Once again, time for a Credit Check

If you checked your credit history on AnnualCreditReport.com in January and May with just one of the three credit reporting agencies each time, it's time to get the last free report this year. Remember why it's important to check your credit history and what to look for in your credit report.

Also, if you've created an account with CreditKarma.com, make sure you visit every once in a while (at the most monthly) to update your score and see how your actions are affecting your score.

Save your way to poverty

"Look how much money I saved!". People love a good deal, but is it really a good deal if you don't need it, or weren't going to buy it anyway? Many times it's really not such a great deal.

Just because something is bulk or store/generic brand doesn't necessarily mean it's a better deal. We've been conditioned to think that if you buy more at a time, or an off-name brand that you will get more for less money, and retailers take advantage of this by, every once in a while, making it not such a great deal.

If you actually do get more for less money when buying in bulk, will it cost you less? Will it be lost, expire or go bad before you use all of the bulk? Are you going to use it more often because now you have plenty? Cell phone minutes are a great example. For just $10 more a month you get a trillion minutes. But can you get by with the lesser plan and save $100/year? Or texting, I text occassionally. Some months I spend enough to actually add texting to my plan, but overall, I don't text enough to make it cost less to add it to my plan.

You also have to consider the time-value of money. A dollar today is worth more than a dollar next year, and for two reasons. We continually keep improving technology, making thing faster, better and cheaper. This means that even though something is on sale now, it may be less expensive in the future. The other reason is that, due to inflation, the money will be worth less in the future. That means the money in your wallet now is very valuable. If you buy enough of something to last you 20 years, not only will it probably be cheaper in 20 years, but you no longer have that valuable today money, but instead have devalued future item.

Another trick retailers pull is to inflate the price so they can advertise huge discounts. This is very apparent in jewelry sales. Walk into just about any jewelry store without the intention to buy, and start looking at what you like. Ask to try it on. Watch as they start dropping the price. The more you seem to want to buy it, and the less you seem to be able to buy it, the more they seem to discount. Look at them pull out a calculator and "figure out the best price they can get you." It was marked up high in the first place so they can either make a huge profit on those who will buy at "retail" and be able to entice those who weren't going to buy with deals too good to pass up. This kind of thing is also prevelant in auto dealerships.

In the end, the bottom line is: are you actually going to spend less than you would have otherwise?

Cash into Trash

Robert Kiyosaki (author of the best seller Rich Dad, Poor Dad) wrote in his book Rich Dad's Guide To Investing that most people "turn cash into trash." This phrase really stuck with me. The money you spent in the last six months, what do you have to show for it now? Now don't get me wrong, it's good to spend some money making memories with family and friends. I think you should spend money on good foods that improve your health. There are valuable things that you should spend money on. But was any of the money you spent in the last six months spent on anything that has that much value, or more, now? Or was it spent on things that depreciate, go to the trash heap, go down the toilet or sit in your veins and around your waist.

Start spending money on things that will retain their value. Why sell your life for a paycheck that ends up in the dump?

Necessities

I've noticed that I've witnessed an amazing phenomenon many times in my life. Here is the story:

1. You find yourself having less money available (pay cut, job change, job loss, investment loss, increase in debt, etc.).
2. You make cuts in your spending to where you can just get by.
3. Something else happens that further limits your cash flow
4. You make cuts in your spending to where you can just get by.

Sound familiar? I've gone through it. I've seen a lot of friends go through it. Someone gets a 5% pay cut or their car dies so they finance another car, which drops their pay 2%. The words change but the tune is the same.

The really funny part is this, you were able to make small cuts to get back within your financial comfort zone each time. Somehow we each figure out a way to make ends meet.

Now the magical question: What if we put an artificial pressure on ourselves to do the same thing before there was an actual mini-crisis? What if we took 2% of our pay and, as Robert Kiyosaki says, paid ourselves first. Put it into savings or investment and do not touch it.

