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Since the credit crunch in the midst of the latest recession, credit card solicitations have seen a significant increase. Unless you’ve opted out, and good luck with that, you’re probably getting junk mail from credit card issuers with invitations to apply for the latest credit card offers.

Don’t get too excited, especially if you have bad credit and are seeing these invitations for the first time. The letter might say you’re pre-approved, but all that means is that you are pre-approved to apply. It’s highly rare that an issuer will run your credit and then send you an invitation to apply. In fact, it’s nearly impossible.

Even if you’re at a bank branch like Wells Fargo and Chase, they could be looking at your account on their computer, and they’ll “notice” you can apply for a new credit card. Even in this case, you need to go through an approval process and could be declined if your credit score isn’t high enough.

Before you waste your time, even if you have good credit, ask yourself these questions before applying for a new credit card.

1. Do I already have enough credit available?

If you already have credit cards, add up your limits. You may all ready have all the credit you need, and if you manage your credit wisely across those cards, you may not need another card.

That being said, having — but not using — more available credit can increase your credit score. Your credit utilization ratio will be more favorable if you maintain the same level of balances on your cards overall while increasing available credit. The same effect, however, can be accomplished by negotiating a higher credit limit with one of your existing cards.

And that approach may be better, because when you do apply for a new credit card, you allow the issuer to do a “hard pull” on your credit, which may negatively affect your credit score. Asking for a higher credit limit on an existing card may also initiate a hard pull, but there’s a chance that it won’t.

Here’s what Capital One says about the process of asking for a credit limit increase:

When you request a credit line increase online or in our automated phone system, our review to determine your eligibility will not impact your credit score. To check your eligibility for an increase, we use the information that we normally receive from the credit bureaus each month. This does not generate an additional inquiry.

If you are unsure, call customer service before requesting an increase.

2. How is my credit score?

It’s a good idea to know two things before you apply for a credit card offer. First, know whether the card is targeted to consumers with excellent credit, good credit, or bad credit. Additionally, know the category in which your credit scores place you. In some cases, if you apply for a card for consumers with excellent credit but you do not have a high enough credit score, the issuer will offer a different version of the card to you, with different interest rates, a low credit limit, or reduced benefits.

In looking at a credit card application recently, I saw a declaimer that explained that the application’s terms pertained to the Visa Signature version of the card, a variety of the card with the most benefits. If the application were not to be approved for the Visa Signature version, the issuer might offer a regular Visa.

The issuers see this “bait and switch” as a better alternative than flatly declining the application, because this way the issuer can steer the customer into a credit card product that is priced according to the customer’s risk category.

Check your credit score before applying for new credit, so you don’t face any surprises. I just use Credit Karma to check my scores from TransUnion and Equifax. This may not be exactly the same score the banks use — usually a FICO score from one of the three credit bureaus — but the exact number isn’t as important as the range. If you check all of your credit reports on a regular basis, and all reports are generally the same, your different scores shouldn’t have much variation.

3. Am I highly disciplined with my spending?

On average, consumers tend to spend more with plastic in their wallet or more electronically than with cash. This is a subconscious effect, so you may not even be aware that it is happening. So unless you are in the habit of conscious spending and tracking your expenses, you may find a new credit card will cause you financial distress in the long run.

Credit cards with rewards are best for people who pay off their entire credit card bill on time every month. If you are disciplined, you might be able to make those cash back rewards or airline miles work for you. Or you may benefit from growing a credit profile with a secured credit card, but again, only with disciplined spending habits.

4. Are the rewards affecting my decision?

Cash back rewards can be a dangerous incentive, and many people believe they have the “hacking skills” necessary to maximize their profits from cards. I’ve used cash back credit cards for a long time while tracking my spending, and I’ve switched to an airline miles card for my primary spending, but I’m not an expert rewards hacker. I don’t spend the effort to buy cash-like products to accrue a large amount of benefits without really spending money.

