Credit Improvement Lessons

I’ve learned many things during my credit improvement journey that I would like to share.  By reading this blog post I hope that knowledge will help you on your credit improvement journey.

• For couples, the path to better credit can and should be a shared adventure
• Discussions with you partner can be challenging! (But worth it.)
• There are no quick fixes, except, perhaps for one
• It feels liberating to get reduce your debt burden

My newest learning are largely about the emotions of finance. Whether you are in a relationship or not, money, credit, debt, personal finance, and even wealth management is an emotional process.

When it comes to finance I am extremely logical, almost like a Vulcan.  My wife’s financial personality is more emotional, perhaps like a Romulan’s.  If you don’t relate to the Star Trek references, perhaps you can relate to “Men Are from Mars, Women Are from Venus.”  I’m not saying that all men are less emotional about money, or that all women are more so.  I have seen couples where the roles are reversed.

Either way, it is rare that a couple has little emotion about money.  We all have our hangups, and some are financial.

Now, if you are currently single, I can relate too.  When I was single, I had impeccable credit and finances. I was also lonely.  I went on occasional dates, and I turned off some first dates when I picked them up in my 15-year old Saturn.  I could have afforded a brand new car, but I was too young for that to be in my financial best interest.  Believe me, you are better off without someone who complains about your car being too old!

When I finally met the right woman, my finances remained impeccable, but hers were different.  I would say that about half of our fights over the years have been about money, and that ratio became higher after we got married. My number one lesson about money and love is:

Talking about money is important, listening about money is doubly so. Knowing when to talk, when to listen, and when to postpone the money conversations is critical. Patience is better than pushiness. Your partner is likely listening — it may just take them a few days to process what you are saying.

I realize this post has focused on money and relationships.  When you are single, financial strength leads to self confidence, which leads to not being single (however be choosy… pick someone kind and mostly compatible). When you are in a relationship, realize that talking about money means listening.  If you communicate with patience and honesty you will have fewer arguments and better finances!

I realize I left a teaser at the top. What is the one quick way to improve your credit score?  Simple: pay down your balances, if you can. (And avoid increasing them with dogged determination).

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Credit Score Challenge

My previous several posts have described a credit card experiment I started last August — about 8 months ago.  During 2014 I went from 2 cards to 5 and tripled my available credit.  Instead of paying off about $12,000 in business debt, I transferred it to a card with zero-transfer fee and an introductory rate of 0% for 15 months.

On thing I learned is that the credit-score simulators I used were pretty inaccurate. My score dipped, but over 8 months has recovered all but 10 points.  It tends to keep ticking up about 2 points per month — presumably because my “age of credit history” — the average age of my credit cards, really — gets a month older each month (obviously).

I have all of my cards on auto pay.  I have all but my “balance transfer” card set to pay the full balance every month.  Thus I never pay interest or finance charges.  For the “balance transfer” card, I have auto-pay set up to pay the minimum statement balance. On this card there is 0% APR on balance transfers until September. This card just sits in a drawer.  I will pay it off in full in September.  Until then I will continue to enjoy 0% interest.

I’ve benefited by my choice of cards.  It may be a small thing, but 1.5% cash back adds up after a while.  And 5% cash back on “rotating categories” can be nice depending on the categories.  I almost always simply apply the cash back rewards to my current balance.  Logging on to check my cash back is also a good incentive to review my cards for any suspicious charges.

I also have credit monitoring that double-checks for charges or other activity that may indicate “identity theft”, or simply errors like being double-charged for a purchase. Personal diligence is the first line of defense against ID theft, and anything like cash-back rewards that makes it fun to log into your account means you have a better chance of catching ID theft early.

I’ve read that credit card fraud often starts with small charges.  The criminal is just checking to see if you are vigilant or lazy in your credit monitoring.  If you catch these small charges quickly and get them reversed/cancelled you are likely avoiding big fraudulent charges later.

I hope you found these credit score articles useful.  Best of luck in your credit score journey.  And please feel free to shared your credit stories (or questions) by leaving a comment.

