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Updated: 2018-04-24T18:08:38Z

 



Free retirement planning guide from Vanguard

2018-04-24T18:08:38Z

Vanguard, the mutual fund company, recently published a free retirement planning guide for folks like me who aren’t interested in hiring a professional financial advisor. Vanguard’s Roadmap to Financial Security is a 32-page document intended to provide DIY investors with a framework for decision-making in retirement. Here’s an excerpt from the intro to this retirement […] The post Free retirement planning guide from Vanguard appeared first on Get Rich Slowly. Vanguard, the mutual fund company, recently published a free retirement planning guide for folks like me who aren’t interested in hiring a professional financial advisor. Vanguard’s Roadmap to Financial Security is a 32-page document intended to provide DIY investors with a framework for decision-making in retirement. Here’s an excerpt from the intro to this retirement planning guide: Retirement is complex. In the face of often competing goals and numerous risks, the choices can be overwhelming, leaving many retirees unsure of where to begin. To help balance the many decisions to be made, we have constructed a retirement planning framework that allows retirees to capture their unique priorities and use their financial resources in a way that best aligns with achieving their goals and mitigating their risks. Like me, Vanguard believes that retirement planning starts by setting goals. What do you want to get out of life? In the case of retirement, how much do you want to spend on basic living expenses? How much do you want to have set aside for “contingencies”? How much do you want to spend on fun? How much do you want to leave after you die? Next, Vanguard’s retirement planning guide spends six pages exploring the risks of retirement and how to mitigate them. According to Vanguard, there are five primary risks in retirement: Market risk, the possibility of losing purchasing power due to movements in the financial markets. Health risk, a combination of your physical condition and your ability to pay for needed care. Longevity and mortality risk, which are two sides of the same coin: living longer than expected, or dying sooner than anticipated. Event risk, those unexpected occurrences that cost big bucks. Tax and policy risk, the odds that governmental and economic forces will have an impact on your retirement planning. The next stop on Vanguard’s retirement planning roadmap is assessing your financial resources. How much have you saved? Do you have access to private pensions or annuities? What kind of insurance do you have? What’s your asset allocation? How will you spend your money in retirement? Will you work during retirement? (There are those who would argue that if you’re working, you’re not retired. I disagree. As we discussed a few weeks ago, there’s no single definition of retirement, and only one definition involves not working.) The Vanguard retirement planning guide spends some time talking about home equity and how it relates to wealth. This is a fascinating subject, something GRS readers often discuss in the comments, and something that comes up all of the time at various early retirement events I attend. Most retirees hold a high percentage of their wealth in home equity. Should this value be considered when evaluating your net worth? When making plans for retirement spending? It’s an interesting question that we’ll have to explore further in the future. The final stop on Vanguard’s retirement roadmap is developing a plan. After you’ve set goals, evaluated risks, and assessed your assets, it’s time to pull all of this info together to create a financial strategy. “There’s no universal formula for building the optimal retirement plan,” Vanguard writes. “The right mix of resources should be tailored to each household or individual. It should take into account the relative importance of competing goals and the risks that a retiree may be susceptible or sensitive to.” The ultimate aim, says this retirement pla[...]



Just solve the problem!

