MONEY consumer psychology

19 Secrets Your Millionaire Neighbor Won’t Tell You

The secret to financial freedom.

Here’s a classic post with advice that never grows old:

That’s right. Although having a million bucks isn’t as impressive as it once was, it’s still nothing to sneeze at.

In fact, CNBC reports that in 2013 there were 13.2 million millionairesin the United States alone.

That’s a lot of people, people. And the odds are one or two of them are living near you.

Heck, one of them might even be your neighbor. In fact, the odds are very good that it is your neighbor.

But, Len, you don’t know my neighbor. That guy doesn’t look anything like a millionaire.

Well, guess what? Your suburban millionaire neighbor called (oh yeah, we go way back) and the two of us had a nice little chat.

Here’s a few things he shared with me but apparently doesn’t want to tell you. (No offense, I’m sure.)

1. He always spends less than he earns. In fact his mantra is, over the long run, you’re better off if you strive to be anonymously rich rather than deceptively poor.

2. He knows that patience is a virtue. The odds are you won’t become a millionaire overnight. If you’re like him, your wealth will be accumulated gradually by diligently saving your money over multiple decades.

3. When you go to his modest three-bed two-bath house, you’re going to be drinking Folgers instead of Starbucks. And if you need a lift, well, you’re going to get a ride in his ten-year-old economy sedan. And if you think that makes him cheap, ask him if he cares. (He doesn’t.)

4. He pays off his credit cards in full every month. He’s smart enough to understand that if he can’t afford to pay cash for something, then he can’t afford it.

5. He realized early on that money does not buy happiness. If you’re looking for nirvana, you need to focus on attaining financial freedom.

6. He never forgets that financial freedom is a state of mind that comes from being debt free. Best of all, it can be attained regardless of your income level.

7. He knows that getting a second job not only increases the size of your bank account quicker but it also keeps you busy — and being busy makes it difficult to spend what you already have.

8. He understands that money is like a toddler; it is incapable of managing itself. After all, you can’t expect your money to grow and mature as it should without some form of credible money management.

9. He’s a big believer in paying yourself first. Paying yourself first is an essential tenet of personal finance and a great way to build your savings and instill financial discipline.

10. Although it’s possible to get rich if you spend your life making a living doing something you don’t enjoy, he wonders why you do. Life is too short.

11. He knows that failing to plan is the same as planning to fail. He also knows that the few millionaires that reached that milestone without a plan got there only because of dumb luck. It’s not enough to simply declare that you want to be financially free.

12. When it came time to set his savings goals, he wasn’t afraid to think big. Financial success demands that you have a vision that is significantly larger than you can currently deliver upon.

13. Over time, he found out that hard work can often help make up for a lot of financial mistakes — and you will make financial mistakes.

14. He realizes that stuff happens, that’s why you’re a fool if you don’t insure yourself against risk. Remember that the potential for bankruptcy is always just around the corner and can be triggered from multiple sources: the death of the family’s key bread winner, divorce, or disability that leads to a loss of work.

15. He understands that time is an ally of the young. He was fortunate enough to begin saving in his twenties so he could take maximum advantage of the power of compounding growth on his nest egg.

16. He knows that you can’t spend what you don’t see. You should use automatic paycheck deductions to build up your retirement and other savings accounts. As your salary increases you can painlessly increase the size of those deductions.

17. Even though he has a job that he loves, he doesn’t have to work anymore because everything he owns is paid for — and has been for years.

18. He’s not impressed that you drive an over-priced luxury car and live in a McMansion that’s two sizes too big for your family of four.

19. After six months of asking, he finally quit waiting for you to return his pruning shears. He broke down and bought himself a new pair last month. There’s no hard feelings though; he can afford it.

So that’s it. Now you know what your millionaire neighbor won’t tell you.

Oh, and, um, would you be so kind to keep this just between you and me? I’d hate to ruffle anyone’s feathers or cause of any kind of neighborly spat.

Please?

Thanks. You’re a peach.

More From Len Penzo dot COM:

Len Penzo blogs at lenpenzo.com, “the off-beat personal finance blog for responsible people”.

MONEY credit cards

The Latest You Can Pay a Credit Card Bill Without It Going on Your Record

time expired on parking meter
Mie Ahmt—Getty Images

Credit bureaus follow this standard reporting guideline

It’s irritating to run across a bill and to realize it was due yesterday… or last week. If it’s a credit card bill, you may also have to pay a fee (sometimes, if it’s a rare slip-up, you can get it waived), and it can be especially scary to find an overdue bill if you have applied for credit or plan to in order to make a big purchase, like a house or vehicle. Readers often ask us how late a payment has to be before their creditors report it to the credit bureaus:

  • From Ig08: Hi, I have my credit card since last 6 years and have never missed any payments, but my last payment was due on 4th may and I paid it on 6th. … Does being one/two days late affect credit score?
  • From INVNOONE: Today [my bill] is 30 days late. When I called my bank they stated, “we cannot tell if it has been reported to the credit bureau.” Should I pay the loan today not knowing if they already reported it late to the credit bureau? This will leave me with very little money but I do care about my credit report.
  • From Stephen: I have perfect credit and a small business and my credit is very important to me. I had a credit card … I thought it was completely paid off there was a $6 remaining balance I paid it in full and it was 31 days late and they put it on my report what kind of options do I have?

