Picture Credit: Daniil Vin || As a condtion of using the picture, his firm is CreditDebit Pro. This is NOT an endorsement of his services; it is a “thank you” for use of the image.

Before I start this evening, I want to mention three old articles that I have written on personal credit issues. Now some of my articles on having enough cash on hand would also apply, but the following three articles meet the topic the best:

• On Credit Scores
• The Asymptote of Joy and Woe (Okay, this is a cash management article, but it could have been written through the lens of credit scores as well.
• Long-term Relationships and Credit Scores

The last article is a little “out there” but the range of things that credit scoring can affect is huge. For a humorous over the top take on such a system that has gone out of control, consider the Webtoon LUFF, which just recently completed.

As I said earlier regarding the many ways credit scores get used:

The same is true for many other uses of credit data. Different parties want different aspects of the underlying data. Whether it is employers, lessors, lenders, insurers, etc., in an impersonal world, where there are fewer shared ethical values than in the past, economic actors rely on semi-public data to get comfortable about who they are dealing with.

On Credit Scores

All manner of decisions are based off of your credit score and related scores. They can affect:

• Loan decisions
• Insurance coverages (Auto, Home, Umbrella, Small Business coverages, and maybe even Life)
• Rental and Leasing
• Employment
• And, at the outer edge, relationships.

Credit scoring is a subset of algorithmic scoring that is going on with greater frequency in our anonymous world today. To escape some of that, you can try setting up a relationship with a local community bank, smaller insurance companies, etc. They will treat you as more of a person, and less of a number. That said, it will likely cost more on average. Your mileage may vary.

What to do?

I decided to write this because I went through my own credit profile at one of the credit bureaus, and decided to try to correct some information that looked wrong. Now my credit score is fine, but what I was doing was in the nature of locking a door to your house where that door is never used.

I called up credit card companies to close credit cards that had not been used in years, a few of which I thought had been closed, but the credit report did not reflect that. Also one where it said there had been a dispute over the account. Oddly, that one was the easiest to deal with. They have now closed the account.

Now there are many sources of getting credit data on yourself. This is a non-exhaustive list:

• Credit monitoring from data breaches. I usually get enough of these that I rarely don’t have this credit data.
• Through third parties doing you a service as a part of a broader offering to ad some value. My example here is AAA, where they have thrown in credit monitoring as a service.
• From credit card companies themselves. My longest-dated credit card is from JPMorgan Chase, and they give me credit monitoring as well, and free access to my credit score. (Note: it is just one credit score. There are many of them and they are not identical, but typically they are highly similar.)
• Finally, available to EVERYONE — AnnualCreditReport.com.

Complete data, totally free, excluding credit scores, is available at AnnualCreditReport.com. You can get all three credit bureaus at once, or, you could do a different one every four months in order to keep a closer eye on your credit profile. They all have roughly the same data anyway — I have never seen a significant difference on my profile between the three. But then, I have no loans and few credit cards outstanding. I have deliberately kept things simple over my lifetime.

Look at your credit data for things that are wrong. Talk to the lenders to correct things, and if that doesn’t work, file statements with the credit bureaus to tell your side of the story. Close unused accounts, with the exception of your longest-standing account, which plays a role in your credit score. Credit scores give you more points for the length of your longest open credit account.

Practically, I keep two personal credit cards. One is the card offering the best deals to me in terms of money back, and the other is the backup card, which is the one that I have had the longest. I keep two cards because of the possibility of fraud on one of the cards. When fraud happens, a card gets cancelled and reissued. During that time where you wait for the reissue, a backup card is a big help; the convenience of using a card for deferred payment is considerable if you pay off the bill in full each month.

I review credit card charges once a month to check for fraud. I have a monthly “finances day” for my home and business, where I check my finances, and manage future cash flow. I review the overall credit profile two or three times a year. Most of the time it yields nothing, but it only takes five minutes unless something needs to be corrected.

As I often say here: you are your own best defender. But if you feel that you are in over your head, find a smart friend who is local to you and ask him for help.

Finally, keep enough liquid assets around to deal with moderate disasters. Build a buffer against common troubles. If you do these things, and have insurance against most common risks, you will survive better than most, and absolutely survive 99% of the time.

