Check your Credit Score (and Report) for free, no gimmicks or hassles!

I just checked my credit score for free at CreditKarma.  There’s no fees or gimmicks (like the obnoxious ‘free trials’ at the 3 major credit bureaus.)  You just have to sign up for a free account, which takes about 5 minutes (and then you click a link in a confirmation email, so give them a real address.)

You can see how you compare to other CreditKarma users, your age group, and people in your state.  Also take a look at your credit report to see what you can do to improve your score.  Use the credit simulator to see how taking various steps will improve your score.  A good credit score allows you to qualify for better interest rates when you need a loan (think cars, mortgages, etc.)  Even a fraction of a percentage point shaved off your mortgage will save you tens of thousands of dollars over the life of the loan, so knowing and improving your credit is important!  Achieving a high credit score (720 – 850 is ‘excellent’) doesn’t happen over night, so don’t put it off.

Props again to Ramit Sethi of I Will Teach You To Be Rich for this link.  (I’m currently reading his book and loving it.)  Read the first chapter of ‘I Will Teach You To Be Rich’ (for free) to see how you can improve your credit score, pay off debt, and optimize your credit cards.

Do you suffer from these common big money mistakes?

Even though you may think you’re handling your money rationally, there’s many psychological factors that even very sophisticated people fall victim to.  Learn how to fix these big money mistakes below.

I just finished reading the fantastic “Why smart people make big money mistakes and how to correct them.” The authors focus on the behavioral economic factors that cause us to do boneheaded things with our money.  The book concludes with actions for people to take to overcome some of their irrational financial behaviors.

See if you’re making some big money mistakes, and learn how to fix them:

1) Raise your insurance deductible. Gary Belsky & Thomas Gilovich explain that because we count highly memorable events as more probable events (think fear of airplane crashes), we tend to overestimate the odds that we’ll have to file an insurance claim for life, auto or health.  Therefore, we pay too much in premiums for low deductible policies.  Instead, raise your deductible from, say, $100 or $250 to $500, $1000 or more.

2) Next, create an emergency fund to “self-insure” against paying deductibles and for other smallish losses. Read my other articles about paying less for auto insurance premiums, and also about using catastrophic/high-deductible health insurance. Because we think about all the terrible things that could happen to us, no matter how unlikely, we sometimes buy insurance we don’t need.  Go here to learn about insurance you should avoid.

3) Pay off credit card debt with emergency funds or other non-retirement savings. Often times, we use ‘mental accounting’ to separate different accounts of money in our mind.  We might treat our emergency fund as sacred, and at the same time max out our credit cards.  Once you accept that a dollar in your emergency fund has the same value as a dollar on your credit card, you’ll realize that making 5% in a money market fund and paying 14% in credit card interest at the same time just doesn’t make sense.  Besides, if you have an emergency after doing this, you can just put it on the plastic.  (Of course, once you pay off your credit card debt, keep paying your full bill every month!)

4) Switch to index funds. I often champion the virtues of low-fee index funds. They give you instant diversification and ensure that you’ll beat about 80% of actively managed mutual funds by just matching market returns.  Also, they let you put your investments on near-autopilot, freeing up your time to do the things you really love without worrying about quarterly earnings reports or whether your fund manager really knows what he’s doing  investing in Siberian oil fields.  Be honest with yourself that you probably don’t have any business trying to outperform investing professionals (who themselves often don’t have any business doing it.)  Also, DON’T be fooled into picking the latest ‘hot’ fund or stock.  Funds with high recent past performance are often just random aberrations, and are likely to perform worse than average going forward.

5) Review your assets and track your spending for a month. Take a snapshot of your personal wealth by tallying up all your debts and savings.  Then, track your spending for a month.  This second part is hard, but the rewards are absolutely huge.  You may think you know where your money is going, but if you’re one of those people that have credit card debt or just can’t seem to save enough, you must do this.  Even if you’re pretty on top of your money, tracking where your cash is going can be very revealing (I know it was for me.)  Fortunately, credit cards and online software like Mint or Quicken help you do this pretty painlessly.  Just make sure to account for cash expenditures too.

6) Set up a payroll deduction. We often find it painful to send our hard-earned dough to a savings account when that money’s already in our checking account.  Eliminate this phenomenon (called ‘loss aversion’) by making investments straight out of your paycheck through a payroll deduction.  That way, you’ll miss the money less since it will never feel like you had it in the first place.  Your 401k plan is a great place to start, but you should also consider automating the rest of your money to build wealth without thinking about it (hardly.)

