Skip to main content

Author Archives: Team Dinks

Older posts
Newer posts

DINKs on Credit Scores

Posted on by

In my last post I talked about a friend of mine who had difficulty getting a credit card due to a high student loan balance. It has always been important to know your credit score, but it’s especially important now to be diligently tracking your credit rating since the economy is continuing to struggle.

Most people are familiar with FICO as well as the three major credit reporting agencies: Equifax, Experian and TransUnion. FICO (stands for Fair Isaac COrporation, named after its two founders, Bill Fair and Earl Isaac) is the creator of the credit scoring model, which builds a statistical model of credit worthiness, which is used by the credit reporting agencies to generate a credit score.

If you’ve recently looked at your score from each of the three agencies, you may notice that the scores are different for each agency. This is because each agency has its own methodology and data that they use with the FICO model to generate your score. Most of the time the scores are relatively similar, but there may be large variations, depending what’s in your credit history. That is why most people recommend you look at the data that all three major credit reporting agencies have, as there may be inconsistencies between them.

The actual makeup of the credit scoring formula FICO has developed is proprietary information, so we don’t know the exact makeup of the model. But they have released a general outline of the formula, which can be found here. The formula is made up of the following parts:

  • Payment History (35%)

This includes late payments, defaults and bankruptcies. Although all given percentages are approximate, this is clearly the most important factor, and the one you have the most control over. You should nail this one in order to get a good score.

  • Total Debt (30%)

This is where your credit utilization comes into play. Here they look for how much total you owe, how many accounts with outstanding balances you have, and your ratio of debt-to-credit. Opinion varies on what a good debt-to-credit ratio is, but typically you want to have a credit utilization of less than 30%, but obviously the smaller the number here, the better for your overall score.

  • Credit History Length (15%)

This is pretty self-explanatory; typically accounts in good favor and more than three years old are the key here. Unfortunately for many young people, or people who have previously relied on a cash-only system, this can end up hurting their credit score, even if their income and lifestyle wouldn’t otherwise cause them to be viewed as a credit risk.

  • New Credit (10%)

This is another controversial aspect of the credit score, because if you’re looking for a new credit card, you may apply to a couple different ones in search of the one with the best rate. When a vendor checks your credit, your score takes a little hit, regardless of whether you are extended a line of credit or not. The best way to mitigate those little credit dings is to be very focused when researching credit cards, and be careful to not open numerous lines of credit within a certain period of time, usually a month.

  • Misc (10%)

This is where everything else goes: type of credit applied for, income, and even such things as marital status and whether you’re married or single are included here. Clearly this is the least-defined aspect of your score, and can often account for the variations in scores between credit reporting agencies.

Nowadays, there’s a ton of information out there about credit scores. Watch TV past 11pm and you’ll see scores of ads devoted to “free” credit reports or credit monitoring services. My personal favorite is the guy who claims to be so confident in his credit monitoring service that he’s supposedly willing to share his Social Security number with the world. That is so incredibly stupid, but I can’t help but laugh whenever that commercial comes on. I have not checked out each of those companies, but I am typically dubious about their products. Most claim to offer a free credit report, but most also require that you sign up for their credit monitoring service in order to get it.

You are guaranteed by federal law a free copy of your credit report once per year, but only AnnualCreditReport.com is authorized by the federal government to provide that to you. Note that this does not include your credit score, just your credit report.

Obtaining your credit score is usually something you have to pay for (usually around $50).

If you are serious about working to improve your credit rating, we’ve found credit.com to offer a reliable and well priced provider of all three score monthly, as well as some other features around fraud prevention.

It’s obviously important to keep tabs on the health of your credit. Many long-term financial purchases revolved around having good credit in order to get the best rates (e.g. mortgages and auto loans). Credit reports are also often used when applying for jobs. This may be most applicable out here in Washington, D.C., but if you’re applying for a highly cleared position, you could be denied based on having too much debt (you’re considered a security risk, based on the fact that you’re heavily in debt and could be influenced by money).