Photo Credit: -Curly- || Really, it’s easy to be happy when you have just enough. All the money you need and not enough to fight over 🙂

Two things I request of You (Deprive me not before I die): Remove falsehood and lies far from me; Give me neither poverty nor riches? Feed me with the food allotted to me; Lest I be full and deny You, And say, “Who is the LORD?” Or lest I be poor and steal, And profane the name of my God.

New King James Version — Proverbs 30:7-9

Most of us want to be loved. It’s a deep need, and people crave it, often seeking good and bad ways to satisfy the need.

I counsel some people regarding their lives, who are not well off. It is not a rewarding pursuit in a pecuniary sense, but I do it out of love for them. Many have failed marriages. Some have marriages in danger of failing. Most have some habitual problem that is keeping them from succeeding. They sabotage themselves because they don’t want to admit that they are the main cause of their problems.

(This is not what intended to write about when I started.) Those who don’t have deep problems in their relationships still need to “weed and feed” in order to keep their relationships healthy. Weed — apologize when needed. Feed — show love regularly.

Love takes time, so the song by Orleans goes. I spend a minimum of 15 minutes every night with my wife talking to her, hearing her needs, doing the business of our marriage. The closer the relationship, the more tending it needs.

Spending time definitely affects love. What about money? How does it affect love? I will give a few ways that money can aid love.

• Work hard to support those that you love.
• Save money so that unexpected troubles don’t knock you off your feet.
• Help your friends in their times of need.
• Help your children go to college, or help fund their initial business efforts.
• Buy a home that will allow you to take care of your family. Pay off the mortgage so that it is no longer a burden.
• Buy a life insurance policy so that your loved ones are supported after your demise.
• Give money to your favorite charity.
• Take breaks from your work to spend time with your family. It can be a vacation, if that is what you like.
• Analyze what risks your family faces, and find ways to neutralize them.
• Invest wisely, so that you have more to help others, and enjoy your life.
• Give gifts to your spouse and children such that they get something that they desire.
• And more… give ideas in the comments.

Sergio Mendez had a song called “Put a Little Love Away.” Part of the lyrics were:

Better put a little love away
Everybody needs a penny for a rainy day
Put a little love away
Keep a loving thought in mind
Someone’s gotta leave
Somebody’s gotta stay behind
Put a little love away

Universal, Inc.

For those of us who take care of others, rather than just living for ourselves, showing love is important. But it requires a complex balancing act of labor, saving, investing and giving.

In this sense, the money is distilled effort used to aid others. I have often said that love is giving others what they desire. Find ways to give those you love what they desire, whether it requires time, money, or whatever. Be a giver, and you will likely be happy.

Picture Credit: Marketwatch.com || Quentin Fottrell takes your questions and answers them… we sometimes do that at Aleph Blog

I sometimes read Quentin Fottrell as he answers tough reader questions at The Moneyist, a column at Marketwatch.com. In general, I agree with what he advises 90% of the time, and think he does it in an entertaining way.

I say this as one that generally doesn’t like advice columnists. Sometimes I think they do more harm than good.

As I read some of the questions and answers in his column, I note several patterns.

• Remarriage (after divorce or death of a spouse)
• Divorce even without remarriage
• Bad Communications, often intentional
• Greed
• Laziness
• Various and sundry “Miss Manners” -type questions that are related to money

I want to give my own take on these issues.

Let’s start with the simplest of these — bad communications. The person with the assets doesn’t want to hurt the feelings of others, so he doesn’t reveal the full truth of what he is planning to do with them, stringing everyone along until he dies. The explosion happens after his death, when everyone fights over what they thought was theirs.

Bad communications on money can spoil many marriages. It is better to have frank conversations about money with your wife or husband than to leave them in the dark. Marriage is a joint venture — communications have to be frequent and loving if you want to succeed.

Then there are second marriages. After death of a spouse, it is simpler. Take a simple approach — yours, mine, and ours. Children from prior marriages can take a fixed share of the past prosperity immediately or in trust, or opt into the shared prosperity of the new family.

With divorce, it is harder, because the ex-spouse still lives and can advocate for his interests.

