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What makes up your credit score?

Most of us know know that our credit score is important (if you don’t or want a refresher, check out Where Do You Stand When it Comes to Your Credit). A higher credit score can save us thousands and thousands over the course of our lifetime.

But what actually dictates our credit score and how do we increase it? Here are the five components that make up your FICO credit score along with their relative impact. Something to note – the importance of any one factor depends on the overall available information in your credit report and varies case by case.

Payment History 35%: Evaluates the following aspects of delinquent / late payments – how late, how much, how recent and how many.

Amounts Owed 30%: Determines your credit utilization ratio – the amount of debt you have outstanding divided by your credit limits (lower is better).

Length of Credit History 15%: Looks at how long you have had credit (longer history increases your score).

New Credit 10%: Examines how many new accounts you have by type. Inquiries (where lenders make requests for your credit report) can impact your score negatively for twelve months. Note: Checking your own score will not affect your FICO score.

Types of Credit in Use 10%: Considers your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans (more diversification is generally better).

My journey to break-even

Ever since I left my corporate job to run my business, Knowing Your Worth full-time, the number on question on my mind has been, “how can I make sure I get to do this forever?!” How can I make this new amazing dream life I’ve created for myself sustainable so that I can always work for myself and spend time on things I’m passionate about? I need to break-even.

I hit the 6 month mark of being on my own September 3rd and in the last 6 months, I’ve done a lot of growing, a lot of experimenting and have a lot of data to analyze. I know what it costs to run my business as is and I know what it costs to fund my new entrepreneurial lifestyle. Here are some of the major lessons I’ve learned along the way.

LESSON: Reassess Goals Along the Way

I had the goal of being a sustainable and profitable business within 6 months. While I believe in dreaming big, I should have reassessed this goal along the way to make it more realistic and achievable. Not only did I not achieve the goal, but I also punished myself for missing the milestone. I felt down about it and didn’t invest in my business the way I wanted to. This brings me to my next lesson…

LESSON: Really Fund Your Business

If you aren’t going to invest in your business, who will? When you decide on a realistic target date for breaking even and being sustainable, invest in your business until that date. For example, once I took an honest look and reassessed my goals, I realized that given my 6 month growth rate, I would reach my goal well within a year. I then invested in my business for the entire year. Before that, I was transferring money over as needed month to month, in hopes I wouldn’t have to do that the next month. That method creates a feeling scarcity and is no way to run a business in a powerful way.

LESSON: Set Up Daily Targets 

Every goals seems more attainable in bite-sized pieces. Instead of having a revenue goal each month, I have now set up revenue targets for each weekday. What do I need to earn each weekday to reach my revenue goal for the month? This method has really helped me set up my calendar in an efficient way. I now work to make sure I have one revenue producing item on the calendar each day (or two or three) in order to hit my targets. I also find it helpful to calculate revenue based on work performed rather than payment received. I may write 10 articles for a client over the course of two months and receive payment a month later. It isn’t useful to account for the payment when I receive it in three months but rather when I am actually putting in the work writing each article.

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Love & Money – Couples Money Crash Course – Part 2

Last week I discussed the importance of communication, expressing non-judgment and making talking about money a habit in Love & Money – Couples Money Crash Course – Part 1. Once you’ve started making headway on these first steps, you can then take some tangible action steps toward living harmoniously with your partner and money.

Let’s talk goals and dreams

This is the really fun part. The two of you get to daydream about what you want most in life and by when. You might be talking about saving for children, buying a house or even going on your next vacation. Whatever it is, you both really want it, and it’s going to cost money. The sooner you start, the less you will have to contribute each month to reach these joint savings goals.

Here’s an example of a goal you might have. If you want to go on vacation in one year (12 months) and it’s going to cost $4,000, you will want to contribute $333.33 as a couple to a vacation fund each month. You might decide to split this down the middle and have each of you contribute half the $333.33 every month or if one of you makes significantly more money or is aggressively trying to pay down debt, you might break up the payment differently. There are no rules. You both get to decide what makes sense for you.

Here’s the step-by-step process you can walk through with your partner in order to start building a system for funding your biggest goals and dreams together!

