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On Friday I took a hike with a group of co-workers to the top of the 14,265 foot Quandary Peak. The hike was challenging, but all 61 of my group made it to the top. The view was astounding. The mountain was exhausting. Reaching the summit was rewarding. After fighting through the headache and dehydration of a Colorado “14er”, my group decided to head back down to the 10,000 foot trail head.

Around 13,800 feet, I approached a man lying on the ground with a small group beginning CPR. I overheard that the man had a pulse and was breathing, though it was apparent that his situation was desperate. While I am trained for CPR, there were much better qualified individuals around to help with the medical emergency.

Over the next 40 minutes, we waited anxiously for a flight-for-life helicopter while a doctor and two nurses, along with a small group of volunteers, helped continue CPR. Around 12:15pm, the doctor declared the man deceased.

I later learned that the man, who was hiking with his fiance, was 43 years old and had two children. While CPR was being performed the words mi sheberach kept returning to my mind. When I watched as the man was declared dead, I began to recite the mourner’s kadish silently to myself. It was heartbreaking to see the man’s fiance, who left only a couple of hours earlier for an afternoon hike, cry as she saw her life change forever.

On the way down the mountain, I thought about how fragile life is and thought about the people I care most about. Seeing a father of two pass away, I thought about how my my father means to me.

This experience made me appreciate the people I have around me. Never hesitate to make sure those you care about know that you love them. You never know how fast your life will change forever.

[Cross posted on The Israel Situation]

I was on the phone a few days ago with a friend who just started a new job at a big computer company.  This friend is a smart girl.  She has a college degree.  She knows she should be investing for retirement.  In our conversation, it came out that she has not set up her 401(k) yet at her new employer.  She has been there for a month!  On top of that, the employer gives a 5% match for just setting it up.  Like most people in their early 20s, my friend was making a mistake.  If you are like she was last week, here is what you need to do to get started.

1. Read your employer 401(k) information.  Almost any salary (non-hourly) job has some sort of 401(k) sponsored by the employer.  Most big companies, and many small ones, will offer an automatic investment option where the money is taken directly from your paycheck.  Learn all you can about your setup and what you need to do.
2. Go to the website or find the form you need to get started.  Most of these forms ask for simply information like an employee ID number and, sometimes, a social security number.
3. Calculate your investment amount.  If your employer offers a match, it is free money!  Take full advantage.  If you can get a 100% match up to 3%, put at least 3%.  If you can get 100% match up to 5%, put at least 5%.  Do not pass up free money, that would be stupid.
4. Pick your fund.  This is the part where most people in their 20s give up.  They think it is too complicated.  Well, have no fear, I am here to help.  Look through your fund options.  Some employers have 2 or 3, some have 20 or 30.  Almost all have a diversified mutual fund with a target retirement date.  My employer calls them “destination funds” while some call them “life-cycle funds.”  These are automatically allocated to a risk profile for people your age.  I am in the “destination 2050″ fund for my 401(k).
5. Forget about it.  Increase your contribution if you can over time.

The beauty of most 401(k) plans is that you do not have to think about it.  You can set it up and forget about it.  Over time, I have increased my contribution from 3% (to get my whole employer match) to about 7% today.  Including 401k, Roth, stock purchase plan, and my Schwab investment account, I am now saving or investing about 15% of my paycheck.  Over time, I want to increase it even more.

Don’t be intimidated by the sign up process.  Giving up free money is stupid.  You are not stupid.  If you were, you would not be here.  If you are already investing, look at increasing your percentage.  If you are not, what are you waiting for?  Start today!

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While we are still in a recession, the recession seems to be getting less bad.  As a Wall Street fund manager told me today, it might go down in history as “the great recession.”  As we all know, this recession has pushed down housing prices around the world.  It looks like the worst might be behind us.

In May, UK housing prices increased by 1.2%.  Housing prices are an indicator that the economy may be recovering.  Housing is a major piece of a very large economic puzzle.  Along with factors such as employment, consumer spending, inflation, manufacturing inventories, and the stock market, housing is a key factor in looking at economic health in the United States and abroad.

Housing purchases are a major indicator, and that rate drives housing prices.  When people were afraid of losing jobs and income, home purchases fell.  As people are becoming more confident that their income will remain constant in the future.  That means that they are willing to spend more on homes and other goods and services.