Laziness and greed are relatively simple issues. Limit your dealings with them to the minimum, and as much as possible, let the consequences for their behavior fall on them. Don’t bail them out until they genuinely want to change.

Finally, the heart of manners is treating others the way you would like to be treated.

• Learn to forgive
• Avoid greed of your own.
• Realize that good family and friends are worth more than money
• Don’t sponge off of others.
• Be honest and courageous. A little pain now in being honest with someone that you are offending will save others a ton of pain later.
• Above all, look out for the best interests of others. In a limited sense, that is what it means to love.

Anyway, kudos to Quentin Fottrell — keep answering the hard questions. Where I get opportunity, I will answer similar questions.

Photo Credit: 401(K) 2012 || As that great moral philosopher George Harrison once sang: “It’s gonna take a lotta money, a whole lot of spending money…”

Here is a comment from a reader on my last post:

Hello David. Fellow actuary here. I usually love your posts. I disagree with this one. Or at least I disagree with the title. ?How much (or how little) should I spend?? may have matched the content better.
I?d love to read your thoughts on ?When have I saved enough so that I may now outspend my income?? Perhaps you have written such a post but I don?t recall it.

Thanks for your great content!

https://alephblog.com/2019/10/16/how-much-should-i-save/#comment-37283

Yeah, I get it. Here are four posts that describe my view on spending money:

• Build the Buffer
• On a Letter From A Younger Friend
• Problems with Constant Compound Interest (6)
• Don?t be a Miser in Retirement (Or Ever) [This is the most comprehensive one]

My main idea is encouraging spending that supports the well-being of the household in the long-run. I am trying to encourage a balanced point of view, which is the hardest thing to do. For many people it is easier to convince them to do just one simple thing than try to balance two or more unaligned goals.

That is why the “stoplight rule” is so useful. It is minimal, but balances saving and spending. Imagine telling a friend to enjoy life, but not too much, such that he compromises the future. The stoplight rule is a real help.

People have a hard time expanding their time horizons. It is easiest to live for the present, and hardest to live for retirement. The good of the present is tangible, whereas the good of the future is intangible.

I do not favor excessive savings. It usually leads to a trail of tears in relationships. God wants life to be enjoyed, because it honors the way he provides for us. God is not a miser; we should not be misers either.

As I said in the post Don?t be a Miser in Retirement (Or Ever):

The author of?the?book that I most recently reviewed, Carlos Sera,?gave one of his sayings on page 97 of his book:

?There is a fine line between over-saving and under-living.?

That particular story dealt with a couple that had been especially frugal, and after not earning all that much, at retirement had $6 million. ?They had a traditional marriage, and the husband handled the money entirely. ?He worked until 72, retired due to incapacity, and on the day of his retirement, he handed his wife a check for $3 million.

She thought it was a joke, so for fun she tried to cash the check. ?To her surprise, the check cleared. ?Then came the bigger surprise ? her amazement gave way to anger! ?All the years of self-denial, and they were this well-off! ?There were so many things she denied herself along the way, and now both of them were too old to truly enjoy their riches.
There?s more to the story? the point the author goes for is mostly abut how husbands and wives should learn to cooperate on the shared tasks of household economic management, so that both are on the same page, and they can be agreed on goals and methods.

I agree with that, and would add that the best approach on spending versus saving is what I would call a conservative version of the ?middle way.? ?Make sure that you are provident, but balance that with contentment and a happy enjoyment of what you have. ?Life is meant to be lived.

Yes, it is good to be prudent and frugal, but not to the point where you amass a lot of assets and never enjoy them.

https://alephblog.com/2015/11/03/dont-be-a-miser-in-retirement-or-ever/

I sometimes say in certain charitable contributions “What is the point of money if I can’t enjoy it being spent to a good purpose?”

Yes. There are some tiny-minded people who believe that “the one with the most toys at death wins.” These are people who want to delude themselves that selfishness is what is right, which is ridiculous.

If you are well off, God does not want you to be a miser. First, he wants you to honor Him. After that, he wants you to take care of your charitable obligations to society. After that, he wants you to enjoy what you have.