First, know that even if a late payment does make its way onto your credit report, it’s not necessarily the end of the world. There are many, many worse things, and there are degrees of lateness. Ninety days late is worse than 60 days, and 60 is worse than 30, for example. One late payment among years of on-time payments is far less serious than a late payment and limited credit history. (Of course, if you are in the middle of applying for a mortgage, one late payment could be a serious setback.)

Chi Chi Wu, a staff attorney with the National Consumer Law Center, said 30 days is the magic number. “Late payments generally don’t show up until the payment is 30 days ​past due,” she said in an email. “This is the standard reporting guideline for the credit bureaus.”

But one of our readers who goes by the screen name AJ says she was just 14 days late on a car payment, and it showed up on her credit reports. She hasn’t been able to get it removed. Rod Griffin, director of public education for Experian, said that because it was a car payment (rather than a revolving account, like a credit card), “the ’30-day grace period’ doesn’t necessarily apply.” He added that the payment was late as of the due date, “so the lender may have reported it immediately. You should always be sure to understand the lender’s policy for reporting late payments for the account.” he said. “The commenter should review their contract with the lender to determine what it says regarding when late payments will be reported, or contact the lender. The lender should be able to explain its policy. The 30-day period is specific to revolving accounts, not installment loans.”

If a credit card payment arrives before it is 30 days late, it generally should not be reported negatively or have any effect on your credit score. Beyond that time, however, it’s a distinct possibility that it will. You can get a free annual credit report from each of the three major credit reporting agencies. That can show you whether you have had late payments reported. (This guide can help you interpret those reports.)

If it turns out your late payment has been reported, know that its impact on your score will diminish with time (especially if it’s an isolated event), and that other on-time payments can help counter the effects of a slip-up. And, as with almost any other mistake, the sooner you realize you’ve made it and try to fix it, the less likely it is to turn into a big problem.

More from Credit.com:

MONEY Debt

Help! My Car Loan Outlasted My Car

black car being towed
Jordan Siemens—Getty Images

4 ways to get out of car debt fast

What happens if your car loan lasts longer than your car? While you may have every intention of driving a car long after it’s paid off, an accident (and inadequate insurance), expensive repairs, or mysterious problems your mechanic can’t fix could leave you with a vehicle that’s out of commission even though you’re still making payments.

“Longer-term loans are increasingly prevalent,” says Melinda Zabritski, senior director of automotive credit with Experian. Nearly half (48.2%) of model year 2014 vehicles purchased used were financed with loans of between 61 and 72 months, according to Experian Automotive data.

What can you do if you find yourself in this position? Here are four possible options.

1. Pay Off the Debt

Of course, paying off the balance of your loan would be your best option, but what if you don’t have that kind of cash sitting around? Or what if you need those funds for a down payment on another vehicle? In that case you may have to use another loan to pay off the car loan so that you can get the title and dispose of the vehicle. One option might be a 0% or low-rate credit card balance transfer offer. In many cases, you can have those funds deposited into your bank account and use them for whatever debt you want to pay off. Make sure you understand the fees that will be charged (usually 2% to 4% of the amount transferred) and that you can pay the debt off before the low-rate offer ends.

2. Roll It Into a New Loan

An auto dealer may work with you to roll the balance of your loan on your current vehicle into a new loan. Technically “you can’t roll negative equity into a loan,” says Bob Harwood, vice president at CarLoan.com. but there are ways around it. A dealer can try to inflate the value of the trade-in and/or loan more than the value of the car. “Banks will put a cap on how much over value on a car (you can borrow),” he says. “It’s usually around 120% to125% if you have decent credit.” But with less than stellar credit, they may lend only 100% to 110% of value of the new vehicle — or even less if you have very poor credit.

And, yes, they will want your old vehicle even if it’s now a junker, says Harwood, if only to try to increase the value of the trade-in to make the deal work.

3. Park & Pay

You could simply park the vehicle and continue to pay off the loan. When it’s paid off, you can then get the title back and donate it to charity, sell it, or use it as a trade in on another vehicle.

But be careful: This strategy assumes you have a place to safely store it. And you may need to keep tags and/or a minimum level of insurance on the vehicle. Your homeowner’s insurer (or your landlord’s), for example, may not look kindly on an inoperable untagged vehicle sitting on blocks in your driveway. Or your city may require these types of vehicles to be garaged. Check with your insurance company, your DMV and city or municipality to find out what’s permissible.

