5 Strategic Steps to Take to Substantially Raise Your Credit Score

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As we can see in the below video, credit scores are essential to ensuring you can get loans in the future.  Without a good credit score, there is no way that banks will trust you to give you a loan of any kind.  You can tell them you’ll pay them back, just like a school student can say they are a straight-A-student, but without looking at the student’s grades, there is no substance to his/her claim.  A credit score gives banks the hard facts they need to say they can trust you with a loan.

Source: Credit Karma

Keeping a high credit score is paramount to a healthy and stable financial future.  Here are some ways you can improve that credit score, because every effort to this end counts!

Step 1

Before opening new credit card accounts, make sure to consider the below pros and cons of doing so and make sure your credit score is at a good enough place to handle opening a new line of credit.

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Source: John S Kiernan of WalletHub

Step 2

Sign up for and use about four credit cards throughout any given month.  John S Kiernan, Senior Writer & Editor and WalletHub, shares, “The average credit card user had 3.7 cards in 2014, according to Gallup, and WalletHub’s editors believe that around four cards is indeed the number that provides the most benefit without making life overly-complex.”

Step 3

Reduce spending beyond the recommended 30% of your line of credit each month by capitalizing on your credit cards’ rewards programs.  To capitalize off of your diverse credit card portfolio and further reduce the amount of spending you do on each credit card, meet with or talk to someone at the company that each credit card belongs to in order to figure out what rewards each card offers.  These rewards can change, depending on the type of purchase or time of the week, month, or year.  Keep a record of when various rewards come into play for each rewards card, and use that card when it is most financially beneficial for you.

Step 4

Get each of your credit card companies to send you an alert when you’ve almost used 30% of your line of credit each month.  Then, switch to the next credit card until you reach 30% of usage on that card, and so on and so forth.

Step 5

Pay off your credit card balance multiple times throughout a month.  One way to do this is to set a calendar reminder on your phone, tablet, laptop, or desktop to go off at the same time each week.  Oftentimes, this day of the week can be Sunday, when some people take time to prepare for the work week ahead.  For example, set a calendar event called, “Pay Credit Card Balances,” with two email reminders–one that sends you an email one day before the calendar event and one that sends you an email one hour before you scheduled yourself to pay your credit card balances.  This will keep this task on your mind each week without forcing you to remember it on your own.  Use this article to help you determine when to pay off your balances in a way that best affects your credit score.

Do you want to learn more about wealth management? Follow my blog at EricaHill.net!

The Beginner’s Guide to Investing: Understanding Your Risk Tolerance

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Erica HIll

When looking to invest for the first time, it is important to understand what you want to invest, where you need to invest it, when to invest it, and why you are investing it. The first subject you want to consider when assessing your risk tolerance is what goals you have in mind for your investments. The second subject you want to consider is your risk personality to help determine the level of comfort you have with varying degrees of risk.

Creating Your Goals

An eighty year-old person looking to stabilize his/her investments versus a twenty-two year-old who is just starting his/her career will certainly have different levels of risk they are willing to take. The eighty year-old is looking to make low-risk investments that will probably earn a much lower interest rate, say of one or two percent, while the twenty-two year old is earning his/her full living from the job he/she has. The twenty-two year old may be willing to invest a large chunk of his/her savings with a higher interest rate that is more risky, because he/she does not need the principal nor the interest for a long time.

Knowing your financial position will help you to make a sound financial strategy and list of investment goals. If you are a billionaire, who makes $5 billion annually, you may choose to invest $3 million in the blink of an eye without much thought to it. This objective is vastly different than, let’s say, newlyweds who are looking to save for their first house. The billionaire might decide to invest in a risky real estate investment, while the newlyweds might decide to invest in bonds or CDs. Identifying your goals will become clearer for you once you understand your investment personality.

Assessing Your Risk Personality

One’s investment personality is defined by two specific character traits. One is simply how daring and risky are you, while the other is about how much time and effort you’re willing to invest into researching before deciding on a particular investment.

Risk is defined by the possibility of loss on your investments. The rewards you might receive are defined by the possibility of earning greater returns than you invested. If you are the kind of person who likes to live life on the edge, experience new adventures constantly, and have great confidence in your decisions and thoughts, then you might be willing to take on higher-risk investments. If you, on the contrary, are the kind of person who likes to make sure you are stable, secure, and have low worry/stress, then you may want to make an investment that is lower risk, which unfortunately has lower immediate rewards. This decision is extremely personal and can only be determined by you. Here are a handful of risk factors you should take into consideration:

  • “Market risk,…
  • “Business risk,…
  • “Political risk,…
  • “Currency risk,… [and]
  • “Concentration risk.”