Credit Card Experiments, Continued

Quick Credit Score Update

Both credit score predictors were wrong.  One predicted a small drop (about 3 points) the other a small gain (again, about 3 points).  Instead my score dropped from 735 to 724 — 11 points.  However, two months later, it bounced back to 733, roughly what I expected.

I anticipate, that with continued paying of my full balance due every month, except on my one zero-interest, balance-transfer card, that my scores will gradually increase.  I will provide occasional updates as developments occur.

 

The Credit Score Game Continues

In the last post I wrote about how my wife’s credit score (783) was significantly higher than mine (747).  That just won’t do — I embarked on a credit-score-improvement quest that includes research and experimentation.

The experiment is already paying off in unexpected ways.  I got a $100 bonus and began using a 1.5% cash-back Quicksilver card as my day-to-day card.  This a small upgrade from my 1% cash-back card.  I also convinced my wife to get a Citi Double Cash Back card for most of our recurring monthly expenses that ends up saving us 2%.

I learned more taking with my brother about his credit card management techniques.  It turns out that he and his wife are pretty expert at credit-card savings.  He has various 5% cash-back category cards he uses to buy groceries and gas.  They also have 2% cash-back cards for non-category purchases.  He also uses a neat trick to stretch the 5% grocery purchases further… buying pre-paid gift cards at grocery stores for, say,  Home Depot or Target — effectively getting 5% off of purchases there too!  Financial savvy definitely runs in the family.

Let’s not forget mileage cards too.  My United MileagePlus Explorer Card is the only card I have with an annual fee ($95).  I fly often enough on United that it is worth it to me.  And recently between my wife and I we recently bought 5 tickets with United miles for myself and some family members  (Tip:  if you want to help someone buy a ticket with your miles, don’t pay to transfer your miles to them… instead simply buy the ticket for them with your miles!)

The Credit-Card/Credit-Score Experiment

As expected, getting two new cards temporarily lowered my credit score — from 747 to 728. However, it recovered a bit… to 735. So what did I do… get one last new card… The Chase Freedom Card with a $200 (20,000 point) bonus.

I decided to get a %5 cash-back “rotating-category card.”  It was the $200 bonus that caused me to chose this this particular one. The criteria for collecting the bonus is pretty simple: charge $500 of purchases in the first 3 months.  I view this as purchasing $500 worth of stuff that I would have bought anyhow — Christmas gifts and such — for only $300.

This third new card will probably cause another temporary downward blip on my credit score. What’s important about this last card is that it brings my total credit card limit (amongst all active credit cards) to $61,700.  This means that the debt (see previous post) of approximately $12,000 will get below the critical level of 20% of utilization of available total credit… which should help my credit score in the mid to long term.  In the meantime I am “floating” $12,000 in debt for free at 0% interest for 15 months.

What Next: A Credit-Score Challenge?

My personal challenge is “no more new cards until 2016.”  I’ve had my fun getting 3 new cards that I believe will 1) help my improve my credit score in the long-run, and 2) help me save money (via cash-back programs) on purchases.

Onc challenge will be in keeping some activity on all of my open cards, and earning maximum cash-back while resisting the temptation to overspend just because there is a small reward.  I hope to have a zero balance before the teaser 0% APR rises to some ridiculous level (of, say, 19%).  I will keep you updated here.

Why Exit Corporate America and a Six-Figure Salary?

My employer and I are parting ways after nine and a half years together.  It is an amicable separation, and I wish the [unnamed] technology corporation, and especially my soon-to-be coworkers the very best.  I am happy that the severance package is reasonably generous.

I feel a bit bad for my coworkers because they still face the same aggressive schedules but with about 30 fewer engineers.  However, the company is actively working to reduce headcount, and those left behind almost always bear greater burdens on their lives.  Sixty-hour weeks are not uncommon in the tech industry, and over the years I’ve endured the occasional 100-hour week. When that happens, breakfast, lunch, and dinner is brought in because there is no time to eat otherwise.

