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Archive for August, 2010

TPS Top Five of Last week

Monday, August 23rd, 2010

I haven’t had a good links post in a while and I think its about time.  I have been reading a bit more lately and in doing so have caught up with a lot of my favorite blogs.  Here are some of my favorite posts for the week:

-PT throws out some Job interview tips for those who have a tough time with it

-Ramit, who is now on TV, talks about going from $25/hr to $75/hr which I actually know someone who did (close to)

-An article that I just found interesting, Should you invest in an Ivy league education? (Ive always thought not personally)

-Five Cent Nickel has an article called How to Negotiate like a pro that I liked, after all, I am all about negotiation

-Sun posted about the New Overdraft Law which I have gotten about 100 pieces of mail about recently from Wells Fargo.  If you haven’t read Sun’s financial diary, do so, hes one of the smarter guys that I like to read consistently.

The million dollar career mistake

Monday, August 23rd, 2010

When you think about career mistakes, you might start with the most obvious, say, yelling at your boss or not bothering to show up for work.  Then you might work your way into the more mundane things such as slacking off, not paying attention or getting behind.  Its actually amazing how much bad advice there is out on the internet about career mistakes.

Here are some of the things listed as career mistakes on other sites that you should NOT LISTEN TO:

  1. Working Overtime

Work life balance is essential to keeping up fresh ideas and rising to the top.  There is never a reason to work overtime and there is no reason you should believe anyone that tells you to.  We are not designed to concentrate on one thing for 8 hours at a time let alone 10 or 12.  How many people are burnt out because of overworking?  I would say most of america.

Advice so terrible, it probably belongs in my failing 101 article. Now, I am not saying work/life balance is a bad idea because obviously it is important. If I had to work somewhere where I never saw my wife and son I would quit instantly. However, there are going to be times in your life where you have to work. If you want to be the best, you have to put in extra effort, there is no way around that. I have a friend who likes to say “work smarter, not harder.” I agree with that statement, but quite frankly the person who only puts in their 9-5 is not going to be a top performer. I would not want to hire or work with such a person. If you are getting stressed or burnt out during a work crunch time try exercise and some healthy food.  Sounds cliche, but it works.

Here are a few other so called “#1 worst career mistakes” that I found on other websites:

“Not watching your back”
Really?  Im not even sure I should comment on this.

“Not experimenting”
Uh, ok?

“Burning bridges”
WRONG.  Act with character.  At times this may mean that bridges are burnt down. If you act with character then any bridges that are burnt aren’t ones you would want to cross again anyway.

So what is the true number one career mistake, the one that harms more people in the workforce than anything else?

Its very simple; not having a plan.

career plan

That’s right, the absolutely worst thing you can do for your career is not having a plan.  How many people do you know that are in their job and have no idea what they are going to do next, or don’t even have a “next” in mind?  It goes along with the college kid who is getting a degree but has no idea what they are going to do when they graduate.    I have a couple examples of people that I would like to share.

Person One: John Doe
John is a borderline genius.  He has a masters degree in an advanced field.  John has vast amounts of experience in more fields than I can even count.  Hes intelligent and a very quick learner.  He has taught himself everything he knows, including what he is currently doing for a job.  John’s problem is that he never really made a long term plan and never really took initiative to further his career.  He is, in my estimation, the best person at his particular job of anyone that has ever lived.  He should be the VP of engineering somewhere, and they would be lucky to have him.  John makes somewhere around $75,000.00 a year.  He should be making $250,000.00, no exaggeration.  In my estimation, he has lost out on a million in the past 10 years alone.

Person Two: Jane Doe
Jane has worked at her company for 30 years.  She has known that layoffs were happening all around her but she was loyal.  She never made a plan, she never even thought of what could happen.  Now she is laid off and has no idea what to do next or where to go.  She feels like it is too late for her to start over but she has become so specialized in her skillset that she cannot find anything.  Jane is less extreme than John.  I would guess that had she had a career plan, she could have advanced from her job as an assistant to an executive assistant, to a program coordinator.  I estimate she ended around 50k a year. She probably could have averaged an extra 30k a year over the past 30 years.  30k * 30 years = 900k.  Nearly a million.

