Using the banking system and credit effectively, or what we call Paycheck Parking

     Here's the one you've all been waiting for! This one is a fairly new skill, and one that we are still working on in our own household. Before we found this one, we basically screwed ourselves by following the advice of a certain money guru, and closed our credit card accounts after a decade of good credit use. Don't do it! You'll need your credit to do this, especially if you want to follow up with the asset buying that can make you money with  much better returns than any paper investment you can do and with less risk. It will set you up for a better retirement than your 401K can give you. In our case, we are having to start all over again to rebuild a credit score from scratch. If you currently have open lines of credit, then you are ready to go, but don't worry, even if you have a bad credit history, or low FICO score, you can still catch up and do this.

     This is definitely something that is missing in our public education. Without this type of knowledge, it is no wonder why so many people went out and bought a house with sub-prime loans, and are now underwater. They didn't understand interest rates, mortgages, and banking! Do you think if they knew how adjustable interest rates worked that they would have signed on? How about interest only loans, where there is no equity gained in the house when a payment gets made? That even after several years of payments that they would still own almost none of house? I think that whole subprime lending deal was deceptive and criminal. The banks knew they were lending to people who didn't understand what they were signing.
     So here we go. How to increase your credit, repair or create a credit score, and pay off your debt, possibly your house, sooner.

     A word of warning though. You must have good self control over the use of credit to use this method. You cannot be a shopping addict and hope to gain anything from this method. This method is to help you gain ASSETS-money vehicles that will make passive income (money you don't work for)  for you. Once you have learned how to create the asset column on your personal financial statement, then you can go shop. :)

Assets: Something that creates an inflow of money. (GOOD)
Liability: Something that creates an outflow of money. (BAD)

     This method involves using banking effectively to NOT use those interest-bearing accounts, but lines of credit, to build your credit, pay off debt sooner, save on interest payments, and raise your credit scores and limits, all in a neat little package. I know what you are thinking: How can I pay off my debt sooner, by using more debt? Hang in there, it will all become clear. And I implore you, to watch in full the webinar I will link you to, because I really think the guy from VIP can explain it much better and with examples, than I can.
     Most people either have or are aware of the common savings and checking accounts at your bank or local credit union, and use of those accounts is usually a daily thing. Some of those accounts are interest-bearing, and many folks choose those, since it seems smart to gain a little money for what you keep in there.  Another 'safe' vehicle for gaining interest is the certificate of deposit, or CD. But what most people don't realize is that the interest rates you get are very minimal for both, and with the CD, you are tying up your money in a savings vehicle with little to no access to those funds should you need them, and in order to keep earning the upper end of interest in your bank accounts, you have to keep a high daily balance in your accounts, and you can't use that money.
     In this method, your goal is going to be to have total use of your funds, while increasing your credit worthiness, and, increasingly, having the means to purchase assets that will outperform any interest charges on your debt weapons.

Debt weapon: A line of credit used to reduce interest paid, on other much larger credit debts or liabilities, such as mortgages. Debt weapons can be personal lines of credit, credit cards, business lines of credit, hard money loans, etc.

