Category Archives: personal finance

Financial Tips Presented At The National Black Book Festival

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At the beginning of June, I attended the National Black Book Festival in Houston, TX.  While there, I facilitated a seminar on the Rags to Riches Financial Model.  The presentation highlighted the essential components needed to lay a foundation for financial success.  Included below are some of the helpful tips that were shared with seminar participants:

  • Money matters are matters of the heart.  If you have a personal mission for your life, it becomes easier to be disciplined in your finances.  In order to succeed financially, you must have a mission for your money
  • To increase the amount of surplus (income-expenses) you have on a monthly basis, consider the following:
    • Combine your insurance policies in order to receive the multiple policy discount
    • Interest rates are at historic lows.  Explore opportunities to refinance your home and / or vehicle.  If you are struggling to pay your mortgage, consider investigating several of the governmental programs that have been established to help homeowners stay in their homes.  My post, Don’t Walk Away From Your Investment, outlines a few of these programs
    • If you have a cell phone, consider eliminating your home phone or opt for basic service
    • Measure your financial health based on your net worth and not your annual salary.  Your net worth is the difference between your assets (what you own) and your liabilities (what you owe.)  You can evaluate your net worth by using the following formula:

Net Worth = Age X Pre-Tax Income (Gross) / 10

  • You can’t fix what you’re not aware of.  That being said, you should obtain your credit report from the three major credit bureaus on an annual basis by visiting www.annualcreditreport.com.  This is a free service
  • Know your credit score.  For tips on improving your credit score, please review my post, Three Ways to Increase Your Credit Score
    • A low credit score will increase your liabilities and expenses and decrease your surplus and net worth
  • Set sound financial goals.  The following four steps are key ingredients to goal setting:
    • Be Precise – Include dates, times, and amounts so you can measure achievement
    • Be Realistic – It’s important to set goals you can achieve
    • Set Priorities – We often have several goals; give each a priority
    • Write Down Your Goals – Documenting your goals activates them and increases your chances of success

I hope you find the tips in this post helpful.  Establishing a solid financial future requires a plan, time, and money, but it’s never too late to get started.  To review the seminar presentation in its entirety, please click here:  NBBF Rags to Riches Seminar Presentation

Three Ways to Increase Your Credit Score

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Credit is a significant factor in building wealth.  The truth of the matter is people without credit or with poor credit pay more for basic services (e.g., home mortgages, auto loans and insurance.)  Additionally, it’s important to know that no credit is the equivalent of poor credit.  That being said, whether you use it or not, if you want to build wealth, you need credit.  To ensure we’re on the same page, I’d like to introduce three key terms:  credit, credit reports, and credit scores.

Credit is the ability to buy now with a promise to pay later.  According to the Federal Trade Commission (FTC), if you’ve ever applied for a loan, credit card, insurance, or job, you have a credit report.  Your credit report is similar to a report card; it conveys a story to creditors.  It shows whether you’ve been a conscientious consumer, if you honor your credit agreements, and whether or not you’re carrying too much debt.  In today’s economy, credit is more important now than ever before.  Not only will it prevent you from being able to purchase or rent the home you desire, it can also prevent you from obtaining the job you want.  If you’ve never reviewed your credit report, there’s no time like the present.  Each year, consumers qualify for a free credit report from the three major credit bureaus.  To request your free credit reports, please visit www.annualcreditreport.com .

If you have a credit report, you have a credit score.  In an effort to ensure objectivity, many creditors use credit scores to assess an applicant’s credit worthiness.  A credit score is a numeric value that ranks an individual according to their credit history at a given point in time.  Credit scores typically range from 400 to 850 – the higher, the better.  Although obtaining your credit score from the three credit bureaus is not free, it’s worth the investment.  You can obtain your credit score from Experian, one of the three major credit bureaus, by visiting www.freecreditscore.com .  Because the information in your credit report may vary, you should obtain your credit score from all three major credit bureaus.