Credit card issuers know how a small percentage of people use back doors. For the most part, they allow it, but every once in a while, they cut benefits or change the rules, usually without any notice to consumers, and people need to change their approach. Once again, this is a legal bait-and-switch tactic. Entice and attract customers with rewards, and change the value or operation of those rewards at a later date — while the consumer continues using the card as much as possible (generating income for the issuers) to reap what little rewards the issuers offer.

5. Am I desperate?

If you have bad credit, living a middle class life can be frustrating. You’ll have difficulty buying a car without saving up first, and if you want that car to be reliable, you’ll need a lot of money.

You will have difficulty buying a home because purchasing a house without a mortgage is largely unthinkable, especially if you need a house that fits a family. It can be done, of course, usually after years of saving, but that needs to be weighed against quality of life issues.

One reason to apply for a credit card, specifically a secured credit card, is to build a good credit history. It’s easier to qualify for a secured credit card, and if you have bad credit, it’s probably your only option. Many times, secured cards, especially those that are offered through “pre-approved” application mailings, come with annual fees and high interest rates.

That’s the world people with bad credit live in, even if their bad credit is due to no fault of their own, like a deadbeat ex-spouse, a parent who used your name and Social Security number without your knowledge, or an accident not covered by insurance. I’ve had friends with personal experience in all three cases.

Being approved for the right card, and operating that credit card with good behavior like spending only what you can afford to pay off from savings within a month, can help get you on the path for solid financial footing in the future.

Do not apply for a new credit card without self-reflection that involves the above five questions. Credit cards are tools that can help you financially, but if you don’t consider the consequences and how you fit in the relationship between issuer and consumer, you could end up damaging your future in a short amount of time.

It could take the rest of your life to recover from bad financial mistakes involving too much credit, if you recover at all.

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There’s some good news for American taxpayers this year. First of all, it was recently announced that President Obama would not seek a reduction in tax benefits for those who invest in 529 plans for saving for their kids’ education. Even though it is the wealthy who benefit from this tax break, it is still represents a potential for middle class tax savings, and a reduction in benefit was a bad idea.

401(k) plans are the primary retirement savings vehicle for the middle class, particularly as more employers enroll new employees automatically in the plans. And for those who have the ability to maximize their contribution each year, the new calendar year offers an additional opportunity.

In 2014, the IRS did not adjust the maximum contribution from the previous year. But this year, the maximum contribution to retirement accounts, which include 401(k) accounts, 403(b) accounts, most 457 plans, and Thrift Savings Plans, will be $18,000, up $500 from $17,500.

Savers and investors aged 50 or older can take advantage of a catch-up contribution, effectively increasing the limit for those approaching traditional retirement age. In 2015, taxpayers who meet this age-based criterion can contribute an additional $6,000 above the regular maximum of $18,000. As a result, if you are 50 or older, you can contribute a maximum of $24,000 into these tax-advantaged accounts. That’s up from a total of $23,000 in 2014.

The total contribution limit, including employer contributions, has increased from $52,000 to $53,000.

The benefits of a 401(k) plan are designed to be directed primarily at people who most need an incentive to save for retirement. This may help contain the tax benefits within the middle class. A taxpayer who earns more than $265,000 in compensation over the course of 2015 is not eligible to invest in a 401(k) account. That income limit has grown from $260,000 in 2014. That’s a sufficiently high maximum and should cover more than just the middle class.

In 2013, new regulations required 401(k) plan administers to explicitly state in quarterly statements how much investors are paying in fees. Previously, this information was not easy to discover. While you could (and should) look at the various prospectuses in search of management expenses fees or expense ratios, expressed as a percentage of assets, there were at least two obstacles:

  • The expense ratios force you to do your own calculations to determine how much money you’re spending in fees.
  • Not all fees are included in expense ratios. Some funds, like annuity-based mutual funds, don’t have expense ratios but certainly have fees.