     First we have to talk a little bit about FICO score, since that is the number one tool creditors and banks use to determine your creditworthiness in order to loan you any money. Now there are many nuances to how the credit score is determined, and they look at many factors: How much credit you have available to you currently, how much of that credit you use monthly, if you pay on time, and do you have any bad debts you haven't paid. While all of those things are a factor, the one most useful to you, and the one you have the most control over, even if you have messed up your credit in the past, is the debt to credit ratio. That is, the percentage of debt you use regularly, compared to the amount of credit that is available to you. Here, the magic ratio is 1: 4. You should only use 25% of the credit that is available to you at any given time. Creditors want to see that you are not so overextended that you must max out your lines of credit. This is one constant you'll have to be conscious of while working this method. You can still carry a balance on your cards, but keep it paid down to 25% of your line or less. Several months of this, and you should be able to call up your credit provider and ask for a credit line increase. If they refuse then just politely tell them that you have offers from other credit providers offering lower rates, but you would like to keep your account with them since you already have a working relationship. Still no? Then just ask to speak to their supervisor. People higher up in the chain usually have the authority to make decisions regarding increases, and most will do so, you just have to press them a little. If you still get nowhere, just thank them, and try again in a couple of months. If you stick to the plan, eventually you will be granted the increase.
     You can check after the end of every financial quarter, but usually after about six months you there should have been an improvement to your credit score. You can use your credit cards to pay off previous unpaid debt and get that reported as paid to the major credit bureaus. The longer it has been after being paid off, the  more points you'll gain to your credit score. If approved, you can use those 0% introductory rates to your advantage to pay debts, such as medical bills and they'll go reported as paid and start to ease off your reports over time, while you pay the balance off the card, a bit at a time. While it seems not to make sense to  put a non-interest debt onto a interest charging credit line, the idea is to clear your debt faster and clean up your credit report. If you can do that by putting a balance on a card in good standing with smaller payments, then the larger of the whole debt that is due in full and reported as delinquent to the credit bureaus will go marked as paid, and the stress is less with the partial payment method.
     Okay, so know you've got your delinquent debt out of the way, and your credit score has increased a little. Now what? Now you want you want to lather, rinse, repeat. With your improved credit score, you can now apply for other lines of credit. Continuing to pay off debt and using only 25% at a time. A great vehicle to apply for is the personal line of credit, or home equity loan. These are the zingers that you'll use to really get you going.
     Once you are able to get a bank to work with you by granting a line of credit (LOC), you can then begin using the paycheck parking method. This is where you are going to 'park' your entire paycheck into the line of credit so you can use that line to reduce you mortgage payments by a large margin and greatly reduce the amount of interest you pay on your mortgage over the lifetime of your note.
     Here, you are going to use your line of credit and pay down a few thousand on your mortgage. This is called a balloon payment.When you get your paycheck, you pay it into the line of credit, meeting the minimum monthly payment amount, and pay your monthly expenses out of that line of credit. You do this for a few months while you pay down the line of credit you used to pay on your mortgage balloon you just made. Once that is paid down, you do it again, making another balloon payment to your mortgage.Using this method, you have now: reduced interest you are going to pay on your mortgage, paid on your debt weapons to meet the 1:4 ratio and improving your credit score, met your monthly expenses, and increased the equity value in your home by paying more on principle to your mortgage. The more on principle that you pay on your mortgage, the more leverage you have in borrowing on a home equity loan. Now you have an extra debt weapon you can use in the HELOC (home equity line of credit).
     You can see that over a couple cycles, you have tremendous borrowing power. With this leverage, you now have access to funds to add to your asset column on your personal financial statement. The tricky part is finding a good investment vehicle where you are not going to lose your shirt.
     I'm going to leave you here, with the link to webinar on VIP Enterprises. And although it is a sales webinar for their financial coaching, I urge you to watch it all the way through. At the end, if you want to do the coaching, it is quite affordable, even if you are living paycheck to paycheck. It is an investment to your education after all. He gives real life examples of how this all works together. He goes a bit fast, and there is no 'pause' feature, so I suggest you grab your pot of coffee, a pencil and paper, and sit down for one of the best lessons you will ever have in your financial education arsenal. It is long, just about an hour, but it is well worth the time spent to help you improve your credit and pay off your house in a few years, instead of decades, while saving you tons of money in interest, placing you in a unique position to buy assets that will help you retire with much more peace of mind than just relying on your old 401K.

To get into the webinar, go down to the dropdown menus on the right side of the page.

I've got my coffee. Now take me there!

I'd love to hear what you think after watching. Is this something you think should be taught in school? Were any of you caught up in the subprime lending debacle, because you didn't understand?  Even without the coaching, do think this is going to change your life in some way?