So keep your credit clean, keep tabs on its health by using whatever free tools are at your disposal, and you’ll reap the benefits of getting the best rates on future purchases.

– Michael

How Much Have you Spent on Clothes?

Posted on by

I was inspired by fellow bloggers to consider how much we’ve spent on clothing this year. Budgets are Sexy did an expose on his clothing expenses and admitted that he certainly surpassed Mapgirl’s $373 thus far in the year.

Thinking about it over here in the DINKs household I realized how little we’ve spent on clothing for James. In fact, year to date those expenses add up to less than $30 to buy him new gym shorts. Aside from that he has not had a single other purchase. He is in dire need of shoes of all sorts and probably could do with a real winter jacket, so I can’t say whether or not he’ll make it through the year on that, but it is pretty incredible.

On my end, it certainly doesn’t look as pretty. I started up a new job at the beginning of the year and thus was in need of quite a few new items, having been overseas recently.

I can tell you’ve I’ve spent far more than James this year on underwear alone! I do however keep a very lean closet and buy classics that I wear for years. I’d much rather have quality over quantity, but I still buy nearly nothing at full price.

My next purchase, a pair of good winter boots!

Cheers,

Miel

Value of Negotiating Salaries

Posted on by

In honor of Labor Day, I thought I’d discuss the value of our labor and why it is important to negotiate. This discussion holds true for both men and women, but it has unfortunately been widely documented how many women resist negotiating for their worth in the job market.

According to Babcock & Laschever‘s, Women Don’t Ask, doing so costs women dearly. This obviously impacts family income greatly, so pay attention too guys.

  • Even with only a high school diploma, without negotiation a woman will earn $700k less if she fails to negotiate her salary.
  • A college grad will $1.2 Million; a graduate degree earner will loose $2 Million.
  • Women are also 4 to 1 less likely to negotiate their first salary than men.
  • Women who fail to negotiate their first salary stand to lose more than $500k for not speaking up.
  • You aren’t alone, a full 20% of women (or a whopping 22 million people) say they never negotiate at all.

But ladies, there is hope. Women who do consistently negotiate their salary, increase their earnings at least $1 million more during their careers than women who don’t.

I’m glad to be one of those women who believes in negotiating for salary increases and has seen how well it works, but it is also an ongoing process.

So dig down deep and make sure you are negotiating for your value. Your future earnings and wealth depend on it!

Remember, Make ‘Em Pay.

Miel

Track Investments with Mint.com

Posted on by

Once you start investing, you realize that before long there can be a lot to manage in terms of accounts and what your actual investments are doing. This is particularly the case when you have a diversification of assets in a variety of retirement accounts, as well are IRAs, and a handful of individual stocks. I still consider myself a relative newbie when it comes to investing, but it is still really essential to have investment tracking to help manage my various investments.

For example, here is a cool feature of mint.com, where you can compare the performance of your assets to the S&P 500, Dow Jones, or NASDAQ. I guess from the picture it shows me that I may be doing oddly better with the downturn of the economy.

While in some ways it becomes more necessary to track investments as you do more of them, I also think that investment services such as mint can be very helpful for beginners as they learn more about investing. Plus, it can’t hurt you keep tabs on whether you are losing wealth or gaining it.

Check it out and let us know what you think!

Cheers,

Miel

Our September Net Worth

Posted on by

We DINKs continue to inch towards $400k. It has been an illusive goal for us for the last two years. We’ve been inching back and forth towards this nice round figure. Given how long it has taken us to inch towards this goal, I’m hoping we’ll be able to propel ourselves towards the half million mark faster than it has taken us to get where we are today.

Today our net worth stands at $381,320

This is up from $358k, just one month ago. While we are still inching towards $400k, we did pause to consider that this is up by $20k in one month. When we look at it that way it feels much better. We are also nearly back up to our net worth high. Hopefully we’ll surpass that in the near future.

The change can largely be attributed to a couple of main things:

1) Several thousand dollars were underestimated last month on Miel’s retirement accounts that she was having trouble accessing on the weekend.

