Syed, Author at The Broke Professional - Page 2 of 21

Equifax Hack and the Botched Response

Equifax, one of the big three credit reporting companies in the country, was recently hacked.  The company states that 143 million people were affected.  Which means a lot more people were most likely affected since they are probably reporting a conservatively low number.  They are a business after all.

The population of the US is a little over 300 million.  Meaning almost half of the citizens in the country had their vital information compromised.  What type of information was stolen exactly?

According to Equifax, your name, birthday, address, social security numbers, drivers license numbers and credit card numbers were all compromised.  So essentially all the information a hacker would need to sign up for any type of account.

I miss the days of hackers targeting Home Depot.

So what should we do?  The first thing we should NOT do is listen to Equifax.  Here are 2 reasons why:

1.  They set up a bogus help website that only helps themselves.

Soon after the hack was made public, Equifax set up a pretty crude looking website called equifaxsecurity2017.  That just looks like a fake URL off the bat.

On the site you can check if you’re “potentially impacted” by entering the last 6 digits of your SSN and your last name. Yes, you can check if your information has been compromised by entering even more information.

Once you enter that info, it will say you have been potentially affected.  No matter what you enter, it will say you are potentially affected.  Which means they have no idea if you are potentially affected.

But wait, there’s more!  If you’ve been affected, you get a free trial of TrustedID Premier, the credit monitoring service offered by Equifax.  You’ll get a free trial for a year and then be charged after that if you want to keep it.

So not only did they set up a dubious looking website to get even more of our information, they are trying to take our money after a massive data breach.

Please do NOT sign up for this service.  There are many ways to monitor your credit that are free and easy that I will mention at the end of the article.

As far as the second reason we shouldn’t listen to Equifax:

2.  Equifax execs sold their company stock before the hack was made public.

Like something out of Wolf of Wall Street, three Equifax executives sold their stock in the company before the hack was publicly disclosed.  The official company line was that they had no idea the data breach had occurred.

While I’m a cynic by nature, any rational person could see that is a bald faced lie.  How any executive of any company could not know that their company was exposed in the biggest data breach known to man makes no sense.  Let alone three executives.

While some conciliatory reasons were given such as they didn’t know, and they didn’t sell ALL of their stock (aka these guys are a lot richer than we can imagine), the fact is that this deceptive action did occur.

Because of this, I will have nothing to do with this company or their “TrustedID” program.  And if there ever is a class action lawsuit that I can be a part of, I will be sure to sign right up.

What You Should Do

So what steps should we take to ensure we don’t become victims of identity theft?  Unfortunately, there is no way to completely prevent ID theft.  These hackers are much smarter than us or any company out there.  Like a good defense in football, we need to prepare the best we can and react accordingly:

1.  Monitor your credit reports.  This can be done essentially for free through services like Credit Karma and Credit Sesame.  They will send you an alert whenever there is a change on your credit report.

The best thing we should all do is look at our credit reports.  Go to annualcreditreport.com and request a report from all 3 bureaus (yes, even Equifax).

2.  Submit an initial fraud alert.  This tells any business to take some extra steps to identify you in case there is an application submitted in your name.  This usually means you have to talk to someone when you apply for a credit card or bank account.

Some people say submit a credit freeze, but I don’t think this is necessary since hackers tend to sit on this information for a long time before they act on it.  You won’t be able to apply for any new accounts during that time either, so that’s your call.

3.  Submit your taxes early!!!  Most Americans are procrastinators when it comes to filing taxes.  Many even file extensions because they don’t want to do it by April.

Don’t do that next year.

Tax filing fraud is on the rise, and with this data breach it could potentially be a huge problem for the 2018 tax filing season.  We get most of the forms we need by February.  Once you get the necessary paperwork, just go ahead and file.  Especially if you’re expecting a refund.  Don’t let the government hold on to your money interest free!

Be vigilant about your credit and identity!

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Sweat the Big Things. Part 2: Transportation

This is Part 2 of my three part series about housing, transportation and taxes.  These are the three things which I believe can make or break your finances.

Part 1 discussed buying a house.  This post will talk about the costs associated with transportation.

Don’t do it. Just don’t.

In my last post about buying a home the smart way, I mentioned that buying a house will most likely be the most expensive transaction of your life.  Coming up in second place is buying a car.

Buying a certain type of home can be a status symbol.  A sign that you’ve “made it.”  That you’re finally a grown up and don’t have to be ashamed about inviting your friends over anymore.

But I would argue that a car can be more of a status symbol.  If you drive through a nice neighborhood, you will be admiring the homes but you’ll also be looking at what’s parked in the driveway.  You’ll be thinking about the guy with the Tesla in a much different light than the guy with the old Civic.

And this is why cars can potentially destroy your finances.  There is such an emotional attachment to certain cars that it can cloud the judgement of even the most savvy and cost conscious consumer.  Someone coming in the car buying experience with eyes wide open can easily be led astray by an experienced salesman.

They’ll come in for a slightly used Toyota and leave with a brand new Lexus.  Along with a large shiny monthly payment.

There are two principal ways cars can wreck your finances.  Cost and time.  Let’s look at both of these and find out how you can minimize both.

You’re Not Paying For Just a Car

Whether buying or leasing a car (which is another discussion altogether), everyone looks at the monthly payment as the cost of the car.  We live in a paycheck to paycheck society where monthly payments are the barometer of affordability, so this makes sense.

Unfortunately, cars cost more than the monthly payment.  Just like buying a house comes with extra costs, so does buying a car.  Those extra costs come in the form of gas, maintenance, repairs, insurance premiums, parking and tolls.

