Twitterize your business at the Sir Frances Drake Hotel / Sept. 23 5:30 pm!
Hi everyone! Public appearance alert. I’m honored to be part of a distinguished panel dishing about all things Twitter at a Women in Consulting event at the Sir Francis Drake Hotel. This is coming up soon and I wanted to make sure you know all the details.
What: Tips, Tools and Tricks to Make Twitter Work for Your Consulting Business. Where: Sir Francis Drake Hotel, Second Floor, 450 Powell St. San Francisco, CA. When: Wednesday Sept. 23, 2009 5:30 – 7:30pm Who: My fellow panelists are Nancy Friedman chief wordworker at Wordworking.com, and Irene Koehler, founder of Almost Savvy
Irene and Nancy are leading lights in the Twitterverse so you really should attend to hear what they have to say. Eats: Light appetizers.
If you would like to register for this event, please go here>> See you there! [/av_textblock]
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As a financial planner, I know too well how important good credit is to the financial health of my clients. Excellent credit is a financial asset that can pay huge dividends across all areas of your financial life. But the world of credit bureaus and credit reports can be a little confusing to many people. Maybe even a lot confusing.
If you weren’t already aware, whenever you apply for credit, whether for a mortgage, an auto loan or a home equity loan, the lender is going to “pull your credit” and take a look at your FICO score. That score is a hugely important metric. Virtually every lender depends on the FICO score to measure your creditworthiness. A “great” score means you’re eligible for the best possible interest rates. A “good” score means you can get a decent, but not “lowest possible” interest rate and so on. But what is “great” and what is “good” and who decides?
The good news is, it’s possible to improve your score. The not so good news is that banks and other lenders, frequently adjust what a “best score” is depending on overall economic conditions.
Jeanne Kelly is founder and CEO of The Kelly Group, based in Danbury, CT. The Kelly Group is a credit repair firm that specifically works with their clients to improve their FICO scores. The company works with individuals directly and with mortgage brokers. Jeanne was kind enough to spend a few minutes discussing the nuts and bolts of FICO scores.
Q: So what exactly is a FICO score? What does it measure exactly?
Jeanne Kelly: It works like this. Thirty five per cent of your FICO score is derived from your payment history. Thirty per cent comes from amounts owed on revolving balances. That’s a huge number – and people should know that by lowering balances owed, that could really help your score. Length of credit history is 15%, new credit is 10% and types of credit used is 10%.
Q: So there are five categories that go into your FICO score?
Jeanne Kelly: Right. If you understand this, you can work with your FICO score and stay on top of it and hopefully improve on it.
Q. Where does FICO get the information?
Jeanne Kelly: From all three credit bureaus – Experian, Equifax and Trans Union. A simple way to think about this is that FICO looks at your credit report and gives it a grade. So in order for the grade to change, you are really dealing with the credit bureaus, not FICO.
Q: How often is the information updated?
Jeanne Kelly: It could be updated every day. It depends on when your creditors decide to report your balances.
Q: Where does a person get their FICO score?
Jeanne Kelly: The thing to watch for are those offers where someone will give you your “credit score”. I’d stay away from that. Since most lenders are using FICO scores, then that’s what you want. Go to www.myfico.com — that’s exactly where you want to go.
Q: If a young person is just getting out of college, do they have a FICO score?
Jeanne Kelly: Well, you have a score if you’re using credit. You have to have two to three accounts to get a score. So whether it’s an automobile, a major credit card, a store card, a student loan – as long as you have three things reporting, you’ll get a score.
Q: How do you feel about young people and credit?
Jeanne Kelly: I suggest using credit in a healthy way and I also suggest trying to start young. I know people get afraid because college kids get these credit card offers and some of them go wild. But if you start young, by the time you’re 25, you will have learned how to use credit correctly and you’ll have a great score and get better interest rates.
Q. What’s a good score?
Jeanne Kelly: You know things change all the time; if you asked me that question last year I would have told you 680 was “A” credit. Now it’s 740.