2018-04-22T13:01:39Z

While the contractors were working to replace the siding on our new home last summer, they discovered a termite infestation outside the bathroom. Further investigation revealed that the floor under the tub was not only wet and damp, but had actually completely rotted. So, we hired somebody to repair the damage. On the first day […] The post Just solve the problem! appeared first on Get Rich Slowly. While the contractors were working to replace the siding on our new home last summer, they discovered a termite infestation outside the bathroom. Further investigation revealed that the floor under the tub was not only wet and damp, but had actually completely rotted. So, we hired somebody to repair the damage. On the first day he was here, I went into the bathroom barefoot. Oops. I stepped on a shard of glass tile. That splinter was stuck in my foot for weeks. At first, it didn’t really affect normal activity. If I wore sneakers and socks, I barely felt it. But if I wore sandals, I got a sharp stabbing pain in the side of my left foot. If I tried to run, the same thing happened. And forget about going to the gym! Now, the obvious response here is, “Why didn’t you remove the sliver from your foot?” Great question! On the very first night, Kim did try to remove the sliver, and we thought she got it. But the next morning when I took Tally for a walk, I realized the sliver was still there. But I didn’t do anything about it. I lived with it for weeks, a constant source of low-grade irritation. This, my friends, is a perfect example of a couple of things. First, it’s my family’s mentality in action. For some stupid stupid reason, we Roths don’t like dealing with medical issues. When we’re sick, we suffer for days (or weeks) before going to a doctor. When we’re hurt, we just suck it up. When I was young, my mother sprained her ankle. She limped around for months before seeking medical attention. In college, I broke a finger playing touch football over Thanksgiving. I dealt with the intense pain until Christmas break, at which time I finally decided to see a doctor. Second, this a perfect example of putting up with a problem instead of finding a solution. Most people — myself included — are willing to tolerate a great deal of dissatisfaction and discomfort before deciding to remedy whatever is wrong in their lives. I’m not sure why this is the case, but it’s true. With the glass shard in my foot, most of the time I barely noticed. But sometimes the pain was especially bad. I remember one morning while walking the dog, it felt like somebody was stabbing me with a needle. “I just need to solve the problem,” I thought to myself — and that reminded me of some wise advice I once received. Just Solve the Problem About a decade ago, I worked with a life coach. Each week, we’d have an hour-long phone conversation about the ways I was trying to become a better person. I made great progress in some areas, but little progress in others. One day, we were talking about my inability to eat a healthy breakfast. I’ve always been the sort of guy who knows he should eat a nutritious breakfast but doesn’t actually do so. My coach had been encouraging me to make this a habit in my life, but I kept complaining about all the reasons it wasn’t possible. Eventually, she’d had enough. “J.D., you’re being ridiculous,” my coach said, exasperated. “This isn’t rocket science. Millions of people eat a healthy breakfast every day. You can too. You need to stop making excuses. You need to identify the problem and solve the problem. Just solve the problem!” This advice hit me hard: “Just solve the problem.” Obvious, I know, but that doesn’t mean it’s not powerful. I began to recognize that, in so many ways, I deliberately lived in the problem instead of living in the solution. I realized that maybe I could fix the things that were broken in [...]