The average monthly car payment has risen to $509.  With the associated costs that becomes over $700 per month.  The average price of a car sold in the US is over $30,000.  There are car loans that stretch to 7 years nowadays.  This is insanity and will keep you from accumulating wealth for a very long time.

And let’s not forget the almost immediate depreciation you get with a car.  At least homes generally go up in value at the rate of inflation.  Cars lose value as soon as you sign on the dotted line, and they keep going down after that.

So you have a hefty down payment along with a monthly payment.  And add ongoing associated costs to that.  AND the vehicle is losing value over time.  Sounds like a huge money sink to me.

But lots of people really need cars.  If you’re one of those people, like me, you need to do as much as you can to minimize all of these outlays.

Get the cheapest and safest car for your needs that is reliable and gets great gas mileage.  As long as you stay away form luxury cars and getting a bigger car than you need, you’ll be better off than the majority of Americans.

If you want to be wealthy, an expensive car will be a huge obstacle in that journey.

Death by Commute

Another overlooked part of driving is the cost of commuting.  And I’m not talking just about money.  Your health and your time, and sometimes your soul, can all be taken from you because of your commute.  Commuting can literally kill you.

I can attest to this personally.  At my first employer I was commuting less than 10 minutes each way.  I filled up the tank twice a month.  I could go home and see the family for lunch if I wanted.  Life was good.

Then I got a “promotion” which had me driving 35-40 minutes each way.  Sometimes in heavy traffic.  Life was not so good all of a sudden.  I could physically feel myself getting more stressed and I started to have more neck pain.  I had to wake up earlier than before and had less time to spend with my family.

And car maintenance issues started to crop up.  The AC randomly stopped working.  I was hearing strange new sounds coming from the engine.  And all this in just a couple of weeks of my new commute.  I was also definitely less happy at work than I was before.

The only plus was that I could listen to podcasts more often.  But it’s not really a plus since I could have just woken up earlier and listened to them before.  So pretty much nothing but negatives with this longer commute.

The new commute actually compelled me to look for a new job.  And thank goodness I did since I found a new position at a different company for more pay and a commute similar to my original short one.  I noticed the differences almost immediately.  The job was more fun, the neck pain disappeared and driving was kind of enjoyable again.

Finding a new job is one way to reduce the negative aspects of commuting, but there are others.  Public transportation, telecommuting and carpooling are some other ways.  Get creative and find what works with your current situation.

I really appreciate my short commute and it’s going to take a lot for me to give it up!

Conclusion

In my last post about housing I mentioned the Latte Factor.  It showed how you can cut out your morning coffee and invest those savings to grow some money.  Applying this to car buying really makes the Latte Factor not worth the effort.

Kelley Blue Book allows you to look up the 5 year cost of ownership of any car.  This takes into account the car’s price and along with registration, insurance and maintenance.  It’s a great apples to apples comparison to see how much cars really cost.

A 2017 Lexus ES 350 has a 5 year cost of ownership of $54,071.  A 2017 Toyota Corolla comes in at $34,286.  That $20,000 difference can send your investment accounts skyrocketing.  Both cars seat 5 people and are reliable.  And the Corolla owner can keep getting his lattes everyday.

This is a real and significant difference that can make or break your finances.  The Lexus might turn a few more heads, but the Corolla owner will be wealthier.  And if he invests his money wisely, he will be FAR wealthier.  Don’t let your ego get in the way of being rich.

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Sweat the Big Things. Part 1: Housing

This may be a bit much for your family of 3

 

The first personal finance book I ever read was The Automatic Millionaire by David Bach.  It was a great intro to personal finance and I would recommend it to anyone looking for a great personal finance book.  One idea the author introduced is called the Latte Factor.

The Latte Factor is the idea that if you cut out your daily $5 latte and instead invested that money in stocks, you would have hundreds of thousands of dollars available to you at retirement.

And it’s true!  If you invest $25 per week into a stock portfolio with a 7% return, after 25 years you will have $72,947.  This doesn’t take inflation into account, but not bad for skipping your daily coffee fix.

The problem is, millions of people have read The Automatic Millionaire, but millions of people are still spending $5 (or more) on their daily coffees.  Lots of people actually enjoy their lattes so giving them up consistently for decades is just not gonna work.

The Latte Factor essentially shows that cutting back on little things and then investing the difference can produce wealth.  And it certainly can.  But it’s not enough to change behavior since it takes decades to see any progress.  And even though $73,000 after 25 years is nothing to sneeze at, many people will need at least $1 million+ in retirement savings to have a similar standard of living as their working years.

That $73,000 suddenly doesn’t seem that impressive after decades of sacrifice.  So what’s the solution?

Focus on the Big Things

People would do better to focus on the big wins in life rather than focusing solely on little things like lattes.  This is especially true for professionals with high incomes but low net worths.  Saving $25 a week as a student would be huge.  Saving that much for a professional making six figures?  Doesn’t move the needle.  With higher incomes you need to set your saving sights a little higher.

There are three big things everyone should focus on:  Housing, transportation and taxes.  If you’re intelligent in these 3 areas and avoid the big mistakes, you will have more wealth than you can handle.

(This post will just focus on one of the big three:  Housing.  Stay tuned for upcoming posts on the other two)

Housing

Buying a home will be the biggest purchase most of us will ever make.  We will probably buy multiple homes during their lifetime, so getting this transaction right will set you up for financial success.

And getting it wrong will have you in a financial hole for your entire life.

There are three main factors that you need to focus on when buying a home:

1.  Credit Score:  Some people can buy a $500,000 house outright with cash. I plan to be one of those people but am not quite there.

