Zen and Personal Finances

One thing I will never understand  is how someone can have millions of dollars and then end up in financial distress. I am not talking about someone who once had it all and then lost it due to perhaps health or legal problems or something similar.

What I am talking about is someone, perhaps a movie star, a professional athlete, or a well-known recording artist, that has millions and they end up broke because of mismanagement, theft from a trusted friend, or even tax problems with the Internal Revenue Service.

How can someone have millions and millions of dollars and not live within their means? I would think that it would be easy to live a life of comfort and plenty having millions of dollars.

Making my money work most efficiently requires discipline and a mindset to take positive action. My income has always been mediocre so I had to pay particular attention to my budget.

I can remember years ago having credit cards, several actually, making those payments every month, and every month beating myself up about all the money I was wasting and not seeing a light at the end of the tunnel.

I had to take extreme measures and get my spending under control if I expected to gain any financial ground. I cut, and I mean with a razor, or eliminated any expense wherever I could. I do not pay for a lot of things I use, like television, full insurance on cars that do not need it, eating out, and…well, I am sure you get the idea.

I have completely eliminated all of my consumer debt and by not having credit cards, I will always maintain my freedom. My current philosophy is (except for a house or a car) if I don’t have the money I am not buying it.

I live by my debit card and it serves me just fine. I have lived in the same house for over thirty years and when I buy a car I drive it for hundreds of thousands of miles.

There are those that buy a new car every few years. Even if I could afford it I would not do it; that is just throwing money away. Unless you are paying cash for it, in two years you’ll still be upside down in it owing more than it’s worth, and if you do pay cash, you’ll still take a loss.

Some people will buy a bigger or more expensive home than they can afford. Especially young families that rationalize buying the home of their dreams now and as their careers and income progress they can afford to pay it off sooner.

To that end, they engage in what I like to call income eaters programs like an interest-only mortgage where for ‘x’ amount of time you pay interest only. Your plan, of course, is to be earning more money in the future and you will be able to afford to pay more on the principle plus the interest, maybe you will and…maybe you will not.

One thing is for sure though; all those interest-only payments you’ve been making went straight into the lining of someone else’s pockets. No equity for you, no financial gain, no adding to your bottom line.

Most people carry a balance on their credit cards and make the minimum payment, which is applied mostly toward the interest. The problem with this practice is the balance never seems to go down. They also continue to use the cards and eventually the credit limit gets maxed out.

One thing I do find encouraging is I’ve observed that more consumers are using their debit cards, and since it is tied to a checking account, people are spending money they have rather than money from the future. That is exactly what you are doing when you make a credit card purchase.

Credit bureaus are kind of a necessary evil. You have to deal with them, so you might as well try to understand them.

First, don’t make the mistake of thinking that credit bureaus are on your side and that they care about your personal credit file. Also it is important to understand that your personal credit file is not, I repeat not, an official government document that is perfectly correct, free of mistakes, and there is no wrongful reporting.

Credit bureaus are profit making entities and they are in the business of making money just like any other business on the planet. You can even purchase stock in these agencies if you are so inclined.

Credit bureaus do one thing very well. They make lots of mistakes that cause misery, confusion, and costs of thousands of dollars to millions of consumers.

Numerous individual credit files are loaded with inaccurate reporting and wrong information. When you file a dispute regarding incorrect information on your personal file, it will cost the credit bureau to process your dispute, and this will dig into their bottom line. So they won’t correct any wrong information on your personal file without you initiating the action to do so.

While it is true that there are federal and state laws in place that protect the consumer, it is still your responsibility to manage your personal credit file.

The Federal Trade Commission, the state attorney generals, and individual consumers have launched law suits against the credit bureaus for their infraction of these laws.

Even though law suits have cost the credit bureaus millions of dollars, it is just a mere fraction of what they make in profits, it makes better financial sense for them to pay these law suits, and since they can afford it and it’s less work for them than correcting credit reports, they continue to break the law.

Credit is an area of your financial life that needs continuous updating and tweaking. One reason is for accuracy. If you do not care about your credit and credit rating, no one else will either.

It is strongly recommended that every credit consumer review their credit report at a minimum of once a year. If you have been denied credit, you can send a copy of that notice to the credit bureau and request your credit report for free.

There are three major national credit reporting agencies in the United States, and that is where you will find your personal credit information. Your credit “score” is based on the information they have on file about you.

Your personal and financial information is collected by the bureaus from your creditors who report on how you are paying your debts (pay history), what your balances are, your established credit limits, past or closed accounts, and what type of account it is; mortgage (M), installment such as a auto loan (I), and revolving debt such as credit cards (R).

Your credit report will have last known and previous addresses and places of employment.