2) Generally our stocks have gone up, rather than down, for a change. Considering that we now have a large chunk in the stock market, this means that when things go up we really see an impact in our net worth.

3) Less spending, to help reach our investment goals. It seems money still flows out far too readily, but we’ve also resisted several larger and smaller purchases that we could have caved in to.

4) Resulting in more investing. We’ve managed to save several chunks of money for investing towards our wealth goals for the year.

It’s not rocket science, but it does take some effort and energy, not to mention a bit of sacrifice. You can check out the details for yourself:

Cheers,

Miel

Achieve More: Give it All You’ve Got

Posted on by

Contemplating the ways of personal finance, I thought I’d bring our readers a few meandering thoughts on the topic.

It has been said that half of life is just showing up. While I can see some merit to the argument that at least being physically present gets you somewhere, it certainly doesn’t get you far enough.

For example, showing up at the gym is good for the ego, but unless you are giving it your all, you’re still unlikely to reach your goals.

For kids, my thought is that it is better to be fully present only some of the time, than around all of the time but never really engaged.

The same goes for money. You can go through the motions of budgeting, watching what you spend, even investing, and still your heart may not be in it.

If you are wondering why the change you seek is illusive, ask yourself what more you can do. I bet you there is something.

My challenge to you. If it means something you, if you really have a serious desire for change or achievement, put your all into it. Make your energy count. Don’t just do it, but do it well.

Let’s face it, that sounds great in theory, but there are times when you will stray from your ever so ambitions goals. Just as in meditation, when your attention wanders, bring focus back to the present.

Remember what gets you excited about exercising, spending time with the people in your life, or saving for a specific goal.

Leave just showing up to your cube mate. If you really want to get ahead, give it all you’ve got and be present in each moment.

Cheers,

Miel

Student Loans and the Ability to Obtain Credit

Posted on by
I always considered student loan debt to be good debt. Well, not exactly “good”, but in a different class of debt; one that was judged more favorably than credit card debt. I thought this was especially true for someone around my age (25), considering around 2/3 of students graduating from a four-year college have at least some student loan debt. I reasoned that these facts would be taken into account when a loan, credit card or mortgage application was being considered, but apparently that isn’t always the case.

Recently I was visiting a friend of mine when the discussion of money came up. As we stood in his kitchen and drank our beer, he told me about his desire to obtain a credit card. He had one years ago but closed the account after not using it for some period of time. But he wanted to build his credit rating a bit and possibly take advantage of a rewards program, so he had applied for a standard credit card at his bank and was summarily rejected.

This came as a bit of a surprised to the both of us; we work in the same industry and I know generally how much he makes. I also spend enough time around him to know that he doesn’t blow a lot of money. He lives well within his means so I was curious as to why he was rejected.

After speaking to his bank’s credit underwriters, he told me that the reason given for his rejection was “a high student loan balance”. His student loan balance is high (around $50,000) but at the same time he has a higher than average salary for where he lives and no debt other than the student loans. I found his rejection very strange.

It looks like my friend is the victim of poor timing more than anything else. When FICO is determining a credit score, they lump debt into two categories: installment and revolving. Examples of installment-based debt include car loan, mortgages and student loan debt, while credit card debt is considered revolving.

In the past, installment debt was looked upon more favorably than revolving debt, to the point where having high installment debt wouldn’t necessarily be a show-stopper when applying for a line of revolving credit – in most cases it would take a high installment debt balance (or more specifically, a high debt-to-income ratio) plus other negative marks such as late payments or a high debit-to-credit ratio on any revolving credit lines.

However, with the current credit tightening still an issue, a lot of banks who experienced a liquidity crisis in 2008 are reluctant to loan money to all but ideal borrowers. In some cases, banks are choosing to shore up their cash reserves instead of lending that money out (which runs contrary to the intent of the bank bailouts, but that’s a separate issue).

Unfortunately, it looks like my friend just went to the wrong bank at the wrong time, and given the choice between lending to an individual with little to no student loan debt, or to my friend who has a higher than average student loan balance, an institution that is still smarting from the credit crisis is going to go with the individual who has the fewest risk factors, even if other applicants would typically be described as “low risk”.

