The 3 Cs of improving credit

How to improve credit is one of the the most asked questions in my adult classes. The 3 Cs of improving credit are an easy way to remember the steps you can take to get on your way to a better credit score.


  • Your score is most heavily impacted by your ability to pay your bills on time, or your credit character.
    • Make sure to never miss or make a late payment, as it will affect your score extremely negatively.
    • Your goal is to pay AT LEAST the minimum payment and IDEALLY the full balance on time every month.


  • You should aim to only use 25-30% of your total credit capacity. This means that if you have a credit limit of $1,000 you should not use more than $250-$300 dollars per month.
  • It is better to use a smaller percentage of your credit capacity than to over use, as it shows more restraint and a better ability to manage your finances.

Credit History:

If you have to choose between closing a card you’ve had for 10 years and a card you’ve have for 2 years, all else being equal you should close the newer card.  Closing the older card will hurt your credit score by shortening your history from 10 years to 2 years. Another thing to remember; don’t open multiple store cards for the discounts they offer you – an influx of new

How do I pick a bank account?

What types of questions should I ask to make sure that I choose the right bank account?

There seems to be a dizzying amount of banks, bank accounts and special promotions available.  How do I pick?

You need to focus in on the specifics that actually matter to you.  Below is a nice list of questions that may not be comprehensive, but will lead you in the right direction in making your choice.

Is there a specific account for students / young people / lower income earners?

If I am considering a Credit Union, is it NCUA insured?

What is the monthly fee for having an account? (hopefully $0 if a minimum balance is met)

What is the minimum balance requirement? (aim for $25 or less)

Is there an ATM card?

Is there a fee to use other banks’ ATM machines?

Is their ATM machine near me?

Can I get a debit card with my account?

Can I link an account with my parents’ account so they pay any fees/maintain a minimum balance?

Are there overdraft fees?  What are the overdraft policies?

Do I get free checks with the account?  How many & how often?  If not, how much do they cost?

Where is a branch nearby?

Money stress and your health

Below is an interesting article from the ASA’s website.

American Psychological Association Survey Shows Money Stress Weighing on Americans’ Health Nationwide

Stress in America™ survey finds parents, younger generations and lower-income households have higher stress than others overall

WASHINGTON — While aspects of the U.S. economy have improved, money continues to be a top cause of stress for Americans, according to the new Stress in America™: Paying With Our Health survey released today by the American Psychological Association. According to the survey, parents, younger generations and those living in lower-income households report higher levels of stress than Americans overall, especially when it comes to stress about money.

“Regardless of the economic climate, money and finances have remained the top stressor since our survey began in 2007. Furthermore, this year’s survey shows that stress related to financial issues could have a significant impact on Americans’ health and well-being,” APA CEO and Executive Vice President Norman B. Anderson, PhD, said.

The survey, which was conducted by Harris Poll on behalf of APA among 3,068 adults in August 2014, found that 72 percent of Americans reported feeling stressed about money at least some of the time during the past month. Twenty-two percent said that they experienced extreme stress about money during the past month (an 8, 9 or 10 on a 10-point scale, where 1 is “little or no stress” and 10 is “a great deal of stress”). For the majority of Americans (64 percent), money is a somewhat or very significant source of stress, but especially for parents and younger adults (77 percent of parents, 75 percent of millennials [18 to 35 years old] and 76 percent of Gen Xers [36 to 49 years old]).

A gap also appears to be emerging in stress levels between people living in lower-income (making less than $50,000 per year) and higher-income households that mirrors the growing wealth gap nationwide. In 2007, there was no difference in reported average stress levels between those who earned more and those who earned less than $50,000, with both groups reporting the same average levels of stress (6.2 on a 10-point scale). By 2014, a clear gap had emerged with those living in lower-income households reporting higher overall stress levels than those living in higher-income households (5.2 vs. 4.7 on the 10-point scale).