To maximize your 401(k) contribution in 2015, spread the $18,000 across the number of paychecks you plan to receive throughout the year. That’s a contribution of $1,500 each month, $750 twice a month, $692 every two weeks, or $346 a week for those age 49 or younger. The calculation for those over 50 who want to max the contribution are $2,000 per month, $1,000 twice a month, $923 every two weeks, or $461 a week.

If your contributions are recorded in the form of percentages, don’t forget to change your contribution to take into account raises and bonuses. If you are expecting your company to match your contributions at some level, if you reach your 401(k) contribution limit before your last paycheck, you may miss out on free money.

Here’s a quick overview of my experience with 401(k) accounts over the past few years, over which time I was employed by a large company in the financial sector, I left that job to work for myself full-time, I sold a business and collected proceeds as income for a few years, and am now back to earning only self-employment income.

Last year, I had the option to contribute part of my self-employment income into an Individual 401(k) plans or a SEP IRA, but I did not do so. Theoretically, I can still choose to invest in a SEP IRA for 2014, so as I prepare my tax return, I’ll determine whether this will be beneficial or not.

In 2013, I was purely self-employed, and with still receiving income as a result of the sale of an asset with installation payments, I won’t qualify for a tax-advantaged retirement plan.

In 2012, I was for about half the year an employee of a company, during which time I faithfully contributed a portion of my income to a 401(k). For the remainder of the year, I have been and will continue to operate this web site as a consultant for that company, and I have not been contributing to a tax-advantaged retirement plan during that time. Assuming no financial tragedies and modest desires, my retirement needs are met, though I’m not sure what I want my retirement to look like.

In 2011, I worked fully for myself. Without an employer, I had no access to a regular 401(k), but I did initiate an Individual 401(k), which follows the same rules. By the end of the year, I expect to have maximized the employee portion of my 401(k) contributions at $16,500 with extra invested for the employer portion.

My 2010 contributions fell short from the maximum by about $700, and a portion of that is due to leaving the company in the middle of December. I received the full company match, a 100% match on the first 4% of my salary that was contributed to the plan, in every pay period.

In 2009, I contributed the maximum $16,500, but I didn’t plan for an extra paycheck at the end of the year, so that last paycheck did not include a contribution to my 401(k). As a result my imperfect calculation, I missed out on a portion of my employer’s matching contribution. Some employers match after taking all contributions for the year into account, but mine contributes on a pay period basis. Any pay period that I did not contribute to my 401(k), the company did not match.

In 2008, I missed the full contribution amount by $1,000. That year, I made several changes to my contribution rate and lost track of what my rate needed to be in order to maximize my contribution.

The following table illustrates the change in 401(k) contribution limits over the past several years.

Year 401(k)
Maximum
Catch-Up
Contribution
Maximum
Allocation
2015 $18,000 $6,000 $53,000
2014 $17,500 $5,500 $52,000
2013 $17,500 $5,500 $51,000
2012 $17,000 $5,500 $50,000
2011 $16,500 $5,500 $49,000
2010 $16,500 $5,500 $49,000
2009 $16,500 $5,500 $49,000
2008 $15,500 $5,000 $46,000

Photo: urban_data

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I can’t claim to be an expert on raising children. In fact, this is one of many, many topics about which I am not an expert. I do not have children of my own, and my observations of my friends and their children are limited. My experience comes from my memory as a child being raised by my parents.

To be honest, I have no idea how my parents managed my development into a somewhat capable adult or what they were thinking at the time, even though I do have a younger brother and had the chance to do a little more observation.

Ron Lieber’s new book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money (Harper, on sale February 3, 2015) will serve as the perfect how-to guide for when I do have children of my own. I will want my offspring to have a well-developed sense of self, including financial issues, long before I did. Maybe I can prevent repetition of some of the mistakes that I lived through, all though sometimes mistakes offer the best opportunities for learning.

