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Luis Puente

Luis Puente

Financial Education

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March 4, 2020

A Brief History of Credit Cards

A Brief History of Credit Cards

We’re all familiar with credit cards.

You probably have a few in your wallet! But did you know that they’re actually fairly modern inventions with an interesting, and surprisingly controversial, backstory. This is a brief history of credit cards!

Credit before cards
The concept of credit is actually thousands of years old. It dates back to the time of the first recorded laws, if not further. But the practice of credit fell on hard times following the fall of the Roman Empire; the Church opposed lending someone money and then adding on interest when they pay it back. But the Renaissance, coupled with the discovery of a huge resource filled continent, saw a revolution in Western banking and investing. Businesses started collaborating to find out which borrowers were reliable and which ones couldn’t pay their debts.

The birth of charge cards
It wasn’t uncommon for businesses to loan money to customers. General Motors, for instance, started offering credit in 1919 to car buyers who couldn’t pay up front with cash (1). Merchants with more regular customers, like department stores, started handing out credit tokens that would allow purchases to be made on credit.

But things changed in 1949 when New York businessman Frank McNamara realized he didn’t have his wallet at a restaurant when it came time to pay the check. Luckily his wife was there to rescue him. He and his business partner, Ralph Schneider, then came up with the idea of a card that would allow users to dine around New York on credit. It wasn’t a full-blown credit card; it had to be paid off in full at the end of each month, making it a “charge” card. But it was a hit. By 1951, the Diners Club Card was being used by 10,000 people (2)!

“Giving sugar to diabetics”
Big banks were quick to realize that they could make a pretty penny if they started offering easily accessible credit to the masses. In 1958, Bank of America released its own credit cards. Debt from one month was carried over to the next month, meaning consumers could carry revolving credit card debt for as long as they pleased. Magnetic strips—invented in the early 60s—were added to the plastic cards and used to store transaction information at special payment terminals.

But banks had a problem; they had to make sure that the cards were actually accepted by stores. Otherwise, why bother using your brand new credit card? But stores would only accept the cards if enough people actually had them. A mass mailing campaign began, with banks sending out millions of cards to families across the nation. It worked, and soon credit cards became increasingly normalized.

Not everyone was pleased. There were huge issues with cards being stolen out of mailboxes and used to rack up debt. Furthermore, some were uncomfortable with popular access to massive amounts of credit. The President’s assistant at the time described it as “giving sugar to diabetics (3).” Regulations were introduced throughout the 70s to reduce some of the excesses of credit card distribution and protect consumers.

Conclusion
But despite the backlash, credit cards had arrived on the scene for good. Banks united to strengthen their network in 1970, forming the group that would eventually become Visa. Interbank Card Association (i.e., MasterCard) formed in 1966 and then introduced a vast computer network in 1973, connecting consumers with merchants in unprecedented ways.

Today, credit cards are everywhere. In 2017, 40.8 billion credit transactions were made, totalling 3.6 trillion dollars (4). The technology of consumer credit has continued to evolve too. The magnetic strips of the 60s and 70s have given way to chips, and now cards are slowly being replaced by phones and digital watches. What started as a way of paying for dinner if you forgot your wallet has become an international and digital phenomenon that’s changed the lives of millions of consumers.

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(1) https://www.businessinsider.com/5000-year-history-of-consumer-credit-2017-8 (2) https://www.dinersclubus.com/home/about/dinersclub/story (3) https://www.pbs.org/wgbh/pages/frontline/shows/credit/more/life.html (4) https://www.thebalance.com/history-of-credit-cards-4766953

February 19, 2020

A Brief History of Stock Exchanges

A Brief History of Stock Exchanges

Stock markets didn’t exist four hundred years ago.

Wealth was highly concentrated in the hands of monarchs, lords, and elite merchants, and trade was risky at best. Raising money for an expedition (or war) meant either asking for a loan, collecting taxes, or both.

A Whole New World
But something changed for Europeans in the 1400s. The Ottoman Turks captured Constantinople (now Istanbul) and effectively cut off trade routes that had always brought in goods and big profits from China. Things that were previously thought impossible suddenly sounded like worthwhile possibilities. One thing led to another and before long a fellow named Christopher Columbus had introduced Europeans to a massive continent rich in resources. Major powers like Spain, Portugal, France, and England started to seriously invest in getting as much out of this “New World” as they could!

Disease, Famine, and Risk Reduction
“What does any of this have to do with trading stocks?” you might ask. Well, imagine that you’re living in 16th century Europe and you decide you’ve had it with all this groveling and servitude and poverty and want to make some cash. The New World is your best option to make it big; land is easy to come by and there are plenty of new resources like tobacco to grow and sell. There’s just one problem: it’s insanely risky. Between disease, famine, and bad weather, there’s a good chance you’ll either die or lose everything in the attempt. So what can you do?

Traders realized that they could reduce how much they risked on an expedition if they got multiple people to chip in. Everybody would get a portion of the profits if everything went well, and if not, any losses would get spread out. It didn’t take long for people to figure out that selling small portions or “shares” of trading voyages was a great way to raise cash that didn’t require levying taxes or stumbling on massive gold deposits.

