Learned something new, but I think that's dumb. Now we have to start asking if it's 850 out of 850 or 850 out of 950; that's just great...

I absolutely agree. I've never heard what their rationale was for making the change and it took me by surprise. Personally, I think it would have made sense to set up a system on a 1000 point basis and then create a scoring model that placed general creditworthiness boundaries at the 100 pt marks. I also never understood the need for a minimum score (other than the psychological factor). I know people that should rightfully have credit scores in single digits. But they didn't ask me.

Before the change the variation in max scores was small enough to get lost in the general clutter of the different data each bureau had.

When all is said and done, most of the people that actually use the credit scores know who they are getting them from and, in theory, how to interpret them. How close theory matches reality, though....

 

Roth IRAs

I wish financial advisers had been more informed of the benefits of a Roth IRA combined with a traditional IRA. It would have given me another knob to affect my taxable income. Some have even gone on record saying they wished they had understood the benefits of more diversified approach.

@Motanache don't let anyone tell you what income you need to live on; you need to determine that yourself. Retirement planners told me I needed 80% of my pre-retirement income in retirement. They didn't have a clue. I knew that I didn't intend to maintain my pre-retirement lifestyle in retirement. For one thing, I didn't plan on carrying a lot of debt. Forced retirement, as it often is, complicated things.

In my youth, my plan was to retire financially independent. Now I know that that was a foolish pipe dream for 99% of us. Even in retirement, a significant amount of my funds are in the stock market. I'm just one crash away from a world of hurt.

 

Why do some people to have money and others have no money?

I'd say it's more like, "Why do a few people have money most others have no money?"

In my experience, as I look at the wealth differences between people, it's primarily a personal choice. Yes of course there are people that, for one reason or another, never had a chance to accumulate wealth. But you could eliminate all those people from this discussion and you'd still have a big wealth disparity left.

To accumulate anything, including wealth, requires the inflow to exceed the outflow for a sustained time. The people that have no wealth are simply unwilling to live below their means and save money. In fact many do just the opposite by accumulating more debt year after year. This behavior has nothing to do with absolute earning potential. My daughter works in credit management, and many of her clients have salaries ten times her own, but also have debts bigger than her net worth. They react in shock and horror when she suggests that maybe, just maybe, they might get by for a while with less than an $800/month clothing budget. It blows their minds to imagine living within their means and they just cannot possibly impose that level of austerity on themselves, even if they have a salary in the top 5%. Of course these people may appear to have wealth because they enjoy the clothes, cars and such.

I have also seen people unwilling to seek jobs that would pay them more. They make a lot of mental excuses and talk themselves out of it. I think this is smaller population than the over-spenders, but they are definitely out there. You cannot save your way to prosperity, you also need income.

It's especially important to save and accumulate while you're young. It establishes good habits early, it's far easier to go without things when you're young, and the benefits of having a reserve of savings pays benefits throughout your entire life. Some people think they'll live paycheck-to-paycheck and only save for retirement in the last couple years before they retire. That cannot ever work, and they never have the luxury of a safety reserve to cover life's inevitable emergencies.

Personally I don't understand that attitude, because I see money-in-the-bank as nothing less than freedom. More is better.

 

Some people think they'll live paycheck-to-paycheck and only save for retirement in the last couple years before they retire.

I think deep down, those people know they're putting themselves on the work-til-you-die retirement plan.

 

I think deep down, those people know they're putting themselves on the work-til-you-die retirement plan.

I agree. They aren't stupid and must, at some level, know what they're doing. Humans have a hard time denying themselves anything today in exchange for a better future. Some, like me, see that as an easy bargain. I retired at age 51. Some don't see it, preferring the "live like there's no tomorrow" strategy. I guess someday their strategy will prove correct.

 

I wish financial advisers had been more informed of the benefits of a Roth IRA combined with a traditional IRA. It would have given me another knob to affect my taxable income. Some have even gone on record saying they wished they had understood the benefits of more diversified approach.