Imagine finding a way, somehow, to put aside an extra 1%, 2% or even 5% or 10%. Then figure out a way to live on what is left. Maybe start small, say 1%, and then increase it 1% every four months, six months or every year. You don't think that small amount will make much of a difference? Read The Slight Edge and see if you can say that it won't make much of a difference.

Time to Check Your Credit History Again

If you checked your credit history on AnnualCreditReport.com in January with just one of the three credit reporting agencies, it's time to pick another one and get another free report. Remember why it's important to check your credit history and what to look for in your credit report. (See the January post on Credit Reports)

Another credit resource I've found very helpful is CreditKarma.com. They will give you your credit score free (in exchange for their site being filled with offers) and even give you a report card that can help you focus on what will help improve your score.

Here are some things I learned about my credit score:

* In the first two months (November and December 2009) that I used the service, my credit score went from 757 to 771.
* While my "Open Credit Card Utilization" is rated an A, it is more like an A- as I am one percentage point from being a B
* I thought my one late payment in the last decade would haunt me for seven years, it turns out I'm still an A in On-Time Payments (although an A-)
* My two C's are Total Accounts (not enough accounts) and Average Age of Open Credit Lines

It's funny because it's a catch-22 for my 2 C's. I'd need to open twice as many accounts as I have to get an A in Total Accounts, but then my Average Age of Open Credit Lines would go down to a D. I guess my strategy here would be to slowly acquire accounts (but not use them) so both scores go up slowly. At around 20 Total Accounts, every time I open a new account, it will set back my Average Age of Open Credit Lines by one month. Currently, in about 6 months the Average Age of Open Credit Lines should reach a B-. Then another two years to reach A-. However, to reach a B- on Total Accounts, I need another ten accounts and another twenty to reach an A-. Adding ten accounts would set me back about six months. So probably the best strategy is wait six months to get a B- in Average Age of Open Credit Lines and then over the next six months add about 10 new lines of credit. Both of my C's are MEDIUM weighted in credit score, so they are not really that big a deal.

Looking at the Total Debt distribution is also interesting. The average score for my total debt is 688. It seems there are two extremes. Either have less than $5,000 debt or have more than $150,000 debt. Both those debt ranges score around 700. Between $5,000 and $150,000 of debt, you start going down in credit rating. The people with the lowest scores have between $5,000 and $50,000 of debt.

Great Reads

I've often heard that "the only difference between the you of now and the you ten years from now is the books you read and the people you associate with." So make sure you spend time with people who are where you want to be and actively try to acquire their habits, thinking and perspective in the areas you admire in their life, and read great books that help you think differently. Here are some books I highly recommend out of my recent reading:

Twelve Pillars

Great story that teaches twelve principles of success.

Peaks and Valleys

Another story that teaches principles that help you stay on your peaks longer and get out of your valleys faster.

The Slight Edge

Incredible book that shows how to make small changes on a consistent basis to make a huge difference in your life.

How To Have Confidence and Power in Dealing With People

Great book on how to improve your skills with people.

I Dare You

Live a life of adventure.

Extra Money

I was told once, "Look what the average people do, and do the opposite." It's funny when you look at "the average person." They are unhealthy, in debt, etc., etc., etc. Well if you do what the average people do, you'll have what the average people have. This applies just as much to extra money.

There are many times in our lives when we get unexpected or extra money: Tax refunds, birthdays, Christmas, class action lawsuits, etc. This is money that is not part of our regular income. What do the average people do? Most people spend it before they get it. How many times have you heard of people planning on their income tax refunds to pay for something. Many people will use extra money to splurge, to buy something they normally wouldn't. Usually they will do this with "present" money, like birthday or Christmas money. Some people will use it to pay for the "bumps" that happen in life, like repairing the car or replacing the water heater. Very few use it to further their financial position.

