Helpful Links: www.AnnualCreditReport.com

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AnnualCreditReport.com is a website that everyone should visit once a year.  The reason is because every year you get a free credit report.  The difference between this site and the other “free” credit report sites is that you do not have to enroll in any offers to get your “free” credit report.  You are allowed to get a free credit report from each of the 3 credit reporting companies (Equifax, TransUnion, and Experian) every 12 months.  So if you time it out you can get a free credit report every 4 months.

It is important to remember though that this is just a credit report, not a credit score.  It is good to check your credit report every year because most are filled with errors and it is a good thing to keep on top of things instead of getting a surprise or two when you apply for a mortgage.

How Rich are You?

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Have you ever wondered who truly rich you are?  Well you can now find out at The Global Rich List website.  If you make the median American household income of $52,000 a year, that will place you in the top 1% of all world money makers.  If you make half that ($26,000) you are still in the top 10%!

This is a good reminder for us because I think sometimes as Americans we can forget how truly wealthy we are compared to the rest of the world.  Poke’s (The group who created the web site) main goal is to help people understand where they stand globally in addition to encourage charitable giving.  I am all for charitable giving so it was nice to see them promote that as well.  At least take a look around and see where you stand globally, it at least makes you think a little.

Financial issues facing Generation Yers

While in Tennessee last week I came across a good front page article in USA Today titled “Generation Y’s Steep financial hurdles: Huge Debt, no savings”.  Being a member of the so called “Generation Y” myself the title caught my eye.  The article mainly profiles Frank and Erin Lennon who just got married in October and Kristen Ammerman a senior from Michigan State who is graduating with a degree in journalism.  The article is full of interesting (and also scary) statistics and facts on young people today from the public policy research group Demos.

“Their generation is the first in a century that is unlikely to end up better off financially than their parents, the Demos report said.•Only 58% pay monthly bills on time, a National Foundation for Credit Counseling (NFCC) 2010 survey said.

•Nearly 70% of Gen Y members are not building up a cash cushion, and 43% are amassing too much credit card debt, says a November MetLife poll.

•On average, Gen Yers each have more than three credit cards, and 20% carry a balance of more than $10,000, according to Fidelity Investments.

•Millennials are graduating from college with an average of $23,200 in student debt, according to the most recent data from the Project on Student Debt. That is a 24% increase from 2004.  Even before the recession, nearly half of college students dropped out before earning a degree, the Demos report said.

Add all of that up and the data is kind of depressing.  This really does not come as much of a shock to me.  Talking with friends, family, and coworkers you always wonder how people my age could afford going on nice vacations and buying nice cars.  Well the data suggest they are faking it by going into credit card debt.  Although these quotes below kind of made me chuckle:

  “It was only when [the Lennon’s] were married in October that they became aware of their total credit card and college loan debts.

“The real shock was on our wedding day, when we realized that we were $104,000 in debt,” Frank says.

Surprise!  The thing that shocked me most was not that fact they were $104K in debt, but the fact they just found out about it on their wedding night!  You would think it might have come up some time in the dating or engagement process right?  Ultimately though this quote sums up what most twenty-something’s are feeling today:

  “When you get a little bit of money, what do you do with it?” asks Mikala Shremshock, 27, who works for Veeco Instruments near Philadelphia. 

“Do you pay off your credit cards, put it toward student loans, make an extra payment on your house or car, or put it in your IRA? I don’t have enough to really make a big dent in anything. If you get a bonus, why not just spend it?”

This shows the hopelessness and short-term thinking that so many people have right now which is the “Thank God it is Friday and oh no, it is Monday” mentality of buying stuff whenever you feel like it and paying for it later.  Twenty-something’s have dug themselves a hole, but it is not a hole they can not get out of, nor do I believe that it is absolutely certain they will be worse off than their parents.  What most of us are lacking is clearly defined financial goals and a plan to carry them out.

Stock Market Recovery

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Have you checked the US stock market lately?  Most of us stopped looking when the financial crisis hit in late 2008 and early 2009, but if you have not done so already take a peak and you will notice that it has quietly risen in the past year or so Goldman Sachs withstanding.  I wrote back in November how the stock market had gone up over 50% since its low point on March 9, 2009 and these gains have now carried on into the 1^st quarter of 2010.  Tom Petruno from the Los Angeles Times wrote an article on the stock market’s 1^st quarter performance in an article titled “Tenacity of stock investors pays off”.  Some of the interesting tidbits:

 Most stock mutual-fund categories scored gains in the first three months of the year; it was the fourth straight quarterly advance since the meltdown of 2008 and early 2009.

The average U.S. equity fund posted a total return of 5.1 percent in the quarter, lifting the 12-month return to 49.4 percent, said the data firm Morningstar Inc.

 “[Stock Market] beat the 2 percent average return of bond mutual funds and the near-zero average yield on money-market funds.”

“U.S. stock funds overall still are experiencing net redemptions, meaning more cash is going out as investors sell than is coming in via purchases. Instead, Americans continue to pump record sums into bond mutual funds.”

