Your Credit Score is like your reputation, it follows you everywhere. Protect it as best as you can.
What Makes Up a Credit Score
A credit score takes into account a lot of different information from your credit report, but it’s not all treated equally. Some aspects of your credit history are more important than others and will weigh more heavily on your overall score. Your FICO score is essentially made up of the following:
· Payment History – 35%
· Total Amounts Owed – 30%
· Length of Credit History – 15%
· New Credit – 10%
· Type of Credit in Use – 10%
As you can see, the bulk of your credit score comes from your payment history and how much debt you actually have. Those two items account for 65% of your score. So, if you’re really looking to improve your credit score, these are the areas you’ll want to tackle first.
Why Your FICO Credit Score is Important
We’ve determined what makes up a credit score, but why is it so important? Your credit score will follow you for your entire life and if you are ever trying to borrow money, the lender is going to look at your credit score to determine whether or not to lend money to you. Need to buy a car? They will check your credit score. Looking for a mortgage? You can bet they are checking your credit score. In fact, even some employers are checking credit scores when hiring to possibly determine who would make a good employee.
Not only does your credit score determine whether or not you’ll receive financing, it also determines how much it will cost you to borrow that money. People with higher credit scores are deemed to be less of a risk and therefore will typically receive the lowest interest rates. Those with lower scores are viewed as more of a risk so the bank will offset that risk by lending you money at a higher interest rate. And when you’re talking about larger loans such as buying a vehicle or a home, just an extra interest rate point could add up to thousands, and even tens of thousands of dollars wasted on interest.
Monday, February 22, 2010
Monday, February 15, 2010
2010 Five Star Wealth Managers
A big thanks to San Diego Magazine and San Diego for honoring me and our practice this month. I am humbled and grateful for the honor of being one of San Diego Magazine's 2010 Five Star Wealth Managers. From February's San Diego Magazine, the award, "represents less than 4 percent of the wealth managers in the San Diego area. Only 456 of the top-scoring wealth managers made this year's list."
Cheryl, Marcie, and myself work hard to provide the best customer service and financial planning to all our clients. I am excited to share this honor with them and all our clients whom we serve.
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Monday, January 25, 2010
Why You Should Convert to a Roth IRA in 2010
2010 offers us some special and unique planning opportunities. It allows all taxpayers to convert IRA (tax deferred) money to Roth IRAs (tax free money) regardless of adjusted gross income. In the prior years, only taxpayers with adjusted gross income of less than $100,000 were allowed to convert IRA money to a Roth IRA.
When a taxpayer converts money from a regular IRA to a Roth IRA there is a tax bill due. The taxes are based on the amount of conversion and taxed at the taxpayer’s current tax bracket. In other words, if $10,000 of regular IRA money is converted to a Roth and the taxpayer is in a 15% tax bracket, then $1500 of federal taxes would be owed in addition to state taxes.
2010 also offers another special situation in that the federal taxes owed for conversions in 2010 can be spread over 2 years rather than all being paid in one year. So, if we look at the same example above, the $1500 in taxes could be paid in 4/15/11 and 4/15/12. However, please note that if the tax brackets are higher in the later years, you will pay more in taxes. So, if you believe that we will see higher taxes down the road, it might make more sense to pay the entire tax bill in 4/15/11!
The entire IRA does not need to be converted. So, if a taxpayer has a $100,000 IRA but does not want to convert the entire IRA because of the high tax bill, he /she can convert just a portion of the IRA. And pay taxes only on the converted amount.
If there are non deductible contributions in the IRA account mixed in with deductible contributions, you cannot just convert the non deductible amounts. It must be pro-rated. Assume that a taxpayer has a $100,000 IRA and $40,000 is from non deductible or post tax contributions, then only 40% is non taxable if the entire IRA is converted. The other $60,000 would be taxable. If the same taxpayer decided to just convert $50,000, then $20,000 (40%) would be non taxable and $30,000 would be taxable.
And the final good news sounds like a TV commercial “if for any reason you are not satisfied, you can undo your Roth conversion absolutely free, with no further obligation”. It’s called a recharacterization and if you convert this year you have until 10/15/2011 to undo the conversion. For example, assume you convert $100,000 in 2010 and the market totally tanks and you end up with only $80,000 in your Roth but will owe taxes on the $100,000 that you converted. You can do a recharacterization and put the money back into your IRA and undo the whole transaction. Sounds almost too good to be true!
