Best of the Week, Winners and Milestones

Just Picked and Notified our third winner in the RSS Sign-up Contest. Hope to give a link and a quote during the mid-day update. Remember all you have to do is sign-up for the RSS feed HERE or on the main page, verify the email...and that's it! You are entered. If you are already on the list you are entered in to next weeks final drawing as well!

Great week for Life, Liberty and the Pursuit of Money as we hit new milestones, increased readership and had great traffic. It was a great week for some of my favorite blogs as well. so without any further ado...

The Best Of the Web for the Week:

• Brightside of Debt - This one is me trying to rally folk to go there and comment on the linked post! - Brightside is considering stopping her blogg as her Hubby found out about itand she's feeling guilty. I know so many of my readers read her blog. Go to this post and let her know how great her blog is and how you want her to stay!!!
• Iowa Hippie Chick -This is about her Financial Epiphany, but really it is about much more. One of the best written, most touching posts I have read in a long time. She is a favorite of mine for a reason!
• Finwikian - This new Personal Finance Wiki (pfWiki) was pulled together by Mrs Micah and could become a great repository for some great collected Finance knowledge!
• Hustler Money Blog - More then one single post Hustler does an amazing job compiling all of the current Credit card deals. I personally would rather chop them up, but if you are gonna have one, get the best deal!
• Plonkee - A great post and mini-Carnival that goes into great depth and explanation of Dave Ramsey's Baby' Steps. Great stuff...as usual!

My Most Read Post of the Week:

• LifeLock = Life Crock? - A look at the successful program. Is is really a good Value? Detective X takes a look! :)

Life, Liberty and the Pursuit of Money Milestones:

• 369 Visitors in one Day! - Biggest day ever by far (Feb 28th), due to msn MoneyBlog story
• Over 11,500 Page Views
• Over 4700 Total Visitors
• Over 50 Subscribers!
• Achieved PageRank with Google! PR2...bigger and better to come!

Thanks to all for being great supporters! I hope to be worthy!

Personal Finance QuickTake: Ten Filthy Rich Traits

The Street.com via Yahoo Finance ran a piece this morning about the "Ten Traits that Make You Filthy Rich." Just like in the book, "The Millionaire Next Door" they make the case that personal finance and living within your means is none of the best determining factors on whether or not you will be financially successful.

Their Top Ten list:

1. Patience - Being able to wait to make purchases, ride out stock dips and save for the long term
2. Satisfaction - Being happy with what you have. In Dave Ramsey's speak...avoiding Stuffitis!
3. Organization - Being as productive as possible. Avoiding Stupid Taxes such as late fees!
4. Discipline - "Personal finance isn't a way to get rich quick, but is a disciplined execution of your lifetime plans." Perfect!
5. Reflectiveness - Learning from you mistakes
6. Creativity - Doing whatever it takes to get out of debt, avoid picking up new ones and being agile in all things!
7. Curiosity - Learn, Study and Improve yourself. I like to always look at Constant and Never-Ending Improvement to quote the tall one!
8. Risk Taker - Doesn't mean betting it all on black, but understanding that there is a risk=reward balance and not being over-conservative.
9. Goal Oriented - A favorite of mine. If you are working a Success Plan you are just working!
10. Working Hard and Smart - Are you willing to put in the time? If not you are going to have a tough time getting truly ahead.

More then any other time in our history we have the ability to reach some pretty lofty financial heights in we plan for success, budget, live within our means, manage our money and invest wisely!

The Agony of Defeat...

Do you know who Vinko Bogataj is? He was a moderately successful ski jumper for Slovenia in the 1970's. But what he is known for in American is the start of abc's Wide World of Sports. He IS the picture of "The Agony of Defeat."

That is how I am feeling right now...

