Back to Back Issues Page
Frugal Living Freedom updates and a discussion on assets
February 12, 2013
Hello to all my frugal friends:

Once again either shame or guilt (or both) have driving me to create another newsletter to let you know what's happening on Frugal Living Freedom, and some insight regarding our shared economy and how we operate within it.

I've found a way to make these newsletters monthly instead of highly erratic and unpredictable. Yippeee! So, wish me luck on that.

I'm also going to keep the format brief and in three simple parts: site news; comments on personal finance or the economy; and, a featured article.

The featured article will be one that you can't find on Frugal Living Freedom. I'm offering it as added-value for being a subscriber...that seems right to me.

Happy News

I'm moving along with the new look and feel for the site, focusing on the most popular pages first. As I go along sprucing up the appearance, I'm also making a fair number of edits, improving organization and presentation of material, and adding new content. In addition, off to the side, I'm providing resources for readers, be they ideas, products, services, references, links to other sites or what have you.

The example below is typical of what I'm trying to achieve. This page happens to be about number 12 in popularity, so clearly there are lots of folks out there looking for ideas to reduce what is likely their #1 expense...housing.

Cheap Housing

Our Challenged Economy

It would be an omission on my part if I didn't at least provide my perspective on our "coming financial crisis" which clearly keeps coming at us. In the last newsletter I spoke about getting yourself a bit better positioned from an earning and spending standpoint. This time I want to talk about inflation and your cash in the bank.

The sad truth is we'll likely see us continue down this path of reckless spending at all levels of government until we get squeezed to the point where changes must be made. If you want to see what we're in for, just take a good look at Greece. The advantage that Greece has is there are others to bail them out while they try to get their financial house in order. No such thing here in the U.S. as we're the financial heavyweight in the world, and there isn't anyone to bail us out. We're the "anchor man" in the financial tug-of-war. When we get down to the bottom of the peanut butter jar, as if we're not already there, we'll be left to fend for ourselves.

The main problem we're going to face is higher inflation as the Federal Reserve continues to pump more and more money into the housing market, buying up mortgage securities. This is known as Quantitative Easing #3, and it's essentially a huge dump of new money into our economy to bail out the mortgage lenders. I hope you have a strong back because once again the taxpayers are lined up to shoulder this burden, at the very least, in the form of inflation.

As you're aware, with more money floating around, the money we have in our pockets becomes less valuable. The sad part of this is that those who have saved money will see it eroded as the value of the dollar continues to slowly shrink. It's already shrinking today as we see prices rising in nearly every sector of the marketplace. Unless your pay is keeping up with rising prices, and that's not likely, then you'll see less and less buying power with the money you have.

It's clearly time to do something with your cash that makes it grow, provides you with a return, or at least helps it hold value. There is time to think this through. I don't believe the economy will collapse or crash, I think it will shift, and when we see the shifts coming, we need to shift along with it.

Need I say we're already up to our neck in "shift" right now?

It's wise to have a goodly amount of cash in the bank, but give some thought to making some of that money work for you instead of it simply losing value through inflation. Think about acquiring tools and creating your own business, or paying off the mortgage, or buying a house to use as a rental property. What I'm doing with some of my cash is creating assets for greater long-term self-sufficiency, like greenhouses and fenced in yards for chickens, turkeys and other small animals.

Do what makes most sense to you, and be sure to do some good and hard thinking about it before you do.

Featured Article

A Contrarian View of Credit Reports and Credit Scores

by Clair A. Schwan

Credit reports and credit scores are useful tools for those interested in estimating the credit worthiness of others. Many of us have worked hard to establish credit and keep our scores in the upper range so we’re viewed favorably. This indicates to others that we’re a good credit risk. It’s an important accomplishment because we know that having an undesirable credit rating can: adversely affect our ability to get a loan; result in being declined an offer of employment in certain job sectors; prevent us from qualifying as a tenant; and, interfere with being issued a security clearance. It can also affect our insurance rates. So, it’s understandable that many consider credit worthiness to be of concern.

Nevertheless, to some of us, a credit report isn’t a concern at all, no matter what the score may be. And, it never will be. What? Hold the phone! There are people who don’t care about their credit score? Yes, some people like me aren’t concerned in the least about their credit score. I suggest you re-evaluate your perspective on credit reports as well. Here are three big reasons to do so.

