Use credit wisely and build a strong reputation

Establishing credit is a great deal like establishing a reputation. Ben Franklin said “It takes many good deeds to build a good reputation, and only one bad one to lose it.”  Establishing credit, whether a consumer is just beginning, or starting over, can be daunting. However, I have seen that with a little knowledge and a few simple steps a consumer’s credit may be established in short order.

The first step in the consumer’s journey is to check their credit report. The credit report is the reputation that a consumer has built over time by those “many good deeds”: timely payments on credit cards, car loans, mortgages and student loans; payment of rent or utility bills; responsible management of a checking account. These items are all a point of reference for a credit report. [Read more…]

Debt & Moderation

I typically begin a posting with a quote. Today’s posting on the need for, and the responsible use of debt, provided several challenges in the quote department. One challenge is current popular opinion which states that all debt is Biblically and morally wrong. The second challenge, and perhaps very revealing, is that quotes on the responsible use of debt, outside of economic circles, is very limited.

In our practice we use debt with our clients in a variety of ways: asset protection, short term cash flow needs, and as an investment. The ‘true north’ in the application of debt in financial planning is moderation. Moderation as a quotable phrase provided a more substantial harvest. [Read more…]

Where to begin – Personal Financial Ratios Part 2

In my last posting I began a dialogue about personal financial ratios. I used “Habit 2, ‘Begin with the End in Mind’” from Stephen Covey’s book, The Seven Habits of Highly Successful People. I went on to say that like Habit 2, the “personal financial ratios are a goal to strive toward, a goal to be obtained.” The first step in working with personal financial ratios is to create a “spending plan.”

Unlike the term budget, a ‘spending plan’ emphasizes choice in spending decisions. It is a necessary building block for the future. Once the spending plan is completed it should be reviewed in light of the personal financial ratios. Objectively, if we give away 10 percent of gross income, save 10 percent of gross income, and pay taxes of 30 percent of gross income, then we should be creating our spending plans with a goal of living off of 50 percent of our gross income. [Read more…]