Article from MyTMMO newsletter

Got the Gazelle Gazette from MyTMMO (My Total Money Makeover) today and I saw an article that I thought might be of interest to some of you.

New Score, Same Game
By now, you've probably heard of the new Vantage credit score that should be available later this year and will compete directly with the FICO score.

The product of the Equifax, Experian and TransUnion credit bureaus, VantageScore is formatted like the grading system you had in school. An A is a good score and an F is bad (which means paying more in interest).

But make no mistake, this is not some breakthrough way to gauge your success in life or money. "It's a new recipe, but the same old ingredients," said Jean Ann Fox, director of consumer protection with the Consumer Federation of America in Washington.

The FICO is made up of a number of factors. It considers your credit history (35% of the score), your level of debt (30%), the length of your credit history (15%), new credit (10%) and credit types (10%).

The credit bureaus have not yet released the composition of the VantageScore system, but say it's composed of your credit performance in the last 24 months. Regardless of its makeup, both scores simply mean, "I love debt so much, I want to get into it and stay there forever." These scores do not mean you are winning with money.

What if you have no debt? Then your score will not be very high and thus indicate you are not doing well. But guess what? If you have no debt, that's the real way to know you're succeeding! The money you bring home is for you to spend, invest and give; not to send to credit card and mortgage companies.

Another myth spread by society is that you need credit (and a credit score) to get a mortgage, which is ludicrous. If you live in your apartment and pay your rent on time or early, you're fine.

When you get a mortgage, go to a lender who offers manual underwriting. Manual underwriting is the process used by a lender to look beyond the FICO score to your unique financial situation. Churchill Mortgage is a great place to get quality manual underwriting for your mortgage and is one of Dave's Endorsed Local Providers.

You don't need to maintain a credit score to succeed in life, but keeping it accurate can help to keep your insurance premiums low and can also help you when getting a new job. You can check your credit for free once a year through the Annual Credit Report. Make sure to do this to prevent identity theft and also to report inaccuracies.

By paying off bills and living debt-free, your credit score will become obsolete. That's a bad thing ... for the creditors!

Source: Kiplinger's Personal Finance
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My TMMO Gazelle Gazette Tuesday, March 28, 2006
My TMMO (main site)

What is financial independence?

Okay, so I have been following several blogs and podcasts about personal finances for the last year. While this makes me no expert on specific areas of personal finance, I have learned a lot.

Recently, there's been a discussion on a forum that highlights the methods of achieving financial independence via real estate investing. The idea is simple, take care of your business first and then use as much leverage as possible to increase your income potential. The main point I get out of this is that your day-to-day job won't make you as much money as real estate. Real estate can generate a greater income with less work and time thereby making you financially independent. Although I hope to do some investing in this area, I disagree with the basic premise of leverage and how it contradicts independence.

Let's start with this idea of financial independence. According to dictionary.com, independence is defined as:

1. The state or quality of being independent.
2. Sufficient income for comfortable self-support; a competence.

If you read further, you'll see the essence of independence: "freedom from control or influence of another or others."

Now, let's take a look at the definition of leverage: "The use of credit or borrowed funds to improve one's speculative capacity and increase the rate of return from an investment, as in buying securities on margin." In real estate, leveraging would require brokers or lenders. You can take $20,000 and buy two properties, at $10,000 each, that are worth $100,000 each. As a result, you would be taking out two-$100,000 mortgages with only $20,000. The income generated from those properties can either make money, or lose money. I hope the first.

There are risks involved, of course, as with any other type of investment. The property can depreciate, rent is paid late or not at all, and so on. This has great income potential, and the idea is to make so much money as to make your day job obsolete. When you no longer require this job, you have become financially independent. Or, have you?

See, this is where I disagree with most people. I don't believe this is truly financial independence. According to our definitions above, leverage requires brokers/lenders. How can one be independent with this need? Sure, you can make more money, but are you independent? No. You have two mortgages, so you owe money to a borker or a lender.