Just got the ultimate Ninja Bill. We are doing so well, but as I have said before that wasn't always the case. When we moved here in December of 2006 we had a bit of a perfect storm. We were moving, had to cash out all of my options at my old employer, and had a huge medical bill hanging over our head. With no credit left or available and trying to move into a new house, we had only one choice...to tap my 401K. It wasn't much cash, but even with the penalties it was enough to get us moved, into the house and get the bill killed and pay off some really high interest debt. Desperate times Desperate measures... (He's At the gate)

Well today, two days after I filed my taxes, guess what I got...My 1099-R for the withdrawal. I thought it was in my 2006 taxes and didn't even think about it...(He is sliding)

So now I have to file an amended return. The worse part is that I went from having a $5013 Federal Refund to Owing $255! My state return went up $166! So I am still getting money back, about $2400 in total, but all of the Sugarplums dancing in my head just went rancid!- (The agony of defeat indeed!)

We did have taxes pull from the distribution, but the issue was the penalty...Well, now we have to print off a ream of papers worth of returns and get them out. Also given the extra income we will lose some of the Tax Rebate this summer...As Dave Ramsey says, Stupid Tax!

Let this be a cautionary tale for all of you to mind your finances! Or you could have as expensive of a morning that I have...off to cry :(

180 Degrees in Less than 180 Days

Simplicity in Kansas suggested in a comment yesterday, taking a look at a post about how my family has changed since we began our journey together in October. A reflection on five changes I have noticed as we work our Success Map and through the Dave Ramsey Baby Steps.

It hit me immediately as a great idea, since a lot has changed in less than 6 months. In fact, regarding finance, nearly a 180 degree turn-around. It might be easiest to explain by listing some positive advances, and contrasting them to how they were being done before.

Change #1 Bill Paying:

• Then: We haven't had a 30-day late pay in a long time, but it was very close. Basically we paid them as they came in without a plan. This led to silly $20, $30 late charges from the cards. It also lead at times charging a payment to a credit card, or having wave after wave of Ninja Bills.
• Now: We track every bill in MS Money including yearly ones and know exactly when we are going to pay them to maximize cash flow and eliminate late-fees.

Change #2 Spending Habits:

• Then: It kind of used to be first come first served! If I wanted to go Golf, I checked to see which credit card had some credit and I was off. The kids would hit up their Mom for everything with little thought of earning or saving for what they wanted.
• Now: Everyone in the house know where a bill is allocated, down to getting a Tea on the way to work. All of us are on allowances, we can spend it on what we want, but when it is gone, its gone! We try to pay with cash anything that we can...oh yeah, the Credit Cards are chopped and haven't been used in four months!

Change 3# Success Plan:

• Then: Don't worry, we'll always make more money...It will work out. Hey, there is the sand, I am going to be over there with my head in it!
• Now: Each person, including the kids, has a good idea to where the money is going. They know we didn't handle our finances well and we are now cleaning them up. They now know that a budget is a lifestyle, not a prison sentence to be paroled from. We all know that whatever we want...we have to save for it. A great example is with the tax return that we are getting. While questions came up about vacations, etc., when I explained that we were putting it away for taxes, everyone understood why. My oldest daughter told me to find the best interest rate, so there would be more for Christmas! (Both Girls are budding CFOs)

Change #4 Attitude Towards Money:

• Then: When my 10 year old daughter was four, she asked for a credit card for Christmas...so she could shop whenever she wanted.
• Now: Just last weekend she said she never wanted one because it was silly to pay extra just to get it now! Today I was with my 7-year old son at the bank getting the cash for our envelope system and he asked if we could go to McDonald's for lunch...just us two. I said sure, but reminded him that since the family wasn't all there, we each have to use our allowances to pay for our meal, because that was fair. He turned to me and said, well, how about I save this for a Bionicle instead...Good choice Son!

Change #5 Stress:

• Then: Never knowing what would turn up next, always waiting for our next check. Everyday felt like a rainy day.
• Now: Never is everything perfect. But the stress level around money is 10% of what it was. What stress there is really due to our understanding of what opportunities we blew by not having our stuff together...