Stress about money and finances appears to have a significant impact on many Americans’ lives. Some are putting their health care needs on hold because of financial concerns. Nearly 1 in 5 Americans say that they have either considered skipping (9 percent) or skipped (12 percent) going to the doctor when they needed health care because of financial concerns. Stress about money also impacts relationships: Almost a third of adults with partners (31 percent) report that money is a major source of conflict in their relationship.

The report also uncovered good news about stress management. Americans who say they have someone they can ask for emotional support, such as family and friends, report lower stress levels and better related outcomes than those without emotional support. Unfortunately, some Americans say that they do not have anyone to rely on for emotional support. According to the survey, 43 percent of those who say they have no emotional support report that their overall stress has increased in the past year, compared with 26 percent of those who say they have emotional support.

On average, Americans’ stress levels are trending downward: The average reported stress level is 4.9 on a 10-point scale, down from 6.2 in 2007. Regardless of lower stress levels, it appears that Americans are living with stress levels higher than what we believe to be healthy — 3.7 on a 10-point scale — and some (22 percent) say they are not doing enough to manage their stress.

“This year’s survey continues to reinforce the idea that we are living with a level of stress that we consider too high,” Anderson said. “Despite the good news that overall stress levels are down, it appears that the idea of living with stress higher than what we believe to be healthy and dealing with it in ineffective ways continues to be embedded in our culture. All Americans, and particularly those groups that are most affected by stress — which include women, younger adults and those with lower incomes — need to address this issue sooner than later in order to better their health and well-being.”

To read the full Stress in America report or download graphics, visit the webpage.

For additional information on stress, lifestyle and behaviors, visit the APA Help Center webpage and read APA’s Mind/Body Health campaign blog. Join the conversation about stress on Twitter by following @APAHelpCenter and #stressAPA.

What is an APR anyway?

What does APR stand for?  APR is short for Annual Percentage Rate.  It is the yearly interest rate you are charged if you carry a balance on your credit card from one month to the next. One card can often have many different APRs, and they might go up and down for various reasons.

Is the APR fixed or variable? A variable-rate APR goes up and down with the official wall street prime or index rate, a fixed rate doesn’t. This does not mean that a fixed interest rate will never change, but the card issuer generally must notify you before the change occurs, and in most circumstances can apply the higher rate only to purchases and other transactions you make AFTER you get the notice.

What is an introductory APR? Sometimes credit cards try to entice new customers by offering a temporary lower interest rate. Don’t be fooled – these rates don’t last forever.

Do I actually need to file my taxes?

 This is a big question from college students – they are still being mostly supported by their parents but they are often earning money from their part time jobs as well.

  • If you make less than 6,100/yr you generally don’t have to file income taxes, or below 10,000 if your parents don’t claim you as a dependent.
  • You can file anyway though, because a certain amount of money is probably withheld from your paycheck to pay taxes, and if you don’t file for it, you don’t get it!
  • Be consistent with whether or not you are claimed as a dependent of your parents – they can only do that if they are paying at least ½ of your expenses, and if they claim you, you need that on your tax forms too.

What do I need to have to file taxes for the first time?

  • Forms you will receive in the mail:
    • W-2 from your employer
    • 1099-INT for bank interest from a savings account
  • Supporting information you will need to have on-hand/collect through out the year:
    • Social Security numbers
    • Receipts of your donations to charity

Who needs braces?

People in my classes often ask “what am I forgetting?” when they are making their budgets.

Below is a list of expenses that most of us forget to budget for: there are plenty more, but these are the biggies.

#1 – unexpected parental leave – sometimes “I will totally go back to work after my maternity leave ends” turns into “He just started smiling, he’s finally sleeping, you’ve got to be kidding me, now is when I have to go back?”

#2 – daycare – this is shockingly expensive

#3 – summer camp (see #8 college)

#4 – braces

#5 – bar mitzvahs, quincenieras, sweet sixteens (see #10 weddings)

#6 – new car, house paint, boiler

#7 – vacations

#8 – college (some lucky people get to pay for this for ourselves and then for our kids!)