The earlier that you convert, the better off you will be. Consider that, over time, stocks have risen more than they have fallen. All other things being equal, converting earlier means that the dollar amount of your conversion will be lower, thereby costing you less in taxes.
When a taxpayer converts money from a regular IRA to a Roth IRA there is a tax bill due. The taxes are based on the amount of conversion and taxed at the taxpayer’s current tax bracket. In other words, if $10,000 of regular IRA money is converted to a Roth and the taxpayer is in a 15% tax bracket, then $1500 of federal taxes would be owed in addition to state taxes.
2010 also offers another special situation in that the federal taxes owed for conversions in 2010 can be spread over 2 years rather than all being paid in one year. So, if we look at the same example above, the $1500 in taxes could be paid in 4/15/11 and 4/15/12. However, please note that if the tax brackets are higher in the later years, you will pay more in taxes. So, if you believe that we will see higher taxes down the road, it might make more sense to pay the entire tax bill in 4/15/11!
The entire IRA does not need to be converted. So, if a taxpayer has a $100,000 IRA but does not want to convert the entire IRA because of the high tax bill, he /she can convert just a portion of the IRA. And pay taxes only on the converted amount.
If there are non deductible contributions in the IRA account mixed in with deductible contributions, you cannot just convert the non deductible amounts. It must be pro-rated. Assume that a taxpayer has a $100,000 IRA and $40,000 is from non deductible or post tax contributions, then only 40% is non taxable if the entire IRA is converted. The other $60,000 would be taxable. If the same taxpayer decided to just convert $50,000, then $20,000 (40%) would be non taxable and $30,000 would be taxable.
And the final good news sounds like a TV commercial “if for any reason you are not satisfied, you can undo your Roth conversion absolutely free, with no further obligation”. It’s called a recharacterization and if you convert this year you have until 10/15/2011 to undo the conversion. For example, assume you convert $100,000 in 2010 and the market totally tanks and you end up with only $80,000 in your Roth but will owe taxes on the $100,000 that you converted. You can do a recharacterization and put the money back into your IRA and undo the whole transaction. Sounds almost too good to be true!
The earlier that you convert, the better off you will be. Consider that, over time, stocks have risen more than they have fallen. All other things being equal, converting earlier means that the dollar amount of your conversion will be lower, thereby costing you less in taxes.
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Wednesday, January 20, 2010
Haiti Charitable Giving and 2009 Taxes
I am proud of our country and our citizens in how we as a nation have stepped up with our time, talent and financial resources to help the folks in Haiti. It has been very gratifying to see the outpouring of prayers and donations for this most impoverished country. Haiti's pain has truly captured the hearts of America and we have responded generously.
I am pleased to say that the House passed a bill yesterday that will allow all donations to Haiti Relief organizations to be considered charitable contributions on tax returns for 2009. Senate approval is expected as well. This applies to donations made after January 11th, 2010 and before March 1, 2010. Even though most of us give from our hearts and not because of tax reasons, it is nice to know that we get to reduce our 2009 taxes and help out Haiti as well.
If you are considering making a financial gift to Haiti, please do so by end of February and lower your 2009 taxes!
I am pleased to say that the House passed a bill yesterday that will allow all donations to Haiti Relief organizations to be considered charitable contributions on tax returns for 2009. Senate approval is expected as well. This applies to donations made after January 11th, 2010 and before March 1, 2010. Even though most of us give from our hearts and not because of tax reasons, it is nice to know that we get to reduce our 2009 taxes and help out Haiti as well.
If you are considering making a financial gift to Haiti, please do so by end of February and lower your 2009 taxes!
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Monday, November 16, 2009
Worker, Homeownership and Business Assistance Act of 2009
We have another tax bill! This was signed by Pres Obama on 11/6/2009 in order to help stimulate the housing market. This bill has huge opportunities for first time homebuyers and existing long term homeowners. Even if it doesn't apply to you, chances are someone in your family, workplace or network of friends will definitely be able to qualify and utilize these generous tax credits. Here are the nuts and bolts:
1. FIRST TIME HOMEBUYERS---the credit of $8000 is extended for purchases made before 5/1/2010. The defintion of first time homebuyer is a taxpayer who has not owned a principal residence at any time during the previous 3 years. Taxpayers must have entered into a written binding contract by 5/1/2010 and close escrow before 7/1/2010.