Lieber uses his book as an opportunity to encourage parents to start discussions with their children and to guide them in those discussions. In many cases, there are no absolute answers or rules that work for every parent, every child, in every situation. That would be an impossible task, as the financial realities of families wildly, as do children’s developmental processes.

This variety is skillfully woven throughout the book to give readers enough examples and counterexamples to spur reflection and consideration among parents who may not have given money discussions with children much thought. Many of the examples come from Ron Lieber’s community of readers through his column and blog in The New York Times and on Facebook. The author spent a year meeting with many of the families who contacted him to share their experiences, challenges, and decisions.

One anecdote that stuck with me came in a section in which Lieber shared discussions about children who work. I had jobs when I was a teenager, including one retail, but mostly office jobs. These jobs helped me earn a little bit of money, but didn’t really instill much about responsibility. My jobs came during school breaks for the most part, as I believed, as I think my parents did, that education was my priority, and that my “job” was to do well in school.

The author shared a story about a family of nine in Lewiston, Utah, raising 1,800 cows on the family farm. Unlike my life growing up, the children in this family have no time for extracurricular activities.

There is a presumption that [youngest family member Zeb] will work, that his family members will teach him how, and that he will be good at it, quickly. And while none of the boys is a great scholar or a star athlete, their parents operate under the assumption that the ability to perform basic labor is something within every child’s grasp. They know that every boy will grow up to work in the family business, but they’re confident that none of them will be afraid of the effort it takes to succeed someplace else.

The idea of this hard work leads to a discussion elsewhere in the book about the quality of “grit.” Measurements of grit, or how well someone persists, particularly through obstacles, correlates more tightly with direct measures of success than other types of aptitude, like IQ. Allowing children to develop grit through work gives them the ability to handle much more of life as an adult.

An important section of The Opposite of Spoiled focuses on instilling gratitude. Spoiled children show no gratitude for the advantages they have. Lieber offers specific suggestions for dealing with the observations kids have even at an unexpectedly young age. How do you explain socio-economic status to kids who are aware of being rich or being poor through their own observations?

The author points to this research:

[A researcher...] showed 3-year-olds a series of photographs and distinguished between the haves and have-nots. Only half of her subjects thought that the rich and poor people would be friends with each other. Other research has shown that 6-year-olds keep score of which kids have what sorts of possessions and begin to make judgments accordingly. By 11 or so, they’re beginning to assume that social class is related to ambition. Around age 14, they begin to wonder if there is a larger economic system at work that may constrain movement between classes.

It’s safe to say we all know some adults whose attitudes may be stuck at the development level between the ages of 11 and 14. But the book offers great suggestions for addressing issues of class without instilling pity or jealousy.

Lieber also addresses some of the more controversial aspects of child development pertaining to money, allowance and charitable giving.

I don’t read many personal finance books. After a decade of reading some of the best and some of the most laughable, I’ve been kind of burned out by the genre. For the last year, I’ve been selecting my reading carefully. I was initially excited about the opportunity to read Lieber’s latest because I am a fan of his columns in The New York Times, and his articles have often served as inspiration for the topics I’ve covered on Consumerism Commentary.

I’m glad that The Opposite of Spoiled didn’t disappoint. While many readers of Consumerism Commentary have shared their own stories over the years, the concise collection of advice found within The Opposite of Spoiled has offered me new perspectives for raising my future children to be empathetic, understanding, generous, and smart.

Pre-order The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber now, in hardcover or Kindle edition.

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One of the oft repeated mantras in leadership training is to surround yourself with people who understand you and support what you do. This philosophy translates well to people who need emotional support for any endeavor, even if one’s goal is to just keep living. Everybody needs support, and everybody needs to feel that someone is on their side. It’s easy to get overwhelmed by life, but when you have someone you can share your troubles with, someone who is empathetic to you and your situation, you have a strong advantage for survival.