#9 grad school (ditto #8)

#10 weddings (ditto #8)

#11 airline tickets to visit family / see your children

#12 being ‘between jobs’

#13 final expenses (funerals)

There’s a lot more where these came from, but those are the most common expenses I’ve found that people don’t take into account when making budgets.  Keep in mind that making a budget to cover your regular expenses is helpful, but you can’t forget to budget for life’s irregular expenses too!

77 Reasons You’re Awful at Managing Money


This article is really funny -but unfortunately so true for so many of us!  When I stumbled upon it I had to re-post it:

"People usually get better at things over time. We’re better farmers, faster runners, safer pilots, and more accurate weather forecasters than we were 50 years ago.

But there’s something about money that gets the better of us. If you look at the rate of personal bankruptcies, financial crises, bubbles, student loans, debt defaults, and savings rates, I wonder whether people are just as bad at managing money today as they were in previous generations, maybe even worse. It’s one of the only areas in life we seem to get progressively dumber at.

Here are 77 reasons why people are awful at managing money.

1. You let your political views guide your investments without realizing that the market doesn’t care who you voted for or which cable news outlet you find more honest.

2. Your definition of “long term” is the time between now and the next bear market, whenever that is.

3. You suffer from the Dunnig-Kruger effect, lacking enough basic financial knowledge to even realize that you’re making mistakes. People’s lack of understanding about things like compound interest and inflation can lead them to believe they’re making good financial decisions when in reality they’re tripping over themselves with failure.

4. For every $1 raise you receive, your desires rise by $2 or more.

5. You spend lots of money on material stuff to impress other people without realizing those other people couldn’t care less about you. You’d be shocked at how few people care where your purse was made or how much noise your car makes.

6. You are unshakably certain about things you know very little about, particularly regarding monetary policy.

7. You have never been able to predict what the market will do next. This doesn’t deter you from trying to predict what the market will do next.

8. You don’t learn vicariously from other people’s financial problems. By the time you get the hang of making smart money decisions, your life expectancy rounds to zero.

9. You think you’re young, invincible, and don’t need health insurance. Then icy sidewalks, moving cars, and rapidly dividing cells prove you wrong.

10. You get upset when you hear on TV that the government is running a deficit. It doesn’t bother you that you heard this on a TV you bought on a credit card in a home you purchased with a no-money-down mortgage.

11. You take out $200,000 in debt to earn a degree in a subject you’re not interested in, doesn’t offer marketable job skills, and for which you have no intention of working in — all by age 22.

12. You’re part of the roughly half of Americans who can’t come up with $2,000 in 30 days for an emergency, even though you’re also part of the roughly 100% of Americans who will need to come up with $2,000 in 30 days for an emergency at some point in your life.

13. The single largest expense you’ll pay in life is interest. You’ll spend more money on interest than food, vacations, cars, school, clothes, dinners out, and all forms of entertainment. You do this because you don’t save enough and demand a lifestyle you can’t actually afford. The future owns your income.

14. You’re thrilled that the credit card you’re paying 22% interest on offers 1% cash back on all purchases.

15. You spent the last five years arguing why Keynesian/Austrian economists were all wrong. The S&P 500 (SNPINDEX: ^GSPC  ) spent the last five years rallying 177%.

16. You think dollar-cost averaging is boring without realizing that the purpose of investing isn’t to minimize boredom; it’s to maximize returns.

17. You work in a stressful job in order to make enough money to have a stress-free life. You see no irony in this.

18. You’re a pessimist in a world where far more people wake up in the morning trying to make things better than wake up thinking we’re all doomed.

19. You try to keep up with the Jonses without realizing the Jonses are buried in debt and can probably never retire.

20. You think $1 million is a glamorously large amount money when it’s what most people will need to cover their definition of a pretty mediocre retirement.

21. You associate all of your financial successes with skill and all of your financial failures with bad luck.

22. Rather than admitting and learning from your mistakes, you ignore them, bury them, make excuses for them, and blame them on others.

23. You anchor to whatever price you bought a stock for, without realizing that the market neither knows nor cares what you think is a “fair” price.