School failure, how did we get here? pt 2

     Okay, we are continuing with what happened to our educational system. We have hit the 80's and we're still not seeing the competitive results we aimed for when we began to model our system after the German state-run system at the turn of the century. We're still looking at John Hood's article for thefreemanonline.org, The Failure of American Public Education as our source.
    So we keep hearing the same old arguments as to what needs done to improve our schools, same problems cited. Reduced class size? Done it. Down an average 40 percent between 1955 and 1991. Lack of funding? Nope. Up 350 percent for the same time period, an exception of only two years during that time. Low teacher pay? Nope. Up 45 percent from '61 to '91.
     Personally, I don't feel that any of this has anything to do with the results. The standards for our kids needs to be raised, not lowered, and all this tolerance training, and non-competitiveness is killing our kids' future. No boss is going to give your child a gold star just for showing up for work, and no extra break time for gold stars all week, and yet, this is the mentality they are arriving with at their first jobs! They arrive with entitlement on their brain. As a boss, I don't care what your kid's self-esteem is like. I want to know he can do the job applied for!
     This is what needs to change. We need prizes for performance, both for students and for teachers. Teachers should get better pay - when their students start to perform. Students will start to perform when the teachers earn their pay, compete to have the best students, ones who win scholarships and  science fairs, essay contests - not just memorizing to pass the standardized tests, doing 'just enough' to get by. The numbers are really sickening:

Evidence from the National Assessment of Educational Progress and other performance measures shows how poorly served America’s public school students really are. Just five percent of 17-year-old high school students in 1988 could read well enough to understand and use information found in technical materials, literary essays, historical documents, and college-level texts. This percentage has been falling since 1971.

Average Scholastic Aptitude Test scores fell 41 points between 1972 and 1991. Apologists for public education argue that such factors as the percentage of minority students taking the SAT can explain this drop. Not true. Scores for whites have dropped. And the number of kids scoring over 600 on the verbal part of the SAT has fallen by 37 percent since 1972, so the overall decline can’t be blamed merely on mediocre students “watering down” the results.

Only six percent of 11th graders in 1986 could solve multi-step math problems and use basic algebra. Sixty percent did not know why The Federalist was written, 75 percent didn’t know when Lincoln was president, and one in five knew what Reconstruction was.

Hood also is right on the money when he talks about how the more we inject  race, socialization, environmentalism, humanism, class, and other social concerns into our schools, the less we are going to see any real progress. If bureaucrats and social interest groups won't get out of the way, then it's time to look at other options.
     Since the eighties, there has been an upward tick of enrollment in private schools and homeschooling, and both have been shown to outperform public schools. Private schooling is not just for the upper or middle class anymore. Most cities have private schools geared toward those of the lower economic status. Homeschooling is also an affordable option, and it engages the parents in their child's school life.
With both of those options becoming more popular among young families, it is enough to make me hopeful for the future a little.

School failure, how did we get here? pt 1 (Post #4)

     Alright, so I need to pull this together a bit more as far as why the public schools are not teaching what we should be learning to function in the real world, and how that failure has come about.
     I came across this fantastically huge article by John Hood on thefreemanonline.org, and I wasn't even an eighth of the way through before I started finding what I was looking for. This article not only is chock full of stats throughout the history of public school, but dates of various types of reform measures that have been implemented and failed. While the article itself is a bit dated (1993), with the exception of the No Child Left Behind measures that came about during the Bush era, everything else still stands.
     The beginning of this article outlines the reasons why schools are failing, and states the major problem being a lack of focus on the results: "Students aren’t expected to meet high standards, the argument goes, and the process of education takes precedence over analyzing education results in policy-making circles."
For years, the establishment has been taking statistics of educational results, and then throwing money at the problem when they can't figure out why our system is not working. Someone somewhere always seems to have the fix-all solution. Hood has it right when he says,

" At any one time during the course of school reform, an illusion of debate often obscures a surprising consensus on the heralded “magic bullet” of the decade—be it school centralization or progressive education or preschool education or computerizing the classroom—that will solve America’s education problems. These magic bullets always misfire. But instead of changing their weapon, policy-makers simply put another round in the chamber, foolishly believing that the newest fad will succeed despite the failures of its predecessors."