Entrepreneurs and business leaders often find that they have difficulty finding other people who relate to their particular flavor of struggle. And people who coach these entrepreneurs and business leaders believe strongly, and work hard to convince these entrepreneurs and business leaders, that they are unique flowers whose internal processes are not understood by the “average” person. And because the average person doesn’t “get it,” the average person is not in a position to offer constructive feedback.

I’ve been subjected to leadership training that takes this to another level. There is a movement that encourages business leaders an interesting philosophy — to ignore people who disagree, and dismiss these people simply because they don’t “get it,” whatever “it” might be. I unfortunately worked for a boss who took this to the extreme. It’s not hard to do when your organization is strongly focused on a mission that requires an initial leap of faith. The best way to operate an organization like this, particularly in the nonprofit world, is to surround yourself with people who believe in the mission as strongly as you do. If that mission is tied closely to the business leader’s personal values, the result is an organization of people who trust the leader explicitly and implicitly, and are often afraid to offer any dissenting opinions.

This crowd, who motivational speakers encourage you to create as your closest entourage, could be called your “positive posse.” I tried to find anyone who has used that phrase to refer to this concept, but couldn’t quickly find any prior use, so this author is claiming it.

With my business, I’ve done a few things that could have been considered crazy. Ten years ago, I began spending a lot of time building Consumerism Commentary. It became more than just a hobby; it was a job — a job I enjoyed — that was earning money. I thought it could earn me a living some day. This was at a time that there were not a large amount of people earning money from writing on their own website. This was before multi-million dollar blogs, this was before people could earn five million dollars a year from advertising by sharing videos about opening toys on YouTube.

I could have encountered a lot of resistance from people who “get” blogging. Maybe it was just who I was originally surrounding myself, but I never felt that someone didn’t understand what I was doing and see the potential. For me, the idea that the general public can’t understand the struggle of an entrepreneur and his crazy ideas was a myth.

That’s not to say that everyone thought I was making a smart decision regarding how I was spending my time. But they understood it, and they supported me. And I listened. I welcomed other people’s well-considered criticisms. If you don’t, if you shut out opinions of people you trust if they don’t agree with you from the outset, you’re setting yourself up for missing opportunities and making mistakes.

In November 2012, the Republican candidate for President of the United States, Mitt Romney, lost the election. According to reports, the loss blind-sided him. He and his closest advisers were not just optimistic about Romney’s win, but convinced it was the only likely outcome. There may be a number of possible reasons why Romney lost, but what’s important here is why he wrongly believed he would surely win.

Romney’s positive posse shaped his view of the election. The campaign advisers ignored signs that pointed to an impending loss. They focused on goals Romney was likely to achieve in order to build his confidence and personal momentum. In effect, the positive attitude and willful ignorance prevalent among the top advisers shielded him from reality. Aides saw polling results they didn’t necessarily agree with, and blamed the methodology rather than recognizing the situation.

This is a result of the “positive posse” approach. When you have no tolerance for dissent, you encourage the people closest to you to be “yes-men.” If your closest advisers (or for non-politicians, closest friends) are afraid to bring you bad news or identify opportunities for improvement, you will continue to operate without much change or adaptation. Adaptation is one of the single most important factors for long-term success.

By the time I quit my day job to write for Consumerism Commentary full-time, there was no one who would have told me it was a bad idea. I had all ready proven the concept that I could make a living from creating an online publication, and by that time, it wasn’t as crazy an idea it had been years prior. And over the years, most people understood that there was a potential, even if they didn’t believe I was handling the opportunity the best way possible.

When I spoke to those who had ideas that were different than mine, I listened. I considered. I adjusted. The business wouldn’t have succeeded without advice from trusted friends and colleagues who had some suggestions that were different than how I would have handled the business on my own.

For example, I may not have considered pivoting towards a revenue-building approach that focused primarily on affiliate sales. I was happy taking advertisers’ money for banner advertising, but the idea of being paid a fee when readers became customers of a partner made me hesitate. I wasn’t sure if I could write about companies honestly if there were a chance of being paid more for convincing customers to sign up with that company. Eventually, I found a way I could be comfortable with that idea, and ensure that my business continued to operate in line with my values.