So, then, what do I think financial independence is? It's simple, no longer requiring any services from outside sources to generate income. How can that be? Everyone requires some type of service don't they? Sure. Most people use 401ks and IRAs to generate income at retirement. The main thing to look at is what does it cost you? 401ks and IRAs cost you only what you contribute, and you don't owe anymore than that. If you have paid for real estate, you don't owe a broker or a lender a dime. If you sell it, you can keep every penny of that (if you've lived in for at least two years). What an idea?

Are you a Dave Ramsey geek?

An ode to Jeff Foxworthy and lighter side of personal finances, Dave Ramsey style. You might be a Dave Ramsey geek if:

You get a Visa card in the mail and run away screaming "Cheeetaahhhhhhhh!"
You find your kids hiding in cupboards, under the bed, or in closets thinking that their next.
You avoid the dog food aisle so you don't see the Alpo bag.
People think "Dave says.." is a new version of Simon Says.
People think you're on a new fad diet, beans and rice, rice and beans.
You get a headache when people talk about the bonus points and rewards they get from their credit cards.
You sign up for satellite radio so you don't miss a day of the Dave Ramsey Show.
You bust out in tears of joy when you hear Mel Gibson yell "freedom!"

Are you a Dave Ramsey geek? Let me hear it!

The ABCs of Creative Frugality

For all those frugal people out there, this one's for you. I came across this small post based on Amy Dacyczyn's Tightwad Gazette book series that was quite enjoyable. She once wrote that tightwaddery, her term for being frugal, without creativity is deprivation. Boy did she nail it.

The post continued, that when frugality "frugality is simply a matter of what you can't do or can't have, it becomes a burden and a source of resentment." You can make it fun. however, by "creatively replacing expenditures with low-cost alternatives."

Frugality, The Game
The object: to see how little you can spend to get the same results.
The winner: the one who can get the most enjoyment while spending the least amount of his/her family's hard-earned cash.

Are you game?

Here are some tips, Dacyczyn's ABC's:
Adaptability and Adventurous. Make do with what you have until another option comes along. Any family that has had to make it on one income knows that it is quite an adventure.

Care and Consideration. The most precious things in life are the intangibles that can't be bought or sold. Cutting back should never include little acts of kindness that bring happiness and joy to those you love.

Economical. Look for out-of-the-ordinary ways to eliminate waste and get the most out of every dollar.

Individualism, Ingenuity, and Investing. Develop money habits that are good for your family. These may go against what culture deems "good". Look for ways to get all you can out of every dollar. Put those saved dollars to work for you.

Resourcefulness. Fully examine available optios before spending money mindlessly.

Teamwork, Time Management, and Trade-Offs. Frugality works best when everyone works together. Thrifty people budget their time as wisely as their money. Sacrifice less important things for those of higher value.

Value and Vigilance. Refuse to get less than full value for time and money you invest in any purchase. Persistence is a slow process with great rewards.

You and Yesterday. Decide what is valuable to you. This will determine your goals and will make what others think irrelevent. Forget the mistakes of the past and use them to move forward.

Thank Goodness for Insurance...and An Emergency Fund

In case some of you have missed the news about the tough weekend us midwesterners experienced, well, it was a rough weekend. According to the National Weather Service, an estimated 100 twisters touched down this weekend from Oklahoma to Illinois, killing 10 people. I don't think I've ever been so glad for Monday's arrival.

I live in Columbia, Missouri, which is between Kansas City and St. Louis on Interstate 70. Just 15 miles north of us, a sleepy town called Renick was devastated by a tornado as my husband, daughter, mother-in-law and I huddled in the basement of her home. It was still daylight and we watched handball-sized hail slam down onto the earth, her home, and our cars parked out on the street. It was the loudest, most terrifying thing I have witnessed to date. These balls of ice were hitting the ground so hard, they bounced off roughly 8-feet into the air and back down. Only by the grace of God was our city spared. Our prayers go out to those families who lost what is irreplaceable.

We have been in touch with friends in the area and are glad to hear that they are okay. Their homes, and ours, however, didn't fair so well. We just had an adjuster at our place yesterday afternoon to survey the damage. Just as we thought, the roof will need to replaced, the vinyl siding on the entire north side of our house will need to be replaced, and two-thirds of our screened-in porch will need to be redone as well. Thank goodness for insurance.