Until that happens, me and most people in the country need to borrow money from a bank to buy that house. This type of loan is called a mortgage (which literally means “death pledge”)

Mortgage interest rates are pretty low nowadays, but to get the lowest of the low rates you need a great credit score.

Notice I said GREAT credit score and not just good. Having a great credit score can sometimes save you an entire point on your interest rate, which could result in tens of thousands of dollars of savings over the life of your death pledge.

If you don’t have a great credit score, read this and work on it.  Barring a history of bankruptcy or some major bills in collection, everyone should be able to increase their credit score year after year.

2. Down payment: Having a 20% down payment for your home purchase does three amazing things:

-Disqualifies you from having to pay Private Mortgage Insurance, which is usually about 1% of the purchase price of the home per year.

PMI, as it is known around the block, is what the lender will charge you in case you can’t come up with a traditional 20% down payment.  This goes straight to the lender’s bottom line and may or may not be tax deductible for you.  In any case, it’s a payment you can do without.

-Gives you instant equity in your home. This makes it pretty certain, though not a guarantee, you’ll make a good profit once you sell the house down the line. Not having enough equity will affect you during a housing downturn, like the one we had in 2008.

If you have little equity and your house loses 30% of its value, you are either stuck living there for a long time or have to go through a foreclosure or short sale to sell the house.

-Makes your monthly mortgage payment more affordable.  If you have a 20% down payment, it reduces the amount of mortgage you need and will give you some room to negotiate interest rates depending on your credit score.

If you stretch for a home by getting a low down payment loan, you are increasing your monthly payment which is holding you back from your other financial goals as well.  Plus, you’ll be paying the aforementioned PMI on top of everything.

Physician loans are a slight exception.  They allow you to get a home with a very low down payment without having to pay PMI.  On the flip side, they tend to charge slightly higher interest rates than traditional loans.

3.  Use numbers, not emotions, to buy a home:  Buying a home can be a highly emotional decision.  And that’s just how the home buying industry wants it.

There are many parties that end up making a lot of money from the sale of a home.  The bank that issues your mortgage makes interest off of you.  Your helpful and friendly agent also makes a nice percentage of the sale price.  Builders and contractors also make some nice money.  The only one not making money is you, the home buyer.

There is a whole industrial complex whose sole job is to make buying decision emotional for you.  That’s why they have certain types of lighting and music in stores.  The know emotional customers are overpaying customers, and that will keep the profits rolling in.

The best way to combat this is to work backwards by finding out what you can afford and looking for the best homes in that range.  This should be done before you look up homes or talk to an agent.  Model homes and home buying websites will try to make all their homes glamorous and “must haves”.  Starting your home search based on those false notions will lead you to pay more than you can afford.

A conservative rule of thumb I like is that your mortgage payment shouldn’t be more than 25% of your gross income.  So if you gross $5,000 a month, you shouldn’t be spending more than $1,250 on your mortgage.

And always remember to add 1% of the purchase price of your home as an annual maintenance cost.  Because maintaining a home will cost you, even if it’s a new home.  Many home buyers don’t account for this in their budget, and it can be a rude awakening that can slowly chip away at your checking account.

Your Home Will Make or Break You

As I said before, buying a home will probably be the largest transaction you will ever make.  This is one transaction that will make or break your finances.

By keeping a high credit score, having at least a 20% down payment and not buying a home beyond your means, you will save thousands upon thousands of dollars over the life of your loan.  Investing these type of savings can produce hundreds of thousands of dollars in retirement funds.

And that will buy you a lot of lattes.

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Where to Refinance Your Student Loans

Get some quotes people

Get some quotes people

This post contains affiliate links

People tend to need some hand holding when trying something new.  I’ve found this to be the case when recommending student loan refinance to colleagues.

I recently wrote why everyone with student loans should consider refinancing.  The best that could happen is that your interest rate goes down substantially and you save tens of thousands of dollars over the life of the loan.  The worst that could happen is that refinancing is not beneficial and you stay right where you are.

Nothing to lose at all.

And while people generally like doing things that will benefit them, sometimes a little prodding is still necessary.

For example, I know it’s a good idea to try and fix things around the house myself before I call someone.  But I need to watch a couple of good step by step videos on Youtube before anything actually gets done.  That’s just the way I am.

Many people are like this when it comes to saving money.  They know it’s a good idea to open up a savings account and contribute to it automatically, find a less onerous checking account or sign up for a rewards credit card. But sometimes a little kick in the pants is needed to get going.

This post will serve as that kick in the pants.  I will show you how easy the student loan refinance process is and what companies you should consider.  Let’s get started.

(I will use screenshots from SoFi since they do not require a hard credit check before getting quotes.  More on that later.)

Step 1:  Go to the lender’s website

SoFi page 1

Just type in SoFi.com (or better yet use this link and get $100 if your loan gets approved.)

Most online student loan refinancing companies have easy to use interfaces.  Once you’re on the home page, simply click “Find My Rate” on the top right.

Step 2:  Enter Your Personal Information

info screen

In order to give you an accurate quote, lenders need some information from you.  The type of information required will vary between lenders, and some lenders will do a credit check before you get your quotes.  So the experience with each company will vary.

(By the way I did not hack into Bill Nye’s SoFi account I just made up an account with his name.  I’m fairly sure he doesn’t have a need for student loan refinancing.)

Typically, the information most lenders require is:

-Basic demographic information

-School information

-Employment information

-Current student loan balances and rates

-A little later in the process, you will probably have to send proof of income and a picture of your license or passport.

Some people are wary of giving companies too much information.  This is not really anything to worry about.  In reality, Facebook has a whole lot more information on us than these companies ever will, so I’m okay with letting them know how much money I make.