There was a time when I didn’t mind fifty- and sixty-hour weeks.  But that was when everything was new, exciting, and fun.  That was when I worked at the “old HP”, where almost anything was possible.  In the beginning I learned something new almost daily, and I love learning.

Here is why this “job separation” feels like a good thing:

1. Severance pay is a nice perk.
2. I believe my best talents are wasted in my current role.
3. There is virtually nothing for me to learn in my current role.
4. The is little chance of me moving to a significantly different role (within the corporation).
5. I will never get rich working for a large corporation, unless I build it myself.
6. Going to work feels like stepping into the Matrix.
7. True creativity is treated like the flu… people avoid it as much as possible.
8. I am willing to bet on myself and my talents!

I am passionate about creativity and I have largely refused to drink the corporate Kool-Aid.  Pretending to be a Kool-Aid drinker is extremely taxing, and feels disingenuous.

Creativity is more habit than raw talent.  Creativity can be exercised and developed, or it can be quashed and stifled.  Creativity is dangerous to boring people and their boring jobs.  In contrast, creativity is energizing to interesting and open-minded people.

I prefer to use my energy to improve the world in my own unique way, and with my own unique, somewhat flamboyant style.  I can relate from repeated managerial feedback that my style is not appreciated by former employer.  My style is friendly, lively, and centered around humor with a touch of sarcasm.  Liveliness, humor, and particularly sarcasm are not appreciated in my former corporate realm.  What passes for humor is so sanitized that any pre-existing wit is sublimed into the corporate HEPA filter of political correctness, anxiety, self-censorship and banality.  That culture is one reason this [unamed] corporation’s advertisements are so uninspired.

I am managing my own company now.  It is a start-up, and it is my passion.  It is being built around disruptive technology — technology that will make waves in the world of investing. Technology that few will understand, but which produces results that almost anyone can appreciate.  The culture of this new company will be based on a simple idea — be bold.

 

 

 

Making Money

When I last updated my “play money” (Crazy Ivan) account info it was worth $25,953.  As of market close yesterday it is worth $28,174.  Equity and ETF positions have changed slightly. Then now include DTN, INTC, IVV, JNK, PBP, SPLV and XLE.   I like all of these positions, however XLE has been a short-term disappointment.  I hold XLE as only a hedge against rising gas prices.

All in all not bad performance for an account valued at $15,784 in October 2005.  (There have been no deposits or withdrawals  during the whole time.)  This is about 11.2% annualized performance.

Top 6 Investment Innovations in Recent Decades

These are my top picks for innovations that most benefit personal investors.

#6:  Decimal pricing.    Do you remember when stocks were priced in fractions?  Like 23 and 3/8?  This was not cool.  Not only was it clunky, but it meant that bid/ask spreads were usually stuck at 1/8 of a dollar per share, or 12.5 cents per share.  Luckily, today most investments are priced in decimals.  Some exceptions include bonds and the interest rates on most mortgages.  How archaic!

#5: Free online investment info.   Information used to largely come in paper form, and cost money.  Or you could pay tons of money for Quotron… really not practical.

#4: Discount online brokers.   My Dad used to pay $50-$100 per stock trade — over the phone with a broker.  Today some of my ETF trades are free, many of my trades average about $1, and my most expensive trades cost $8.

#3: Exchange-Traded Funds (ETFs).  ETFs fix most of the problems with mutual funds such as high(er) expenses and lack of intra-day trading.  ETFs also open up a wide variety of investment options including access to commodities, leveraged funds, and precious metals.

#2: Index investing.  Index investing brings two huge advantages.  First, incredibly low costs.  Second, maximum diversification.  Index investing has, and continues to revolutionize the investing playing field.

#1: 401(k)s (and IRAs).   Named after a once-obscure IRS code, 401(k)s, or 401Ks, offer investors decades of tax-deferred growth opportunity.  IRAs offer a similar advantage.  Finally Roth IRAs offer similar tax-deferral opportunities where the tax benefit is back-loaded.