The First Coporation
At first, shares were only good for a single voyage. But the Dutch East India Company changed all of that in 1602. The Dutch government decided they wanted to dominate trade with Asia, and they looked to the public for funding. Shares were priced so that most merchants could buy in, and the promise of government backing and continuing profits convinced hundreds to purchase the stock. It worked. The Dutch East India company became one of the first truly transnational corporations in history and essentially became its own state, flooding the Dutch people with valuable resources and prosperity.

Everyone took note of the Dutch model and decided to imitate it. Publicly traded companies started to pop up across Europe, with stock exchanges becoming a place where anyone with the means could buy and sell shares of different corporations. It was a huge step away from the older model of raising capital and created a new kind of institution, one that continues to dominate the world of business to this day.

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November 18, 2019

Matters of Age

Matters of Age

The younger you are, the less expensive your life insurance may be.

Life insurance companies are more willing to offer lower premium life insurance policies to young, healthy people who will likely not need the death benefit payout of their policy for a while. (Keep in mind that exceptions for pre-existing medical conditions or certain careers exist – think “skydiving instructor”. But in many cases, the odds are more in your favor for lower premiums than you might guess.)

At this point you might be thinking, “Well, I am young and healthy, so why do I need to add another expense into my budget for something I might not need for a long time?”

Unlike a financial goal of saving up for a downpayment on your first house, waiting for “the right moment” to get life insurance – perhaps when you feel like you’re prepared enough – is less beneficial. A huge part of that is due to getting older. As your body ages, things can start to go wrong – unexpectedly and occasionally chronically. Ask any 35-year-old who just threw out their back for the first time and is now Googling every posture-perfecting stretch and cushy mattress to prevent it from happening again.

With age-related health issues in mind, remember that the premium you pay at 22 may be very different than the premium you’ll pay at 32. Most people hit several physical peaks in that 10 year window:

  • 25 – Peak muscle strength
  • 28 – Peak ability to run a marathon
  • 30 – Peak bone mass production

If you’re feeling your mortality after reading those numbers, don’t worry! You’re probably not going to go to pieces like fine china hitting a cement floor on your 30th birthday. But there is one certainty as you age: your premium will rise an average of 8-10% on each birthday. Combine that with an issue like the sudden chronic back problems from throwing your back out that one time (one time!), and your premium will likely reflect both the age increase and a pre-existing condition.

If you experience certain types of illness or injury prior to getting life insurance, it often goes in the books as a pre-existing condition, which will cause a premium to go up. Remember: the less likely a person is going to need their life insurance payout, the lower the premium will likely be. Possible scenarios like the recurrence of cancer or a sudden inability to work due to re-injury are red flags for insurance companies because it increases the likelihood that a policyholder will need their policy’s payout.

A person’s age, unique medical history, and financial goals will all factor into the process of finding the right coverage and determining the rate. So taking advantage of your youth and good health now without bringing an age-borne illness or injury to the table could be beneficial for your journey to financial independence.

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November 11, 2019

What Are the Effects of Closing a Credit Card?

What Are the Effects of Closing a Credit Card?

Americans owe over $900 billion.

If you’re on a mission to reduce or eliminate your credit card debt, you may decide to just close all your credit cards. However, some of the consequences may not be what you’d expect.

Lingering Effects: The Good and the Bad
Many of us have heard that credit card information stays on your credit report for 7 years. That’s true for negative information, including events as large as a foreclosure. Positive events, however, stay for 10 years. In either case, canceling your credit card now will reduce the credit you have available, but the history – good or bad – will remain on your credit report for years to come.

Times when cancelling a card may be your best bet:

  • A card charges an annual fee. If you’re being charged an annual fee for the privilege of having a credit card, it may be better to cancel the card, particularly if you don’t use the card often or have other options available.
  • Uncontrolled spending. If “retail therapy” is impeding your financial future by creating an ever-growing mountain of debt, it may be best to eliminate the temptation of buying with credit by cutting up those cards.

When You Might Want to Hang Onto a Credit Card:
You may not have known that one aspect your credit score is the age of your accounts. Canceling a much older account in favor of a newer account can leave a dent in your credit score. And canceling the card won’t erase any negative history, so it may be best to hang on to the older credit account as long as there are no costs to the card. Also, the effects of canceling an older account may be larger when you’re younger than if you have a long credit history.

Credit Utilization Affects Your Credit Score
Lenders and credit bureaus also look at credit utilization, which refers to how much of your available credit you’re using. Lower percentages help your credit score, but high utilization can work against you.

For example, if you have $20,000 in credit available and $10,000 in credit card balances, your credit utilization is 50 percent. If you close a credit card that has a credit limit of $5,000, your available credit drops to $15,000, but your credit utilization jumps to 67 percent (if the credit card balances remain unchanged). If you’re carrying high balances, going on a credit card cancelling rampage can have negative effects because your credit utilization can skyrocket.

To sum it all up, if unnecessary spending is out of control or there is a cost to having a particular credit card, it may be best to cancel the card. In other cases, however, it’s often better to just use credit cards occasionally, or if you have an emergency.

