A Beautiful Wedding On A Budget

I attended a friend's wedding over the weekend. I don't know how much it cost and I wouldn't ask, but having heard about various stages of the wedding planning, I know she did a lot of the work herself and it probably saved her a bundle. Despite this, it was still a gorgeous wedding. Check out these creative ways she and her husband were able to put together a great evening for everyone involved without blowing a ton of cash:

-Held the wedding and the reception at the same place: this eliminated the need to hire a limo or rent a fancy car, not to mention saving time and reducing the stress of traveling from one location to another. Who wants to worry about traffic more than once on their wedding day?

-Had a casual theme: My friend said that she just wanted everyone to be comfortable, and as a result the guests wore everything from dress shirts and slacks to dresses to jeans. No one had to buy a new outfit to attend. Her husband didn't wear a tux and neither did the groomsmen, who wore color-coordinating pants and shirts. If any of them had to go out and buy the attire, it would have been easy to spend as little as $50 to buy everything new. And since my friend comes from a family of talented artists, she actually dyed the fabric for the bridesmaids' skirts herself. None of her bridesmaids had to spend a fortune on dresses and now they have a unique skirt with a matching solid-color shirt that they can wear in everyday life.

-Made their own engagement and wedding rings: my friend's husband has the skills to make rings. They aren't traditional silver/gold/diamond rings, but they serve the purpose and have meaning to my friends. Plus, it's safe to say that no one else has the same rings.

-Had a limited open bar: everyone could get free unlimited drinks, but by controlling the brands and selection of alcohol available, they were able to have a wedding reception luxury for less than it might have otherwise cost.

-Had family members provide ceremony music: The father of the bride learned how to play guitar so he could play and sing a song during the ceremony, and the groom's mother played the piano and sang another song. Not only was this less expensive than hiring, say, a string quartet, it was also a lot more meaningful.

Measures like these not only saved money, but also created a more personalized and more meaningful wedding. And by cutting back in some areas, they were able to afford luxuries in other areas, like a killer location and free valet parking for guests. The average wedding may supposedly cost $26,000, but there's no reason why it has to cost that much to be beautiful and fun.

Photo by Manassas Cakery

Understanding Your Credit Score

I've read plenty of articles on how my credit score is determined and what I can do to improve it, but I never felt that this advice was specific enough to answer all of my questions. Well, while shopping for a mortgage, I came across this 20-page PDF document published by myFICO that explains many more of the intricacies of credit scoring than I previously knew about. It even includes specific examples of fictional people's situations to help you understand how scoring works. This virtual pamphlet is written in clear language that the average person can understand.

Despite these 20 pages of information, though, FICO is still somewhat secretive about their formulas for calculating scores, so it's sometimes hard to make definitive statements about the impact of certain actions on your credit score.

Finally, A Free Credit Score

I think I've applied for a mortgage about eight times over the last six months. First I was just trying to get a sense of whether I'd qualify even though I wasn't ready to buy yet. Then I actually was ready to buy and it became time to comparison shop.

I've never known what my credit score is until recently. Since it costs money to get it and I've never had a real reason to know my score, I've never made that purchase. In fact, I learned the $14 way that even when applying for a loan, you don't need to know your score. The lender will find out your score when they run your credit, and they'll tell you what the score is. If they don't, just ask. Voila! Free credit score.

But that's not the real subject of this post. I received an interesting document in the mail the other day from a company called CREDstar.

The letter says, "In connection with your application for a home loan, the lender must disclose to you the score that a credit bureau distributed to users and the lender used in connection with your home loan, and the key factors affecting your credit score."

Setting aside how poorly written that introduction is, this was pretty exciting news, because at the bottom of the page were all three of my credit scores accompanied by detailed explanations of the factors that lowered each one (wow, I find this exciting? I'm such a geek). The cost of my mortgage application was free, so the cost to receive all three of my scores was not $30, like it would have been if I had gone through the credit bureaus, but $0.