All of the above people are great employees.  They all excel at what they do.  However, all have cost themselves immensely in the span of their careers.  In fact, I got kind of emotional writing this because it is sort of the old adage “life is not fair.”  That actually is great news, if you use it to your advantage.  Don’t waste your million.

Fixing bad credit, building new credit, and how to be the tail that wags the dog

Monday, August 16th, 2010

Well, the floodgates are officially open.  Since I wrote the article on fixing your credit, if my email were normally a like sprinkle like a seattle afternoon, it has now reach Atlantic hurricane status.  It seems that a lot of people are struggling with bad credit from past bad decisions, bad luck, and bad ex’s.  Lets start with the great news; you are reading The Penny Saved so your decision making is obviously taking a turn for the better and soon your credit will be following right along.  The part about bad ex’s I can’t help you with, though I have some excellent whiskeys I can recommend.

So you fixed any mistakes on your credit score but now you need to deal with the mistakes that aren’t by credit bureaus or banks but rather by that good looking person in the mirror.  Here is our goal, you are going stop being slaves to credit, the tail on the dog getting whipped everywhere with no control.  Some people, such as David Ramsey espouse that you should snowball payments, pay off debt and cut up credit cards for the rest of eternity.  WRONG ANSWER.  You are going to be methodical.  You are going to fix the bad credit, build new great credit, you are going to become the tail that wags the credit dog.

What does this mean?  It means improving credit score, using it to your advantage and actually profiting off it.  Here are the steps to take;

Part One: Credit Damage Control

Do not hire a thief credit counselor
You do not need a credit counselor.  I am your credit counselor, this site is your credit counselor and you are your own credit counselor.  I promise you that free trifecta right there is better than any $100/hr pipsqueak you will find in the yellow pages (oooh here comes the hate mail from credit counselors).  If you see any credit counseling ads in my sidebar, don’t click them.  Or click them to satisfy your itchy finger, and then close them and come back.  I have had many different emails from people on the verge of hiring a credit counselor.  Don’t, don’t don’t.

Get everything current and pay off liens/judgments/collections
This is sort of the self explanatory step but you cannot start to rebuild until you have taken care of the worst of the worst.  I had several people ask about waiting and letting things get written off and then fall off the credit report.  There are several problems with this.  The first is that just because a credit card company writes off your debt does not mean that is the end of the ordeal.  There is a lot of misinformation going around about this,  the main thing to remember is, that unless it is not possible that you will be able to make any progress at all on your debt, pay it off.  One thing to remember is that once you are this far in trouble, the debtors are expecting less and less that they are going to be able to recoup money.  Use that to your advantage, tell them that you plan to pay it off, and would like help reporting the positives to the credit bureaus or removing all reporting about the collections.  If it increases the odds they will be able to collect, they will be happy to oblige.  Use this as much to your advantage as possible and you will be able to avoid the “reset the clock” problem you may have heard about.  The best bet is to get things in writing, so just be careful when dealing with collections.

Part Two: Steady as she goes aka the repair

The Paydown
If you have credit cards with balances get them on auto-payment, pay as much as you can per month but keep in mind the important thing is that you need to make consistent payments on-time.  That’s the key, consistently paying, and improving your credit to debt ratio.

Keep all payments on time
This means everything, including mortgage, car payments, utilities, and of course revolving (aka credit) debt.

Redistribute debt load
I know this one sounds a bit weird but here is the skinny;

First off, make sure any creditors report your credit limits to bureaus. When no limit is reported, credit scoring software scores the account as though your current balance is “maxed out”. For example, if you know that you have a $10,000 limit on your credit card, make sure that the limit appears on the credit report. Otherwise, your score will be damaged as severely as if you were carrying a balance of the entire available credit. Credit scoring software likes to see you carry credit card balances as close to zero as possible. If it is difficult for you to pay down your balances, read the following guidelines to maximize your score as much as possible under the circumstances:

  1. There are different degrees that scoring software can impact your score when carrying credit card balances.
  2. Balances over 70% of your total credit limit on any card damages your score the most. The next level is 50% of your balance, then 30% of your balance.
  3. In order to maximize your score without having to pay down your balances, evenly distribute your credit card balances among all of your credit cards, rather than carry a large balance on one credit card. For example, if you are carrying a $9000 balance on a credit card with a $10000 limit, and you have two other credit cards with a $3000 and $5000 limit, transfer your balances so that you have a $1500 balance on the $3000 limit card, a $2500 balance on the $5000 limit card and a $5000 balance on the $10000 limit card. Evenly distributing your balances will maximize your score.

