New credit (hard inquiries- how many new accounts or loans have you pulled recently)
Length of credit history (the amount of time you have been using your credit)
Payment History (how long you have been positively or negatively using your credit)
Credit mix (the mix of your current loans i.e. mortgage, student debt, credit cards, etc.)
These five categories may fluctuate in importance depending on the person‘s individual history.
For example, a credit score may be calculated differently for someone who has little credit history versus someone who has a long history of using credit.
4 Things That You Can Do Right Now to Improve Your Credit Score:
Pay your bills on time-Delinquent payments and collections have a major negative impact on your credit score! Consider setting an alarm on your phone that reminds you every first of the month to review and pay your bills. If the issue is that you are spending too much, then it is time to go on a spending diet.
Keep the monthly balance on your credit cards to under 30%– The monthly balance is called your “revolving credit or debt.” People with the best credit scores often have very low monthly balances compared to their credit limits.
Example: If you have a $1,000 credit limit, you should not exceed $300 on your credit card.
Coming soon in the Eco Economics Increase Your Financial IQ Course: If you are constantly using more than 30% of your credit limit and, then you should consider the following options depending on your situation:
reduce your spending
opening another credit card
increasing your credit limit
have a maximum of 3 credit cards
Only apply for and open new credit accounts as needed- The act of applying for a new credit card creates a “hard inquiry”, which stays on your credit for 2 years. Too many hard inquiries can have a negative impact on your credit score. If someone asks to run your credit, you should always ask whether they are running a hard or soft inquiry.
Soft inquiries do not impact your credit score, whereas hard inquiries can. Usually, hard inquiries are used when applying for a loan of some kind.
Pay off debt– Pay your debt down, and no… don’t just moving it around.
Understanding the Basics of Credit Scores:
How Do I Get a Credit Card If I Have No Credit History:
This is the typical chicken versus the egg situation. You need credit history to apply for a credit card, but can’t build up your credit history without a credit card.
Solution:Apply for a joint credit card with a parent or someone who already has an established credit history. Be sure that the person you are obtaining a joint card with is fiscally responsible.
Tip: The best situation would be for you to be the only person who is using and paying the credit card.
***Remember that both parties are responsible for paying the card (should one party decide to default on the payments). This means that if a parent decides to cosign on a credit card with their child, they should set a low credit limit and request overdraft protection.
Coming soon in the Eco Economics Increase Your Financial IQ Course: Tips and tricks on how to establish your child’s credit history. Your kids will learn how to balance a checkbook and slowly transition them into using a credit card responsibly.
I recommend that they establish credit while they are in high school, and then can feasibly apply for their own credit card when they go off to college.
This program will teach them to manage their credit so that when they leave the house you will have the confidence (after having watched them use their credit over several years), that they will use their credit responsibly.
Take Action by Monitoring Your Credit:
The best advice for building or rebuilding credit is to manage it responsibly over time. You are entitled to 1 free report from each of the 3 major credit bureaus (Equifax, TransUnion, and Experian) each year.
There are many websites that allow you to track your credit, and produce a monthly report so that you can monitor for fraud.
Often times they give new customers a free trial period. Credit Karma is one such company.
What to Do if you Believe Someone Has Stolen Your Identity:
Do you have a specific question about how to rebuild or use credit? If so comment below and sign up to receive information on how to increase your financial IQ!
“A report backed by 1,360 scientists from 95 countries – some of them world leaders in their fields – today warns that the almost two-thirds of the natural machinery that supports life on Earth is being degraded by human pressure.”
The Human Race is Living Beyond its Means:
Western cultures, and especially the United States, use the most resources per capita.
Yes, other countries may have a larger population, but America uses far more resources per person.
“A single child born in the U.S. has a greater effect on the environment than a dozen children born in a developing country.”
How Do You Help Fix This Looming Issue?
One of the main questions I get from my audience is, “I know that the way I am living is adding to the greater problem, but don’t know how to change my habits and actions to begin living more sustainably.”
Moreover, since the citizens of the western world have the biggest impact, it makes the most sense that we take responsibility and curb our actions in order to have thebiggest impact.
The End Goal:
Sustainability is about trying to maintain the individual and collective values that we hold dear, but with a clear sense that we have to do it with fewer resources.
Let’s start by focusing on building sustainable developments and living eco-friendly lifestyles.
One way to start is by thinking about every product’s impact. Before you purchase a product, ask yourself these simple questions:
What is the product made of?
Is it recyclable?
Is it a one-time use product?
Use Your Actions and Your Voice:
Vote for green policies!