So looking back we really have turned 180 degrees in less than 180 days. We are not perfect by a long shot but we got a budget, planned out our Success Map, are working our baby steps, built our snowball, and the light at the end of the tunnel isn't a train anymore!

If you haven't started, start. If you stopped, restart. If you are doing well, look for improvement! You can do it!

Avoid Melting Your Debt Snowball

$1973.08

That is is the size of my total Debt Snowball. It will be the size of my Snowball unit my last payment is lower then that amount. That sounds really impressive until you hear that my current Debt Pool is $54,165.19!

We have paid off 6 debts so far with the snowball:

• Dentist Bill #1 - $147
• Kohl's CC - $204
• Dentist Bill #2 - $290
• Providian CC - $1055
• PayPal - $1220
• Braces (More teeth!) - $2380

• Total - $5296.63

Now we have continued pay the minimum on other debt as well and our payment on debt #7 is now $292.99 vs. a minimum of $98.51, so we are now contributing nearly $200 more to our debt. Once we pay that off we will be paying $639.28 on our car payment, or the entire $292.99 more then the payment book price!

As we pay on time, our minimums are going down on debts 7 through 12. We interpret Dave Ramsey's concept to continue to pay the exact minimums, and take the difference and apply it to the active snowball, or in our case, $292 on the State Farm credit card. Others continue to pay the original payments and pay all of the other debts a little faster at the expense of the compounding snowball.

I have always said due what works for you, but for us it feels good to put everything (hopefully including the tax rebate) to the current #1 debt. The important thing is to leave the snowball money as snowball money. In other words don't take that and add it to your 401K or something else, as the idea is to get through Baby Step #2 (paying of non-mortgage debt) ASAP.

So the best advice I can give is that although it is winter (at least in the Northern Hemisphere) don't let your debt snowball melt...it is your key to freeing yourself from debt chains and being able to manage your money.

720 FICO and Beyond

Given that Mortgage, Auto and Credit Card Rate are coming down it is getting to be time to think about refinancing...but only on two conditions.

1. It is to swap higher loans for lower ones
2. It is not used to clear credit so you can charge again

If you are planning to clear the card and not chop them up, then pay the higher rate you are now, go off somewhere and really think if you really want to get out of debt.

If you do, then to get those sub-6% rate we are all hearing about (and maybe lower) you are going to have to have a FICO score above 720, and 750 might be the new 720 soon thanks to tighter credit restrictions and FICO 08.

First, go check your FICO score. I use www.truecredit .com because you can track your report from all three major bureaus; Trans Union, Experian and Equifax. It is important to check all three as they can be vastly different from each other. (This is NOT a pay per post, I really use them)

Now that you know where you are, if your scoresare generally over 720, or even better,750, you can go shopping for refinancing, if not,it is time to get serious about your score.

A note of warning: The Debt Snowball that Dave Ramsey and I advocate (OK he advocates and I agree!) can slow your progress in raising your Credit Score. That system advocated paying one debt off at a time then applying the balance to the next debt. The problem with FICO it looks at your debt utilization per card. So while you may have 100% paid off CC 1,2,3,4 and numbers 5 and 6 being maxed, or just higher then the optimum 30%, it will still hurt you.

Here is what your score is currently made up from:

• 35% - Payment History - On Time - Even 30-days late once can kill ya
• 30% - Amount owed - Back to utilization again
• 15% - Length of History - Longer is better
• 10% - New Credit -How much and what kind
• 10%- Types Used - Looking for a balance

So using this info from myFico, you have 850 points tops, if your payment history is bad the best you could get would be 600...if everything else was perfect!

