15 Personal Finance Rules You Should Be Breaking

Personal financial rules to live by

Personal finance rules can serve as handy means for guiding your money behavior. But rules of thumb that don't fit your situation can be a waste of time — or worse, actually, worsen your finances. Here are 15 personal finance rules that, depending upon your circumstances, you should consider breaking.

1. Before Investing or Saving for Retirement, Be Debt-Free

Although this is a generally sound rule, there are a few justifications for breaking it.

First of all, personal finance isn't an all-or-nothing practice. Good financial planning involves balance and attentiveness to your unique situation. If your debt is low-interest, it might behoove you to pay it off more slowly in favor of saving money first (such as for retirement or major expenses). Remember: compound interest has immense value, so the more money you can invest earlier in life, the less money you'll have to invest overall. 

Also, if your company matches 401(k) retirement plan contributions, it almost always pays to save for retirement, even if you're concurrently juggling debt. Though it can be tempting to forego 401(k) contributions when your paycheck is lean, remember that you're leaving money on the table and jeopardizing your future financial security if you do. Plus, some retirement plan contributions are tax-deductible so you can use your tax refund towards your debt.

Lastly, if you wait until you're entirely out of debt, you may never start investing. For various reasons (none of which we recommend, of course), some people are practically never able to extricate themselves from the clutches of debt. Maybe your income is low and expenses too high, or perhaps you unexpectedly lost your job or had large, unexpected medical bills to contend with. If you're one of these people, then it's best to start setting aside a little money now and balance your cash outflows between debt payment and investing. I have a friend who is in her 60s with no savings whatsoever. Why? Because she always had a debt to contend with and spent a lifetime waiting until it was clear before saving money. Now, she's in trouble.

2. Pay off Your Mortgage Before Saving for Retirement

This builds on the above rule about eliminating debt before investing. I had some clients who were so intent on paying off their mortgage that they did it at the expense of everything else in their lives, including retirement savings and emergency funds. They thought if something went wrong and they needed money, they could borrow against their house (even in retirement). But when tough times hit, their house had declined in value and they couldn't borrow anywhere near the amount of money they needed.

3. Don't Borrow Money to Invest

Borrowing money to invest is known as leverage, and is generally considered risky — if your investment declines in value, you've still got a full debt-load and a disproportionately low asset to show for it.

However, if the item/investment is tax-deductible, and/or loan is low-interest (which might also be tax-deductible), such that the tax saved equals more than the interest paid on the loan, you can work this scenario to your benefit and use your refunds to pay off your debt more efficiently. 

4. Save 10% of Your Income

This is a somewhat arbitrary rule since 10% may or may not be enough for you to reach your savings goals. Focus on the amount of money you need saved in the end and work backward from there; you may need to break this rule if you've waited so long to start saving that 10% won't help you reach your goal, or if you need to save more money than 10% of your income will allow.

5. Go to University to Get a Good Job

Unless you're tracking for a career that specifically requires a university degree, you could save the six-figure expenditure of university education in favor of something more practical and less expensive, such as trade schools or alternative forms of education. Not all good jobs are borne of university education. I didn't go to university (but I am indeed educated), and in some ways, it saved my life.

6. Don't Use credit cards

Using credit cards responsibly can be beneficial if you're collecting frequent flyer miles or other credit card rewards that allow you to get extra value from charging expenses. The trick is to pay the entire balance off as soon as you receive your statement; that way you don't accrue interest and you thus avoid the credit card debt trap. 

7. Get the Biggest Mortgage the Bank Will Give You

What the bank will lend you and how much mortgage you can afford can be two very different things. The bank only takes your income and existing debts (and sometimes assets) into account when calculating the mortgage you can qualify for. What about your cash flow, expenditures, and the additional costs of homeownership, like maintenance, property tax, etc?

Depending on the area you live, real estate might be easily affordable or prohibitively expensive. Don't let the bank lure you into a mortgage larger than you can truly afford, because ultimately they win if you can't make payments.

8. Tax Refunds Are Good

Tax refunds mean the government is holding onto your money (and earning interest on it) during the course of the year! I had a client who loved to get tax refunds so much that she deliberately overpaid her taxes each year through payroll just so she could get a refund, which she inevitably squandered since she saw it as "found money."

Consider selecting fewer exemptions on your tax forms at work. You won't get a fat tax refund in the end, but you'll have more money in your pocket now, and will be less likely to splurge than you would with the "found money" of a refund.

