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Personal finance mastery with a pinch of motivation.

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Credit Scores Are A Joke

January 1st, 2009 · 6 Comments

With the economy in turmoil I decided to capitalize on plummeting interest rates.  My wife and I refinanced a few days ago and thus we will have our house paid off at age 52 (at the latest, possibly earlier).  Our lender was a traditional brick and mortar bank with very conservative lending requirements.  As a result of their strict approval process, they did not get hammered during the 2008 financial meltdown across the U.S.   This was our first home loan to be approved on only one income and we still sailed through the loan process.   For the first time in our lives we were able to see our FICO credit score and although it was high, I was flabberghasted at the credentials for a high credit score.  Our loan officer told us our score would have been higher if we had done the following:

  • had more credit cards (we have none)
  • had more balances on those credit cards (no cards = no balances)
  • had any other consumer loans over the past recent years (we have none)
  • had borrowed money more regularly

I completely understand how a FICO credit score works.  The lender needs to see some kind of track record showing how good you are paying back your loans.  Who wants to take a risk on an unknown quantity, right?  I guess what really sunk in for me was how completely obsessed society is with debt.  This credit score would have been higher had we swam with the sharks more often.  This in itself is almost a paradox.  Put more risk to your credit score by financing more purchases and it will go up assuming you pay them in full all the time.  However, if you put more spending on credit your actual risk of paying it back is higher.  So, by risking your credit score more it could go up…or down!  Sounds like gambling to me and that’s why I continue to strive to reach a FICO score of zero.

→ 6 CommentsTags: Banking · Credit Cards · Money · mortgages

Wasting Your Money In Convenience Stores

October 14th, 2008 · No Comments

Full disclosure: I’m no saint. I go to convenience stores probably once a month on average. Now, I’m aware that I am not getting any deals at the gas station store on my Snickers or my bottled water. However, I’m also aware that I’m not breaking the bank or even affecting our family budget by more than .1% annually on these expenditures. It’s the folks who frequent these stores daily that worry me. The list below is not meant to be funny. I have actually witnessed nearly each item on the list below.

You know you have a problem in convenience stores if

  • The clerk knows you by name
  • You buy your beer there….by the can
  • You buy your saline solution there
  • You go there more than twice a week
  • You are there on lottery day
  • You do “mini grocery shopping” there

If you find yourself doing one or more of the above items then perhaps you should read The Cost of Being Unorganized

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I Am 37

September 20th, 2008 · 2 Comments

Today I turn 37.  Here’s what I have learned so far.