Step 3:  Analyze your quotes and make a decision

quotes screen

This is where the fun begins.  After you enter all of your information, companies will run a soft or hard credit check.  A soft check won’t affect your credit score but will still allow you to see some quotes which are going to be pretty close to your actual quote.  A hard credit check will show up on your credit report but will give you very precise quotes.

With the example I used, I assumed a student loan balance of $100,000 with a 7% interest rate and a 25 year term.  The minimum payment would be $706.78.  Making just the minimum payment over those 25 years would amount to a total payment amount of $212,000.  More than double the original loan amount!

I advise to go with the shortest payoff period you’re comfortable with and can afford.  But as you can see, even if you go with a 20 year term it would still result in a lifetime savings of more than $43,000 with a slightly lower than original monthly payment!  That’s why I say refinancing is a no-brainer.

A shorter payoff term will also result in a lower interest rate.  So the shorter you can go, the better it will be.

Fixed or Variable?

The other consideration is if you should go with a fixed interest rate or a variable interest rate.  This discussion deserves a post of its own (that’s a good idea!), but if you opt to go with a longer payoff period, about 10 years or longer, I would suggest sticking with a fixed interest rate.

Interest rates are sort of predictable as far as if they will be going up or down, but the uncertainty lies in when that will happen.  Right now in 2016, for instance, interest rates are pretty low so they are bound to go up at some point.

But that could be 6 months from now or 6 years from now.  There is too much uncertainty over a long period of time.  So for shorter term loans, less than 10 years, variable rates are a good bet and for longer term loans, it’s better to stay with fixed.  Everyone has different risk tolerances so use that as a general guideline.

The last thing to consider is that your rates will probably vary from my results, and will probably vary from someone in your same class.  Companies take into account your credit score, credit history, loan balance, interest rate, where you live, where you work and who knows what else.  The screenshot above is just for illustrative purposes, so make sure to get quotes after putting in your own personal information.

So Which Refinance Company Should I Use?

The student loan refinance arena is growing rapidly.  I keep get letters in the mail from new companies claiming they can refinance my loans at the lowest rate possible.

But let me give you the short answer.  There are only two companies worth your trouble:

#1: Earnest (get a $200 bonus by using this link)

#2: SoFi (get a $100 bonus by using this link)

I ended up going with Earnest for my refinance, just because their quoted rate was .05% lower than SoFi’s.  Everything else was pretty much the same with both companies.

Both companies make the onboarding process easy and both companies have great customer service.  You may get different quotes because both companies have different underwriting standards, so get quotes from them both and compare.

If you really truly want more quotes, a good place to look would be Magnify Money.  They will give you a list of all the best student loan refinance companies.  They are also a great resource to find the best checking and savings accounts.

Looking at the potential savings from refinancing I don’t know why anyone would not get a few quotes and see how much they could save.  Refinancing is not a good choice for everyone, but getting quotes online is so easy it really is in your best interest to just take a look.

So to conclude: Earnest. SoFi.  See how much you can save.

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How to Kill your Credit Score

Your credit score is one of the most overlooked parts of personal finance.  Most people don’t know what their credit score is, why it’s important, what contributes to your score and how you can improve it.  I will go into all of that and more.  If you take away only one thing from this discussion, it should be that improving your credit score is a sure fire way for you to save THOUSANDS of dollars across a lifetime.  This is because if you have a great credit score, you will get the best interest rates on mortgage and car loans.  Getting the best rate can save you tens of thousands of dollars on your mortgage alone.

Credit Score basics

Your credit score is a number between 300-850 that lenders use to determine if you are a risky borrower or not.  Generally speaking, the lower your credit score, the more risky you look to lenders.  Which means they will offer you the higher end of their interest rates.  The opposite holds true for those with high credit scores.  This means you will get a great rate for your mortgage, car loan and be accepted for all of the awesome credit cards available.

What goes into your credit score?  Let’s go straight to the source:  The Fair Isaac Corporation (FICO).  Your credit score is also called your FICO score, so it pays to listen to what they tell you.  Here is a nice little pie chart that lays it all out there for you:

Creditsesame

Looking at the chart, it’s easy to see what makes up the majority of your score: payment history, amounts owed and length of credit history.  So as long as you make your payments on time, don’t go near your credit limit on your cards and do that for a few years, your credit score will most likely be excellent.

Conversely, there are a few things that can absolutely KILL your credit score.  And it’s a lot easier and faster to lower your score than it is to increase it.  Making late payments is the #1 surefire way to kill your credit score.  Looking at the chart makes that obvious, but it also makes perfect sense from a lender’s point of view.

If you’re shopping for a home loan, the lenders will look at your credit score.  If your score is low, it tells them you probably don’t pay your bills on time.  While this may or may not be a fair judgement based on one number, a low credit score will nonetheless discourage them from offering you their lowest interest rates.

And late or missed payments can include anything:  Credit card bills, past mortgage payments, rent, car payments, cell phone bills, utility bills and student loan payments.  All of this stuff gets reported to the credit bureaus, so staying on top of your payments is vitally important.

Do Business Online

What’s the best way to make all of your payments on time?  Do everything online.  This makes things really easy as you can just bookmark all of your monthly bills and pay them right online.  Many also allow automatic payments, which pretty much guarantees on time payments.  Use technology to your advantage when it comes to your credit score.  Your future self will thank you.

Another way to hurt your credit score?  Getting really close to your credit limit.  This usually refers to credit cards, and it specifically refers to your credit utilization ratio.

