High Deductible Health Plans Here to Stay?

Open enrollment is here again and we had to make a decision about using a high deductible health plan (HDHP) before last Friday’s deadline.  Last year was the first time that we used a HDHP with a health savings account but this year we were considering switching back to a traditional insurance plan since we’re anticipating some big health care costs in 2012.

Unfortunately the costs of healthcare keep going up so my employer keeps raising the premiums, the lower the deductible of the plan the bigger the cost hikes.  This table shows the annual rate increase of each plan and also the plan’s deductible.

The plan with the lowest deductible has by far the highest premiums and the highest increases each year.  From 2011 to 2012 the cost of the premiums for the low deductible plan went up 22 times that of the increase of the high deductible plan – ouch.

Here are the monthly costs of each plan to my employer, you can see that they have to pay more for the low deductible plans and pass that cost onto us.  Their costs go up every year so that means our health insurance costs go up as well. 

High Deductibles Here to Stay?

When I first started a few years ago we were about to have a baby so I chose the plan with the lowest deductible. I knew we were going to be spending a lot of money and the premiums for the low deductible plan were much more reasonable back then.  I put all the numbers in a spreadsheet and it made the most sense to choose the low deductible plan.

Fast forward to 2012 (when we anticipate another big year of expenses) and after running the numbers, it makes no financial sense at all to use any plan other than the HDHP.  Based on what I saw in my comparison, it seems like the HDHP may always be the best plan in the future.  Here’s how I came to that conclusion:

Comparing Health Insurance Plans

How I determined the best insurance plan for us was by comparing both the lowest potential cost and the highest potential cost.  The lowest potential cost would be if we paid just the premiums and never used the insurance once during the year – the HDHP was the lowest by far.

Then I estimated the highest potential cost by adding the amount of the deductible to the annual premiums. (This isn’t a totally accurate estimate of costs because once we reach the deductible, they pay 90% of the cost and we’re responsible for the remaining 10%.  However, that’s the same for each plan so for comparison’s sake it doesn’t make enough difference in our case).  The annual premiums of the HDHP are low enough that even after adding them to the deductible of $2400 it still turned out to have the smallest of the highest potential cost.

Health Savings Account Balances

Since we opted for the high deductible health plan, it means that we qualify for a health savings account (HSA).  Ours has been great so far but a word of warning to anyone considering a HSA. If you have a big medical expense before you’ve deposited enough in your health savings account, you have to find the money to pay for it from somewhere else.

This is different than how things work with a flexible spending account (FSA).  In an FSA, you have access to the full amount of the funds that you committed to deposit over the course of the year, even on January 1^st.  Since this isn’t that case with an HSA, you want to make sure you have some extra cash lined up the first year you open it to cover costs that might come up before you’ve built up funds in your account.

For example, if your deductible is $2400 that means that ideally you’d have that much money available on January 1^st to cover any expenses that came up. Fortunately for us, this is our second year and last year I actually contributed the maximum amount possible into our HSA this year, $6150.

We did have some expenses to pay out but we still have a large chunk of that money sitting in the account.  So we’re covered pretty well because our deductible is $2400 and we have about double that in our health savings account. 

Preparing for a HSA

Not all employers offer high deductible health plans and health savings account, but with health care costs continually rising, I imagine someday most people will have that as a choice.  At some point it will be probably prohibitively expensive to use health insurance plan with low deductibles because the premiums will be too outrageous. 

One thing you could do in anticipation of having access to an HSA would be to start saving some money on the side so you’ll have it around that first year when you have no balance in your HSA to cover expenses.

One of the benefits of a health savings account is that the money you contribute is pre-tax, so every dollar you put into that account reduces your taxable income.  You wouldn’t see that tax benefit from any money you start saving now outside of an HSA but it woud provide you a cushion during that first year of having high deductibles.

HSA Costs

Something else to consider are are the costs of the HSA.  Every month this year our health savings account charged us a $3 fee, which seems pretty steep to me to pay just to have an account.  Often once you reach a certain minimum balance, in our case $5000, that fee is waived. 

Starting next year, our employer is covering the cost of that fee. So if your company offers an HSA option or is going to, talk to your employer’s human resource department about having it covered.

So, based on what I’ve experienced, high deductible health plans are here to stay.  If you don’t have one already, and are anticipating using a HDHP and an HSA in the future, keep in mind the HSA costs and that you have to cover that cash gap after first opening the HSA.

