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Personal Finance

There are so many different ways to organize, prioritize, and classify your tasks and responsibilities. You’d probably need a couple years just to sort through all of them on your own. You can have an organizer on your computer, your phone, in your pocket, or a notebook. If you’re short of paper, you can just scribble on your hand.

Even with all of the new ways to get organized, the most effective tool for me is still the simple, classic “To Do” list. My to-do list is nothing fancy, just a list of things that I need to accomplish. For some reason, though, this list motivates me to be smart with my time and get things done.

One of the reasons these lists are so effective is because they help you define what needs to be done. One of my favorite things to put at the top of a to-do list is “start a to-do list” — that way I can cross something out right away! Nothing like building momentum right off the bat.

In fact, checklists are so powerful that they inspired an excellent book, The Checklist Manifesto, by Atul Gawande.

This principle can be applied in any aspect of life. You can use a to-do list at work, at home, or even in relation to different goals you have. My wife and I even have a sort of ‘Financial To-Do List,’ covering our money goals. It has helped us get started and avoid wasting time.

A to-do list is particularly power when it comes to finances.

The Benefits of a Financial Checklist

Stay Organized

The list helps us know what bills need to be paid and when they’re due, what major tasks or purchases we might have coming up, and — perhaps most importantly — when we’re going to be paid. A well-defined to-do list answers all of the questions about what needs to be done and when. This helps you use your time more effectively.

Get More Done

Because we’re using our time more effectively, we can use time in more productive ways. For example, we might have spent hours poring over our budget or trying to find the electric bill. Instead, our newfound organization allows us to avoid these little time wasters and streamlines the process. We can get back to making money, fine-tuning our savings strategies, and looking for new ways to cut back. Or, we can quit thinking about money altogether and just go enjoy ourselves for a bit.

Meet Your Goals

We have all sorts of tasks on our list, both big and small. An easy way to design a strategy like this (if you’re using a word processing program or a notebook) is to use a list:

  • Big Goal 1
  • Little Goal A
  • Little Goal B
  • Big Goal 2

For example, if your big goal is to save $1,000 for your emergency fund, your To-Do list could look like this:

  • Save $1,000 Emergency Fund
  • Save $75 from each bi-weekly paycheck for 4 months ($600)
  • Take lunch to work 2/wk for 4 months and add savings ($25/wk) to emergency fund

See how easy that is? Now you’ve got a goal, and you know exactly what you need to do for it! Of course, you can substitute in anything you like.

The beauty of these lists is that they are completely scalable — that is, they grow with you. If you finish your emergency savings goal, you can just start your next goal: “Pay off car debt” or whatever it is on the next line. Figure out how you’re going to do it, and break the big “to-do” down into smaller tasks. Then, you’re well on your way to leveraging your simple list as an effective financial tool.

The Financial Checklist

Your specific to-do list will depend on your circumstances. That said, here are some Financial Checklist ideas to get you started:

Money Management Checklist

  • Create a budget
  • Compare your budget to actual spending
  • Balance your checkbook
  • Balance your credit card account
  • Conduct a spending audit

Credit & Debt Checklist

  • Check your credit score (here’s how)
  • Check your credit report for errors
  • Refinance credit card debt to 0% (here are current 0% offers)
  • Consider refinancing school loans
  • Consider refinancing a mortgage
  • Use the debt avalanche to pay down your debt

Banking & Credit Cards

  • Eliminate checking account fees
  • Confirm that your savings account offers a high yield (here are some options)
  • Set up direct deposit
  • Make sure your credit cards pay excellent rewards (here are our favorite cash back cards)

Investing

  • Check the fees of your investments
  • Confirm your asset allocation aligns with your investment goals
  • Rebalance your portfolio
  • Max out your 401k
  • Max out your IRA
  • Consider an HSA if you have a high deductible insurance plan

Tools

You don’t need anything special to start a to-do list. You can put it on a piece of paper in your wallet, a whiteboard in your kitchen, or keep it on your phone or computer. The “Financial To-Do” list is a completely customizable, easy-to-use money (and life) tool for anyone.

That being said, there is one free tool worth considering: Asana. Asana is a free online tool that tracks tasks. It allows you to create a team and assign tasks to team members. For couples, it can be a great way to share, save, delegate, and organize information on anything.

There are several reasons why Asana is perfect for a financial checklist:

  • It’s free
  • It’s easy to use
  • Tasks can be scheduled to recur on a regular basis (e.g., rebalance your investments once a year)
  • You can attach spreadsheets and other files to a task
  • You can leave comments for each task, perfect for communicating with your significant other

However you approach a Financial Checklist, and whatever tools you use, it can be a great way to improve your finances over the next year.