How to be happy and lead a meaningful life

2018-04-19T10:59:50Z

Overcoming fear is one part of living life without regret. You do that by being open to new people and new experiences, and by acting even when you’re afraid. Another aspect of a rewarding life is learning to find happiness in your daily existence — and building upon that happiness to construct a meaningful life. […] The post How to be happy and lead a meaningful life appeared first on Get Rich Slowly. Overcoming fear is one part of living life without regret. You do that by being open to new people and new experiences, and by acting even when you’re afraid. Another aspect of a rewarding life is learning to find happiness in your daily existence — and building upon that happiness to construct a meaningful life. Today, in the second part of this limited series on mastering your life, I want to share what I’ve learned about how to be happy. More than two thousand years ago, the Greek philosopher Aristotle wrote, “All knowledge and every pursuit aims at…the highest of all good achievable by action.” And what is that good? “Both the general run of men and people of superior refinement say that it is happiness, and identify living well with being happy.” In the Nicomachean Ethics, Aristotle said that happiness is “the meaning and purpose of life, the whole aim and end of human existence.” To some extent, a good life requires good fortune. Happenstance can undermine the well-being of even the most virtuous person. But Aristotle held that ultimately happiness isn’t a product of chance. You can allow misfortune to crush you, or you can choose to bear the blows of fate with “nobility and greatness of soul”. Although fate may play a role in your affairs, Aristotle believed that in the end, happiness depends upon yourself. Modern psychologists agree. The How of Happiness In The How of Happiness, Sonja Lyubomirsky shares the results of years of research into what makes people happy. She’s concerned with “chronic happiness” (as opposed to temporary happiness), with people who maintain an elevated sense of well-being over time. Based on her work, Lyubomirsky believes: About half of human happiness is biological. Each of us seems to have a happiness “set point” which accounts for roughly 50% of our level of contentment. Because this set point is genetic, it’s tough to change. Another 10% of happiness is circumstantial — based on external factors. These include traits like age, race, nationality, and gender, as well as things like marital status, occupational status, job security, and income. Your financial situation is part of this 10% — but only a part — which means it accounts for a tiny fraction of your total happiness. The final 40% of happiness comes from intentional activity — the things you choose to do. A huge chunk of contentment is based on your actions and attitude. You can increase your level of well-being through exercise, gratitude, and meaningful work. Because circumstances play such a small role in your well-being — and because many of your circumstances are unchangeable — it makes more sense to boost your bliss through intentional activity, by controlling the things you can control while ignoring the things you can’t. You can’t wait for someone or something to make you happy. Happiness isn’t something that just happens; happiness is a byproduct of the the things you think and say and do. Just as you ought to become a money boss to take charge of your financial life, you ought to become a happiness boss to take charge of your emotional life. Believe it or not, you can control your emotional responses. It just takes a bit of knowledge and practice. The Psychology of Optimal Experience For fifty years, psychologist Mihály Csíkszentmihályi (pronounced “me-high cheek-sent-me-high-ee”) has studied human happiness and creativity. Much of his work has focused on flow, which is his term for “optimal [...]



How to build confidence and destroy fear

2018-04-08T22:49:08Z

My mission at Get Rich Slowly is to help readers achieve personal and financial freedom. I want to help you master your money and your life. Generally speaking, we focus almost exclusively on the financial side of the things. This week, I’m going to shift gears and share some of the things I’ve learned about […] The post How to build confidence and destroy fear appeared first on Get Rich Slowly. My mission at Get Rich Slowly is to help readers achieve personal and financial freedom. I want to help you master your money and your life. Generally speaking, we focus almost exclusively on the financial side of the things. This week, I’m going to shift gears and share some of the things I’ve learned about overcoming fear, finding happiness, and achieving personal freedom. (Don’t worry. We’ll get back to the hard-core financial talk very soon.) In December’s discussion of wealth habits, I talked about what T. Harv Eker calls “financial blueprints”. Actually, I talk about them all of the time. Understanding your money blueprint is a vital part of changing your relationship with money. Our blueprints are created through lifelong exposure to money messages received from people around us, especially our family and friends, and from our country’s culture and mass media. Eker says the unfortunate truth is that most of us have faulty blueprints that prevent us from building wealth. “When the subconscious mind must choose between deeply rooted emotions and logic, emotions will almost always win,” writes Eker. He says that most of us are motivated by fear, especially when it comes to money. We don’t call it fear, though. We say we’re motivated by security. Eker notes — correctly — that fear and security are essentially two sides of the same coin. The tough truth is that money doesn’t dissolve fear. Eker writes: Fear is not just a problem, it’s a habit. Therefore, making more money will only change the kind of fear we have. When we were broke, we were most likely afraid we’d never make it or never have enough. Once we make it, however, our fear usually changes to “What if I lose what I’ve made?” Like Eker, I’ve found that fear motivates a lot of people. Instead of making decisions based on goals and desired outcomes, most folks make fear-based decisions. As a result, they get less out of life than they’d hoped, less out of life then they might if they knew how to overcome their fears. (For more about this, see last week’s article about scarcity mindset versus abundance mindset.) I’m not judging. I’ve been there. For years, I let fear rule my life. But over the past decade, I’ve learned how to quell many of my fears. Better still, I’ve learned how to act in spite of my fear. As a result, my life (financial and otherwise) has drastically improved. Today, I want to teach you how to destroy fear and build confidence. To begin, let’s talk about death. Note: Long-time readers have seen some of this material in other forms. This is my attempt to gather all of it into one place. The Regrets of the Dying Australian singer-songwriter Bronnie Ware worked in palliative care for many years, spending time with men and women near death. As she worked with her patients, she listened to them describe their fear, anger, and remorse. She noticed recurring themes. In 2009, Ware wrote about her experience in a blog post that went viral. She turned that article into a book called The Top Five Regrets of the Dying. When people die, she says, they often express one or more of the following sentiments: “I wish I hadn’t worked so hard.” People (especially men) often find themselves trapped on what economists call the hedonic treadmill. They work to achieve material wealth and status, which should bring happiness but doesn’t. Instead, they want more. So, they work harder to achieve even greater wealth and status, which should bring hap[...]