9. Build Credit by Carrying a Balance With Your Credit Card

This rule is just plain wrong. You build a good credit rating by using — and paying off — your credit card. You don't need to carry a balance.

10. You Have to Spend Money to Make Money

Unless you have the disposable cash to spend, this rule reeks of high-risk business offers, gambling, and mail-order scams. Although sometimes a prudent investment (in a business or financial vehicle) can reap rewards, don't use this phrase as a rule of thumb for your personal finances.

11. A Budget Keeps Your Spending on Track

I wish it did, but unless you're unnaturally disciplined, it often doesn't. Budgets are more often than not made of abstract categories with arbitrary amounts of money that don't account for things like irregular expenses, quarterly payments, and other elements.

More important than a budget (and an essential first step to creating a workable budget) is keeping track of your expenses so you actually know what you spend. The longer you keep track of your expenses, the better you can understand and control your spending. 

12. Choose Index Funds for Passive Investing

Although index funds carry lower management fees than mutual funds, this is for a reason: They are not actively managed. Although active management doesn't guarantee higher returns, it can help with asset allocation, re-balancing, and other investment activities you may not wish to undertake yourself.

When choosing investments, instead first focus on asset allocation (which is the biggest factor affecting your returns — not investment picking as you might suspect), then choose a basket of diversified investments that satisfy your asset allocation plan. 

13. You Need to Have a lot of Money to Invest

How do you think people who have a lot of money got it (if they weren't born into it)? They saved — and invested! Don't belittle your own finances by thinking you don't deserve to invest or don't deserve the help of a financial planner because you don't have money. You have to start somewhere, and you can start investing with as little as $25/month.

14. Your Emergency Fund Should Be Six Months' Expenses

While this is an apt rule of thumb, depending on your situation it might not be suitable. Evaluate your expenses and what would need to be paid if you found yourself in an emergency situation; you may find you need more or less, depending on various factors, such as the quality of your insurance, level of regular cash outlays, and so forth.

15. Leasing a Car Is Bad Value

The general school of thought is that leasing a car costs more (after all is said and done) than buying one outright. Depending on your situation, however, this might not be true. For example, if you can deduct the car as a business expense, leasing could reduce your income and increase your cash flow more effectively than deducting the capital costs of buying a car. Also, if your business is new and cash flow is tight, leasing might get you into a necessary set of wheels for a lower monthly expenditure than buying.

Have you ever broken a personal finance rule in a way that served you well? Please share in the comments!

Source:http://www.wisebread.com/15-personal-finance-rules-you-should-be-breaking

Secured Credit Cards vs. Unsecured: What’s the Difference?

Here’s a catch-22: you need a credit card to boost your credit, but you can’t boost your credit without a credit card. Secured credit cards can help people with poor credit escape this paradox. But what’s the difference between a secured credit card and an unsecured card anyway?

 Unsecured credit cards 

Most credit cards are unsecured, which means they don’t require a deposit as collateral in case cardholders can’t pay off their debt. Rewards, retail and low-interest cards are typically unsecured, and they offer benefits such as cash back, travel perks, store discounts and interest-free introductory periods. Since they’re less likely to pay off their debt, it’s difficult for people with bad credit to qualify for secured cards. There are a few unsecured credit cards that are easy to qualify for, but they have high annual fees, which are deducted from the credit limit. Rather than opening a high-fee card, we suggest applying for a secured one.

Secured credit cards 

Secured credit cards are designed for people with bad credit or no credit. Since these customers are considered a bigger risk for card issuers, they’re required to make a deposit. The deposit amount varies, but it’s typically equal to the credit card’s credit limit. For example, if the credit limit were $500, the deposit would also be $500. Once the initial deposit is paid, secured cards work just like unsecured ones. They’re accepted wherever credit cards are, including online, and you incur interest if you don’t pay your balance off in time. You can get secured credit cards from the same issuers and networks as unsecured cards. Like unsecured cards, some secured cards come with annual fees, but we suggest you stick to cards with yearly fees less than $50.

 Final word 

Although they require a deposit, secured credit cards are better than no credit card at all. If you get one, your goal should be to improve your credit score until you’re eligible for an unsecured card. Some issuers will let you transfer your secured line of credit to an unsecured one when you qualify. If you minimize your credit card spending and pay off your balance in full and on time, you’ll eventually become eligible for an unsecured card and escape the bad credit trap.

