Joe's Money

As I’m sure you can tell, I don’t think you should have a credit card if you haven’t cleaned up your financial life and you are confident you will use it appropriately.  In the US, the average credit card debt is over $6,000.  At other points in time, I have heard this has actually been closer to $10,000.  That doesn’t sound like moderation to me.  Use your card once per month for a necessity, like a tank of gas, or put a bill on autopay through the card.  Pay it off in full every month.  Do not use it for buying toys or other want items.

If you are on the younger side and don’t have much credit, a credit card can be a good tool to build credit.  When I was younger, around 20 years old, I managed to build my credit score up to the 730 range only using only one credit card.  You don’t need a wallet or purse filled with plastic.  Find one good card, and stick with it.  It is important that you select one, and keep it for the long run.  Part of your credit score comes from the length of your accounts.  If you are closing old accounts and opening new ones, your credit score is going to be lower than someone who has used the same card, the longest.

When looking for a credit card, the most important factor is the interest rate charged.  Most folks consider anything under 10% is pretty good, for a credit card.  However, finding one of these cards when you don’t have much credit.  Stick to it and you can always call and try to get the credit card company to lower your rate.

Next, look for a card with no fees.  You should NEVER pay an annual fee to use a credit card.  An annual fee is simply money the credit company charges you just to have the card, even if you don’t use it.  This fee can vary, but stay away.  In addition, look for a card with no minimum finance charge.  This isn’t a huge deal since the minimums are usually only $.50 to $1.00.  But hey, if you can, get one without a minimum.

If you are having trouble getting approved for credit cards starting out, try department stores or big box stores.  Try to stay away from stores where you might have the urge to impulse buy, control your finances, don’t slip into that trap.  If you can’t get approved at even a department store, go to your bank and see if they offer a secured credit card.  The idea is pretty simple.  Your limit is usually the amount you secure with a deposit.  Example:  You deposit $500 into your savings account, your credit limit is $500.  You will not be able to use your deposit until the bank decides you are credit worthy or you close the account.  With the secure deposit, the bank can’t lose because your maximum credit line is the same or less than that of your deposit.  This is how I started building my credit.

One last comment…  Don’t chase the cards that offer the rewards.  If your new card has it, great!  Consider it an added bonus.  The rewards usually add up so slowly its almost worthless.  For my personal credit card, I can get a $50 gift card for every $6,500 I spend.  Whoopity doo.  Thanks anyways.  Find a card with a good rate.  With the money you save that way, you will be able to afford a $50 gift for yourself anyways.

I can’t begin to tell you my frustrations lately with the credit card companies.  I had heard of all these people saying their rates are getting jacked up for now reason.  They all stated they had never been late or missed a payment, never went over their limit, etc.  I figured there was more to it they simply weren’t disclosing.  I was wrong.  It happened to me.

Traditionally, I never carry a balance on credit cards month to month.  About 4 months ago, my credit card company must have realized that in the midst of the declining market and cut my credit limit in half.  I really wasn’t upset that the limit itself was cut, I would probably never use anywhere close to the max.  However, another piece of the credit score puzzle, is the ratio of debt to available balance.  Generally, you don’t want to have a ratio higher than around 30% or so.  Example below.

Using $300 of a $1,000 balance = 30% ratio
Using $500 of a $1,000 balance = 50% ratio

While even after my limit was cut in half, I still didn’t go over the 30% threshold, I was still a little peeved that this is what they are pulling on loyal customers.  I have never missed a payment, and I have had this account open for around 6 years.  Thanks anyways.

Even more recently, I received my first credit declined message.  I had applied for a gas card good at one of the major gas station chains in the US.  I know I advocate not opening credit cards, but this one offered a 5% rebate on all purchases at this chain.  I figured, I’m here constantly, lets save a few bucks.  There was no fees, so I was good to go.

I was expecting the card in the mail.  When I received the envelope, I could tell there was no card in there.  I almost started to panic at the thought of a declining letter because I know my credit is good and if I was declined, maybe I could have been a victim of identity theft.  Then I opened the envelope.

DECLINED!

As I read through the letter, I was happy to find they provide you with the reason for decline.  It stated my credit history was excellent.  So why would they decline a good outstanding citizen like myself?

“Expected expenses will likely outweigh the revenues for this account.”

