Will applying for rewards cards hurt your credit score?

Ever see the reward cards that advertise thousands of travel miles for just opening an account?  I recently got the Capital One Venture Card and was wondering how my credit score would be affected if I applied for several of these cards.

The post below is by RJ Weis at Gen Y Wealth.  He applied for several cards and tested the impact on his credit score.  What do you think happened?  The results were surprising! Read below:

The Impact of Travel Hacking on Your Credit Score

by RJ on May 15, 2011

The last time I checked my credit score, it was at 717. That was on June 12, 2010.

Since then, I have applied for 4 different credit cards. The purpose for applying to each of these cards was to earn free miles.

The four cards I applied four earned me 200,000 miles. That’s good for 4 round trip tickets to many international destinations.

So how did this impact my credit score?

Let’s find out.

Last time I checked my credit score, I did so using MyFico. Now it costs $20 to get a credit score at MyFico, so instead I’m using Equifax. You can view your FICO® score through Equifax for $15.95.

I’m happy to report that my credit score as of 5/13/2011 is 752. An actual increase!

Why did it go up? I can think of a few reasons.

1. I only had one credit card before, so more credit cards improved my utilization rate.
   
2. I paid all of my bills on time.
   
3. I didn’t apply for many credit cards all at once. Although, I’m not entirely sure if this helps or not.
   

One of the biggest assumptions about travel hacking is the negative impact on your credit score. Everyone’s credit situation is different and nobody knows exactly what goes into this calculation. However, my point is that you should always test assumptions. Many times, they’re incorrect.

Stocks are still on sale, BUY, BUY, BUY!

Yes, that’s right, I said it, stocks are still on sale. My ROTH IRA (Individual Retirement Account) earned a 15.95% increase from March 2010 to today.  Most of the increase was due to the overall stock market doing better. During the recession, stock prices crashed hardcore.   Two things determine stock prices:

• Fundamental value of the company: company’s annual profit, upcoming products/services, and the cash you’d make by selling all the company’s assets
• Perceived value by investors: people’s opinion of how well a company’s going to do in the future

During a recession, the fundamental value of a company changes some and the perceived value changes A LOT.  People worry that the economy won’t recover and forgot that recessions happen periodically. They see their investment balances dropping fast, become terrified, and sell their stocks.

Stock prices continue to drop until people feel comfortable investing again.  This is the best time to buy!  It’s a sale.  

Stock prices in a recession resemble a post-Christmas sale—which are the lowest prices of the year. (When else can you buy a $300 Banana Republic jacket for $15?) Think of a recession as a surprise sale (a cyclical discount on stocks).

If you have extra cash now, buy! If you don’t have cash, get ready for the next major sale. It will happen. We’ve had 4 recessions since 1982 (Dec 2007 – June 2009, March 200 1- Nov 2001, July 1990 – Mar 1991, and July 198 1– Nov 1982).

During the next recession when everyone else is running out of the market, we’ll come in with buckets of cash, buy stocks on sale, and bolster the economy!  Ha, buying during a recession helps you and helps the national and world economy! Call that my community service message for the day.

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Have you been investing during or after the recession? If not, are you thinking about getting in? Share your experience!

My $1,500 Accident!

My recent car accident is a great example of why you need an emergency savings account.  I was riding my bike to work one Friday.  I took my regular route. Traffic was normal.  Nothing was out of the ordinary .  .  . then bam! I got hit by a car, flipped over the car with my bike, and landed on the concrete on top of the bike.

When I woke up, the driver was holding my hand and trembling.  A small circle of people surrounded me.  He said, “Someone call an ambulance!”  Instantly, my first thoughts were, “Sh**, an ambulance is $400 – $500 for a 10-minute ride!  Maybe I can stand up and ride in someone’s car.”   (Yes, those were really my first thoughts.)  I tried to stand but couldn’t move.  I reluctantly sighed to myself, “An ambulance it is . . .”

So far the medical costs have been $1,230! Do you have $1,200 lying around your checking account?  I don’t.

The costs above included my health insurance covering 85% of costs after I met the $200 deductible. (To answer the most asked financial question: No, I can’t sue the driver.)

