MattHutter.com

Procrastinators will tell you that they work better under pressure. I don’t buy that. Owners of messy desks will tell you that they know the whereabouts of everything. I don’t buy that. Unorganized people waste time looking for things, buy items more than once that were lost and pay a hefty price for rushing things at the last minute. The following situations end up costing much more time or money due to poor planning and disorganization .

Lost items at work or home

I’m a Type A personality. I’m obsessive-compulsive when it comes to keeping my stuff where it belongs. As a result, I rarely lose things at work or home. Yes, it’s slightly more work putting my keys and wallet in the exact same place every night, but for me it beats the alternative. Placing items down in random places throughout the house (slippers, keys, etc) makes finding them that much more difficult. If you spend one to two minutes searching for your keys every time you leave the house plus the same amount of time at work that adds up to twenty or more hours per year just searching for your keys. Do you know how many books you can read in twenty hours?

The bottom line cost: losing track of your belongings causes you to waste hours of time looking for those belongings. This time can be better spent elsewhere if you were more organized.

Failure to keep a calendar or datebook

Have you ever sent a gift to a loved one with an added overnight or expedited shipping cost due to you forgetting their important date? If you have relatives out of town and you send them gifts on their birthdays or Christmas this is something should know about every year. It should come as no surprise to you each year that Mother’s Day occurs in the middle of May. If you find yourself shipping Mom her gift via FedEx overnight each year then you are wasting your money. Set up a Google Calendar reminder email or use an old-fashioned FranklinCovey planner to let you know well enough in advance each year that this date is coming.

The bottom line cost: procrastinating or forgetting important dates costs you wasted time, money and effort than can be avoided by a little calendar planning.

Late fees on payments

How many of us put the day’s mail on a desk or table once it’s opened and read? Have you ever amassed a pile so large that bills get buried under the stack? I’m guilty of this lack of organization now and then. I’ve even paid a late fee on a utility bill as a result of this. If your system for paying bills is place them somewhere and then come back to them hopefully before the due date then your system stinks. Put them in a visible place that reminds you daily or weekly to get this done. Paying a fee for late bills is essentially a “slob tax” for not finding them in time.

The bottom line cost: losing bills and other important documents with deadlines causes you to spend extra money on late fees and finance charges. Get a system for finding and remembering bill due dates.

The time “black hole” known as your email inbox

Have you ever wanted to find an important email at work or home? Have you ever spent more than twenty minutes looking for it? And then did you get distracted reading another email you had not seen in a while. It has happened to me. Also, tt never ceases to amaze me how folks have hundreds or thousands of emails in their inbox. How can these people find anything in a pile of 500 items? Create some email folders to separate the categories and find items easier. Or do what most time management experts recommend. Do, delegate or delete. In theory, practicing this principle will keep your inbox nearly empty each day. Do – an action item for you. Delegate - someone needs to do this. Delete - this does not apply to me or it’s information that useless to me.

The bottom line cost: an unorganized email inbox costs you extra time to find, respond and act on items sent to you.

Is being organized an innate talent or can it be learned? Or we all wired one way or the other? If you are an unorganized person take a self-assessment of the true cost of how much this character trait costs you each week in lost money, time and effort. If you are already an organized person, I’m sure you can attest to the peace of mind knowing how simple like becomes when you get organized.

As mentioned in Living Without Credit Cards my wife and I are currently not in agreement yet about canceling all of our credit cards. Recently, she opened up a Macy’s department store card for the initial 10% off her first purchase. We used to do this so often in the 90s when we bought our first house that the mortgage loan officer even asked us why we had opened and closed a half-dozen credit cards in the last several years. We told him it was for the quick-hit 10% or more discount on the first use of the card. We don’t do that anymore…or at least I thought we didn’t.