This is one thing I never understood about all of these financial "professionals". The very first time I heard one of them talk about how the Roth was so superior because you never paid taxes on the growth, they made their point by asking which I would rather do, pay taxes on $10,000 or taxes on $100,000. My immediate reaction was that, since multiplication is commutative, the only thing that mattered was any difference between the effective tax rate paid up front on a Roth (which is closer to your marginal tax bracket) and the effective tax rate paid at the back on a Traditional (which is closer to your average tax rate). If the rates are the same, then the two are identical. Since your marginal rate when working is almost always going to be significantly more than your average rate in retirement, the Roth starts out at a huge disadvantage. That then led to the obvious conclusion that a combined approach was almost certainly optimal in which your goal was to draw money out of a Traditional until you hit a certain tax bracket and draw the rest from a Roth, so now the trick is simply to figure out how much to put in each, which is pretty straight forward (even though it is a moving target). All of this took me, very much NOT a financial guy, less time to figure out than it took to type this paragraph. The conclusion that I drew then, and has been confirmed many times sense, is that a large fraction of financial planners have math and reasoning skills that shouldn't have let them get out of middle school.

@Motanache don't let anyone tell you what income you need to live on; you need to determine that yourself. Retirement planners told me I needed 80% of my pre-retirement income in retirement. They didn't have a clue. I knew that I didn't intend to maintain my pre-retirement lifestyle in retirement. For one thing, I didn't plan on carrying a lot of debt. Forced retirement, as it often is, complicated things.

Agreed. Each person needs to look at their minimum expenses and estimate what they would be if they were retired, taking into account that some expenses go down while others go up. As part of this they should be considering which of those expenses they can make go away -- which is where home ownership becomes SO valuable, as well as being debt free in general. Most people can live one quite a bit less than they currently do, if only they get rid of the debts. So that should become a primary goal that should be aggressively pursued.

In my youth, my plan was to retire financially independent. Now I know that that was a foolish pipe dream for 99% of us. Even in retirement, a significant amount of my funds are in the stock market. I'm just one crash away from a world of hurt.

My goal is to shift enough funds into "safe" investments to provide for the survival level income as I near retirement. That will let us be a lot more tolerant of market fluctuations with the rest of it. Whether or not we will be able to do that is another matter entirely. Unfortunately, I have not been nearly as disciplined about putting money into the retirement funds as I should have been over the last decade, and it shows.

@Motanache : That's another hugely valuable lesson (which is why I pointed it out in my original response to you). The best strategy in the world is worthless unless you execute it. That takes an unusual mindset where you religiously stick to an investment plan month after month, year after year. It doesn't even have to be a particularly good plan.

 

That takes an unusual mindset where you religiously stick to an investment plan month after month, year after year. It doesn't even have to be a particularly good plan.

And to expand one what is a good plan Vs a not so good is that, although, there are common plans and processes that work to meet specific end goals the overall strategy and method of approach from one individual to another can vary greatly. What works for one person to meet their goals might not fit any goals another person has.

The way I have ran my life would not work for most but given my life interests, skillsets, local influences and resources what I'm doing works well enough for me.
It's not perfect but it gives me a load of freedoms and personal capacities few others have that I value more than anything else and to date it does not look like I am sacrificing major aspects of my long term retirement to have them.

 

Personally, I use the credit card for some normal expenses, especially if they build up rewards points. That being said, I pay in full the previous month's charges before it is due.

I use the reward points to buy stuff on amazon. I'll build the reward points back up with these normal purchases.

 

Personally, I use the credit card for some normal expenses, especially if they build up rewards points. That being said, I pay in full the previous month's charges before it is due.

I use the reward points to buy stuff on amazon. I'll build the reward points back up with these normal purchases.

I do something very similar, except I try not to buy anything with cash and I schedule as many automatic payments to be charged to my credit card as I can. I have one card that gives 5% back on gasoline and another that gives 2% cash back on all purchases. If I could figure out a way to get the mortgage company to charge my credit card, I would. The rewards usually get us about $800 to $1000 a year. Then occasionally we get these promotions for cash incentives for opening an account with some minimum balance that you have to maintain for three months or that you have to make some amount of purchases in the first three months or some other teaser. If we can take advantage of it without actually spending any money that we wouldn't have anyway, we do it. Usually my wife and I both get the same promotion separately. We then close the accounts as soon as we can without forfeiting the incentive (usually six months). About five years ago Chase sent us several promotions and that year we banked a bit over $1600 from them alone without costing us a dime. We usually get about $500/yr from their promotions. If I could find about 50 companies that would add us to their promotion lists, it would be great (though I don't know how many I could actually support since each one tends to tie up money for several months). But as long as we can use our emergency funds for this stuff, it works well because the funds are available immediately if we need them, we just forfeit the incentive.