24. Your perception of history extends back about five years. This leads you to believe things like bonds are safe, the average recession is as bad as 2008 was, and we’re in a new normal of high unemployment.

25. You come from a low- or middle- income household, don’t qualify for scholarships, and think it’s reasonable to attend a private college.

26. You aced your SATs and went to an Ivy League school. You think this qualifies you to be a financial genius without realizing that the single most important skill in finance is control over your emotions, not control over a Greek formula.

27. You say you’ll be greedy when others are fearful, then seek the fetal position when the market falls 2%.

28. You worship “legendary” investors whose only real skill is marketing themselves. Their career track record probably lags a money market fund.

29. You think you can be a successful day trader when the hedge fund you’re competing with can read a news report, figure out what it means, and place a trade, make a profit, and exit that trade in literally the time it takes you to click on said news report.

30. You let confirmation bias take control of your mind by only seeking out information from sources that agree with your pre-existing beliefs.

31. You think you’re too young to start saving for retirement when every day that passes makes compound interest a little bit less effective.

32. You spend a month researching the best washing machine, then invest twice as much money in a penny stock based solely on a tip from a person you don’t know and shouldn’t trust.

33. You’re investing for the next 50 years but get stressed when the market has a bad day.

34. You’re willing to work hard for $15 an hour, but too lazy to spend four minutes to fill out your company’s 401(k) paperwork that could result in thousands of dollars of free money from matching contributions.

35. You think you’re doing great by building up an emergency fund that covers three months of living expenses when the average duration of unemployment these days is more like nine months.

36. You check your brokerage account more often when the market is going up than going down.

37. You size up the potential of investments based on past returns, rather than investments that (A) you understand, (B) have a competitive advantage, (C) fit your goals, and (D) sell for an attractive valuation.

38. You take something as mind-numbingly complex as the global economy and try to distill it down into small, elegant sound bites.

39. You don’t respect the idea that “do nothing” are two of the most powerful words in investing.

40. You purchased investments from a guy wearing boat shoes with no socks, a blue shirt with a white collar, or suspenders This rarely ends well.

41. You feel especially smart after last year’s 30% market rally without realizing that you had nothing to do with it.

42. You surround yourself with 18 hours a day of live market TV in a game that requires decades of doing almost nothing but waiting.

43. You seek advice from a doctor to manage your health, an accountant to do your taxes, a lawyer to manage your legal problems, a plumber to fix your plumbing, a contractor to build your house, a trainer to help you exercise, a dentist to fix your teeth, and a pilot to fly when you travel. You wouldn’t consider doing it differently. Then, with no experience, you go about investing willy nilly, all by yourself.

44. Hindsight bias fools you into thinking you saw the last financial crisis coming. Worse, this fools you again into thinking you’ll be able to predict the next one.

45. You think financial news is published because it has useful information you need to know. In reality, it’s published only because the publisher knows you’ll read it.

46. You forget that the single most valuable asset you have as an investor is time. A 20-year-old has an asset Warren Buffett couldn’t dream about.

47. You don’t realize that the guy giving advice on TV doesn’t know you, your circumstances, your goals, or your risk tolerance. He doesn’t really care about you, either. He just wants to be seen on TV.

48. You have a financial plan without realizing that life neither knows nor cares about your plan. Whatever your plan is today, reality will surely look far different tomorrow.

49. You start saving a little bit of money. Great! It’s better than nothing, but I see a lot of people who are proud of their savings when in reality it’s an infinitesimally small percentage of what they’ll need to retire. As the saying goes, “Save a little bit of money each month, and at the end of the year, you’ll be surprised at how little you still have.” If you think saving 30% or more of your income is insane, run the numbers. It might be close to what you’ll need to retire happy.

50. You think it’s impossible to live on less than $35,000 a year without realizing that literally 99% of the world does, even adjusted for purchasing power parity.

51. Your definition of a middle-class lifestyle is a 3,000-square foot home, more bathrooms than family members, three SUVs, private colleges, annual trips to Hawaii and Vail, Evian water, and yoga lessons. (Seriously, just stretch in your own living room.)