While I highly recommend you all keep on saving, it is best for the economy if people spend.  Spending moves money into businesses that moves on to create profits and job opportunities.  That leads to more spending.  The cycle will continue to grow when consumers are confident.

How does this impact you?  When the economy is bad, stock prices and home prices go down.  Interest rates are also at historic lows.  When the markets are depressed, it is a good time for you to make investments.  If houses are at the bottom, it is a good time to buy a home (to live in or invest depending on your own financial situation).  Remember the mantra: buy low, sell high.

Hopefully things will start to turn up.  In the global economy, housing recovery in the United Kingdom may be tied closely to housing in the US and the rest of the developed world.  What do you think will happen next?  Is the worst behind us or are we just at a hump in a longer downturn?

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My favorite personal finance website, Mint.com, has made some pretty cool updates.  The new planning tab looks pretty neat.  Click on any screen-shot to enlarge it.  Here are a few:

The budget screen has been totally reformatted.  It also allows you to create a multi-month budget.  For example, if you spend $500 per year on movies and DVDs, you can set that budget to start over annually, rather than $83 per month.  You can also add a “catch all” everything else budget category.

The site also offers multi-step authentication.  This will correct many of the connection errors people have had with ING Direct, US Bank, and others.  (This was pre-written and this feature may be rolled out in a few days)  Here is what the new screen looks like:

Finally, the homepage no longer houses the budget controls, those moved to the new planning tab.  The new budgeting feature still rolls out to the homepage in a nice, compact widget:

Congrats to the Mint team for another great update.  They are slowly fulfilling all of the requests of their users.  I am running out of things to complain about!

Have you ever wondered how bandit kers decide whether or not to approve a loan?  Have you ever been rejected for a loan?  Are you interested in a new loan sometime in the near future?  If so, you should probably know a bit about how bankers underwrite loans to decide whether to approve or deny prospective customers.

To start, print out a copy of your annual credit report that you got for free from annualcreditreport.com.  I am a fan of going paperless, but the bankers really do print your credit report out in full for review.  I did when I was working in a bank, and that is what we were all taught to do. 

Remember that your credit score is more of a screener than an approval tool.  If your score is really bad, you will be screened out right away.  If it fair or good, you will go through the process below.

Once you have your credit report in front of you, start at the top and cross out any credit account that says “authorized user” next to it.  Those are generally accounts that someone else is a primary user for.  The bank assumes that you do not pay for those.

Next, go back to the top of the report and highlight any late payments.  The report usually makes it easy to find those in your payment history.  Look for a grid with stars representing on-time payments and 30, 60, 90, etc representing the number of days late.  This is what my report looks like, as I have no late payments.

If you have any late payments, highlight them with a bright pink highlighter or circle it with a red pen to denote it as bad.  If all payments on the account were on time, put a check mark next to it.  Make sure every account is either crossed out (authorized user), checked off (on time only), or marked for late payments.

Next you need to look at balances.  Look through your accounts and circle any account balances with a black or blue pen or highlight it with a color that is not what you used for the “bad” items.  Make sure every balance is highlighted.  For revolving credit accounts, such as a credit card, highlight the credit line amount as well.  Add up all of your balances and credit limits separately and write them at the bottom of the report.  The account below has a balance of $299 and a limit of $2500.  Look for something like that as an example.

Next, go through and highlight all of the minimum payments on your installment loans, such as a car loan, mortgage, or any loan with a fixed payment and end date.  Add those up and write that number at the bottom as well.

Now, divide your outstanding credit card balances into your credit limits.  This gives you a utilization percentage.  In the $299/$2500 example above, you would have an 11.9% utilization rate, which is acceptable by most banks.  Any number over 25% might hurt your chances on the loan.  Anything over 75% will almost certainly disqualify you.  If your total outstanding revolving balance is over $10,000, you will probably have a tough time getting a loan as well.

Now, multiply your outstanding revolving balances by .1 to give you 10% of your balance.  For example, 10% of $299 is $29.90, or about $30.  That is what most banks will assign you as a minimum monthly payment.  Add that to your installment minimum payment, and you will have a total debt servicing payment amount.  If you have $300 in revolving balances and a car loan that requires a $220 monthly payment, your debt servicing payment is $250 per month.