So here are the tips per type:

• Payment History - PAY YOUR BILLS ON TIME :) pay them a bit early if it ensures they get there on time. Even one 30 day late can flip you from Good to Fair credit, costing you thousands. So what if you did, how can you fix it..."I will go to that ad that says they can erase it!" Not gonna happen, they just flood the banks with denials and hope they won't reply. It is an old tactic and doesn't really work anymore.
• Amount Owed - Less then 30% per card is the Best. Smacks against Ramsey, but is you have to get a house loan or refinance, you may have to "Gazelle" them down to this level.
• Length of History - This is the one that good meaning people hose themselves on everyday. They pay off the Credit Card then cancel it...hurting their FICO number two ways. First if this was an older card your length of history just shrunk...you guessed it lowering your score. Second, your utilization was hurt in that you had a card that had 0% used...now you don't. You irresponsible, little... :)
• New Credit - Do not (if possible) do anything to get a "Hard Pull." This means they run a check on your report. To many of these (more than (2-3 a year) and it looks to them like you are trying to load up on credit. Danger sign!
• Types Used - They like to see a responsible mix. Revolving (Credit cards) Mortgages, and store credit.

Time is your friend. I have seen people (me!) with sub 520 scores work their way up by just making their payments. If anyone tells you they can take a 500 score and make it a 700 right away, they are lying, scamming, monkey dogs...Run Forest!

I am NOT a financial analyst, just a guy who has done wrong and now rides a pale horse to towns to bring help...oh... Sorry, that was Clint Eastwood. But really read for yourself, your score is really important.

That being said, I would NOT abandon your Debt Snowball to jack your scores, just because. Only if you are going to need credit in the next 3-6 months would I change tactics.

Follow this advice and you'll have great credit in no time!

Easy Savings to Your Budget Using Cash

For most of us, our budgets don't break due to huge expenses every month. We die from 1000 small cuts and potentially give up since it "is just too hard for us", or, "we aren't good with money like Bobby!"

What I saw with our budgeting struggles was exactly that, we would say "oh we've been so good we'll go out to dinner", or, "It is just a sweater, it was on sale, I Saved you money, that what you wanted wasn't it?" so we would be $20 over here, and $10 over here, it just adds up quickly. Also, once you break discipline, you have to get right back in or you will stop trying soon.

One of the things that I was initially dead set against after reading Dave Ramsey, was the wacky envelope system. I thought that since we were bad with cash this would be a ticket to crash, but really that is the secret of the system...you can't crash, you can't go over!

The system works like this:

• Separate bills - Separate the ones you can pay with cash, true cash, not money orders or checks. For us this was the following: Groceries, Gas for our car, Entertainment, Dining, Kids Allowance, and Our Allowance.
• Set budget for each - If you already have a budget, great! Otherwise you need one for every category.
• Break It up - I get paid every two weeks so our plan was to get cash every Saturday after I got paid. So we divided the budget in two. I understand that I get paid 26 times, but our stomach doesn't know that so we looked at a top down budget and a bottom up and determined our bi-weekly needs.
• Separate Envelopes - You need separate envelopes for each amount. On allowance, one envelope per person. Write on the outside of them what they are for and how much is in them when filled.
• Divide up the responsibilities -Get your spouse Involved! Letting someone else have decision ability over a fund is a great way to stop being the budget police! If it is just you, then still judge each envelope as a separate entity and not as a pool of money.
• Plan out your cash - In order to fill those envelopes to the exact amount, and no more, you will need a wide variety of denominations, in our case, all of them! Plan out what bills work for you in each envelope. If you want to eat pizza, and you know Pizza Hut won't take a $50...don't put a fifty in that envelope. On the other hand, you might not want to bring 200 single $1 dollar bills anywhere...trust me...
• Off to the Bank - I will warn you, some of you will feel weird the first time you go in with a note asking for an odd amount of cash and then want it in all of the possible denominations. Don't stress. The banks don't care, and if they did...who cares! It is your money. In fact I have explained the system to a few teller now and one of them is doing the same now as well!
• The Last Envelope - There is one more envelope; label it Overage. You won't need it yet. But at the end of your period, one week, two weeks, etc., whatever is left over goes in to that fund. My suggestion is to do something that the whole family wants to do; pizza, a movie. Celebrate that you beat budget, which is the only way money is left! Spend it guilt free. You will want to put it towards debt, or some other noble cause, but don't you need to as it is truly extra But you do need it, and so do your loved ones, small motivators. If you want Budget to stop being a 4-letter word? Just try it!
• The Aftermath - For us it is important for everyone to know how we ended up for the month at. IF we went over in some other area of our budget we dock the next envelopes, but not the overage. So for us for example, our gas bill was a Ninja this month, as some folk decided that they preferred it warmer then where the thermostat was set, no surprise, higher Natural Gas bill. So for the next few envelopes we will pay it back via lowered Dining and Entertainment. It is a great reminder to all to do there part...and have my kids tattle on each other (kidding).