7 Ways to Retire with Financial Freedom

7 Ways to Retire with Financial Freedom

You are now able to live longer than before because of better health care. It means you need to have more money to spend and cover inflation as well. According to data compiled by the Social Security Administration:

A man reaching age 65 today can expect to live, on average, until age 83.

A woman turning age 65 today can expect to live, on average, until age 85.

And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

Here are seven wise things to do for those who are about to retire:

1.      Be debt-free: The biggest enemy of financial freedom is debt because you are going to pay more than what you have actually incurred. The longer you delay, the more interest will be added to the outstanding amount and it will be more difficult to clear as the amount grows bigger over time. 

2.      Continue to work and earn: If you enjoy what you do, it would be prudent for you to continue working. When you work, there is a source of regular income and you and your employer will continue to contribute towards your retirement fund. Another point is that you are not touching your retirement fund and it continues to grow.  The longer you work your retirement years will be shortened and the less money you will need.     

3.      Focus on sources of passive income: It is a smart move to build a constant stream of regular income during retirement. One such source is shared which is making regular dividend payments. When one regular source of income stops, another one takes over.     

4.      Build new sources of income during retirement: Another wise move is to start a second career during your retirement. What is your expertise? Can people pay you for your services? While you can continue to earn during your retirement, it is more important to keep your mind active and alert. 

5.      Spend less: You will never know how long you are going to live. It is prudent to adopt a frugal lifestyle so as to last your retirement fund as long as possible.

6.     Save as much as you can: Save your bonuses if any. Don’t spend your tax refund check. The more you save, the bigger will be your nest egg.

7.      An emergency fund:  It is also good to set aside an amount to cover unexpected expenses such as a major car repair or illnesses. Such expenses, more likely than not, are excluded from your retirement fund.   

Take action now and enjoy financial freedom later.

Source:http://www.allaboutlivingwithlife.blogspot.com/2012/10/7-ways-to-retire-with-financial-freedom.html

TEN REASONS CREDIT CARD APPLICATIONS MAY BE DECLINED

People apply for a credit card for many different reasons. Some are new to the world of credit and just getting started, while others are hoping to expand their access to credit. Regardless of the reason, no one applies for a card hoping their application will be rejected. To improve the likelihood of approval, consumers need to understand the credit decisioning process.

Each lender has different criteria for extending credit. Therefore, consumers should do their research in advance and only apply for the cards that are likely to grant the credit they seek. The NFCC provides the following 10 reasons a credit card application could be declined, along with the steps consumers can take to correct the problem. The list is not inclusive but will help borrowers better understand the review process and how to position themselves to increase the likelihood of credit being extended.

Not enough existing credit – Lenders prefer being able to review a track record of how a person has managed credit in the past.  A thin or nonexistent credit file can give a conservative lender reason to deny.

What to do – Judiciously build credit, perhaps starting with a secured credit card, but confirm in advance that the issuer reports activity to the credit bureaus.  Also consider becoming an authorized user on another person’s card, as the activity of the primary cardholder, as well as the authorized user, is reported to the bureaus.

Poor pay history – The highest weighted element in the scoring model is how a person repays his or her debt obligations.  A history of skipped or late payments can be a knock-out punch when attempting to obtain new credit.

What to do – Identify any issues by obtaining the credit report for free at www.AnnualCreditReport.com.  Next, start making payments on all accounts including those that are past due. This begins building a positive history and helps to establish creditworthiness.

Existing credit lines maxed out – Creditors don’t like to see that a person is utilizing all of their available credit, as this can signal that they are living on credit, and opening a new line will only increase current indebtedness.

What to do – Pay down credit card debt to equal no more than 30 percent of available credit.  Credit utilization is the second-highest weighted element of the scoring model, so lowering debt could also benefit the credit score.

Overall debt is too high – A person’s debt-to-income ratio is a reflection of how much is owed relative to their income.  People have expenses beyond credit cards, thus lenders take all existing obligations into consideration.

What to do – Increase income or decrease debt.  The important thing is to not appear that more is owed than can be responsibly managed.

Too many inquiries – It’s a red flag if a person is attempting to obtain too much credit at one time.  Too many inquiries or recently opened accounts can make a lender reluctant to give the person another chance to spend.