If you are unsure as to how risky you are, take this risk tolerance quiz.

Are you afraid of getting your hands dirty just yet? Try this free investment simulator, provided by Investopedia, to see how you would do if you had $100,000 to invest!

Come back in a few weeks to see the next installation of “The Beginner’s Guide to Investing!”

The Beginner’s Guide to Investing: Compounding

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Erica HIll

Compounding, also known as compound interest, is the process of taking what you earn from an investment and reinvesting that money back into the investment, earning you exponentially more money as time passes.

For example, if you invest $5,000 and have an interest rate of 4% each year, you will end up with $5,200 ($5,000 x 1.04) at end of year one. Instead of taking that $200 at the end of the year and using it for something else, you would reinvest that $200 with the addition of your original investment, or principal, being $5,000. So, by end of year two, you would end up with $5,408 ($5,200 x 1.04). See how this can grow exponentially? Compounding interest is a gold mine for those who invest in it.

As you can see, the interest you earned the first year was $200. The interest you earned the second year was $208. You didn’t have to do anything additional to earn that extra $8.00. By the end of the next year, you would result in $5,624.32, leaving you with an earning of $216.32. That $16.32 more than the interest you earned in year one and $8.32 more than you earned in year two.

The principal is the initial amount of money you choose to invest. Let’s say you choose to invest $10,000 now and you plan to reap the rewards 50 years from now. Each month, let’s say you choose to add $200 to the principal as you earn more money, and your annual compound interest rate is 5%. Your investment would be worth $617,109.19 at the end of 50 years!

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Visit Investor.gov for a compound interest calculator.

Now let’s say you invested the same amount of money with the same, annual compound interest rate but only invested it for forty years. You would only have $360,319.35 by the end of the term! That is $256,789.84 less!

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Visit Investor.gov for a compound interest calculator.

As you can see, the concept of compounding makes a massive difference in the amount of money you earn on an investment. In taking the first steps towards investing, it is important to not only notice the compound interest rate, but also to decide on a lengthy amount of time to allow your principal and interest to compound.

Interested in learning more about investing? Come back in a few weeks to see more of “A Beginner’s Guide to Investing.” In the meantime, follow me on Twitter for wealth management updates, news, and trends @EricaHill_KW!

The Beginner’s Guide to Investing: A Definition

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Anyone who has mastered a new language knows what it’s like to reassign thoughts and ideas to match new words and sounds, to bend your brain around brand new meaning and reconfigure existing knowledge to move in patterns which may redefine or even defy previous experience.

Becoming a knowledgeable investor is a similar process, as it involves mastering the dialect of finance. The input of financial knowledge causes symbols which you thought you understood take on alternative context; to incorporate this new investing information requires rewiring what you know about monetary value (namely how it’s spent), how it’s produced, and how you can increase yours.

Investing may seem rather complex, but that complexity is largely an illusion. Financial advisors earn a fabulous living by capitalizing on the average individual’s economic ignorance. Adding a few basic and quickly mastered investing concepts to your knowledge base can be endlessly beneficial for anyone looking to boost their financial status. Information is strength, and financial information is financial strength. I believe in being as empowered as possible, so I’m building this beginner’s guide to investing for anyone craving control of their own economic state. If you want to avoid getting fleeced by financial advisors and improve your overall quality of life, this guide is for you.

What does it mean to invest?

Some people equate investing with high stakes gambling. To the cynical and uniformed, investing money might resemble finding which way the wind blows by standing on a cliff during a thunderstorm, and waving around handfuls of cash. Both of these viewpoints are a caricature of what investing actually is.

Simply put, to invest means to make money with money. Our world operates on money, and any financial endeavor requires funds to function. We acquire these funds by presenting the option to “invest,” or give money to their venture in exchange for a type of offering or mutual agreement. These offerings include stock (bite-size portions of company ownership), bonds (a kind of interest-earning IOU), real estate, or mutual funds, among other things.