What my friend’s situation shows is that first of all, there is no such thing as “good debt” and secondly, it illustrates how deep of an impact our financial crisis has had. A couple years ago lenders would have been throwing thousands of dollars of credit at my friend. But now, even as some prognosticators have declared the end of the recession in sight, lending institutions, the backbone of our economy, are still a little bit more anxious to lend out money than they have been in the past. It can be validly debated on either side whether that’s a good thing or not, but nonetheless, it is certainly a change from only a few years ago and will affect the ability for people to get a loan and utilize that credit.
In my next post I’ll discuss credit ratings a bit more. I’ll talk about some common misconceptions as well as details regarding what actually goes into coming up with a score.
-Michael

Credit Card "Convenience" Checks

Posted on by

Does your credit card issuer send you the blank “convenience checks” along with your statement? If so, do you use them or just throw them away?

Well, you are probably better off just ripping them up and putting them in the trash.

Here are some problems with “convenience checks”.

1) Hidden Costs. If you deposit a convenience check into your credit card into your checking account, but have exceeded the cash advance limit then you could be charged an overdraft fee. In addition, if you use this type of check to pay a bill – then discover the retailer doesn’t accept them, you could be subject to a returned check fee.

2) Less Protection. The Fair Credit Billing Act guarantees credit card purchasers some protections. For example the FCBA allows refunds for defective merchandise and the chance to dispute bogus charges on your account. However, when you use a convenience check, you don’t have any of this. If something goes wrong you’re out of luck.

3) No bonus points. A lot of people get credit cards to harvest the reward points. However, if you use the (in)convenience checks, you don’t get any reward points. No miles, no cash back, no free gasoline, no COSTCO membership. Nothing.

4) Fees and High Interest Rates. Typically the card companies charge you far more than what you’d pay your non-convenience check balance. The exact amount varies, but its often twice as much as a regular balance. For example if your regular card charges you 11%, then the interest rate on the check could be 22% or higher.

In addition, you’ll likely get stuck with a 2 to 5% fee on the check you write. So, if you write a convenience check for $300, you could get stiffed with a fee of 6 to 15 bucks.

5) Repayment restrictions. Check this out. Some card issuers mandate that you can only pay back your convenience check after you have discharged the balance on your card first. Okay, so for example if you are carrying a balance of $5,000 on your card, you’ve got to dump that before dealing with the convenience check funds. This of course is a problem because you’ll likely rack up a lot of interest by the time the card balance is paid off. Naturally, this is buried in the fine print.

Finally, Congress’s recent enactment of the Credit Cardholders’ Bill of Rights Act of 2009 (Credit CARD Act) means that many card companies are increasing interest rates and imposing new fees before the law limits their ability to do so. In this type of environment look for convenience check fees to be even higher and repayment restrictions even tougher.

