By Laura Susstance | Friday, June 11, 2014

Your Credit Score

If you’re not familiar with the term, ‘credit score,’ it’s probably about time that you were, as this score essentially determines how successful you are in applying for a loan or credit, and what level of interest rates you’ll receive.  A credit score is calculated by a lender of products or services and is based on your credit report and then used to determine if you will be awarded the product or service.  Therefore, it’s important to understand this process, and whether or not your partner’s credit score will affect your application for a product or service.

Credit Agencies

Your credit report is managed by a credit reference agency. That report contains all financial data and information that outlines how well you can manage your finances and debt.  For example, it will record every financial transaction, any CCJs or bankruptcies, any loans or overdrafts etc.  The lender will access this information and cross reference it against a set of data that they use, which prioritizes how important different criteria are.  Then the agency ultimately calculates a ‘credit score,’ which determines whether or not the user will be granted the service or product, and at what percentage interest rate, (the better the credit score, the more competitive , i.e. lower, the interest rate will be).

Any product or service that you request will be awarded to you based on your credit score.  This includes bank loans, payday loans, overdrafts, mobile phone contracts, utility bills, home loans, car loans etc.  Furthermore, each of these come with a percentage rate of APR which can be adjusted by the lender, depending on how solid your credit score is. Therefore it is in your best interest to have a good credit score, as this will mean that you will pay less—in many cases, significantly less,—in the long run.

What about Joint Applications?

The question, “Can my partner’s credit score ruin an application for loan or credit?” is an important one.  The upshot is, as long as your finances are separate, your credit scores will not have an effect on your partners or spouse, even if you’re married.  However, if you choose to combine your finances i.e. via a joint bank account, both of your credit scores will be taken into consideration.  For example if you have a good credit rating, but your partner has a poor credit rating and you apply for a loan, the lender will look at both of your credit scores and perhaps decline the loan.  If they do decide to lend you the money, it’s likely that they will look at your joint application as a riskier one, and lend to you at a higher rate of APR.  This means the loan will be more expensive in the long run.

In summary, as long as you keep your finances separate from your spouse or partner’s, your individual credit scores will not affect each other’s, therefore if you apply for a loan or credit, the lender will only look at your individual credit report.  However if you choose to combine your finances i.e. through a joint bank account, be mindful of your partner’s credit score, as this will result in both credit reports being accessed and analyzed.

____________________________________________________________________________
Laura Susstance is an experienced content writer from the United Kingdom. When not writing on a freelance basis or contributing guest blog posts, she regularly contributes to her own blog.

Like what you've read? We pack some of our best insider know-how and savviest strategies into our free weekly emails.
Subscribe today and let us help you live a healthy, happy financial life.

By Katie Banks+ | Thursday January 7th, 2013

Let’s suppose you’re the Chief Financial Officer of your home.  Now, let’s suppose further that you’re married or in a partnership, and that you’re a parent. Each of these roles entails a great deal of responsibility.  Given these circumstances, one of the most important things you can do is to ensure that, should the very worst happen – should you and/or your partner die – all of your assets will transfer to the right people. 

The peculiar thing is, most of us think in terms of what would happen ”...if I died” or ”...if my partner died”. But here’s the stark reality:  we’re all going to die at some point.  Sure, the plan is to pass away peacefully sometime in our ripe old age. And chances are good that we will.  But ensuring now that your assets will transfer to the right people in the event of your death is a smart, savvy, loving thing to do.

According to a November 2007 survey commissioned by BankRate.com, 76% of respondents believed that “…everyone should have a will (or a living trust),” yet 57% of Americans do not have them!

Not having a will or living trust means that, when you die, there is nothing set up to explain what is to be done with your money, your assets, your children and with everything you own.

It may not sound like a very big deal, but it is.  Let’s explain why.