How to find your purpose in life: 12 powerful exercises to help you discover purpose and passion

2018-04-15T16:48:51Z

Happy blogiversary! Twelve years ago today, I launched a humble little blog about personal finance — this blog, Get Rich Slowly. It was meant as a way for me to share the things I was learning as I dug out of debt. It turned into so much more. For the next couple of weeks, I’m […] The post How to find your purpose in life: 12 powerful exercises to help you discover purpose and passion appeared first on Get Rich Slowly. Happy blogiversary! Twelve years ago today, I launched a humble little blog about personal finance — this blog, Get Rich Slowly. It was meant as a way for me to share the things I was learning as I dug out of debt. It turned into so much more. For the next couple of weeks, I’m on the road in the southeastern U.S., speaking to people about personal finance and meeting with readers. This morning, for instance, I spoke to the 76 people attending Camp FI in Spring Grove, Virginia. My topic? No surprise: The importance of having purpose in your life. As you can see, I am a PowerPoint genius… If you’ve spent any time reading my material, you know that I believe purpose is the foundation on which all plans — financial and otherwise — ought to be built. Purpose is a compass. It helps you set big goals, sure, but it also acts as a guide when times get tough. Your mother died? Your wife left? Your husband lost his job? If you know what your primary purpose is in life, these stressful events are much easier to deal with. For this presentation, I added a new twist. You see, a lot of folks who are interested in money tend to pick things like “getting out of debt” and “becoming financially independent” as their purpose or mission. But I think these are poor choices. I’ve seen far too many folks make debt elimination a goal — then fall right back into debt once they’ve achieved it. And there are plenty of people who reach FI (or retire early) only to find they no longer know what to do. (It’s like aiming to reach a certain weight instead of choosing to make lasting lifestyle changes that lead to weight reduction.) Instead, I think it’s important to recognize that your financial situation should be side effect of pursuing some greater purpose. Financial independence ought not be your aim; it’s merely a means to an end. When I speak about purpose (which is often), I tend to fall back to the George Kinder/Alan Lakein personal mission statement exercise. I feel like it’s one of the best available tools for helping people find focus. But it’s not the only tool. Today, to celebrate this site’s twelfth birthday, I want to present twelve alternative exercises for discovering your purpose and passion. If you’ve tried one (or more) of these without success, try another. One of them is sure to be useful for you. Note: I’ve done my best to credit sources for these exercises. (Many come from Barbara Sher’s excellent book Wishcraft, which is all about crafting the life you really want.) At the end of this article, I’ll give you a list of recommended reading — and tell you what I think is the single best book for discovering passion and purpose. Your One-Hundred Word Philosophy The first exercise is one I created myself. It’s based on CrossFit’s “world-class fitness in 100 words” statement. There’s no time limit for this exercise, but it could take a while so be prepared. Your aim is to write out your life philosophy in exactly one hundred words — no more and no less. This can take any form you want, from a statement of values to a list of instructions. Begin by writing down your core beliefs and values. It might also be helpful to think about books that have had a big impact on your life or powerful advice you’ve received in the past. Based on your experience and beliefs, what is your life philosophy? As an example, hereR[...]



