Five Financial Figures Everyone Should Know

These five figures give good insight to your financial healthiness. The list comes from MSN Money article 5 financial figures you should know.

1) Credit Score

This number is very important maybe the most important number you need to know in US. Your credit score affects how much you pay for credit and even for apartment rental deposit. Even employers can use the figure in evaluating job applicants. One clear and concrete example is that when I moved to US and basically had no credit history I had to pay over $2000 deposit on my apartment and now last summer when I rented a new place I was able to get their promotional rate of just $99. Even though all the credit rating bureaus sell their credit score to you, you can still get it for free. I use following services to track my score for free. It’s not necessarily the same score your bank gets but it’s close enough to give a general idea. I use following two regularly and depending on which one you look my credit score is either 772 or 777 which means I’m in a range that is considered excellent by lenders.

You can get a score also from following places for free but they update it very infrequently or requires a paid subscription which can be cancelled immediately for one time free score:

  • Quizzle (Experian)
  • Credit.com (Experian)
  • myFico.com (Equifax) – Starts a monthly subscription but if you cancel it immediately after you’ve downloaded your report it’s free.

In addition to getting your score for free you can download your full credit report for all three credit bureaus for free once a year from AnnualCreditReport.com. It’s very advisable to get it every year and check that all the information in your credit reports are correct.

2) Your Tax Bracket

This is the maximum rate you pay income tax but it is not the effective rate because in US you pay for every step of the rate ladder so you end up actually paying less. It’s good to know that if your employer is deducting at your tax bracket rate or more you are probably being held too much taxes. This marginal tax rate also affects how much tax you pay for long term capital gains. So if you are investing that is something you need to take into account. My tax bracket is a 25% but my effective rate is 18.25% for both combined federal and state income tax. However social security, medicare etc push my total tax rate to 26.57%.

3) Your Personal Savings Rate

This is the rate how much of your net income you save instead of spend. For many people I know this rate is 0% or very close to it. I’ve been increasing my rate through out 2013 from a mere 8% to 35% by cutting expenses and then saving or investing the difference. That figure doesn’t even take into account my pre tax 401(k) savings. I’ve used it to save for future expenses like vacation but also to grow my emergency fund and my investments.

4) Your Student Loan Debt

Studying in US is very expensive and many people have 6 figure student loan debt by the time they graduate. It’s very important to keep this figure in sight before getting any other debt because this is one debt you can’t wipe out even in a bankruptcy. I was very lucky to be born in a country where all studying is free and even for my US studies I had a sponsor so my total debt was very small which I paid the first thing I got a job.

5) Your Net Worth

This number shows have you gathered any wealth or are you just in debt. If you have a negative net worth it means that you have more debt that you have assets. The basic formula for calculating net worth is to sum up all your assets (cash + properties + investments) and then deduct all your liabilities (loans + credit card debt + other outstanding payments of any kind) the result is your net worth. You can do those calculations with spredsheet or you can use some online tools like Mint and Personal Capital to do it for you.

My current net worth is around $220k it fluctuates because of currency conversion rates because all my real estate assets are outside US so I just usually us a constant conversion rate which currently is below the actual rate. I’ve been mostly using Mint but lately I’m been starting to use Personal Capital more because it’s more geared towards investors. Both of them have great mobile apps and can connect to most financial institutions to pull down your data automatically.

How to get your credit score for free

Knowing your credit score and how to improve it is very important. Your credit score affects how you get credit and at what cost. It affects the interest rate on your mortgage, auto loan, credit card and even the amount of security deposit you have to pay when you rent an apartment. Having a poor credit score means you’ll pay more for a lot of things. The three credit bureaus (Experian, Equifax and TransUnion) wants you to buy your credit score and their credit monitoring service but you can get those for free too.

Following two provide a montly credit score update and notify you of any changes in your credit report for free. I use both of the because they pull their data from different credit bureaus and their score is most of the time different but still fairly close which gives an idea what your score is at any given time.

These two also provide free score but they update very infrequently:

myFico.com is a subscription service but it does have free trial so if you cancel the subscription right after getting your score it’s free and it’s the only way I know to get Equifax score for free.

In addition to getting your score you have a right to get a free credit report once per year from all three credit bureaus. You can get that by heading to AnnualCreditReport.com.

Five smart ways to use your tax refund

TurboTax - Do your Taxes for Free - It's Easy If you are getting any tax refund then you should consider these five ways to put that money to work. If you haven’t done your taxes yet then now is a really good time to do it.