We’ve all heard of a will – it’s a frequent plot tool in sitcom hijinks, and one way to handle the task of distributing your assets.  The living trust is the will’s lesser-known, bigger, badder cousin. 

The living trust does two extremely important things.

1.  The living trust transfers ownership of all your assets to a trust while you’re still alive.

These assets can include everything of substance that you own. For instance, your house, your car, your investment accounts, and your properties can all be included.  While you’re alive, the transfer of your assets to the trust really has no practical impact on your ability to use, manage, or control these assets.  Said another way, you can do all the same things with these assets that you could do with them before you transferred ownership to the trust.

2.  The living trust designates who should be given all of your assets after you die.

As you designate who should be given the assets described above, you also include specific instructions about your most precious, irreplaceable beings:  your children.  Who should take care of them if you should die while they’re still young?  If this happens and you don’t have a will or living trust, the decision is made by a stranger in probate court. Difficult to stomach, isn’t it? So yes, dying without a living trust or a will containing instructions on where your children should go, is a big deal.

Advantage of a Living Trust over a Will

The big advantage that the living trust has over a simple will is that your assets won’t have to go through probate court after you die.  By avoiding probate court, you avoid a bunch of strangers interpreting the instructions you wrote in your will about who gets your assets.  Because of this, your children (and whoever else you chose to receive your assets) can save thousands of dollars in legal fees.

The Living Trust Maintains Your Estate’s Privacy

There is another, very ugly piece of drama that your children and other heirs can avoid by setting up a living trust. The living trust maintains your estate’s privacy.  In contrast, if you die without a living trust or a will, and your assets go through probate court, all of the details become public record.  There are people who make a fortune by waiting for people to die “intestate,” which means to die without a will or living trust.  These people actually show up at probate court and claim that the deceased was a dear old friend who promised them some hefty sum, like $50,000.  Then your children may spend thousands of dollars and months or even years in court, trying to defend against such fraudulent claims.  The living trust effectively eliminates this scenario from the picture entirely.

Tax Advantages of the Living Trust

The living trust may also have a tax advantage after your death, if it’s written properly.  If you have a large estate, worth more than $650,000, a living trust that has been well tailored for your specific situation can save your children and other heirs tens or even hundreds of thousands of dollars in unnecessary taxes upon your death.  Estates worth $650,000 and under pass on tax-free to heirs.  However, having an estate worth less than $650,000 is not a good reason to skip the living trust or will, because doing so will still land your assets in probate court, which can involve the whole hot mess described above.

How to Set up A Living Trust

There are many different kinds of living trusts, and many different ways to tailor each of them to your specific needs. There are software programs available that can walk you through establishing a living trust.  However, we at FinancialRx recommend that you meet with a skilled estate-planning lawyer.  It will cost more. But the end result will be of much higher quality, and the trust will function for your children the way you intended it to, after you’re no longer around to care for them.  And as parents, we know there’s no more important or rewarding job on earth.

Like what you've read? We pack some of our best insider know-how and savviest strategies into our free weekly emails.
Subscribe today and let us help you live a healthy, happy financial life.

By Wendy Mihm | February 24, 2011

My husband and I are really trying to save for a new house. We want a bigger one, in a safe neighborhood, with great schools.  Coming up with a 20% down payment these days is no small task, so we are saving every penny we can to come up with the cash.

But those sweaters at Banana Republic sure are pretty.

When you are married and have a family, you may think your situation is unique, but the truth is, (as I have learned on Twitter) we moms have an awful lot in common.  Sure, every family brings something unique to the table, but somehow we all turn out to be eerily similar in many ways.  And in turn, we make a lot of the same financial mistakes, over and over again.

So, in hopes that we can learn to avoid them, here is a list of five common financial mistakes that many American families make, starting with how I gave my new house to Banana Republic.

Common Financial Mistake #1:  Letting Seemingly Harmless Purchases Eat Away At Your Savings Goals.