Q. What changed?
Jeanne Kelly: Well, look around you. The banks have tightened credit, they’re being more cautious. People are talking more than ever about credit because of what’s going on in the economy and I’m glad — being aware is a good thing. If people are informed, then they can figure things out and improve their scores. But right now this is what banks are doing and people should be cognizant of that.
Q. Should people continue to use credit?
Jeanne Kelly: I do see people being afraid of it now. I’ve heard people say, “I’m going to use my debit card.” That’s a mistake. It’s perfectly okay to use credit, just do it in a healthy manner.
Q: Is it possible that your score is one point below what the lender needs to give you the best possible rate?
Jeanne Kelly: That does happen, sure. It’s like being in school – you might have to get a 90 or above to get an A. If you get an 89, you’re getting a B+. In that situation, you wait a little bit, you pay down some balances and try to move your score a bit.
Q. Is the FICO score a fair measure of a person creditworthiness?
Jeanne Kelly: I think it is. For the banks that are issuing credit, it simplifies the process quite a bit. Rather than trying to evaluate all the information in a credit report, or three credit reports, they have a grade. I think it’s a fair system.
Q. If someone believes that their score is inaccurate or isn’t a fair representation of creditworthiness, what should they do?
Jeanne Kelly: I would look at whether all your bills are being paid on time. And look at your balances. Remember earlier I said that 30% of the FICO score comes from revolving balances? Well here’s a great tip. If you keep your available balance to 20% or less of your credit limit, you’ll maximize your score for that particular portion of the FICO score.
Q: How long does it take for your FICO score to change?
Jeanne Kelly: It could take up to 90 days. So if you’re planning to go house hunting, be aware. You should start looking at your score months and months in advance.
Q: How does the Kelly Group help its clients improve their score?
Jeanne Kelly: We work directly with the creditors reporting the derogatory information on our clients’ credit reports. We’re the middle person. We know who to talk with to get the best, fastest results. We’re going to make sure that your creditors report accurately and we’re going to educate you at the same time. We’ll suggest what accounts to pay down, we might suggest opening a different account or closing an account.
Q: How much improvement can you achieve?
Jeanne Kelly: Well, every case is different. Some people might get a ten-point spike; others might see a 100-point gain. On average, our clients see a 50-point increase.
Q: That’s a big jump.
Jeanne Kelly: When you’re talking about a 30-year mortgage, it’s very dramatic.
There’s so much money riding on your FICO score. If you look at the interest on a thirty-year mortgage and the difference a better score could make, it’s just incredible. Think about it – when we do our taxes, we hire an accountant, when we go into a court of law, we hire a lawyer to protect our interests. With something as big as this, we really need someplace to go. That’s what we’re doing – we’re a small company trying to do the right thing.
Q: This has been fantastic. Really very helpful and informative, thanks so much.
Jeanne Kelly: I loved it! Thank you!
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House Buying in the Bay Area | Jim and Annette’s Financially Sound, Thoughtfully Executed, Excellent Adventure
Jim and Annette in front of their new home
“I really admire the conscientious way you bought your first house,” said I. “That’s because we’re really cheap!” said they, almost in unison. Meet Jim and Annette. They’re in their late 30’s and lucky. They both watch their pennies. If only all my clients would…well, never mind.
While many of Jim’s and Annette’s friends bought houses in the last few years, they held back. The market was too frothy and unaffordable, they thought. At the time, life was a cramped one bedroom apartment in North Berkeley. But of course things change. Soon enough real estate prices crashed, and taking the leap made more sense. They started out on their own, found some neighborhoods they liked and found some houses in their price range: no more than $525,000.
Know Thy Numbers In the meantime, Jim and I worked on their cash flow adding in housing costs (they’ve been clients since 2007). Both were adamant that they know the numbers and not get in over their heads. Jim has an inviolable goal, “I want a six month buffer of living expenses at all times.” As a self-employed graphic designer, he has a about a thousand good reasons for doing this. And while Annette currently works for Williams-Sonoma – layoffs have begun there. I recommended they get pre-qualified for a mortgage, which they did.