1. Pay off debt

If you have any debt especially high interest credit card, auto title loans or payday loans you really should use your tax refund to pay as much of those off as you possibly can.

2. Put it to your emergency fund

If you haven’t fully funded your emergency fund or if you haven’t even started it then now’s a good time to use your tax refund to kick start it.

3. Add to your retirement account

The more you put money early in your IRA the better it will compound until your retirement. If you have a traditional IRA you might also be able to use the contribution as tax deduction next year.

4. Save for vacation

It’s always good to have savings in addition to your emergency fund for vacations and occational splurge or pampering yourself. It’s always good to reward yourself for meeting goals and not spending everything the moment you receive money.

5. Invest

If you haven’t started investing yet nows a good time. The interest rates are really low currently and you won’t get much of a return on your savings. If you have little extra to spare it’s a good idea to try to get some extra return on your money. I personally like to invest in low maintenance fee ETFs that provide some divident yield. Charles Schwab has bunch of commission free ETFs.

Personally I used my tax refund to pay off my motorcycle loan and put rest of it in my emergency fund. That in turn has freed up more money I can save and invest every month.

H&R Block Online vs TurboTax

TurboTax - Do your Taxes for Free - It's Easy The tax season is at full swing and if you haven’t already filed your taxes for 2012 it’s about time to do it. There’s still a full month till April 15th deadline but why wait. I completed my taxes in January already after I got W2 for me and my wife. My federal tax refund was on my account on Feb 4th and state on Feb 7. One good reason to file early is to prevent identity thiefs from stealing your refund. Also why give the government your money interest free.

Now if you are wondering should you file using TurboTax or H&R Block online or hire a tax professional. If you have fairly simple tax situation there’s really no reason to not learn to do your own taxes with the help of a software. Granted US taxes are way more complicated than it’s for me in Finland but with the help of right tax software I’ve been able to get really nice returns and I’m very confident that I’m not in any audit risk and even if I was audited I’m sure there’s no problems.

If you have a complex situation then getting professional help is good option and can get you better return but I wouldn’t trust most of these tax places like Jackson Hewitt or these temporary places that pop up all over town on tax season and then disapper. If you are going to use a professional then that should be someone that you have a on going relationship through out the year.

Save 15% on H&R Block At Home Both H&R Block and TurboTax lets you start filling your tax information for free online and only charge you when you want to file. So I’ve tested them both. The end return was pretty much the same but that’s only because I did my taxes first on my trusty TurboTax. Then I went on to fill the information to H&R Block and I found it much more difficult to use and the software didn’t feel as polished as TurboTax was. I’m not sure if I had managed to get all the same deductions and tax credits as I got with TurboTax had I first filled the information to H&R Block.

My feel is that TurboTax does better job guiding you through the process and asking you all the right guestions for maximum refund. Now I guess H&R Blocks advantage is that they have a lot of locations where you can go in person but honestly I would’t trust them. If I had used them I probably would be still waiting for my refund a long with the other 600,000 people whose taxes they screwed up. So far every year I’ve chosen TurboTax and this year isn’t any different. My recommendation is to use TurboTax.

Dealing with high credit card debt

Lend money from Prosper with rates starting at 6.59% APRThe average American household has $7,122 of credit card debt and the average indebt household has $15,266.  Those are pretty disturbingly high numbers. So it’s no surprice if you belong to the 1 in 4 households that are struggling to pay off their debt.

I’ve had times in the past when I carried a balance on my card for few months or paid it off when I got my paycheck just to use it again. That’s a pretty vicious cycle that’s hard to get out of. In my case I the interest rate was very low compared to the high interest rates most credit cards in the US have. A credit card interest rate can be easily 20% to 25% APR unless you have a good credit score and even then it’s over 10% APR. With that kind of interest if you are just paying off the minimum you are mostly just paying interest.

So what do you do if you’ve gotten into that kind of jam. Do you take a payday loan or car title loan to pay off your credit card? Hell no. Those are even more expensive loans. A payday loan can be up to 1600% APR. That’s what I call loan sharking except no ones probably going to come beat you up for not paying but still. Auto title loans aren’t any better. They charge any where between 60% to 160% APR. Your best bet is to consolidate your high interest loans and debt with a low or at least much lower interest personal loan. If your credit score has already taken a hit from hight credit utilization and balance then paying them off and replaceing them with a single personal loan will help in the long run. You’ll also pay less interest and can pay off your debt faster.