So we get the first (and will be the last) bill from Macy’s and it comes in two separate envelopes. So I think this is odd. Then I noticed something terrible. This card not only allows purchases in Macy’s stores like all department store cards, but is also functions as a full-fledged Visa (or in some cases Mastercard). My wife could probably recite the exact choice words I elicited from the dining room when I discovered this. Apparently this is a joint effort between Macy’s and Citibank. Others have reacted the same way I did when discovering this fact:

From Joe’s Journal:

Well, this summer Macy’s announced their plan to “flip” 3.5 million dormant store charge accounts to new Citibank MasterCard accounts. Apparently, this is legal under the fine print of the original Hecht’s and Macy’s store charge card agreements, though the agreements refer to this activity as “information sharing” between the store and the bank, rather than something more obvious like “giving you a seemingly unrelated all-purpose credit card many years from now when you least expect it.”

From a finance blog at the Washington Post a reader submits his similar story:

Looking for savings, Marc naturally took advantage of such an offer from Macy’s. But a few weeks later, he was surprised when he received a store-branded Visa card–not a private-label card that could only be used at the store–with a $10,000 line of credit. Since he had more credit cards than he needed, including one from Visa, he called to cancel and get what he wanted in the first place–a more limited store card.

Macy’s said it makes it clear in the credit application that the store will first consider you for a Macy’s Visa card and that’s what you’ll get unless you don’t qualify for it or you opt out at the cash register when you sign up for the card. But the credit card application is so full of fine print that you may not spot that caveat even if it is in bold capitalized letters. And in the haste to sign up for the discount, you also may not realize that you have a choice of a Macy’s Visa card or a more limited store card.

Does this sound sleazy? Does it sound like Citibank does not care about you? Well, hello!! They don’t. Keep in mind that most big-box retailers are doing everything in their power to make it easier to spend more money. A credit card does just that. Why limit your purchases to just Macy’s? Why not give everyone another card to add to the pile of potential consumer debt. Sears did this so well in the 80s with the Discover card that they ended up spinning off the whole division into another company.

The bottom line: getting the “added convenience” of your Macy’s card being a credit card also is neither convenient, nor a wise move.

Recently my wife and I became 100% debt-free except for the mortgage. Not only have we paid all off all our non-mortgage debt, but we’re moving in the direction of closing all credit card accounts. I’m on board with this idea, but my wife is not. I understand this could be a six-month process convincing her or it could never happen. Below I’ll attempt to debate all of the conventional arguments on why you should have a credit card. Also, I’ve included reasons why cash or debit cards are far superior to credit cards.

1. When you pay cash for things, the chances of identity theft are zero. Now, I mean actual cold, hard, green cash not a debit card. If you are worried about a problem with your purchase be sure and keep the receipt. I’ve never once heard of a merchant basing the return policy on the method of purchase. All purchases by reputable retailers allows returns regardless of the purchase method.
2. Reward or loyalty points are a great deal from all the products I get from using my card. Wow, let me walk through all of the flaws in this arguement. First, if you are a person who carries a balance, those reward items are free! Your interest charges are paying for those “free” products. If you are someone who never carries a balance you may think the rewards are still a sweet deal. What if an Act of God happens one month and a bill does not get paid on time? Wham! Finance charge on that card with the “free” reward points. Also, what if the bank makes an error on your account? If you don’t have an account you won’t EVER get a bill or an error on that bill!
3. A credit card is good for emergencies. Well, I see two ways out of emergencies; your main checking account and a savings account/emergency fund. Do you want to know another saying for emergency credit card purchase? Poor planning. If you have a big enough emergency fund, how bad is the emergency that it will wipe out the account? A simple rule is that the bigger the emergency fund, the lower the chances of it being wiped out by any emergency.
   1. Home repair – maybe $2000 – $4000 if it’s really bad. Hopefully insurance covers something which is not your fault. Any other repair bigger than that may have been looming since you bought the house or you ignored the repair for too long.
   2. Car repair – maybe $2000 or so. Any more than that and it should be covered by insurance due to an accident or it’s time to look for another car.
   3. Health problem – maybe $500 – $30,000 for serious health problems. Any $30,000 medical bill may have been caused by no medical insurance or experimental treatment. These are certainly possible, but rare for most people.