What’s your experience been with a HDHP and a HSA? Does your company offer them as options? Do you wish they would?

---

7 Extra Ways to Earn Money at Work

Most of us earn our money from the paycheck we get every few weeks but there are other ways you can get your employer to pay you.  I recently missed a chance to cash in on one of these extra ways to earn money at work; I’m going over them here so you don’t miss out like I did.

1) Employ Referral Bonuses
As I mentioned above, I missed out on a ton of money by ignoring this bonus opportunity. I have a friend who interviewed with the same company I work for and ended up getting the job.  I had talked with her only a week before about her current job and her career plans going forward, foolishly I didn’t think to refer her to my company (I’ve even written about how to refer a friend for a job).

The reason employee referral programs exist is that the cost of finding good people is pretty high.  It’s worth it to many companies to pay a fee to tap into their employees professional network.

Here’s how the employee referral bonus works at my company.  They pay you a $2500 bonus for any full-time employee you refer that stays with the company longer than six months.  However, you want to make sure you research the appropriate process for referring someone so that you can get credit for the referral. 

In my case, if a candidate applies on their own, even if they mention your name, you don’t get credit.  In order to earn the referral bonus I have to submit their resume through a special page, which then gets forwarded on to Human Resources. 

So if you have people in your network that are skilled and talented and might fit the needs of your company, you should check to see if they offer a referral program. 

2) Performance Bonuses
Performance bonuses can be tricky to earn depending on how your company handles them.  In some cases there are well defined milestones that will earn you a bonus.  In other jobs bonuses can more arbitrary, something you get when your boss decides you’ve been putting in a lot of work or really contributed to a project.

If the criteria for a performance bonus aren’t well defined, I’d be reluctant to work your fingers to the bone in hopes of getting a bonus.  However, if you can be pretty certain that putting in extra work will translate to a bonus above and beyond your salary then it can be a good way to make extra money.

3) Idea Bonuses
Some companies have employee idea programs that are designed to give you an incentive to share your best ideas.  If you’re in the middle of a project and have a revelation that could help the company (save money, be more efficient, help enter new markets, break organizational boundaries, etc) be sure to document it and send it in.

Companies with these idea bonus programs typically have a process where you can submit your ideas.  If yours are approved and implemented then you’re paid a bonus.

4) Achievement Bonuses
All the businesses I’ve worked for have a way of honoring high levels of achievement (that include a monetary reward).  Usually held once or twice a year, they open up for submissions of projects from around the company.  The top projects are be nominated for the award and the winner of the award gets a cash prize.

If you have a project you feel is worthy, don’t be afraid to submit it yourself.  If this feels too bold you might be able to submit it anonymously or talk a co-worker into submitting it in their name.

5) Training & Conferences
Every year when it’s time to make the budget my boss comes around and asks if there are any conferences or training I’d like to attend. It’s true that these benefits are different than money in your pocket bonuses but these events could someday translate into more cash. 

The skills that you learn in training can help you get a promotion at your current job or get hired for a new job.  The connections you make at conferences could someday lead to partnerships or job referrals.  Plus they give you a day or more of paid time away from the office, which is always nice.

6) Travel Rewards
Whether you’re flying to a training conference or a client meeting, employer funded travel is an opportunity for you to earn travel rewards. 

Ideally you pay for the plane tickets and hotel rooms on your own and get reimbursed after your trip.  This lets you earn miles on your airline credit cards, free nights on your hotel card, or even just a percentage back on your cash back card.

There are some companies that book your trip for you or require use of a corporate card when you pay.  Although you miss out on the points, miles, or cash back from the purchase – you can still earn some rewards simply by taking the flight or staying the night.

7) Tuition Reimbursement
I list tuition reimbursement separately from training and conferences because in some companies the funding (and approval) comes from different sources.

The requirements for having tuition approved and reimbursed can also be different for college courses.  For example, many companies require you to earn a minimum grade in a course before they’ll agree to pay for it.  In contrast, once funding has been approved for a conference or training, sometimes all you have to do is show up since it’s already been paid for.

Be sure you pay attention to the requirements surrounding tuition reimbursement at your company.  A former co-worker of mine didn’t read the details before registering for a course and ended up having to pay the full tuition himself.  Taking one or two courses may not make that much of a difference but if you can have a whole degree paid for by your employer that will certainly boost the value of your resume.