If you are in bad shape financially then it might be difficult to get a loan with decent interest from a bank but there’s some alternatives. I’ve recently discovered peer-to-peer lending which I think is really awesome. In p2p lending you are not getting the money from a traditional bank but rather from other people that act as investors. The loan is applied from a middle man company take takes it’s cut from the interest paid to the investors and they do preliminary screening and classification of your loan application but in the end it’s the investors that decide who gets funded. Your loan is then issued by the company with the funds gathered from multiple investors.

The two companies that do this in US are Prosper and Lending Club. Prosper is older and provides 1, 3 and 5 year loans. Lending Club is a bit newer but has surpassed Prosper in the amount of loans they issue. Lending Club only provides 3 and 5 year loans. With both companies there’s only one time origination fee which is taken from top of your loan and neither one has early payment fees so even if you take a longer term loan to get smaller monthly installment you can still pay it off at any time.

I think both are great alternatives to a regular bank and the application process seems simple enough. I haven’t tried either as a borrower but I am an investor in Lending Club. For me it provides a good return for my investment and at the same time I can help some people get back on track with their finances. As a added bonus the greedy banks don’t get their cut and hopefully at some point it provides some real competition for banks. If you are interested in becoming a investor in Lending Club follow this referral link and you get a $100 bonus with inital funding of $2500.

Free money from banks

lots-of-money-250x225These days banks like rob us with their ridiculous fees but there’s a way to stick it to them and get some free money from them too. Many banks offer cash bonus for opening a account with them. It could be any where from $10 to all they way to $600 but most of those deals come with strings attached or you have to have a ridiculous amount of money that you wouldn’t even care about earning another $600. You can get those deals from Bank of America, Chase and also many brokeridge firms like TD Ameritrade, E-Trade and Scottrade but they also either charge huge month fees or require a lot of money to be deposited.

I resently came accross a deal from Capital One 360 which is much more reasonable. You can get $25 bonus for opening a savings account with $250 initial deposit and you have to keep it only for 30 days and they put the $25 to your savings on day 1. That means you get 10% return on your investment immediately and you get 0.75% interest which these days is pretty darn good for savings account. You can get $50 for opening checking account and making 3 purchases with the card in first 45 days. The bonus is deposited on day 50.

This deal comes with another money making opportunity. Once you have your account setup you can earn extra $10 per new customer you refer. So if you are not a Capital One 360 customer yet sign up right now. Just follow my referral link to get that initial bonus.

Smartphone with or without a contract

Does it make financial sense to get your new smartphone with a 24 month contract? That is something I never even thought about before coming to USA. Back home most people paid full price on the phone and got what ever plan they wanted althought it has become more popular to get subsidiced phones with 24 month contract. For me I never thought about getting a subsidiced phone until I came here. Back then there was no choise because I had to have an iPhone so it meant signing a 24 month contract with AT&T. Thankfully now there’s choises.

For comparison I’m going to compare few T-Mobile and AT&T plans since I’m most familiar with them. Some of the plans are not going to be equal they are just going to be cheapest vs cheapest type of comparison. The choice of iPhone model doesn’t affect the end result it’s just the up front cost. The difference will between total costs will be the same regardless of picking the cheapest iPhone 4 or the latest and most expensive iPhone 5. So I’ll just use the cheapest iPhone 4 model for comparison as if it was bought new from Apple Store with or without the contract. I’m going to ignore taxes and fees on the contract plans to make the comparison simpler.

Cheapest T-Mobile prepaid vs cheapest AT&T contract

T-Mobile prepaid plan:

  • Cost of iPhone 4 8GB $450
  • Cost $30 per month
  • Unlimited data (up to 5GB in 4G speeds)
  • Unlimited text
  • 100 minutes of talk

AT&T contract plan:

  • Cost of iPhone 4 8GB $0
  • Cost $59.99 + fees and taxes
  • 300MB of data
  • No text messages
  • 450 minutes of talk

As you can see these are not quite equal plans. Total cost of T-Mobile prepaid in 24 month period is $1170 and that includes the phone. The AT&T contract cost is $1439.76. So without contract you’ll save almost $270 over 24 months or $11.24 per month. I think that’s a huge win for no contract.