Speaking of insurance, there is a little matter of a deductible. I have to say that it was one thing we didn't have to worry about. My husband and I had this idea in our head that our deductible was $1,000, but, after reviewing our policy information, it is only $500. Phew. We sat down last night and were watching television when I thought about how many folks, that were given the same news, or worse, about their homes, had no available cash to meet the deductible. I felt horrible for them. But, at the same time, I felt a peace, because we have the money. The first baby step in the Dave Ramsey plan is to save $1,000 in an emergency fund. I'm glad we have it. And all I can say is thank you to God and thanks to Dave Ramsey.

The NIL Principle

You might be thinking, what the heck is the NIL principle? It's quite simple actually and has to do with spending, or the control of your spending. In order to succeed financially, you have to control your expenses. You have to change your behavior so that you are not spending everything you make. And, it all starts with the NIL principle.

N-I-L stands for three words: necessities, investment, and luxury. Before you spend any money, that money you worked so hard to earn, classify the item you wish to buy into one of those three categories. In order to this correctly, you have to first define what fits into these categories.

Necessities are essential to our survival, in other words, they meet our most basic needs. Things that fall into this category are food, shelter, clothing and transportation. In Maslow's Hierarchy of Needs, this falls into the lower level needs. Without meeting these needs first, one cannot progress to the higher levels of success. Be honest about what is truly a necessity and what is not.

Once the most basic needs are met, the next level of the NIL principle is investment. An investment is something you put money into that will pay you a dividend. People quite often mistakenly classify items as investments. Anything that requires constant funding with no return, is not an investment. Real estate and mutual funds are investments. Your home is not an investment, it is shelter, therefore a necessity. It is costing you mortgage payments, insurance, property taxes, furnishing, utilities, etc.

The last level in the NIL principle is luxury. Once the basic needs are met and you are investing, you can reward yourself with some luxury purchases. This can be anything you want, a luxury car, a home theatre, a cruise to the Bahamas, or whatever you would classify as a luxury item.

Great financial success can be reached be following this basic principle. Use it everywhere you go and with everything you buy. Make it a habit and you will succeed.

Is the NIL principle something you can apply to your financial planning? If not, what suggestions do you have that would result in financial freedom and success?

Forget About How Much You Make and Focus On What You Keep

People always talk about how much they make, either annual salary or commission. In America, we view successful people as those who make a lot of money. The more you make, the more successful you are. Well, we're missing the point.

The income these people bring in does not tell an accurate story of their success. There are numerous people in America making a six figure income. It's important to remember though, that success is not determined by how much one makes, but by how much you keep. You can make $30,000 a year and if you keep $15,000, you are wealthier than someone making $300,000 and spending $305,000. What you keep determines your success.

It's quite common to find these high income earners overextending themselves financially. They are targeted by financial and credit institutions because, statistically, they are more likely to spend more money than lower income earners. As a result, these people often declare bankruptcy and/or lose everything.

So, whatever income spectrum you may be in, focus on this: your success is determined by how much you keep, not how much you make.

What are your thoughts about how income determines success in America? Do you keep more than you spend? I'd love to hear what you think.

Priorities and family

So, my husband and I have been zeroing in our debt and are on track to eliminate all debt, except the house, in 2 years. We are pretty excited about our progress and are fortunate to have surrounded ourselves with friends and family that fully support our financial endeavors.

Pretty soon, I'm going to start working fulltime which will enable us to attack our remaining debt. God has just been pouring his blessings on us, which is consistent with scripture. In Malachi 3:10, "Bring all the tithes into the storehouse so there will be enough food in my Temple. If you do," says the LORD Almighty, "I will open the windows of heaven for you. I will pour out a blessing so great you won't have enough room to take it in! Try it! Let me prove it to you!"

I've been talking with my family, who lives 2,000 miles away, about trips we're planning on taking out there. My little sister is graduatting from high school in June and my best friend is getting married in October. After looking at our budget and debt snowball, all three of us, me, my husband and daughter, can go to one event. Our thoughts are that we will go to the graduation and only I will go the wedding in October. It's what will be best for us financially.

