Joe's Money

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?

Stocks are simply a piece of ownership in a company.  While usually not a very big chunk of ownership, you can own a piece of any publicly traded company for a small price.

Companies generally start out as private companies, mom and pop if you will, but on a larger scale of course.  At this phase, most investors (Average Joe’s) cannot buy into the company via a stock.  When the mom and pop company starts to grow and needs more capital (Cash!) to increase production or open more stores, they offer an IPO.  An IPO is an “Initial Public Offering.”  This is the first time a stock will be available for the company in question.

So why buy a stock?  Stocks, in general, are the fastest way to grow your investment.  In simple terms, if the company you own the stock in is doing well, the price of the stock goes up.  Of course there are many factors that go into the price being driven up or down.  The current state of the economy, expected future growth or shrinkage, industry trends, etc.  Over the stock market’s history, the average return is 11%.  Keep in mind that is over a very long period of time.  The last year or so has shown us that this is not constant and you should be prepared at any time for extreme losses if you are in higher risk stocks/mutual funds.

Another piece of recommended reading.  Rich Dad Poor Dad is a book about about the upbringing of a child with two father figures.  One, a well educated man, the other, uneducated.

The book compares the teachings of both men.  The book demonstrates how they both attempted to climb the financial latter and how they succeeded.

Definitely a good read, the book can be purchased for only $9.90 new on Amazon.  Otherwise, used copies start at $.01 + shipping.

The sooner you realize that any credit card debt is too much the better off you will be.  Most folks have to learn this the hard way.  Once you have acknowledged that you need to rid yourself of credit cards, start with these steps to get rid of them for good.

I have 8 credit cards.  Where do I start?

I have found that paying off the lowest balance card first makes the most sense.  You may have heard of something called the “Debt snowball.”  This was mentioned in one of Dave Ramsey’s books.  The idea is simple.  Start with the lowest balance first.  Apply the most you can to that card while making only the minimums on all the others.  This helps in many ways.  First, it helps you realize you ARE making progress.  Once one card is paid off you can see for yourself that you have accomplished something.  The bill stops coming and its one less thing to worry about.

Once the first card is paid off, take the money you were using to pay the first card with in addition to the money you were using for the minimum payment on the next lowest balance card.  Do this until all cards are paid off.  You will be shocked at how fast this can get things rolling.

But wait!  Some of my cards have much higher interest rates on them.  While you raise a excellent concern, people need constant motivation to stick to the plan at hand.  Unless all of your cards have similar balances, stick to paying off the smallest balances first.  If your cards have similar balances, then it would of course make sense to pay off the higher interest rate credit cards first.

And last but not least, once you are done paying off all these balances, cut up the cards and never use them again.  You can no longer use the excuse they are for emergencies.  If you have setup an emergency fund, you won’t need them.  Plain and simple.  Don’t fall back into the debt trap once your out.

The financial crisis hit individuals at all career levels.  The average 401k balance fell 30% to $45,500 from about $65,000.

The good news is, the recent rally has driven account balances back up to near pre-crisis balances.

The 401k hits affected everyone differently.  A 20 something that just started his of her career isn’t going ot be affected as much as someone nearing the retirement age.  Many people nearing retirement age didn’t have much focus on their retirement savings and never realocated to lower rusk securities.  This lack of action likely prevented many people from retiring as it was too late to correct the damage.

It also affected people in the middle age group.  Most of this group was also weighted heavily in stocks within their 401ks.

Unfortunately, many 401k contributors either lowered or stopped contributing all together when the markets started to drop.  While this seems like a good plan, generally 401k participants who continue to contribute at the same levels through down turns, make out better in the long run.  This is because you are able to but at a lower cost.  You get more shares for your money.  Over the last 100+ years, the market has made an average 11% return.  Based on statics, you can bet your accounts will grow again.  When you continue to contribute through a recession, your cost average per share goes down.  Example below.

You buy 100 shares of a stock or mutual fund for $10 each for a total of $1000.

You then buy another 100 shares or the same stock or mutual fund when the market is down.  Say the price is now $5 per share, or $500 total.

Your cost average is is now $7.50 per share.

Assuming the stock or mutual fund price continues to rise to say, $20 per share, you would have actually made more money on your investment by sticking in through the down trend.

Keep in mind that accounts like 401k are long term investment vehicles, usually 30 years or more.  Don’t let emotions drive your long term investment goals.  Stick with the facts.  The market on average, returns 11% per year.