If you do not have a credit card, get one, charge something on it, and pay it off
If you have no cards at all, find a low balance card and get it. Having a card that is paid on time will help your credit in the long run.  No card means you are not building credit.

Part Three: Wag the dog aka make money

Use a cash back credit card
By getting a card that gives a good cash back, you can actually make money on regular spending.  The steps are
1) Pay with card
2) Pay card off immediately
3) Repeat
4) Receive cash back

Use a points card
The usage is the same as above, however sometimes you can get better return when you use a points card.  The trick is get one that gives you extra points on things that you actually want and use.  An example would be the frontier visa if you fly frontier often (as I do).

Set up auto-pay
You get all the rewards without having to do anything at all after initial setup.  Pretty awesome!
1) Find a card that will let you use it to automatically pay bills.  American express is one such example.
2) Setup auto-pay for all of your bills
3) Setup your bank account to auto-pay that one credit card
Plus you get to save on ATM fees, Stamps, Letters etc.

Interest Free Loans
This is where we get even trickier.  If you have a credit card with a billing cycle that ends the first of each month, your payment may not be due until the fifteenth. Finance charges (interest) are typically assessed only on the previous balance on your card, meaning that if you pay it off in full each month, you pay no interest. This means that all the charges you make between August 1st and September 15th are interest-free, which is like getting a 0% loan from your bank.  Even banks pay interest on overnight loans from the Federal Reserve (albeit not much right now), so you’re really getting a great deal.

Protection from Theft
As anyone who has ever lost a lot of cash knows, carrying around cash is risky.  When I had my wallet stolen, the person immediately started racking up bills.  Imagine if I had had cash in there.  I was able to cancel my credit cards quickly.  Cash however would have been gone forever.

If you haven’t read part one, Fixing your credit score – Fight for your score go read it now!  Also featured in the Carnival of Personal Finance

What the highest paying jobs REALLY are

Monday, August 9th, 2010

Of the working population, there isn’t a single person who wouldn’t like to make 200k a year.  Ask anyone you know and I’m willing to bet that unless they are a minimalist, they would take 200k a year over say, 30k a year.  The problem is that there is one real truth and that is that 95% of the population cannot or will not do what it takes to make six figures. Of the remaining 5%, 95% will not break 200k.  The crux if it is that for some people the odds of making six figures will be high; they have gotten a good education, caught some lucky career breaks, and ended up in the top or perhaps just been born into wealth or industry (think Waltons).

For the rest of the population, get ready to work.  If you want to be a six figure earner you are going to have to be dedicated.  No matter what situation you are in, it is possible.  The real questions is, is it worth what you may have to sacrifice to get there.  I advise everyone to think long and hard before you decide this is truly a goal for you.   The typical lists break everything down into a job by job basis.  I don’t find that very useful.  Instead, I am breaking it down by the categories that I see.

1. Doctor aka Surgeon/anesthesiologist/internist etc

In the Forbes list of top earners most of them are some flavor of medical profession involving medical school.  I went ahead and squished them into one category.  If this is your route than you have no doubt researched each of the fields and found that they are all fairly similar in investment, at least for the first 8-10 years.  You will need to do extensive schooling, generally 10 to 15 years of it before you become a doctor.  The time investment is huge but you have essentially guaranteed high income if you can make it through.

