I just got done seeing an article about some super bowl tickets selling for 15k and it reminded me of the recent Hanna Montana/ whoever Cyrus craze where people were paying these outrageous amounts of money in ticket bidding wars. Now, one tenant of sales is that the more valuable you perceive something to be to other people, the more valuable it becomes to you.

Another good example was a few years back there was some sort of insane Tickle Me Elmo craze where parents were spending hundreds of dollars getting these toys right before Christmas.

The point is, next time you really want something and are getting caught up in chasing after it, take a minute and think about what it is really worth to you. A little trick I use is to think about how many work hours something costs. Do you really want to spend 3 days working for a talking sesame street doll? or a month working to take your child to see a concert?

If I were giving advice to someone, I would tell them not to buy a new car. I would also tell them not to finance a car, but instead to save up and buy a late model used car. I would also advise someone to buy a car with low insurance premiums that gets excellent gas milage. All of that said, this weekend I bought a new car with higher insurance premiums that gets average gas milage (though much better than my previous car). I also financed it through my credit union. However, it wasn’t an impulse buy, it was something I did a lot of thinking about.

There were several reasons I went the route I did:

Professionalism - my previous car was fun (A Dodge sports car) but was more akin to something a high school kid would drive than a college graduate working for a consulting firm.

Need to get rid of my previous car - I was almost up on my warranty and did not wish to pay for an extended warranty. Also private party sales of my car are very slim.

Low interest rate - I was able to secure a very low interest loan through my credit union.

Personality - The car I got is very much a reflection of my personality.

Carpe Diem - I actually deteste this saying, but for me to have a new car, this is the time.

Budget - It fits into my budget

Resale value - It is one of the highest resale value cars on the market…which was actually one of the reasons I decided to get one new instead of used. The used prices were not much lower than the new prices.

Color - As odd as this sounds, the color I wanted was only available on the ‘07 model.

Without further ado:

Today was I driving back to work after watering my girlfriends plants at lunch while she is out of town (turns out in 100 degree heat its particularly hard to keep plants from drying up) and I heard an ad on the radio for “The best credit counceling you can get.” Some other common things you hear pretty often are:

“We are here to help!”

Ready for the truth?  There is absolutely nothing that can erase bad credit or bankruptcy.  As far as credit counseling goes your best bet is *hold your breathe for this one* yourself! Oh and thepennysaved.com obviously.  Chances are, you already know exactly why you have credit problems.  It boils down to one or more of the following things:

1) You don’t have enough money to pay your bills
2) You forgot to pay your bills/ignored your bills
3) You didn’t know you had an outstanding debt

Well, instead of going to someone who will charge you for their services, allow me to do the counseling for you.  Solutions:

1) You don’t have enough money to pay your bills
You need to reduce your bills or earn more.  This is the most difficult of the three situations.  Sometimes this one is painful, very painful, but its also very simple.

2) You forgot your bills/ignored your bills
If you keep forgetting to pay bills (which I do sometimes myself) the best thing to do is find a way to organize it.  I recently started putting all my bills on a tab in my budgeting excel spreadsheet with due dates and its amazing the difference it makes.  If you ignored your bills, don’t ignore your bills.

3) You didnt know you had an outstanding debt
This one is the most complex of situations because you may or may not be able to have your credit fixed depending on the situation.  I had a collections agency for blockbuster  report me for “nonpayment” but what happened was that I had paid my late fee at a different location.  I challenged it and won.  On the other hand, a few years ago I had a credit card that I thought I had made the minimum payment on but was actually below it.  The notices of past due were sent to the wrong address so by the time I figured it out I had a blemish on my credit score over a $11 problem.  I contested that one extensively but never could get it fixed.  It hasn’t had a lasting effect on my credit but if it had been something bigger, things could have been much worse.  In any case, the moral of the story is at least try, you have everything to gain.