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November 4, 2019

How to Build Credit When You’re Young

How to Build Credit When You’re Young

Your credit score can affect a lot more than just your interest rates or credit limits.

Your credit history can have an impact on your eligibility for rental leases, raise (or lower) your auto insurance rates, or even affect your eligibility for certain jobs (although in many cases the authorized credit reports available to third parties don’t contain your credit score if you aren’t requesting credit). Because credit history affects so many aspects of financial life, it’s important to begin building a solid credit history as early as possible.

So, where do you start?

  1. Apply for a store credit card.
    Store credit cards are a common starting point for teens and young adults, as it often can be easier to get approved for a store card than for a major credit card. As a caveat though, store card interest rates are often higher than for a standard credit card. Credit limits are also typically low – but that might not be a bad thing when you’re just getting started building your credit. A lower limit helps ensure you’ll be able to keep up with payments. Because you’re trying to build a positive history and because interest rates are often higher with a store card, it’s important to pay on time – or ideally, to pay the entire balance when you receive the statement.

  2. Become an authorized user on a parent’s credit card.
    Another common way to begin building credit is to become an authorized user on a parent’s credit card. Ultimately, the credit card account isn’t yours, so your parents would be responsible for paying the balance. (Because of this, your credit score won’t benefit as much as if you are approved for a credit card in your own name.) Another thing to keep in mind is that some credit card providers don’t report authorized users’ activity to credit bureaus. Additionally, even if you’re only an authorized user, any missed or late payments on the card can affect your credit history negatively.

Are secured cards useful to build credit?
A secured credit card is another way to begin building credit. To secure the card, you make an initial deposit. The amount of that deposit is your credit line. If you miss a payment, the bank uses your collateral – the deposit – to pay the balance. Don’t let that make you too comfortable though. Your goal is to build a positive credit history, so if you miss payments – even though you have a prepaid deposit to fall back on – you’re still going to get a ding on your credit history. Instead, it’s best to use a small amount of your available credit each month and to pay in full when you get the statement. This will help you look like a credit superstar due to your consistently timely payments and low credit utilization.

As you build your credit history, you’ll be able to apply for credit in larger amounts, and you may even start receiving pre-approved offers. But beware. Having credit available is useful for certain emergencies and for demonstrating responsible use of credit – but you don’t need to apply for every offer you receive.

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September 11, 2019

Your Life Insurance Rate & You: The Risk Takers

Your Life Insurance Rate & You: The Risk Takers

Lightning strikes and shark attacks and winning the lottery – Oh my!

Two big things to keep in mind:

  1. None of these are likely to happen to you. (The odds of winning the lottery alone are 175 million to 1.)
  2. Occasionally playing in the rain, swimming in the ocean, or buying a lotto ticket won’t affect your life insurance rate.

But…

Bungee jumping and kayaking and skydiving – Oh my! These 3 are a different story when it comes to determining your life insurance rate!

When you apply for a life insurance policy, the underwriting process involves reviewing a variety of different factors about you – your age, gender, family health history, lifestyle, etc. The underwriters need to help your potential insurer determine what kind of risk you pose to the insurance company.

What are insurance companies looking for? Ideally, someone who is young, healthy, and will not likely need their policy payout soon. These are the individuals who typically enjoy the lowest insurance rates. However, it’s important to note that no matter your age or how healthy you are, if you engage in some risky hobbies, they have the potential to bungee you right out of the easy-to-insure category.

Let’s take a look at skydiving, for instance. You voluntarily:

  • Strap a giant piece of cloth stuffed in a bag to your back.
  • Get into an airplane, take off, and then open the door mid-flight.
  • Approach said open door of the plane.
  • Jump. Out. Of the plane. Roughly 13,000 feet above the ground.

And we’re not even addressing the part where you trust the giant piece of folded up cloth to deploy correctly and carry you safely to the ground! This is textbook risky. (And certainly just one way to look at skydiving – most insurers don’t care that this might be a big check mark on your bucket list.)

When you raise your odds of being in harm’s way, you raise your life insurance rate – and sometimes your inability to be approved for a policy at all. In 2016, 1 in 153,557 skydiving jumps resulted in a fatality in the US. While these odds are not as likely as the odds of getting your cheek pinched by Great Aunt Gladys at Thanksgiving or seeing a brand new Porsche taking up two parking spaces at the mall on Black Friday, it’s a lot more likely than your lottery odds, to be sure.

And willingly leaping out of a plane is going to raise a red flag for any insurer.

Some other risky hobbies that may have an impact on your life insurance rate or policy approval:

  • Hot air ballooning
  • Scuba diving
  • Car racing, boat racing, bike racing
  • Skiing and snowboarding
  • Hang gliding

If you enjoy living a bit more adventurously than most, it doesn’t mean that you can’t get life insurance to protect your future and your loved ones. Working with me gives you a distinct and adventurous advantage: you’ll have multiple products and insurers to work with. This isn’t a guarantee for success, but we can embark on this journey together and explore your options. Finding a life insurance policy that suits your lifestyle isn’t an impossible task, but you should take that leap sometime soon. Why not start today? (Parachute optional!)