2. Management

This is probably the most ‘tried and true’ way to a high salary.  Almost everyone with a career advances somewhat throughout their lifetime as they gain experience, skills and (hopefully) wisdom.  Its one of those trite things in life; the higher up the ladder you go, the more money you make.  For some, this means they catch lucky breaks and make it up the ladder with only hard work.  Others may sacrifice family, friends, health only to find themselves treading water.  The best piece of advice I ever got in regards to this is “work smarter, not harder.”  Find ways to be more productive with the time you have.  I am in the consulting world, so I expect long hours, there is no way around that.  But if I can make 80 hours of work fit into 60 hours by being smarter and more efficient, I have succeeded.  This is also the best way to get yourself noticed.  Everything you do at work, from tedious tasks to hard thinking to social interaction is a chance to be smarter.  Build effective relationships, automate/simplify the tedious tasks, and find tools to help you be great at the difficult ones.

3. Entrepreneurship

This is actually a French word meaning “one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods.”  What we mean when we say it generally are referring to starting a business.  Of the richest people in the world, almost every single one that did not inherit money is someone who started their own business.  This is the kind of thing that is hit or miss.  A miss could mean going bankrupt whereas a hit could mean millions or billions of dollars.  The great thing about this is that it is open to anyone, there isn’t a person in the US from the president to the homeless on the street that couldn’t come up with the next amazing idea.  Executing may take years, or decades, but could have a great payout in the end.

4. Investing and real estate

This may not seem like a career, but for some people, it is.  This one is also difficult because it takes money to make money.  It may take many years for you to accumulate enough money to make money investing.  Thats why I also included real estate.  Many people that are not already rich do have good credit scores and can get house loans.  One example may be starting with one rental in a college area, then buying another rental after a few years, then buying a fixer-upper house, renovating, and re-selling later, and so on.

5. Win the lotto

Sadly some people do think this is a job.  It is also the worst investment ever, but hey, I enjoy a good scratch ticket once in a while too 🙂

Apply Occam’s razor to your finances

Thursday, August 5th, 2010

I have always gotten along well with math.  I guess being an engineer by trade and writing a financial blog lends itself to at least tolerating math.  Math is one of those things that I profess to know little about, but actually am quite good at.  Philosophy on the other hand I profess to be an expert on, but know very little.  So just for fun, lets mix the two together.  As my son likes to say “Ready, set, gooooo…”

A decade or so ago I had a class in college on philosophy.  I attended half of the classes.  Of those I attended I slept through half.  Of the half of those that I was awake for, I thought that half was boring.  Of the half I did not think was boring, I thought half was BS.  Of the little bit that was left I learned two things:

1) Philosophy professors have no grasp of real life

2) There were actually some pretty smart guys in history that came up with some pretty smart things.

Revolutionary, right?  Well one of those things that I thought was smart was a little logical exercise called Occam’s Razor.  To put it in simple terms it is the principle that everything usually boils down to the most basic fundamental things.  One other way to state it that will be relevant to my eventual point is: do not complicate things unnecessarily.

You might now be asking yourself: “what on earth does this have to do with personal finance, my career, or any of those other things Jesse likes to ramble on about?”

The answer is: everything.  Using a completely unscientific poll of my contemporaries, I’ve found that the vast majority of people reading personal finance sites, listening to personal finance podcasts, watching personal finance TV shows, and making people rich by buying personal finance books are most concerned with getting out of debt and saving money.  Does this sound familiar to you?  I know it does to me; its how I discovered I enjoy staying up late working on blog posts while listening to my eclectic music collection and drinking diet pop.  We are now going to apply this concept to getting out of debt:

1) Am I spending less than I earn?
If yes, continue until debt is gone.  If no, go to question 2.

2) Do I have a budget?
If yes, go to question 3.  If no, create a budget and come back after a month.  Ok ok, come back tomorrow, but come back to this article in a month.

3) Am I following my budget?
If yes, go to question 4.  If no, follow your budget and then come back.

4) Are there things I can cut out of my spending?
If yes, go back and remake your budget, removing that which can be removed.  If no, go to question 5.

5) Can I increase my income?
If yes, do so and then come back to these steps.  If no, go to 6.

6) Something big needs to change.

If you got to question six, then there is nothing further to boil down, you need to make some sort of life altering sweeping change.  It really is that simple.  If you need help with any of those steps along the way, search my site and there will be answers.