If you see someone littering, pick the trash up in front of them. This kind of action is not confrontational but sure does silently shame them. In the olden days, shunning was the harshest form of punishment. This action performs 2 functions. First, you are reducing the amount of trash that is going out into the environment. Second, you are signaling to others that littering is wrong.
We need to make sustainability the “cool” thing to do because if we don’t our society will reach a point of “peak everything”. Our natural resources are limited, and if we don’t make a paradigm thought shift our children will grow up in a world where there isn’t enough.
Be the person to speak up for the planet when you are around friends. The more people become aware of an issue, the deeper it will become ingrained into a society’s norms.
I want to hear from the community! What little actions have you done lately that has helped shape our future toward a more energy and resource efficient society?
Today, I wanted to share a good friend of mine’s blog post. Omar Ziadehhas done an excellent job of explaining what CRS (Corporate Social Responsibility) is.
This blog post explains the operational effectiveness of engaging in CSR and delves into Stakeholder Theory. A stakeholder is any person or group that is affected by the actions of a business. Typically the people most affected by a company are its employees, suppliers, customers, community, the environment and so on.
Omar gives a brief history of where this topic stems from and reasons why companies engage in CSR. He also discusses why it is so critical for companies to seriously consider being a CSR firm.
In the current era of business, corporate social responsibility has become a focal point of many operational strategies. Companies no longer see corporate social responsibility as just another cost of doing business.
Today, corporate social responsibility can be a way for companies to hold a competitive advantage over their industry rivals.
At first glance, company managers might think that engaging in CSR might burden the company’s bottom line. In fact, the opposite seems to be true. There are a number of studies that have proven that companies who engage in corporate social responsibility actually flourish.
This study looks at four mechanisms for reasons why companies engage in CSR.
1. Slack Resources Mechanism – Firms engage in corporate social responsibility because they are doing well financially. CSR is viewed as voluntary, and managers have the flexibility to initiate them. Managers are given the ability to spend extra funds on CSR initiatives.
2. Good Management Mechanism – Firms view the cost of corporate social responsibility to be lower than the benefits received by performing good deeds. It is simply good management to engage in CSR. These firms believe that CSR can attract quality employees and raise employee morale. CSR can also reduce costs through operational efficiency and create a competitive advantage.
3. Penance Mechanism – Firms that only incorporate CSR initiatives as “penance” to corporate social irresponsibility. Firms try to compensate or engage in image damage control in order to cover up a previous irresponsible action. An example of this is when BP oil launched its “green campaign” after it caused the tragic oil spill in the Gulf of Mexico.
4. Insurance Mechanism – Firms incorporate CSR initiatives before any possible controversies about corporate social irresponsibility as “insurance”. The idea is that a firm’s good reputation can serve as an asset during times of crises and help reduce the potential repercussions as a result.
The End Result of Corporate Social Responsibility:
So what did these three researchers find about these four mechanisms? If you are a fan of corporate social responsibility, it is clear, their study pointed to the Good Management Mechanism and the Insurance Mechanism as the superior options.
(Their study includes many complicated variables and descriptive statistics that you can view here, but I am going straight to the discussion and conclusion)
“In summary, our model results indicate that there are two types of firms that pursue CSR: those that do so not because they are doing well financially but (we speculate) because they believe that it is the right thing to do and those that do so to make amends for their past CSI. Although the former firms might engage in CSR for seemingly altruistic reasons, they can expect to see significant financial returns from their CSR investments. In contrast, the latter firms will likely see few if any positive effects from their CSR investments.”[¹] (74)
CSR builds a reservoir of goodwill that will act as a possible insurance barrier to any controversies that arise in the future.
In addition, employees are much more motivated by companies that are socially responsible. All things considered, it seems that there are many reasons for a company to engage in CSR. Whether a firm engages to ensure its image or to repair its image, one thing is sure. In the long run, CSR is good for a company’s bottom line.
Let us go to another study that finds similar results.
1997: The Roots of Corporate Social Responsibility
In 1997, corporate social responsibility was barely on the minds of business people, and very few companies engaged in CSR.
The results are clear. I have added this excerpt from their study so that you may read their conclusive findings for yourself.
“Our findings indicate minimally that attention to Corporate Social Performance (CSP) arenas does not represent a competitive disadvantage and may in fact be a competitive advantage. If, for example, better performance along CSP dimensions allows companies to attract better employees more easily, forego difficult and costly battles for site placement with communities or governmental officials, or avoid payments of fines for environmental problems, then potentially we are changing the definition of CSP so that it no longer represents a discretionary activity on the part of management, but is fundamentally linked to management performance itself.” [²] (9)
Corporate social performance is much more than just doing extra to look good, it has to be seen as a way of doing business.