2. EXISTING HOMEOWNERS--A taxpayer is eligible for a credit up to $6500 ($3250 if single) if they purchase a personal residence AFTER 11/6/2009 and before 5/1/2010. The same rule applies in that the taxpayer must enter into a written binding contract by 5/1/2010 and close escrow before 7/1/2010. The taxpayer must have owned the same principal residence for any five consecutive years during the 8 year period ending on the date of purchase. In addition, the maximum purchase price of the home is $800,000 or less. The taxpayer also needs to attach the closing statement to his/her tax return for either 2009 (purchase home after 11/6/2009) or 2010 return (purchase home before 5/1/2010 and close before 7/1/2010).
Bottom line is that if you are thinking of buying a first time home or changing residences, this is the time to start looking around and do it. Home prices have fallen 30-60% in the past two years and the time may never be better!
1. FIRST TIME HOMEBUYERS---the credit of $8000 is extended for purchases made before 5/1/2010. The defintion of first time homebuyer is a taxpayer who has not owned a principal residence at any time during the previous 3 years. Taxpayers must have entered into a written binding contract by 5/1/2010 and close escrow before 7/1/2010.
2. EXISTING HOMEOWNERS--A taxpayer is eligible for a credit up to $6500 ($3250 if single) if they purchase a personal residence AFTER 11/6/2009 and before 5/1/2010. The same rule applies in that the taxpayer must enter into a written binding contract by 5/1/2010 and close escrow before 7/1/2010. The taxpayer must have owned the same principal residence for any five consecutive years during the 8 year period ending on the date of purchase. In addition, the maximum purchase price of the home is $800,000 or less. The taxpayer also needs to attach the closing statement to his/her tax return for either 2009 (purchase home after 11/6/2009) or 2010 return (purchase home before 5/1/2010 and close before 7/1/2010).
Bottom line is that if you are thinking of buying a first time home or changing residences, this is the time to start looking around and do it. Home prices have fallen 30-60% in the past two years and the time may never be better!
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Thursday, October 1, 2009
Being Overconfident
This is part 7 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.
Our ancient ancestors needed to be overconfident in order to survive because life was short and food was scarce. That served them well then but today, it can cause us costly investment mistakes. Because overconfident investors often forget past mistakes yet always remember past successes.
Remember the bull market of the 90's. It was almost impossible to have not made money in the stock market, especially the technology sector. Investors got overconfident and thought they were geniuses. Many shifted all of their stock portfolio to tech stocks and then got burned when that sector tanked in early 2000.
Also, investors may invest heavily in their own employer stock because they think they have insider knowledge of the company. Think Enron!
To create true wealth and avoid being overconfident, investors must be non-emotional and disciplined investors. Having a little humility helps.
Bottom line: Don't make the mistake of being overconfident in your investing skills.
Our ancient ancestors needed to be overconfident in order to survive because life was short and food was scarce. That served them well then but today, it can cause us costly investment mistakes. Because overconfident investors often forget past mistakes yet always remember past successes.
Remember the bull market of the 90's. It was almost impossible to have not made money in the stock market, especially the technology sector. Investors got overconfident and thought they were geniuses. Many shifted all of their stock portfolio to tech stocks and then got burned when that sector tanked in early 2000.
Also, investors may invest heavily in their own employer stock because they think they have insider knowledge of the company. Think Enron!
To create true wealth and avoid being overconfident, investors must be non-emotional and disciplined investors. Having a little humility helps.
Bottom line: Don't make the mistake of being overconfident in your investing skills.
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Monday, September 14, 2009
Information Overload
This is part 6 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.
What sources of information do you use when considering an investment? Most people make investments based on emotion--a hot tip from a co-worker, family member or friend. They jump in to buy the stock because they think they have "inside information".
Or they listen to all the cable news shows like MSNBC or Fox money reports. Many of these so called money and finance commentators are nothing more than theatrical performers.
Some people read several of the many trade publications that tout the latest and greatest. The problem with all the information out there is that it is way too much information for any one person to absorb. There is simply too much white noise.
Trying to accumulate vast amounts of information in order to make intelligent and rational investment decisions is way beyond the time and resources of most people.
An astute investor is careful to limit the amount of information he/she uses to make decisions or they hire out this important work to a trusted advisor.