     It goes on along my own train of thought about government interference in the schools and curriculum, with constant red tape, mandated courses, and teaching to the test, not the goal of a well-rounded student ready for advanced education. Teachers are being told what they can and cannot teach in their class, and while this may be a bone of contention on both sides, it would be less so if the goal were to get the kids to know the three R's, real world mathematics, science, history and some languages. I think that most teachers have forgotten what the real goal is, and are instead spending our tax dollars indoctrinating our kids into whatever world view they themselves hold and would like to mold our children into. On the subject of the free-market theory, that if we applied it to our schools, we could become competitive on a global level, Hood states,

" I’m sympathetic to this argument, but it ignores the role of government policies other than student assignment to schools, which inhibit school success. When government policy continues to impose rigid personnel rules, bureaucracy, regulations, and a mandate to use education to engineer social or political outcomes, a school cannot successfully impart the needed skills, knowledge, and perspective to its students..."

And it's this social engineering and politics that is getting in the way. Our system can do without the sex ed classes, psychology, early childhood education, drama, etc. that is taking up valuable time. Time that could be spent on more academic pursuits in advanced math, science, english classes.
     So when did all this social engineering start? According Hood, it really got started after the Civil War when the government schools began to take the place of private education."According to the U.S. Department of Education, some 57 percent of the 12 million school-aged Americans in 1870 were enrolled in public elementary or secondary schools...By the turn of the century, the percentage of school-aged children attending public schools had risen to 72 percent..." and most was for the primary grade levels, only two percent were grade nine or above. Over the turn of the century, public schools increased their high school populations to ninety percent, and at that time they were still focused on teaching the basics. Into the twentieth century the schools began a nanny crusade against the family, with studies changing to progessive programs and here enters the welfare state. The social experiment begins. "One example of a class introduced in public schools during this period was entitled “Basic Urges, Wants, and Needs and Making Friends and Keeping Them.” That’s the 1940s, not the 1960s." About the 1960's the psycho-babble began and the advent of behavioralism, the ditching of phonics for whole-language learning, and standardized testing. Come the 1980's, it was all about education reform and the failure of the schools in the newly socialized system. With no new ideas on the table, it was time to throw money into theory: specialized programs for the poor, and minority students, who were taking the blame for watering down the numbers.

Next post, we'll look at what happened with all that money, and what we got for it.

For those waiting on banking and credit, it's coming. I will be continuing this blog even after this class project is finished, if I don't find a way to work it into the blog project. If you have a mortgage or other debt, you'll definitely want to make sure you hang around for it!

Dumbing down of our nation. (Post #3)

     In the last post we covered the discovery of fiat currency and dollar valuation. Today, we are going to cover how the education system is failing our students in the area of economics. I know I promised a post on banking and credit, but that one is going to take some explaining, so that will be another post a bit later.
     Okay, so...no real economics in school. Resources on this one are a bit sparse, as I think the education system feels it is doing okay. There were plenty of blogs from teachers and parents to the contrary though, so there is a definite disconnect between what we feel should be taught, and what administrators are allowing to be taught.
     I came across a blog by an economics teacher saying that the students were not learning simple market concepts such as supply and demand, and basic principles of capitalism. He states, "The MME test expects students to know basic principles about economics, and yet the students who graduate from our school don't have the foggiest notions of supply and demand, and when I talk about inflation and investment, they get blank looks in their eyes."In this department discussion with the other teachers, he was summarily shouted down.  "I tried to bring this up, and got lectured by two 'veteran' teachers about how economics should be taught- these two teachers thought that scientific principles were beyond students comprehension, so instead spent class time debating such things as minimum wage, CEO compensations, buy-American policies, and low pay for teachers." He went on to point out that the Great Depression would be a great economics model to use to bring past and present together, "suddenly most of the department was against me- they were upset that the curriculum attempted to be balanced when dealing with the Great Depression". Apparently the consensus of teachers believe that there is nothing to be learned from history, and that a free market system will fail, all the while ignoring the fact that our 'free market system' has not been free, has not been allowed to run it's course, and has been riddled with government interference from the start. What most fail to realize, is that the concept of supply and demand will create a self-correction to the markets, if left to run, unfettered by regulation. A free market system is always self -correcting.
Okay, so there's one opinion of what's wrong with our schools. Let's move on to some more authoritative sources.
I came across a disturbing article on washingtonpolicy.org.