 

I look at it quite differently.

Every time you use your credit or debit card, the bank is making money on the transaction.

When you leave money in a bank account, the bank is making money on the deposit.
Suppose you have $100 in a savings account. The bank can lend $1000 at 5% interest (as an example).
On your $100, the bank is making $50 per annum.

Where does this money come from? It comes from the next sucker and future generations.

 

I look at it quite differently.

Every time you use your credit or debit card, the bank is making money on the transaction.

I don't have a problem with a bank making money. If they provide a product or service that has value, them I'm willing to pay them, directly or indirectly, for the value received.

When you leave money in a bank account, the bank is making money on the deposit.
Suppose you have $100 in a savings account. The bank can lend $1000 at 5% interest (as an example).
On your $100, the bank is making $50 per annum.

Assuming no one defaults on those loans, which is a bad assumption. Your $100 is very safe but their portfolio has significant risk.

How much does the bank make on your $100 if they make five $200 loans and just one of them skips town?

Where does this money come from? It comes from the next sucker and future generations.

Money is not a zero sum game.

You babysit the neighbor's kid and they pay you for it. Where did the money come from? From some next sucker or future generations?

 

Money is not a zero sum game.

True.

• All money is a pyramid scheme.
• All money is created out of nothing.
• All money is debt.
• All money is an obligation on future society.

 

Money (cash or currency) is just a way of exchanging the value of goods and services through currency.

However, some very historical economies are based on barter as a way of exchanging the value of goods.

In the 1960s, My grandfather owned a grocery store in Yellville, Arkansas which was a small farming community with a lot of impoverished families. Quite frequently, he would give them groceries in exchange for providing services to my family.

 

I look at it quite differently.

Every time you use your credit or debit card, the bank is making money on the transaction.

When you leave money in a bank account, the bank is making money on the deposit.
Suppose you have $100 in a savings account. The bank can lend $1000 at 5% interest (as an example).
On your $100, the bank is making $50 per annum.

Where does this money come from? It comes from the next sucker and future generations.

Being a DFCP (Dirty Filthy Capitalist Pig), I have no problem with banks loaning people's savings in return for interest. As a private person, I would not loan money to the general public on a volunteer basis without expecting a gainful return.

Furthermore, I really get teed off when some charity asks people to send money of volunteer their time. Since the hurricanes in Texas and Florida, the Red Cross has been pandering for donations, but I know most of the $$$ goes to administrative overhead and little goes to the victims.

 

However, some very historical economies are based on barter as a way of exchanging the value of goods.

In the 1960s, My grandfather owned a grocery store in Yellville, Arkansas which was a small farming community with a lot of impoverished families. Quite frequently, he would give them groceries in exchange for providing services to my family.

That process is still alive and well here out in the midwest!
Person to person and even business to person or business to business barter and trade are still very common where I am at. I dare say the majority of my sideline work is paid in trade for trade deals.

I find out someone has something they need fixed or done and they have some old piece of machinery or other tradeable items that I value more than they do and it's good enough for me.

 

True.

• All money is a pyramid scheme.
• All money is created out of nothing.
• All money is debt.
• All money is an obligation on future society.

Money is nothing more than a medium of exchange.

If Tom makes a widget and trades it to Bob for two gadgets, then the price of a widget has been set at two gadgets and a gadget is now a unit of money. An equally valid view is that the price of a gadget has been set at half a widget and the widget is now a unit of money. How does either constitute a pyramid scheme, something made out of nothing, a debt, or an obligation on future society?

What we usually think of as "money" is merely a convenient token that serves to make such exchanges more efficient.

If, in addition to the two gadgets that Tom bought from Bob, we also wants a Tootle, then he might make another three widgets. But then he might discover that no one that has a Tootle is interested in a widget, but Sue is willing to trade a Tootle for four Chickens. But Tom doesn't have any Chickens. So now he has to try to find someone that has some Chickens that they would be willing to trade for up to three widgets so that he take the Chickens back to Sue to trade for her Tootle. But, you guessed it, no one that has any Chickens is interested in a widget either. This is an extremely inefficient system.