Here’s a few things they learned along the way.
Know your must-haves Jim and Annette knew what they had to have:
1. A good location so they could walk to shops and services, and have an easy commute. 2. A live-in ready house: some work would be okay, but they wanted no delays or additional costs. 3. They wanted to live near their friends.
What you can live with? No house is perfect, especially a house in the Bay Area in the $500,000 price range. Here’s what Jim and Annette had to contend with:
Close proximity to Bart meant noise, so new windows are planned. They lack storage space, typical of older homes (1926). They have $18,000 worth of work to do – plumbing upgrades, electrical work, window replacement, foundation repair and some unexpected termite damage. Closing cost credits (due to the fine work of their realtor Carol Parkinson) and first time home buyer credits ($8,000 on their 2010 taxes) will help pay for all this.
Know what you care about most Jim and Annette are now proud and busy homeowners: they’re refinishing floors, knocking out walls and buying a few new furnishings. They splurged – on a $4,000.00 Thermador Range. When I questioned the decision, Annette said something to me that I thought was very wise: “It’s about knowing what you really care about” she said, “and putting resources and energy towards those things, and then making compromises on the rest.” Wise words.
My Take: Top 5 things to consider when buying a home in the Bay Area
1. Know what you can afford before you start looking for a home. Get pre-qualified. 2. Identify the neighborhoods where you want to live. Get to know prices. 3. Make a list of your no-compromise must-haves. 4. Get referrals for real estate agents and mortgage brokers. Make sure you’re comfortable and that there’s a level of trust between all parties. 5. Know that the costs of home ownership don’t end with the purchase. Endless amounts of money can be spent improving, furnishing and decorating a home. Carefully plan your expenditures based on your income and budget. Most important: don’t rely on credit.
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Can street smarts, charisma and passion stand in for a business plan? It all depends on who you ask.
Women in the Food Business at the San Francisco Commonwealth Club – From left to right: Kathy Wiley, Christine Doerr, Malena Lopez-Maggi and Mindy Fong
I recently hosted two panel discussions that focused on women entrepreneurs in the food business. Participating were eight vibrant businesswomen in their 20’s and 30’s. Each had the entrepreneurial bug from an early age, each has bootstrapped their business and most had no written business plan before they launched.
Of Passion and Practicality
Molly Fuller of Hands On Gourmet and Kathy Wiley of Poco Dolce are self-described pragmatists. “I wanted to make money,” said Molly. “My father always told me to do it myself, that was the way to make money.” Kathy Wiley said her decision “came down to the stable shelf life and high price point” of high-quality artisanal chocolate. Other participants cited their love of good food, and their lifelong desire to start a food business.
Fire, Ready, Aim
Kika Besher of Kika’s Treats and Christine Doerr of Neo Cocoa are graduates of La Cocina, a food business incubator in San Francisco where eligibility requires a business plan. Kika’s current business profile no longer resembles her first plan and she wishes she had a new one. “So many things change,” she said. Christine Doerr said her plan has changed and there’s a lot of “fire, ready, aim” in her business. Kathy Wiley (Poco Dolce) started a number of business plans, only one of which she came close to finishing. Malena Lopez-Magg of The Xocolate Bar said, “I did write a long business plan but it was obsolete as soon as it left the printer.”
Recurring Themes
– Understand the numbers, but don’t get hung-up on producing a document. – If you make a plan, be aware that things change and the plan may need updating. – Pay attention as you go and you’ll learn. – If you are self-funded, the decision to create a business plan is in your hands.
A Different Take
I have no doubt that these amazing women will succeed. Street smarts and passion can take a business a long way. However, as a financial planner I see what bootstrapping can do to a business owner’s personal finances and I am duty bound to counsel caution. Here are my three reasons why you should consider developing a business plan.
Writing a business plan compels you write down the numbers and decide which are most important to your particular business – then it’s up to you to watch them like a hawk.
Taking shortcuts doesn’t work when it comes to growing a business. Writing a plan helps you to think strategically and decide what’s best for the company in the long term. This can even include an exit strategy.