But I never would have taken advantage of that opportunity, and I may not have been as financially successful, if I had allowed myself to dismiss those who criticized me as people who just didn’t “get it.” If I limited my business discussions to be only with those who were working in the same way I was, we would probably continue reinforcing each other’s beliefs without growth. This positive posse, devoid of dissent, would have prevented me from realizing the business’s potential.

This doesn’t apply only to business owners and entrepreneurs. If you don’t allow yourself to receive criticism, you will find it more difficult to pay off debt, you may never reach financial independence, and you might not be able to live your life differently.

Years before I founded Consumerism Commentary, I had to start listening to people who disagreed with me. I was fine ignoring speeding tickets and increasing bills, but my world collapsed, and I had to start facing the criticism I had been receiving by those closest to me. I needed to learn to live my life differently. I didn’t want to give up my life in nonprofit education, but the critics were right; it was time for me to try something else, at least for a period of time.

This process hasn’t changed. For the last decade, I’ve written a lot about using discount brokerages and buying low-cost index mutual funds. And that’s still the approach that I recommend for just about everyone. In fact, my father called me up recently to talk about what he should do with his money. I reminded him I am not a financial planner or adviser, but he trusted me anyway. I told him that a mix of stock and bond index mutual funds is still what I would do.

Despite this philosophy, a friend who (through marriage) has considerably more money than I do pointed out that even those small Vanguard management fees add up in a large portfolio, and you can beat those management fees by setting up trades of individual stocks that can imitate the index funds. So over the last month or so, I’ve been looking into changing the way I manage my own money.

I wouldn’t have explored different investment options if I were to offhandedly dismiss everyone who doesn’t believe that index funds are the best approach to investing every time for everyone. It would be easy to ignore these dissenters because on a professional level I deal almost exclusively with people who do believe the same thing I’ve been writing about for more than a decade.

Seth Godin, usually quoted by people who tend not to take dissenting opinions well, recently offered the following:

It’s quite natural to be defensive in the face of criticism. After all, the critic is often someone with an agenda that’s different from yours. But advice, solicited advice from a well-meaning and insightful expert? If you confuse that with criticism, you’ll leave a lot of wisdom on the table. Here’s a simple way to process advice: Try it on.

Do you have a positive posse? How do you deal with people who vocally disagree with your choices?

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Who Benefits From 529 Plans, the Middle Class or the Wealthy?

by Luke Landes
Child in college

When I first began reading that President Obama was considering reducing the tax benefits for savers who make use of 529 plans and other education savings accounts to reduce the cost of education-related expenses, I was surprised. It has been my understanding that 529 plans, all though I do not have one, are intended to ... Continue reading this article…

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New Jersey Business Filing Services: Scam or Not?

by Luke Landes
New Jersey Business Filing Services

Here’s an idea for all you people who like to “hustle” to come up with ways to earn extra income. This has happened to me many times, and it comes it many forms. So far, I haven’t fallen for what I think is at worst a scam, but sometimes, one could argue, is a legitimate ... Continue reading this article…

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Prize-Linked Savings: Win Money For Opening a Savings Account

by Luke Landes
Win to Save - Prize-Linked Savings

Since December, federal banks and credit unions have been allowed to offer savings accounts that include a raffle element, after some states have allowed accounts like these for some time. The goal of these lottery-like accounts is to encourage more people to save money, particularly those households with low and moderate incomes. This was the ... Continue reading this article…

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Is It Time to Invest in Oil? Here’s What I Did.

by Luke Landes
Standard Oil

At the beginning of the year, I joined another investing challenge. This was sponsored by Motif Investing, who provided me and several other financial writers and bloggers $500 to invest in strategies each of us would choose. Like last year’s Grow Your Dough competition, this is a relatively short time horizon for me. In 2014, ... Continue reading this article…

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