4. Call a Bankruptcy Attorney

You may be able to use bankruptcy to get out of this mess. “Bankruptcy can be a ticket out of this type of situation,” says Atlanta bankruptcy attorney Jonathan Ginsberg. “If you qualify for a Chapter 7 you can surrender the vehicle and cancel the installment contract and owe nothing,” he explains. What if you don’t qualify? You may look into Chapter 13, which Ginsberg says may offer several outs: “’Cram down’ the loan to the value of the vehicle, ‘redeem’ the vehicle for the fair market value, or surrender the car and pay any deficiency at pennies on the dollar.”

More From Credit.com

MONEY Health Care

Even an Appendectomy Can Hurt Your Credit Rating

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Steve Wisbauer—Getty Images

The medical billing error from hell

When Saideh Browne had an emergency appendectomy in the summer of 2012, she had no idea it would raise the cost of a car loan three years later.

The 44-year-old personal trainer from New York recently visited a dealership to buy a new Honda Accord and discovered her credit score had been dinged by two lingering medical bills for $770 that had gone to collection.

Browne says she did not purposefully ignore the bills, nor did she shirk them because she could not pay. Like many other people, she got caught in an endless loop of indecipherable paperwork between the many providers involved in her care and the insurance company. The amounts due and the reasons listed for the charges kept shifting. Browne did not want to pay a wrong bill and never see the money again.

“I’m an astute consumer, but it gets confusing,” Browne laments. “You don’t know what bill is what.”

Almost 50 percent of medical bills have errors, according to government data studied by NerdWallet, which has a medical bill review service.

“It’s quite staggering,” says Christina LaMontagne, a general manager for NerdWallet. “Probably all of us have been mis-billed on a medical service.”

That includes LaMontagne, who recently received a medical bill she did not understand that was due in 30 days. Her first recommendation to consumers: ask for an itemized statement.

Therein lies the dilemma for most consumers.

“There are cobwebs in the system,” LaMontagne says.

So what is a consumer to do? Here are the three steps to keep your credit healthy:

1. Communicate immediately, in writing

You can pick up the phone to call your provider and the insurance company, but you need documentation, says LaMontagne. The doctor and insurance company need to respond back to you in writing, or you have grounds for appeal because you were not properly notified.

Disputing a charge should stop the clock, but there is no guarantee your unpaid bill will not be sent to collection.

The average time a provider will carry a bill is usually 120 days, which is how long Medicare providers are required to wait, says Chad Mulvany, director of healthcare finance policy for the Healthcare Financial Management Association, a trade group for hospitals.

LaMontagne says significant anecdotal evidence exists that more bills are being sent to a collections agency after 90 days, so the transition to collection could be quick.

1. Get outside help

If you are getting nowhere with your provider, turn to your state insurance commission.

You can also hire a bill resolution company, such as NerdWallet Health or Medical Billing Advocates of America, which charge either a flat fee or take a percentage of the savings you achieve.

Some workplace human resources departments also offer assistance, or at least can run interference with insurance companies.

Expert help is important because many collection agencies prey on consumer fear and tend to go away quickly if confronted by somebody who knows the law, says Pat Palmer, president of Medical Billing Advocates.

For instance, collection agencies are not supposed to be familiar with your medical details. So the first thing Palmer does for clients is call and ask about the charges. If the agents know what the bills are for, she tells them they have violated medical privacy laws. “You never hear from them again,” Palmer says.

3. Negotiate a payment plan

Most medical providers want to close out your account. Setting up a payment plan could get the monkey off your back, says Healthcare Financial Management’s Mulvany.

Most of all, paying something allows you to move forward, says credit expert Beverly Harzog, author of “The Debt Escape Plan.”

“If you don’t take care of it, it’s going to drag you down,” Harzog says.

That is exactly what Browne has done, setting up a payment plan for the unexplained bills.

“At this point, I just want it to go away,” she says.

MONEY Financial Planning

7 Ways Couples Cheat on Each Other — Financially

Jonathan Kitchen/Getty Images

Financial infidelity and the lies we tell

Several years ago, a friend of mine admitted she had a bank account her husband didn’t know about so that she could spend from her secret stash on the sly. And recently, an acquaintance who owns a luxury jewelry store revealed to me that some of her clients purchase the high-end gems with cash in order to keep their spouse in the dark about their indulgences.

These breaches of trust are surprisingly common: According to a recent survey by the National Endowment for Financial Education, one in three adults who have combined their money in a relationship admit to committing financial infidelity against their partner. And 76 percent of those people concede that their deception has affected the relationship.