A nationwide survey conducted by the Intercollegiate Studies Institute (ISI), in partnership with the University of Connecticut, of 14,000 college students from across the nation. The survey found that when college seniors were tested on four subjects – American history, government, foreign policy and economics – the average correct score was just over 50%.The study revealed two other uncomfortable findings. First, the average college senior scored only 1.5% better on the civics exams than did entering freshman. Second, in 30% of the colleges, outgoing seniors experience negative learning, they actually knew less about civics than did the incoming freshmen.

     That's not the most disturbing part, Manweller goes on to say,

The first step is for each college and university to assess its own institution. The ISI studied 50 colleges. But each college has its own strengths and weaknesses. Maybe a particular university does a great job teaching American history, but not such a good job teaching economics or political science. Just as “one-size-fits-all” does not work in public policy, it probably will not work in fixing our institutions of higher education. Once education leaders at each college knows their own particular weaknesses, then they will know where to concentrate their resources. 

     Do you see the problem?  I do: "The first step is for each college and university..."   While it is understood that the study was on collegiate level students, the problem lies not in changing the higher education system, but in the primary level schools. Back when our country was first founded, the boys studied higher math, Greek,Latin, science, celestial navigation (navigating ships by the stars), geography, history, fencing, social etiquette, and plantation management and it was standard fare at the elementary level! The poor learned how to read and write at home, and those who went to school, the upper class were taught by Classical Trivium methods.

The English were the predominant settlers in the New World and as a result education in colonial America was patterned on the English model. It originally developed as a two-track system with people from the lower classes receiving minimal instruction and only learning to read and write, calculate and receive religious instruction. The upper classes were allowed to pursue an education beyond the basics and oftentimes attended Latin grammar or secondary schools where they learned Greek and Latin and studied the classics in preparation for a college education.

     Over the last two hundred some years, we have been dumbing down our education system. If the goal, as they say, is to bring the American schools back into the upper echelon of global education, then why are they pumping our schools full of socialist do-good-er, P.C. programs and gutting the basic academic principles needed for our youth to go out and be competitive in a global economy? The answer is the same. The elite upper classes wish to keep the lower class dumbed down. The more the lower class spends their time wringing their hands over global warming, saving trees and air, and introducing them to deviant sexual behaviors, the less the upper classes have to worry about the sheep sticking their noses into their illegal trading practices, tax evasion, and backdoor deals. It always comes out, and often heard from the political elite these days," the common people are too dumb to understand what is going on, we will tell them what's good for them", or "you wouldn't understand it, so I won't waste my time to have to explain it to you".
     We are now into the third generation of this socialist rhetoric being in our schools, and it's no surprise why our economy is falling apart. The economy is being lead by those who either do not understand it, or those who do, and are deceiving the sheep that their elitist deceptive practices are how it is suppose to work.
     At this point, all I can say is thank God for the boom in homeschooling. We may yet have a chance to retire with a peace of mind that may only come with a revolution of the young, who are willing to stand up and say this con game is over!

Fiat Currency and the Federal Reserve (post#2)

     Probably one of the most important things I learned outside of public school was exactly how our currency was devised and how the federal reserve banking system works. I definitely did not learn this in public school! I think the most we learned was how to fill out a bank register for a savings account, and how to write checks. Now, I know what you're thinking, that this will be the most boring blog post ever, but just hang with me, it comes with a Simpson's style cartoon film, even.