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May 13, 2019

6 Financial Commitments EVERY Parent Should Educate Their Kids About

6 Financial Commitments EVERY Parent Should Educate Their Kids About

Your first lesson isn’t actually one of the six.

It can be found in the title of this article. The best time to start teaching your children about financial decisions is when they’re children! Adults don’t typically take advice well from other adults (especially when they’re your parents and you’re trying to prove to them how smart and independent you are).

Heed this advice: Involve your kids in your family’s financial decisions and challenge them with game-like scenarios from as early as their grade school years.

Starting your kids’ education young can help give them a respect for money, remove financial mysteries, and establish deep-rooted beliefs about saving money, being cautious regarding risk, and avoiding debt.

Here are 6 critical financially-related lessons EVERY parent should foster in the minds of their kids:

1. Co-signing a loan

The Mistake: ‘I’m in a good financial position now. I want to be helpful. They said they’ll get me off the loan in 6 months or so.’

The Realities: If the person you’re co-signing for defaults on their payments, you’re required to make their payments, which can turn a good financial situation bad, fast. Also, lenders are not incentivized to remove co-signers – they’re motivated to lower risk (hence having a co-signer in the first place). This can make it hard to get your name off a loan, regardless of promises or good intentions. Keep in mind that if a family member or friend has a rough credit history – or no credit history – that requires them to have a co-signer, what might that tell you about the wisdom of being their co-signer? And finally, a co-signing situation that goes bad may ruin your credit reputation, and more tragically, may ruin your relationship.

The Lesson: ‘Never, ever, EVER, co-sign a loan.’

2. Taking on a mortgage payment that pushes the budget

The Mistake: ‘It’s our dream house. If we really budget tight and cut back here and there, we can afford it. The bank said we’re pre-approved…We’ll be sooo happy!’

The Realities: A house is one of the biggest purchases couples will ever make. Though emotion and excitement are impossible to remove from the decision, they should not be the driving forces. Just because you can afford the mortgage at the moment, doesn’t mean you’ll be able to in 5 or 10 years. Situations can change. What would happen if either partner lost their job for any length of time? Would you have to tap into savings? Also, many buyers dramatically underestimate the ongoing expenses tied to maintenance and additional services needed when owning a home. It’s a general rule of thumb that home owners will have to spend about 1% of the total cost of the home every year in upkeep. That means a $250,000 home would require an annual maintenance investment of $2,500 in the property. Will you resent the budgetary restrictions of the monthly mortgage payments once the novelty of your new house wears off?

The Lesson: ‘Never take on a mortgage payment that’s more than 25% of your income. Some say 30%, but 25% or less may be a safer financial position.’

3. Financing for a new car loan

The Mistake: ‘Used cars are unreliable. A new car will work great for a long time. I need a car to get to work and the bank was willing to work with me to lower the payments. After test driving it, I just have to have it.’

The Realities: First of all, no one ‘has to have’ a new car they need to finance. You’ve probably heard the expression, ‘a new car starts losing its value the moment you drive it off the lot.’ Well, it’s true. According to CARFAX, a car loses 10% of its value the moment you drive away from the dealership and another 10% by the end of the first year. That’s 20% of value lost in 12 months. After 5 years, that new car will have lost 60% of its value. Poof! The value that remains constant is your monthly payment, which can feel like a ball and chain once that new car smell fades.

The Lesson: ‘Buy a used car you can easily afford and get excited about. Then one day when you have saved enough money, you might be able to buy your dream car with cash.’

4. Financial retail purchases

The Mistake: ‘Our refrigerator is old and gross – we need a new one with a touch screen – the guy at the store said it will save us hundreds every year. It’s zero down – ZERO DOWN!’

The Realities: Many of these ‘buy on credit, zero down’ offers from appliance stores and other retail outlets count on naive shoppers fueled by the need for instant gratification. ‘Zero down, no payments until after the first year’ sounds good, but accrued or waived interest may often bite back in the end. Credit agreements can include stipulations that if a single payment is missed, the card holder can be required to pay interest dating back to the original purchase date! Shoppers who fall for these deals don’t always read the fine print before signing. Retail store credit cards may be enticing to shoppers who are offered an immediate 10% off their first purchase when they sign up. They might think, ‘I’ll use it to establish credit.’ But that store card can have a high interest rate. Best to think of these cards as putting a tiny little ticking time bomb in your wallet or purse.

The Lesson: ‘Don’t buy on credit what you think you can afford. If you want a ‘smart fridge,’ consider saving up and paying for it in cash. Make your mortgage and car payments on time, every time, if you want to help build your credit.’

5. Going into business with a friend

The Mistake: ‘Why work for a paycheck with people I don’t know? Why not start a business with a friend so I can have fun every day with people I like building something meaningful?’