Money is nothing more than a common commodity that nearly everyone will accept in trade for goods and services because they have confident that more people will accept it from them, in turn, for different goods and services. The tokens used for money seldom have any significant intrinsic value themselves, they merely serve as a common reference point.

 

That process is still alive and well here out in the midwest!
Person to person and even business to person or business to business barter and trade are still very common where I am at. I dare say the majority of my sideline work is paid in trade for trade deals.

I find out someone has something they need fixed or done and they have some old piece of machinery or other tradeable items that I value more than they do and it's good enough for me.

Barter and trade almost always go on at some level in every economy and most people engage in it on an almost continual basis. Make agreement with a coworker that you will test their gizmo if they will solder your board, and you've just engaged in barter just exactly as you've described. The person that needs the gizmo tested values that more highly that soldering a board, which they can do quickly, while the person that needs the board values the board more than they do a gizmo test, which they can do in their sleep. Both parties, from their perspective, are receiving more value than they are giving up.

But as the basis for the broader economy, direct barter is cripplingly inefficient.

But "money" is simply an indirect barter that is usually much more efficient in most instances. The person receiving the money believes that they can trade that money for something that they value more than the item they are selling and the person giving the money believes that the value of what they are buying is more than other items they could trade that money for. But in either case, direct or indirect, it is goods and services that are really being exchanged.

 

Money is nothing more than a medium of exchange.

If Tom makes a widget and trades it to Bob for two gadgets, then the price of a widget has been set at two gadgets and a gadget is now a unit of money. An equally valid view is that the price of a gadget has been set at half a widget and the widget is now a unit of money. How does either constitute a pyramid scheme, something made out of nothing, a debt, or an obligation on future society?

What we usually think of as "money" is merely a convenient token that serves to make such exchanges more efficient.

If, in addition to the two gadgets that Tom bought from Bob, we also wants a Tootle, then he might make another three widgets. But then he might discover that no one that has a Tootle is interested in a widget, but Sue is willing to trade a Tootle for four Chickens. But Tom doesn't have any Chickens. So now he has to try to find someone that has some Chickens that they would be willing to trade for up to three widgets so that he take the Chickens back to Sue to trade for her Tootle. But, you guessed it, no one that has any Chickens is interested in a widget either. This is an extremely inefficient system.

Money is nothing more than a common commodity that nearly everyone will accept in trade for goods and services because they have confident that more people will accept it from them, in turn, for different goods and services. The tokens used for money seldom have any significant intrinsic value themselves, they merely serve as a common reference point.

I think we all understand how barter and trade using currency work.

What most people do not understand is that money is created out of nothing by banks and financial institutions.

Banks do not lend out people's money. This is a misconception.

Banks need to maintain a certain amount of liquidity. This is called the reserve requirement.
In some countries, e.g. Canada, the reserve requirement is 0%.
In other countries it is as high as 25%. In the U.S.A. it is about 10%.

What this means is that a bank can make loans as much as 10 times what it has on deposit.

Where does this money come from?
Loans are simply a data entry on a computer. Money is created out of nothing.
Who pays for the loans and interest accrued on a loan? The next person that needs a loan.
Hence the money supply has to grow. Our current monetary system depends on growth. Without growth the entire system collapses. That is why it is no different from a pyramid scheme.

Future generations will have to deal with this financial apocalypse.

Insanity: Doing the same thing over and over again and expecting different results.

 

Saying that marginal reserve banking is (favorite list of evils) is very different from saying that money is (same favorite list of evils).

Marginal reserve banking was practiced before banks existed and occurs in barter economies as well. When Tom tells Dick that he'll give him ten widgets next month in exchange for a five gadgets today, a loan has just been made and money, in the general sense, has been created. Parties can promise items that are promised to them even though nothing has actually been manufacturered -- that's a debt on future generations.

Money is not the issue. People like to focus on "money" as being the root of all evil when money is completely neutral. The issue is the types of interactions that people engage in and those interactions are independent of whether currency is involved or not. Claims such as "all money is a pyramid scheme" is just a platitude that has no substance. It's a cute sound bite, and little more.

 

Being a DFCP (Dirty Filthy Capitalist Pig), I have no problem with banks loaning people's savings in return for interest...

I do not have a problem with banks loaning people's savings...
I do have a problem with banks profiting 700%-800% from people's savings and paying 0.5% to depositors.