 

I went ahead and compiled a chart of how well the three major US Markets (Dow Jones, NASDAQ, S&P 500 have done in the 1^st quarter of 2010.

For those of us who have continued to stay in the stock market it is nice to see a good return especially on the stocks that we bought low back last winter and spring.  Still, how is the stock market today compared to when the economic crisis really hit back in the fall of 2008?  I went ahead and pulled up some 2 year graphs showing the change from April ’08 to April ’10 for all three major indices:

Dow Jones

S&P 500

NASDAQ

As you can see all three have rebounded nicely since the fall of 2008, while the Dow and S&P are down 15% from April 2008 and about 25% off their high in October 2007. Meanwhile the NASDAQ is about even over the last two years.  While the 15% decrease is nothing to sneeze about it pales in comparison to the 70% drop during the Great Depression.

As mentioned before it is encouraging to see stock increase in the beginning of 2010.  However, one needs to look at the big picture when investing in stocks and not just a three-month time horizon.  According to Petruno’s article many people are still weary of the stock market.

 “U.S. stock funds overall still are experiencing net redemptions, meaning more cash is going out as investors sell than is coming in via purchases. Instead, Americans continue to pump record sums into bond mutual funds.

David Kelly, strategist at JPMorgan Funds in New York, believes that investors will come to regret their caution. Given that bond yields are low while corporate earnings are rising, “The bond market still looks too expensive and the stock market still looks cheap,” he said.”

I have to agree with the bond market.  Bonds typically do well with low-interest rates and currently we are in one of the lowest interest rate environments ever.  So interest rates have only one place to go and that is up so therefore bonds will become less valuable.  Overall though it is nice to see most of our retirement accounts in 401(K) and IRA’s recover since the economic downfall.

New Short Sale Program aimed to speed up the process

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With the recent downturn in the housing market a phrase has made its way into mainstream.  That phrase is “Short Sell”.  A Short Sell is when a house is sold for less than what is currently owed on the mortgage and therefore the borrower is “short” of what they owe to the bank.   With an estimated 50% of homes predicted to be underwater by 2011, Short Sales are predicted to increase.  The problem however is that to get a Short Sale approved the bank must first accept it.  Recently banks have been swamped with so many Short Sale requests that many sellers have had to wait weeks even months before hearing back from the bank.

To help speed up the process a new federal program went into effect today called HAFA. 

Some of the highlights include:

-Only available to those who could not get a mortgage modification.

-Must be behind on payments

-A list price from the lender that the lender will accept as a short sale within 30 days of a request.

-Closing within 45 days of offer accepted.

There are disagreements on whether this will help speed up the process any.  Here is a list of articles I have found on the subject.

Columbus Dispatch– New real estate rules streamline process for short sale

Orlando Sun-Sentinel-Will new short sale rules help the housing market?

KGTV-San Diego-New Rules may help relieve Short Sale Pain

Reno Gazette-Journal -New federal program for short home sales starts today

Time will tell if this will help any or not.  Anybody have any good experiences with short sells?

Gauge on your middle class status

Yahoo Finance with the help of US World News had an article titled “How to gauge your Middle Class Status” It compiled a whole bunch of data and determined what the average American household earns and what they spent it on. A few things that jumped out to me:

Median Income-The Median middle class income in America is $81,000 as of 2008 with the income range between $51,000 and $123,000.

Home-The average home value is $231,000 with $17,600 a year in mortgage payments and other costs. The average mortgage payments are not that high considering an $81,000 income. After taking out taxes, that is about 25% of your take home pay.

Cars-$12,400 a year is dropped on cars with the average new car price around $45,000. YIKES! I have discussed how much a new car really costs you before and having a depreciating asset that is over half of your salary is not a way to be building wealth.

Vacation vs. Retirement-The average spent on vacations is $3,000 versus $2,600 saving for retirement assuming the 3.2 percent average savings rate. So we spend more on vacations then we do our future! Something does not seem right there.

Household Net Worth-The Average net worth is $84,000 which is down about 30% since 2007. That just tells me that most of the net worth we have as Americans was mostly tied into our home value. Yes, the stock market has fallen but it has recovered quite nicely in the past 12 months.

I recommend reading the whole article as it is interesting to see how you compare to the average American household. It was nice to see that my family has a higher savings rate and less car expense then most people though. This is a big reason why our net worth is higher than average as well and it continues to rise. Another interesting figure was that we are working more than ever before but when surveyed it was found the one thing we wanted 5.5 more times then wealth? Free time (68% vs. 12%)! Could it be that our consumption driven society based on working a lot to get more money to buy “stuff” (cars and vacations) to impress our friends is not the way to go?

Impact of the Credit CARD Act of 2009

The new credit card laws that are a result of the Credit CARD Act of 2009 went into effect today.  If you have read this blog for any length of time you know that I do not use credit cards so there will not be any change for me, but I am interested in how these changes will impact the consumer.  As with all new legislation there are opinions on who will actually benefits from these changes and who will suffer.  Below are a few articles that I have read that address some of the changes.

Cash Commons provides a list of all the major changes going into effect.

