Liz Weston

Stop counting other people’s money

August 8, 2017 By Liz Weston

Your neighbor pulls up in a sweet new ride. Your co-worker announces she’s taking yet another trip abroad. Your best friend upgrades to a bigger house in a better area of town.

You’re pretty sure these people don’t make a lot more than you do.

So how are they able to spend that kind of money?

Maybe they’re up to their ears in debt, or they’re trust fund babies, or they’ll never be able to retire. Or maybe they’ve figured out the secret to money, which is: You can have anything you want. You just can’t have everything.

The new car, that house and that exotic trip are the shiny end results of a series of decisions hidden below the surface. What we don’t see, typically, are the trade-offs – or their consequences.

In my latest for the Associated Press, why you need to focus on your own finances instead of counting other people’s money.

Tuesday’s need-to-know money news

August 8, 2017 By Liz Weston

Today’s top story: Online banks give consumers more options. Also in the news: How to end your car lease without getting dinged, how money-managing robots will know if you’re mad or glad, and for millennials, there’s no place like home when it’s time to save for one.

Online Banks Give Consumers More Options
The benefits of banking online.

End Your Car Lease Without Getting Dinged
It can be done.

Money-Managing Robots Will Know If You’re Mad or Glad
Reading your emotions.

For Millennials, there’s no place like home when it’s time to save for one
The bank of Mom and Dad.

Q&A: My 401(k) is making only 2-3%, so why not borrow from it and pay it back at 5%?

August 7, 2017 By Liz Weston

Dear Liz: You have warned in the past about the risks of a 401(k) loan. I have been investing now for 15 years, and the last 14 years, my average return has been between 2% and 3%. I am considered moderately aggressive in my choices of international (24%), large and small cap (52%), midcap (16%) and 8% in bonds.

It has been an absolute joke (until last quarter) so I took out a loan a few years ago and was planning on doing it again when the first is repaid in approximately two years. I look at it as a 5% return to make myself a little something in an unstable and nasty market. I see the loan as my best consistent return option.

Answer: There is something wrong with your portfolio if your average annual return has been that low — and if you think paying returns out of your own pocket is a better option than putting your money to work in the markets.

If you had invested in a plain vanilla balanced fund 15 years ago, with 60% of its portfolio in stocks and 40 percent in bonds, you would have received an average annual return of over 9% (and it would be up 10% in the last year alone). While you wouldn’t have achieved 9% every single year, and your returns would vary based on when you bought your shares over the years, you certainly should have done better with your portfolio than you have.

It’s possible your plan charges higher-than-average fees or your investment choices have higher-than-average expenses. A site called FeeX will evaluate your 401(k) portfolio for free and show you how its costs stack up against other plans. You may be able to move to less expensive options within your plan or press your company to look for lower-cost providers.

The loan you took out depressed your returns as well. That money was pulled out of your investments, so it wasn’t able to participate in the market’s growth. The 5% interest rate you’re paying may seem cheap, but it’s a bad deal when compared to the returns the money could have been earning.

Q&A: Changing credit scoring formulas will help some — but not everyone

August 7, 2017 By Liz Weston

Dear Liz: I read that the credit bureaus have started deleting black marks from people’s credit reports. This is good news for me. I have never been late on a house payment in 30-plus years, but my credit is in the low 600s due to a loan I co-signed for an ex-girlfriend who has been chronically late.

Answer: The records the credit bureaus are deleting won’t help improve your scores.

The three bureaus — Equifax, Experian and TransUnion — are removing virtually all civil court judgments and many tax liens from credit reports. Tax liens result from unpaid state or federal tax bills and civil judgments are court rulings from lawsuits filed over old debts, unpaid child support, evictions and other non-criminal disputes.

Judgments and liens caused a lot of disputes and complaints about accuracy because the records were often missing key identifying information and weren’t regularly updated. The bureaus are removing the records that don’t include minimum identifying information such as Social Security numbers or dates of birth in addition to names and addresses. The records must also have been updated within the previous 90 days.

The deleted records are expected to lead to small credit score increases for most of the 12 million to 14 million people who have such black marks on their credit reports.

Your issue is different. Because you co-signed, the loan appears on your credit reports as well as your ex’s. Every late payment hurts your credit scores. If your ex had simply stopped paying, your scores would have plunged even more — but then would have begun to improve as your responsible use of credit began to offset the default.

After seven years and 180 days, the defaulted loan would no longer show up on your credit reports or affect your scores. Because your ex keeps paying, albeit late, your credit scores sustain fresh damage each time. Each late payment also resets the clock on how long the negative marks show up on your credit reports. You won’t begin to get relief until the loan is paid off or refinanced.

Thursday’s need-to-know money news

August 3, 2017 By Liz Weston

Today’s top story: 6 ways to optimize your credit card’s bonus mall. Also in the news: 5 tips for starting a business while working full time, 6 ways to get free money from the government, and the 10 most stolen cars and the cost of theft insurance.

6 Ways to Optimize Your Credit Card’s Bonus Mall
Getting the most bang for your bonus bucks.

5 Tips For Starting a Business While Working Full Time
It’s all about time management.

6 Ways to Get Free Money From the Government
You read that correctly.

The 10 most-stolen cars and the cost of theft insurance
Is yours on the list?