Without stakeholder support, firms cannot experience success. Corporate social responsibility goes beyond just trying to do the right thing. CSR should serve as a guideline for best management practices.
Corporate Social Responsibility is a MUST:
In conclusion, these studies are not something I nitpicked from a list of studies that backed up my own opinion on corporate social responsibility. In the past decade, almost every study conducted on the effectiveness of CSR has supported the operational effectiveness of engaging in CSR.
Companies should be invested in stakeholder theory. Companies should operate and be responsible for a wider group of stakeholders, other than just shareholders.
As a result, when you take care of the community, the community will reciprocate and support the company.
I really hope you have enjoyed reading this blog post. Do you currently work for a company that is engaged in giving back or goes above and beyond in some way? If so, I want to know more about how companies are incorporating their stakeholders into their daily operations. Please share by commenting below)!
According to Investopia, Baby Boomers (born between 1946 and 1964) are heading into retirement in droves. Approximately 10,000 Boomers retire per day.
Much of the data concludes that this generation is poorly prepared for their later years. As we know, relying on social security alone may not provide enough money to live the lifestyle we once hoped “The Golden Years” would afford us.
Unfortunately, this is not the case for many retiring Boomers.
Millenials (the children of the Boomers) are now having to make difficult trade-off decisions. This generation must make the difficult choice between caring for their parents and paying for the needs of their children. Not to mention, saving for their retirement and paying for their own needs.
This is why it is important for Millenials to be aware of the many options out there. Options are just avenues to research so that they can make the right decision for their family.
The reverse mortgage has received a lot of negative press in the past. This is because the process and option have not been sufficiently explained. I am not here to tell you whether this option is right for you and your family. I am just here explaining what a reverse mortgage is and how it could be an option.
This post will explain the reverse mortgage in greater depth, but a want to provide a quick summary here.
When would you use a reverse mortgage? When you have lots of equity in your home, want to continue to live in the home, and need additional fixed income. Please read this entire article, because there are stipulations to reverse mortgages.
Reverse Mortgage: Searching for Other Options
Reverse mortgages have been shrouded with controversy due to some confusion about how they work. I would like to clear up some of that confusion and present it as an option for creating additional liquidity for retiring Boomers.
A reverse mortgage is a financial product for homeowners who are 62 or older and have accumulated equity in their home.
This home equity usually represents a substantial portion of an individual’s net worth. As you reach retirement age, you may need to tap into this wealth to supplement your fixed income.
Almost all reverse mortgages today are originated as Home Equity Conversion Mortgages (HECM). The HECM is a program that is backed by the Federal Housing Administration (FHA). This means that these loans are guaranteed by the federal government.
How does a Reverse Mortgage Work: The Basics
A reverse mortgage is like selling your home to a bank. First, the bank makes monthly payments to the owner of the home. Second, the owner must continue to use the property as a primary residence for the life of the loan.
When you die, sell your home, or move out, you, your spouse, or your estate will have to repay the loan. Oftentimes, this means selling the home to get money to repay the loan.
Neither you nor your family must pay more than the sales price of the home (the appraised value) upon the owner moving out or passing away. This is because the HECM reverse mortgage is insured by the FHA. In short, the FHA’s insurance will pay for any shortfall.
Remember that the owners took out a loan and received monthly payments from the bank. This means that the bank was slowly purchasing the home from them over time.
If the loan balance is more than your home is worth, the heirs will only have to pay 95 percent of the current appraised value of the property. Remember, the FHA’s insurance will cover the rest.
If the loan balance is less than the value of your home, they will only have to pay the loan balance.
Interested in Knowing More About a Reverse Mortgage?
Since this product usually requires that the home gets sold at the end of the term (when the owner passes away or moves out), the government has made it mandatory that a perspective borrower meets with a HUD approved counselor before obtaining a reverse mortgage.
This meeting is set up to determine if the product is suitable for the owner’s needs. The counseling session helps them and their heirs understand how the loan works.
As with any loan, all prospective borrowers must also undergo a financial assessment to qualify.
This assessment makes sure that the borrower can pay to keep the house afloat. This means that they can cover the following expenses:
Basic home maintenance
Home Owner’s Association (HOA) fees (if applicable).
You can apply for a reverse mortgage if:
The borrower must be 62 years of age or older
You own your home and use it as your primary residence
The house is a single family, multi-family (up to 4 units), an approved condominium, or manufactured home
You own your own home free and clear or only have a small amount left to pay on the existing mortgage
The home is in good condition prior to taking out the loan
An Example of How It Works:
Home equity is the difference between what your home is worth, its appraised value, and any debt that you owe from mortgages against the home. Unless you purchased the home outright with cash, you most likely have a first or even a second loan on the property.