The Realities: “This trap actually can sound really good at first glance. The truth is, starting a business with a friend can work. Many great companies have been started by two or more chums with a shared vision and an effective combination of skills. If either of the partners isn’t prepared to handle the challenges of entrepreneurship, the outcome might be disastrous, both from a personal and professional standpoint. It can help if inexperienced entrepreneurs are prepared to:

  • Lose whatever money is contributed as start-up capital
  • Agree at the outset how conflicts will be resolved
  • Avoid talking about business while in the company of family and friends
  • Clearly define roles and responsibilities
  • Develop a well-thought out operating agreement

The Lesson: ‘Understand that the money, pressures, successes, and failures of business have ruined many great friendships. Consider going into business individually and working together as partners, rather than co-owners.’

6. Signing up for a credit card

The Mistake: ‘I need to build credit and this particular card offers great points and a low annual fee! It will only be used in case of emergency.’

The Reality: There are other ways to establish credit, like paying your rent and car loan payments on time. The average American household carries a credit card balance averaging over $16,000. Credit cards can lead to debt that may take years (or decades) to pay off, especially for young people who are inexperienced with budgeting and managing money. The point programs of credit cards are enticing – kind of like when your grocer congratulates you for saving five bucks for using your VIP shopper card. So how exactly did you save money by spending money?

The Lesson: ‘Learn to discipline yourself to save for things you want to buy and then pay for them with cash. Focus on paying off debt – like student loans and car loans – not going further into the hole. And when you have to get a credit card, make sure to pay it off every month, and look for cards with rewards points. They are, in essence, paying you! But be sure to keep Lesson 5 in mind!’

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January 28, 2019

Your credit score – 4 things you need to know

Your credit score – 4 things you need to know

You’re probably aware that your credit score is usually accessed when you apply for new credit, such as a credit card or an auto loan.

But you may not know it might also be requested by landlords, employers, and even romantic partners.[i]

So what are your credit score and report, what are the factors that determine them, and why do so many diverse parties request to see them?

What is a credit score and what is a credit report?
Your credit score is simply a number that encapsulates your ability to repay debt. It isn’t the only way interested parties can assess your creditworthiness, but it’s certainly often used as a preliminary factor. Having a higher score may lead to lower interest rates, more successful credit applications, and possibly more trust in general.

Your credit report is much more comprehensive and shows your outstanding debts, how well you pay them, the age of the accounts, and so forth. A single bad account on your credit report might damage your score, but your counterparty may be willing to work with you if you can show a strong history with your other accounts – and can justify the problem account.

What constitutes your credit score?
Credit reports are maintained by the three main credit reporting agencies: TransUnion, Equifax, and Experian. A credit score is generated by FICO, VantageScore, and some financial institutions may have their own proprietary algorithms to determine their own scores.

In general, scores are determined by the variously-weighted categories of payment history, the amount owed (credit utilization), the age of the accounts, how much new credit you’ve requested recently, and the types of accounts (revolving, mortgage, student loans, etc.).[ii] Of course proprietary scores may take many other factors into consideration.

Who wants to see your credit score?
Lenders may screen you based on your credit score, then use other factors to determine if they’ll give you a loan. Instant-approval lenders, like credit card companies, may just use your credit score to determine your creditworthiness. For large, long-term loans, like mortgages, you can expect to have to turn over your credit report as well.

Landlords may ask for a report, but might also request your credit score as well. They have the obvious financial interest in relying on you to pay your rent from month to month, but they also may have in mind that if you’re responsible with your money, perhaps you’ll also be responsible to take care of your rented living quarters.

Employers may ask to see your credit report. They may make hiring decisions based on the report, but some states have disallowed the practice.[iii] The chance that financial hardship may prompt employee theft is one reason they may ask, as well as wanting to see your consistency in paying debts over time, which may correlate with your punctuality and persistence at work.

How to improve your score
Those with poor credit may want to improve their credit history, which may in turn improve their credit scores. Payment history makes up 35% of the FICO scoring factors, and this will take time to improve. However, 30% of the score is determined by how much you owe, which can quickly be improved by paying down your debt. The 15% determinant that is credit age can, of course, only improve with time, but the 10% of your score attributed to new requests and 10% to types of credit can be managed in a short timeframe, too; try to avoid applying for a lot of new credit and, when you do, try to get different types of credit.[iv]

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[i] https://www.businessinsider.com/good-credit-score-can-help-you-get-a-date-2018-2
[ii] https://www.thebalance.com/fico-credit-score-315552
[iii] https://www.thebalancecareers.com/why-do-employers-check-credit-history-2059598
[iv] http://money.com/money/collection-post/2791957/what-is-my-credit-score/

January 7, 2019

Read this before you walk down the aisle

Read this before you walk down the aisle

Don’t let financial trouble ruin your future wedded bliss.

Most newlyweds have a lot to get used to. You may be living together for the first time, spending a lot of time with your new in-laws, and dealing with dual finances. Financial troubles can plague even the most compatible pairs, so read on for some tips on how to get your newlywed finances off to the best possible start.

Talk it out
If you haven’t done this already, the time is ripe for a heart to heart talk about what your financial picture is going to look like. This is the time to lay it all out. Not only should you and your fiancé discuss your upcoming combined financial situation, but it can be beneficial to take a deep dive into your past too. Our financial histories and backgrounds can influence current spending and saving habits. Take some time to get to know one another’s history and perspective when it comes to how they think about money, debt, budgeting, etc.