  1. After God, my family is the most important thing in my world.  Subtract your money, house, career, health and “stuff” and tell me what you have left.  I still have everything I need when you take those five things away.  Actually, not much changes for me when you take all of those away.
  2. Your kids really don’t care one bit about that big promotion at work.  Your kids don’t care about a $10,000 raise.  Or a $20,000 raise.  Or a $50,000 raise.  I am 37.  I have never met a person whose favorite childhood memory was their parents buying a bigger house.  Or their parents getting a new Lexus.  Or a vacation to Hawaii.  I enjoy all of those things.  But they do not matter at all to your kids.
  3. A college degree is no guarantee of career success in this world.  A mere high school diploma is no guarantee of lower career success.  One increases the odds of financial success.  One increases the hours to reach financial success.  I know a man who completed his four-year degree at age 37.  I am 37.  He spent 15 years completing that four-year degree.  He took one class per semester.  Slow and steady wins the race.  He had a wife, three kids and a house on a large property to maintain.  He did not complain.  He was the lowest paid employee in his department.  If you continually do more than you are paid to do, eventually you will be paid more for the work that you do.  Where is my friend now?  He is the boss of that same department.  He has 20 people working for him.  He says he is the most financially successful of his six other siblings.  When the previous manager was asked who should replace him, he replied “Eric is my number one choice.  Numbers two and three are so far down the list they should not even be considered for this promotion.”  Eric didn’t care what people thought of him.  He still doesn’t.
  4. Why is it that I have met near-genius-level people whose personal lives are in shambles?  They cannot manage money, marriage, family or career.  These people have IQs nearly twice mine.  Are they smart?  No, they are not smart.  They know mountains of information about everything, yet they know nothing about life.
  5. At the end of the day and the end of your life, all that matters is your relationships with those you love.  See item #1.  Take away all the peripheral “stuff” in your life and who loves you?  Do your kids love you?  Does your spouse love you?   If you and your family had to sleep on park benches at night, would your relationship change?  Do you make your loved ones happy by buying them “stuff” or buying time with them?  Quality time is a term created by those who have no time.  It’s the quantity of time that matters.
  6. If you take parenting seriously, it’s hard work.  If you have to bribe your kid to do something you have a problem.  I do not believe in “choosing your battles” because that is a cop out.  Consistent rules and consistent behavior get consistent attention from your kids.  If you scold your child for lying about his homework, but then have that same child tell the phone caller you are not home, you have a real credibility problem.
  7. “When I was a boy of fourteen, I was embarrassed to have my father around.  By the time I turned twenty-one I was amazed at how much the old man had learned.” – Mark Twain. I am still not smarter than my dad.  I am 37.  He is 62.  Every time I think I know more about a topic in life, he proves me wrong.  Just when I think I have him figured out, I learn what shaped him to think that way.  It was not at all what I thought I knew.  I would not change one thing about the childhood he gave me when I was growing up.
  8. My mom should be part of the Greatest Generation, but she’s stuck in Baby Boomer clothing.  She is 60.  She does not complain about anything to me, ever.  She is not a whiner.   She has held the two most important jobs on this planet.  She ended one at 37 and began the other at 37.  I am 37.  My mom ended the job of stay-at-home Mom to begin the job of school teacher.  My brother and I now realize that she chose to give us that life because it was important to us and important to her.  I would not change one thing about the childhood she gave me when I was growing up.
  9. My brother had more major life experiences in a few years than most of us have in one life.  I had originally typed all the up and downs of his life in his 20s, but I’ll let him share that with you should he choose.  From his 20s to his 30s, he found a solid career.  He found money.  Plenty.  He found religion.  Plenty.  He found himself.  And best of all he found love.  Now, that he’s found love he can see steps #1 and #5.  And I need to find myself writing one amazing best-man speech for his wedding in eight months.  :)
  10. The difference between optimism and looking through rose-colored glasses is that the latter becomes the former if you do it long enough.  Whoever came up with the expression “rose-colored glasses” must have been a pessimist.  People say that because they are frustrated that the person keeps seeing everything in life in a positive way.
  11. Breaking off an engagement is much easier than breaking off a marriage.  Two of my childhood neighbors are each experiencing one of those right now.  One got hurt before decades of marriage, one after.
  12. If you say someone’s name enough times while passing them, eventually they will learn yours.  Sometimes they ask your name instantly.  Sometimes it takes longer.  I once said “Hi, Amy” to a woman in my office for three years before she finally said “Hi, Matt.”  That is a lot of fun.  I guess I can make people want to learn my name.  It’s exactly like the first chapter of How to Win Friends and Influence People.  Dale Carnegie was right.  A person’s name is the most important thing in the world to them.
  13. Working for a bad boss can make your life a real pain.  Of the bad bosses I’ve had, all were divorced and had very few friends.  Is that a coincidence?  Maybe, maybe not.  If you don’t care about the careers of your employees, you should not be the boss.  If you have never exercised compassion or care for your employees you should not be the boss.  If you have lied to advance your career or to hurt your employees, see step #5.  If you are stuck with a bad boss for more than 12 – 18 months, it’s time to change jobs or talk to the bad boss’s boss.  Well-run companies let their managers spend 25-50% of their time developing the employees.  I had one boss for three years who spent 0% of his time developing his employees.  He has since been been demoted from manager back to employee.
  14. You are wasting your time if you are dating someone you would not marry.  In a healthy dating relationship the ultimate plan would be to wed.  I realize it can take months or years to learn if this person is the one, but as soon as you are sure either way make the move.  Upon graduation, that’s why so many couples break up or get engaged.
  15. Extroverts have it much easier in life.  I feel sorry for folks who are so shy that they cannot even say “hi” to someone in the grocery store, library or church.  I am an extrovert.  I use a person’s name every time I talk to them.  I would rather get the name wrong than use no name at all.
  16. I spend around zero minutes per day worried about what you think of me.  Life is easier when you don’t care what people think.  That does not give you permission to be a jerk, but it allows you to make decisions based on your personal situation at that exact moment in your life.  I made two major life decisions in the last several years that are not popular at all.  Two major media outlets wrote up my story and millions of readers read those stories about my wife and I.  You can read both of those life decisions under the “about Matt” part of this website.  I am 37. During the next 37 years, I will probably make more decisions that are not very popular at all, but they are the best decisions for my family.
  17. I believe in personal responsibility.  You are the result of how you’ve responded to the cards you’ve been dealt.  Personal responsibility defines my views on finances, politics, health and a host of other things.  Most of where you are today was your doing.  It’s not your childhood’s fault.  It’s not your parent’s fault.  It’s not your spouse’s or children’s fault.  It’s not your boss’s fault.  It’s not your government’s fault.  You are where you are today because you put yourself there.  Good, bad and everything in between.