Those were only the medical costs!  For the next 3 weeks, I was using pain killers, crutches, a neck brace, and a wrist brace.  I looked as bad as I felt and used a few luxuries to ease my suffering.  I took cabs more often and bought lunch and dinners, rather than carry food to work or standup to cook.   I also bought some clothes as a distraction.

So far the accident has cost me $1,512!   Without an emergency savings account, I would have gone into credit card debt.  Medical costs are the #1 reason for bankruptcy in the US.

Emergencies—car accidents, losing your job due to the recession, needing a new set of tires, a flood in your apartment—are surprises.    That’s why you NEED an emergency savings account.  You can start one this week by saving $5, $25, $50, or any amount your can consistently save each month.

What would you do if you had a $1,500 accident?  If you don’t have an emergency savings account, how will you start one?

I’m Back! Car Accident Can’t Hold me Down!

Everyone, thanks for the emails and messages I received! You cheered me up during those first, most painful weeks. I am going to physical therapy now. I’m not 100%, but I’m on the way to a full recovery within the next few months. I now have the strength and energy to comfortably type for a short period and will start posting weekly again!

Got hit by a car, but I’ll be back soon

I wanted to let you know I’m still here.  I was hit by a car while riding my bike.  I flew over the car with the bike, landed on the concrete on my left side, and was taken to George Washington Hospital in an ambulance.  After several x-rays, CT scans, blood tests, etc, it turned out I had lots of bruising and sprains.  I’m wearing neck and wrist casts and using crutches.  I feel lucky.  There was no damage to my head (I can still write witty posts!) nor broken bones.

I’ve been on pain killers and resting.   I’m getting better and will be back to posting soon! Promise!

We meet in an elevator. You’re stoked & ask for book recommendations . . .

We both walk into an elevator, and my name tag says, “Yvette Owo.” Suddenly, you’re excited! You love Financially Fab and meeting me is 2^nd only to meeting Lady Gaga.  (Okay, maybe this is a fantasy of mine.  A girl’s gotta have dreams.) After you get an autograph for yourself, best friend, and future children, you ask for book recommendations.  I recommend the following:

On Personal Finance

If you only read one book on Personal Finance in the next few years, choose one of these:

• Personal Finance for Dummies, by Eric Tyson
  • Provides everything you need to know
• I Will Teach You To be Rich, by Ramit Sethi 
  • Is  an interesting read because of Ramit’s in-your-face attitude  

On Long-Term Investing / Mutual Funds

 If you only read one book, choose any of these:

• The New Coffee House Investor, Bill Schultheis
  • Provides solid advice for your whole financial life in simple language
• Mutual Funds for Dummies, by Eric Tyson    
  • Provides everything you need to know
•  The Little Book of Common Sense Investing, by John Bogle
  •  Explains why you get more return with long-term investing than trying to beat the market

 

On Beating the Market

If you want to beat the market, read all of these books before making the first trade, opening up a brokerage account, or otherwise throwing your cash into a crapshoot.  If you’re not willing to read just 4 books, you should get out of the game. If you still want to beat the market after reading, go for it! Track all your trading costs, losses, and gains.  In 10 years, if made any money, let me know!  I’ll be surprised and happy for you!

 

• Random Walk Down Wall Street, by Burton Malkiel 
  • Explains efficient market theory, which is required knowledge for any serious investor  
•  The New Coffee House Investor, Bill Schultheis
  • Provides holistic investment advice in easy-to-understand language 
•  Unconventional Success: A Fundamental Approach to Personal Investment, by David Swensen
  • Explains his successful asset allocation model
• The Little Book of Common Sense Investing, by John Bogle
  • Explains why you get more return with long-term investing than trying to beat the market

 

 



Losing weight rocks, paying for a new wardrobe doesn’t!

 

Challenge of replacing my wardrobe

From last Feb. to August, I dropped 3 dress sizes.  At first it was easy to transition my wardrobe by pulling out clothes that used to be tight.  After awhile, even those were too big.  I thought, I could spend money and time scouring stores, or I could delay buying new clothes as long as possible.   Then I ran the numbers for buying 2+ months of work clothes while mixing in a few pieces I already owned.