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If you are a homeowner or have looked at buying a home in the near future, you probably know all about conforming loans. While the limits for these types of loans have remained stagnant for the past decade, steady increases in the housing marking have prompted this ceiling to rise for the first time since 2006. Beginning next year, a wider range of borrowers will now be able to access these types of loans. Rather than being limited to $417,000, conforming loans will now have an increased limit of $424,100 in 2017.

What is a Conforming Loan?

In the United States, mortgage loans are categorized based on whether they do, or do not, conform to the standards set for by Fannie Mae and Freddie Mac. One of these standards is the cost of the home. In order for a mortgage to be considered “conforming” – and be eligible for lower interest rates – it needs to be below the conforming loan limit.

Until this new change was announced for 2017, the conforming loan limit was set at $417,000 for many years. While a jump up to $424,100 isn’t an astronomical difference, it opens the homebuying door to many people who wouldn’t have otherwise been able to qualify for a lower risk, conforming loan.

If you want to buy a home that crosses this conforming limit threshold, your loan is considered non-conforming or jumbo. While these loans are certainly still available, they are considered much riskier to lenders and therefore are harder to obtain. Also, they typically involve higher down payments and a more intense scrutinization of your credit history and/or income. Because of this, they are seen more often with luxury homes, investment properties, or retail spaces.

Conforming loan limits vary by county, as it is relative to the cost of living in that area. The Federal Housing Administration is responsible for setting the national conforming loan limit (which is what will be increased for 2017), but some counties are deemed eve higher cost. As such, they have special higher limits.

In my county, for instance, the conforming loan limit is at the absolute max of $636,150 —  a whopping $212,050 above the standard national limit. Then again, the cost of living where I live is astronomical (Washington, DC area) and home prices stay high, so it makes sense that certain counties are able to get higher loans. If you want to check the conforming loan limits in your own county, Bankrate has a great chart that you can view.

conforming-map

What Does the Increased Limit Mean for Me?

If you are looking at buying a home that was toeing the $420,000 range, this increase may mean the difference between a basic loan and a jumbo loan for you. That equates to a lower down payment, greater chance of approval, and less headache.

Planning to buy your home with a VA loan? You would be obligated to purchase within the conforming limits of your county. A jumbo loan isn’t even an option with these (and other) government-backed mortgages, so the increase may open a few extra doors while finding the home of your dreams.

Why the Increase?

It’s a great indicator of the health and growth of our country’s housing market, that the limit is rising. After the US housing crash in 2007-2008, home costs are on the rise and expected to continue to grow. This is great news for our economy and for anyone whose money is invested in real estate, whether that be their home, rental properties, REITs, etc.

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While the cost of your home isn’t the only limiting factor between your mortgage being “conforming” or “non-conforming,” it’s a big part of it. Non-conforming, or jumbo, mortgages are harder to obtain and often involve more stringent credit/income guidelines, an intense application process, and higher down payments.

If you’re looking at a government-backed mortgage of any kind, you will need to stay within the conforming mortgage loan limits set forth by the FHA. Beginning in 2017, you’ll get a little extra wiggle room. Be sure to check for the actual limit in your county, especially if you live in a high cost area, and happy buying!

Have you ever had to walk away from a dream home because it would have meant a non-conforming loan?

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At some point in your life, you’ve talked about your credit score. In fact, you’ve probably talked about it many, many times. What it is, how to improve it, how much you paid to get it… But what if I told you that “it” is really just one of dozens of potential scores out there, all based on your credit history?

That’s right: you don’t have just one credit score.

The variance in your score can depend on when you acquire your score, who you choose to calculate your score, and even what you want to do with your score (get an auto loan or bankcard, for example). Some lenders may use a standard scoring model, but alter the formula to suit their lending needs. Others may even take two or more scores and create an average. So you see, the results are almost endless.

Why Do You Have a Credit Score Anyway?

Credit scores are used by lenders as a way to determine your creditworthiness. Essentially, they want to know: how likely are you to pay back your debts, if they were to lend you some money in the form of a mortgage, car loan, or line of credit?

Resource: How to Get Your Credit Score for Free

This is calculated using a number of historical predictors. How long have you held lines of credit? Have you ever paid late and, if so, just how late were you? How much available credit have other lenders given you and, of that, how much have you already used up? How often do you apply for new credit?

While these may not be completely perfect ways of deciding whether you’ll pay your debts in a timely fashion, most lenders seem to think that they’re a good place to start.