Newlyweds need a budget
Everyone needs a budget, but a budget can be particularly helpful for newlyweds. A reasonable, working household budget can go a long way in helping ease financial stress and overcoming challenges. Money differences can be a big cause of marital strife, but a solid, mutually-agreed-upon budget can help avoid potential arguments. A budget will help you manage student loans or new household expenses that must be dealt with. Come up with a budget together and make sure it’s something you both can stick with.

Create financial goals
Financial goal setting can actually be fun. True, some goals may not seem all that exciting – like paying off credit cards or student loans. But formulating financial goals is important.

Financial goal setting should start with a conversation with your new fiancé. This is the time to think about your future as a married couple and work out a financial strategy to help make your financial dreams a reality. For example, if you want to buy a house, you’ll need to prepare for that. A good start is to minimize debt and start saving for a down payment.

Maybe you two want to start a business. In that case, your financial goals may include raising capital, establishing business credit, or qualifying for a small business loan.

Face your debt head on
It’s not unusual for individuals to start married life facing new debt that came along with their partner – possibly student loans or personal credit card debt. You may also have combined debt if you’re planning on financing your wedding. Maybe you’re going to take your dream honeymoon and put it on a credit card.

Create a strategy to pay off your debt and stick to it. There are two common ways to tackle it – begin with the highest interest rate debt, or begin with the smallest balance. There are many good strategies – the key is to develop one and put it into action.

Invest for the future
Part of your financial strategy should include preparing for retirement, even though it might seem light years away now. Make sure you work a retirement strategy into your other financial goals. Take advantage of employer-sponsored retirement accounts and earmark savings for retirement.

Purchase life insurance
Life insurance is essential to help ensure your new spouse will be taken care of should you die prematurely. Even though many married couples today are dual earners, there is still a need for life insurance. Ask yourself if your new spouse could afford to pay their living expenses if something happened to you. Consider purchasing a life insurance policy to help cover things like funeral costs, medical expenses, or replacement income for your spouse.

Newlywed finances can be fun
Newlywed life is fun and exciting, and finances can be too. Talk deeply and often about finances with your fiancé. Share your dreams and goals so you can create financial habits together that will help you realize them. Here’s to you and many years of wedded bliss!

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November 19, 2018

Before you have your life insurance medical exam...

Before you have your life insurance medical exam...

When you apply to purchase a life insurance policy, you may be asked to submit to a life insurance medical exam.

The insurance company requests this exam to determine your risk for certain medical conditions. They may also test for drugs in your system, including nicotine.

Depending on the insurance company, the medical exam may include blood work, a urinalysis, physical examination, and maybe even an EKG.

Also, in case you were wondering, many insurers will pay for the exam when you’re seeking a whole or term life insurance policy.

What you can expect during a life insurance medical exam
After you submit your application for life insurance, a third party company will contact you to schedule your exam. These companies are hired by the life insurance carrier to conduct exams on their behalf. They may come to your home or have you visit a medical facility.

You may be asked to refrain from having anything to eat or drink for at least 12 hours prior to your exam.

The exam typically takes less than 30 minutes and may consist of:

  • Taking your height and weight
  • Questions about your health as stated on your application
  • A blood draw
  • Urine sample

When your test is complete, and your results are ready, the company furnishes your results to the insurance carrier. You may also request a copy.

What does a life insurance medical exam test for?
A life insurance medical exam investigates three major areas:

  • Confirming the information you provided on your application
  • The condition of your health
  • Illicit drug use

The exam may test for diseases such as HIV or other sexually transmitted diseases. It also may identify indicators of heart disease such as a high cholesterol level. The test results may also point out kidney disease or diabetes.

How to prepare for your life insurance medical exam
Be honest: It’s important to complete your application completely and honestly. If the insurance carrier finds a misrepresentation on your application, they can deny coverage. Keep in mind, the application may ask about your lifestyle and if you regularly participate in dangerous activities, such as skydiving. You may also be asked about driving history and speeding tickets.
Eat a healthy diet: Be mindful of your diet in the days and weeks leading up to your exam. Lower your sodium intake as well as your consumption of fatty or sugary foods. Salt, sugar, and fat may elevate your blood pressure and cholesterol, so it may be best to avoid them to help get the best results. Shed a few pounds: If you’re above a healthy weight for your height, try to shed some pounds before the exam. If you’re overweight, your insurance carrier may charge a higher premium on your policy. It’s best to be as close to your healthy weight as possible.
Abstain from alcohol: Refrain from drinking alcohol for at least 24 hours before your exam. This will help ensure you don’t have a high blood alcohol level.
Drink plenty of water: Hydrating properly helps to flush toxins out of your system, and it may also make the exam more comfortable. You’ll have an easier time producing a urine sample and your veins will be easier to reach for a blood draw.

Dress lightly and practice good posture: Clothing can increase your weight by a few pounds, so dress lightly. Especially if you are approaching an unhealthy weight, your clothing may push you into a higher weight class. Also, stand tall so you are measured at full height.