What Baseball and Finance Share

Baseball before Moneyball

In a word: stats.  Baseball has statics for almost anything of relevance that happens on the field.  Finance has statics like expense ratio, yield, price-to-earnings ratio, total return, alpha, beta, R-squared, Sharpe ratios, and the Greeks (delta, vega, theta, rho)… just to name a few.  I  suspect most of my readers are more familiar with baseball stats like batting average, on-base percentage, slugging percentage, OPS, ERA, K%, BB%, GB, and the like.

Today’s blog will start with the simple concept of batting average.  In baseball batting average is the number of hits divided by the number of official at bats.  Since a typical baseball player can have 400 at bats per baseball season, there is a lot of statistical significance to his batting average for one year.

In contrast, a fund manager could be said to have about 4 at bats per season — one per quarter.  It would take a 100-year career to have as many “at bats” as baseball player has in one.  Even if you decided to count fund performance on a monthly basis, it would take 25 years to match a baseball season’s worth of data.

The most common financial definition of batting average counts a hit as outperforming the market (say the S&P 500) over a given time period, say 3 months.   An out is under-performing the market.  Generally a .500 batting average is analogous to the the Mendoza line in baseball.  Sadly, many fund managers and financial planners bat below .500.   And often those that do exceed .500 get there by early luck… luck which generally fades (back below .500) with time.

Just like in baseball batting average is not the most useful static in finance.  OPS (on base plus slugging percentage) is probably a better financial stat… if it existed.  Instead financial stats like Sharpe Ratio and alpha fulfill a similar role of financial performance measurement.  The problem with all these financial stats for measuring fund managers is there are simply not enough “plate appearances” to reliably measure a fund manager’s performance until his or her career is almost over!   It is only after a long financial career that the difference between skill and luck can be accurately sorted out… a bit late I’d say for investors looking to pick fund or fund managers.

There is a factor other than stats that financial and baseball matter share.  In a recent conversation someone mentioned that baseball is the only major sport where the player scores [directly].  In other words the runner himself (herself) scores by getting safely to home plate.   Basketball, football, and hockey require an object (ball or puck) to cross a threshold.  Football requires a ball + a player to score a touchdown, but a field goal does not directly require a player to fly through the uprights!  Only in baseball does the player himself score a run.

This analogy can be extended to the idea that the investor herself can be the only thing that matters (that scores).  At the end of the day it the investor who determines how successful she is at meeting her financial goals.  The Sabermetrics of finance may help her get there, but ultimately it is the investor herself who has a winning, losing, or World-Series-Championship financial season.

Entrepreneur in Training

Walking to the Rockies game yesterday, I was struck by the bustling entrepreneurial spirit on display.  From the myriad pop-up game-day parking lots (ranging from $25 – $40 per spot), to the ticket sellers (“I buy tickets”, means “I sell tickets”), to the independent street vendors outside the ballpark marketing peanuts and beverages for half the in-ballpark price.

I have been an entrepreneur in training for most of my life.  For much of that time I didn’t associate the term entrepreneur with what I was doing, nor would I have been able to spell it.  Yet there were several entrepreneurial things I did even before graduating from high school.

• Ran a paper-route (at age 12)
• Door-to-door newspaper sales.  To get more revenue and “signing bonuses”
• Picked up odd jobs to make a few bucks.  Jobs like fence painting, baby sitting & lawn mowing
• Traded collectible cards… for fun and for profit
• Built a “sluice-box” and panned for gold

In college I did even more.  I was trading and auctioning collectible cards via Usenet and the Web… in addition to trading face-to-face.  I found that trading up (trading several lower-value cards for one or two high-value cards) was my most lucrative strategy for making money.  I had to give up my personal collector’s mindset; to be willing to break up my collections when good deals became available.    I learned to put together targeted, marketable, ready-to-use (turnkey) sets in order persuade folks to part with one of their rare, sought-after cards.  As I got more market savvy, I learned to trade high convenience for high value.  This helped hone my fledgling negotiation skills.