Different lenders look at different scoring models, depending on what they deem to be the most important determining factor. Since each scoring model is weighted differently and has a unique range, they can all tell a different story.

The Main Scores

While there are dozens of credit scores that could be created based on your unique credit history, there are a couple main players in the game. These are FICO® and VantageScore.

FICO®, short for the Fair Isaac Corporation, has been the most trusted name in credit scoring for almost three decades. They have released nine different scoring versions thus far, as well as industry-specific scoring models such as Auto and Bankcard. Their FICO® 8 formula is by far the most popular and most utilized version around. They have released a newer version, the FICO® Score 9. However, the vast majority of lenders still seem to prefer the version 8, at least for the time being.

The other big fish in the credit score pond is VantageScore.  They have released three versions to date, currently on VantageScore 3.0.  As with FICO®, they also offer industry-specific scoring formulas and, as with FICO® again, lenders may choose to utilize their earlier models when calculating your credit score.

The Small Fish

As mentioned, each of the two companies above also offer industry-specific models, in addition to their basic scoring calculations. VantageScore and FICO® have special calculations for things like auto loans or if you’re seeking a new bank credit card, which are different from their standard models.

Learn More: Manage Your Finances with Personal Capital

You also have unique calculations that are created by each of the three credit reporting bureaus: Experian, Equifax, and TransUnion. Since some lenders will only report credit-related items (such as late payments, inquiries, and collections) to one or two bureaus, your history can vary greatly between the three. Your report — and therefore, your score — may be entirely different between each of the bureaus, simply because your lenders are reporting selectively.

This is also why it is important to obtain all three credit reports at least once a year (this is free!). That way, you can ensure that there are no errors being reporting to one of the bureaus, which you may have missed if you only chose to get one of the other bureaus’ reports.

Why Are They So Different?

What makes all of these scores so very different from one another, even if they receive the same information? Well, it all comes down to what they deem to be most important.

Take the FICO 8 compared with the newer FICO Score 9, for example. Even though the FICO 8 is expected to remain the most popular model for at least a while longer, the FICO 9 would actually benefit most consumers more.

This is because the FICO 9 takes into consideration things that are issues among Americans today. For example, student loan debt combined with rising housing costs and a tough job economy mean that we have more adults renting homes than ever. So, on the new FICO® scoring model, it will take into account rental payment history (if your landlord chooses to report it).

We also live in a time when 26% of Americans say they’ve had trouble paying medical bills in the past year, to the extent of being detrimental to their personal finances. If a patient cannot pay an unexpected medical charge right away, these bills will often get sent to collections. Even if they end up paying this bill soon thereafter, it will still remain on their credit history as a negative report – for seven years!

Related: The Correct Way to Pay Off Personal Debt

Well, the new FICO® takes this into account. It prefers to take the common sense view that medical bills are rarely planned. Even if a person is late to pay them off, it probably doesn’t indicate that they are not creditworthy. Hospital bills can be sudden and unavoidable – a heart attack is very different from an unpaid Best Buy credit card or a repossessed convertible.  So, the FICO 9 actually does not factor any paid collection accounts into its scoring model.

The Difference Between Bad Credit and Good Credit

We all know the general rule: bad credit = higher interest rates, secured credit cards, denied lines of credit, etc. Meanwhile, good credit = low (or 0%) interest rates, credit limits out the wazoo, credit cards with excellent perks. Obviously, the goal should be to improve your credit as much as possible.

So, what exactly qualifies as “good” or “bad” credit? Well, that depends on exactly which scoring model you use, but there is a general range. Since FICO is the most widely referenced credit score out there, it makes for a good standard.

The FICO score ranges anywhere from 300 to 850, with the lower scores being the worst. Where you fall in that range will be determined by your open accounts, debts, and payment histories, among others. It will also depend on whether your lender pulls the FICO version 8 or 9. Either way, your score will be classified as Bad, Poor, Fair, Good, and Excellent. While the guideline below exists, keep in mine that some lenders may even set their own ranges, and decide what they deem to be “good” or “bad” credit. But in general:

fico

As mentioned above, this is the range for basic FICO scores (300 to 850). But some of the other companies out there choose to alter this range slightly in either direction. Even FICO has a different score range for its industry-specific models, which extends from 250 to 900. This can affect how different scores are actually categorized (bad, good, etc.), so keep that in mind when pulling your own. Here are a few of the more common calculation ranges:

ranges

How Do I Watch My Score?