1. Make your list of joint goals & dreams and the timeline for when you want to achieve them.
2. Estimate their cost. Try to be as accurate as possible for the time being but you can adjust this number and your contribution amount as you get more information. Check in and adjust your contribution amount every time you have new information that changes the amount you need to save.
3. Decide on your monthly or bi-weekly contribution. Like I mentioned above, you may decide to split this down the middle or agree that a different split makes more sense for your situation.
4. Set up a joint account and set up automatic transfers from each of your accounts in the correct amounts so that you start building your dreams funds immediately and without fail!

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Savvy Spender, Profile #36


Savvy Spender Profile #36_Fiscal Femme_Money Coach_09.11.14

Overall Spending Motto: “A swipe of the card, a dent on your wallet.”

Frugal Joys: Loves Groupon for discounted fitness classes for new members, free food at events, free samples in supermarkets and free samples in Sephora.

Transit: Gets an unlimited metro card because she has an unlimited gym membership. With the unlimited card, this Savvy Spender doesn’t let herself take cabs unless someone has a promotion code with Uber or other app services.

Food: Cooks herself breakfast and lunch on the weekdays. On the weekends, she eats out with friends and doesn’t limit how many times she can eat out.

Drinks: “Pregames hard” so she does not have to buy any alcohol at the bar or club. She also will drink water instead of alcohol.

Shopping: Once a month or whenever she feels she needs to get new clothes. Usually this happens during the change of seasons when there are a lot of deals and sales going on.

Gym: Classpass allows her to try out different fitness classes for a discounted price of $9 instead of $39 per class. Great deal! She also gets the unlimited new member monthly classes because they are cheaper and more “worth it.” She spends about $300 / month on fitness.

Apartment: None because she is living in a school dorm and the rent is covered by the school. She thinks her rent is much cheaper than apartment in the New York market.

Travel: Does not travel during the school year because she does not have the time or money to budget travel in.

Saving / Retirement Saving: Tries to save at least 20% of the allowance that she gets from her parents every month. Says, “even a little bit of savings will help me in the long run.” I couldn’t agree more!

Debt: Says she’s “fortunate to not be in debt.” Hopes that saving 20% of her allowance will prepare her to pay off anything that she owes in the future.

Has no credit cards but has two debit cards, one from Chase and one from Bank of America. She initially got the Bank of America debit card because it was the only bank near her high school. She then got the Chase debit card after moving to New York when she realized there were more Chase ATMs.

Other: Has an Amazon Prime subscription. Recently purchased concert tickets for Electric Zoo and Sam Smith and usually purchases tickets right when they go on sale so they are cheaper. Typically gets more than one ticket so she can sell the others at a higher price closer to the concert date.

Wedding Budget Busters – How to Plan for the Unexpected

With a wedding budget, just like with any other type of budget, you plan the best you can but still have to expect the unexpected. There will inevitably be expenses that you didn’t plan for that come up. If the weather is colder than expected, you might need heaters, you may want to feed your bridal party on the day of the wedding or you might need extra power or lighting for certain events. This might all sound overwhelming to your wallet but do not fret! You just have to give your budget a little breathing room or cushion.

To create the cushion, assume your actual budget is 90-95% of what it actually is which will leave some room to pay for unexpected items. The more meticulously you research and plan out your budget, the higher this percentage can be. If you have done very little wedding expense planning, you might want to make this number even lower than 90% as you probably have missed a lot of upcoming expenses. Not only will this give you piece of mind as the big  day approaches, you won’t be scrambling last minute or turning away from doing certain things that you would have otherwise loved to do.

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Money Myths – I don’t have enough money to invest

“I don’t have enough money to invest.” I hear this all the time and I get it… I’ve been there! You know the things we tell ourselves that keep us from investing:

- “Investing is for millionaires, not me.”
- “I don’t have enough money to start investing, I’m barely saving at all.”
- “I have no idea how to invest.”
- “Investing is too risky for me.”

Sound familiar? I’m here to tell you that every one of the above statements is FALSE. How much money do you need to start investing? A penny will do! But really… buying one share of the S&P 500 ETF (VOO) is less than $200 and you are buying equity in 500 companies! Pretty cool. Are you more risk averse? Try bond funds or even money market funds. There is something for everyone! I’m not saying you should be investing your vacation fund for next year but investing is great for your long-term goals! With long-term goals you have the luxury of taking on a little more risk because you can ride out any dips in the market. As you get closer to wanting your money, you will want to invest in less risky funds or even cash.