What to do - Only apply for the number of cards that are necessary and are appropriate for your financial situation.  If declined, do not continue applying.  Instead, take steps to remedy the reason for the rejection.  Wait a few months to reapply, as that will give the credit report time to update.

Serious negative notations – Unpaid tax liens and Chapter 7 bankruptcy can remain on a credit file for up to 10 years. Foreclosure, late and missed payments, collection accounts, and Chapter 13 bankruptcy can remain for seven years.

What to do – The further a person moves away from the date of the negative activity, the less impact it has on credit decisions.  A person doesn’t need to wait until the activity rotates off the credit report, but putting distance between the harmful information and applying for new credit is helpful.

Insufficient income – Although often not made public, issuers have minimum income limits that must be met in order to grant credit.

What to do – Research which cards are more likely to grant credit to people with low incomes.  In the absence of other eliminating factors, getting a part-time job to supplement the primary source of income should enhance the likelihood of credit being extended.

Unstable job history – Recent unemployment or consistent job-hopping indicates an unstable income, thus putting a person at risk of default in the lender’s eyes.

What to do – Make steady employment a priority.  Changing jobs within the same field may not weigh as heavily against a person, particularly if it is a promotion.

Too young to apply – Applicants must be a minimum of 18-years-old to apply for a credit card.

What to do – As a result of the Credit Card Accountability, Responsibility, and Disclosure Act, Americans must be 21-years-of-age to independently receive credit unless they can prove the ability to pay or have a co-signer.  It is not a bad idea for a young person to learn to manage money by living on a cash basis or using a debit card before applying for credit. 

Errors on the application – Credit card applications can be long, making it easy to inadvertently skip completing all areas.

What to do – Avoid unintentional errors by filling out the application online, as these forms often do not allow a person to submit until all required fields are completed.

When applying for credit, ask yourself if you would loan money to you.  If the answer is ‘no,’ then it’s likely the financial institution won’t either. That’s the signal that it’s time to take action and improve your credit profile. Credit card companies want to extend credit, but only to people who represent a low risk for default as defined by their business model.

If denied credit due to information contained in the credit report, the Fair Credit Reporting Act requires lenders to send the applicant an adverse action notification which includes the reason for the denial. To be in a better position for approval next time, review the reasons for the rejection and take the necessary corrective steps.

10 Ways to Reduce Your Expenses and still Maintain Your Standard of Living

You can keep your car, your mobile phone, credit cards, and the air-conditioners at home but you can still reduce your monthly expenses. Here are the ten ways to do it:


1. Free TV instead of subscription: You still can watch all your favorite programs without subscribing to Astro and the like. By the way, do you have all the time in the world to sit all day long to watch TV? Watch less or stop watching and move more or do other meaningful things.

2. Get books from the library instead of buying: After reading a book you may not want to read again. Loan the books from the library and return after reading. There will be fewer books to take up space at home to collect dust. Magazines are also available free in your local library

3. Eat at normal restaurants instead of high-end ones: The quality of food is the same if not better but you have to pay 15% more (10% service charge and 5 % service tax in Malaysia).

4. Grocery shopping: Buy house-brand items instead of popular brands. House- brand goods are quality products but they cost very much less.

5. Avoid branded items: Shop for the less exclusive brands instead of those expensive brands for items ranging from household items to apparel and footwear. Look for durability and comfort instead of just the brand.

6. Use less air-conditioner but fan more: Switch on the air-conditioner for a limited time and then let the fan do the job to circulate the cool air inside the room. 

7. Walk more but drive less: Take the opportunity to move your body more often to shape up and use the car less to save petrol and maintenance cost. 

8. Jog or home gym instead of club membership: Enjoy the fresh air and sunshine when you jog instead of a paid membership in a stuffy room with many people perspiring. You can save even more by getting your own home gym. There is no need to travel and waste petrol and you can do it at home anytime you want 

9. Use your credit cards to save but avoid credit: There is no need to cut your plastic cards. Credit cards are great saving tools. You will end up paying less for petrol and grocery items. Just pay fully and promptly every time.

10. Communicate: Talk less with a mobile phone but a tweet or write more on the wall. Spend less on the phone bill and communicate more online for free. 


You maintain your current lifestyle but you reduce your expenses tremendously and you also get healthier.  