Assumptions change and circumstances change, but don’t make that an excuse to avoid having a plan. Even if you launched on sheer gut instinct, step back and create a plan now. You’ll be rewarded with clarity and peace of mind.
What do you think? Is a business plan an integral first step to launching a business? As always, your comments are welcome. If you have any topics you’d like to see here, feel free to let me know.
Abby is Thirteen and She Understands Money Better Than You Do
As a fee only financial planner, I meet far too many adults who know shockingly little about money and personal finance.
A small sampling of the questions I hear reveals the knowledge gap: “What’s an index fund?” “What’s an IRA?” I’ve heard this one too – “I thought the stock market earned 10% a year?” Well yes, sometimes it does, just not ALL THE TIME.
Why this lack of knowledge? How did we get here?
Two thoughts spring to mind: the schools don’t teach our kids about money. And, parents are a little shaky on this topic too, owing to cultural taboos around talking about money. We’d sooner talk about our sex lives!
I wanted to find out if there were any young people – teenagers, specifically – who were at least marginally educated about money and finances. If we can get our kids squared away on money, then maybe there’s hope for adults. So I set out to interview some teens.
She’s Thirteen and She Loves Talking Money
Meet Abby – she’s 13, and she lives in San Rafael, California, one of the wealthiest counties in the country. Abby comes to the interview with her mother Claire, who co-owns the Hatch Network, a company that provides education for women entrepreneurs.
It becomes quickly apparent that young Abby is most definitely not your typical 13 year old. My first clue — she would love to talk about money, she tells me, and would be happy to meet with me for an interview. How many 13 year old girls do you know who’d say that?
Does her school provide any classes about personal finance or money?
Abby says a Junior Achievement program provided two classes about how to pick stocks and follow them in the newspaper. Other than those two classes, nothing else focused on personal finances.
Why did she like to learn about money? What sparked that interest?
Some time ago, when her mom (single and in her 20’s) had money troubles it made Abby curious to know more. It was tough for mom to make ends meet. Her mom was always honest and candid with Abby about their situation, explaining, always explaining.
Does She Read About Money?
Abby has read Rich Dad Poor Dad for Teenagers and the Automatic Millionaire. She pays attention to the financial news(!) Her interest in making a lot of money as an adult is not self-centered, she says. After she earns what she needs, she wants to give the rest to charity.
Does She Have Savings?
Abby has a savings account and wants to buy a CD with her $1400.00, but she thinks interest rates are too low to lock in a rate right now. She’s earning about .05 % on her savings account. She knows that’s a paltry amount and would like to earn more. The minimums for money market accounts, which pay a little bit better interest rate, are too high for her, so she’s biding her time.
Have I mentioned that Abby is 13 years old?
Credit Cards
We talked about credit card debt and credit scores. Again, Abby was well versed. She knew that having a high credit score was very important and that the best way to maintain a high credit score was “to pay all your bills on time.” She knew about retirement accounts (401K’s and IRA’s), and what 529 plans were (her grandmother funds one for her). She also likes to follow certain stocks like Google and Apple.
In the Future: Musician, Secret Agent, Saver
Abby is a great student, she receives A’s and B’s in all her subjects. She earns money by doing odd jobs for her mom and she baby sits. She saves all her birthday and Christmas checks and immediately deposits them into her checking account. When she grows up she wants to be either a musician, a secret agent or, maybe a financial advisor.
Final Thoughts
Granted, Abby is not your typical 13 year old. She wouldn’t be typical as a 30 year old either. But her innate curiosity and intelligence, combined with her mother’s candor, patience, and teaching, have paid (and will continue to pay) huge dividends.
So the lesson is this: anyone, kids included, can learn more about money, and how to better manage their own finances. In an ideal world, the schools would teach personal finance and parents would reinforce the lessons initiated in the classroom. So what about you? What did you learn about money as a young person? Are you teaching your children how to save and plan for the future? Any questions that I can answer for you?
Thanks for reading and stay tuned for more interviews in later blog posts.
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