Month: October 2022

In 1989, The FICO SCORE was released to the world by William R. Fair and Earl Isaac, who founded a computer software company.  They developed and sold their first credit system back in 1958.  FICO (short for the Fair-Isaac Co.) was the first credit-risk model that provided a universal and impartial tool for evaluating consumer risk.  The FICO SCORE is a three-digit number (between 300-850) based on credit data from your credit reports.   It helps lenders predict how likely a person is to repay a loan.  Over 90% of ALL credit decisions made in the USA today use the FICO SCORE!

A good FICO SCORE can literally save you THOUSANDS of $$$$ in interest and fees to lenders.  A good FICO INSURANCE SCORE (FICO homeowners scores range from 200-997) can save you BIG $$$$ on your homeowner insurance premiums.   It can also save you BIG $$$$ on auto insurance premiums (FICO auto scores range from 250-900) depending on what state you live in.  Using credit scoring for auto insurance is banned in California, Hawaii, and Massachusetts.  Other states have restrictions but not an outright ban.  One should be over 700 on both scores.

To improve your FICO SCORE, we must first examine the FICO “Scoring Formula.”  Fico data is grouped into 5 categories:

1. PAYMENT HISTORY: (35%) Payment history refers to whether individuals pay their credit accounts on time. Credit reports show the payments submitted for each line of credit, and the reports details bankruptcy or collection items along with any late or missed payments.
2. AMOUNTS OWED: (30%) Accounts owed refers to the amount of money an individual owes. Having a lot of debt does not necessarily equate to a low score. Rather, FICO considers the ratio of money owed to the amount of credit available.
3. LENGTH of CREDIT HISTORY: (15%) As a general rule of thumb, the longer an individual has had credit, the better their score. However, with favorable scores in the other categories, even someone with a short credit history can have a good score. FICO SCORES take into account how long the oldest account has been open, the age of the newest account, and the overall average.
4. NEW CREDIT: (10%) New credit refers to recently opened accounts. If the borrower has opened several new accounts in a short period of time, that indicates risk and lowers their score.
5. CREDIT MIX: (10%) Credit mix refers to the variety of accounts.  For example, credit cards, retail cards, home loans, vehicle loans, etc.  It is helpful to have a few categories of debt; however, it is NOT necessary to have a card in each category to score well.  For more information go to MYFICO.com.

Now that we have broken down the FICO “Magic Formula,” consider using these “Lucky 7” tips to improve your credit rating; hence, improving your FICO SCORE:

1. DO NOT CLOSE OLD ACCOUNTS: While this might seem counterintuitive, closing a card may negatively impact your credit. It reduces your credit-to-debt ratio and credit history which lower scores.
2. CONSIDER ASKING FOR AN INCREASE TO YOUR CREDIT LINE: For example, if you have a credit limit of $5,000 and you are using an average of $2,500, that is a 50% ratio.  If you asked and were granted an increase to a  $10,000 limit and kept your spending at $2,500, you lowered your “Credit-Usage” ratio to 25%, which will increase your score over time. 
3. LIMIT THE TOTAL AMOUNT OF CREDIT CARDS: People are tempted by all the enticing initial credit card offers and frequent flyer points; however, applying for too many cards will lower your score.
4. AVOID FEES: Credit card companies charge exorbitant fees (they can be as high as 36%, depending on what state you live in) for late payments, even if it is only by a day or two.  Making late payments may trigger a higher interest rate and will lower your scores quickly.
5. PAY OFF 100% OF YOUR BALANCES EVERY MONTH: Carrying over balances from month to month is a costly way to do business.  If you have issues with this, I suggest enrolling into “auto-pay” online, one credit card at a time so you can stabilize your finances.
6. REVIEW YOUR CREDIT AND FICO SCORES: Step one is to determine your starting point.  This is easy to do online.
7. CORRECT INACCURATE INFORMATION: Almost 90% of credit reports have the credit or personal information that is either inaccurate or dated.

Heed these 7 tips to improve your FICO and credit score and let the savings begin!!!

The Social Security Act (SSA) was signed into law by then-President Theodore Roosevelt on August 14th, 1935.  In addition to several provisions for the general welfare, the new Act created a social insurance program designed to pay retired workers aged 65 or older, a continuing income after retirement. 