Keep calm and…
Undergoing a life insurance medical exam can make even the healthiest person a little nervous. Stay calm and complete the application as honestly as you can.

Hint: If you can’t pass a life insurance medical exam, consider a guaranteed issue life insurance policy.

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This article is for informational purposes only. You should discuss your exam criteria with a qualified financial professional.

November 5, 2018

Understanding compounding in investments

Understanding compounding in investments

Successful investors like Warren Buffett didn’t just hit a home run on a stock pick.

Warren Buffett hit lots of home runs, but compounding turned those home runs into history-making investment achievements.

Compounding doesn’t have to be a big mystery. It just means that the annual increase is added to the previous year’s balance, which, on average, gives each year a larger base for the next year’s increase. The concept of compounding applies to any interest-bearing savings or investments or to average percentage gains.

Here’s a quick example:

Starting investment: $10,000 Interest rate: 7%

Screen Shot 2018-11-06 at 1.32.35 PM

The rule of 7 & 10
There’s a reason a 7 percent return was chosen for this example. You can see that the total interest return over 10 years is about double the original investment. This is an example of the “Rule of 7 & 10”, which says that money doubles in 10 years at 7 percent return and that it doubles in 7 years at 10 percent interest. It’s not an exact rule, but it’s close enough so you can quickly estimate without a spreadsheet or calculator.

The simple interest example above only begins to show the power of compounding. It doesn’t include any additional investments after year one. In investing, compounding can come from more places than one, particularly if the stocks you own pay dividends. (A dividend is a share of the profit that is distributed to shareholders.)

Compounding in investing
Investing in stocks or mutual funds may provide an average annual return in line with the simple interest example, assuming investments are well diversified to mimic the broad market performance. For example, the S&P 500 return over the past 10 years is just over 7 percent annualized.[i] When you adjust for dividends, the annualized return is close to 10 percent. If those numbers sound familiar – like the rule of 7 & 10 – it’s a coincidence, but the past 10 years of S&P returns are very close to historical averages. Knowing what we now know, it’s easy to figure out that $10,000 will double in 7 years, assuming that market performance is aligned with historical averages. In reality, market performance may be higher or lower than past averages – but over a longer time line, short term peaks and valleys usually blend into an overall trend in direction.

If you’re concerned that you don’t know as much about investing as Warren Buffett, don’t think you need to be an oracle to be a successful investor. Many times, the best stock to pick for individual investors may be no stock at all. There are a myriad of investment options from which to choose without buying stocks directly. Talk to your financial professional about what choices may be available for you.

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[i] https://dqydj.com/sp-500-return-calculator/

This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing or enacting a retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

September 24, 2018

Inflation Over Time and What it Means for Retirement

Inflation Over Time and What it Means for Retirement

You may have thought that inflation is always bad, but did you know that sometimes it can be good?

Inflation is simply the difference in prices from one year to the next over time. It’s calculated as a percentage and it goes through cycles:

  • Two percent inflation is actually seen as economic growth and is considered “healthy” inflation.
  • As inflation expands beyond three percent it creates a peak and financial bubbles can form.
  • If the percentage falls below two percent, inflation may be seen as negative and recessions can develop.
  • Finally, there is a trough preceding another cycle expansion.

(If you want to geek out about inflation rates, check out a history from 1929 to 2020 at https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093.)

Good or bad, inflation should be a concern for everyone in the United States. The economy affects us all, but it can be particularly troubling for seniors living in retirement, or who are about to enter retirement. This is because retirement is usually based on a fixed income budget. Inflation can decrease the purchasing power of retirees, especially for goods and services that increase with inflation.

Here are some tips to protect your retirement income from the effects of inflation over time:

Maximize Your Social Security
Social security benefits have a cost of living/inflation increase built into the disbursement. So, as inflation goes up and the cost of living rises, so too does your social security.

This can be beneficial while you’re on a fixed retirement income. Because this is the only retirement investment with this feature, try to maximize your social security earnings by working until age 70 if you can.

Select Investments that May Grow When Inflation Rises
While living expenses such as gas, groceries, and utilities might rise with inflation, some investments may offer better returns as inflation rises. This is another reason a diverse retirement portfolio might be beneficial.

Minimize Expenses to Combat Rising Inflation
While none of us can affect the inflation rate itself, we can all work to minimize our expenses during our retirement years. Maximizing your income and minimizing your expenses is the name of the game when you’re living on a fixed budget.

Minimizing housing costs is a strategy to deal with inflation and rising prices. Downsize your home if possible. Perhaps investing in a renewable energy source may help save money on energy expenses. A simple kitchen garden can save you money on groceries – a budget item that can take a big hit from inflation.

The Ebb and Flow of Inflation Over Time
Over time, inflation waxes and wanes. A little planning, diversified investments, and consistent frugality may help you sail through inflation increases during your retirement years.

This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing, talk with a financial professional to discuss your options.