The stages of financial freedom: The road to financial independence

2018-04-13T11:38:44Z

Today we’re going to explore the six stages of financial freedom. First, though, I want to introduce you to my friends Mac and Pam. Pam is a pathologist and an elite ultra-runner. Mac is a former high-school science teacher and current stay-at-home dad. Together, they form a formidable financial team. They’re also a couple of […] The post The stages of financial freedom: The road to financial independence appeared first on Get Rich Slowly. Today we’re going to explore the six stages of financial freedom. First, though, I want to introduce you to my friends Mac and Pam. Pam is a pathologist and an elite ultra-runner. Mac is a former high-school science teacher and current stay-at-home dad. Together, they form a formidable financial team. They’re also a couple of nerds. I mean, look at them! Maybe because they’re such nerds, Mac and Pam have always put an emphasis on saving. But they don’t just pinch pennies. They’ve optimized their lives to boost their income and their happiness. They’re well on their way to financial independence. In many ways, they epitomize the ideals espoused by my Money Boss philosophy. The Money Boss Method in Real Life When Pam was in her final year of med school, for instance, Mac worked as a research tech at a neuroscience lab. He brought home only $18,000 but they were careful to avoid living paycheck to paycheck. “We would pay the rent,” Mac says, “we would put money into savings, and we’d still have money left over at the end of the month. We made choices not to buy the little things that could have killed our future.” After med school, Mac and Pam moved to Portland. While Pam did her pathology residency at Oregon Health & Science University, Mac taught high-school science. At that time, their salaries were similar. When their first child was born in January 2005, Pam took maternity leave until Spring Break. From Spring Break until the end of the school year, Mac brought the baby with him to work and placed her in the student-run daycare. “Counting the cost of daycare, my teacher’s salary went down to minimum wage,” Mac says. At the end of the school year, he asked for a year off. That year turned into forever. “It came down to whether I wanted to raise other people’s kids or whether I wanted to raise my own.” The traditional choice is for the mother to stay home with the kids, but that seemed silly in their situation. With her residency completed, Pam could earn four or five times what Mac could make as a teacher. “It didn’t make sense to throw away the money we spent on Pam’s education to not reap the benefits of that education.” For the past decade, Mac and Pam have worked in tandem toward family and financial goals. Pam makes the money. Mac takes care of two kids and day-to-day household operations while also managing their investments. They’re both careful with spending. “We spend a lot less than all of our friends who earn similar amounts,” Mac says. “Lots of our doctor friends have multiple houses. They own fancy cars. They spend lots of money and we don’t. Neither of us wants a second home. I drive a 2007 minivan and Pam drives a 2004 Avalon. Our only debt is our house. We pay off our credit cards every month and we have no car payments.” From the beginning, saving has been a priority for Mac and Pam. And as they earned more, they saved more. It’s true their spending increased too, but at nowhere near the same rate. A higher income meant they could put more in the bank — not buy more stuff. Because they’ve been so diligent for so long, Mac and Pam will be able to retire in their forties. They’ve made the choices and done the work necessary to achieve Financial Independence at a young age. “We’d rather accumulate our wealth, to live how w[...]



Mastering the abundance mindset (and changing your money blueprint)