So, I relayed this to my dad over the phone and he gave me some advice. "You know, you have to just think positively and the money will be there." Although I love him, I respectfully disagree. I just don't think he understands our concerns. See, we have the money to take these trips. The only thing is that, for every trip we take, our debt repayment gets pushed back. We've focused so much on getting Sallie Mae out of our house that these trips almost don't seem worth it.

Don't get me wrong, I love my family and don't place money before them. But, my priority lies in my family. That is my husband and my daughter. Next to that is my parents and siblings and so on. We have made it a family goal that we will free ourselves from the shackles of debt. And, like most things of value, this will take some time. It's so easy to go into debt, and much harder to get out. But we intend to do it sooner rather than later. And some people just don't get that. My parents don't get that.

A lot of people are perfectly content in their financial squallor. We are not. Some people are content with making minimum payments. We are not. Some people think debt is good. We do not. Everyone has a choice when it comes to their financial progress, or lack of. We have decided to leave a legacy and change our family tree.

In response to "Putting money in its place"

Back in November, I said I was going to respond to an article on the Kentucky Post by Kevin Eigelbach, called Putting money in its place. Well, it tooks some time, but I finally have a bit of time to write a proper response to Kevin's bit (thanks to an ankle sprain at my volleyball game last night). So, here we go.

"It's because I wonder what's Christian about financial planning...Remember that Jesus advised his followers to sell what they had, give the money to the poor and follow him." Kevin, that is just the tip of the iceberg. Jesus commands us to love one another as we love ourselves. To those who place things such as money, he commands to give that up, and follow him. "No servant can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money." Matthew 6:24. Nowhere in scripture does God say that his followers have to be poor.

Kevin points out that God "...told people not to worry about what they were going to eat or wear, but instead spend their time thinking on God's kingdom," and I agree. It is not, however, a command to sit idly by and do nothing in regards to work or making a living. Actually, man was given the "earth and everything in it" to take care of and maintain. In essence, we were commanded to work the land. Yes, God will provide what we need, but we have to do our part as well. This idea is comparable to that of prayer. We don't pray to make God aware of our needs, but, when we are operating within God's will, we share our needs to God. He knows what we need, but, many times, we don't. It is for our benefit, not God's.

Kevin continues his argument that to trust in God for our provisions precludes any planning on our part. He couldn't be more wrong. Did you know that money and handling money is found in scripture 800 times. 800 times! That's more than any other topic. Maybe, God has something to tell us about how we are to handle God's provision, money. Let's take a look.

In Proverbs 6:6-8 God says to "Go to the ant, o sluggard, observe her ways and be wise, which, having no chief, officer or ruler, prepares her food in the summer, and gathers her provision in the harvest." Do as the ant does and store up provisions to nourish your family in troubled times. Save.

In Proverbs 22:7, God says that "The rich rules over the poor, and the borrower is servant to the lender." We are commanded not to borrow.

In Proverbs 21:10, God says that "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has." Again, we are told to save.

In Proverbs 21:5, God says that "The plan of the diligent lead surely to plenty, but those of everyone who is hasty, surely to poverty." This one is quite obvious, plan. It doesn't say to be poor.

Alright, one more. In Luke 14:28-30, God points out "For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it, (29) lest, after he has laid the foundation and is not able to finish it, all who see it begin to mock him, saying ‘This man began to build and was not able to finish’." You can't build a house without plans.

"It makes me think that when we die, God's going to give us a test on how well we used what he gave us." Well Kevin, I hate to break it to you, but that is the case. One day, we will all stand before God and be held accountable for everything that we were given and how we handled that responsibility. To some it's a frightening thought. Many dismiss it. We'll see.

"It all makes me feel that our problem is we have too much, not too little...I don't often hear people say this in church, however. Church people seem just as driven to earn more and acquire more things as everyone else." I don't know if I'd define it as driven more so than being obedient with God's provisions. To him that much is given, much is required. God will only bless those who are obedient.

"Bring all the tithes into the storehouse so there will be enough food in my Temple. If you do," says the LORD Almighty, "I will open the windows of heaven for you. I will pour out a blessing so great you won't have enough room to take it in! Try it! Let me prove it to you!" Malachi 3:10