Why all the fibs about your finances? We dug into the reasons behind some of the biggest fiscal lies couples tell, and the steps you can take to get back on track.

Lie #1: “Yes, I paid that bill.”

Where it Comes From: There are two primary reasons why people hide money moves from their significant other. Number one: “You might feel controlled by your partner, so you act out as a form of rebellion,” says money coach Deborah Price, CEO and founder of the Money Coaching Institute and author of “The Heart of Money.”

If one person is in charge of the purchasing decisions (picking apart every detail of the credit card statement, deciding what their spouse can and can’t buy, imposing a spending limit), while the other doesn’t have much of a say, anger and resentment can build up — which results in deceptive behavior.

Number two: “You feel ashamed about your financial situation, so you try to cover it up, hoping you’ll be able to get a handle on things before your spouse finds out,” says Price. “You’re afraid that your partner won’t be able to cope with the truth.” Maybe you’re in debt, and are worried your husband wouldn’t want to be with you if he discovers what’s really going on. Or perhaps you feel guilty about splurging, and don’t want your partner to judge you.

Break the Habit: The first step is to get to the bottom of the lie. “Most money problems aren’t actually about money — they’re symptoms, and the problems are truly about something else,” says Price, who advises to look into when and why the behavior initially emerged. One method: Write what she calls a “money biography.” Did the fib predate your marriage or start after you wed? How does lying make you feel — guilty for being dishonest, thrilled about getting away with something, or afraid that your partner will learn the truth?

“Most of our money patterns are formed in early childhood and get acted out in our relationships unconsciously,” says Price. “Once you understand your patterns, you have some power over them and can begin taking measures to correct them.

Next, consider what it would feel like to come clean. Ask yourself, if you were sure that your partner wouldn’t freak out, what would you ideally like to happen? Now, how can you start to move toward that? “In order to tell the truth, it’s important that you feel safe in your relationship,” explains Price. “You can’t be worried that your partner will run out the door.” She suggests starting the conversation by saying, “There’s something important I need to talk to you about, but I’m afraid that it will upset you. Before I tell you, will you promise to stay calm and help me work through it?” Yes it will be a tough discussion, but coming forward will ultimately help you build a stronger bond.

Lie #2: “I’m terrible with money — you handle it.”

Where it Comes From: This is an incredibly common phenomenon: People who are perfectly competent mistakenly believe that they are financially inept. “You feel powerless and are fearful that you will make a mistake,” says Price. “Maybe you were told you weren’t smart growing up, or had parents or teachers who made you feel insecure.” She also points out that sometimes there’s a subconscious benefit to not being powerful with money, in that it lets you off the hook about having to be the “responsible one” and sets the stage for you to be rescued by someone more “capable.”

Break the Habit: Is it true that you don’t have a good grasp on finances, or is it a projection based upon your fears that you’ll mess up? To find out, list your fiscal skills: Are you aware of how much you have in your checking and savings accounts? Do you know how much you earn? Are you contributing to a 401(k) or IRA? When you were on your own, did you pay your bills on time and spend within your means? You might realize that you’re more in control of your money than you thought. Or, you will identify what areas where you need need some guidance. (Check out our DIY Financial Planning Guide.)

Even though you haven’t done something in the past, it doesn’t mean you can’t become proficient,” stresses Price. “And while it’s okay for one person to have the role of ‘family CFO,’ both of you should be involved in your finances to some extent.” In the worst-case scenario, if you lose your spouse or get divorced and they have the keys to your fiscal life, you’ll be in a bind — especially if there are kids in the picture. So, no matter who takes the lead with financial decisions, make sure to sit down together at least once a month to discuss where your joint finances stand.

Lie #3: “Sure, we can afford that.”

Where it Comes From: This one might not be an outright lie. Many people simply aren’t connected enough to their daily financial accounting to knowwhether or not they can afford a new car or trip to the Andes. And once you’re married, money cluelessness can get even worse — assuming that your spouse will handle the finances gives you an excuse to grow more out of touch.

Plus, when there are two of you, it’s easy to pass the buck so you won’t be the one at fault for having made an irresponsible decision. “Some people might also avoid telling the truth [that a certain item is out of your price range] in order to avoid a potential fight,” adds Price. (Of course, that backfires: You might end up pointing the finger at each other later on when fiscal remorse sets in.)

Break the Habit: Part of the problem here is that we are hard-wired to want to spend money. “We are largely governed by a part of the mind called the instinctive brain, which is driven by desire and is wholly distinct from the prefrontal cortex, the section that processes rational thought,” explains Price. As a result, money decisions are often guided by emotions, rather than logic. So, before making a major purchase you and your spouse should list all of the positive and negative consequences of the decision. “This slows down your neural processing centers and activates the prefrontal cortex,” says Price. Not only will you be less likely to get carried away in the excitement of the moment, but it also forces you to take a hard look at your financial situation.