If you’re credit challenged, the following steps will help you improve your credit score:

  1.  Pay Your Bills on Time.  Creditors do not report your account as late to the credit bureaus until your account is 31 days past due.  Because we now have the ability to pay our bills online, many creditors have eliminated the grace period for late fees.  For example, if your credit card bill is due on June 1, most creditors will assess a late fee if your payment does not post to your account by that day.  Although you may incur a late fee, your account will not be reported as late to the credit bureau until it’s 31 days past due.
  2. Keep credit card balances below 50% of your approved credit limit.  Your credit score factors in how much credit you use.  In essence, just because you have it doesn’t mean you have to use it.  If you can’t pay off your balance at the end of the month, keep your balances low.
  3. Pay outstanding judgments.  If you have debts that are not in good standing, it’s important to make arrangements and pay them.  As you develop a plan to pay outstanding debts, you should focus on the most recently reported first.  You should also take an opportunity to request settlements.  Most creditors will accept settlements on bad debts.  As you work with a creditor on a potential settlement, try to settle the account for 50-60% of the outstanding balance, and make sure you obtain the terms of the settlement agreement in writing and honor them.

Restoring credit takes time, but it’s worth it.  Proverbs 22:1 states, “A good name is more desirable than great riches; to be esteemed is better than silver and gold.”  If you desire to build wealth for future generations, it begins with striving to maintain your credit worthiness.  For more information on how to restore your credit, please consider the book, Rags to Riches.

Student Loans – The Next Credit Bomb

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While the economy continues to show signs of improvement, the bleak outlook on student loan debt stole headlines last week.  Due to the recession, there were many people (young and old) who seized the opportunity to go back to school in hopes of retooling themselves for the emerging job market.  On the surface, this seems to be great news, but there were some alarming facts reported in the news:

  • An article in Forbes announced that four economists at the New York Fed reported that outstanding student loans now exceed credit card balances and auto loans
  • According to the Federal Reserve Bank of NY, Department of Education, and private sources, outstanding student loans will exceed $1 trillion this year as reported by USA Today
  • The College Board reports that students are borrowing twice as much as they did a decade ago, and total outstanding debt has doubled in the past five years

Given the information above, you might say that borrowing money to go to school is a bad idea.  Although the economy is improving, there are still a significant number of people out of work.  Additionally, as parents attempt to help their children by cosigning, taking out personal loans, or drawing down equity (if available) in their homes, many may be faced with paying those loans back on behalf of their kids in the event that they’re unable to secure employment after graduation. 

After considering all of this, what’s the alternative?  Ultimately, if you want to compete, school may be the only option.  You will likely be faced with applying for loans to pay for your education, but I urge you to make wise choices.  The following three steps may help you avoid getting in over your head:

  1. Assess the salary potential for your new career and pursue jobs in growing industries (e.g., healthcare, technology, and service.)  Try to pursue opportunites that require your presence and cannot be outsourced to other countries.  Additionally, only borrow what’s practical for your new career choice
  2. Seek opportunities to apply for grants and other job training programs.  Explore opportunities to participate in programs at local non-profit agencies (i.e., Urban League, Goodwill, etc.) which offer services at a free or reduced rate.  Review the Workforce Investment Act (WIA) and confirm whether or not you’re eligible for funding under this program.  WIA supersedes the Job Training Partnership Act and offers a comprehensive range of workforce development activities through statewide and local organizations
  3. Avoid dipping into your home’s equity.  Although the economy is showing signs of recovery, we should still be conservative about the financial decisions we make.  If you take out the equity in your home or use your home as collateral, you very well may be jeopardizing your home if you default on the loan

As a result of the recession, we are slowly rebuilding America, and many families have found themselves in similar situations.  We are all defining new norms and learning how to do more with less.  Our ancestors experienced similar times and they survived.  We will also survive, but it will require us to continue to make sacrifices and become more intentional in our spending.  

In closing, because most student loans are deferred as long as you’re a student, it can become very easy to forget how much debt you’re accumulating.  Each time you apply for new debt, take an opportunity to review your outstanding debt, and if you don’t remember anything else about this post, please GRADUATE – you don’t want the debt without the degree!  An article in the Wall Street Journal reported that a college graduate earns $800K to $1M more than a high school graduate over their lifetime.  Another important fact to remember is most student loan debt cannot be discharged in bankruptcy.  In essence, nothing but death can keep you from being required to pay back student loans!

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