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4 Top Financial Tips For 2010

For all those who are anxious about their personal finances, here are the top four financial tips that expert financial advisors give for 2010:

1. Emergency savings are important. Oh, yes; we all know that we need to save for that rainy day, but how many of us really follow that advice. The recent recession was like a shower of cold water that brought the realization of just how important it is to have a safety nest egg for those "unforeseen circumstances."

Most people I know are happy with their retirement savings, which they use as an emergency fund whenever they stumble across a financial obstacle. If you are among them, then – STOP - now!

Retirement funds are exclusively for retirement. Emergency funds are for getting you over a tough financial crisis. Ensure that you have saved aside enough to last 3-12 months in case your job is no longer your reliable source of income. Keep the emergency and retirement funds separate.

2. Review your financial status. Every year, your net financial worth should increase. If it has not, you need to identify what the reasons are and take adequate measures to address this problem. Your aim is to see that you increase your net worth every year by at least 10-15%.

How do you find your net worth? Add up all your accounts (savings, retirement plans, insurance, value of your movable and immovable property, etc); from that sum, subtract your liabilities (this will be your mortgage balance, loan balance for consumer goods/ car/ study/ credit cards/ etc). If your net worth is stagnant or decreased, analyze the reasons and take measures so that the next year, you will see a raise in the graph.

3. Convert IRAs to Roth IRAs. You will be happy to learn that Roth conversion income limits have been lifted. This means you can now convert an IRA to a Roth IRA even if your income is $100,000 or more, in effect from 2010.

Exclusively for the year 2010 the IRS allows you to spread the tax payment over the next two years (2011 and 2012). You should be able to pay the taxes out of your savings; and while doing so, you will ensure that your retirement amount is tax-free. Caveat: seek the advice of a financial professional before taking the plunge, as this involves a number of factors that need to be considered carefully.

4. Invest in real estate. This is one of the sure-fire investments that everyone should have in their financial portfolios. Buy real estate within your budget as early as you can. This will pay you heavy dividends. The IRS – to encourage this trend – has extended the Home Buyer Tax Credit for both current home owners and first-time home buyers. For the first-time home buyer, the tax credit is extended up to $8,000 until April 2010; for current home-owners the extension is up to $6,500 (limit period is from 7 Nov 2009 to 30 Apr 2010). If you are not yet in a position in invest in buying real estate, check out the REITs (Real Estate Investment Trusts).

7 Things That Don’t Matter With Your Credit Score

Most people are ambiguous about what really matters to a credit score, and find themselves worked into a panic every time any of these supposedly “harmful” episodes occur.

Here are some of the common misconceptions about what matters to your credit score. The credit score according to FICO model involves the following:

- Past payment history – 35%
- Amount of debt outstanding – 30%
- Length of credit history – 15%
- Number of recent credit applications (does not matter whether okayed or not) – 10%
- The type of loans you avail – 10%

1. Your Income

Many feel that a higher income means a higher credit limit or purchasing power, hence a higher salary will improve the score and a low one will harm it.

Wrong! While your credit report might have your employer’s name in it, it will not state how much you are earning. Your credit standing is calculated by the amount of credit you are sanctioned in the market – credit cards, mortgages, loans, and the like.

2. Insurance payments

Insurance payments are not considered as loans. The insurance companies usually check your credit score before quoting a price. However, they do not report late payments to the credit bureaus.

3. Credit counseling

Credit counseling does not influence your credit score. In fact, the bureaus have observed that people who avail of counseling better their financial lifestyles, and therefore take it as a positive step. It however, it does not add or subtract points for this activity.

4. Your age

Your age is not part of the credit score calculation. In fact, none of your demographic data will be taken into account – such as gender, race, creed, or age. However, the length of your credit history, as mentioned above, makes up for 15%, and the advantage of which older people will get more than younger people – for obvious reasons.

5. Self-check on Credit Score

You can check your own credit score as many times as you feel necessary; there will be no impact on your credit score as long as you go through reputable sources such as annualcreditreport.com, FICO, the three credit bureaus, or any legitimate third party. The credit score will take a hit only when a lender checks you out – for this will be interpreted as a "hard enquiry" similar in weight to a new credit application.

6. Alimony and Child Support

Though these are serious financial commitments, they do not bear impact upon your credit score unless you fall so far behind that a collection agency is called in. In this case, you not only get a dip in your score, you also might get into serious trouble with the Law.

7. Utility and telephone bills

The credit bureaus do not take into consideration whether you are paying your utility bills on time or not. However, if you fall behind so much as to get a collection agency involved, that goes on your credit report and will influence your credit score negatively as well.

Resources

The Credit Repair Organizations Act
The Fair Debt Collection Practices Act (FDCPA)
Fair Credit Reporting Act (FCRA)
Consumer Credit Protection Act
The Fair Credit Billing Act
The Equal Credit Opportunity Act (ECOA)

 

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