Lie #4: “My money is your money.”

Where it Comes From: The survey mentioned earlier found that three in 10 adults with joint finances have hidden a purchase, bank account, statement, bill, or cash from their partner. So what’s with all the covert ops? “Concealing fiscal information is a self-protective response to feeling unsafe in the relationship,” says Kate Levinson, PhD, author of “Emotional Currency.” “Even though you may like the idea of merging your money with your spouse’s on an intellectual level, you ultimately don’t trust that your partner will be there for you.

This sense of insecurity might be triggered by past experiences with someone who abused money (for example, a parent who gambled away the rent or burned through the grocery budget to fund a shopping addiction). It can also be a sign of emotional unrest — if you were betrayed by an ex or had an emotionally unavailable parent, you might have learned that you can’t rely on others. “Money represents an internal need to stay independent, and squirreling it away reassures you that you aren’t overly vulnerable,” says Levinson. Thanks to your cash stash, you feel like you have a way out.

Break the Habit: Begin by investigating the underlying cause of your deception on your own — write about it, talk to a friend or therapist, or meditate until you understand what’s going on underneath. “You need to recognize that your behavior is being driven by elements outside of your awareness,” explains Levinson.

After you gain some insight into the underlying causes, work through the issue with your partner. To begin the discussion, try focusing on the relationship with an opening like: “There’s something that I’ve been afraid to talk to you about. I know you’re going to be mad, but I need you to help me figure out what’s going on because it’s getting in the way of me being close to you.” You may also want to preface the conversation by asking your partner to just listen without interrupting so that you can tell him the story in full. “Keep in mind that the core problem might have nothing to do with money, but rather can shine a light on something that’s missing in your relationship — be it that you need more one-on-one time with him, or want him to help out more around the house,” adds Levinson.

Lie #5: “I’ve had these shoes for years.”

Where it Comes From: Denial of spending is a fear-based reaction. “You’re worried that your partner might judge you for being indulgent, selfish, frivolous or undeserving — and that they won’t love you for it,” says Levinson. Your response might be an accurate reflection of your current bind, say, if your partner is financially controlling, or you have a problem with overspending. Or it might be a byproduct of your upbringing; according to Levinson, you could be modeling behavior that you saw play out in childhood (for example, your mom encouraging you to hide new purchases from your dad.

Break the Habit: Do a realistic assessment of your financial situation: “Clarify your financial goals and priorities and establish a specific budget based on your fixed expenses and discretionary spending,” Levinson recommends. Knowing exactly how much you have to splurge will alleviate any fear that your partner might disapprove. Stick to that budget, and review it monthly or bimonthly to make sure it’s still working for you.

Lie #6: “I don’t have any debt.”

Where it Comes From: Thirteen percent of survey respondents said they’d committed a serious infraction, like lying about the amount of debt that they owe. “This fib stems from shame, feeling overwhelmed, or a fear of being judged by your partner,” says Levinson. You might also be in a state of denial — subconsciously, you feel like if you haven’t told your partner the truth, then the debt doesn’t exist and you won’t have to face the consequences of it.

Break the Habit: It’s time to confront your financial situation head-on. “Own your debt,” urges Levinson. “Talk to someone you trust — a counselor, financial advisor, or family member — to begin figuring out how to get debt-free.” That way, when you come clean to your partner (try using the same conversation technique as before), you’ll have a plan of action in mind, which sends the message that you’re finally taking control of things. “You also might want to consider separating your finances to show that you understand the debt is your responsibility,” adds Levinson.

Lie #7: “I don’t have that much money.”

Where it Comes From: On the flipside, some people claim they make less than they actually do. “You may keep an inheritance or large salary from your partner while you’re dating because you’re concerned about being taken advantage of, or loved only for you money,” says Levinson. “Then you hang onto the lie because you don’t want to rock the boat.” This whopper also unleashes a cascade of tough personal questions: How will I be able to handle having so much more than my spouse? What kind of person will I become if I tap into this money? What will it do to our relationship to go from being financially equal to unequal?

Break the Habit: In this case, Levinson strongly suggests seeing a counselor, because it can be unsettling to have huge wealth discrepancies in a relationship. “Some couples are naturally financially compatible and agree on how to spend and save,” says Levinson. “But for many, it’s difficult. Your spouse might be scared of wealth, judgmental about rich people or afraid that having money will turn them into a different person with different values.

There are also questions about how your dynamic changes: If one of you has a lot more money, does what you say hold more weight? “Issues of feeling better than or less than your partner are very tricky territory to navigate, especially when there’s a sense of betrayal on top of that,” says Levinson. “Just be sure to find a couple’s therapist who’s comfortable talking about money.

