financial zen

In covering the basics – one thing every person must do is get their free credit report. Do this yearly. Do it more often if you suspect fraud or identity theft.

But what does it all mean?

Bankrate has 20 must-know credit scoring terms to help out! The key to success in any topic always starts with a glossary of terms. A credit report is one more extremely useful, beneficial tools that one comes across in their personal finance journey.

Your credit report contains your credit rating which is comprised of your credit score. See? Three terms down – are you sure you know what they mean? A fundamental understanding is what separates you from the person across from in preparing yourself to mastering your finances.

MSN Money has a great article showcasing people that conquer huge debts quickly – and it makes ours look like a small pittance!

A couple paid off a $150,000 mortgage in five years, another knocked out $8,000 (of $49,000) of her credit card debt in nine months!

The stories themselves focus on a couple key components of most frugal living/personal finance topics: grads getting a house, unexpected job loss with debts out of control, or my favorite, a desired life-style change to spend more time learning and loving your family.

The key factors they really show us, are something you’ve no debt read (and will continue to read about, until everyone out there thinks of it as common-sense!) is:

Live like a college student! Just because you graduated and are ‘making the big bucks’ doesn’t mean you need to start splurging. Sure, buy yourself something nice – but save, scrimp, and pay off! It’ll be in your best interests in the long run – I know quite a few people in their thirties who tell me they wish they buckled in and paid off their debts earlier, and not delaying them and spreading them out as long as possible, to the point that after marriage and kids, it’s still an issue.

The last story, one of post-divorce, had a great list of tips (but I think they needed some help, emphasis mine):
* Opts for basic TV service — no premium channels. Why cable at all? Free TV still lives!
* Chooses a dial-up Internet connection ($9.95 a month) over high-speed service. I agree – only get High Speed if you really need it
* Buys food in bulk to last for months. Canned goods and non-perishables all the way!
* Takes his lunch to work. I skip lunch at work most days so I can eat with my wife after work – I’m a little more hungry, but it’s nice to sit with my wife.
* Makes a budget for the holidays, birthdays, etc., and sticks to it. This applies to all social events – budget, and stick to it. And do you really need a million-dollar party?
* Applies “extra” paychecks to debt (a biweekly pay schedule had provided a third check two months a year). I love the three paycheck weeks. That is debt pay-down time.
* Applies any bonuses toward his debt. Bonuses, rebates, tax refunds – all of it to your debt!
* Sets the thermostat in winter to 63 degrees. Wear warm clothes, socks, sweaters or get a space heater – preferably one with a built-in thermostat and sensor!
* Sets the air conditioner to 79. If it’s summer, be naked. The environment will thank you.
* Buys compact fluorescent light bulbs to reduce electric bills. We’re in the process of this now! Save money in the long run.
* Takes out $25 in “walking around” cash each week. When it’s gone, he doesn’t spend more. I don’t think I even hit $25 with my current budget. It’s a nice idea, though.
* Keeps the credit cards at home. I love how it’s plural. Leave them at home, frozen. With no balances. ;)
* Shops with a list and buys only what’s on the list, and avoids looking at anything else, including sale items. When my wife and I started doing this, we noticed a drop in 50% of our grocery bill.
* Keeps his car tuned up to avoid bigger expenses. This is important to prevent that “little problem” from becoming “the big problem.”
* Doesn’t keep up with the Joneses. He says he doesn’t care what they drive, where they vacation or what they wear. I love the Joneses. They give me a model to avoid, because I don’t envy their American Express bill.
* Avoids buying coffee or food “on the go” but instead eats at home whenever possible. The little expenses add up.
* Stays away from vending machines at work. Vending machines are trap doors to fatty fat and brokey broke.
* Doesn’t play the lottery. Gambling is gambling. If you want to throw money at something, throw it to me.
* Buys broken bags of mulch and fertilizer at deep discounts. This goes for many items – always check for a discount on used/dinged goods. Cosmetic defects are just that – cosmetic.
* When shopping for appliances, buys last year’s model. Buy last years, and check out for places that have close-out deals.
* Budgets vacations and looks for coupons wherever possible. This is what we’re doing – setting a goal and time frame, and slowly budgeting towards it. When we reach it – we’re taking a vacation. Not before.

A ton of useful tips for a grad, a divorcee, or anyone looking for a lifestyle change. They mention taking a second job, which I recommend (and have done before) but remember not to stress yourself out! You need to budget your time so your loved ones don’t suffer!