Now write down your monthly regular income.  You can include child support, alimony, or social security. if you receive payments.  Subtract your monthly rent or mortgage payment and fixed expenses from that number.  Next, divide your debt servicing number by your income after fixed expenses.  That gives you a debt servicing ratio.  If you have a $250 payment and your income after fixed expenses is $2000 per month, your ratio is .125.  Any number below .1 is great.  Many banks would consider any number below .3 acceptable.  Over .5, you probably will not get the loan.

Now look at the whole picture.  Past performance is the best prediction of future performance.  If you have a lot of late payments, you will probably have trouble getting a loan.  If you have high balances on your credit cards, you will have a tough time getting a loan.  If you are using 90% of your available credit, most banks will not give you more.  Any one issue might be looked over, but the big picture is what will get you.

If you have any questions, please let me know in the comments.  I am happy to give you a free generic credit report underwriting if you want.  For questions about any type of credit or personal finance consulting, ask my through the contact form.

It was bound to happen eventually.  I pay my credit cards off every month and only regularly use 1 or 2 of my four cards.  Well, four cards is now three.  One of my banks closed my credit card due to inactivity and having “no banking relationship” beyond the card.  It is far from my oldest card, but it did have a high limit.  It will undoubtedly lower my credit score.  When I got the letter in the mail, I started to think: is this even legal?  Can the bank close my card for not doing anything wrong?

The Federal banking regulation that answers those questions is Regulation Z, also called the “Truth in Lending Act.”  Reg Z defines the reasons a bank can and can’t make changes to credit accounts.  Reg Z was updated with the recent congressional credit card law changes.  It is important to know what your rights are when the big bad bank does something to your credit accounts.

So, can the bank close my account for inactivity?  For now, yes, as long as I am given 30 days notice.  With 30 days notice, they can do pretty much whatever they want.

The regulation also covers new loan accounts.  The best summary I found is at LoanBiz.com.

Have any of you seen your credit lines slashed or cut off completely by the bank while you were doing everything right?  It seems counter-intuitive that using credit responsibly is now a grounds for closing accounts.  Please let us know your experiences in the comments.

I have given Thrive a test run and decided to put a review of my thoughts of the Mint vs. Thrive battle here.  Mint and Thrive both give similar aggregation services to users, though each one has a slightly different emphasis and a different front end.

What They Have in Common

Both sites have the same behind the scenes program, Yodlee, bringing in the data from the bank websites.  As such, you are going to get the same information from either site.  Both sites bring in transaction data and perform some sort of analysis and budgeting function.  Both sites offer a fairly sleek and intuitive layout and design.  For the most part, the sites do the same thing.  For the details and differences, keep reading.

Mint.com

Any longtime reader of this site is very familiar with Mint.  Mint is one of the pioneers of online financial aggregation and I have been a proponent of the site for the two years I have been using it.

Mint’s flagship feature is automatic budgeting.  Mint builds a budget for you based on your average spending and allows you to tweak it at will to fit your lifestyle.  While it is always a good idea to clamp down on budgets, that is up to you to decide.

Mint has been going through many changes including adding new investment and loan features.  The company has gone through growing pains, however.  Many users complain about the slow customer service response times and how long it takes for fixes to be made to broken accounts.

Overall, I am very happy with my experiences at Mint.  I enjoy the ease of use, for the most part, of keeping tabs on my account balances, transactions, and budget.

Thrive

Thrive gives you the same sort of budgeting data as Mint, though it goes beyond tracking and gives you advice.  I have only used it a short time, but Thrive seems to pass the test.  It works as advertised and gives you a different perspective on your financial information.

The things that Thrive gives me that Mint does not: Estimated credit score (which is fairly close to my score reported by Credit Karma), how long I can make it if I lose my job (61 days apparently), and how expensive of a house I could buy today.  It also analyzed my saving and spending habits to give me an estimated retirement budget and tips on how I can save money.

Thrive does seem to have a few drawbacks compared to Mint.  Some accounts that work for me on Mint do not work on Thrive.  I suspect that has to do with the age of the two sites.  Thrive is much newer and has had less time to add more sites like Lending Club that Mint has supported.  On the other hand, Thrive has a toll free number for support if something goes wrong.  That is almost unheard of for most web based companies.