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MONEY Budgeting

‘Lifestyle Inflation’ Is Sapping Your Savings

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Christian Wheatley/Getty Images

The more you make, the more you spend

Congratulations! You got a raise, came into an inheritance or sold your home for a profit. No matter what has brought more money into your budget, it’s important to manage that money wisely. Just because you have greater access to money doesn’t mean you should increase your spending accordingly.

The Basics of Lifestyle Inflation

Think back to your first adult job. Likely that paycheck left you with little money for the finer things in life after monthly expenses were paid. Now that you are making more, do you still dream about all you could have with a higher income? This perpetual dissatisfaction and increased spending in accordance to increased income is called lifestyle inflation.

When you get a financial boost that should put you ahead on your big financial goals (or help you pay off debt), if you fall victim to lifestyle inflation you stay in the same financial position. While your monthly expenses rise to keep up with your income, your ability to build wealth is limited. The money is going to non-wealth-building things like more clothes or a bigger car.

This tendency to spend more when you have more can come from feeling competitive with your peers, entitlement from working hard that makes splurging seem justified and even just lack of willpower. While spending more can sometimes makes sense and lifestyle inflation can seem unavoidable, this can get in the way of a secure financial future if it goes unchecked. Check out these tips on combatting lifestyle inflation.

1. Keep a Budget

Although making a budget may seem obvious, people tend to “forget” to adjust that budget when their circumstances change. Before you start spending or even thinking about spending, it’s important to crunch the after-taxes and expenses numbers to see how this extra money is really going to affect you. This perspective can help you balance your finances more accurately and help you to be more conscious about where your money is going.

Keep in mind that if you put all that spending on your credit cards, you could hurt your credit in the long run. Increasing your credit card spending above 35% of your credit limits can have a negative impact on your credit scores.

2. Assess Your Values

While you are living in the rat race, it can be hard to remember what really matters in life. Instead of thinking of the next material item you “need,” it can be a good idea to step back and look at the big picture. Consider what success really means to you and use your wealth to get you there.

3. Prioritize Savings & Goals

It’s a good idea to always pay yourself first — your future self, that is. When you come into money, think about your financial goals and how this increase can help you reach them faster or more comfortably. Whether it is the amount you contribute to retirement or how much you pay down on debt, these changes may seem to be taking from your new spending balance, but can actually help you in the long run.

4. Pick & Choose

That doesn’t necessarily mean you shouldn’t celebrate your change in circumstances. It can be a good idea to build some balance in your budget and plan for a reward of your hard work if you want one. Avoiding lifestyle inflation doesn’t mean you are cheap or a no-fun money hoarder. Just be careful and conscious about where you spend. Identify which purchases really make you happy and which ones will still make you happy about in three months, a year or even ten years.

5. Avoid Comparing

You may feel like you need to spend more to keep up with your family, friends, co-workers or even strangers — but it’s a good idea to remind yourself that you don’t need to lead the same life they do. Everyone has different priorities and circumstances. You can always find someone who has something better than you do and you can always spend more, but it’s important to make an effort to steer clear of peer-pressure spending and focus on what is important to you.

Lifestyle inflation can really sneak up on you when your finances are growing gradually. All of a sudden, you drive a nice car, pay more for clothes, upgrade your housing and eat out whenever you please. This may sound great, but it’s important to make sure you are actually enjoying your inflated lifestyle and not just spending because it’s possible while squandering future goals.

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MONEY Debt

Woman Wins $83 Million in Lawsuit Against Debt Collector

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A jury found the collection agency guilty of "malicious prosecution"

A Missouri jury ordered a debt buyer to pay nearly $83 million to a Kansas City woman it pursued for a $1,000 credit card bill she didn’t owe, NPR affiliate KCUR reports. The jury found Portfolio Recovery Associates LLC guilty of violating the Fair Debt Collection Practices Act, for which it will pay $250,000 in damages, as well as maliciously prosecuting the woman, Maria Guadalupe Mejia, over the debt that did not belong to her. For the malicious prosecution, the jury awarded Mejia $82,990,000 in punitive damages.

PRA Group Inc., which owns Portfolio Recovery Associates, sent an email statement to Credit.com:

“This outlandish verdict defies all common sense,” wrote spokesman Michael McKeon. “We hope and expect the judge will set aside this inappropriate award, and we plan to file motions to make that request formally in the near term. Any fair reading of the facts of this case makes plain that a verdict of this size is not justice by any means, and cannot stand.”

Portfolio Recovery, one of the nation’s largest debt buyers, sued Mejia in February 2013 over the credit card debt, though the actual debtor turned out to be a man in Kansas City, Kansas, with a name similar to Mejia’s. The company pursued Mejia for the debt for 15 months after she first received notice of the lawsuit. In a written statement to KCUR, Mejia said, “The lawsuit terrified me.”