As I’ve mentioned, choosing different companies will result in a different credit score. This is why, if you’re looking to watch your score over time, you should pick one or two scores. Then, only track those. Don’t compare between other models, just simply track the one (or two) that you pick. (Personally, I prefer tracking my free score through Credit Sesame, as well as one directly from Equifax.)

You have the issue of each model using a slightly different calculation. The possibility of each credit bureau receiving slightly different information, from which they base their score. Oh, and lenders creating their own unique calculations or simply averaging scores.

On top of that, though, your score can also fluctuate depending on when you check it. Since credit utilization is a nice chunk of each scoring model, the score calculated can be different based on where in your credit card cycle you may be.

Do you rack up the charges each month to earn cash back rewards, but pay it off in full after each billing cycle? If so, you’re still being smart about your credit. However, if you check your credit score at a time when you’re using maybe 70 or 80% of your credit limit (right before a billing cycle closes), it will be much different than if you check it right after paying a statement balance in full (with a 0% utilization).

In Summary

So, now you know that when you talk about your “credit score,” you actually mean any one of dozens of potential scores, all based on your credit history. While you can’t track every credit score that’s out there, you can pick one or two. Then, track and keep a close eye on them over time. This will be a good barometer for you as to how your credit is doing as you go along.

Ouch… 10 Purchases That Can Actually Harm Your Credit

You also can’t choose which of these numerous score options a lender will pull. So, your best bet is to try to improve your credit in as many ways as possible. Pay your bills on time, try to use less than 30% of your available credit, don’t hold balances on credit cards, increase your credit limits, and be cognizant of the number of inquiries you receive in a given year.

That way, no matter which score you — or your lender — choose to pull, you’ll be good to go!

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The low interest rates offered by even the highest-yield savings and money market accounts are disappointing for savers. Even as the Fed starts to raise rates, savings account yields haven’t budged. So, do we just give up the idea of earning anything on our savings?

cd-ladder

Well, not necessarily. One alternative is to create what’s called a CD Ladder.

If you don’t want to tie your short-term cash in a riskier investment, you can consider certificates of deposit (CDs). Typically, CDs carry penalties if you withdraw your cash before they mature. In other words, you will want to invest in a CD designated with a length of time that represents when you would like to get your money back (plus interest). If you need to liquidate the CD early, a bank may take away some or all of the interest that has accrued since the time of the deposit.

In addition, the longer the CD is held, the higher the interest rate you’ll earn. A 5-year CD, for example, will pay a much higher yield than a 12-month CD. The downside, of course, is that you are much more likely to liquidate a 5-year CD in an emergency, losing money to the penalty most banks charge for early withdrawals.

By using a CD ladder, however, you can get the higher rates that accompany longer terms, while also reducing the risk that you’ll need to liquidate a CD before it matures.

So, how does it work?

The strategy is simple. You will initially buy a number of CDs, all with staggered maturity dates. Every few months, one of the CDs will mature and you can then roll that cash into a new CD (or use the cash for your short-term expense needs). Eventually, you will only need to buy CDs with the longest maturities, but the constant maturation of certificates will continue. This provides you with a rolling source of interest and/or principal, which you can use or reinvest depending on your finances at the time.

The process consists of two phases. For this example, we’ll use the latest rates from online banks, which often do not have a minimum balance requirement.

Setting up the CD Ladder

These are the CD products and interest rates we will be dealing with. These are example rates, so check with your bank to determine the interest you’ll earn.

Duration APY
3 Month 0.30%
6 Month 0.60%
9 Month 0.64%
12 Month 1.05%
2 Year 1.30%
3 Year 1.50%
4 Year 1.40%
5 Year 1.65%

We can use this combination of maturities to create a ladder that provides us with a roll-over, or a chance to withdraw part of the cash, every three months. During Phase 1, this will require a combination. By Phase 2, though, all CDs will be of the 5-year maturity, which usually offers the highest interest rates. Remember that five years is as long as you want to go with the CD ladder. If you have funds that you can afford to part with for more than five years, you should look at investing them in a slightly riskier (and more lucrative) investment.

Alright, let’s get started. Assume that we have $10,000 that we’d like to begin rolling into certificates of deposit. Since the longest we want to go is five years, we can split this evenly over time at $2,000 per year. Our shortest maturity is three months, so we can tackle this in terms of $500 a quarter.