When I started investing, I had no idea what I was doing. It was so bad that I wrote about it so no one else has to go through the same thing. Learn from my mistakes!

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What types of mortgages are there?

We’ve covered some home buying basics in I think I want to buy a home, first time home buyer loans, co-op vs. condo, and what is a mortgage really but now it’s time to think about the different mortgage options available to us. There are two major types of mortgages – fixed rate and adjustable rate. Here’s the lowdown on each.

Fixed Rate Mortgages

Fixed rate mortgages get the name ‘fixed’ because the mortgage payment and interest rate stay fixed throughout the term of the mortgage. The term is the length of time it takes you to pay back the mortgage and it’s typically either 15 or 30 years. This is a popular type of mortgage because you don’t have to worry about your payment rising and falling with the interest rate market. You are locked in for the 15 or 30 year period.

Adjustable Rate Mortgages

Adjustable rate mortgages (ARMs) differ from fixed rate mortgages in that the mortgage payment and interest rate move up and down with the interest rate market. There are often fixed rate periods at the beginning where the rate and mortgage payment don’t change before they start to move with the market. Some ARMs have convertible features so you can convert to a fixed rate mortgage down the road. They typically also have caps to protect you from a very high interest rate market.

What types of mortgages are there

Love & Money – Couples Money Crash Course – Part 1

Love & money… you’ve heard it can get tricky but where should you start when it comes to personal finance and your partner? The next three Mondays I’m going to post a 3 part series on how to set up your finances for a happy and stress-free relationship with one you love!

First things first… 

The first step in having a happy money life with your partner or spouse is communication. You have to talk about it. The goal here is to really understand how each of you thinks about, spends and lives with money. Not comfortable talking about money? Start small. Ask you partner some fun money questions and share your answers as well…

- What would you do if you had a million dollars?
- What do you think is your most / least important expense?
- What what was your fist memory around money?
- What were your parents or grandparents habits around money? Any great stories?

No judgment (but really…)!

Make a no judgment rule and stick to it. We all have our money quirks, come from different backgrounds and form different habits. If you want your partner to open up to you, they have to trust that it’s a judgment free zone. Listen intently, ask questions and put yourself in their shoes. Really get where they are coming from around money.

Make it a habit

Once you’ve had your first money conversation, make it a habit. You can’t peel back all the layers of the money onion in one day. It takes time. Spend money on something stupid? Share your woes. Working on getting a raise at work? Share your long-term career salary goals or what you plan to do with that extra money?

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Frugal Joys – A Good Old Countdown!

How great is the feeling of anticipation when you are counting down the days for something SUPER exciting to happen!? Studies have shown that sometimes the anticipation of an event is even more enjoyable and happiness inducing than the actual event. That’s why it’s so much fun to plan vacations, weekend getaways or even dinner at your favorite restaurant way in advance so you can just enjoy looking forward to it.

This Friday I am counting down the days (2!) until our new puppy Simi arrives and I am getting so excited I can’t take it. While every weekend can’t be as exciting as a puppy arrival, I love having some type of fun countdown every month or so, whether it’s counting down the days until I see friends / family, get something I love in the mail or a fun event I’m looking forward to.

Let the Simi countdown continue! I’ll try to keep the puppy picture posting at a reasonable level.

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The Wonderful World of Ebates!

One of my good friends sent along a link to a site called Ebates last week and I’m already hooked. How have I not heard about or used this before? Ebates is a free site that provides cash back shopping. So basically, you just online shop as you would normally and you get cash back for it. Sounds too good to be true right? Here’s how it works:

From Ebates: Just like almost every other online shopping center, we get a commission from the stores when you make a purchase. Instead of keeping that money – like almost all other sites do – we share it with you!

So, as long as 1,700+ of the world’s top online stores are happy to pay a bonus to attract the new, valuable customers we send their way, Ebates.com is going to continue to send Big Fat Checks to our satisfied customers across the globe.”

You can search specific stores or look by genre and see what the cash back rewards are through Ebates. Some sites have up to 6% cash back. Excited to hear what everyone thinks. If you know and love Ebates already, let me know! If you are trying it for the first time, I’d love to hear what you think!

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