Fear is a common consumer response to debt collectors, whether the debt is legitimate or not. The first thing consumers should do when they hear from a debt collector is ask the collector to validate the debt in writing — it’s crucial to know your debt collection rights as a consumer, so you don’t end up paying a debt you don’t owe or letting the collection account unnecessarily damage your credit standing.

If you’re unsure of how to approach a debt collection situation, you may want to consult a consumer law attorney, who may review your case for free, to help you understand whether the collector is violating your rights.

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MONEY credit cards

A Good Credit Score Isn’t Enough to Get You a Loan

Getty Images/David Young-Wolff

Not even a stellar credit rating can make up for these big no-nos

When it comes to getting loans, having good credit is crucial. A good credit score shows potential lenders that you’re a reliable consumer who pays bills on time and keeps your debt balances at a reasonably low level, so they have good reason to believe you’ll do the same if they extend you credit.

While a great credit score will carry you far in a loan or credit card application, you can’t rely on good credit alone. There are a few situations in which you still might not get a loan or credit card you apply for, even though you have good or excellent credit.

1. If You Don’t Have Enough Income

You don’t necessarily need to have a job to get a loan or credit card, but you generally have to show some sort of ability to repay, whether that’s claiming household income, getting a co-signer or something else. Even if you have income, the lender may determine it isn’t enough to grant you approval for the loan you’re requesting.

The more you’re requesting to borrow, the more your income matters. With credit cards, that information is factored into how high your credit limit will be. If you’re applying for a mortgage, you have to meticulously document your income and get transcripts from the IRS backing that up as part of the loan-application process. Even if you have a good credit history, the main thing that may hold you back from getting a loan is your income.

2. If You Have Too Much Debt

Having too much debt can negatively affect your chances at getting a loan, particularly if you’re applying for a mortgage. When calculating your ability to repay, mortgage lenders look at your debt obligations, including child support, alimony and tax debt, and they subtract that from your income. In some cases, you may have great credit and a high income level, but you have too many debt obligations to take on another loan.

3. If You Already Have a Lot of Unused Credit

Having a lot of unused available credit is good for your credit utilization rate, which has a large impact on your credit score, but in some cases, that’s not something lenders like to see. If a lender sees you have a large amount of available credit when he or she reviews your credit report, it may be cause for rejecting your request for a loan.

Before applying for any new credit, you need to have a good understanding of your finances and what makes up your credit standing. You can do that by regularly reviewing your free annual credit reports, but you can also do more frequent credit checkups.

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MONEY Budgeting

Allen Iverson Goes Broke: 3 Timeless Money Lessons for You

Ron Hoskins/NBAE/Getty Images

An NBA legend burned through $154 million.

Poor Allen Iverson: the 11-time NBA All-Star, who earned over $154 million during his 15-season career, is reportedly in deep financial trouble. How did one of the top players in the NBA burn through so much of his fortune in such a short time?

Here are the key reasons Iverson lost control of his finances and the lessons we can learn from those missteps.

Live within your means

Over 60% of NBA players reportedly go broke within five years of retirement. Iverson, who retired from the NBA in 2010, fell right into that trap.

In his heyday, Iverson had expensive tastes. According to TMZ, his monthly expenses included $10,000 for clothes, $10,000 for groceries and household items, $10,000 for entertainment and restaurants, and $1,000 for dry cleaning. But that was just the tip the iceberg — a 2012 court filing suggested Iverson was burning through about $360,000 per month, with $126,000 going toward various creditors and mortgages. At the time, Iverson was still earning $750,000 annually from endorsements, but that was not enough to cover those crippling expenses.

The lesson here is that everyone — including the highest-paid NBA players — must live within their means. An annual income of $750,000 makes you a member of the one percent, but even earnings that high can be quickly drained by frivolous purchases. A few years into his career, Iverson deserved to enjoy the fruits of his success, but some of those most excessive indulgences, including several multi-million dollar mansions, have only added to his financial woes.

Buying stuff vs. making investments

Iverson loved to buy expensive jewelry, exotic cars, and designer clothes. But all of those things lose value over time.

High-end jewelry is sold at a premium to generic brands that contain the same precious metals or gems. All cars lose value the moment they are driven off the lot. Secondhand clothes — even high-end designer brands — are worth a fraction of their original price.

Considering the short careers of most professional athletes, Iverson could have invested just a small piece of his earnings to plan for the future. Despite the numerous investment vehicles available to superstars like Iverson, even blue-chip dividend stocks and straightforward S&P 500 index funds would have done the trick — just look at the growth of the broad market during his NBA career (1996 to 2010) and beyond:

^SPX Chart

And he certainly had the risk appetite to try his hand at building a stock portfolio — Iverson reportedly gambled away over $1 million in a single night in Atlantic City.

Money managers are not the answer

It is tempting to think Iverson might be better off today if he had let professionals handle his finances.