52. You can’t acknowledge the role luck plays when making the occasional successful investment. (Also true when worshiping investors who made one big call that happened to be right.)

53. You suffer from hard-core belief bias. It’s the tendency to accept or reject an argument based on how well it fits your pre-defined beliefs, rather than the objective facts of the situation. Pointing out that inflation has been low for the last five years is still met with suspicion by those who believe the Federal Reserve’s actions must be causing hyperinflation.

54. You think the hybrid car is a better financial deal because it gets better gas millage, even though it costs $10,000 more than a comparable gas-engine model. You’ll probably need to drive for a decade before the hybrid upgrade pays for itself, but in reality you’ll trade the thing well before then.

55. You hate finance, think it’s confusing, and don’t want anything to do with it. You do, however, love money. You see no irony in this.

56. You think the stock market is too risky because it’s volatile, without realizing that the biggest risk you face isn’t volatility; It’s not growing you assets by enough over the next several decades.

57. You’ve never been to a poor country, robbing you of the realization that the world doesn’t care how entitled you feel, what you think is “fair,” or what a real financial hardship is.

58. You think blowing money on frivolous stuff impresses people, when in reality it makes you look like an insecure, pompous, jerk. (This is particularly common among young people who come into money for the first time.)

59. You’re unable to realize that a 10% return for 20 years generates more money than a 20% return for 10 years. Time can be a more important factor than return when building wealth — and it’s the one thing you have control over.

60. You don’t respect the mountains of evidence showing that once basic needs are met, the amount of happiness each additional dollar of income provides diminishes quickly. This causes you to spend most of your life chasing “the number” you think will make you happy, but probably won’t.

61. You think paying your financial advisor and other money managers 2% a year seems reasonable, without realizing that it’ll probably eat up one-third or more of your long-term returns.

62. You think of the stock market as numbers that go up and down rather than an ownership stake in real businesses with real assets.

63. You think renting a home is throwing money away when for many it’s one of the smartest financial decisions they can make.

64. Your investment decisions are guided by what the economy is doing, when the two really have very little correlation.

65. When planning for retirement, you don’t realize that your life expectancy might be 90 years or more. Retire at 65, and you could spend more than one-third of your life living off your investments.

66. You’re unable to have a good time going for a hike, a bike ride, a swim, reading a book, or anything else that’s free (or cheap). Having cheap hobbies is a large, yet hidden, asset on your personal balance sheet.

67. You work so hard trying to make money that you don’t have time to think about, or plan, your finances. This is the equivalent to spending so much time buying exercise equipment that you have no time to exercise.

68. To paraphrase Carl Richards, you ignore history, basing your actions on your own very limited experience.

69. You worry about things you can’t control, and things that are not relevant to your own finances.

70. You went to college at age 18 not because you were ready but because everyone else was. It’s probably one of the most expense things you’ll ever do, and you totally caved to peer pressure.

71. You think that not changing your opinion about markets, the economy, and your investments is somehow noble, when it’s really just shutting your brain off to the reality that things are always changing.

72. You ignore that how elderly Americans who have seen it all view money is almost the opposite of how most young Americans view money. This goes back to not learning vicariously.

73. You’re uncomfortable with the idea that the biggest news story of the next decade is almost certainly something no one is talking about today, and the big stuff everyone is talking about today is probably meaningless.

74. You underestimate how fast a company can go from “blue chip” to bankrupt.

75. You don’t realize that when you say you want to be a millionaire, what you probably mean is that you want to spend a million dollars, which is literally the opposite of being a millionaire.

76. You’re unaware that the business models of the vast majority of financial companies rely on exploiting the fears, emotions, and lack of intelligence of its customers.

77. You nodded along to all 77 of these points without realizing I’m talking about you. That goes for me, too.

Check back every Tuesday and Thursday for Morgan Housel’s columns on finance and economics. 

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How do I pick a credit card?

Below is a little cheat sheet to help answer this very frequently asked question.  There is no advice given here, just a list of questions to ask, so you know what you’re getting.