Work Clothes	Price
2 Suits	$           300
7 Dresses	$           350
2 Pairs of pants	$           120
6 Tops	$           150
3 Sweaters	$           120
2 Belts	$             60
Total for work clothes	$       1,100

 

 

 

 

 

$1,100 for 40+ days of fab outfits from BCBG, French Connection, Banana Republic, Marc Jacobs, Ann Taylor, and others designers is a bargain, but that’s still $1,100 gone forever!  And that’s just work clothes. My play wardrobe would be a few hundred more.  Rather than hand over a chunk of cash when I may still drop sizes, I decided to delay shopping.  I’d have more time for fun stuff—like this blog—and money for traveling, where I could show off my new body on vacation.

 

Be creative with styling  

I challenged myself to delay shopping by creating new looks until I ran out of clothes.  I thought it would last a month, a month-and-a-half tops.  Instead it worked for 9 months, from March until November.   

 

Use scarcity to increase creativity  

Instead of buying new clothes, I became more creative with styling, using belts and jackets, and mixed pieces I wouldn’t have dared to before.  I bought a few belts a month ($200 total) in several colors—yellow, black, red, brown, blue—and textures—polished leather, cloth, and satin—to create empire-style dresses or a regular waist line on pants & skirts.   Sometimes, a long, loose skirt became a dress, if I used a wide belt to create an empire waist. Pants with a loose waist looked polished and elegant with a wide belt cinching me in.  I wore suit jackets out dancing on Sat. nights with tube top dresses underneath.   Boyfriend sweaters made conservative work clothes trendier. I saved over $1,000 and got more compliments than before!  Many times I’d go to work thinking, “This outfit will be the last straw.  My manager is going to flip.”  Then I’d get tons of compliments.  Eventually, my team and most of the floor decided I was their resident fashionista. The irony is, avoiding shopping made me more fashionable because it pushed my boundaries and forced creativity.

Then I played around with food scarcity.  For a week, I’d cut all carbs except beans.  I now know hundreds of ways to eat beans (black, garbanzo, light red kidney, cannellini, great northern, etc) with salsa, chicken, fish, Asian sauces, basil, eggs, etc.  I also experimented with shrimp, potatoes, spinach, and much more.  

The scarcity experiments saved me tons of cash and taught me to trust my gut.  Overtime, I got better at pairing diverse items (clothing & food) to create something fabulous!

 —————————————— Your Turn! ——————————————

Have you ever done a scarcity challenge?  Interested in trying a fashion scarcity challenge?  How about going 60 days without shopping and seeing what creativity ignites?  What would you do with all the money and time you save by not shopping?   

 

Why save for retirement while you’re young? To avoid eating cat food in your old age!

Why should you save for retirement while you’re still young? Retirement is far away. A short answer: Save for retirement, so you’re not working at age 81 and eating cat food. That’s not politically correct, but it’s a stark reality.  

  

Save for Retirement to Continue Living Comfortably

 To continue living comfortably after you stop working, you typically need cash in the bank, a spouse supporting you, or your children taking care of you. (Do you really want your kids paying your bills?)

 Don’t expect Social Security to take care of you. My projected annual social security income is $22,000! Read that again. $22,000 per year.  I’m going to live fabulously until the day I die. $22,000 ain’t gonna cut it!

I plan to have a mix of cash and investments so I can travel the world, buy the grandkids presents, and enjoy wine! I don’t want to live great in my youth then suffer when I’m old. I’d rather balance it (called lifestyle balancing) so I’m comfortable all of my life.

Picture Your Lifestyle in Retirement

Developing a picture of the lifestyle you want in retirement makes it real and gives you a more concrete goal. You don’t need to know all the details . . . just, step back and think big picture . . . . How do you want to spend your time? Volunteering? Traveling? Hanging with family? Now, stop reading, and picture your fabulous lifestyle in retirement.

 

Save Enough to Achieve that Lifestyle

Once you have a vision of your fabulous self in retirement, you start saving! If retirement calculators don’t make your eyes glaze over, use one—either online or through your 401K or IRA provider—to see how much you’ll have annually at retirement with your current savings percentage and investment strategy.

 

Use the KISS Principle for Retirement Savings

If a retirement calculator seems overwhelming, which is true for most people, then use the KISS principle (Keep it Simple, Stupid). Experts recommend you save 10 – 15% of your gross income for retirement each year. (When someone asks you how much you make, the number most people give is their gross salary.)