I built up a reputation as a trustworthy vendor/trader who represented the quality of my cards honestly, who mailed them promptly, and packaged them carefully so they arrived in good condition.  I was doing this before anyone ever heard of eBay.

In college, I developed a software product called Visual Math 3D.  Looking through my notes, the proposed company structure was:

EngimaSoft, a division of Paradigm Software, a branch of Millennium Corp.

No shortage of boldness there!  I see now that others have grabbed most of these names.  Good for them, they are good names.

Visual Math 3D had a logo and marketing pitch for the cover of the box.  Unfortunately, I had too much school work (and school play) to bring the software to market.  Had I been more business-savvy at the time I would have brought in one or two partners to help market the product.  Who knows… it could have grown into a competitor of Mathematica, AutoCAD, or Excel — it had aspects of all three.

I continue to be an entrepreneur in training.  I’ve learned a few things.

1. Business cards:  I have business cards now! 🙂
2. Smile, listen, and mingle.
3. Listen to feedback.
4. Keep your sales pitch short, then converse like a real human being, not a sales droid.
5. Market both yourself and your company/venture.  Online and offline.
6. Market to people who are actually interested.  Don’t waste time selling ice to Eskimos.
7. Advertising.  A necessary evil.  Yes, you will likely have to part with some capital to grab the right people’s attention in a positive way.
8. Branding.  Logos, tag lines, style.  Done right branding creates a sense of professionalism, familiarity, and trust.

Financially my most successful ventures have not been lofty, swing-for-the-fences efforts.  Balhiser LLC’s rental property has earned over $10,000 and prospects remain good.   The Sigma1 proprietary-trading group is currently up $2700, but markets are fickle.  My card trading activities netted about $1200 over 4 years.  My paper route earned about $1100 over 1.5 years.

Except for the rental property business, all my business ventures have been self financed and operated on shoe-string budgets.  They have also been part-time, night and weekend activities.  I have a full-time career in engineering, and while my employer hasn’t given me the golden handcuffs yet, I do wear a nice silver pair.  Thus entrepreneurship will continue to be a part-time activity

My entrepreneurial successes have been modest, yet I am undaunted (at least most of the time).  Today I am a minor league entrepreneur.   I believe that within the next ten years I am likely to make it to the majors, because I have good ideas, tenacity, and passion.  Luckily I know several successful entrepreneurs, and I listen to and learn from them.  They encourage and inspire me when I need a little emotional support.

Entrepreneurship is not for everyone.  It is difficult, if not impossible, to teach in a classroom; entrepreneurship must be experienced.  It can be fraught with setbacks and dead ends.  Passion can turn lead to burnout and frustration.  Yet entrepreneurship can be exhilarating, stimulating, empowering, fulfilling and fun.

Entrepreneurs continue to drive the US economy.   The best, most concise, most creative ideas come from entrepreneurs .  Entrepreneurs also deliver mundane, but necessary goods and services ranging from car washes, to restaurants, street-side baseball snacks,  and rental properties.

The entrepreneurial spirit is alive and well in the US.   Recessions wipe out jobs, and some of the unemployed try out an entrepreneurial path.  While many fail, some succeed.  Some that succeed thrive, and build the businesses of tomorrow.  These people create not only jobs for themselves, they create jobs for others.  They drive innovation and keep America competitive.

I am not expert on entrepreneurship, but I am an entrepreneur.  I work with other entrepreneurs and admire their spirit.  While Washington pays lip-service to entrepreneurs, it seems to be ignoring the obstacles it puts into place, impeding entrepreneurs:

• Self-employment taxes.  Small business pays Social Security and Medicare twice on every dollar earned.  Even on the very first dollar.
• Employment and payroll rules and regulations.  The red tape is one reason I hesitate to hire any employees.
• Regulations.  The only reason my hedge fund is not open to the public (at least to select accredited investors) is the mountain of regulatory requirements.