If you have a $20,000 credit limit across all of your cards, and are consistently charging $19,999 every statement period, this shows lenders that you’re using too much credit.  You are a risky borrower in their eyes.  There are two ways to fix this.  The obvious one is don’t spend up to your credit limit!  Either switch to cash for some payments or go through your spending history and cut out the unnecessary stuff.

Another way is to request a credit limit increase.  Just call the number on the back of your credit cards and ask if you can get your limit increased.  Some will do it and some won’t.  But any increase in your credit availability will help your ratio.  Increasing your credit limits and decreasing your spending at the same time would be the ideal way to go.

Conclusion

According to the FICO pie chart, new credit and types of credit used also contribute to your score.  This is only 20% of your score, so it’s not really worth focusing a lot of your time on, especially if you have problems with late payments.  Opening a lot of lines of credit will temporarily decrease your score a few points, but it will go back up once they realize you’re still making your payments on time.  Focusing on late payments and high credit utilization ratios, the two credit score killers, is the quickest and most important way to improve your score.

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Why Doctors Tend to Have High Credit Scores

(Hey everyone.  The following is a guest post from my friend Ryan, who specializes in financial planning for physicians.  He’s doing great work since many physicians and other health professionals are clueless when it comes to their finances.  In this post Ryan talks about a unique aspect of doctor’s credit scores.  Enjoy!)

As a financial planner who specializes in working with doctors and their families, I’ve realized over time that many doctors do have high credit scores. Having a high credit score enables doctors to get competitive interest rates on mortgages, car loans, and more. It also shows lenders that they’re not only accomplished physicians but responsible borrowers who pay their bills on time.

I’ll expand more why doctors typically have high credit scores by outlining how a credit score is actually calculated. That way, if you’re a doctor who wants to raise your credit score in anticipation of a big purchase, you’ll know the steps to take to increase your score to get the best opportunities available to you.

Here are some of the reasons why physicians typically have high credit scores:

1.  Length of Credit History

The length of your credit history definitely factors into your score. For many doctors, taking out student loans is the first step in establishing a credit history. If you start taking out loans as an undergraduate, you’ll have at least 7-8 years of credit history by the time you finish residency.

If you didn’t take out student loans as an undergraduate but you did as a graduate student or medical school student, you’ll still have a few years of credit history under your belt. This helps to improve your score.

2.  Payment History

Your payment history is probably the most important aspect of your credit score because it makes up a whopping 35% of your score. This is the part of your score that shows lenders you’re a worthy investment and that you’ll pay them back on time.

The great news is that once you take out student loans, you’ve started a credit file. Even if your student loans aren’t due yet, your account is in good standing month after month while you’re in school. Lenders love to see this.

If you have credit cards in addition to your student loans, be sure to pay these on time as well. Even if your student loan accounts are in good standing, missing a credit card payment will be detrimental to your score. So, make those payments on time every time solely because your payment history factors so heavily into your overall credit score.

3.  Debt Utilization

 Having a low debt utilization percentage is a fancy way of saying that you’re living within your means. Your debt utilization percentage is how much debt you have relative to the amount of credit available to you. So, if you have 5 maxed out credit cards, your debt utilization percentage will definitely hurt your credit score. However, the more available “space” you have on your revolving credit, like credit cards, the better your credit score will be.

The great news is that student loans are considered installment debt, not revolving debt. They’re a different type of debt than credit cards and thus aren’t factored into this debt utilization score. So, if you have hundreds of thousands of dollars in student loans but you’re not carrying a balance on your credit cards, your debt utilization percentage will be low, which is good for your credit score.

Now that I’ve listed the three parts of a credit score where doctors typically excel, I want to take the time to write about what can hurt your credit score too.

After all, the goal in life is generally to become financially well off, self-sufficient, and happy. Having a strong credit score can enable you to get lower interest rates on some of your biggest purchases, saving your thousands and thousands of dollars over the course of your life. This, in turn, will allow you to use your hard earned money for the things you actually want to do.

So, be aware of these two parts of a credit score as well:

1.  Credit Mix

 Lenders actually want you have a few different types of loans, called a credit mix, because it shows them that you’re able to successfully handle various types of payments like a house payment, credit card payment, and a car payment.

If you only have student loans, this could lower your score, but if you mixed it up a bit (see what I did there?) you could raise your credit score by a few points.

For older doctors who own houses, cars, and have business loans, it’s easy to have a decent credit mix. However, newer doctors who are just finished training might not have many different types of loans.

Keep in mind that credit mix is a small portion of your score and you shouldn’t go and take out loans that you don’t need for the sole purpose of improving this part of your score. However, if you need to bump up your score a few points to qualify for a better mortgage interest rate, diversifying the types of loans you have is something you can try.

2.  New Accounts

This might seem a little counter-intuitive to the point mentioned previously, but it’s something worth mentioning. Basically, lenders don’t like it when you open a bunch of new accounts at once. It signals to them that you’re in need of a lot of credit quickly or that you’re somehow in need of financial help.

So, avoid opening several different credit cards in one year. At the same time, avoid closing your old accounts. Lenders might not like to see a lot of new accounts but they love seeing old accounts in good standing. It shows that for many years you’ve been good about having loans and paying them back on time.

Keep in mind that as you go through your daily life, your credit score will fluctuate. It’ll fluctuate as you pay down debt. It’ll change if you refinance your student loans. It will also change if you get a new travel credit card or a new house. It’s okay for your score to go up and down some, as long as you’re consistently making your payments and checking your credit report regularly to ensure your identity is safe. I tell my clients to sign up for an account at Credit Karma because it’s free, you can check your score whenever you want, and you can dispute anything that’s not right your credit report easily and most importantly, quickly. After all, you don’t have a lot of free time to worry about your finances, right?