Bottom line is that basing your investment decisions on tons of information is not the best way to generate wealth.
What sources of information do you use when considering an investment? Most people make investments based on emotion--a hot tip from a co-worker, family member or friend. They jump in to buy the stock because they think they have "inside information".
Or they listen to all the cable news shows like MSNBC or Fox money reports. Many of these so called money and finance commentators are nothing more than theatrical performers.
Some people read several of the many trade publications that tout the latest and greatest. The problem with all the information out there is that it is way too much information for any one person to absorb. There is simply too much white noise.
Trying to accumulate vast amounts of information in order to make intelligent and rational investment decisions is way beyond the time and resources of most people.
An astute investor is careful to limit the amount of information he/she uses to make decisions or they hire out this important work to a trusted advisor.
Bottom line is that basing your investment decisions on tons of information is not the best way to generate wealth.
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Monday, August 24, 2009
Relief for Struggling Small Businesses
The Small Business Administration (SBA) has announced a new loan program as part of the American Recovery and Reinvestment Act of 2009 (ARC). ARC loans are available to small businesses that need short term assistance to make principal and interest payments on existing qualifying debt.
The loans are interest free and carry no fees. The maximum amount of the loan is $35,000. Business owners can defer loan payments for up to one year after the loan is received. And the loan can be repaid over 5 years.
Get more information at www.sba.gov and type ARC in the search field.
The loans are interest free and carry no fees. The maximum amount of the loan is $35,000. Business owners can defer loan payments for up to one year after the loan is received. And the loan can be repaid over 5 years.
Get more information at www.sba.gov and type ARC in the search field.
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Monday, August 17, 2009
Truly Diversifying Your Portfolio
This is part 5 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.
Most investors know that it's smart to diversify. However, most investors are not nearly as diversified as they should be. Investing in the S&P 500 (the 500 largest stocks in the US) is not a diversified portfolio. Did you know that the US represents less than 50% of the developed global markets in the world??? By avoiding international stocks, an investor is missing out on a lot of opportunities.
From 1993 through 2008, if you examine the countries with the best equity returns each year, the US was only a top-five performer three times in the last 16 years.
Bottom Line: Don't make the mistake of focusing solely on US securities!
Most investors know that it's smart to diversify. However, most investors are not nearly as diversified as they should be. Investing in the S&P 500 (the 500 largest stocks in the US) is not a diversified portfolio. Did you know that the US represents less than 50% of the developed global markets in the world??? By avoiding international stocks, an investor is missing out on a lot of opportunities.
From 1993 through 2008, if you examine the countries with the best equity returns each year, the US was only a top-five performer three times in the last 16 years.
Bottom Line: Don't make the mistake of focusing solely on US securities!
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Monday, July 27, 2009
Understanding the Difference between Income and Cash Flow
This is part 4 of 8 blogs on what today's smart investors need to know in order to create sustainable wealth for you and your family.
Income and cash flow are not the same thing even though most people think they are.
Most people think in terms of how much they can safely take from their portfolio for living expenses. The correct way to think is how much they can safely spend from their portfolio for living expenses.
It is a big mistake to think that you should get the cash flow that you need only from portfolio income (dividends and interest) without ever touching your principal. This is an emotional issue that is sometimes hard for folks to overcome. By doing this, you can pay more taxes than necessary.
Investors need to focus on the total after-tax return of their portfolios. Selling stocks when they are have appreciated and using that money for living expenses is a far more tax advantageous way of creating the cash necessary for lifestyle.
Bottom line: The way in which you generate income can have a tangible effect on the growth of your assets as well as on the taxes you pay.
Income and cash flow are not the same thing even though most people think they are.
Most people think in terms of how much they can safely take from their portfolio for living expenses. The correct way to think is how much they can safely spend from their portfolio for living expenses.
It is a big mistake to think that you should get the cash flow that you need only from portfolio income (dividends and interest) without ever touching your principal. This is an emotional issue that is sometimes hard for folks to overcome. By doing this, you can pay more taxes than necessary.
Investors need to focus on the total after-tax return of their portfolios. Selling stocks when they are have appreciated and using that money for living expenses is a far more tax advantageous way of creating the cash necessary for lifestyle.
Bottom line: The way in which you generate income can have a tangible effect on the growth of your assets as well as on the taxes you pay.
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