Source: http://www.allaboutlivingwithlife.blogspot.com/2010/09/10-ways-to-reduce-your-expenses-and.html

7 Advantages to Continue Working When You Retire

According to an article, As First Baby, Boomers Retire, Many Facing Personal Finance Disasters, more than 10,000 baby boomers a day have turned 65 since January 2011, a pattern that will continue for the next 19 years. However, 60% of baby boomers don’t have enough for retirement. What can you do to fortify your financial independence and make ends meet? The only viable solution is to continue working. There are several benefits when you delay your retirement:

1. Work longer, less time to retire: When you continue to work, you trade off your retirement years. It means you will need less money to spend when you finally retire. 

2. A Source of income: There is a source of income when you work. It means you can continue to live the usual lifestyle without dipping into your retirement fund.

3. More savings: When you work, part of your income will go to save as budgeted. The longer you work, the more you will save and the more interest you will be able to earn and accumulate. This will be a new source of a fund when you do retire. 

4. Less retirement fund is required: Since you have shortened your retirement years, you will need fewer funds for your retirement and you also have additional funds to cushion future inflation. 

5. Meaningful life: Work gives you meaning in life when you enjoy what you do. You are confident of yourself and look at life with a brighter perspective.

6. Happiness: You feel good about yourself because you are leading a useful life and at the same time you are self-supporting. 

7. Better health: A change in lifestyle may be bad for your health. There will be emptiness if you do not fill your time with useful things to do. When you work, your mind is working and alert. More likely than not, your working life will be good for your health mentally and physically. 

It is a blessing when you have reached your retirement age and you still can hold on to a job that you like and enjoy because the unemployment rate in America is still very high today at 9.2 in June 2011

Source: http://www.allaboutlivingwithlife.blogspot.com/2011/07/7-advantages-to-continue-working-when.html

CTOS credit score card roll-out in Q1 2015

CTOS

KUALA LUMPUR: Credit reporting agency CTOS Data Systems Sdn Bhd will roll out credit scorecards by the first quarter of 2015 in a bid to benchmark credit profiles of individuals. Details of the credit scorecards are yet to be finalised.

The scorecard will provide a three-digit number that measures the probability of repayment of a borrower through information gathered by CTOS.

"But we hope to launch it earlier, because I believe that there is a need in terms of consumers understanding of their creditworthiness," CTOS CEO Eric Chin told reporters at a media briefing here.

He explained that the scorecard, called CTOS-FICO score, will be a more sophisticated way of evaluating the creditworthiness of individuals and SMEs in a bid to promote a positive credit culture in Malaysia.

CTOS in collaboration with FICO, which is a pioneer in credit bureau scoring technology, will be the provider of bureau scores to credit grantors in Malaysia.

Through that, Chin said, one with a strong score could potentially leverage for better interest rates from banks, transforming the credit market to be more consumer-driven.

CTOS, which is registered with the ministry of finance, collects and processes information from public resources and its subscribers in relation to the creditworthiness of individuals and businesses.

It also provides business intelligence and credit risk management solutions to businesses with banks, financial institutions, law firms, utility providers and telecommunication companies as clients.

Chin said the credit reporting agency industry in Malaysia is in its infancy, with substantial opportunity to grow its products and service offering.

"Malaysia stays at the data and information provision level, but should move up to analytics and decision support level," he noted.

Eric said CTOS is looking to grow its SME customer base by five-fold from the current 3,100 to 15,000 and increase its product range such as credit score, fraud score and credit capacity index to banks.

Chin is optimistic about loan growth in the banking industry, whereby access to credit is a fundamental element that fuels economic growth.

"This year there is a bit of moderation, but with the ETP (economic transformation programme) projects coming in, we're definitely optimistic on the loan growth," he added.

Creador is the largest shareholder of CTOS with a 70% stake and a total investment of over RM200 million.

Creador founder and CEO Creador Brahmal Vasudevan stressed that Creador is a long-term investor in CTOS and will stay on for at least five to 10 years.

He expects CTOS, which posts about RM60 million revenue annually, to register 20% growth in profits and revenue, helped by its strategic plans.

Creador is a private equity firm and its investment portfolio includes Bonia Corp Bhd, GHL System Bhd and Oldtown Bhd, to name a few.

When asked of new investment targets, Brahmal said Creador's focus will still be on the consumer sector, citing that the group "is working on a few things".

"Hopefully by early next year, we can share something … We would like to look at areas like retail, consumer products and so on," he added.

Brahmal said there is an intention to list CTOS in the future, but it won't happen within the next one to two years.