The value of a stock, bond, or similar offering is contingent upon the economic strength of the venture which issued it. Since the future of all economic ventures are uncertain, placing your financial faith in any of them might seem like a shaky prospect, hence the financial market’s stigmatic reputation as no more than a glorified roulette wheel. This might be true, were it not for the fact that roulette is random, and a good investment is anything but. Making a wise investment involves analyzing market trends, determining how certain financial interests are performing, predicting how they will perform in the future, and investing in a manner which accounts for the best and worst possible performance scenarios.

Defining investing is only the beginning to a safe and profitable financial future. Check back soon for “A Beginner’s Guide to Investing: Compounding.” Do you want more financial tips, tricks, and news in the meantime? Follow me on Twitter @EricaHill_KW!

Track Your Spending with These Apps

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Personal finance is difficult to keep track of, especially for people who are constantly busy. When you’re always running around, the small things you spend money on tend to add up. Even though an individual expense may seem inconsequential at any given time, it is most beneficial to keep track of all such expenses so you can plan your budget accordingly each month. Thankfully, there are many personal finance phone applications to help you keep track of everything you put your money toward. Below are three that I have found to be most useful.

Dollarbird

This app integrates all of the expenses you record into a calendar so you know exactly when you spent what. Not only does it keep track of when you spend your money, but it also calculates directly the impact on your checking balance. However, it does not link to your bank accounts, so it is best to check bank accounts regularly as well for any discrepancies.

Goodbudget

This is an app whose sole purpose is to help you budget. Remember the times when people kept envelopes of all their spending in specific categories? This is just that, except in digital form. You can create categories and set a budget for each. Whenever you make a purchase, just mark it in its designated category, and be sure to stop spending money when said category runs out.

Penny

Penny has labeled itself as a personal finance coach for good reason. It is an app that links to your bank accounts and sends you personalized text messages based on your balance often. Not only will it inform you how much is in your balance, it will also provide you with charts and graphics that can help you see your spending habits visually.

For more information on apps that help you track your daily spending, check out this Forbes article.

Visa Launches Financial Literacy Initiative for Olympians – and More?

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My previous posts on this blog have focused on the importance of teaching children about money management from a very young age (three years old, to be exact – find out why here). Something I haven’t really touched on yet, though, is the fact that most adults, both here in the US and around the world, have never received a financial education like the one I’ve outlined, and are thus financially illiterate themselves. For proof, just look at the US subprime mortgage crisis, which likely would not have happened if more people had known how to manage their money responsibly, or how to determine if a potential investment had integrity before they signed their life savings away on the dotted line.

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Does a new Visa initiative represent the start of a global push to increase financial literacy? Only time will tell – but we can hope so.

The National Financial Educators Council (NFEC), an important organization that I’ve mentioned before on this website, has created a National Financial Literacy Test to find out just how financially illiterate each generation of Americans is in 2016. The test was originally designed for 15-18 year olds, but it has been administered to US residents of all ages, and quite frankly, the results are troubling, to say the least. This is mostly because the data shows no marked difference between the financial literacy of older Americans and that of our school-aged children, which shows that we are still not making enough of a concerted effort to teach our children about finance. We can see this quite clearly when we compare the average test scores of 10-14 year olds with the average scores of 25- 35 year olds, 36-50 year olds, and 50+ year olds. The average 10-14 year old scores a 54% on the NFEC Financial Literacy test; this is unsurprising, though disheartening, because this age demographic has yet to worry about their own personal finances the way they will when they get a few years older. Still, the average 25-35 year old only scores a 72% on the test, less than twenty percentage points higher than their younger counterparts – and the results aren’t much better in older Americans. Amongst 36-50 year olds, the average score is 73%, and in 50+ year olds, who perform the best on the test of any age group, the average score is still only a 77%. I’ll remind you again that this test was created for 15-18 year olds – scary, isn’t it?

This is why I was so excited to hear about Visa’s new Global Financial Education Initiative for Olympic athletes, which they’re debuting at this year’s Olympic Games in Rio. According to an August 4th press release, “The new program, Practical Money Skills for Athletes, will utilize Visa’s award-winning financial education program and curriculum focused on key personal finance topics including financial planning and decision making, goal-setting, budgeting and saving, understanding banking services, and basic money management. Financial education workshops for athletes will initially be available in English, French, Portuguese, and Simplified Chinese, and will feature presentations, skill-building activities and multi-media components.” What great news – and what a great idea for a program!