When you have a financial goal in mind, the appropriate thing to do is to agree upon a well-defined target with your spouse, such as “We want to save $100,00 for a down payment on a house by 2012,” and then go after it with a plan.  That plan could include agreeing to actively cut down on your spending in specific categories, establish a savings vehicle (such as a mutual fund or high-interest bearing savings account, if you can find one!) and set up automatic deposits from your checking account.  Voila.

Now, the common mistake is to eat away at our spending goals in little dribs and drabs on seemingly harmless purchases.  I did this for years at places that have beautiful merchandise and great sales, like Banana Republic, Anthropologie and Baby Gap.  Now that I have begun my No New Clothes for A Year challenge, I find myself fighting the same mistake in the kids clothing department at Target. One time, a sized 4T dress and leggings set jumped right off the rack and into the cart while I was not looking, which I thought was totally unfair.

Common Financial Mistake #2:  Putting Off Saving for Retirement.

Retirement always seems like such a long way off!  Especially if you still have at least one kid in diapers, and 2Pac pulsing through your iPod speakers (moment of silence).  You and your husband probably think, “Who us, retire?”  Yes, you.  Retire. 

What can be even worse is if one spouse is committed to saving for retirement, and the other is committed to the lottery.  If you are the former and he is the latter, first, whap him upside the head with a rolled up newspaper.  Then, make him read this:  Get Started Investing.  If you are the former and he is the latter, whap yourself upside the head, and then read that article I just linked to.  Investing for retirement need not be difficult, and you don’t need much money at all to get started.

Common Financial Mistake #3:  Hiding Spending From Each Other.

According to Money Magazine, about 80% of couples spent at least some money in 2010 without mentioning it to their spouse. For both women and men, the biggest spending category was clothing or accessories, followed closely for men, by alcohol and for women, by gifts.

Everyone needs a little privacy, and should be able to buy a few things for themselves without being judged, right?  But when does this “private spending” become a problem? 

Figure it out by asking yourself, “If my spouse knew about this, would he be angry, and if so, why?”  If the answer is yes, and the reason is that the purchases are hurting your chances of reaching your mutually-agreed-upon financial goals, you have a problem on your hands. You need to tackle that problem as a team—especially if you suspect your husband is doing the same thing.

Common Financial Mistake #4:  Letting Debt Linger

If you or your spouse have credit card debt, you are severely shortchanging yourselves.  Think of it this way:  banks are getting rich just because they loaned you money to buy things a long time ago, some of which you might not even use any more. Isn’t that annoying? To make matters worse, if you are late on any of your payments, or the amount of debt you carry is too high in relation you income, your credit score could be suffering.

You’re a grown up.  It’s time to deal with this and move on.

What I recommend is to sign up for our free email series on debt.  It will kick your bootie right into gear.  It’s simple, written in plain English and, did I mention it’s free?  Move it, sister.

Common Financial Mistake #5:  Assuming Love Will Conquer All

That makes a great pop song lyric, but it does not apply to a real marriage.  Love is incredibly important and will conquer many things, but when it comes to finances, your marriage is a business partnership.  To make it successful you must, among other things:

• Appoint a Chief Financial Officer (CFO) of the home, which should be whoever is organized and comfortable taking the lead with the money. I nominate you.

• Talk about your money goals, long and short term.

• Create a plan for each of your goals.

• Stay organized.

• Reward yourselves responsibly.

• Agree that it takes time to build wealth.

I have since learned from my mistake of letting our savings be eaten away in little dribs and drabs on seemingly harmless expenditures. 

But sometimes I wonder how Banana Republic is enjoying living in our new house.

Like what you've read? We pack some of our best insider know-how and savviest strategies into our free weekly emails.
Subscribe today and let us help you live a healthy, happy financial life.