So, what did I miss.  Is there anything else you do in your job that helps you earn money other than your base salary?

---

What Do You Think Of Occupy Wall Street?

I was in Minneapolis last weekend and as I walked back to my hotel I ran across a group of people who were carrying on the cause of Occupy Wall Street and had setup Occupy Minneapolis.

It was already pretty cold and windy and it’s just the beginning of November so my first thought was that they had a long winter ahead of them.  Yet, despite the cold they were out there handing out fliers and talking to anyone that would listen.

Of course I’m curious about anything that has to do with money or the economy so I spent some time talking with a variety of people who were hanging around the square.  It was certainly a mix of demographics and backgrounds and everyone had their own unique beef with big business and Wall Street.

Not all of their arguements made sense to me, it seemed like some people were trying to make connections where there didn’t seem to be any.  They would explain their plight and describe how big business had put them there and it didn’t always seems to make sense.  On the other hand, there were people with perfectly legitimate concerns who had specific examples of how they’d been impacted.

One thing everyone had in common was that they were upset with the direction our economy and society are heading and they were very excited to have “a voice” where they could express their concerns.

Something I found interesting was that everyone was very willing to tell me their story and their thoughts, but when I asked if I could video them with my Flip cam they all declined.  Many of them had jobs or other interests that could potentially be harmed if their interview suddenly appeared on YouTube and was seen by the wrong people.

Overall it was a very interesting experience and I’m curious to hear what you think of Occupy Wall Street and all the related movements.

I was also able to catch up on some reading while I was traveling, here are some recent articles I read that you might want to check out:

• Obama’s New Student Loan Relief Plan @ Generation X Finance
• Determining Your Retirement Expenses @ Lazy Man & Money
• Save on Monthly Bills @ Suns Financial Diary
• Using A Personal Cash Flow Statement To Track Finances @ The Digerati Life
• 7 Financial Consequences When You Say “I Do” @ My Dollar Plan
• The Thorny Issue of Combining Finances @ Frugal Dad
• Kids asking you questions about money @ Mighty Bargain Hunter
• Why Your Bank Loves Auto-Pay @ Free Money Finance
• How to Keep a Steady Paycheck while Starting a Business @ Out of Your Rut
• The Cost of Commuting @ Brip Blap
• How Leveraged ETFs Work @ Million Dollar Journey
• Dogs of The Dow Performance Worse Than Index Fund @ My Money Blog

Let me know in the comments below what you think of Occupy Wall Street.

---

How is an Online School Better Than a Traditional University?

I’v written about online degree programs in the past and gotten feedback from both sides about how an online school compares to a traditional college or university. A while back Rishona shared why she preferred going to school online and just last week I met another guy who had a good experience taking classes online. He went back to school to help his career, here is what he had to say.

There are several different areas you can study in order to become a better job candidate and even get further along in your current position. If you are working at a job and are worried about your future employment, continuing your education can relieve your worries and give you the confidence needed to succeed.

No longer do you have to rely on the old university and community college system in order to launch your career and earning potential to new heights. By taking classes online, you are given security, safety, and convenience that is unrivaled by the traditional college system. Here are the five reasons why taking classes online is trumping the traditional university method of education:

Increased Job Skills
In this turbulent economy, there will always be unemployed people who could rise up and take your current job very easily. Instead of clenching onto the cliff of your position with a tight grip, you can pull yourself back onto the ledge and gain a view of the scenery.

Obtaining an online degree in English will give you the skills necessary to write compelling newsletters and internal memos for your company. If you receive an online accounting degree, you can continue your current position while helping to adjust the books. Even a general business degree will give you the skills to help your business market and budget itself more efficiently.

More Employer Desire
If you want to break into a management position at any company, there is a good chance that your employer will want you to have a degree in order for promotional consideration. Instead of getting left behind, you can further your career by simply getting a degree in the field required by your job. Some companies are even willing to fit the bill for your advanced education.

Advanced Degrees
Attending classes online doesn’t limit your options for getting the degree you want. Many people think they are limited to basic business and humanities classes because of the structure that surrounds online learning. A lot of people are intimidated by professors at universities who impose their will on students and criticize them if they do not agree with their views.

With video conferencing from services like Skype, interactive social media forums, and blazing fast broadband Internet connections, it is possible to receive a doctorate degree, MBA, or even a JD degree all in the comfort of your own home.