Next time you hear people fretting about how much to save for retirement, feel confident that you’re on the right track by saving 10 – 15% of your gross income. Your stocking away enough money to stay fly even when you’re old.

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What percent of your income do you save for retirement? What other retirement questions do you have? You’re thoughts and questions—not mine—are the most important. What else do you want to know?

 

 

Wall Street Gibberish Sounds like the Adults in Charlie Brown

When you hear that stocks down 20 basis points, emerging markets are up, or oil futures are down, does that mean anything to you?  Daily stock market updates are typically jargon and noise.  To me, they sound like adults talking in the Charlie Brown movie, “wah wah woh wah.”

In addition to all the jargon, Wall Street is constantly spewing noise that tells us to change our investment strategy frequently; invest in energy stocks this week and gold the next or foreign stocks on Tuesday and domestic stocks on Wed.  Again, it sounds like, “wah wah woh wah wah.”

 The truth is that the daily swings of the stock market are irrelevant to most middle class people.  It’s important for people buying and selling stocks every day.  (Hmm, who could that be?  Answer, Wall Street folks.)  Your retirement account should have mutual funds that you hold for 5 – 40 years.  Over the long-term, these swings don’t make a significant impact to the fund.      

Here’s a simple truth: The most solid way to accumulate wealth is not stock investment.  It’s sticking to a holistic financial strategy including:

• Playing good defense:
  • Minimizing your expenses
  • Avoiding consumer debt by
    • Using your savings to pay for large purchases
    • Decreasing your spending to focus on activities that bring the most fulfillment  
• Playing simple offense:
  • Choosing a job you enjoy and get paid for
  • Sticking to a simple investment strategy for your retirement accounts
  • Planning ahead and negotiating on large purchases to minimize costs

Notice I said nothing about day trading, looking for the next hot stock, or other time-wasting activities.  Life is about living!  Unless your idea of a fun Saturday afternoon is day trading or stock research, you should:

1. Develop a holistic financial strategy,
2. Stick to it for several years, and  
3. Make minor tweaks once or twice a year. 

That’s it!  Don’t worry about the daily market swings.  Next time you hear daily financial news, just remember, “wah wah woh wah wah.” 

What does all the financial jargon sound like to you?  Have you ever acted on short-term stock tip?  Has any of it ever helped you?  Do you have a holistic financial strategy? 



How to stick to your New Year’s Resolution!

Did you make a financial New Year’s resolution? If you decided to make a drastic change, how’s it going?

My friend Lisa recently said she’s scaling back to eating out only twice a month.  That’s a drastic change, considering she used to dine out 6 days per week (12 meals), spending about $720/ month. Right now she’s got alcohol, milk, and takeout in her fridge. To cut back, she has to make several lifestyle changes, including preparing dinner, wash dishes, packing lunch the night before, remembering to take her lunch to work, and declining meals with friends she used to eat out with. That’s a lot of change.  (Some of those friend’s won’t the happy about her drastic change.)

I suggested to Lisa that she make gradual changes, scaling back to 5 days per week and saving $120/ month in January.  In February, she can move to 4 days per week, saving $240. She can scale back until she’s dinning out for 1-4 meals per week.  That’s saves $705 – $660 monthly and a whopping, $8,460 – $7,920 yearly—enough for three trips to Italy!  The gradual changes give her time to adjust to cooking, planning for meals, and all the other lifestyle changes required to create a new habit.

Last time you decided to make a drastic financial change, did you stick to it?

Making a large, sudden financial change is hard to maintain—just like fad diets that work for a few days and then leave you eating ice-cream out of the tub. Gradual change is more likely to stick. For example, you resolve to save $200 per month to start your emergency savings account.  It’s far better to save $50/ month for 1 year ($600 total) than to go from zero to $200 in one month and then quit for the rest of the year because the first month was too difficult.

Good personal finance habits are just that, HABITS. A habit is, “an action done on a regular basis; an action performed repeatedly and automatically, usually without awareness.”  The key to keeping financial resolutions—and most major changes—to incorporate them gradually so you can create new habits and replaces old ones.

Which financial New Year’s resolutions did you make? How are they going? Are you incorporating new habits? How?