I recently was rechecking my credit to see where I am at these days.  When I bought my house my score was around 760 but since then I had one nasty occurence where I forgot about a bill and it went something like 90 days late and I got a black mark on my credit.  I remember years ago I had looked up what on earth goes into the credit score…and the truth is, no one knows for sure what the EXACT formulas are.  Its some sort of industry black magic where they are afraid to give away the secret.  In any case I did come up with some things that I had been told by various people that, as it turns out, are about as truthful as OJs denial.

Myth #1 - Checking your own credit will lower your score
You can check your own score as many times as you want without hurting your score, but make sure you do it via a legit site and not at “Joes one stop credit shop.”  One example of a good place to go is right to the source, such as equifax. 

Myth #2 - I have to have perfect credit to get the best rate
The truth is, you just have to have a GOOD score to get the best rates. Generally a score of 700 or higher will get you the best rates available.

Myth #3 - You only have one credit score
 Actually, you have three credit scores, one from each of the three major credit bureaus.  They vary between them, so its not a bad idea to check all three.

Myth #4 - Closing old accounts will help improve your credit report score
Canceling old credit accounts can and generally WILL lower your credit score because it makes your credit history appear shorter.  If you have old accounts, keep them open.  Unless you have a ridiculous amount open, having too much credit available is much much better than botching your credit history.

Myth #5 - Your age/income/sex/race/ are factored into your score
They aren’t.

Yesterday I was browsing around various personal finance forums and I just could not get past how many people were giving terrible terrible advice. Not just bad advice, we are talking the kind of advice your friends give you after 14 or so beers. Whats worse is that a lot of these people eat up the advice like they’re plastered too. Here is a direct example of a question asked:

“I am 33, my husband is 36. As stated above, we save $29,200 per year for retirement. Add our company match and our retirement savings reach about $35K per year. We hope to retire in our mid 50’s. My husband will have a pension, I will not. We don’t have credit card debt, but have a mortgage (200K), one car loan (18K) and student loans (16K). Should we be paying down this debt instead of maxing out our retirement savings? Basically, is it foolish to save for retirement and have current debt???”

So what is the very first response to this?

“The first thing you need to do is pay off debt. I would stop contributing to the 401(k) and Roth IRA at this time.”

The poster then went on to say some other crap which I ignored because it was all I took not to register and post a reply. (Later I noticed the thread was over a year old.) In any case this is a great example of 1) the wonders of the interwebben to spread false information and 2) people being so debt-phobic that they fail to really analyze financial situations. In this case the student loans and car loan were both around 4%. Lets see, tax deferred compounding interest with company match or pay down debt at a 4% interest rate?

Here is my suggested flow as far as money allocation:

401(k) max company match —> High interest debt —> Max Roth IRA —> More 401(k) —> Low Interest Debt —> other investments

Lets break this down a bit becaues you might be wondering about my priorities. There is a specific reason for each step here.

401(k) max company match - If your company matches every dollar up to say, 3% then you are getting a raise of 100% on that money contributed. Lets take Joe Graduate who makes $60,000.00 a year. That 3% match is $1800.00 per year.

High interest debt - This one is fairly self evident. If you are paying 25% on your credit card that is a ton of money down the drain.

Max Roth IRA - Its important to contribute to the Roth IRA while you can. There are contribution limits (currently $4000 if you are under 50, $6000 if over 50) as well as income limits ($99,000.00 currently) to be able to contribute. For more information read my Roth IRA basics.

More standard 401(k) - Tax deferred? Compounding interest? What a deal!

Low Interest Debt - The truth is you could probably come out with more money doing various investment strategies rather than using the money to pay off low interest Debt, especially considering things like student loans and mortgages being tax deductible. However, things like low interest car loans/credit cards are good things to pay off because they are liabilities, and missed payments could mean interest rates rise. Plus there is the peace of mind factor.

Other investments - If you are a young professional and still have money left over I applaud you, you’re way way way ahead of the game. This means its time to save up an emergency fund and if you’d like, find a discount broker and ease your way into buying some other securities.