So what about those easy savings that I spoke about. They come from making budget every time. If you are not using this method, add up over the last 90 days how much you went over in those categories you could pay for in cash? $20, $50, more? Big time budget blowers and money management killers. Using a debit card, or even worse a credit card, and you can nickle and dime yourself to death.

Us? In 12 weeks we haven't gone over once in anyone of the categories, and had, on average $20+ to spend on a couple extras! We are not perfect by a long ways, but we have been able to work together and still have some creature comforts. I know I drive people nuts by saying this, but It is a marathon and not a Sprint. You have to be able to live your plan...forever!

Hope this works for you. If you are doing something similar let me know, would love to hear how it is working for you.

If you like the post, please sign-up for my RSS feed at the top of the site, or via email up there as well.

Top Emergency Fund Basics

If you want to break the chains of debt dependency, and you probably wouldn't be reading this if you didn't, I firmly believe you have to have an Emergency Fund as a cornerstone to a good debt reduction plan. Dave Ramsey and I firmly agree on this. If you don't, you have a high percentage chance of being in a worse situation then you are now.

What is is For?

Your Emergency Fund is to stop Ninja Bills. Those bills that pop up with no notice. "My muffler fell off;" Water Heater Popped:" I broke my foot by stubbing my toe" (which I did this Summer!). What is isn't for: "That is a great Driver and it's on sale, and hey I have money in savings. It might be sold-out later, It is an Emergency!!!"

I don't need one I have a credit card!

I have heard all of the arguments; "Credit Card Interest is 15-20% and I get 1% on my saving, I am better off with charging it!" You are not wrong! But if you have debt; one, you may not have enough credit and; two, all the hard work of paying it off is gone! In addition most that have money issues (which is most Americans!) have an issue clearly separating OK charges from "Stuffitis."

I hope this person doesn't mind but a favorite Blog of mine, "We Need to Be Debt Free" is a great example of what can happen when you don't have a fund. JW works really hard, starts to pay down his debt then some random act of un-mercy hits him. Back up go the charges and start over and over. It is mentally draining to continue to fall back into debt. JW is now taking those steps to establish his fund.


OK, That scared me I am in, but how much? And where do I keep it?

These are the two questions that confuse Ramsey fans the most because he picks an arbitrary number out of the air, $1000. But if you are driving an older car, own a bit older house, have kids, this many be low. For others it may be high.

As long as your major life points haven't changed recently (new kid, house, etc.) here is what we did. We went through our last 2 year worth of purchase in Microsoft Money. We identified the "emergencies" and then took the most expensive one an rounded up a bit. Ours was a $1800 repair bill on the car we still have now so we used $2,000 as our number. Important part is that it can handle most day-to-day issues that could reasonably come up. Your are right, if Killer Bees attack your monkey, you may need more, but the odds are pretty low. We WANT you to get back to paying off debt. We are only putting in a First Aide kit, not a hospital!

On the where to keep it, I feel this isn't an investment fund, so I don't suggest buying something illiquid with it like a CD or Real Estate. Put it into an Interest bearing savings account, preferably attached to you checking account as potential overdraft protection...Never Hurts.

OK, Got it...Is it OK to Use it?

I have read of people that won't touch the fund at all. It is there to be used...IF needed (see above). Our house rule is that we expend our "fun" money first. Goodbye Entertainment and Dining. Funny...that is usually enough to downgrade the Emergency to, "maybe next week".