So, the good news for all the doctors reading this is that you probably have a high credit score already due to the points I mentioned above. However, if you don’t or if you’re looking to boost your score a few points, that’s absolutely possible by understanding how your credit score is calculated and knowing how you can improve it over time.

Ryan Inman is a fee-only financial planner who specializes in helping physicians and their families build a solid financial future through his firm, Physician Wealth Services. As the husband of a physician, Ryan has a unique insight into what it’s like to be a part of a physician family and thoroughly enjoys helping his clients. To schedule a free 30 minute consultation, feel free to contact Ryan at any time.

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My Favorite Student Loan Calculator

This is going to be a short post, but it should help a lot of people.

Since I’m a finance nerd and think about debt payoff and investing a lot, financial calculators take up a lot of my time.  While there are a lot of good investing calculators out there, I could never find a nice debt payoff calculator.  Here’s what I look for in a good debt calculator:

-The ability to enter multiple loans with different interest rates.  This is really helpful for people with student loans.  Sadly, most calculators don’t even have this seemingly basic feature.

-A graphic representation of my current loans and when they will be paid off.

-The ability to see the effect of increasing or decreasing your extra loan payment on your loan payoff date.

Ready For Zero had a program that did exactly this, and it was great!  I used it for a few years until they suddenly stopped offering it this year.  Huge bummer.

I searched futilely for a similar calculator with no luck.  Recently, I tried to search for a calculator again and an old friend resurfaced…

Unbury.me

I wrote about unbury.me a few years back because the calculator had everything I wanted.  It even showed how much more time and money you’d save by using a debt avalanche instead of a snowball!  It was a very no frills and basic looking calculator but it got the job done.

Like Ready For Zero, it mysteriously disappeared.  But now it’s back with a nice updated look.  Here is a look at the home page:

Everything I want is right there on the home page looking all simple and clean.  From here you can add as many loans as you want and enter the balance, interest rate and monthly payment.  And you can select if you want to pay them off using the avalanche (highest interest loan first) or snowball (lowest balance loan first) method.

Once you enter your information, you’ll be redirected to a cool dashboard with a lot of nice colorful looking graphs.  It’s a nice little control center that gives you a ton of good information.

But the best part is the top of the dashboard which looks like this:

All the information I need in a nice little toolbar.  I love being able to see the exact month my loans will be gone (less than 2 years!)

There are a lot of other cool graphs and numbers to play with.  Number junkies like myself will spend a lot of time on this site.

Having a good student loan calculator like this can be a very motivating factor in paying off your loans quickly.  It’s great seeing the exact month you will be debt free and the powerful effect of paying more on your highest interest loan.

I recommend setting aside a nice half hour to enter all of your student loans and looking at all the nice graphs they have on here.  Another feature is that you can create a profile and save all of your info.  Saves having to re-enter all of your loans again.  Unbury.me is simply an awesome student loan calculator.  Enjoy!

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Take Full Advantage of Your Workplace Benefits

There are few things in life as potentially exciting and nerve wracking as getting that first job out of college.  After years of studying during college (and possibly grad school), building contacts throughout your field, polishing and re-polishing your resumes, going through rounds of interviews, you finally receive the job offer you want.

The salary is in line with what you’re looking for, you have a pretty decent commute and there is plenty of room for advancement.  Finding yourself in this “dream job” scenario is definitely a cause for celebration.

But once the party is over, it really pays to look at the COMPLETE picture of what your new position can offer you.  If you don’t, you risk potentially losing a lot of money and benefits.

Receiving a paycheck is the obvious benefit of working at a new job, but it is not the only benefit.  Every workplace is different, but there are many benefits that you could potentially be eligible for that go unused.

And no matter how nice upper management or HR seem, they will usually not go out of their way to tell you about all the benefits you’re missing.  Here are some of the benefits that many people leave on the table but really shouldn’t because it’s like throwing away free money.

Health Insurance

One of the biggest benefits of employment is affordable health insurance.  While healthcare premiums are usually cheaper for employees, you still have to choose the correct health plan based on your needs.

With the emergence of high deductible health plans (HDHP’s), this decision has become a little more difficult.  HDHP’s have lower premiums than traditional health plans, but they have higher deductibles to meet.  Which means you’ll have to pay more out of pocket before the insurance will start to cover anything.

This can be a good situation if you don’t usually spend money on healthcare throughout the year.  That’s because if you enroll in a HDHP, not only will you have much lower premiums than a traditional low deductible plan, you can also enroll in a Health Savings Account (HSA).

HSA’s allow you to set aside pre tax funds to pay for future healthcare expenses.  The best part is that the account is yours for life and can grow tax free.  A very effective tax savings tool.  Read more about them here.

But if you tend to spend a lot of money on healthcare, a HDHP may not be the answer for you.  Most companies will give you plenty of resources to make the right decision.  The employee still needs to do the work and choose the best plan for them.

Another aspect of health insurance that has caught on recently is the addition of “wellness incentives”.  These are discounts your company gives if you meet certain criteria regarding your health.

For example, my current company gives a discount on your health insurance premium if you are a non-smoker.  Getting a yearly physical with lab work will get you another discount as well.

This helps you by saving money and it helps the company because healthy employees means more productivity.  Many colleagues overlook these easy discounts.  It’s almost like free money since you just have to fill out some forms.

Retirement

With the overall demise of workplace pensions, most employers offer a 401k retirement plan.  This means that the employee is completely responsible for their own retirement.  If you do it wrong, you could end up with nothing in retirement.  If you do it right, you could be a multi millionaire.  No pressure!