   If you are like me, a credit card creates a false sense of security to help you out of financial jams. However, when paying that emergency expense with a credit card you now essentially created another emergency (albeit a long-term one) with a new, large, unexpected debt. An emergency fund can solve many emergency financial problems. Living without one is like an acrobat flying without a net.

4. I’m young and I want to build up my credit rating. As I detailed in The FICO Score Flaw a credit rating is basically a loser’s game. All it shows is how well you manage the revolving door of debt. A young person just entering the workforce likely has two major purchases on the horizon. A car and a house. Ideally you’d pay for both with cash, but that’s not in the cards for all of us. For the car purchase, most lenders will recognize that you have a steady income and approve you for a loan. For the home purchase, I’d strongly recommend the following: 20% down payment on a 15-year traditional (not adjustable rate or interest-only loans) mortgage. This shows the bank that you are a conservative borrower who takes this loan very seriously. Building up a 20% down payment and choosing a higher payment (the 15-year loan is a higher payment than the 30-year loan, but it’s paid off twice as fast) shows that you have commitment. If the bank balks at your loan application with no credit rating ask that the loan be manually underwritten.
5. Credit cards are safer online that debit cards. First of all, if your bank tries to pin the unauthorized charges on you for either kind of online fraud, credit or debit, mention to them that they are violating federal law. The Electronic Funds Transfer Act (EFTA), which applies to debit cards, specifies your liability for fraudulent transactions is $50 if you notify the bank within two days of a lost of stolen card and up to $500 if you notify after two days. The Fair Credit Billing Act, which applies to credit cards, specifies your liability for fraudulent charges is no liability if the unauthorized use involved just the credit card number, and only $50 in the case of a lost or stolen card. So, it literally would take an Act of Congress to occur before your bank rightfully holds you responsible for unauthorized charges.
6. I like paying only bill per month. I have many friends who put everything on the credit card and (claim) to write only one check for all their bills per month. Many times these are the same folks who use rewards loyalty points on their card. First of all, if you pay cash for all face-to-face transactions you pay no bills per month. For online purchases use a debit card only and either keep the receipt or record it in your checkbook. Now, back to the paying only one bill per month. Dunn and Bradstreet did a study that shows consumers spend 12-18% using credit cards than paying with cash. Exactly like poker chips, no emotional involvement occurs when swiping a plastic card. However, when you are pulling out ten $10 bills to pay for something, you feel the pain.
7. I travel and hotels/rental cars won’t take debit cards. Um, time to change hotels. Ask to speak to the manager on why this policy exists. If you are traveling with a company credit card, keep in mind this is affecting your credit rating, not your employers. Even if the card is in their name.
8. Credit cards are more convenient than cash. Smart personal finances are rarely about convenience. Convenience is what gets most people into debt over their heads. Impulse buys, payday loans, cash advances and credit cards are like everything else convenient….they’re expensive. It would be convenient for a limo driver to bring me to work everyday, but very expensive. It would be convenient to eat out for every meal, but expensive. You get my point.

The bottom line is that eliminating all of your credit cards is a trade-off. You may give up some convenience, but the peace of mind and better sleeping at night will make the trade far worth the effort.

How often have you heard someone talking about their credit score? Often that person is applying for a mortgage and is concerned about the score. The Fair Isaac Corporation (FICO) invented the best known and most widely used credit score model in the United States. Wikipedia expands on the FICO score below:

A FICO score is between 300 and 850. According to Fair Isaac, the median score is 723 (half of scores above and below) whereas according to Experian (using the Fair Isaac risk model) the average credit score is 678 (lowest scores are farther from the median than the highest scores). The weighting of the score is broken down as follows:

• 35% — punctuality of payment in the past (only includes payments later than 30 days past due)
• 30% — the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
• 15% — length of credit history
• 10% — types of credit used (installment, revolving, consumer finance)
• 10% — recent search for credit and/or amount of credit obtained recently

You can see many components make up a FICO score. It can take six months or longer to improve or worsen a score. If you file for bankruptcy it can take seven or even ten years to wipe your FICO slate clean and even then it will often be asked on loan applications. The score is similar to a financial report card banks use to determine your risk of defaulting on a loan. The lower the score, the higher the risk of you falling behind on the loan.