That's it. Then move on to Step two, killing your debt. A Good Emergency Fund is the best friend of a debt reduction plan, and a very important step in breaking the chains of debt.

Managing your Finances: Taming Suffitis...

I admit I have terrible Stuffitis. I stole this phrase from Dave Ramsey, but it really sums it up nicely. If I am going to ever get total control over my finances, I will need to learn to curb this base instinct.

I really have no excuse, I am in marketing, I know what and how the messages are crafted, yet, like the stupid bug who watched his whole clan march into the light, I feel powerless at times! No, I haven't gone off the deep end and charged a bunch of things, but it is really easy to self-justify some of these item as needs as opposed to wants or desires.

Here is how I am making sure to keep Stuffitis at bay:

• Chop up the Credit Cards -It is really easy to say, I might need them for emergency use only! OK, that would be one...many people hold 5+ credit cards. If you have that many emergencies at once you may want to consider upping the insurance.

• Use Cash Whenever Possible - Cash is finite; when it is gone it is gone. Cannot be overspent. Its a physics issue! Yes I am foregoing 2% cash back on left-handed tomatoes, but I don't have the best track record...maybe some day I can trust me enough to do that, not yet though.

• Bad Influences - We all have those friends that are shopping enablers, or parents that say, "Oh come on, $5 won't kill you," or, "You deserve it, you work sooo hard!"

• Track Everything - I guarantee if you haven't been doing this you will be appalled. "$550 on cat toys? We don't have a Cat!"

• Try to Appreciate what you DO Have - This is the toughest, but the most rewarding. Sure I don't have the fanciest car right now, but I also don't have the equivalent of a second house payment either!

I am sure you have your own ways, but if you want to be really in charge of you Personal Finances, I agree with Dave Ramsey...you have to tame your Stuffitis!

Managing Money: Get Everyone Involved pt2...

For the second part of Managing Money: Get Everyone Involved, we are going to talk about establishing a work area, cash management and follow-up. Once again this is just how we are doing it, you may find tweaks that work better for you; go for it! We tweaked the Ramsey system for us take any of this you want and turn it into something that fits your personality. It is the only way to make long-term change.

Work Area - I firmly believe that having someplace, a desk, a box, even a bedroom drawer where everything is kept is an important thing. The second, is to make sure that your significant other knows that space as well. This should have files on all bills to store afterward and your checkbook as well as credit cards, if you aren't prepared to chop them up yet. You want your family to understand where all this information is in case of anything happening to you. Banker Girl has a really good article about why here.

Cash Management - For us, this has been key. We use cash for groceries, dining out, entertainment, gas for the car, the kids allowance and ours. This is where we have made most of our improvement in making budget. My wife didn't want to be in charge of an area, but since we are in this together, she took over all cash funds, except the car and allowances. She is 100% in charge of those funds. She has done so well, and I am not just saying that cause she will probably read this :), we have cut nearly 33% off of our grocery bill through better planning, coupons and using only cash.

This has really also squished the Budget Police mentality around here. As I said before it is OUR Families money, our family should have a say! The kids have their votes on how to spend the money as well. They make their pitches on dinner and when we go. So when they used to push to eat out all of the time, now they are often the first to say, "I want pizza this weekend, we better wait!" 180 degree turnaround!

Follow Up - We have a review every weekend after I get paid to review how we did for the previous two weeks. We then go to the bank and get the cash in the denomination we need. I bring one of the kids each time so they see how much money this really is and where their allowance cash comes from. Initially we got some strange looks asking for $x37 in $50's, $20's, $10's, $5's and $1's but now they know us and it goes pretty quick. I may have even convinced some of them to try it as well.

We will also have a quarterly review to check and see if our levels are right: Did we over budget for Gas? (not likely), Under for Groceries? etc.. The most important part is that we discuss it as a family. In learning these lessons now they will hopefully find that personal finance, budgeting and avoiding bad debt gives them a leg-up later in life.

And that is the best thing we can do for them...and ourselves...