2018-04-17T11:33:56Z

Old habits die hard. When you get to be a middle-aged man like me, you have forty-nine years of learned behavior to guide your actions and decisions — even when you know your choices aren’t necessarily for the best. Our mental blueprints (including our money blueprints) are deeply ingrained and tough to change. Don’t worry. […] The post Mastering the abundance mindset (and changing your money blueprint) appeared first on Get Rich Slowly. Old habits die hard. When you get to be a middle-aged man like me, you have forty-nine years of learned behavior to guide your actions and decisions — even when you know your choices aren’t necessarily for the best. Our mental blueprints (including our money blueprints) are deeply ingrained and tough to change. Don’t worry. I haven’t turned into a spendthrift or anything. But I’ve been thinking a lot lately about how certain parts of my past continue to affect me, sometimes in huge and annoying ways. For instance, I fight an ongoing battle against a scarcity mindset. I haven’t been able to master the abundance mindset. Scarcity and Abundance I’ve been reluctant to talk about scarcity and abundance because the terms have been co-opted by “Law of Attraction” types who use them to encourage magical thinking. I hate the New Age-y approach to these concepts. I want to discuss them from a psychological perspective. With a scarcity mindset, you believe that everything is limited. Time is limited. Money is limited. Love is limited. This causes you to worry about the future. You’re consciously or unconsciously more concerned with what might go wrong than with what could go right. You make fear-based decisions. You’re afraid of missing out. You’re afraid of not having enough. You have trouble with moderation and often exhibit “all or nothing” behavior. With an abundance mindset, you believe there’s plenty for everyone. There’s plenty of wealth, prestige, and happiness to go around. You’re optimistic about the future. You think things will work out even if there are bumps along the way. You make decisions based on the Big Picture rather than a single snapshot in time. It’s easy for you to balance tomorrow and today. I’ve written before about my trouble with impulse control. In the past, I’ve had problems with overspending, overeating, video game addiction, alcohol consumption, and borderline hoarding behavior. (I’m a compulsive collector of Stuff.) All of this — the collecting, the addictive tendencies, the lack of self-control — stems from a scarcity mentality. But I didn’t realize it until a few years ago when my therapist helped me see the source. Because my family didn’t have much when I was young, I find it difficult to defer gratification. My default mindset — even when life is grand — is that if I want something and it’s available, I should get it now. Somewhere deep inside, I feel as if there won’t ever be another chance. My father had this mindset. My mother had it. My brothers have it too. (Like me, Jeff and Tony have both learned to fight the feeling of scarcity in their own fashion.) A Real-Life Example of the Scarcity Mindset Over the past year, my deeply-seated scarcity mindset has begun to manifest itself in another annoying way. Since moving into our new house last July 1st, we’ve had to make tens of thousands of dollars worth of repairs. About $56,000 of these costs came from the sale of our previous home, but that still leaves us on the hook for $30,000 or $40,000. We have one last project to do before we believe we’re finished: We want to replace the rotting back deck and install a hot tub. (This was the first project we had planned to tackle when we moved in, but we had to put it off for more pressing priorities.) Kim and I [...]



