Your credit score hurts more than your credit

At a party this week, I was chatting with a friend. She relayed to me a story regarding her credit which serves as a good cautionary tale to all, the gist of which is this: your credit score can affect more than just your the rate on your cards.

You see, companies have figured out that FICO scores are good predictors of who will pay their bills on time. Insurance companies have started giving discounts to customers with higher scores on the notion that they will pay on time and are generally more responsible. Actuarial data tend to support this. Of course, we could easily look at it the other way: that insurance companies penalize those with lower scores by raising their premium.

A Ski Day

A significant storm dropped 3 feet of snow on the southern Rocky Mountains last week. Friday was the first full day since the snow stopped and if ski patrol had time to clear avalanche danger, the ridge would be open. Forecast to be clear, sunny  and warm, taking a ski day was certainly in the cards.

My day started with the best breakfast burrito one can find, from Abe's Cantina in the  tiny hamlet town of Arroyo Seco, NM, about 12 miles from Taos Ski Valley. Not long after I  found myself warming up on a few groomed runs in perfect conditions. Arriving at the  top of the highest lift, the view of the ridge opened up with it's bright white  cornice reflecting the morning sun. It was time.

Investments that cost you money and why I don't like them

A mouthful of a title for sure, but it says it all. I frequently find myself dealing with people who get into "investments" that cost them money. By "cost them money", I'm not talking about an investment that went south and ended up at a loss. That happens all the time and is part and parcel of all investing. Rarely do investors find themselves without any losers. No, that's not what I'm talking about.

Do Ads Like This Really Work?

Over the holiday weekend, I caught a Dodge commercial on TV. It happened to be from one Melloy Dodge in Albuquerque, New Mexico. It was your typical car commercial with a loud announcer's voiceover highlighting the unusual and amazing (always "amazing"!) deals on new cars. You better hurry or you'll miss the special deal.

This particular commercial was advertising a full 80% off MSRP! To be honest, that 80% figure is the only reason the commercial caught my attention as I am thoroughly immune to stupid commercials. How could that be? Was Melloy going out of business? Even if they were, no new car is ever 80% off unless it's a scam, like say a stolen or flooded vehicle.

It didn't take long to hear it was indeed a scam. The particular foul? You may have already guessed- "MSRP" had a special definition just for this commercial. Instead of the standard "manufacturer's suggested retail price" to which everyone is accustomed, they slipped in their fabricated definition of "manufacturer's suggested retail profit". I nearly spit out my coffee at the audacity. Yet one wonders, does such blatant nonsense work as a marketing gimmick? Is there anyone who actually thought this was a real deal?

Personally, I try hard not to do business with people or companies that operate this way.

Data Security at Financial Institutions

Would someone please explain the security procedures that banks and other financial institutions implement? I happen to run into a "verification process" quite frequently. This normally entails answering a series of questions. You know, questions like "what city did you get married in?" or "what is the first name of your paternal grandfather?" There seems to be about 15 standard questions used by financial institutions, not all of which are used by each. My problem with these has to do with a lack of understanding exactly how they are supposed to protect me.

SmartMoney Mispeaks

In this post, I am not referring to "smart money" as hedge funds or insiders. Rather, I'm referring to SmartMoney, the magazine. It is a decent publication which seems to straddle the line between sophisticated advice and commentary versus making it palatable, interesting and useful for laymen. It is also a Dow Jones publication and shares some writers with the Wall Street Journal, TLRB's official paper of record. I like to keep on top of what the public reads and hears about financial matters plus it offers one more source of ideas from time to time.

Metric System, Kinda

There's a lot of talk about this cash for clunkers program. Canada had something similar but it wrapped up last year. If you bought a certain fuel efficient new car you got a rebate from Transport Canada. You could get up to $2000. Which ain't bad.

I guess the cash for clunker intent is get older fuel inefficient cars off the road, get people to drive new fuel efficient cars, save the environment, save jobs, save the cheerleader, save the world. You know the drill.

Max out your friends, not your credit card

A guy I worked with years ago (circa 1991, a time when a young Victoria Jackson was teaching America to laugh and Sergeant Slaughter finally defeated Ultimate Warrior for the WWF championship belt) told me about how when his father was a young salesman he was part of a "suit financing ring". Each ring would have, say, 10 friends or coworkers. Basically each person put in $5 a month. At the end of each month, one person would get a new business suit (10 people putting in $5 a month would give the fund $50 a month and I guess back then a good business suit would run you about $50). After 10 months, everyone had a new business suit and the cycle would continue.

Long-Term Bond Funds

I was just working on a review of a new client’s 401K and I noticed a holding called “XYZ Long-Term Bond Fund”. Fine. Nothing terribly special about that. However it occurred to me just how misleading such a fund name can be to the uninitiated.

Many people not versed in financial matters might see this choice and think “I’m investing for the long-term, this is for me.” In their mind, retirement is far off, perhaps twenty years or so, and investing in 20 or 30 year bonds might seem like a perfect fit. Unfortunately, things aren’t so simple and the funds named like this can be very misleading.

