what I mean by that: “having an income sufficient for your basic needs and comforts from sources other than paid employment”. Financial independence implies freedom. It’s the condition of having saved enough money that you can do whatever you choose. Whether you elect to keep working doesn’t matter – you have enough saved and invested to follow your dreams.

But is financial independence just a pipe dream? Is it something only for the lucky and the strong?

No, it’s a goal that anyone can fulfill as long as they’re armed with some basic knowledge; as long as you make the smart choices.

As I see it, there are four keys to accumulating wealth:

1. Start investing as early as possible. It takes significantly less money to accomplish what you want, and you have more time working for you.

2. Be determined to save on a regular basis. It is an easy way to accumulate wealth.

3. Begin investing with the largest possible sum you can. You will have more money working for you over a longer period of time.

4. Reach for the highest rate of return you believe you can safely receive on your money over time. Each additional percent is important. The higher the rate, the less money it takes to accomplish what you want.

Financial independence is built upon these four guidelines. Now, of course this is all more easily said than done! So, let’s examine what keeps us from doing this!

Confronting your financial challenges

In order to save money, you must obviously fight to keep from spending it too much! I encourage you to set goals, to actively prioritize wants–and not just make willy-nilly decisions about what you’re spending.

To do this, it may be helpful to place a value on each of your wants. So…here’s an exercise for the week: Pull out a piece of paper and list your wants.

Depending on your income and net worth, these can range from a new house to a hot tub to a trip to London to a new blender for the kitchen. Next to each item, write why you want it. (You might want a hot tub, for example, because it would allow you to relax with family and friends.)

When you’ve finished, take another piece of paper and re-order the list based on how important each want is to you. If a trip to London tops the list, are you still willing to delay it by spending $100/month for that gym membership you rarely use? That’s how you can use this list of prioritized desires.

Confront this issue first (keeping in mind those four keys mentioned above), and I’ll be back with more thoughts for you next week.

I’m personally dedicated to the success of your family–and to your finances! Can other tax professionals say that?