I hope you have learned something, too.  Time for some birthday cake.

→ 2 CommentsTags: Money

A historical perspective on financial disasters

September 16th, 2008 · No Comments

Sometimes the U.S. financial markets give the appearance of complete and utter disaster.  Of course, the media has accurately predicted 27 of the last two recessions. :)  As with all media, the bigger the story the more viewers watching that story.  Over the last decade or two the media began to report only major index point-drops on Wall Street, not the percentage of the drop.  When the market indexes were smaller this made for a big story.  Some examples:

Black Thursday  (1929-1932)  340 point drop or 89% of the Dow over three years

Black Monday (1987) 508 point drop in the Dow or 22.6% in one day

September 11 (2001) 684 point drop or 7.1% the week after the attacks

As shown above, three of the largest financial crashes over the past 80 years have become less and less damaging to the U.S. economy.  Each one has become diminishingly less destructive to the overall market.  With the advent of halt-trading systems and the advancement of overreaction mitigators, the U.S. remains a very robust economy.  With some estimates at 20 million illegal immigrants, can any other country claim the long waiting list to share this great wealth?

Most economists would agree that the best politicians propose economics that are best long-term for the country, not the politician’s political party or personal career.  It is unfortunate that the U.S. is less than 50 days from a presidential election now because the politicians are spinning the causes of this economy more than a merry-go-round.  When these supposed financial disasters occur, lawmakers will throw out knee-jerk reactions such as bailouts or more regulation.  What did America’s financial system get from the September 11 attacks and a few scandal-ridden companies?  Sarbanes-Oxley financial “safeguard” legislation that arguably emasculated New York City as the world’s financial capital and transferred that title to London.

I have several thoughts about politicians who choose the bailout option for self-inflicted ill companies.  I think of judges giving multiple-DUI offenders their driver’s license back.  I think of a parent letting a child off the hook for misbehaving when he or she absolutely knew better.  How can a CEO, upper management or the board possibly learn any lesson if they are granted a “do-over” when the company implodes?  Capitalism flourishes in its purist form for one basic reason:  free markets work.  Communist and socialist economies will always fail over time because the government cannot permanently “prop up” businesses that should not be strung along.

Failure is part of the natural cycle of business.  Companies are born, companies die, capitalism moves forward. -Fortune Magazine

If I haven’t put you to sleep on this financial and economics topic, I highly suggest you check out Thomas Sowell’s Basic Economics which is the best book on economics I’ve ever read.

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A Paid-Off Mortage In Your Thirties

September 3rd, 2008 · 1 Comment

I was intrigued to learn that my college roommate Chris and another friend Marta both paid off their mortgage in their thirties.  This is quite an accomplishment.  First, they both defied the idiotic, asinine conventional wisdom that you want a mortgage for the tax deduction.  I won’t even respond to that misguided anti-logic.  Second, they bucked some members of their own families who thought paying off the mortgage was nuts.  Third, they did this twenty years earlier than most people who pay off the mortgage in their fifties or sixties.  I asked each of them the same questions with their responses below.

Why did you pay off the mortgage early?

Chris:  Intuitively, it just felt right.  For a few years there, we were a bit flush with cash, with two of us working and zero to one kids.  Looking forward, I knew eventually the economics would dictate that one of us should stay home.  I like to keep things relaxing, and counting on the market to grow our wealth while carrying debt was calculus that made me uneasy.  Maybe you can boil it down to a low degree of confidence in corporate America, which I knew pretty well.