You do not need to buy 10 personal finance books, listen to David Ramsey 24/7, or meditate for clarity.  I just saved you doing all of that.  Now, instead, you can go get out of debt, make more money, and send me an email about how you are killing it and you’d love to treat me to a scotch tasting on your new yacht.

Fixing your credit score – Fight for your score!

Tuesday, August 3rd, 2010

Now is a great time to refinance, there is no question about that.  Of course, with refinancing comes the fun of dealing with getting approved and getting approved for certain rates comes with the fun of dealing with credit scores.  One of the top questions I get regularly is “what should I do to fix my credit score? (or the variation what should I do to improve my credit score)”  which is usually accompanied by one of the following opinions:

1) Credit cards are Satan; evil creatures stalking their prey deep into the night..

2) The credit card companies are evil, taking advantage of the public

The truth is that credit card companies are machines.  They are giant revenue generating machines.  Unfortunately, that revenue comes at the expense of us, the consumer.  That being said, the responsibility lies with us.  There are harsh penalties when we get sucked in.  As soon as you sign up for a credit card you are accepting responsibility for your actions with that card.  That includes paying on time, paying at least your minimum payment, and not skipping payments.  Right about now, since you are here wanting to fix you credit score you are screaming at me “Jesse tell me how to fix my credit score

Lets talk first about fixing mistakes on your credit report

This is why I actually am writing today.  We are thinking of refinancing since we bought our house during the rate spike a few years ago.  I decided to pull my credit report just to make sure since I had my wallet stolen a few months ago.  As I was browsing through the report I noticed that all three credit agencies were reporting me 30 days late on a credit card payment for a credit card that I had never used (I got when I bought a TV from circuit city a while back, then I returned the TV and never had a balance on the card). Here are the steps to take to correct an erroneous entry:

1) Contact the credit card/bank/whoever that incorrectly reported. 
Ask them for details when/why/what etc and ask them to provide documentation.  Sometimes they will have documentation, sometimes they will not, and commonly if it is an old account they may not even have anything on file.  If this is the case, it may be as simple as filing a dispute with their own credit department (which most credit card companies have).  If they are not forthcoming or helpful, you may have to move on to the next steps.

2) Either report online or send a certified letter to the credit agencies to dispute the inaccuracy.

Here is what a template might look like:

(Date)

(Your name)
(Street address)
(City, state, and zip code)
(Phone number)

Dispute Investigation Department
(Business name)
(Street address)
(City, state, and zip code)

Dispute Investigation Department,

I am writing to inform you that there is inaccurate information on my credit report. The following data is not correct and should be updated:

(List each inaccuracy on your credit report. Include exactly why it is in inaccurate and what it should be replaced with)

I have attached a marked copy of my credit report to assist your investigation. In addition, I have included (list the copies of account records, statements, and communication records).
Thank you for your assistance with this matter,

(Your full name)
(Signature)
(Social Security number)

3) Submit your credit dispute

Submitting your dispute by mail is best, but only Equifax and TransUnion allow this kind of dispute. Experian requires all disputes to be submitted online. For phone or online disputes, you may need to provide the identification number located at the bottom of your recent credit report. Using the information you put together in Step 2, submit your dispute to each of the credit bureaus:

Equifax
P.O. Box 740256
Atlanta, GA 30374-0241
Dispute online
Experian
Dispute online
TransUnion
2 Baldwin Place
P.O. Box 2000
Chester, PA 19022
1-800-916-8800
Dispute online

4) Track what is going on with your credit report and credit score
The credit bureaus have 30 days to investigate your dispute and make changes to your credit report and thus help fix your credit score. Once this investigation is complete, they will send you a letter that includes information about what was and was not updated on your credit reports. If you were unable to get an error corrected, try submitting your dispute again with new documentation. You can also try working directly with the company that reported the error to have the matter corrected. Once you receive notification that an error has been updated or removed from your credit report it is a good idea to do a final credit check to confirm that the changes have actually been made to your satisfaction.

Next lets talk about fixing and improving your credit score
This is where the real legwork is because this is where you take matters into your own hands to fix your credit.