Best,

James

Roth versus Traditional IRAs

Posted on by
Traditional IRAs are great, but they do have some restrictions that make them less palatable to the common investor. An alternative to the Traditional IRA is the Roth IRA, which, while still a retirement account that shares many common properties with the Traditional IRA that we’re all familiar with, has some advantages that make it an attractive investment vehicle.
History
The Roth IRA is named after the former Delaware Senator William Roth. Senator Roth worked intensively on the Taxpayer Relief Act of 1997, which went into effect beginning in 1998. The Taxpayer Relief Act of 1997 was born out of the House Republican’s “Contract with America” which was vetoed by then-President Bill Clinton in 1995. After being signed into law, loopholes in the Roth IRA specification were quickly identified: an individual was allowed to convert a Traditional IRA to a Roth IRA, then make withdraws from the Roth IRA immediately, thus avoiding the 10% penalty associated with taking an early withdraw from a Traditional IRA. These loopholes were closed legislatively in 1998, and the Roth IRA that is in the current U.S. tax code has been largely unchanged since then.
Tax Structure
So what differentiates a Roth IRA from a Traditional IRA? What really separates a Roth IRA from other types of retirement investments is how it is structured from a tax standpoint. A Traditional IRA’s qualified contributions are tax-deductible, unlike contributions made to a Roth IRA. With a Traditional IRA, anyone making any amount of money is allowed to make a contribution to their IRA, allowing them to defer paying taxes on the earnings resulting from their investments. However, not all contributions from all income groups are tax-deductible. Both IRAs use what is referred to as the Modified Adjusted Gross Income, which is a fairly complicated value that is dependent on the context from which it is invoked, but generally speaking, it is your gross yearly income minus any deductions for which you qualify. With a Traditional IRA, you must first meet the minimum Modified Adjusted Gross Income (MAGI) limit, which means you must have taxable, non-investment, income. If you do not meet that requirement, then your deductible contributions are limited to be equal to your non-investment income for that year. Assuming you meet the minimum MAGI requirements, your filing status determines how much of your contributions are tax-deductible. If you’re married filing jointly or a qualified widow then you can take the maximum deduction up to a MAGI of $85,000 and you can continue to take a percentage of the maximum deduction until your MAGI exceeds $105,000. If you’re married filing separately, then you the maximum deduction limit is $0 and the maximum MAGI that you’re allowed to still take a deduction is $10,000. If you’re single or head of household, then the maximum deduction limit is a MAGI $53,000 and the deduction upper limit is a MAGI of $63,000. You’ll notice from looking at those values that the MAGI appears to be kind of low, especially for those with married filing separately status. It’s also worth noting that these values are valid if you are already covered by a qualified plan through your employer. If you are not, then then you can take a full deduction at any income level.
Roth IRAs don’t have tax-deductible contributions, but they do have a limit on what income levels can contribute. Roth IRAs are a bit more accommodating than Traditional IRAs for a wider range of income levels. They were originally developed to help the middle class save for retirement, and their income eligibility requirements reflect that goal.

Roth IRAs have the same minimum MAGI limit requirement that Traditional IRAs have, and they have different eligibility requirements based on your MAGI. If you’re a single filer you’re eligible to make a full contribution if you have up to $105,000 MAGI, or up to $120,000 for a partial contribution. Joint filers are restricted to having $166,000 and $176,000 MAGI for the maximum and partial contribution requirements, respectively. Those filing as married filing separately have limits of $0 and $10,000.

Additionally, Traditional IRAs and Roth IRAs have a maximum amount that you’re allowed to contributed per year. If under 50 years old, you are only allowed to contributed a maximum of $5,000 total spread across whatever IRAs you’re eligible for (meaning you can’t contribute $5,000 to a Roth IRA and then $5,000 to a Traditional IRA; the sum total of all contributions to all IRAs must be less than $5,000). If you’re over 50 years old, then you can increase that amount by $1,000.
Advantages
The biggest advantage of using a Roth IRA is its withdraw policies. Any contribution to a Roth IRA can be withdrawn penalty-free as long as the withdraw occurs at least five years after the initial investment, even if that initial investment was a roll-over from a Traditional IRA. Conversely, withdraws from Traditional IRAs are subject to income tax and are also subject to a 10% penalty if made before you turn 59 1/2 years old. Additionally, there are a number of penalty-free exceptions that include paying for: education expenses, medical expenses and the purchase of your first home, among others. Withdraws are not included in your yearly gross income, as they have already been taxed, whereas Traditional IRA distributions are taxed.
Regardless of which investment vehicle you favor, there are going to be advantages and disadvantages. The tax implications and withdraw policies make Roth IRAs an attractive retirement investment, and if you’re eligible you should definitely look into opening one. They can be a great vehicle to both build and conserve your wealth. As with any investment, if you are unsure about whether you qualify or if a Roth IRA is a good fit for your particular financial situation, you should consult a professional financial advisor whom you trust. If you want to do some additional research on your own, you can go here.
-Michael
Older posts
Newer posts

Boost Your Brand – Advertise with Us!

Advertise With Us

You cannot copy content of this page