The crossover point: How to know when you’ve achieved financial independence

2018-04-08T19:05:48Z

Today I want to introduce you to the Crossover Point, that magical place where you have enough saved that you can live off your investment returns. To start, let’s talk about one of my money heroes, billionaire Warren Buffett. Buffett wasn’t always a billionaire. He started from scratch, just like you and me. Here he […] The post The crossover point: How to know when you’ve achieved financial independence appeared first on Get Rich Slowly. Today I want to introduce you to the Crossover Point, that magical place where you have enough saved that you can live off your investment returns. To start, let’s talk about one of my money heroes, billionaire Warren Buffett. Buffett wasn’t always a billionaire. He started from scratch, just like you and me. Here he is in 1948 — when he had less than $10,000 to his name: What a dork! Buffett began making money when he was six years old. He’d buy packs of chewing gum for three cents each, then go door to door selling them for a nickel. (He refused to sell individual sticks; you had to buy an entire pack of Doublemint or nothing.) “He could hold those pennies, weighty and solid, in his palm,” writes Alice Schroeder in her excellent Buffett biography. “They became the first few snowflakes in a snowball of money to come.” From chewing gum, Buffett graduated to soda pop. He sold bottles of Coca-Cola to his neighbors in Omaha, and he even peddled his wares to sunbathers while vacationing at Lake Okoboji in Iowa. Buffett sold used golf balls. He hawked peanuts and popcorn at University of Omaha football games. All the while, he kept score. He deposited his pennies and nickels in the bank and kept track of his savings in a passbook. At a young age, Buffett began to grasp the extraordinary power of compounding. Again from Schroeder’s book: “The way that numbers exploded as they grew at a constant rate over time was how a small sum could turn into a fortune. He could picture the numbers compounding as vividly as the way a snowball grew when he rolled it across the lawn.” When he was ten years old, Buffett vowed to become a millionaire by age thirty-five. By the time he turned eleven, he’d accumulated $120. He used his cash to buy his first three shares of stock. He had 24 years and $999,880 to go to meet his goal. Buffett’s Snowball of Money When Buffett left Omaha for college at age 20, he’d saved $9804, some of which was in stocks. He moved to New York to attend Columbia University, where he took finance classes from Benjamin Graham and David Dodd. He continued to invest, both for himself and now for family and friends. He wrote articles about the stock market. (Even back in 1952, he was obsessed with GEICO stock.) He bought his first business, a service station. Buffett got married and had kids. He earned more money, both from work and investing. All the same, he was reluctant to spend. He was frugal — almost miserly. He didn’t like to buy new clothes. He made a deal with a nearby newsstand to purchase outdated magazines at a discount. For a long time, he didn’t own a car. (After he did purchase a vehicle, he’d only wash it when it rained.) Like a money boss, Buffett kept his costs down while boosting his income. “For Warren, holding on to every penny this way, since he had sold that first pack of chewing gum, was one of the two things that had made him comparatively rich at age twenty-five,” writes Schroeder in The Snowball. The other contributing factor? Buffett was making money at an ever-increasing rate. The years and decades passed. Buffett continued to invest. His snowball grew exponentially. By age 11, Buffett had saved $120. By age 21, Buffett had a net worth of $19,738. By age 26, Buffett was worth $140,000. By age 30 — five years ahead of schedule [...]



Reader question: Does repaying a loan hurt your credit score?

2018-04-05T14:41:45Z

Last week, on my review of Kristin Wong’s new book Get Money!, a reader named Luke left an interesting comment. Luke wondered: One thing that I’ve taken to heart is debt reduction. In my case, student loans. I refinanced a while back to get a lower rate and have been paying almost triple the monthly […] The post Reader question: Does repaying a loan hurt your credit score? appeared first on Get Rich Slowly. Last week, on my review of Kristin Wong’s new book Get Money!, a reader named Luke left an interesting comment. Luke wondered: One thing that I’ve taken to heart is debt reduction. In my case, student loans. I refinanced a while back to get a lower rate and have been paying almost triple the monthly minimum to accelerate payoff. The goal was to finish the loan payments a few months before we buy our first home (which we are currently in the middle of saving for our 20% down). But I’ve encountered a sort of catch-22. As the individual loans get rolled off when they get paid, it’s been hurting my credit score because my average age of credit is dropping. (I’m 27 years old.) This is exactly what I don’t need before applying for a mortgage. I’m wondering if I should slow down my loans repayments to keep my credit score high when I apply for a mortgage, which will probably be in a year or two. This question is outside my area of expertise. As you all know by now, I’m good at the Big Picture stuff, at addressing issues of mindset and behavior. But when it comes to nitty-gritty details of personal finance, I have to ask the experts, just like you would. In this case, my go-to credit expert is the awesome Liz Weston, a NerdWallet columnist and author of Your Credit Score. I dropped her a line to ask about Luke’s situation, and she wrote back with some advice. Everything that follows in the next section was written by Weston.. Does Repaying a Loan Hurt Your Credit Score? Paying off an installment loan early typically does not hurt your credit scores. But it also doesn’t help your scores as much as keeping the account open and active (that is, paying the loan down on schedule). Luke gave us a clue to the problem when he referred to his credit “score”. We don’t have one score. We have many. He may be looking at scores from different sources with different formulas and assuming a trend where there isn’t one. The scores may not even be on the same range. For example, the VantageScore 3.0 we offer for free at NerdWallet is on the traditional 300-to-850 range and draws from TransUnion credit bureau data. The FICO Bankcard Score 2 that Wells Fargo offers its customers is on a 250-to-900 scale and draws from Experian. The two scores likely won’t be the same. They might not even be that close. So, if you looked from one to the other, you might think your scores were going up or down when they weren’t. If Luke is looking at the same score over time and seeing significant downward movement, it’s probably due to something else. The usual culprit is high balances on credit cards. Even if you pay in full every month, the amount of credit you’re using on a card has a big influence on your scores. Bottom line: Luke shouldn’t expect that paying off a loan early will help his scores, but it shouldn’t be dinging them much, either. And to switch from my credit score expert hat to my CFP hat: If qualifying for a mortgage is important, he likely would be better off banking those extra payments to boost his down payment and build a bigger emergency fund. As J.D. will tell you, homeownership is expensive! What Would You Do? I agree with Liz: While getting out of debt is important, Luke should keep the Big Picture in mind. When deciding what to do next, he should consider not only his current goals[...]