By Wendy Mihm | February 1, 2011

A Plane Bound for Nowhere

Imagine for a moment that you and your spouse knew you wanted to go on vacation.  You would reasonably expect to travel safely to and from your destination, and to have a good time.  But would the two of you ever just get on a plane – any plane – if you didn’t know where the plane was going?  Would you get on the plane if you didn’t know if it was going to a big city or a tropical island?  Ski slopes or a quaint village?

The whole concept would probably feel extremely uncomfortable, and I doubt you would ever do such a foolish thing.

But every day, households across America do this very same thing with regard to their financial future.

Think about it.

If you don’t have a plan, a specific vision for where your retirement investments are taking you, are you not just getting on plane bound for an unknown financial destination?

Envision your Retirement

My objective in this article is to motivate you to talk with your spouse about what the two of you envision for your financial future – specifically your retirement – and then move from a discussion to a more crystallized, shared goal.

I know your days are crazy.  I totally empathize.  But if you have time to decide which plane you’re going to get on for your next family vacation, I argue that you can make time to decide on your retirement destination.  Because if you don’t, you’re essentially on a plane to nowhere.  Ok, I’ll stop yammering atop my soapbox and get on with it.

Here’s what compelled me to write this article.  One of the finance books I read as part of my research for this website is called “Smart Couples Finish Rich.”  It’s a good one for couples and I recommend it if you are into reading financial planning books.  It gives a bunch of examples of couples that did a great job of planning for retirement, and contrasts them to couples that did no planning at all.  The latter sets of couples are all are facing retirement with very little in their accounts and no time to address the problem. 

In one instance, there is a couple that has a fair amount in their retirement account, but they have not communicated at all.  Somehow, they arrive at a financial planner’s office, both in their retirement years, with entirely different visions of how to spend the money they’ve spent the last 40 years socking away.  They have not just talked to each other about how they would like to retire.  Seems like they might have found the time over the course of the past 40 years.  It just struck me as crazy and worth addressing, both in my own financial household and yours.

So now is the time to make a financial plan, and have a conversation about what your retirement will look like.  Here are some questions to get the conversation rolling.

Discuss Retirement With Your Spouse

• Where should we retire?

• Do we want to be near the kids and the grandkids?

• In a big city?

• In the country?

• In a college town?

• In more than one location?

• Do we want to travel?

• Do we want to have a smaller house so we can travel more and not worry about the house, or a big house so we can stay home and have our families and grandchildren visit a lot?

• What about long term care insurance in case one or both of us needs extensive medical care?

• When do we want to retire?

• How much money do we need?

• Are we on track to have that much?

• Will we have a pension do draw on?

• Will our house be paid off by then?

• Will our kids be out of college?

• Will we want to pursue hobbies or classes?

• Will we want to buy any big ticket items like a boat or a piece of property?

These are all things you and your spouse should discuss now and try to come to agreement on.  Look how big these topics are!  It may take more than one conversation.  In fact, it may take a few years for some of these concepts to gel.  The truth is, you may even change your mind over time.  But if you keep the conversation going, you can change your minds together. 

The key is to have a shared vision and get your finances behind it.  So get some agreement between the two of you about a number to aim for in your retirement accounts, and then make a plan to go after it aggressively.  Max out your 401k plans.  Start a traditional or Roth IRA.  See our article called Get Started Investing for ideas on that topic.

Now if you have a shared vision and a shared plan to get you there, you can avoid finding out at age 65, in some financial planner’s office, that one of you assumed you’d plop down right next to the grandkids, while the other has always dreamed of a cabin in Costa Rica.  Awkward!

Like what you've read? We pack some of our best insider know-how and savviest strategies into our free weekly emails.
Subscribe today and let us help you live a healthy, happy financial life.

By Wendy Mihm | Thursday December 9, 2010

Maybe you’ve dated for years and split more than your fair share of checks.  Perhaps you’ve even lived together and split the rent.  But too many couples take for granted that the knowledge they’ve gained through these experiences alone will be enough to see them through.  They forget that money is the number one hot topic of disagreement in most marriages.  These couples get caught up in the excitement of planning a wedding, and they simply don’t realize that making a commitment as lifetime financial partners is a different ball of wax entirely, and merits some serious preparation.