In the first phase, start on day zero by buying CDs with the following maturities:

  • $500 in the 3 month CD
  • $500 in the 6 month CD
  • $500 in the 9 month CD
  • $2,000 in the 12 month CD
  • $2,000 in the 2 year CD
  • $2,000 in the 3 year CD
  • $2,000 in the 4 year CD
  • $500 in the 5 year CD

At the end of the each of the first three quarters, withdraw each quarter’s $500 plus interest and use the funds to buy new 5 year CDs. For the sake of the example, we’ll withdraw the interest and place it in another bank account to use as income. To make more of your money, you should “reinvest” your interest each quarter.

Watch out for automatic renewal. At Ally Bank, for example, CDs are automatically renewed for the same duration when they mature. During this stage, you will need to be proactive to withdraw the funds at maturity and use them to buy the next appropriate CD.

After one year of doing the above, this is what we have:

  • $2,000 maturing today (original 12 month CD)
  • $2,000 maturing in one year (original 2 year CD)
  • $2,000 maturing in two years
  • $2,000 maturing in three years
  • $500 maturing in four years
  • $500 maturing in four years, three months
  • $500 maturing in four years, six months
  • $500 maturing in four years, nine months

With the $2,000 maturing today, buy:

  • $500 in the 3 month CD
  • $500 in the 6 month CD
  • $500 in the 9 month CD
  • $500 in the 5 year CD

Do the same with the $2,000 that matures each year until you have a total of 20 CDs, each maturing every quarter for the next five years. Once this process is complete, you can allow the automatic renewals to take effect, except for when you need to withdraw your money.

Drawbacks of the CD ladder

As long as rates for long-term CDs remain higher than short-term CDs — as they do most of the time — you may notice something. This method, in fact, results in earning less than simply investing your entire $10,000 in a 5 year CD. So, why would you go this route?

It’s because the CD ladder provides you some protection against losing interest if you need to withdraw your funds early. At Ally Bank, the penalty is not significant. This bank will charge you the amount of three months’ interest if you withdraw a CD with a maturity of 12 months or less. They’ll also charge 6 months’ interest if you withdraw a CD with a maturity of longer than 12 months.

Another possibility to consider is that you might earn more interest in a high-yield savings account than you would in a short-term CD. When this is the case, use a specially designated savings account rather than the short-term CDs.

We could have made this process easier by setting up a ladder that results in a turnover of $2,000 once a year rather than $500 every quarter. However, this method allows you to better decrease the possibility of losing interest. This is because you will always be able to access a portion of your investment within three months.

In combination with a savings account, which is liquid at all times, you can earn consistently higher interest rates with less risk than using five-year CDs that mature only once a year.

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Which Credit Card Should Be Your First?

by Aliyyah Camp
first-cc

Getting your first credit card is a significant financial milestone. Maybe you’re a college student jumping into personal finance for the first time. Or maybe you’ve just never had a reason to get a credit card before. Regardless, you may be overwhelmed with all the options that are out there. When it comes to getting […]

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How One Cafe is Changing Financial Wellness for Chicagoans

by Michelle Dash

Last week, I walked into a hip coffee shop nestled between Ann Taylor Loft and Urban Outfitters. Located in a family-friendly Chicago neighborhood on a cheerful, bustling street, the cafe didn’t appear to be anything other than typical. However, I soon learned that Next Door Cafe was offering a lot more than your run-of-the-mill espresso. […]

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A Review of the Personal Capital Financial Advisory Dashboard

by Kevin Mercadante
percap-dash

Looking for a way to simplify how you manage your finances, from your spending to your credit cards to your investments? Personal Capital’s financial dashboard may be just the tool for you. This all-around financial management tool is easy to use, tracks all of your financial information, and offers investment advising, to boot. The free […]

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How to Budget for Annual Expenses

by Derek Brameyer
budgeting-annual

Certain expenses can sneak up on you, especially if you don’t run into them too often. For example, a new passport costs $110, but renewal only comes around once every 10 years. Other recurring bills like property taxes, car registration, and insurance payments can also make an unexpected dent in your wallet when they pop […]

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Fidelity Study Finds Millennials are Moving Back Home in Droves

by Stephanie Colestock
milennials-1

Ah, millennials. They are the first generation to grow up with iPhones, FaceTime, and GPS apps. Most of their banking is done online and, thanks to Amazon, the majority of web purchases arrive at their doorstep within 2 business days. They hit the generational jackpot when it comes to convenience and ease, it would seem. […]

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Why Lending Rates Can’t Stay Low Forever

by Richard Barrington

The Federal Reserve sure gets a lot of media attention. And yes, the discussion of when and if the Fed is going to raise interest rates can get a little tedious, but it still probably deserves some of your attention because interest rates are woven so deeply into the fabric of household finances. The Fed […]

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