Kiplinger.com‘s Ask Kim section answers a legitimate question that msot pf bloggers may get, but not everyone does.

I know that I shouldn’t close old credit accounts that are in good standing because they can help my credit history. But what happens if I close an account that wasn’t in good standing? Will that information still appear on my credit record?

As we all know – you shouldn’t close an account (unless it’s newer and not needed). Jsut because you owe on that credit card – leave it open, make timely payments (for above the minimum – pay interest *AND* principal!). Closing it won’t hide it – it just makes it *seem* like it’ll go away, which is itself, a defense mechanism (if I can’t see it, I don’t have to deal with it!).

Rather then delve into the ways to avoid getting into this position, let’s talk about getting yourself out.

I once was in this position – I was a high school grad, and I knew I needed to start credit ASAP if I was ever goign to get a car or home loan. Turned down for a credit card, I went and got a Sears Card (with a $5,000 limit) That seemed reasonable for a high school grad with a low-income, doesn’t it? They weren’t preying on my ignorance at all! I was ignorant, and once I had established some credit with Sears, I was soon given two other credit cards – a student card with a $400 limit, and another card at the college fair for $4,000.

I was living in Chicago, job hunting on my own (because the school’s pitch was they’d help you get a job and pay for rent while you went to school full-time – which turned out to be a lie and why I lasted one quarter before moving home). In that time, I maxed out both cards paying for necessities (and, yes, they were – groceries, books, fare to go to work). I made the minimum payments (mistake #1). When they got maxed out, I closed them – I didn’t want to use the cards (fees!) and I wanted to forget about them – this being before I learned that keeping accounts open is important!

The next thing I did right – I left my Sears Card open. It’s been paid off, and I still have it (and they never closed it – after four years of non-use!) I also got a job working at a local factory for $14 an hour while living at home, and I worked 40+ hours a week, putting the majority of my paycheck towards the cards. I had my debt paid off in one month of grueling labor.

After this, I never got another credit card until I moved to Columbus and had my bills well under control. No more maxing out, no more paying fees – it was a hard lesson learned, but a mistake I made that was worth learning from.

What kind of “young and dumb” mistakes have you benefited from? Don’t just talk amongst yourselves, discuss in the comments!

No doubt, everyone has been at that point where they want to start credit (responsibly, of course!) and have no idea where to begin.

Do you need credit? Only if you want to buy a house or car down the road without insane interest rates. Or get more credit cards. Or even get a job.

These are just examples, mind you. No Credit is really Needed if you are the cash carrying kind of person. I’m just not, yet, anyways.

I started my journey into financial slavery at the tender age of eighteen – the legal age to get credit. The easiest thing to do is to get a department store card. If you’re in college, you may qualify for a special credit card. Some of them have *great* intro rates and offers. But remember – just because they may give you a limit of $5000 does not mean that you should use it.

So what’s the point, then?

Starting your credit history, is the point! If you get a credit card, look at it like you’re taking money from your older sibling. Or Grandma. She’s got a nasty right hook, and she likes to be paid when you said you’d pay her. Get it? If you’re late on paying your card – you will be hurting (financially, and your credit score will suffer)!

Use your card for the basics and treat it like cash – you’ve got $50 in your checking? Then think of your credit card as like $50 of loaned money. Fill up your tank ($20-25 if you drive a gas-friendly car) and buy a water ($1.50). Turn around and check out your balance online, and keep an eye on it. Pay it off, don’t carry a balance.

Why?

If I gave you $20 and you said you would pay me in a month, but didn’t, would you give me at least ten dollars and promise I’d have the twenty by the next month?

No?

Well, do you think your credit card is going to take that as an answer? When they call for their money (remember, it is not your money), they’ll be asking for some of it back. And tell you you will be charged more for being late. And no, if your mommy and daddy call, they can’t convince them to forgive you for being dumb.

So, boys and girls looking to start credit – especially if you’re in college – go slow. Like you told your parents when they gave you a copy of their card, use it only for *real* emergencies, like being stranded on the bad side of town with no gas, having only water and bread in your apartment, or getting out of a Mexican prison (if they take Visa, that is).

PBS gave some great info if you’re curious about what can happen to you (even if you’re good with your credit). Check out the blogs on the right – they’re also a great source of personal finance. You may be starting – just make sure you take the smart path.