I have also found that Thrive does not have as good of a transaction history view and has trouble differentiating between transfers and income.  This makes some of the information less accurate.

The Verdict

Mint and Thrive are trying to one up each other to gain your loyalty.  Thrive’s budget system is an obvious re-designed look at Mint’s budget tool and Mint’s new financial fitness (still in beta as of this writing) is a rip off of Thrive’s financial health score.

If you want to be your own financial adviser with an easy way to track things, you would probably be happier with Mint.  As the tried and true aggregator, I have no plans to simply abandon my historical data compiled in Mint.  I have, for the most part, always been happy with Mint.com and would suggest it without hesitation to anyone looking for a way to make money management easier.  If you do decide to sign up, please use this referral link.  (I don’t get any money from it, but if three of you sign up I am put on the permanent beta testing list.)

If you feel like a rookie in the personal finance world and want help figuring things out, Thrive is probably a better choice.  The site’s features that help you create a personalized saving and investment plan make financial planning so easy anyone can do it.

If you have any questions or think I missed anything, please let me know.

If you enjoyed this post, please consider signing up for free update from the RSS feed or by e-mail (above on the right side).

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Employment numbers are proving to be as shaky as the economy.  In some places and sectors, employment numbers are starting to level out, or at least not fall so quickly.  In other places, the numbers are still looking bleak.

In the US, total employment has been down for 18 consecutive months.  The most recent numbers indicated that 467,000 jobs were lost in June.  That is not encouraging, though the number of jobs lost has been decreasing almost every month since December, 2008.  The number of mass layoffs has also been on the decline since the beginning of 2009.

All of this talk about how bad the economy is can be really depressing, so it is a good idea to think about the positives.  Many of us still have jobs.  If you are out of work, this might be a good opportunity to continue with that college degree you always wanted.

If you are unemployed, this might be the time to turn your hobby into an income source.  It might be a good chance to give that entrepreneurial idea a go, though don’t throw your entire savings into it.  If you are out of work, but an expert in a highly skilled field, you might be able to find contract work as a consultant.  You might be able to self teach web design or graphic arts and find freelance projects.  If you enjoy writing, you can start a blog for income or do freelance writing gigs.

The point of this is to remind you all that, even if it feels like it, this is not the end of the world.  The economy always turns around.  You are smart and will recover.  Be resourceful.  Enjoy the vacation.

Some things to remember when you are unemployed, though, that could get you into trouble later on:

• Do not, under any circumstances, take money out of your retirement accounts to fund your current needs.  You will have to pay severe taxes and penalties on the funds you withdrawal.
• Enjoy the vacation from work, but do not live like you are on vacation if you can’t afford it.  Make sure your savings stretch as far as possible until you find a new income source.
• Don’t freak out.  Everything will be okay in the end.

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I just got a letter in the mail from my student loan company saying that my loan has been sold to the US government and will now be processed by a federal payment processing center.  This is common in the student loan and mortgage loan business.  I figure that if it is happening to me, it is happening to other people to.  And if a bank does it, it is probably confusing.  Here is how it works.

If you have a student loan like I do, you make a regularly scheduled payment to the issuing bank.  When dispersed, the loan company paid my school on my behalf.  The money is already out the door, and my payments are reimbursing the bank for the payment plus interest.

The money the bank lent out was from other customer’s savings accounts and certificates of deposit.  If the accounts are not touched for a long time, that is great for the bank.  They pay 1% interest to the customer and loan the funds out at 7% (example).  That is a 6% earnings while the money is there.  However, if a lot of customers want their savings back, the bank has to give it to them.  If the money is all loaned out, they need to either borrow from other banks or sell assets.

The primary asset of banks are loans.  It is an asset because it is money that they are expecting in the future.  They can sell a group of loans together to another bank, or the government, for a slight discount.  If they have $10,000,000 in loans outstanding, the other bank might pay $9,500,000 for title to the loans.  That will ensure the bank is protected from potential losses on future loans.

That all sounds complicated, but for you it is not.  Here is how simple it is for you: you just make your payments to someone else.  That’s it.

Any questions?  Anything I missed?  Let me know in the comments.