And that’s what I do, Lord helping me. I am sparing on optional items, but I take care of my home, the church, and other opportunities for charity that are in front of me. After that I relax, because I wait for other needs to be big enough to deal with.

Photo Credit: Images Money || Saving is a good thing, don’t let the Keynesians tell you otherwise. After all, Keynes saved and invested.

When I started Aleph Blog my oldest child (out of eight) was 17. At present, my youngest child is 17. My view on saving is that you should save as much as you can. Why?

Much consumer spending is not needed. It is done to compete with other people for bragging rights, rather than meet basic needs. Many people in the US and other places are spoiled, and think that they need to have the best in the goods that they consume.

Learn from your great-grandparents who you never met, or were too little to understand: Deferred gratification. Don’t maximize the joy of your youth. Rather, save when you are young, and look to have a happy life from middle age to the end of life. That would be more happiness than if you had not saved when you were young.

What I have seen from my own children is that the savers are he happy ones, and the spenders are miserable… chased by the debt collectors and the repo men. It is a poor kind of happiness for me that those who listened to me are doing well, and those who ignored me are doing bad.

My basic advice for you is this: save 10% or more of your income. If you think you can’t do it, you are right. But I will tell you that you can do it, regardless of what your think. It is a question of will, not ability.

True saving means cutting expenses that are pleasant but not necessary. It means searching over your credit card statement for things you agreed to once, but no longer need. It means living with the old clothes that are just fine, but a little out of date. It means eating common food at home, and learning how to cook delicious food yourself. In this era of the internet, with rated recipes, this is not hard.

The main thing to fight is the attitude that you need to spend now. Think and plan. What is the best way that you can organize your life for the next 30 years? When you think long-term everything becomes more rational.

Summary

Save and invest. Your life will be happier if you deny yourself when you are younger, and enjoy life more when you are older. I have been debt-free for over 15 years now. Not having to make a mortgage or rent payment is a sweet thing. Having a valuable asset like my home (free and clear) is a sweet thing.

On average, in my life I saved more than 10% of my income, and I gave away more than 10% of my income. I do not regret the deprivation. At present, I have more than I need, and I give to charities.

I am not telling you to be like me. I am telling you that there is an alternative to the typical consumer mindset. Like your great-grandparents, defer gratification and save. You will be happier in the long run.

Picture Credit: David Merkel / Aleph Blog || I call the middle of the graph “the slope of hope,” but really, it depends what side of the graph you are on…

This is one of my basic pieces on personal finance. The shape of the graph is illustrative, and the units don’t mean anything. It’s meant to motivate a simple concept that everyone should maintain at least a minimum savings buffer.

It is as Solomon said in Ecclesiastes 9:11:

I returned?and saw under the sun that?
The race?is?not to the swift,
Nor the battle to the strong,
Nor bread to the wise,
Nor riches to men of understanding,
Nor favor to men of skill;
But time and?chance happen to them all.

https://www.biblegateway.com/passage/?search=Ecclesiastes+9%3A11&version=NKJV

Accidents happen, both bad and good. We also will grow old, and get weaker. We may meet untimely deaths. Alternatively, we may live a comparatively long period of time, and find we didn’t lay enough aside for our old age.

Even the best of us may not plan well enough for the contingencies of life. That said, there is adequate preparation for most emergencies. First comes a buffer fund of 3-6 months expenses. Second comes basic insurance coverage: health, property and liability. Third comes insurance coverages for others that need your support: life and perhaps disability insurance. Fourth and last is planning for long term goals like retirement and perhaps some help for kids going to college.

This article is meant to deal with the first of those preparations — the buffer fund. It is meant to show how difficult life can be when you don’t have it, and how not having it likely means you may never have it. On the other hand, if you have the minimum buffer fund you may find that bit-by-bit, you get better off.

There are two reasons for this: first, both saving and not saving are usually habitual. This correlates partly with income, but more with your degree of future orientation. I’ve known managing directors on Wall Street that were living paycheck to paycheck. I’ve also known immigrants that earn little, but save half of it. Are you willing to sacrifice some of the present to gain a better future? Are you willing to consume the future through borrowing for expenses in order to have a temporarily better time in the present?