Marta:  The plan originally was to pay off the mortgage while we still had two incomes, before our first child was born.  That way I could quit and be a stay at home mom and with the loss of income we would also have less debt.  Yes, I grew up with Depression era parents who always encouraged saving, and I’ve never liked any kind of debt hanging over my head.

How long did it take from the time you decided to do it and when it was paid off?

Chris:  It’s a bit hard to remember, but I’d guess about the 5 year mark, we started to see that we could do it if we really wanted to.  I think we had it paid off by the 8 or 9 year mark.

Marta:  I bought our first house in 1992, on just my income, even though we knew we were getting married soon.  We didn’t want to have too much of a house to pay off.  We got married in 1993, and every month put extra on the principal.  Also around that time my mom gave me a sum of money from my late father’s estate that I put on the principal and we refinanced to a 15 yr mortgage.  We continued to pay a good amount on the principal every month and in January 1998 we paid that mortgage off.  John (Marta’s first child) was born in April 1998 and I quit my job.

Did any friends or family members think you were nuts?

Chris:  There were probably people who thought we were nuts.  But if they knew me well, they knew I was nuts already.  I think after the fact when people found out (and we didn’t really advertise the fact) they’d say ‘man, wouldn’t that be nice.’

Marta:  My brother-in-law especially thought we were nuts.  He thought we should invest the money we got from the other house.  But then we would still have had a house payment.  And also he doesn’t have any kids and I tried to explain how my situation was different from theirs, and that the peace of mind from no mortgage was priceless when you want to stay at home with your three kids.  I also told him that if, for some reason, Nick (Marta’s husband) lost his job, it wouldn’t be so devastating financially.  Ultimately he didn’t understand my point of view.  My mother was very supportive, she thinks it’s what everyone should strive for, since they never had a mortgage!

Would you do it again?

Chris:  In my mind, life without debt is a better life.  So yes, we’re always going to be working to lessen or eliminate our debt load.

Marta:  I would definitely do it again.  It made it easier for me to stay at home.  And we were able to save for the kids college and retirement and just in general, because we didn’t have a house payment.  I’m very glad for my parents influence.

Themes From Their Answers

Chris and Marta touched on so many themes with their responses.  I think they’ve covered all the major topics on this blog just in one interview with me!  Debt, paying cash for things, savings, living below your means and more.  Some highlights from Chris and Marta:

“I like to keep things relaxing”  – I interpret this to mean that Chris does not like unexpected, financial disasters.  Neither do I. :)  By being mortage-free, few emergencies in life could really “rock the boat” too much.

“low degree of confidence in corporate America”  – I interpret this to mean that Chris or his wife could be out of a job at any random point in today’s economy.  By having no house debt, he didn’t have to worry about dragging himself into a job he disliked just to pay the mortgage.  Ultimately,  Chris did quit his job to be at home with the kids, but that’s a whole separate story.

“grew up with Depression era parents” – Marta implies that she knows the importance of living life with no debt, paying cash for purchases and other habits we learned from her parent’s generation.  Today’s youth could learn more from Marta’s parents (and Marta!) than any personal finance book anywhere.

“John was born … and I quit my job” – well how many of you out there *wish* you could do that?  Quit your job to be at home with your kids.  It’s a positive step for nearly all families that do it.  Sadly, most couples think they need two incomes to get by today.  My wife and I took a 50% pay cut for her to stay home with the kids and we never looked back.  Smartest thing we’ve ever done.

“My mother …. never had a mortgage”  – this is totally incredible that Marta’s mother never had a mortgage.  Do you hear what I’m saying!!???  Her parents paid cash for every home they owned.  That is truly remarkable.  And although it may have occurred more  in the 1930s, 40s and 50s it’s still an impressive feat.  I would not say it was a common thing to pay cash for your home then or now.

“Life without debt is a better life”  –  Chris could not have said it any better.

“I would definitely do it again” – Marta knows where she stands in this hyper-materialistic society in which we live and she still would do it again.  But, Marta, what about you driving nicer, newer cars or taking more exotic vacations?  I already know her answer:  this plan works for her – her family and financial future.

Thanks, Chris and Marta, for letting me profile you on MattHutter.com!

→ 1 CommentTags: mortgages