     Now, of course I knew all the basics, that we founded a new country because of unfair taxation, and that we had originally had a system of money based on the gold standard. I knew that the Federal Reserve is NOT a govenrment agency, no matter what their website URL implies it is. Did you? What I didn't know, however, was how horribly that system was corrupted to get us to the highway robbery we have today. What really disturbs me, is that this is a major thing that should be taught in every school. EVERY student should know this before they hit puberty and begin to receive an allowance. They should know that paper bill is just a paper bill and has no real value. The value is just implied by the ink printed on it, and that it's true value is being changed every day, everytime the Fed decides to print more, making it worth less and less. Okay, so who exactly IS the Federal Reserve?

     What most people don't know is that the Federal Reserve is a private corporation. It is run by a Board of 'Governors' (Directors), just like any other corporate business in the world. However, the Board is elected by the President of the United States, and confirmed by the Congress.  Get that? It comes from the number one rule of business for ass(et) protection: Own nothing, control everything. The US government does not own the Fed, but it controls everything it does. And while the Reserve claims to be 'helping' the economy by printing and borrowing more money, the truth is, the more money they print, the more it devalues the dollar, and we get inflation. Why? Because, the less the dollar is worth, the more of them you need to pay for a good or service of constant value. A gallon of milk is a gallon of milk is a gallon of milk. If the value of the dollar gets halved, then that $3 gallon of milk, then becomes a $6 gallon of milk, not because there is more value in the milk, but because of less value in the dollar.

     Personally, I think if we are going to save our economy, we literally need to 'stop the presses'. It used to be that the value of the dollar was backed by an amount of gold. When the banking system was revised to allow ten to one borrowing against that standard, we got our current credit system. But now, with the out of control debt spending, there is no way we can catch up to paying the amount owed to our creditors. Even worse, in 1971, Richard Nixon removed the United States and our dollar off of the gold standard, so there is NO security backing our currency. Apparently there are some people paying attention to the fact that eventually non-stop money presses, eventually get us a worthless dollar, zero, nada, not even a penny's worth, as Kenneth Schortgen Jr. states in the Daily Economist, "And now, in 2012, we are at a point where no amount of money printing by the Fed, and no amount of borrowing by Obama and the Treasury can create or sustain growth in the economy.  Keynsian economics relies upon debt and borrowing to sustain economic growth, but at a certain point, money loses its value so greatly, that each successive scheme requires more and more printing than the prior bubbles.  Eventually, no amount of money will create a recovery, and the global economy is entering that point in history. "

     Okay, now if any of this has confused you, it will all be laid out fairly clearly, in the following film The American Dream, by The Provocateur Network.

     But before you go, show of hands, how many readers were not taught in detail about how the dollar was valued, and how the Federal Reserve works? Why do you think it is not emphasized in our government schools?

http://www.youtube.com/watch?v=ZPWH5TlbloU&feature=plcp

Introductions

The first post on a new blog is always the hardest. This one, not so much, as this one has a set purpose, but the blank page in front of you always seems to be intimidating, no matter how many times you have started a writing project.
This particular blog is an exploratory writing project for class. It is meant to be a starting point for a later writing assignment, but also is meant to be a launching point for an endless stream of inquiry. It didn't take long for me to come up with my line of inquiry:


What have I, or should have, learned in my lifetime, that I didn't learn in public school?


In the last twenty-two years, since leaving the public school system, there have been many times when I have come across a subject or a method of doing something, and I had to step back and scratch my head, wondering why I hadn't learned it until just then. Many times it was something so basic, it baffled me why it wasn't part of the standard curriculum we'd been fed for thirteen years. Other things are just subjects that were maybe not that practical for school, but were good things to learn anyway, just for the sake of learning them, for relationships, or for survival. I will be taking a trip back in my own little Way-back Machine, looking at things I've picked up over almost half a lifetime, where I learned them, why I didn't learn it in school, and if I could have. I will also look that things I maybe should have learned, recently learned, or want to learn, and maybe we can take that learning journey together. Regardless of whether I've learned, or have yet to learn the subject of inquiry for that post, I will point you the way towards where to find a good starting place for that day's journey.

Edit: Since I apparently only have five posts to outline my inquiry, I guess I'll be changing my line of questioning to what real world economics were not taught in my public school, and why are the public schools struggling to educate.