A big advantage of 401k’s is that contributions are deducted before taxes, meaning you don’t pay any taxes on contributions the year you contribute but you will pay when you eventually withdraw the money.  The ideal scenario is to contribute as much as you can when have a high income with high taxes, and withdraw the money when your taxes are relatively low during retirement.

Another great perk is the 401k company match.  This is the amount your company will contribute into your account up to a certain percentage.  A common match offer is the company matching your contribution up to 3%.  Some generous companies will throw in some money even if you don’t contribute at all.  At least contribute enough to get the full match.  From there, you should look at your entire financial situation to see if paying off debt or contributing money elsewhere would be a good move.

Many employees don’t contribute to their 401k.  And it’s a darn shame.  According to the Bureau of Labor Statistics, only about 30% of employees who have access to a 401k contribute anything at all.  That’s going to produce a lot of poor people in retirement.  It’s a great “forced” savings plan that will save you on taxes today and provide you with money to live on down the line.  I can’t think of an easier way to pay yourself first.

As I mentioned before, 401k’s require participation on the employees part.  And they can be confusing for financial novices.  Here is a great guide to help get you started with understanding your 401k plan.

Health coverage and retirement accounts are two of the biggest benefits offered by employers.  It’s important to take full advantage of both of these offerings.  If you have any questions about how to fully optimize your plan, contact your HR department or shoot me an email.

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3 Easy Steps to Becoming a Travel Hacker

You hear the word “hacking” a lot nowadays.  Traditionally, hacking was thought of as something negative.  Something we would not want our kids to do.

We think of a recluse living in his parents basement trying to break into a federal organization.  Or a group trying to take down a big evil organization’s website (which is pretty cool depending on who the big evil organization is).

But hacking has evolved recently.  Now you see articles about hacking your sleep or hacking your parenting.  You can find hacks to make it easier to cook dinner or decorate your home.  A hack is essentially a quick shortcut to make your life better.

The term travel hacker has also been in the media lately.  You read about people that have taken month long expeditions around the world for free (disclaimer: it’s not really free).  I’ve talked to many people about travel hacking and most shrug their shoulders and adopt a “must be nice” attitude.

As in, “must be nice for them but I would never be able to do something like that.”  While not everyone has the time or resources to travel hack their way to around the world trips, I will show you how pretty much anyone can travel for a lot less money.

Levels of Hacking

I’ve played basketball since I was a little kid.  I still enjoy playing it whenever I can get time.  Technically, I would call myself a basketball player.

You know who else is a basketball player?  Steph Curry.  While he is a (slightly) better basketball player than me, we’re both basketball players.  He is just on a (much) higher level.

The same thing applies to travel hacking.  If you just look at those “Steph Curry’s” of travel hacking who make elaborate trips to every continent with points, you will get disappointed.

But travel hacking, specifically travel hacking with credit cards, is a very accessible endeavor that can be scaled up as much as you wish.  It just depends on how much time you’re willing to put in.

I’ve been doing some low level travel hacking with credit cards for a few years now.  My wife is from the West Coast so we make trips there every so often.  Our goal is to at least make those trips with points along with a couple of vacations per year.  This is very attainable with a few hours of planning per month.

If you want to travel with your family of 5 to fancy European cities in first class, this is attainable as well.  But it’s going to take a lot of work.  It will amount to a full time job between signing up for credit cards, and staying on the phone with airline reps.  But it is possible, if you’re willing to put in the work.

My strategy:  Get the most lucrative credit card offers I can find and use those points to take our eventual West Coast trips.  This is essentially getting the “low hanging fruit” of travel hacking and optimizing it as much as possible.

It’s kind of like the 80/20 rule.  Give 20% effort to get 80% of the results.  That’s good enough for most people.  If I want to get better results, I need to give more effort but the work will be a lot more.  I currently don’t have the inclination to work 20+ hours a week to get better point redemptions, but I can if I choose to.

Anyway, here are the nuts and bolts of my current travel hacking strategy.

3 Steps to Travel Hacking

BIG Disclaimer:  Travel hacking with credit cards should not be an option if you plan to make late payments and not pay your balance off in full.  Any interest or late fees will quickly erase the reward benefit.  You have been warned!!

Without further ado here are the three steps it takes to get started in travel hacking:

1.  Apply and get approved for a credit card with a great sign up bonus.  (See some examples at the end of the post.)

You will need a pretty good credit score to get approved for most reward cards.  While there is no hard and fast rule, a credit score of 700 or above is usually good enough.

2.  Meet the minimum spend to snag the sign up bonus.

If a card offers a bonus of 50,000 points, for example, you will have to meet a minimum amount of spend in a certain amount of time to get those points.  A common one is spend $3,000 in 3 months.

While there are a ton of ways to increase spending artificially (and there are many blogs that will teach you how in depth), start with a bonus offer that is attainable with your regular everyday spending.  You can always scale up to a bigger offer once you feel comfortable.

3.  Repeat with another card.

You should cancel the first card if it has an annual fee and you don’t plan on using it.  If there is no annual fee, just keep the card and stick it in a drawer since having more credit will improve your credit score over time.

Something for Everybody

And that’s all there is to it.  There are so many strategies involving finding the best cards to apply for and when to apply.  Countless methods also exist to “manufacture” spend which will allow you to spend more to meet sign up bonuses without actually spending any of your own money.  So this stuff can get deep.

You can take a deep dive if you wish to find out more about these strategies.  Two sites that will provide you the advanced strategies you need for travel hacking are Million Mile Secrets (where I was featured once here!) and Frequent Miler.