I can already think of so many different and valuable ways that an initiative like this one could be expanded on and adapted to teach people of all ages how to manage their money. I hope that this Visa program represents the start of a global push for financial literacy – but in the meantime, not to fear: I’ll still be here, posting about different ways that you can take your financial education (and that of your children) into your own hands.

Use This Organization’s Tools to Teach Your Children About Money

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In my last post, I spoke about the importance of early financial education. I recently learned of a terrific organization, the National Financial Educators Council (NFEC), that focuses entirely on this topic. Here’s their mission statement: “The National Financial Educators Council (NFEC) is creating a world where people are informed to make qualified financial decisions that improve their lives. We provide financial education resources, promote advocacy campaigns, and help organizations build sustainable financial education programs.” I have to tell you, just reading those words gives me hope for the financial future of our children – and here’s why.

Erica Hill

Teaching your children money management skills early on will make them fiscally responsible adults.

In focusing on creating a standardized financial curriculum, NFEC is addressing a real and dangerous problem in our country: the absence of anything even closely resembling a financial education in our schools. Quite frankly, it’s unacceptable that we are still prioritizing esoteric and unnecessary knowledge, like micro-details of the average Bronze Age Mesopotamian’s diet, over important, real-life knowledge, like how to avoid accruing debt, how to write a resume, and how to create and follow a budget.

People wonder how the Financial Crisis of 2008 could have happened. To me, it’s quite obvious that this stock market crash was a direct result of the fact that most Americans knew next-to-nothing about how to responsibly manage their finances, or why it would be a terrible idea to do things like take out four mortgages on one house. If we want to prevent another financial crisis caused by the same national Achilles’ heel from happening, it is imperative that we start teaching our children the skills they’ll need to become fiscally responsible adults as early as possible. Based on my fervency about this subject, you can imagine how pleased I was to learn that NFEC’s curriculum starts at the pre-school level, when the organization advises that children should be taught basic concepts of numbers, time, money and income, value, market and exchange, choice, and social values.

If you’d like to learn more about the NFEC’s advised curriculum or the opportunities they provide for guided financial education, head over to their website at financialeducatorscouncil.org. Your children will thank you for it one day. 

The Strong Case for Early Financial Education

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As any parent of a school-aged child can attest to, one topic that is conspicuously absent from most school curriculums is personal finance. Despite the fact that understanding one’s financial responsibilities is a basic life skill, for some reason, it is not only a topic that is rarely covered in the classroom, but it is one that is barely discussed at all until adulthood, by which time it is often too late to instill smart habits for money management without the added stress of having to apply these lessons in real time to real bills that are mounting by the day.

I am a strong proponent of the belief that we should start to educate our children about finances as early as possible, thereby demystifying the world of money management and imparting valuable advice that will stay with them for the rest of their lives. All too often, though, the process of getting the ball rolling on a financial education is so daunting that parents don’t know where to start. When we talk about a financial education and developing financial literacy, then, it helps to break the topic down into 4 areas of knowledge:

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Teach financial literacy by turning money management into a game.

  1. How a person makes money
  2. How to manage the money you’ve made
  3. How to invest your money to turn it into even more money, and  
  4. How to donate your money.

Each of these topics opens a dialogue about much broader issues that children should be exposed to early on. For example, if you’re teaching your child how a person makes money, you can introduce her to the topic of work salaries and how her paychecks will be taxed before she receives them. When it comes to imparting wisdom about how to manage the money you’ve made, you can use this opportunity to teach your child about the importance of saving, how to financially plan ahead for her future and why and how to avoid the trap of falling into credit card debt. And while investing is often considered to be the purview of the rich, this is not only misguided, but also causes millions of people to lose out on potential income every year. We can correct this perception by teaching our children about investing in the form of a game, which will both demystify the process of investing and make it an appealing prospect to children from all socio-economic stratas. Finally, with financial education, we have the power to raise future generations who will view donating to charity not as a luxury, but as a mandatory component of money management, thereby creating a world in which charities and nonprofits have a much larger pool of funds to pull from to do good.

The fact of the matter is, only time will tell if these important lessons are incorporated into school curriculums. Until that day comes, it is our responsibility as parents to teach our children about finance in the home if we want to re-shape the way we as a society understand how to manage our money and put a stop to the financial ignorance that is causing so much of the world’s economic problems today.