Quick money wins to help you feel more in control of your finances

2018-04-05T13:45:49Z

This is a guest post from former GRS staff writer Kristin Wong. Kristin just released her first book, Get Money!, which J.D. thinks is pretty darned good. I cringe when I remember learning to drive. At fifteen-years-old, I was impatient, full of nervous energy, and so short that I could barely reach the steering wheel. […] The post Quick money wins to help you feel more in control of your finances appeared first on Get Rich Slowly. This is a guest post from former GRS staff writer Kristin Wong. Kristin just released her first book, Get Money!, which J.D. thinks is pretty darned good. I cringe when I remember learning to drive. At fifteen-years-old, I was impatient, full of nervous energy, and so short that I could barely reach the steering wheel. (Which is still kind of a problem, but I digress.) My parents were backseat driving, of course, instructing me on how to drive the rural, dirt road just outside our neighborhood. “Let off the brake,” they said, and the car began to coast, slowly. Cool, I can handle this, I thought. “Hit the gas,” they said. Chaos ensued. I swerved into the other lane, and when I yanked the steering wheel to straighten out, the car jerked in the other direction and I almost hit a fence post. My parents shouted. I screamed. All of us were terrified. I felt completely frazzled and out of control. It was like the car had a mind of its own. For many of us, managing money feels something like this. We try to make a budget and set some limits for our spending, but our financial situation always seems to have a mind of its own: your bank account overdrafts, you get a pay cut at work, your vet bill is considerably higher than you expected. But just as when you were learning to drive, developing a sense that you’re in control can make a huge difference. When I finally felt like I was the one controlling the vehicle, driving became second nature. Research, like this 2014 study, shows that simply feeling powerful inspires people to make better financial decisions. They develop financial confidence. For this reason, I’m a fan of quick money wins — small achievements that may not make a huge difference on paper, but which do wonders for how you feel about your financial situation. These quick wins won’t make you a millionaire overnight, but they can empower you, and that’s everything. Quick wins give you financial confidence, and that helps you make better money decisions in the long run. (As the study put it, “feeling powerful increases saving.”) In other words, change your attitude about money and you can change your behavior with it, which can lead to actually being in control of it. Try your hand at a few of my favorite money wins. width="100%" src="https://www.youtube.com/embed/pLARf5SyRwA?rel=0" frameborder="0" allowfullscreen class="aligncenter"> Cut Back on Just One Thing This Month We all have our spending vice(s). For me, it’s clothing. (Which is an interesting vice because I spend so much money on clothes yet never seem to have anything to wear.) There are a handful of reasons for this spending problem, and last month I decided to face those reasons and challenge myself to spend nothing on clothes for the entire month. For you, this might not be much of a challenge. But I felt pretty accomplished when I compared my spending that month to the previous month. It was empowering to see the result of my actions: There was more money in my bank account, but more importantly, I changed one simple bad habit. If you’re prone to overspending and you know you need to cut back in a lot of areas — restaurants, entertainment, bars, etc — it’s tough to do it all at once. Instead, pick one thing to focus on each month. For one month, commit to spending $100 less on your weak spot (or whatever amount works for your budget [...]