Dos:

1) Pay down your credit cards.
Paying off your installment loans can help your credit scores, but it won’t hold a candle to the effect of paying down or paying off those little evil revolving accounts such as credit cards. One of the factors that go into your credit score is the gap between the amount of credit you’re using and your available credit limits. Getting your balances below 40% of the credit limit on each card can really help.  Now I know that goes against what I normally say about highest APR first but in this case you have a different goal; maximize credit.  The main place this could be helpful is if you are raising your credit score to get, say, a 0% balance transfer card.

2) Slow or stop using your credit cards
It is going to be impossible to do #2 if you don’t do this. Another problem is that if you are doing large passthroughs, your balance may be reported at its highest point so while you are trying to boost score its best to avoid the cards all together.

3) Use an old card
Conversely, make sure that you keep old accounts active.  If it is inactive for too long a lender might request the account be closed which would hurt your credit history (longer is better!).  I suggest making a few small purchases and paying them off.

4) Check your credit limits
Make sure that your credit limits are being reported correctly on your credit report.  This goes back to the ratio thing; if it is showing a lower credit limit than you actually have, get it corrected so that your ratio goes down.

5) Pay everything on time
Everything.  Period.

Do nots:

1) DO NOT Pay loans late
As if the above do wasn’t enough, it also gets a top spot on my don’t list.  Whatever you do, do not make late payments, especially on things like your mortgage.  These will absolutely devastate your credit score.  I dont want to get any email from any of my readers saying “Hey I did what you said above, and I only missed one mortgage payment, but my score is shot and you lied about fixing my credit score! Im never reading again. WAaaaa” or anything else along those lines.

2) DO NOT Apply for new credit cards
New credit hurts your score temporarily.  How long it hurts for is hard to say and not worth risking. I had a case where I applied for a 0%, got it, transferred balances, and my credit score dropped 30 points for quite a while.  Its just not a good idea.

3) DO NOT Close old accounts
This goes back to the do’s; older credit is better.

4) DO NOT Wait for there to be a problem before contact a debtor you can’t pay
If you are in dire straights, chances are you can call the company and tell them there is no way you can pay and that you would like to make a plan.  Chances are good they will work with you because they don’t want you to go to collections any more than you do.  They have much less a chance of collecting from you if it goes to collections and they know it.

5) DO NOT Fall for credit counseling or consolidation scams
If in doubt, send me an email.  Seriously, I will write you back.  I care about the readers and I do not want you to put yourself in a worse situation than you are already in.

Remember, you can save yourself thousands of dollars in just a few years by taking steps to fix your credit.  So get out there and fix your credit score! After all, if you are paying 29% APR, you as well just be…

burning money
(In the Carnival of personal finance)

Will I strike Gold with Gold?

Monday, August 2nd, 2010

 All terrible puns aside, since the dawn of time (cue melodramatic music), people have been enamored with the beauty of a certain tannish looking metal.  In fact, this particular metal gives its color its name.  Thats right, we’re talking about gold (although if you had guessed silver, you get points for trying and lose points since I said tannish).  All throughout human history there have been mad rushes everytime gold is disovered somewhere.  The new world, California, hell even Alaska.  The point being it has been a valuable commodity for a long, long time.

Even right now, whenever there is a hint of financial instability, people flock to gold because it has always been a hedge on inflation and currency crashes.  As most of you know in the past I have liked gold, but been skeptical of how fast it has increased in value.  Well, I am just going to say it now; I give up, I don’t think its going to fall.

That being said, there are pros and cons to investing in Gold.  Lets start with some of the pros.

Pros of Investing In Gold
-US government spending is out of control and the dollar is likely to be weaker and weaker as we get further and further into debt.
-Inflation has slowed down but is likely to increase going forward.
-Gold will always be worth something, unlike many of the “intangible” things we invest in.
-It has industrial uses

Now a few of the cons:
-It does not ‘grow’ in value and it cannot create wealth, like investing in companies can.
-It maintains purchasing power, but does not grow it.
-Its hard to predict prices so it is not good for “playing the market”

The bottom line:
Gold is just like anything else, it is good in moderation.  It should be part of a balanced portfolio and if you do not own any at all, you should. There are local places you can buy gold in your town but there are also online places where you can invest in gold.