Additionally, your credit report will contain any write-offs, collection accounts, repossessions, bankruptcies, and foreclosures. Judgments such as utility and tax liens are also recorded.

Pay histories will be recorded on your file for the most recent 24 months, so any late payments will still be there almost two years from now.

Near the end of your report you will see a section called ‘credit inquiries’. Every time you apply for credit an inquiry will be generated and recorded on your file.

The demand for consumer credit reports appear to be at an all time high. More consumers are borrowing more money now than any other time in this country’s history. The credit reporting bureaus are over worked and under staffed. When this happens mistakes are made.

In the mortgage business for example, there are so many times when I have counseled a home owner or prospective home owner about their credit, and as I go over each entry on their credit file, I hear all too often, “that’s not my account,” or “I have no idea who that is,” or “I don’t owe them, I paid them off some time ago.”

You have the right to dispute any inaccurate information you find in your credit file. When you receive your report, in addition to the instructions on how to read and understand the information, it will also tell you where to write to dispute any inaccuracies.

If the company that is reporting the information that you are disputing cannot prove what is on the report, then it must be removed, and this goes a long way in improving your overall credit picture.

It is important that you write a separate letter for each dispute. By writing one letter to challenge each negative item than one letter challenging several items, then the credit bureau may be a little more diligent in their efforts because they do not want to allow someone to wipe out a lot of negative information with one letter.

I know it will be a big hassle to write a letter of dispute for each negative item, but you will be able to track more closely which items were or were not actually removed, and you will have much better chance of having more negative items removed than not.

Your FICO score is the most widely used credit score and nearly every mortgage lender depends on that score in determining your risk as a consumer. FICO is a registered trademark for Fair Isaac and Company. Generally credit scores range from 300 to 850.

Fair Isaac uses 22 pieces of information that is collected from the three major credit bureaus. The final number is a composite of individual ratings in five categories. The first is payment history which accounts for 35 percent of the rating. The second is length of credit history which is 15 percent of the credit score. The third is new credit which is 10 percent, the fourth is types of credit used accounting for another 10 percent, and fifth is your current debt accounting for the remaining 30 percent.

Some lenders will take all three of your scores and average them out to one overall score. So in reality, if one or two of your scores are lower than the others, then that can have an impact on your credit worthiness.

It is difficult to predict how a lender will use the information to determine whether or not to grant you credit. Some lenders will use your pay history and other account information along with your credit score while other lenders will use your credit score as a hard and fast decision on whether or not to grant you credit.

Do not fall victim to anyone or any company that claims they can clean up your credit record and remove unfavorable information or open up a new credit file for you. Especially if they charge you a fee, you will be throwing your money away.

First of all, there isn’t anything that anybody else can do for you that you cannot do for yourself, you just need to know what and how, and second, creating a new credit file means creating a new identity, which is illegal and can get you into serious trouble.

If you don’t think that you can do these things for yourself, then you may want to look into a debt relief program. If you have a significant amount of debt, such a program or organization may be of great help. When searching for such a program, you need to keep your shields up and stay frosty.

There are number of companies, organizations, or programs that say they can help you with debt relief. The problem is there are also a lot of scams. You need to really do your homework by checking with the Better Business Bureau, state attorney general’s office, ask for references, check with the Federal Trade Commission, and anyone else you can think of. Don’t underestimate anything and investigate the value of everything as thoroughly as possible.

When investigating a debt relief program or organization here are some red flags to be aware of that will hopefully save you any pain and aggravation of losing money you can’t afford to lose.

1. Charging to fix your credit report. You can do this yourself; you just need to learn what to do and how to do it.

2. Providing you a loan to help fix your bad credit. If you see this, don’t walk away, run. You will be charged for a loan that you are not qualified for. The scam artist won’t give you a company name, they’ll hit the bricks with your loan, and you’re left holding the bag and no way to track them down.

3. Create a new identity. Sometimes that sound like a really good idea. The problem is creating a new identity is creating a false identity, and that is a federal offense in the United States. Again, if you see this, don’t walk away, run.

You should only challenge items that are incomplete, obsolete, erroneous, inaccurate, outdated, or misleading. Also ask for a copy of the report once the investigation has been complete.

In your letter be objective, non-threatening, clear and to the point, and use supporting documentation. Do not drop all of your letters in the mail on the same day. Stagger them, one every day or every other day.

Keep a log and track everything. Make a copy of each dispute for your file and it is extremely important to stay well organized during this process.

I worked hard to create a financial balance in my life and now my expenses are less than my income, and that allows me to stash away a little extra on a regular basis and, for me, that is a very Zen feeling.

I remember back in the day when my dad made the last payment on his house and he said, and I quote, “I’m finally free.” I am finally free too dad. I owe no one, and that is the way it is going to stay. I suppose that if I have one financial regret it would be that I should have done it sooner.