Managing Money: Get Everyone Involved pt 1...

OK. It is the day after Christmas, heading to the New Year and new, New Year's Resolutions. Before you break out the Sharpie and commit those to personal growth opportunities it is time to get everyone in the house involved with Managing Money!

For us, when one person has to be the Budget Police it is doubly hard to make it. One person feels the whole burden on themselves and resents the others not participating, and those being dictated to on how/when to spend, resent being treated like a child. I truly believe this is a key reason people fail, it sure has been for us. It isn't just us either, Dave Ramsey devotes a whole chapter to it in his book "Financial Peace."

But I don't think Ramsey goes far enough. I believe that you have to get the whole family involved, down to the smallest ones who have a basic understand of what money is and does. If followed, my hope is to instill "cause and effect"understanding to them regarding finances.

Budget - First off, don't use the word budget, like you do grounded! It cannot be presented as a punishment, but as a way of life! Have a budget that everyone has a part in building. Once all of the "must-haves" portion of the budget is ready gather the family and have everyone apply some group-think to the remainder, if any. For example: Is it more important to the family to dine out or rent/buy DVDs? By asking the question, you get buy in. This is so important when the question comes up, "Why can't we do X?" If you are in a situation where only basic musts are covered by the budget, I believe it is important to make sure everyone, without installing fear, understands the financial situation. Trust me, they know there are issues, and if you don't tell them, they will make up something worse in their heads!

Ramifications - What if we beat our number? We take our "Overflow" out every month and put into a fund for Holiday Fun, extra decoration or other Family Fun. The family earned it, they get to put it to what they want! Want to get your kids to turn off lights/TV, etc.? By doing this we have said $x is what we have for our Electric Bill, if we beat the number it goes into the fund, if over it comes out of our other areas like Dining or Entertainment. The first month they were great and we saved enough to buy some extra Halloween decorations they wanted. This month we were over and dining was cut! Already my 7 and 10 year-olds are running around and chastising anyone that leaves on a light!

Please understand these are just things that are working for us. Personal Finance and Managing money is so much less of a chore when everyone pitches in.

Pt 2 tomorrow...

FICO Scores and the Credit Card Crunch...

There is a double Whammy coming down the pike to sub-perfect credit card holders out there.

First FICO, Fair Isaac Company's scoring arm, is rolling FICO'08. This is a code update that they due every year or so, but this year's is a pretty big change.

A quick primer first...Your FICO scores are what determines how good of a loan you get, or how low of interest rate. Banks use it as a "fair" way to measure people against each other. FICO scores range from 300-850; but really you need 600+ to have a shot at real non-mob-knee-breaking credit, and 720+ to get the scary perfect deals. There is a ton of great info out there about FICO scores and I suggest that since your finances depend on the score, know it and review often (yearly worst case, I look every month because I am paranoid).

But back to the double Whammy; the FICO'08 code roll changes some key scoring notions of previous models. Basically it doesn't penalize as much for having a bunch of credit files, but nails you harder for having a higher percentage of used credit.

That means some of us Ramsey Debt Snowball believers are going to get hit on our numbers; potentially up to a 25 point swing. This is due to the basic tenant of the snowball; pay one debt off at a time, make minimums on the others until the first one is paid off, apply it along with the second minimum to pay more than the minimum.

It will hit snowball users because many of us have maxed or high debt-to-credit ratios on our non-snowball payments cards. Not to mention some cards have FICO triggers for their Rate changes...so basically because your score changed (and even though it had nothing to do with you) your rate could go up. In some cases...a lot.

The second whammy is that since the banks are getting whacked right now with bad home loans which is leading to bad Credit Card loans, they are tightening up their approval, or at least the reins on who gets the better offer. This means it will be harder to dump those higher rate cards for something more comfortable.

Any silver lining...especially on Christmas Eve?