Poor logic makes for good sales tactics

I happen to be a pretty loyal Toyota customer now. We have two "Toys" and get them both serviced at the dealer. I'm not a do-it-yourselfer and I have had my share of bad service from non-dealer shops. Once upon a time, I tried to save a few bucks by using Midas for brakes. What I saved in dollars paled in comparison to the aggravation of getting it re-done over and over until they got it right. Another time, my non-Toyota vehicle had something wrong, but I didn't know what. The local mechanic couldn't tell me either because they didn't have the scanner/computer/technostic thingy the dealer uses to read the vehicle's computer error codes. So I learned to just build a relationship with my dealer and get all the maintenance done by them. You know what? They give me a discount, don't make up repairs and the work gets done right with genuine parts. Saves me aggravation in the long run. While that is my experience, your mileage may vary, as they say.

"Be Your Own Banker"

Coincidentally, we received several emails asking about a concept called "be your own banker". This has been around for decades, but apparently is now being remarketed as "Infinite Banking", "Bottomless Banking" among other catchy names. Why pay interest to a bank when you can enjoy the "extraordinary benefits of creating your own banking system"? One site claims the method will "make you rich". Does it sound too good to be true? Sound like a scam? Read on.

What is 'Financial Planning'?

One of our original goals for The Long Run Blog was to explain or examine general misconceptions about money. In my introductory post, I wrote

"financial decisions are becoming more complicated and more important to one's well-being at the same time. Traditional pensions are disappearing while self-directed 401Ks are on the rise. Businesses, salespeople and politicians twist, bend and contort economic statistics to sell you products or ideas. How can we tell fact from fiction?"

Not only how to budget, but how to stay on budget

I've not lived in Canada for 8 years (4 in Seattle and 4 in Korea). I returned March 2008. Even though it's coming up on about a year I've been living in my native country, I keep stumbling on new things. The most pleasant discovery was taxes were a lot better in Canada. The GST (Canada's version of the VAT) and Federal and Provincial rates had been lowered in my absence. My take home pay, the percentage I get to keep, was actually pretty close to my take home percentage in Seattle (a state without a state income tax). Canadians are always regaled with stories about how much lower taxes are in the USA but they usually don't realize things like state and even civic taxes take a chunk. And then they don't realize deductions for social security and medicare take a considerable larger bite than our deductions for Canada Pension Plan and Unemployment Insurance.

Free markets and financial literacy

In a free market, individuals are supposed to patronize companies that provide a fair product at a fair price (value). Produce what the market needs and you have a viable business. Fail to deliver what the market demands and your business is toast. After all, if you bought tire brand A and the tires blew up, you would stop buying them right? Tire brand B would take market share by offering a better product at a price deemed worthy and put tire brand A out of business. Nothing terribly inciteful about that, just common sense right? The result is increased competition to satisfy consumers and healthier businesses.

Getting rid of Lincoln and the Maple Leaf?

In Canada, there is a fair amount of American coinage in circulation. No Canadian retailer would refuse payment that includes American coinage. Of course no exchange is ever given on coin.

When you work in retail and come in contact with a great deal of coinage, you can kind of supplement your income by fishing out American coins, tossing in Canadian coins, and eventually collecting enough American coinage that you can roll the coin. Banks won't give exchange on loose coins but if you have an American funds bank account at your Canadian bank, the bank will accept rolled American coin same as American paper bills.

Credit Reports

Sing it with me, you know the words:

"F-R-E-E that spells free, credit report dot com, baby..."

The commercials are catchy, quirky and make a good point- check your credit reports or you won't discover things that may negatively impact your score. So is freecreditreport.com the place to do this?

Free Energy and Free Lunches

The famous economist Milton Friedman is attributed the quote "there is no free lunch". Say a salesperson offers you a free lunch just for coming to his seminar. Obviously, he hopes to sell his wares at the seminar. The profits on those sales pay for the "free lunch" and so collectively, the free lunchers are paying for their own lunch- hence it is not really free.

Hedge Funds

You hear the term quite a bit these days, in all sorts of contexts. What is a hedge fund and why are they so special?

A bit about IRA's

We left off discussing pensions with the concept of using IRA's to save on your own instead of in a 401K. Let me start by reemphasizing the benefits of a 401K over an IRA. Four important things come to mind although there are more.

What Disappearing Pensions Mean To You

I remember as a kid hearing older relatives talk about getting their pension as in "Uncle Bob worked for them 35 years and now gets half his salary for the rest of his life". For better or worse, those traditional "pensions" are slowly fading into history. These "pensions" are plans where your benefit is determined by a formula and guaranteed for life. As people live longer, these plans are becoming more expensive for companies to provide. They also have downsides such as the requirement you must work for the same company for 35 years. It is just not terribly common to be a "company man" anymore. In addition, what are the odds that the company you start out in is going to survive and prosper in what becomes a mature industry 35 years later?