Reason #1 – Some Can’t Handle the Responsibility

Having a good credit score means you’re credit worthy, and that means you’re offered credit cards and encouraged to acquire things now and pay for them over time. Generally, that type of consumer-oriented approach gets people into trouble. As Clint Eastwood’s character so often reminded us, “A man’s got to know his limitations.”

If you’re the type who can’t handle credit, then it’s the last thing you need. So, unless your credit score is interfering with other aspects of your life, I suggest you stop trying to elevate your score, and start being more concerned about changing the behavior that your score reflects. For the financially irresponsible among us, success and happiness won’t come from a better credit score, but it will most surely come from more responsible behavior in the financial arena.

Reason #2 – There is So Much that Credit Scores Don’t Reflect

An associate of mine has been a “cash only” buyer her entire life. She and her entire family have always operated on a nearly cash-only basis. If one would look at her bank balance, it would be clear that this hard working individual is successful with respect to money management. How does a credit report reflect responsible cash only spending? It doesn’t, simply because it’s a credit report and not a cash report.

I used to have a mortgage, but I don’t anymore. When I purchased the home I have now, I paid nearly half down, and promised myself that the 30 year note would be paid off in five years. Instead, I seized an opportunity and paid off my mortgage in three years. To the average individual, this would appear to be the sign of someone who is especially savvy in terms of personal finance. Only a responsible individual would focus on making sufficient money to be able to save up such a large down payment, and then make the dream of living completely debt-free come true by paying off the mortgage in short order.

I estimate a savings of at least a couple hundred thousand dollars over the life of the loan by taking this approach. Nevertheless, none of this financial success and responsibility is reflected in my credit report. I’m given no points for having saved up a substantial down payment, and no pat on the back for making good on repaying the loan. Instead, the reports states that the loan wasn’t held long enough to be meaningful with respect to my credit rating.

Reason #3 – The Game is Rigged

Using the example above, those who score my credit were sending me a signal that if I wanted to have my appearance of credit worthiness increase, then I should have held onto my mortgage longer and “paid my dues” to the mortgage company. In other words, I should have played their game the way they had set it up for me to play. Of course, that would have cost me years of interest payments, and I think that’s too high a price to pay for a better credit score.

Does your credit card company keep sending you “checks” so you can write yourself a personal loan? Mine does. Clearly they’re not satisfied with my purchasing habits and would like to encourage me to get deep into debt so I start paying over time instead of every month. Their interest is to put a financial shackle and chain around my ankle so I’m enslaved to them. They even regularly encouraged me to “skip a payment.” It’s clear the credit card provider is eager to get me into bad habits. It’s all part of how they rig the game so you become a life-long player.

Lastly, I’m considered a “dead beat” with credit card companies simply because I don’t let anything ride over to the next month. My card is paid off in full each month. Despite increases in my authorized limit, offers to write myself a loan, and other rebate gimmicks to get me to spend more, I don’t ever elevate my spending habits. They’re only offering me more financial rope with which to hang myself, and it’s just not part of my play book.

The Bottom Line

Having credit is a big responsibility, and some of us just can’t handle it. If you’re one of them, then stop being concerned about your credit score and start paying attention to your behavior. Your good behavior is more influential with respect to a better financial outcome than any high ranking score on a credit report.

Credit reports are produced with a decided bias against good conservative financial management. Instead, they’re skewed in favor of long term risky behavior that provides a source of income to those who extend credit. And, much of what you do, that is indeed financially responsible, isn’t even captured on the report.

From my perspective, the credit game is rigged, so I simply refuse to play. I don’t care what my credit score is. I’ve been completely debt-free since 2005 and have no need to ever buy another home. I’ll never have the need for a personal loan, and the credit card that I have works just fine as a convenient means of paying for things.

My attitude and approach may be old school, but it’s something that works quite well for me. I’ve never known anyone who works on a cash-only basis to get in over their head, so I’m sticking with that approach. It’s hard to argue with success, and I’m not the least bit inclined to “fix” something that isn’t broken – no matter what the numbers and remarks on my credit report may suggest.

Until Next Time

I hope you have enjoyed this newsletter. I intend to make this a regular monthly mailing, like it should be.

Good fortune to all of my frugal friends out there. I wish you the best during what promises to be a rough economic road ahead of us.

Take care,

Clair Schwan

02/12/2013 Cheyenne, Wyoming

P.S. If you are receiving this in text format, the links to the new pages might not be complete. You'll have to copy and paste the link into your browser in order for it to take you to the correct page.

Back to Back Issues Page