7) Max out your retirement savings (or at least the employer matching part until you can save more.)  Retirement accounts like 401ks, 403bs, and IRAs are great places to build wealth because of their tax savings.  Read more about retirement savings here.  At the bare minimum, max out your employer’s matching portion of your 401k. (It’s free money!)  This is so important that you should do it at the expense of putting more money towards paying off your credit card debt! (And I really hate credit card debt, so that’s saying a lot.  Pay that plastic off as your second highest financial priority.)

So there you have it, 7 steps to fixing some of the biggest and most common money mistakes that even smart people make.  As always, email me with questions about your particular situation, or leave a comment and I’ll answer back as soon as I can.

Automate your finances – Perspectives from the Fool and Ramit Sethi

Below is a good summary of the automations you can make to simplify and improve your finances, courtesy of the Motley Fool:

Use the tips in this article and automate:

1) Your savings via direct deposit of your paycheck to your checking or savings accounts.  Depending on what your employer allows (ask HR), you can break up your direct deposit by placing some of your money in a checking account and some in a savings or brokerage account.

2) Your retirement via 401k contributions straight from your paycheck.

3) Your credit card bill by automatic payment of at least the monthly minimum plus whatever else you can afford (if you have a revolving balance) or the whole amount each month (the preferable choice.)

4) Your other bills by signing up for automatic payment on utilities, student loan, car payment, and even your rent or mortage (using your bank’s online bill payer if the company you’re paying doesn’t have an online payment option.)

5) Take a page out of Ramit Sethi’s book by opening high-interest savings accounts to auto-save for large purchases like weddings, cars and houses, or smaller things like a plasma TV or that $500 pair of Jimmy Choo heels.  (A really fantastic article on finance automation by Sethi is link here.  The article gets into the nuts and bolts of how to picture and implement the above.  I highly recommend reading it.)

Automate your finances to save time, money and peace of mind!

Why I hate the US Postal Service

No, really.  I hate them.

No, really. I hate them.

A dollar to ‘verify my identity’?  For security purposes!?  All my financial institutions changed my address for free, and they seem pretty darn secure.  Give me a break.  Better yet, break up this tax-sucking monopoly that tries to pass for a public service outfit!

Now don’t get me wrong, there’s plenty of other things that those useless minions at my local post office do besides nickel and dime their customers under the guise of protection like 1) frown.  2) Put up friendly signs providing helpful guidance like ‘NO FREE TAPE” and 3) go on break when there’s a line of people out the freakin’ door waiting to mail packages!

Keep in mind that these same folks lost about $5.1 billion (B)  in 2007, $3 B in 2008 and anticipate a deficit of roughly $6 B in 2009.  To read more criticism and why we should allow private companies and the magic of the internet overtake the post office, read this. Go here to REMOVE YOURSELF FROM JUNK MAIL LISTS that make up over half of USPS’s business (at rate subsidized by all us taxpayers!)

If you weren’t hopping mad already, below are some more awesome tidbits from Wikipedia that make me want to jam my hand in a blender running at ‘frappe’:

– “Congress has delegated to the Postal Service the power to decide whether others may compete with it” [Pop quiz to readers: if you were a giant, ineffecient, money-burning monopoly, would you rather have competition or not? Hmmm…]

– “FedEx and United Parcel Service (UPS) directly compete with USPS express mail and package delivery services, making nationwide deliveries of urgent letters and packages. Due to the postal monopoly, they are not allowed to deliver non-urgent letters and may not use U.S. Mail boxes at residential and commercial destinations. These services also deliver packages which are larger and heavier than what the USPS will accept, and unlike the USPS assign tracking numbers to every package.”  [So, Fedex and UPS accept packages that USPS won’t, and also assign *gasp* tracking numbers to every package so you’ll know where they are (what a novel idea; good thing USPS plans to implement that by 2013…)  Now remind me why these private companies aren’t allowed to deliver regular mail to our mail boxes as well??]

– “The USPIS has the power to enforce the USPS monopoly by conducting search and seizure raids on entities they suspect of sending non-urgent mail through overnight delivery competitors. For example: according to the American Enterprise Institute, a private think tank, the USPIS raided Equifax offices in 1993 to ascertain if the mail they were sending through Federal Express was truly “extremely urgent.” It was found that the mail was not, and Equifax was fined $30,000″ [WTF!?  So a company, of it’s own free will, chooses to use FedEx instead of USPS, presumably because it’s more reliable and/or cheaper, and it’s fined!  That’s like me buying groceries at the less-expensive store Safeway within walking distance of my apartment and getting fined by the expensive QFC a mile or two up the road!]