I guess they wised up and realized they won’t make any money with me!  So much for saving 5% on gas.

Anyone else have a similar experience?

I hear a case of living beyond your means just about daily.  The entitlement factor in this country is unreal.  You need to get realistic and buckle down your finances.

Unfortunately, most people in our society have been brought up to live beyond their means.  We are surrounded by images and videos of people living extra large lifestyles that are simply out of reason for most.  Growing up with the constant barrage of the rich and famous, has created a society that not only thinks they need this lifestyle, but think they are entitled to it.

When growing up, most teenagers spend their parents money.  Unless they are working, they are likely spending their money on frivolous things like fancy clothes and electronics.  According to statistics, only about 42% of high schoolers find paid employment.  According to the statistics, less than 50% of teens are working, so their parents are funding their popularity contest.  They are simply keeping up with the teenage Jones’s.

Unfortunately, this upbringing sets the teenagers up for failure later in life.  They are taught that at no matter what expense, they must appear to be keeping up.  This is proven by their average credit card debt of over $5,000 for age groups 25-34 year olds.  Had they been taught the value of the dollar at a younger age, perhaps the frivolous spending would have stopped.

The worst part of this ridiculous spending spree is, that age is not a factor.  The statistics are similar for just about all ages.  Many books state the same.  The more you make, the more you simply spend.  Doctors, lawyers, and the like are all chasing their tails with the fast food burger flippers just on a different scale.  If you earn $20,000 per year, maybe you spend $10,000 on keeping up with the Jones items.  If you’re making $100,000 per year, your simply spending $50,000 on most expensive Jones items.

I don’t know the Jones’.

Many people have the ability to carry the perception of being well off for long periods of time.  However, eventually, the jokes on them.  The charade is over and all that is left is the consequences of leading this type of lifestyle.  The result is usually a lifetime of debt.  I like to refer to this as chasing your tail.  You can chase it all you want, but your never going to catch it.

What you need to realize is, you need to stop buying items you don’t need on credit.  If you don’t have the cash, DON’T BUY IT.  Its that simple.  You need to learn to sacrifice for the better long term goals.  Take a serious look at your spending. Tell yourself, you don’t know the Jones’.

Here are a couple of quick tips

1.  Learn to budget and search for bargains.  If you can’t pay cash, don’t buy it.
2.  Do not give children credit cards.  They do not have the financial foundation to handle them.
3.  If you have credit card debt, call your provider to negotiate a lower rate.
4.  Pay off small balances first, then tackle the larger ones.  Remember, always pay at least the minimum though.
5.  Once you’re out of debt, don’t go chasing your tail again, stay out of debt!

Interesting read I stumbled across…  The below graph shows the average credit score for each email domain listed.  The data is a sample of 20,000 credit scores and their corresponding email address.  I would have suspected AOL to be lower than Yahoo.  Whats up with the Yahoo users?

For Average Joe’s Automatic Investing is the Only Way to Go

When it comes to money and saving, us averages Joe’s tend to procrastinate more than with anything else.  The “I’ll start saving tomorrow” idea isn’t going to work.  Unless you are one of the fortunate ones that manages to do this without thinking about it, automatic investing is the way to go.

You can setup automatic investing for almost any type of account.  401K accounts are among the easiest, IRA accounts, regular savingss accounts, education 529 accounts, and so one.

401K accounts are the easiest.  You set them up with your employer and the money comes right out of your check.  If you start doing this immediately when you start your new job, its almost like the money wasn’t there to begin with so you don’t miss it or even realize it was ever there to begin with.

Roth IRAs, traditional IRAs, and brokerage accounts can be setup online with any major discount brokerage firm like Fidelity or eTrade.  You can set how often the money is transferred, it could be weekly, bi-weekly, or monthly.

Standard savings accounts, including online accounts (which typically have better rates than local branches) can also be setup for automatic saving.  You can have either the bank setup the automatic transfers from your checking to your savings accounts and in many cases you can even setup your direct deposit with your employer to automatically transfer a portion of your check to your new savings accounts.

Education 529 savings plans also usually offer a automatic investment option.  These work very similar to the IRAs and brokerage accounts.

Keep things simple.  Setup your automatic investing and savings.  Its one less thing to think about for your financial well being.