Work, School, and Life Balance
One of the most difficult parts about returning to school is the time it takes out of your schedule. Most classes are held during the day at universities and community colleges. In order to receive the credits you need to earn a degree, you will probably have to excuse yourself from work, commute to campus, attend a boring lecture, and then commute back to the office. This takes up valuable work time and can make you look weak in the eyes of your employer.

Easily Transferable Credits
If you are looking to get the full university experience, but cannot afford it due to time or money constraints, then online college is the perfect place to get your start. Some people might find the task of transferring credits between online and physical colleges demanding. The state of California has recently created a program that allows people to find out if their credits are transferable, sorts through the jargon of online learning, and gives online school a new sense of legitimacy with the public.

Deciding to go to school is a serious financial decision, but the benefits almost always outweigh the costs and initial hardships. Make sure to conduct research into which online school you want to attend and do not do it unless you are 100 percent committed to your education.

---

The Costs of Procrastinating on Purchases

Thanks to Raechel Conover for today’s guest post on the costs of procrastinating on purchases. This post actually kicks off a series of articles on the costs of procrastination, so if you tend to put things off, stay tuned for more ways its costing you money and how to beat procrastination.

Do you find yourself constantly putting things off until the last minute — work projects, household chores, travel plans, holiday shopping? While everyone procrastinates occasionally, Psychology Today notes that 20 percent of people are true procrastinators stuck in a repetitive cycle.

If you’re one of them, you know the stress, guilt, and anxiety that typically accompany procrastination. But did you know that procrastinating could actually cost you real cash?

It’s hard to quantify exact amounts, but it’s safe to say that waiting to buy something until the last minute usually has its price. You may miss the low-price window (think airline tickets, coupons with a “use-by” date) or make a rushed decision that imposes unanticipated long-term costs. Here are some common scenarios and tips to help keep you from procrastinating.

The Product
Let’s say your refrigerator has been showing signs of distress for several weeks and you figure it’s time to replace it. But you put off looking into a new unit until, one day, you find a lifeless fridge full of rotten food. You run out to the nearest appliance store and pick a model without really knowing what you’re buying.

You may end up with a replacement that lacks the technical specs you desire (e.g., dimensions, capacity, storage features) and has garnered weak expert and consumer reviews. Doing some research before the old refrigerator died would have given you the information you needed to choose the best model for the price you could afford. 

The Price You Pay
It should come as no surprise that the cost of procrastination is higher on big-ticket items. Say your spouse wants a tablet for Christmas. You can either wait until Christmas Eve to run out and buy whatever tablet is left on the shelves — without the benefit of a coupon or deal that’s expired — or you can start researching now to find tablets with all the desired features and then check for tablet deals.

Staples ran a coupon in July for $100 off any tablet in stock; for a tablet that cost $250, that was a 40 percent discount. In August, HP slashed the price of the now-defunct 16GB TouchPad to a mere $99 from $499; the 32GB model dropped to $149 from $599.

With the holidays coming up, new deals are sure to appear. But before you leap, look at other stores’ prices to be sure you’re getting the best possible deal on the tablet you want. If you check prices for big-ticket items in least 3 other stores then you’ll have a pretty good idea of the going price range and how good a deal you’ve actually found.

The Long-Term Effects
Shopping procrastination can have long-term effects on your wallet. Perhaps you wait until the last minute to book travel for an all-inclusive vacation. The final cost is more than you expected because you didn’t find the time to shop around for the best deal, so you decline travel insurance. Right before your departure date, a hurricane hits your destination. Instead of being rerouted to another tropical location or receiving a refund, you’re out of a vacation and a big chunk of change.

To use another example, an Energy Star-qualified appliance uses far less energy than one without an Energy Star label. Making a rushed decision on a large appliance might mean picking a model that hasn’t earned the Energy Star, which in turn could lead to higher utility bills for years to come. With an Energy Star-qualified refrigerator, for instance, the U.S. Environmental Protection Agency estimates you could save anywhere from $165 in energy costs over the lifetime of the fridge to more than $200 a year, depending on the age of the unit being replaced and utility prices in your area.

Beating Procrastination
Even if you’re a true procrastinator, it’s possible to break the habit. The key lies in knowing what causes it. According to the University of Cambridge, people procrastinate for a variety of reasons, including anxiety about the task at hand and feeling overwhelmed by whatever needs doing.