T-Mobile unlimited everything vs AT&T unlimited talk and text w/ 5GB data

T-Mobile prepaid plan:

  • Cost of iPhone 4 8GB $450
  • Cost $70 per month
  • Unlimited 4G data
  • Unlimited text
  • Unlimited talk

AT&T contract plan:

  • Cost of iPhone 4 8GB $0
  • Cost $139.99 + fees and taxes
  • 5GB 4G data
  • Unlimited text
  • Unlimited talk

AT&T doesn’t offer unlimited data so these plans match each other the closest. Total cost for T-Mobile prepaid is $2130. The AT&T contract cost is $3359.76. That’s a whopping $1229.76 difference so you your savings are even greater with the no contract T-Mobile. The savings per month comes out to $51.24.

T-Mobile unlimited prepaid vs T-Mobile classic unlimited 4G

T-Mobile prepaid plan:

  • Cost of iPhone 4 8GB $450
  • Cost $70 per month
  • Unlimited 4G data
  • Unlimited text
  • Unlimited talk

T-Mobile classic contract plan:

  • Cost of iPhone 4 8GB $450
  • Cost $89.99 per month
  • Unlimited 4G data
  • Unlimited text
  • Unlimited talk

This is the fairest comparison because both plans have the same features and there’s no phone subsidicing involved. The prepaid total cost is $2130 and the contract cost is $2609.76. That’s still savings of $479.76 or $19.99 per month on the prepaid.

It’s clear that the no contract is way cheaper over time but it does have higher up front cost. If you are worried about T-Mobile compatiblity with iPhone don’t it’s gotten really good. If this conviced you that T-Mobile is the way to go then please use my referral link and sign up yourself too because we’ll both earn up to $25 per person that signs up. I wouldn’t recommed this if I wasn’t happy with it myself.

Got a speeding ticket now what

police-writing-ticketThe first time I got the little yellow notice to appear that they give out here in California I was really confused. Back home when police gives you a ticket for speeding it has the fee you have to pay which is based on your income so the only time you’d really complain about it if your income has decreased from previous year. Well here it just states my alleged offence and the court where I need to appear by certain date and time. Depending on your offence you can just pay the fine, appear in court, contest the violation, request traffic school or request trial by written declation.

The first time I just paid the fine and requested traffic school so that I wouldn’t get a point and have my insurance rate increased. Well it didn’t take even a year when I got a second one. This time I couldn’t take traffic school because I had already done it once in the past 18 months. Even if I could have the point would still have shown on my driving record. After doing some research online I decided try my luck with trial by written declaration. According to many people there’s a change the officer won’t submit his side of the events and if you follow these simple steps the judge doesn’t have any other choise but to dismiss the case.

  1. Delay, delay, delay
    Take your time and ask for all the extensions you can but never miss any deadline. At least here in Los Angeles you can do this online. You can ask one extension for your appearance date.
  2. Request trial by written declaration
    Once your time is up you can send your bail amount and ask for trial by written declaration. For me they sent a letter with a form where you could check that you are requesting trial by written declaration. At this time you need to pay your bail amount. Make sure it reaches the court before your appearance date. It’s better to do this via mail than to go yourself to the courthouse. This will delay it further. You should see your new deadline online but it’s usually 30 days from your previous deadline. Since it was my first time I didn’t know how it was supposed to work. So I waited to get some papers in the mail but those never showed up so I sent a separate letter requesting trial by written declaration. I also went to the courthouse in person on the day I saw online that it was due and said that I had not received anything in the mail. The cleark told me that it was due today but I got another 30 day extension and the form I was supposed to get in mail.
  3. Submit your declaration
    Again wait until last minute to submit your declaration. Your declaration should be something as simple as “I stand by my plea of not guilty”. Don’t give any excuses or provide anything information that could be later used against you. I literally wrote just that line as my declaration. Now all you can do is wait until the court processes it. At this time they will request the officers declaration and if they don’t get it the judge can only dismiss the charges unless of course you provided a statement that implicates you. The officer is not paid over time to write the declartion so he probably won’t do it unless you got some rookie still exited about his job. If you are unlucky to have the officer send in his declaration then all is not lost even though the judge will find you guilty. You can still request a new trial in front of the judge and what’s best about this is that you can get the officers statement and can then attack it’s creadibility. At this point it’s probably a good idea to hire a lawyer specialized in traffic court.

In the end I was lucky and the judge dismissed the case and I’ll get my $360 bail fully refunded in about 6 weeks. I’m not a lawyer and you should consult a one before taking these steps. They also might not apply to jurisdictions outside Los Angeles.