What type of card do I want? Do I want a Standard/Traditional Card, a Premium Card, an Affinity Card, a Retail Card, a Secured Card or a Charge Card?

What would my credit limit be? When can that limit be raised and to how much?

What is the APR? What is the rate for purchases? What is the rate for balance transfers? What is the APR if I miss one bill payment? What is it if I miss two?

Is the APR fixed or variable?

Is there an Introductory APR? Does it apply to my entire balance or just to balance transfers, or new purchases? How long does it last?

What Fees might I be subject to?

Annual or membership fee

Cash advance fee

Balance transfer fee

Late payment fee

Over-the-credit limit fee

Credit limit increase fee

Finance charge

Tax deductions for college

Don’t miss out on taking advantage of these tax deductions when sending your kids to college!

The American Opportunity Tax Credit: a credit of up to $2,500 per student for tuition and fees, books, supplies and equipment

Lifetime Learning Credit: taxpayers may be able to claim a credit of up to $2,000 per tax return for college tuition, fees and supplies paid directly to the educational institution

Tuition and Fees Deduction: this allows you to deduct up to $4,000 from your taxable income for college expenses

Is it really safe to put my money in the bank?

From time to time some of my students mention that they are worried about the safety of banks and putting their money there. Below is a brief history lesson so you don’t need to be worried anymore.

Anyone listen to the news about what is going on with Greece's financial woes?  How about this: Does anyone remember the movie It’s a Wonderful Life? For those of you who don’t: it’s an old black and white Christmas movie about a really nice guy who gets to see how the world would be if he never existed. Remember how the “Building and Loan” George Bailey worked at ran out of money? That was an example of a bank run.

I am going to tell you a little about bank runs and explain why you don’t have to be worried about them in this country any more.  Let’s assume that 10 people deposit $1,000 each in a bank. Is $10,000 just sitting in the bank waiting to be taken back out? No, if that’s all a bank was, how would they pay for the building and the salary of the tellers and security?  Banks use the money you deposit to loan to people for interest and to invest in things that will make them income.  Because of this, there is never as much money in a bank as the depositors put in the bank all at one time. That is usually o.k. because the bank doesn’t expect everyone to come in at the same time to take out all of their money.  A bank run happens when there is some sort of panic in the population, and a lot of people pull their money out of the bank at the same time, and there isn’t enough left in the bank for everyone to get their money out all at once.  When people hear that there is or might be a bank run, they go and try to get their money out too before they think it will be all gone, and it snowballs into a self fulfilling prophecy.  The weather man predicting that it will rain doesn’t make rain more likely. A financial reporter predicting that there will be a bank run, does make it more likely.

Bank Runs are one of the big causes of the Great Depression in the 1920s and 1930s.

Fortunately, we have learned a lot since then.

There are now government bailouts for banks in the US.  There is also government supervision and regulation of banks in the US.  Our government created Central Banks now that will lend money to smaller banks if they need it.  After a bank run starts, there is now a law that can create a temporary freeze of withdrawals to give people time to calm down, and to give the central banks time to lend the local banks money.  We are now just coming out of “the great recession”, which was the closest thing to the great depression since then. The big government bailout of banks that happened recently that you all can remember hearing about in the news was just one of the ways that the government prevented the emptying out of banks from bank runs, as happened in the great depression.  If a bank run were to happen today, we are also protected by the FDIC.  The Federal Deposit Insurance Corporation (FDIC) was created in 1933 right after the great depression by the Federal Government.  It provides deposit insurance guaranteeing the safety of your money in the bank up to $250,000 for each and every deposit account in each insured bank.

The FDIC does not provide deposit insurance for Credit Unions. Most Credit Unions are insured by the National Credit Union Administration (NCUA).  How do I know if my credit union is one of the ones that has insurance for up to $250,000 per each deposit account? They are required to have a big sign that says “deposits are backed by the full faith and credit of the United States Government.”  Since the start of FDIC insurance on January 1, 1934, no depositor in the US has lost any insured funds as a result of a failure or bank run.