If the number of choices, or the price, or the possibility of making the wrong purchasing decision has you dragging your feet, set a clear goal and break down the task into manageable chunks.

For a big-ticket purchase, that might mean making a list of the features you want and searching online for several models that meet your needs. Read some product reviews and make another list of pros and cons for each model. By the end of this process, the choice should be obvious. Now you can start comparing deals to land the lowest price possible on the model you want.

Raechel Conover writes for Cheapism.com, a review site that serves consumers on a budget who want the best value for their money. Cheapism’s carefully researched buying guides focus exclusively on low-price products.

---

Fair Debt Collection Practices: Your Rights

If you find yourself trying to get out of debt it can be overwhelming to know that you owe a great deal of money. It can be even more overwhelming when collectors contact you repeatedly in order to try and get you to pay. The good news is that you do have some rights.

The Fair Debt Collection Practices Act (FDCPA) is designed to protect consumers from harassing behaviors on the part of debt collectors. It is important to know your rights under the FDCPA, and be ready to report violations of the act.

Debts Protected by the FDCPA

Most personal, family and household debts are protected under law. Money you owe on your credit card, as well as auto loans and mortgages, are protected. You are protected from those who regularly collect debts.

For instance, collection agencies, lawyers and companies that buy delinquent debts are all consider debt collectors. When they attempt to collect a debt, they have to follow certain rules, and avoid engaging in practices that might be considered:

• Unfair
• Abusive
• Deceptive

Get a Debt Collector to Stop Calling You

Debt collection calls can add a great deal of stress to your life. Chances are, you already know that you owe someone money, and that it needs to be paid. If you want the debt collection calls to stop, there is a rather simple procedure: Ask, in writing, for them to stop calling you. Write a letter requesting that the contact stop, and send via certified mail (so there is a record of the collector receiving it). Make sure you keep a copy for yourself.

Once the collector receives this letter, the only contact that can be made with you is to inform you that no further action will be taken, or to let you know that further action is coming (such as a lawsuit). You can also stop the contact by designating a representative. If you make it clear that an attorney is representing you regarding your debt, the debt collector must contact him or her, rather than you, to make arrangements.

Note, too, that debt collectors can’t call you at your place of work if you tell them (on the phone or in writing) that you aren’t allowed to get those types of calls while working.

Verifying the Debt

In some cases, you might think that you don’t even owe the debt! And, even if you do owe on it, debt collectors must send verification of the debt. Within five days of contacting you, a debt collector must send out a validation letter telling you how much you owe, the creditor you owe the money to, and steps you can take if you don’t believe you owe the money.

Keep records of contact, and the date on the letter, since a debt collector not adhering to the standards can earn you some reprieve. You also have the right to ask for proper documentation of the debt, including a copy of the bill that you are supposed to pay.

What Debt Collectors Can’t Do

In the past (and sometimes still today) strong arm techniques have been used to scare people into paying the debt — even if the debt isn’t theirs, or they can’t pay. Here are some practices that are forbidden to debt collectors:

• Threatening violence against you.
• Use of obscene language while speaking with you.
• Publicly humiliation by publishing a list of people who haven’t paid (although this information can be given to your attorney, spouse and the credit bureaus).
• Making false statements, including claiming they represent the government or some other organization that they don’t, and misrepresenting the amount of money that you owe.
• Implying that you will be arrested or a warrant will be issued if you don’t pay your debts.
• Depositing a post-dated check early.
• Threatening to take your property or garnish your wages (unless allowed by law in your state) without a proper court order.
• Calling you at inconvenient times, including before 8 a.m. or after 9 p.m. your time.

While you should repay your debts when you can, there is no reason to bow to harassment. You do have rights, and you should make sure you claim them.

---

Open Enrollment 101

Does open enrollment seem to sneak up on you every year?  Your human resources department sends out an email announcing the enrollment period and before you know it you’re scrambling to make your selections on the last day before the open enrollment deadline.

You’re going to be stuck with most of these choices for a whole year – why not take a little extra time to research your options ahead of time so you can understand your potential choices and make the best decision for you? 

Health Insurance

As the cost of health insurance goes up, the plans that employers offer are charging higher premiums for lower deductibles.  For some people, it seems like your premiums go up every year.  Of course, one way to lower those insurance premiums is to choose a plan with higher deductibles.