But if you want to just stay on the surface and do one credit card bonus at a time to get easy rewards every few months, that’s okay too.  Travel hacking has a place for everybody.

Here are some good credit card bonuses that are currently available and some brief information about them (I don’t make anything off of these links):

Chase Sapphire Preferred:  Get 50,000 Ultimate Reward points after spending $4,000 in 3 months.  This is the go to card for many people including myself.  It gives you double points on travel and dining purchases.  And Ultimate Reward points are very versatile.  You can use them for cash back, flights or transfer to airline or hotel programs.

Chase Freedom:  Get $150 cash back after spending $500 in 3 months.  This is a great cash back card to have since the bonus is easy to get and it features 5% categories each quarter.  So one quarter of the year you will get 5% cash back on dining purchases, for example, and the next month will get 5% on gas purchases.

Chase Southwest:  Get 40,000 Southwest points after spending $1,000 in 3 months.  I fly Southwest a lot and I know a lot of people that do as well.  Southwest points are pretty valuable, and this sign up bonus can easily get you $500 worth of flights.

American Express Premier Rewards Gold:  Get 25,000 Membership Rewards points after spending $2,000 in 3 months.  AMEX has many good travel cards and this is one of the best.  Membership Reward points can be used to book flights directly and can be transferred to other programs.  This card also gets you double points at restaurants, grocery stores and gas stations.

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Inflation is Not a Big Deal. Here’s Why.

James can trade down to a slightly used BMW and save a ton on insurance and maintenance.

Imagine a reverse savings account.  You put money into it and it will slowly erode over time at a constant rate.  Let’s say that rate is 3%.  So every year the amount you have in the account will decrease by 3%.

So you deposit $100, then at the end of the year, you’re left with $97.  If you don’t add anymore money, the following year you would lose 3% more.  You would have to keep adding money just to keep your original $100 deposit.  Doesn’t sound like a good deal.

This is inflation.  It creates an increase in the price of goods over time which erodes the buying power of your money.  The most quoted inflation rate is around 3%, which is the Consumer Price Index (CPI) provided by the Bureau of Labor Statistics.

And many of us have seen this in our lives.  A gallon of milk in 2017 doesn’t cost the same as it did in 1997.  Same goes for a gallon of gas.  I’ve even written before that the only way to beat the inflation monster is to make more money and to do it FAST.

Making more money is a surefire way to beat inflation, but it’s actually a lot easier than that.  Many of you probably have a much lower personal rate of inflation than the 3% figure.

Here’s why the idea of inflation destroying our income and retirement while we stand by helplessly is just not true.

You Are Not an Average

According to the CDC, the average weight of a male in America is 195 pounds.  Besides that being a concerning statistic since that’s already considered overweight for most males, it also doesn’t tell you much about an individual male in America.

Sure, there are males in this country who are exactly 195 pounds, but many are below that weight and many are above.  The 195 pound number is the weight of a fictional “average” right down the middle American male, which most males are not.

And even if you are 195 pounds, there are other factors that make that number even more useless such as height and athleticism.  So that 195 pound number in a vacuum means almost nothing.

I look at inflation in the same way.  While the oft quoted rate of inflation is around 3%, not everyone is affected by that number in the same way.  Prices vary widely in different parts of the country.  Inflation could be at a rate of 5% in New York while it can be 1% in Iowa.  That 3% is a countrywide average.

Inflation also affects good and services in different ways.  Computers cost a lot more 20 years ago than they did now.  Milk costs more now than it did 20 years ago.  Cars cost more now but they last a lot longer than they did before.  That 3% assumes a constant inflation rate among all types of goods, which is just not true.

An average can serve as a good benchmark, but your personal situation can make the number utterly useless.  I never liked the idea of comparing average salaries or savings rates, as everybody’s situation is unique.

You Are Flexible

Now let’s say that you are indeed this average person, and your personal rate of inflation has been increasing at a steady rate of 3%.  It doesn’t mean it has to stay this way!

One of my favorite quotes of all time is from British philosopher Alan Watts:  “You’re under no obligation to be the same person you were 5 minutes ago.”  And this applies directly to the inflation argument.

If the CPI has been showing an average rate of inflation of 3% for the country, there is not much you can do about that.  If your personal spending has been growing at a steady rate of 3% year after year, you can change that right now!  We’re not robots that need to keep spending money on the same things over and over.

There are lots of ways to do this.  We can cut out things we don’t need or just spend less on them.  We can buy less expensive versions of things we usually buy (skip Whole Foods and go to a normal store).  If you take a good look at your personal spending, you can definitely find ways to keep more of your money and reduce that inflation rate.

The fact that we can be flexible and adjust our spending to reduce our inflation rate turns traditional retirement planning on its head.  Most retirement plans and calculators automatically assume that your inflation rate will be 3%.  This can easily be changed so this means that most people can actually retire earlier than they thought.

We also may not need to save as much money as we originally thought.  This can make retirement planning seem a lot less scary and disheartening.  That being said, I’m usually pretty conservative when it comes to saving and investing.  So assuming an inflation rate of 3% is not the worst thing, because it will at least ensure that you will have enough money to reach your goals.

Conclusion

Don’t get me wrong, inflation is definitely real and it has very real effects on people’s lives.  But it’s not as big of a deal as its made out to be.  Capitalism wants people to keep consuming until the end of their days.  If you follow along, then your inflation rate will certainly be 3% or even more.

But it doesn’t have to be that way.  You can adjust your spending so you actually spend less of your money than you did in the past.  Humans are a lot more flexible than they think, and I believe everyone can find ways to make inflation a very minimal factor in their personal economy.

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