Yep, some will actually get a score boost if they have generally under a 35% utilization on all of their card and no missed payments. That is huge! Also, we are in an interesting time in regards to FICO. The big three Credit boys, Trans Union, Experian and EquiFax are all trying to bust FICO's monopoly and possibly get there own model that they don't have to pay for. To date, only Experian is beginning to roll FICO'08 because of this.

That being said the end of the year is not a bad time to plan out when you are going to check your credit, also make doubly sure to check prior to any major purchases. This does not mean that you should stop working your debt plan or switch to a new one. It just means there are new rules and you are better off knowing them before you play.

The embarrassment you save could be your own...

Dave Ramsey and the Snowball of Doom...

There are a lot of really good ways to begin to get your finances in order. From books, DVDs, website and blog there is really good (and also some Really bad) information out there.

So at the end of September when I looked around for a format that I thought could work for not only me, but my wife and kids as well, I weighed a lot of variables:

• Was is clear and consise? Lower amounts of wiggle room are best for me, because I "justify" my way back into old habits.
• Was there a way to involve everyone in the family? Didn't want to have to be the budget police. I always end up giving in.
• Was there a path post-getting out of Credit Card debt? OK I paid everything, I guess I could charge them up again...

Weighing all of these points and others I personally gravitated to the Dave Ramsey debt snowball.

For me these were the keys:

• The use of cash. Even using Debit cards we were spending too much. With cash when it is gone it is gone...like our Entertainment money right now!
• We could give areas for each of us to be in charge. She runs a lot of the cash envelopes; like for Groceries, Entertainment and Dining. She feels involved, cause she is! Those envelopes are 100% her call. If I want to buy Season One of The Office (which I do) I have to lobby her, just as the kids do for Harry Potter (HP won, damm Wizard!) Having real control over areas keeps people involved without one partner having to be the Budget Police
• Quick Wins. Although it is better financally to pay off debt in order of Interest Rates (as many blogs have pointed out) psycologically it felt nice to pay things off, real tangible change since you no longer have to pay the bill. This really helps me because I can lose focus and become disillusioned pretty quick

So how is it going?

I will give a full update at the end of the month, but so far we have paid off some smaller bills, stayed pretty much on budget (sometimes beating it) and kept everyone in the boat. Due to this our debt snowball is growing and we actually have a bill that we are actually paying more than the minimum on!

While I don't agree with everything Ramsey says, with a quarter of a year nearly under our belts, we are at least taking away from the pile instead of adding to it.

Can't wait to get our snowball to the size of a snowman. I think I will name it Dave...

Surviving Christmas by Charles Dickens...

Basically two weeks until Christmas and the tension is palpable.

Living up to an impossible standard (Christmas Past) Kids with unreal expectations (Christmas Present), trying to stick with a budget (Saving Christmas Future). The ghost of Jacob Marley (Bob's Son) visiting and telling me not to be cheap while the chains made by CitiBank rattle on the floor.

Well this year we are trying something else. We saved $1200 in order to pay for Christmas. $200 for each person in the house, $200 more for presents for others. Given that this is the annual GNP of Ghana on one hand it really is a ton of money, but less than we have spent before (not budgeted, but spent :) ). I don't know about you, but pull the tinsel out of my eyes and I generally don't drop a grand+ on anything. But, every year get me all liquored up on egg-nog and off we go. Buying plastic crap in the shape of; Barbie and her Bio-Engineered Pets, Various remote controlled creatures and don't forget the latest (and outdated in January) electronic gizmo's of doom.

So this year we went cash only, ala Dave Ramsey and we have pretty much stuck to it, although we went over by $83 on the gifts for others as family portraits (along with the requisite new clothes) went a bit over.

And you know what...

There is still plenty for everyone.

Sure we had to plan a bit better. My wife fought the good Black Friday fight and got some Massive deals (Thanks Hustler Blog $$$ - Great tips). We tried to manage expectations for everyone, but in January there will be no panic...no, "Oh my Gosh, we spent $X!!!" No one died (except Marley...but that was awhile ago) and we go into the new year chipping awayat the debt instead of adding to the pile.

And it feels pretty darn good...