Something that’s time consuming but worth your while is to look back at how much you spent on health care last year (insurance premiums, out of pocket, and co-pays).  Think ahead to the coming year and try to approximate whether you’ll see the doctor less, the same, or more.  I agree, it’s an inexact way of doing things, but it’s better than simply guessing.

One you have a feeling of how much you think you’ll spend you can run scenarios with the premiums/deductibles offered by your health insurance plan to see which will best meet your projected healthcare spending.

If you anticipate few healthcare costs or if your premiums are insanely expensive, one option you might have is a High Deductible Health Plan coupled with a Health Savings Accounts 

Health Savings Account vs Flexible Spending Account

The good thing about a Health Savings Account (HSA) is that it lets you save money for health care expenses pre-tax without having to worry about losing the cash you set aside, which could happen with a Flexible Spending Account (FSA).

If you’re not familiar with an FSA, it’s also an account you can contribute to pre-tax for health care expenses. The main downside to an FSA is that any money you contribute but don’t use by the end of the year is forfeit.

So compared to an FSA, an HSA seems like a no-brainer – until you find out that in order to qualify for the HSA you have to enroll in a high deductible health plan (HDHP).  An HDHP can end up saving you a lot of money if your health care expenses are low year after year. These plans usually have pretty low premiums so if you never go to the doctor then all you’re out are the costs of your monthly health insurance rates. 

However, the deductibles in a HDHP can be very high, so if you end up with a year full of doctor’s visits then you may be paying many thousands of dollars before your deductibles kick in.  Since an HSA does let you roll your contributions over from year to year, if you’ve been part of an HDHP with an associated HSA, then you may have the money built up to cover those expenses.

Here’s a chart with more of a comparison of the details of a Health Savings Account vs Flexible Spending Account.

Other Insurance

Life Insurance

Buying life insurance through your employer can be an affordable way to get a good policy for a decent price.  Some employers will offer a base amount of life insurance at no charge but then allow you to buy additional insurance for just a few bucks a month. Sometimes for the first or second supplemental level of life insurance they won’t require a medical exam, so it can be a cheap and easy way to add life insurance.

Obviously, one of the main downsides of buying life insurance through your work is that if you lose your job you could risk losing your insurance.  Research the policy to see if you can keep it in the event your leave your employer.  It’s also smart to research the company offering the life insurance; you can go through the rating service from A.M. Best  to see how the insurer stacks up.

Disability Insurance

There are some benefits to buying a separate disability insurance policy outside of your employer’s group policy.  One obvious benefit of going with an individual policy is that you get to keep your same policy and coverage if you get a new job.

Or if you’re currently receiving disability from some other source, such as Social Security Disability Insurance, an individual policy is less likely to reduce your benefits as might happen with a group policy through work.

On the other hand, you will probably pay more for a separate policy so buying short term or long term disability through your employer is likely cheaper.

Prescription Drug Coverage

If you or your family spends a lot on prescriptions, make sure you factor those needs in when evaluating your health insurance. A plan that has a co-pay of $5 to $10 for generic drugs may be tempting but what will be the cost if find yourself needing a brand name medicine?

Many insurance plans offer a tiered pricing system when it comes to pharmaceuticals, be sure you understand the different levels and go with the one that makes the most sense based on your past and projected future medicine needs.  There can also differences in price depending on how you get your medicine, doing mail order through your prescription service vs picking it up at any random pharmacy.  Make sure you understand how the process works so you can plan ahead and save money on recurring prescription needs.

---

Why a Good Credit Score Matters When You’re Not Borrowing

Why does a good credit score matter if you’re not planning to borrow any money? Many of us think that, as long as we already have a house, and we pay for our cars in cash, a good credit score doesn’t matter that much 

Unfortunately, that’s just not the way the system works anymore. Your credit report is a convenient compilation of your financial habits and history, and it is easy to use the information in your credit report — or even to use your credit score — as an indication of what sort of risk you might pose in a number of financial situations.

Judging You Based On Credit History

Anymore, an increasing number of people are making judgments about you based on the information found in your credit report. You may rankle at the injustice, but it’s still there. Here are some of the ways that having a bad credit score can hurt you — even if you don’t want to borrow anything:

Opening a bank account: Believe it or not, there are actually some financial institutions that will run a credit check on you before allowing you to open a deposit account. Before you can open a savings account or a checking account, you might have to submit to a credit check.