I would suggest doing the opposite of the average person. Pay down debt. Build up a cushion of savings. Improve your financial standing and give a big "thank you" to the source of your new found money for helping you have more peace of mind.

Check Your Credit History

Your credit history not only affects how much you pay in interest on credit cards, home loans, car loans, etc. (or even if you can get a loan) but it can also affect how much you pay for insurance and can even affect you getting a job. [1]

You can get a free credit report (but not score) three times a year (if you do things just right) by visiting http://annualcreditreport.com. The trick is to get a report from just one of the three credit reporting agencies (TransUnion, Experian, EquiFax) and keep track of which you checked and when. Then every four months, get a report from the agency that you haven't gotten a report from in the last year. This will allow you to regularly look at what is being reported about you.

It can be a little tricky getting your report. You'll be clicking a lot of "No Thanks, just the free report" links and buttons. They are trying to sell you all sorts of other services. The only service I would use of theirs is buying my credit score. Every year I view my credit score from a different agency, just to see where I stand. Once you get the report, get a "printable" version and print it out, save the HTML file or print it to a PDF (if on a Mac). That way you can compare your credit report with the report from the other agencies.

Once you get the report, you want to make sure that everything on it is accurate. Things to watch out for are accounts that you do not have (possible identity theft) or late payments (company delayed applying payments). [2] Usually if there are collections on your report, you already know about it because someone has called you to harass you about it.

So it might be a good idea to just put on your calendar to check your credit report in January, May and September (New Years, School Out, School Starting).

Live Within Your Means: Make More Than You Spend

Many people, when they hear "live within your means," think of cutting back and reducing their lifestyle until they spend less than the make. They often do not think of the other side of the coin, make more than you spend. Many think of their income as fixed. They do not even consider that they can quickly and dramatically increase their income. In fact, most people reading this are probably already starting to think things along the lines of "well, he doesn't know what I do for a living" or "that may work for some but not in my case."

With a balance of spending less than you make and making more than you spend, you can dramatically increase the speed at which you reach your financial goals. Keep an open mind. Consider the possibility that you can increase your income.

There are two things to keep in mind when working towards increasing your income. First, most increases will not come immediately after the improvements have been made. Second, the improvements you make need to be in increasing your value to others. Give more than is asked. Add more value to those you serve. You will not see changes in your income right away, but you will see changes.

Henry Ford said, "if you think you can do a thing or think you can't do a thing, you're right." You will not continuously add value to others unless you believe that it will eventually pay off. In order to help your thinking, your belief, I would suggest the following books. Each gives some aspect of adding value to others.

The Go-Getter
Winning Every Day
How to Win Friends and Influence People
Launching a Leadership Revolution
Personality Plus
Who Moved My Cheese?

Live Within Your Means: Suggested Reading

Here are the books that I read to study for this goal of living within my means. I'll be referencing them in many of the posts. If you purchase from Amazon from the links below, you will be helping me support The Freeman Society website.

Spend less than you make

The Richest Man In Babylon
Rich Dad, Poor Dad
Think and Grow Rich
The Millionaire Next Door
Success! The Glen Bland Method
Conversations with Millionaires

Make more than you spend

The Go-Getter
Winning Every Day
How to Win Friends and Influence People
Launching a Leadership Revolution
Personality Plus
Who Moved My Cheese?

Live Within Your Means

I started The Freeman Society as a way to keep myself on track to reaching my goal of financial independence in the next 10 years (and some lofty goals for the 10 years after that). This last year, 2008, I successfully completed my first goal. This year, while I'm working on my second goal, I'm going to share every week something I learned in during my studies last year.

My first year goal was to live within my means; spend less than I make and make more than I spend. I specifically break state it that way, break it out into two parts. Most people focus on spending less than they make. What they don't focus on is making themselves worth more to help the problem at both ends.

I'll be posting on a new different topic every Friday on what I learned in my experience, what I've read and from speeches I've listened to.