As per www.ssa.gov, taxes were collected for the first time in January of 1937, and the first one-time lump sum payments were made that same month.  What many people did not know at the time is the average life expectancy in 1935 for men and women was 59.9 and 63.9 respectively.  Roosevelt must have figured few people would live long enough to collect.

Social Security is the largest social program in the USA.  Last week the Social Security Administration (SSA) announced that retirees will receive a cost-of-living (COLA) adjustment of 8.7% starting January 1^st, 2023. This marks the highest boost since 1981.  While retirees are celebrating this relief from rising prices due to inflation, this does not bode well for the long-term future of social security!

Social Security originally did not adjust benefits to account for increases in the cost of living.  This changed in the 1970s when there was rampant inflation.  Congress instituted automatic cost of living adjustments (COLAs) each year calculated in the fall and starting in January of the following year. 

What this equates to is an average of about $145 extra per month for SSI recipients.  This will positively affect close to 70 million people or 1 in 5 households.  Total Social Security payments in 2022 will cost nearly $1.3 trillion dollars!  It is questionable how much this will help with necessities such as eggs, chicken, milk, and bread costs which have increased by 30.5%, 17.2%, 15.2%, and 14.7% respectively.

To give you a frame of reference of how much $1.3 trillion is, the U.S. debt has ballooned to $31 trillion.   The Biden Administration spent approximately $3.1 trillion during his first year in office; $1.9 trillion on the American Rescue Plan and $1.2 trillion on the Infrastructure Bill. 

The 8.7% Social Security cost of living adjustment wouldn’t be a problem if wages kept up because Social Security is a “pay as you go” program, meaning that benefits paid out next year will come from payroll taxes collected from workers next year.  If wages grow at the same rate as inflation, extra taxes collected from workers should be enough to cover the extra costs.

The problems are:

1. Wages are NOT Keeping Up: The Bureau of Labor Statistics reports that inflation-adjusted weekly earnings fell by 3.8% over the last year!
2. Higher Benefits with Lower Tax Revenues are a Bad Formula!
3. There are Fewer Workers Contributing to Payroll Taxes: Between the “Great Resignation” and the fact that 10,000 baby boomers (born between 1946-1964) are turning 65 per day until 2035, the numbers just don’t work because there are more people withdrawing from the system than paying into it!
4. This Shrinkage Has Been Going on for Years:  Social Security has been losing money annually and currently has a $20 trillion long-term funding deficit, as per Andrew G Biggs from the American Enterprise Institute. This is the number that lawmakers seem to be avoiding! 

To name a few, there are several potential solutions to this problem that could be combined or utilized individually to help make Social Security solvent:

1. Simply Raise Taxes:  To cover this shortfall.
2. Lower Social Security Benefits:  The maximum social security benefits in 2023 will top $43,000 for those retiring at the “Full Retirement Age of 67” next year.  A high-earning couple could retire on over $80,000 in Social Security benefits alone.  That maximum benefit is 3 times more than in Canada, the United Kingdom, Australia, and New Zealand.
3. Raise the Maximum Earnings on Which Americans Pay the Social Security Tax: Next year, the maximum Social Security tax on wages will rise from $147,000 to $160,000.
4. Change Rules on Illegal Aliens: This would prevent aliens from benefiting by receiving dollars from a program they did not contribute to.
5. Raise the Current 12.4% Payroll Tax Rate

My take on this is that there is no reason that middle-income and high-income Americans should be relying on Social Security as a primary source of retirement income.  In other words, Social Security income should be considered gravy or extra money in addition to traditional retirement income vehicles such as 401k’s, 403B’s, IRA’s (Individual Retirement Accounts) Annuities, Stocks, Bonds and Mutual Funds, etc. 

At this rate, there is no guarantee that Social Security is going to be around indefinitely!  If you are a teenager or in your 20’s, 30’s, 40,s or even 50’s, you still have time to put money away.  Start by saving 1% of your income per year or add an additional $1% per year if you are already saving.  Compound interest over time is powerful!  You will be amazed at how fast your retirement accounts will grow!! 

The earliest known documentation of humans drinking coffee is in the middle of the 15^th century in the Arabian Peninsula.  Coffee beans were found, roasted, and brewed into a drink that Sufis used for religious purposes. It spread across their empire, extending to Africa, Egypt, Syria, and Turkey.

