Category: Financial Planning Tools

Financial Filing Systems

Think about all the financial paperwork you receive each month – either digitally or in the mail. In a typical month you might receive an investment statement, credit card bills, bank statements, and more. Some need to be checked for accuracy while others need to be filed for tax season.

If it is tax season you will get even more financial documents each month. In addition to new ones you are receiving you also have documents that you keep a copy such as previous year tax returns, real estate documents and your will.

While there are countless financial filing “systems” that individuals have created and discuss on their blog, two stand out that were developed by financial authors or planners – David Bach’s File Folder System and the HomeFile Financial Planning Organizer Kit.


David Bach’s File Folder System

Bach’s system consists of 14 hanging folders and approximately 50 file folders. Each hanging folder is labeled with a different category such as:

  • Tax Returns
  • Retirement Accounts
  • Household
  • Credit Card DEBT
  • Insurance
  • Savings and Checking Accounts

As documents are received they are placed in the corresponding folder.

Bach’s system is simple and, beyond the cost of the folders, is free. Bach discusses his system in more details at http://www.oprah.com/money/david-bachs-file-folder-system.


HomeFile Financial Planning Organizer Kit

HomeFile was developed by financial planners J. Michael Martin and Mary E. Martin. It contains 22 laminated cards that are pre-labeled and are similar, though more detailed than, Bach’s system. Some examples include:

  • Autos
  • Charities
  • Credit
  • Employment
  • Personal
  • Real Estate

Each card is labeled with what is filed there, what is not filed there and when you can remove the document. The system includes a quick-find index so you can locate a document easily and a 48-page handbook with instructions and forms.

The system is $29.95 for one kit. You can learn more at http://www.homefileorganizer.com/.

It is recommended that these types of files are kept in a file-proof locking box or safe. It may be advantageous to make it a portable box so it can be taken with you if needed.

 

Financial Planning Tool: PowerPay

By Ryan H. Law

In response to the Credit Card Act of 2009 many credit card issuers have raised rates, raised minimum payments, lowered credit limits and added on extra fees.

Here are some statistics:

  • 53% of 2000 people surveyed reported an increase in their credit card interest rate in the past year.  One card increased its rate up to 79.9%.  That’s not a typo – 79.9%!
  • 26% reported reduced credit limits
  • 21% reported increased fees

Source: Credit Card Tricks and Traps http://www.rd.com/advice-and-know-how/credit-card-tricks-and-traps/article175291.html

So do you just have to put up with this from your credit card issuers?  Of course not!

If you are finished paying too much of your hard earned money to interest and fees, then it’s time for you to develop a debt elimination plan.  Here’s what you need to do:

  • Make a commitment to STOP charging things to your credit cards.  Cut the cards up, shred them or do whatever you need to do to stop using your cards.
  • Build up an emergency fund.  If you use your credit card for emergencies, you can avoid doing that in the future by building up an emergency fund.  Experts recommend you have 3-6 months of expenses saved up.  Make that your long-term goal.  For the time being, though, try to get one full paycheck in the bank as soon as possible.
  • Gather up all of your recent statements and make a list that has the creditor name, amount owed, minimum payment and interest rate.  For our example let’s use the following numbers:
Creditor Name Amount Owed Minimum Payment Interest Rate
Citicard $14,567 $230 18%
Discover $994 $60 12%
Visa $7729 $262 29%
Student Loans $19,334 $223 6.8%
Auto Loan $21,000 $406 6%
  • Pay the minimum on each card and any extra towards your highest interest loan.  A common mistake people make if they have an extra $50 is to put $20 on this card, $10 on another, etc.  If you concentrate any extra money on one debt, though, you will get it paid off much faster.
  • Make Power Payments.  When you have paid off your first debt, roll that amount over to start paying on your next highest interest rate debt.  It would look like this:
Visa Citicard Discover Student Loan Auto Loan
$262 $230 $60 $223 $406
$262 $230 $60 $223 $406
$492 $60 $223 $406
$492 $60 $223 $406
$552 $223 $406
$775 $406

Can you see how powerful this technique is?  Using this technique can save you thousands of dollars in interest and shave years off your repayment time.

There is software available that will help you set this up and give you detailed payment calendars.  It was developed by Utah State University Extension and is available online, for free.  The software is called Power Pay and you can access it at http://www.powerpay.org (note: if you have an iPad or iPhone you can access an app from the homepage of that website).

PowerPay

I plugged the numbers above into the software and here are the results:

Paying the debts off without power payments will take you 16 years, 10 months to pay off.  The total you will pay back is $112,104.09, with $48,480.09 being interest!

If you pay using power payments, though, it will take you 6 years, 5 months to pay off with a total payoff of $90,891.04 ($27,267.04 being interest).

Power payments save you 10 years and 5 months and $21,213.05 in interest!

There is also a feature on Power Pay where you can add extra payments, so if you are getting a tax refund you can plug that in there, or if you can devote an extra $100 to debt you can plug that in there.

I encourage you to take some time to plug your own information in the software to see how power payments will benefit you.

Financial Planning Tool: Credit Karma

Good Credit Score

Your credit score plays a larger factor in your life than you might realize. For example, your credit score is a factor in:

  • The rate you pay for loans
  • The deposit you pay for utilities and your cell phone
  • Your auto insurance
  • Getting the job you want
  • Getting into the apartment you want

In addition to all of these benefits of having a good score, monitoring your score regularly can also alert you to potential problems. If an account was opened in your name that you are not aware of, you could be a victim of identity theft.

There are several ways to monitor your score, but one method stands out due to its ease of use, how comprehensive it is, and the price (it’s free). That tool is Credit Karma.

Here is how Credit Karma describes their services:

Our goal is to help you understand your credit and get more out of it. Along with providing free credit scores, reports and monitoring, we offer insight into what it all means and show you product recommendations, like credit cards and loans, based on your credit profile.

Basically they pull a copy of your credit report and scores from TransUnion and Equifax, and you can check it as often as you want (the website recommends weekly). You can then go in to detail about the six factors that determine your score (credit card utilization, payment history, derogatory remarks, age of credit history, total accounts and credit inquiries), along with recommendations for how to improve in that area.

For example, if the website shows that you have a poor ranking in credit card utilization you can click on that area and it will show how utilization is calculated, how much of a balance you are carrying on each card and several tips for improving in that area.

You can also run simulations to see how different scenarios would affect your score. For example, you can simulate what will happen to your score if you close a particular card, or pay your balances down or make a late payment.

Questions about Credit Karma

Is it secure?

Yes, it is secure. You do have to enter your social security number for them to be able to pull your report, but they take your data security very seriously. You can read about their security practices here: https://www.creditkarma.com/about/security.

Doesn’t pulling my credit hurt my score?

Yes and no. A hard inquiry (such as applying for a loan) does affect your score (only to a small degree, though). However, a soft inquiry does not. A soft inquiry is when you pull your own report, or your employer does, or a company like Credit Karma does. Reviewing your report and score on Credit Karma will have no effect on your score.

Will Credit Karma sell my information?

No. Their privacy policy restricts them from selling your information.

How is it free?

Credit card and loan companies pay for targeted advertising on the site. You will see recommendations specific to your situation and score. For example, when I logged in today it showed my four recommendations for credit cards, based on my credit score. I find their advertising very unobtrusive.

Check out Credit Karma today at https://www.creditkarma.com/.

Credit Karma logo

If you are looking for a post about how your credit score is calculated you can find it here:

NOTE: This will be the first in a series of articles about financial planning tools. I will review the tools that I have researched and use for my personal finances. If you have other tools you use to manage your money, please share them in the comments or in an e-mail.