The Christian Science Monitor describes the ways consumers will benefit from the new legislation.

The Cleveland Plain Dealer has opinions on how this will impact the credit card industry.

Michelle Singletary from the Washington Post warns of how the banks will use loopholes in the new law.

Finally, CNN Money has an editorial questioning if there is a double standard as the Credit CARD Act of 2009 only covers consumer credit cards and not business credit cards. 

Whichever ways you slice it up, changes are coming for credit cards.  Feel free to post any changes you have received from you credit card in the comment section.

Update to 79.9% Credit Card

Back in December I commented on First Premier Bank and their 79.9% APY subprime credit card that is being marketed to those who have very poor credit.  Well with the new credit card laws going into effect soon, First Premier is back in the news.  So far the response to their new card has been greater than anticipated:

“Has First Premier gotten any takers on the 79.9 percent cards? [CEO Miles Beacom] called the response ‘phenomenal,’ adding 2 percent of people receiving the offers have applied for the cards. Their normal response rate is 1 percent to 1.2 percent, he says. ‘It’s double what our normal product was.'”

“‘Our goal is really to keep these lines controlled because these are people who have had problems in the past,’ Beacom says. ‘It’s really to help build up the discipline without them getting into credit trouble again.'”

Not getting this card in the first place would be a better act of discipline in my opinion.  Hopefully, the 2% application rate is an inflated statistic as those who apply for this card will most likely be stuck again on the vicious cycle of getting into credit card debt and getting ripped off on the interest rate.  My best advice to those who are feeling the need to apply for this card is best summed up in this quote:

“‘Anyone who feels they have no choice but to get one of these should get help from a credit counselor,’ advises Sandy Shore, a counselor with Novadebt, a New Jersey-based consumer credit counseling agency. ‘There are other alternatives, like a debit card or even a secured card.’”

Can not add much more to that, except there is always another way out of a bad situation instead of using a rip off 80% credit card.  It might be easy to use the card now, but in the long run this will do serious damage to your financial health.  Hopefully enough people will learn their lesson and cards like these will cease to exist due to nobody using them.

Price Wars over Cell Phone Service heating up

Have an unlimited voice or text plan for your cell phone?  Well according to an article in CNNMoney.com it looks like you might be getting a price break on your monthly service.  Verizon and AT&T have announced lower prices for their monthly plan and Sprint Nextel and T-Mobile are expected to follow suite.  This is good news for those looking to shave some money off of your monthly budget and getting some extra cash flow for debt payments.  We personally have Verizon so we might be taking advantage of the price wars soon.  I love it when price wars occur because usually that means the customers win!

2010 Tax Changes

I know it is only the beginning of January and 99.99% of you have not yet filed your federal income taxes for 2009 (including yours truly).  But it is never too early to start thinking about changes in the tax code affecting your 2010 Federal return.  The IRS has already published their 2010 tax changes.  Some of the bigger changes that stood out to me:

Recapture of $7,500.00 first time home buyer credit-This is NOT the $8,000 credit that began on January 1, 2009 and runs through April 30, 2010, but rather the $7,500 tax credit that was given to first time home buyers in 2008.  The “Credit” is to be re-paid over 15 years in $500 increments starting in 2010.  For those of you who need to repay the loan, you might want to have extra money withheld from your paycheck to cover the $500 extra in taxes you will owe each year.

ROTH IRA income limit-In 2010 the income limit to fully contribute to a ROTH IRA is $120,000 for singles and $177,000 for married filing jointly which is up from $105,000 and $166,000 in 2009.  Also in 2009 there was a phase out amount for singles between $106,000 and $120,000 and married filing jointly between $166,000 and $176,000.

Limits lifted on converting to a ROTH IRA-Starting in 2010, there will be no income limits for those wishing to convert their traditional IRA to a ROTH IRA.  Before 2010 the limit was $100,000.  This is good news for high earners in the past who were ineligible to contribute to a ROTH IRA.  To offset the huge possible tax impact, the money converted maybe be split in half in 2011 and 2012, thus spreading the tax liability over two years. 

Phase out of personal exemption and itemized deductions-For 2009 the phase out starts for those who earn greater then $166,800.  This is another help for high income earners. 

In addition to new 2010 tax laws, a few benefits expired in 2009 and will not be available for 2010.  Some that caught my eye:

Gone are deductions for state and local sales taxes:  If you itemized your deductions you could always choose the greater of your state and local income taxes or your state and local sales tax.  For most people with a state income tax, your income taxes would be greater.  However those states without a state income tax would usually then get to deduct their sales tax.  This will more then likely impact those people in states without state income taxes such as Florida, Texas, and Tennessee among others.

Exclusion from income of up to $2,400 in unemployment compensation-This will impact slightly those who have received extended unemployment benefits due to the recent unemployment spike. 

Those are the ones that I thought would impact the most people.  I would recommend checking out the whole list on the IRS website.  I personally like to know ahead of time changes in the tax code so you can plan accordingly.  As always these changes are always subject to change depending on what ever congress feels like doing on a particular day.  🙂