 Coffee was brought to Europe by the Ottoman Turks in the early 17^th century and soon became a popular beverage.  Today, Brazil produces over 30% of the world’s coffee and Brazilians consume the most coffee in the world.

Americans drink 400 million cups of coffee every day and 146 billion cups per year, of which 66% of women and 62% of men drink coffee daily!  The Perfect Brew publication reports that women spend about $2,327 per year on their coffee habit, while men spend $1,934 per year.  These numbers project to go up significantly this year! 

The question is, how much do we really know about our cup of Joe?  See my Top 10 benefits to drinking coffee below:

1. Free Radical Fighter:  You might sipping coffee for the caffeine; however, coffee is full of antioxidants!  One cup has 200-550 milligrams of antioxidants, including chlorogenic acid, a compound that helps your body process fat and sugar.   Antioxidants lower inflammation, reduce the risk of chronic disease, and stabilize free radicals.  Surprisingly, a light roast has more antioxidants than a dark roast!
2. Hot Brew vs Cold Brew:  If you are looking for antioxidants, stick with hot-brewed coffee.  It has more because it takes a certain amount of heat to extract antioxidants from the bean.  Cold brew will give a bigger caffeine jolt and it is also lower in acid.  If you suffer from acid reflux, stick with cold brew. 
3. Black vs Mocha Coffee: The healthiest way to take your coffee is hot-brewed and black.  One cup has virtually no calories or carbs, no fat, and it is low in sodium.  Black coffee also has micronutrients, including potassium, magnesium, and niacin. 
4. Coffee Can Detoxify Your Liver: The liver helps with the digestion and detoxification of harmful substances in the body, such as alcohol and certain medications.  Coffee helps your liver work more efficiently due to a substance called “chlorogenic acid” that is found in coffee beans.
5. Coffee Can Exfoliate the Skin: Coffee grounds are a good alternative to expensive exfoliators.  Save some used grounds in a cup or bowl, dampen with water and rub onto your face for two minutes before rinsing it off.  The caffeine in coffee will also moisturize dry skin while removing dead cells, leaving skin soft, smooth, and clean.
6. Coffee Can Ease Abdominal Pain: Most people think coffee is a stress-inducing beverage that keeps them awake and alert.  Scientists have found that caffeine can help EASE some abdominal pain and other symptoms associated with menstruation, such as bloating, mood swings, fatigue, and nausea. 
7. Coffee Can Improve Your Heart’s Health: Coffee drinkers are less likely to suffer from heart disease than those who do not drink coffee.  Coffee contains antioxidants that stop the liver from absorbing too much LDL (bad) cholesterol responsible for clogged arteries.  Another benefit to your heart is that caffeine can help your blood vessels relax, allowing more blood flow.
8. Coffee May Reduce the Risk of Developing Type 2 Diabetes: Regular coffee drinkers tend to have lower blood sugar levels than non-coffee drinkers.  This lowers the risk of developing type 2 diabetes.  Coffee’s “chlorogenic acid” reduces the amount of glucose absorbed by the bloodstream.  It also boosts insulin sensitivity, allowing the body to absorb less sugar from foods and it prevents sugar spikes.
9. Coffee Can Boost Your Metabolism: Coffee stimulates the production of a hormone called “adiponectin,” known for regulating metabolism.  Studies have shown coffee can boost metabolism by up to 5% and increase fat burning by 10%-29%.  Drinking a cup of coffee before exercising can help extend your workout because it is an appetite suppressant.  Black coffee contains only 1 calorie per cup.
10. It can prevent getting Gout: Gout is a painful condition caused by the buildup of uric acid in the body leading to joint inflammation.  Coffee helps prevent Gout by blocking enzymes that produce uric acid, preventing build-up.  Too much coffee and caffeine intake can cause the condition to flare up, so three cups maximum per day is recommended.

I would be remiss not to mention some downsides of drinking too much coffee.  Too much caffeine intake can cause insomnia, anxiety, dehydration, and irritability.  Because it dehydrates you, it is a good idea to drink water either before or after consuming coffee.

If you are sensitive to caffeine, try decaf instead.  Keep in mind that to be considered decaffeinated, 97% of the caffeine must be removed from the drink.  This still leaves 3% of the caffeine in your cup. 

It is clear the benefits of drinking coffee outweigh the detriments.  The next time you reach for soda or those unhealthy sugary energy drinks, perhaps it is time to brew a cup of Joe instead!