This is one reason why people with the buffer fund tend to keep going upward — they keep saving and investing. And, many without a buffer fund always find themselves in debt. Stuck in debt.

Then there is the second reason: accidents. Those with the buffer fund can handle most bad accidents, and can take advantage of most good accidents. We can call the good accidents “opportunities.”

When the person with the buffer fund faces a bad accident, it is typically a “speed bump.” Nothing notable happens to family life. If no bad accidents happen, he may find that he possess valuable options for the use of excess cash:

1) Pay your insurance premiums in annual installments?
2) Buy your next car without financing it?
3) Pay off your credit card bills in full each month?
4) Ask for a discount for cash when buying big ticket items?? (You?d be surprised.? I drove quite a deal with my orthodontist for my wife and eight kids. I?m the only one that hasn?t had braces.)
5) End the escrow account on your mortgage?
6) Pay tuition bills in full, rather than a payment plan?
7) Take advantage of financial crises, and extend credit at tough times?? (I am still receiving 13% from a business associate that I lent money to in March of 2009, with warrants.)
8 ) Retain cash in your corporation to reduce financing costs?
9) Not worry about the minor disaster that recently hit?
10) Raise your deductibles on your Auto, Home and Health insurance premiums to save money?
11) Receive discounts on services that you want to receive, by getting a discount for buying years ahead?
12) Fund your 401(k), IRA, HSA, whatever, to the fullest?
13 And more?

http://alephblog.com/2011/09/01/build-the-buffer/

When others are offering great deals in the rare times where they need fast cash, the man with the buffer fund (and more) can take advantage of the situation and become even better off.

He can also take advantage of the flexibility that has has to start a business, or, work for a startup that he thinks is particularly promising.

For those without a buffer, at best it can be treading water. But an accident can force someone underwater. Most of the avenues for borrowing with those not having assets who are borrowing to meet expenses are expensive in terms of the rate paid, and onerous in terms of the terms demanded.

Once enslaved to onerous debts, it becomes very difficult to get out of the slimy pit. Note also that credit scores affect all manner of economic affairs, and can affect insurance pricing (wealthier people are better risks on average), job applications, rental opportunities, and much, much more… consider this a minor third reason why my graph above applies. Penalties from banks and credit card companies are stiff, and further entrench debts.

And to those that are really bad off, driving uninsured, not keeping up with payments to the motor vehicles department of your state, not paying on auto debts can find their car repossessed, with the possible loss of employment if he can’t get there. At worst the person can lose the ability to rent and be out on the street. These thing don’t happen overnight, but I have seen them happen piece by piece. It is desperately difficult to reboot a life once you no longer have a place to live. Predators hire people like that, and find ways to cheat them. Those with no assets and many debts have no means of defense. In some cases friends and family may help, but even they cut their losses when things seem hopeless.

This is pretty glum stuff. Aleph Blog is first realistic, and second optimistic. Bad things like these happen, and the people who hit the bottom are typically not only poor money-wise, they are poor relationally as well. Typically they have offended most family members and friends on the way down, and are simply surviving in shelters and tent cities, maybe working, maybe begging, maybe stealing. It’s tough, and for those that work with them, it is exceedingly tough to rebuild the habits and conditions that modestly successful people have.

Closing

So is this just “The rich get richer, and the poor get poorer?” No, it is only partly that. For those that are starting out, make it you goal to be a saver and have a buffer fund of at least three months expenses. For those that are in debt and trouble, fight as if your back is against the wall, and pay off the debts. As you succeed, maybe some friends and family will see the change in your life and help you. For those that are working, but hopelessly behind on debt, declare bankruptcy with the firm determination that you will find a way to make it different in the next phase of your life.

Those at the very bottom need personal help to reboot their lives. Government programs won’t do it. Some churches and focused charities succeed slightly at it. It all depends on whether habits will change or not, and that is the toughest nut of all, humanly speaking. I have seen it happen. I have seen it fail. It comes down to the willingness to sacrifice to create a better life later, which is where this article began. Will you give up some of the present to get a better future? That is where the rubber meets the road.

PS — David X. Martin’s book Risk and the Smart Investor is an engaging way to deal with this topic for those that are better off.