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August 13, 2018

Your Life Insurance Rate & You: Poor Health Habits

Your Life Insurance Rate & You: Poor Health Habits

What are you digging so deep in your pocket for? If you’re looking for a lighter, you might need to dig for some extra change, too…

… You’ll need help to meet your higher life insurance rate if you’re planning on lighting up a cigarette.

Health details and everyday habits that may seem small or insignificant can have a massive effect on your life insurance rate. You may have heard something about the underwriting process. The purpose of the underwriting process is to determine how risky a person will be to insure. And the riskier someone is to insure, the higher their rate is likely to be. That risk is calculated by how soon an insurer estimates an applicant will need the full payout of their life insurance policy.

Some factors that influence risk (like age and gender) are out of your control. But did you know that your habits can also send your life insurance rate up?

Here are 3 poor health habits that an underwriter will definitely uncover and will definitely affect your life insurance rate:

1. Smoking
If you smoke cigarettes, expect a higher life insurance rate. Period. Even products like nicotine patches, gum, or lozenges can earn a life insurance applicant “smoker” status (depending on the provider). At this point, are there really any lingering questions about how cigarettes affect your overall health and projected longevity? Cigarettes contain thousands of chemicals and at least 70 known carcinogens.

A bit of good news? The longer it’s been since you quit smoking, the better things might look for you from an underwriting standpoint. For instance, some underwriters are only required to look back into your history as far as 12 months, so if you have quit cigarettes for a year, you may end up with a better classification – and a better classification potentially means a better life insurance rate.

2. Being Too Overweight
An underwriter will also assess your height-to-weight ratio. Your unique ratio will classify you according to a certain rate. Being overweight or obese increases health risks like stroke, type 2 diabetes, coronary heart disease, and high blood pressure, among others. So the more overweight you are, the riskier you are to insure. And what does that mean? You guessed it: your chances of a higher rate are significantly increased.

3. Drinking A LOT of Alcohol
Did reading about this poor health habit throw you off? After all, a few drinks isn’t that bad, right? Well, “a few drinks,” no, but drinking in excess can start to have adverse effects on your overall health. Excessive or “binge” drinking: liver disease, pancreatitis, cancer, brain damage, and more.

How will an underwriter know if you’re drinking to excess? They’ll give you a questionnaire, you’ll be subject to a medical exam, and they’ll see your driving record. So If there is any evidence of drinking excessively and getting behind the wheel of a car, consider your life insurance rates raised.

Kicking these 3 habits can have great effect on your personal health and on your life insurance rate! With a little effort, time, and preparation, you can put yourself in a better position for a potentially more affordable rate. But don’t wait to get started! Remember: when you apply for life insurance, you may not get full credit for changes to these 3 poor health habits made in the 12 months prior to your application..

Every insurer’s rates are going to be a little bit different, and that’s why you have an advantage by working with me. We’ll shop around for the policy and rate that’s tailored to your unique needs.

So if you’ve been waiting for a sign to stop smoking, quit eating too much junk food, or cut back on drinking, consider this it!

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July 30, 2018

The Millennials Are Coming, the Millennials Are Coming!

The Millennials Are Coming, the Millennials Are Coming!

Didn’t do so well in history at school? No worries.

Here’s an historical fact that’s easy to remember. Millennials are the largest generation in the US. Ever. Even larger than the Baby Boomers. Those born between the years 1980 to 2000 number over 92M. These numbers dwarf the generation before them: Generation X at 61M.

When you’re talking about nearly a third of the population of North America, it would seem that anything related to this group is going to have an effect on the rest of the population and the future.

Here are a few examples:

  • Millennials prefer to get married a bit later than their parents. (Will they also delay having children?)
  • Millennials prefer car sharing vs. car ownership. (What does this mean for the auto industry? For the environment?)
  • Millennials have an affinity for technology and information. (What “traditional ways of doing things” might fall by the wayside?)
  • Millennials are big on health and wellness. (Will this generation live longer than previous ones?)

It’s interesting to speculate and predict what may occur in the future, but what effects are happening now? Well, for one, if you’re a Millennial, you may have noticed that companies have been shifting aggressively to meet your needs. Simply put, if a company doesn’t have a website or an app that a Millennial can dig into, it’s probably not a company you’ll be investing any time or money in. This may be a driving force behind the technological advancements companies have made in the last decade – Millennials need, want, and use technology. All. The. Time. This means that whatever matters to you as a Millennial, companies may have no choice but to listen, take note, and innovate.

If you’re either in business for yourself or work for a company that’s planning to stay viable for the next 20-30 years, it might be a good idea to pay attention to the habits and interests of this massive group (if you’re not already). The Baby Boomers are already well into retirement, and the next wave of retirees will be Generation X, which will leave the Millennials as the majority of the workforce. There will come a time when this group will control most of the wealth in Canada and the US. This means that if you’re not offering what they need or want now, then there’s a chance that one day your product or service may not be needed or wanted by anyone. Perhaps it’s time to consider how your business can adapt and evolve.

Ultimately, this shift toward Millennials and what they’re looking for is an exciting time to gauge where our society will be moving in the next few decades, and what it’s going to mean for the financial industry.

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