I’m not suggesting you should somehow become independently wealthy before you marry someone.  What I mean is that you you and your partner should have some serious conversations about money, and have an idea of what you’re getting into before you tie the knot.

To that end, here are the FinancialRx 5 things you must do before you marry.  They are not rocket science in and of themselves, but they are not always easy to execute, if done thoroughly and honestly.

1.  TALK TALK and TALK some more about money.

Why?  Because money will affect your life every day, in big ways and small.  And whether you know it or not, each of you probably grew up and spent your young adulthood with very different ideas about money – about how it should be earned, how it should be spent, how it should be saved, how much you need now, how much is enough to retire on, or how much is too much to spend on a bottle of wine.

You could have a little fun (and be truly nerdy about it like my husband and I), and break out some financial power tools to see how much you’ll need to save each month to have a million dollars by the time you retire.  Whatever it takes.  Just talk about what you both value and make sure you’re both honest with yourselves and with each other about what you truly want and expect.  Here are some topics to get the conversation rolling:

• Joint checking account or separate accounts?

• How much debt do you each have now – don’t forget credit cards, student loans, home loans, auto loans, etc?  Be honest – now’s the time.

• What do you consider a lavish expenditure?  An everyday expenditure?

• What are some things you can’t live without?

• Do you have any shared financial goals?  A house or second home?  A family?  An emergency fund?  Travel?  Retirement?  Education?

• Do you plan to give to charity?

• Do you have any financial commitments to family?

2.  Commit to saving money—together.

Even if it’s not a lot of money, make a commitment to your partner, shake his or her hand, and write it down.  Then go to the computer together and set up a joint IRA or Roth IRA, link it to one or both of your checking accounts (or your joint account), and set up automatic transfers, and voila!  Now you have an automatic savings vehicle that you don’t have to think about, that is building a tangible future for you both to enjoy, together.  As you earn more, you can increase the dollar amount and watch the savings grow, as you grow as a couple, over time.

3.  Consider a mediator.

Even if you’re very much aligned in terms of money, you’re not identical humans.  This means that you will, at times, spend money on different things, and it will cause friction.  When that happens, it’s good to be able to turn to a third party for an unbiased perspective.  If you have a financial advisor or accountant or even a therapist you can turn to, that can be helpful in really difficult situations.  But something as simple as a look at your bank or credit card statement can be an excellent reality check for both of you for those smaller skirmishes.  Perhaps you’re a little miffed that he spent $270 on new ski boots (didn’t he just get some two seasons ago?), but a glance at your Visa statement reminds you that you spent $285 on a new beach cruiser two months ago…

4.  Understand and agree that it takes time to build wealth.

Then see point number 2.  If this is just about saving money, why did I bring it up again?  Because it’s not just about saving money, it’s a whole philosophy that you both must understand and agree to if you are to be in financial harmony throughout your marriage:  building real wealth takes time. Period.  If one of you is constantly dropping $10, $15 or even $20 on lottery tickets or entering into foolish get-rich-quick schemes while the other is packing their own lunch and maxing out their 401k, fights will surely break out and money will be wasted.  You must be on the same page with each other on this strategy. Then support each other with long-term investments toward wealth-building such as higher education, career changes and lifestyle adjustments. 

5.  Splurge on each other every now and then.

All work and no play makes Jack a dull boy.  Likewise, all saving and no spending makes Jack and Jill a divorced couple.  Sure you should save some money.  But you should spend some too.  On each other, on yourselves, and most importantly, on doing things you enjoy doing, together.

Like what you've read? We pack some of our best insider know-how and savviest strategies into our free weekly emails.
Subscribe today and let us help you live a healthy, happy financial life.