Banks want to know, especially in the case of savings accounts, that you are likely to park a big chunk of money there — and leave it for a while. Plus, even though overdraft fees are a big moneymaker for banks, they don’t want someone who habitually goes in the red, and your credit report could provide a clue.

Insurance premiums: Many insurance companies check your credit score when deciding on your insurance premiums. My insurance company regularly sends me a letter telling me that my credit score has resulted in a discount on my car insurance premium.

Over time, a good credit score can mean hundreds of dollars saved in car insurance premiums. If you don’t pay attention to having good credit, then there is a good chance that it will cost you.

Rentals: What landlord wants to have to worry about whether or not you are going to make your monthly payments on time? As a result, some landlords will check your credit before approving your application.

In some cases, you might have to live in a less desirable rental if you don’t have good credit. (Of course, if you already have a home, this doesn’t matter as much.)

Certain jobs: My brother in law was subjected to a credit check when he applied to be a security guard. He was rejected because some companies have concerns that someone with poor credit might be vulnerable to bribes.

Certain employers might want to take a look at your credit report before hiring you. If it looks as though your habits might not have been the most responsible, you might be passed over.

Building Your Credit
It’s frustrating for people who are trying to be financially responsible and avoid debt of any kind – only to find out they don’t have a good credit score since they have no credit history.  The good news is you don’t have to go into major debt to build your credit score.

One option is to start using a credit card, and pay off your balance monthly.  If you only charge what you have money to pay for it can help you improve your credit score while at the same time keeping you debt free.

Another option is to use secured loans to build up your score.  Banks may not be willing to give you a regular loan if you don’t have a credit history. What you can do is $1000 into a 12 month CD, then use the CD as collateral for a secured loan.

---

Travel Rewards Loyalty vs. Travel Deal Hunting

Travel rewards can help you earn free flights or a free night’s stay but what if you’re missing out on travel deals when you buy your plane ticket through your regular airline? 

Does it make sense to have an undying loyalty to a specific airline, hotel, or travel rewards program? Or is it more beneficial to hunt for the best deal or package on a per trip basis? There are arguments for both sides below. Which one makes the most sense for you?

Travel Rewards Loyalty

For those that are on the road a lot for business or pleasure, travel loyalty programs can really pay off. You can earn free nights and flights just by joining a preferred customer program, staying in the same hotel brands, and flying on the same airlines. For example, the Starwood Preferred and Marriott rewards programs are setup to really reward their most frequent visitors.  If you fly a lot for business both Delta and Southwest offer some of the best frequent flyer programs.

But free nights and flights are just the tip of the iceberg in terms of benefits for using these programs. If your favorite hotel brand or airline teams up with a credit card company to offer a rewards card that gives you points specifically for their brand, you can really rack up a lot of extras.

Many travel rewards credit cards offer a hefty bonus with your first purchase and then a second bonus if you spend a certain amount on the card within a few months of opening the credit card. You will be able to ramp up the number of points you have through your normal, everyday spending on top of the travel points you earn. As your points balance goes up many programs will give you elite or preferred status with their brands. This can give you VIP access, early check-ins, and other perks as you travel.

Travel Deal Hunting

If you rarely travel, then rewards programs are not nearly as beneficial. It can take many years of staying one or two nights at a hotel chain and using your hotel card to earn enough points for a free stay or upgrade. Airline programs are even harder to crack with many free flights starting at 25,000 miles. You might need to charge 8 round-trip flights to your airline card earn a free ticket.

Plus, sometimes programs change or are discontinued and those built up reward points can be wiped out. Instead of trying to remember what your login is for a random travel program, your time is better served just looking for the best travel deal when you need one.

The benefit of not sticking with a certain hotel or airline is that you can just choose the one that’s offering the lowest price when you happen to travel.  A quick search on a site like Kayak, sorted by the lowest price, will show who has the lowest fares.

One good way to save money when hunting for a travel deal is to bundle as many aspects of your trip together as possible. You may not get the absolute best deal than if you spent hours combing for the best deal, but there is easy money to be saved by simply packaging your flight, hotel, and car rental together.

If your travel dates are flexible or you are willing to risk part of your trip, you can use last minute deals to save significant amounts of cash. Hotels in particular do not want to be left holding open rooms when they could get some revenue for an empty room. This strategy does not work as well with flights simply because most last minute flights have very high fares.

Travel Some, Spend a Lot?