While certainly better than the casino floor, money managers are not always great investors. They actually pursue professional athletes so frequently that the NFL established standards for “league-approved” asset managers. According to The New York Times, however, only about 50% of NFL players use league-approved advisors. The NBA has not instituted similar requirements, although it introduced a Rookie Transition Program in 1986 to help its players make better money decisions.

At his level, Iverson could easily have paid the hefty fees and commissions of top money managers, but for the typical investor, the best investment you can make is in your own eduecation: learning about the market, how to evaluate companies, and creating a portfolio that fits your long-term financial goals. Here at The Motley Fool, we believe anyone — regardless of education level — can learn how to invest their own money without the aid of professional money managers.

Things are not all grim for Iverson

Despite these struggles, there is a silver lining to this story. Reebok, which holds a lifetime endorsement contract with Iverson, set aside a $30 million “rainy day” trust fund for him. Iverson will not see a penny of it until 2030, but it will leave him in good financial health for his golden years.

I dare say that most of us will not enjoy similar windfalls from our sponsors, and that is why it is so important to plan for the future, especially during retirement and the reduced income that comes with it.

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MONEY Debt

4 Terrible Ways to Get Out of Debt

Foreclosure sign in front of house
Ariel Skelley—Getty Images Putting your home on the line isn't such a great idea, either

Think twice before alienating family or pillaging your 401(k)

Debt isn’t something that can be fixed quickly. It takes time, perseverance, commitment to self-improvement and sometimes, a lot of trial and error. Unfortunately, many people fail to realize this and wind up devising some terrible plans to get themselves out of debt. So, to help you from making the same mistakes, I’ve listed four cautionary tales of get-out-of-debt strategies that backfired for my clients, plus tips on how to avoid their mistakes on your own path out of debt.

1. I Borrowed From My 401K

I’ve had numerous clients come to me lamenting the fact that they had borrowed from their 401K, citing that they were now in much worse financial shape than they were before. Why? Even though it’s your retirement “savings,” borrowing from a 401(k) or similar investment vehicle is not like withdrawing funds from a savings account. That money has to be paid back with interest and if you decide to leave your place of employment, you’ll have to pay off the loan in full.

And if that weren’t enough, your take-home pay will now be lower and you may even have to pay taxes on the amount of money you withdrew. By adjusting your cash flow and sticking to a budget, you may be able to get out of debt without dipping into your retirement.

2. I Put My House on the Line to Consolidate Debt

Much like borrowing from your 401(k), home equity loans replace once type of debt for another. One of my clients unfortunately realized this when it was much too late. They were thrilled to see that the interest rate on their home equity loan was significantly less than their credit cards, and decided to make the swap. Problem was, they hadn’t taken the time to assess what spending decisions had led them into debt in the first place and quickly found themselves back in trouble. Except now, they were faced with the added risk of losing their home and adding a foreclosure to their credit report, seriously damaging your credit scores. (You can see how your debt is impacting your credit scores for free on Credit.com.)

If you find that you’re still struggling with debt after assessing your budget and cutting back on expenses, then it might be time to look for an extra source of revenue. This might mean freelancing work or picking up a part-time job. While it might be tough to handle the added workload, you can have some peace of mind in knowing it won’t be forever and that you’re not putting your house at risk.

3. I Alienated My Family By Asking Them for Money

Borrowing money from family can be tricky, and you have to be prepared for the cost of wrecking relationships if you mix family and finances.

A particular case that comes to mind is a client who, over the years, had grown reliant on his siblings pulling him out of debt whenever he maxed out his credit cards. His family eventually grew tired of his excuses and decided they no longer wanted to associate with someone who only saw them as a bailout machine. My client’s poor financial habits lead to him not only falling into debt, but losing his family as well.

4. I Transferred My Balance & Just Kicked the Can Down the Road

While that low introductory rate on a new card might be tempting, self-consolidating your debt can backfire. I’ve had many clients come to me after doing so, only finding themselves in hotter water than before. Most people tend to forget that the introductory rate is temporary and tends to run out pretty fast. Not only that, but most cards will charge you a balance transfer fee that, if you’re consolidating a lot of cards, can put a dent into the savings you’d make on interest.

The bigger problem is that many people don’t solve the underlying problems that got them into debt in the first place while they relax in the interest-free or low-interest grace period. It’s important to know where you stand and make a plan to get out of debt. Here’s one way to go about it: Look at the credit cards you’re currently using and rank them in order of highest to lowest interest rate. Focus all of your efforts on paying off the card with the highest interest rate first while making at least the minimum payments on the others. You’ll be ridding yourself of the most damaging cards first and won’t have to worry about added fees or a payment shot clock.

It’s also important to remember that there is nothing wrong with asking for help. There are plenty of services, books, and experts out there willing to offer guidance.

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