So, what’s the flaw with the FICO score?

Before I answer that question, let me tell you about one of my goals. This goal pertains to my FICO score. My goal is for my FICO score to become zero. You may be saying WHAT? Is this guy nuts? Why would anyone want to ruin their credit rating? Plus, the rating only goes down to 300…why shoot for zero??!!

The flaw in the FICO score is that it’s a loser’s game. It is merely an indicator of how well you manage the revolving door of debt. Just like getting bad grades on a report card, you’d really prefer that no one has to see this private matter. If your score is high, you apparently don’t need to borrow money because you consistently pay it back promptly.

The flaw in the FICO score is that it shows you have debt. It might be well-managed or it may be poorly-managed. Either way, you have debt.

My goal is to have no debt. In the next month or two, my family will have no debt except the house and even the terms of that loan are being re-evaluated by me. My plan is to go as long as I possibly can without borrowing any money. Not from a friend, not from a relative and certainly not from a bank. If someone goes years and years and years without borrowing money eventually that person will have no no track record for a FICO score. Banks will have no clue about your ability to pay back a loan and that’s a good thing. I realize that this could be a decade away or more for me to get a FICO score of zero.

Here’s the ironic part: a millionaire who has not borrowed money for many years would also have a credit score of zero. Yes, a person with a net worth of millions of dollars cannot get a loan from a bank due to our financial culture based on that score. No track record, no loan.

The next time someone discusses the concept of the FICO score mention that this is a score you’d rather not even have.

Here’s a quick tip on how to sift through your snail mail without even opening the contents. Credit card companies are getting sneakier and trickier in an attempt to get you to just open the envelope. This is true in any direct mail campaign. The percentage of recipients that even open the envelope hovers somewhere near 1 %- 3%. Knowing these miserable percentages, the credit card companies have resorted to tactics such as marking the envelopes urgent, confidental, do not discard, etc. Once you’ve opened the envelope the chances of you acting on their offer just went up tenfold (probably still only 10% of those who open the envelopes act on it though).

Well, I have a tip that can save you even more time than trying to decipher the envelope. Check the return address. If it says Wilmington, DE then I can tell you with certainty that it’s from MBNA (now Bank of America). Other big offenders include Chase, Capital One, American Express and many other large financial institutions. I started the process of filing for an LLC for myself in 2003 (but never did) yet I still get direct mail and small business offers from American Express four years later.

This entry from Wikipedia explains when and why Wilmington, Delaware became a credit card behemoth.

Wilmington has become a national financial center for the credit card industry, largely due to regulations enacted by former governor Pierre S. du Pont, IV in 1981. The Financial Center Development Act of 1981, among other things, eliminated the usury laws enacted by most states, thereby removing the cap on interest rates that banks may legally charge customers. Many major credit card issuers, including Bank of America (formerly MBNA Corporation), Chase Card Services (part of JPMorgan Chase & Co., formerly Bank One/First USA), and Barclays (formerly Juniper Bank), are headquartered in Wilmington. The Dutch banking giant ING Groep N.V. headquartered its U.S. internet banking unit, ING Direct, in Wilmington. In 1988, the Delaware legislature enacted a law which required a would-be acquirer to capture 85 percent of a Delaware chartered corporation’s stock in a single transaction or wait three years before proceeding. This law strengthened Delaware’s position as a safe haven for corporate charters during an especially turbulent time filled with hostile takeovers.

Although the credit card industry has created an economic boon to this city of 72,000, that same industry has wasted millions of Americans time sifting through their junk mail.

Bottom line: If the envelope says Wilmington, DE on it place it in your circular file.