When you own a home with a conventional mortgage, you gain equity over time as you pay down the loan. When you first start paying the loan, most of the monthly payment goes toward the interest. Over time you begin to pay more of the principal off and less of the monthly payment goes toward the interest.
Let’s say, for example, that you own a home worth $400,000 in today’s real estate market, and you only owe $100,000, because you have paid down the rest over the years that you have owned the property. This means that you have $300,000 in equity.
There are non-FHA insured reverse mortgage loans that may have very different loan terms. So if you are considering a non FHA backed loan, make sure you understand the contract fully!!
Hopefully, I was able to dispel some of the myths about reverse mortgages, while providing a valuable option to increase your/your parent’s liquidity.
Many people ask whether a particular investment option is the “Best”, and my reply is that there isn’t one “best investment option for everyone”. Every individual has a unique financial situation and needs to decide what is the best option for them.
In the lease, you agree to pay a set cost per kilowatt hour. The cost is typically lower than pulling electricity from the grid. Plus, you get the added satisfaction of knowing that you are doing your part of reducing your carbon footprint.
Additionally, the contract typically sets a predetermined rate of increase per year for the length of the contract. This is comforting because you know from the onset how much the rate increase will be each year. Whereas when you pull power from the grid, you will get no such guarantee.
As with any important purchase that will impact you for a length of time, you should research several companies to see which firm will be the best fit for you. Cost comparison, contract length, and maintenance should all be topics of questions you should ask a sales representative.
There are many ways to cut a cake. If you do not want to lease solar panels, you could consider purchasing or financing them with a zero-down solar loan.
When I put solar panels on the roof of my house in Las Vegas, I used a company called Solar City (an Elon Musk company). The entire process took me less than an hour!!!
I contacted the company, they scheduled a one-hour appointment the following week, I signed the contract via email, and then they set an installation date. I didn’t even have to be home when the installation team came by to install the solar panels!!!
The process was so smooth and seamless.
Easy Transfer of the Solar Lease: Two years later when I sold the house, the buyers needed a minimum credit score of 600 in order to take over the lease.
Home buyers typically needed to have a minimum 600 credit score in order to qualify for a loan, so the transfer of the lease was not a hindrance to the sale in any way.
In fact, solar panels probably made my home more appealing and set it apart from others in the area.
***Especially because my house was one of the last to be grandfathered in to receive solar in Las Vegas.
A Business Perspective:
It sounds crazy that legislation, in a city like Las Vegas, could pass which makes the business environment unfriendly to solar companies!!
Due to lobbying efforts, the tax credit given to companies like Solar City was eliminated.
How did this happen? There isn’t a public track record of which politicians meet with certain lobbyists.
My guess:Las Vegas receives its electricity from NV Energy, which is a Berkshire Hathaway company.
The month after I had solar panels installed on the roof of my house, NV Energy decided to slap a connection fee onto my bill because I had solar power… Go figure…
How Do I Offset These Kinds of Inflationary Costs and Fees?
Eco Economics will soon start to offer two kinds of courses. The first is to educate individualson the topic of sustainability, and the second is to teach people about how they can increase their financial IQ.
***Thesustainability course incorporates social, environmental, political, technical, financial, and economic considerations into the approach of the subject matter.
The way I offset this penalty for installing solar panels is by owning shares of Berkshire Hathaway. B Shares of course (wish I could own A shares) haha. If you are not sure why this is funny, consider looking into the ‘Increase your Financial IQ’ course.
Gasp! You may think that it is hypocritical to support a company that is against renewable technology… I would argue if you can’t beat them join them, and the wave of renewable technology is unstoppable!
NV Energy must get on the renewable energy bandwagon sometime in the near future. They have deep pockets and when they do, they will have the investment capital to make large equipment purchases (capital investments).
This will put ‘the future me’ in a position to own stock in a clean energy producing company. Our society is dependent on electricity, and as the population grows so does the demand.
A Quick Stock Portfolio Analysis: Moreover, owning stock in a utility company is a defensive portfolio strategy move (because they typically have a low Beta).
Algae: The Single-Celled Heroes of the Day!
In a prior blog, I talk about how electricity is currently produced by fossil fuels and coal (62%). One of the main issues with fossil fuels is that they produce greenhouse gasses (a harmful by-product). Algae consume carbon and convert it into oxygen.
There are many ways to capture the sun’s energy. Solar panels are just one of many innovative technologies out there. I am continuously amazed by how there is always a natural cure for issues that arise. I look forward to exploring this topin in more detail in further blog posts.
Anything about this article that you would like to know more about? If so, post a comment below!