Even against daunting odds and government red tape, entrepreneurs find a way.  There are many who let red tape and taxes cause them either not enter the entrepreneurial game or quit it out of frustration.  This is a shame, and a loss for the US economy.  There are those who give up one entrepreneurial path (their first) choice, to pursue an alternate entrepreneurial path.  This, too is a loss, but perhaps not a severe.  Finally, there are some small businesses that simply stop growing… not from lack of opportunity, but to avoid the deep, sticky, red tape of employment law.

Right now I’m the category of entrepreneurs who are forgoing (for now) my first venture: the Sigma1 Hedge Fund, and pursuing my secondary venture — financial blogging.  I have a couple accredited investors willing to invest with me, but I have told them for now to put that on hold.

It’s not that financial blogging is not enjoyable, it’s simply far more difficult to make reasonable profits from a finance blog.   Given a choice, I’d rather make $250,000/year from blogging than managing a hedge fund.  It’s much more likely that managing a hedge fund has a greater chance of making that kind of money.  That, dear readers, is why blogging is my second choice for a business undertaking.

Entrepreneurs, I’d love to hear your stories.  How you succeeded, how you failed, what you learned?  Has government (federal, state, local) red tape gotten in your way?  Have you found ways to succeed in spite of all that?

Millionaire by 40? Inflation says Big Deal!

40 years old is still several years off for me, but I it is very likely I will be a millionaire by the time I reach 40.  In fact, if you count my contributions to Social Security (including my employer’s half), the current value invested in my personal “Social Security Trust Fund” puts me there already.  But I’m certainly not counting on Social Security.

So, I’ll be rich right?  Wrong!   First there’s inflation.   Many economists say US inflation has been about 4% per year over the last century.  There’s a handy rule of 72 that says, for example, 72/4 = 18.  That means 4% inflation means that a million dollars today is only worth $500,000 in 18 years and $250,000 in 36 years.

Second, there’s taxes.  Over $300,000 of my holdings are in tax-deferred accounts such as 401k accounts and IRA accounts.  Sure this money is part of my net worth, but when it comes out at retirement I’ll likely be paying something like 30% tax on it.  That’s about $90,000 to Uncle Sam.  Poof!  Gone!

Back to inflation.  Inflation works like a stealth tax.  According to government CPI figures, US inflation increased just 1.5% in 2010.  That simply doesn’t jive with my experience.  My HOA fees increased 7%, my electric and water bill increased 8%.  Car insurance, home insurance, satellite TV, health-insurance premiums, internet, rooms at my favorite hotel, and meals at my favorite restaurant went up, by 4-10% last year.  Even the local sales tax increased almost 1%, making everything that much more expensive on top of everything else.  In Balhiser World 2010 inflation was about 4-5%, rather than the 1.5% according to the CPI.   Thus I have some new ideas about what CPI stands for…

• Cagey Price Index  (Price? What price?  Prices are relative.)
• Calming Price Index  (Nothing to see here. Relax. Inflation is under control.)
• Clairvoyant Price Index  (Far away someone is substituting chuck steak for Filet Mignon.  Meat is meat.  And prices are low.)
• Creative Price Index (2+2=3 for sufficiently small values of 2)
• Cowardly Price Index (Please don’t be mad, prices aren’t that bad… see?)

Of course CPI officially stands for Consumer Price Index.  Let just say that for the next 72 years the official CPI is 4%, but actually inflation is 5%.  That handy rule of 72 says that at 4%, one million dollars today will be worth $62,500 of buying power.  At 5% buying power is cut in half to $31, 250.  Of a long enough time a 1 percent difference in inflation is a big deal.

So what?  Well, the CPI is used for a lot of things such as government cost of living adjustments, tax bracket adjustments, Social Security benefit increases, and money paid on Treasury Inflation-Protected Securities, to name a few.

It’s bed time so I’ll cut to the chase.

1. One million dollars is not what it used to be, and is certain to be worth much less in the future.
2. To try to remain solvent (and avoid unpopular austerity measures) the US Government has a powerful incentive to under-report inflation.
3. Many investors and economists are beginning to believe that the CPI significantly under-reports inflation. Examples: “CPI Controversy”,  “Bill Gross says so”, “Forbes, pastries, and gold say so too”.