The gray area in between the two ends of the spectrum is the person who travels some during the year, but also spends a lot on credit cards. Depending on how much you travel and exactly where you are spending money, a customer rewards program tied with a travel rewards credit card for that program could generate enough points to be worthwhile.

Otherwise you can be better served by utilizing a cash back credit card. That cash can be used for anything you need it to — that might mean for your upcoming travel or simply to put toward another money goal if you don’t have travel plans coming up.

Final Thoughts

Regardless of which direction you decide to take your travel planning, make sure you read the fine print on the preferred customer programs and reward cards. Beware of annual fees that can dig into any meaningful reward you receive. There’s no sense in getting one free night if you pay the equivalent cost in annual fees every year.

What have you found to be the best fit for you, sticking with travel rewards programs or just searching for the best deals when you travel?

---

Betterment Interview

Betterment is a unique investing company that I had a chance sit down and chat with for an hour when I was in Chicago at FINCON.  I was familiar with the company, we’d already researched their service and written up a Betterment review, but it was nice to be able to sit down and pick their brain about how people are using their product.

The Reason for Betterment

It was interesting to hear Jon Stein’s story (the CEO & co-founder) about how he used to consult for big financial institutions and saw first hand how their accounts and products were designed solely with the interest of the bank or brokerage in mind – not the customer.  His experiences were what led him to help create Betterment; to offer everyday investors a simple & relatively low-cost option for regularly investing their money.

Something else I got out of our talk was a feel for all the behind the scenes work that Betterment does for investors in terms of asset allocation, investing efficiency, and portfolio rebalancing. 

Investing & Trust

One of their challenges so far has been earning the trust of new customers. I didn’t have any great suggestions for them in that area other than to highlight all the information they have on their site about how the investment baskets are setup – who chooses the investments and what method they use to analyze and select the ETFs.

Something that Jon did share was that once people decide to try out Betterment, the percentage of investors that keep using the service is pretty high – a decent indicator that people using Betterment are happy with what it’s providing them.

Prior to our meeting at the conference, Jon had answered the two questions I’ve been asking others about financial bullies.  Here are his answers.

Describe a time that a person or company tried to take advantage of you financially and what you did to stop them.

A topic that has been top of mind for me since founding Betterment is the fact that financial institutions have long been taking advantage of regular consumers. 

Modern Portfolio Theory tells us that everyone should be invested in the same portfolio – the market portfolio. Yet, if you look around, there are so many trading sites and so much emphasis on beating the market and creating the right portfolio for an individual. I realized through my training in psychology and behavioral economics that all these alternatives exist because we humans are predictably irrational – we tend to think we’re better than average, on average. We see patterns where they don’t exist. We remember our winners and forget our losers (even though the losers pain us more). We intuitively think that we can outperform.

The whole brokerage and investment industry has grown to serve these irrational behaviors – and as a result it doesn’t serve our best interests very well. What makes trading fun and addictive is exactly what makes it harmful to our wealth – that it’s driven by irrational impulses.

I founded Betterment to steer people away from being taken advantage of in this regard. I knew a better investment company would start with the assumption that what people really want, when we consider things rationally, is the best return (factoring in costs) for the least risk. It should help people avoid the temptations of alternative strategies and bad ideas.

Describe a time you were bullied into a financial decision (by a person or a company).  How did it end up impacting you and if you could go back in time how would you handle it differently?

When I graduated from Harvard, I went out and started investing on my own. The first thing I did was to invest in Enron, a company whose growth seemed remarkable, but which had just hit a road bump, and its share price had fallen. I thought I was getting a great deal – buying something at half price!

Of course, the stock soon fell to zero, and I lost that first investment.

It taught me an important lesson – I’m no smarter than thousands of others looking at the market, and I don’t have better information. And I had forgotten the cardinal lesson of Modern Portfolio Theory – that there’s no better portfolio to own than the market portfolio.

If I could go back in time, I would make sure to remember those important financial lessons I learned in school. I would realize that individual investors often underperform the funds in which they invest. And I would in no way try to “beat the market.”

Betterment Bonus

Thanks to Jon, Brittany, and Johanna  for sitting down with me in Chicago and answering all my questions.   They are offering a bonus to new customers who want to try out Betterment.  There are no account minimums for the service but if you open an new account and deposit at least $250 to try it out, they’ll give you $25 – Click here for the bonus.

---

 Page 3 of 151 « 1  2  3  4  5 » ...  Last »