What's the catch? I have no idea why this is the first time I've received this report when it's not the first time I've applied for a mortgage. If I had a collection of eight of these letters, I would tell you that a great way to get a free credit score and analysis is to apply for a mortgage. I'm certain that other mortgage companies have pulled my credit, but I've never seen this letter before.

Of course, like I said, despite all the hype surrounding credit scores, you don't ever need to make the effort to find out your score on your own because in any situation where it matters, the lender will give it to you for free.

Photo by szlea

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How Opening New Credit Cards Affects Your Credit Score
The Effect of Credit Scores On Mortgage Interest Rates
How I've Earned $1250 in Free Money This Year

Weekend Reading

If you need a vacation but fear that you can't afford one, don't despair. You may not be able to stay in a five-star hotel or fly first class, but with a little legwork, creativity and flexibility, you can travel affordably to just about anywhere. My latest Investopedia article, Globetrotting On A Budget, takes a look at eight areas where it's easy to save money: travel supplies, airfare, accommodations, transportation, food, entertainment, keeping in touch, and souvenirs and gifts.

For those who haven't already seen it, another of my Investopedia articles, Budget Without Ditching Your Friends, made it to the homepage of Yahoo! last week. Yes, the one and only homepage. The top of the homepage. The center of the homepage. Right under the headline about the Manny Ramirez trade. I'm still stoked about it. Cool things like this never happened to me until I became self employed and started doing something I love.

Finally, if you've been following my recent posts about credit scores, you might be interested in reading How To Establish A Credit History. Credit is one of life's great catch 22s. Let's say you're fresh out of high school and want to get your first credit card. You dutifully fill out the forms and wait for the reply, only to find out a few weeks later that you've been rejected. Why? Because you don't have a credit history. How do you establish a credit history? Well, you get a credit card of course...

Photo by Wolfgang Staudt

Credit Card Signup Bonuses and My Credit Score

Whenever someone mentions needing to earn some extra money, I attempt to point them in the direction of earning signup bonuses for opening new credit cards if I think this person can handle a credit card responsibly (i.e., pay off the balance in full and on time every month). I've earned a couple thousand dollars this way over the course of about three years. One of the first things people usually say, though, is, "won't that hurt my credit score?"

I attempted to answer this question before in my post, How Opening New Credit Cards Affects Your Credit Score, but after getting involved in the mortgage application process, I feel like I have learned a little more on this subject. What follows is an explanation of exactly what will happen to your credit score if you open a bunch of new cards in a short period of time (and use them 100% responsibly).

My credit score is quite good, above 700, as high as I need it to be to qualify for the best mortgage rates, but my score is not as high as I feel it should be considering that I have never paid a bill late or carried a balance on a credit card (thanks to Mom and Dad for teaching me good credit habits at a young age). Here are the things that the credit bureaus say have dinged my score, along with my explanations for each one:

-Time since most recent account opening is too short. Yup, it's only been about three months. Despite all the cards I have, I didn't have a good cash back credit card so I applied for the Chase Freedom card, which gives you 3% back on your top three spending categories (like groceries, utilities, etc.) each month and 1% back on everything else. It didn't hurt that they had a $50 opening bonus at the time, too. (By the way, I hear American Express Blue is also a good cash back card, but I haven't checked it out for myself yet.)

-Length of time accounts have been established. This one I take slight issue with because I've had a couple of the same cards for years, but on average my oldest account is probably only a year old or less because of the frequency with which I open and close accounts. I know they say not to close your old accounts, but I don't like to have them just sitting there where I could lose track of them. That's just one more credit card number someone can steal from me or an annual fee I could accidentally get stuck paying. Why risk that for a few credit score points?
-Too many inquiries in the last 12 months. This one is partly my fault for applying for so many cards and partly a flaw in the system because I didn't make all my mortgage applications in the same short time frame. You are supposed to do all your applying for one loan (auto loan, mortgage, etc.) within a 30-day time frame so that it will only count as one knock on your score. Since I have sort of randomly applied for mortgages over the last several months, I get more dings. I think that's kind of stupid, frankly. It's also probably a situation that applies to lots of people who maybe want to get an idea of whether they would qualify for a mortgage even though they aren't ready to follow through on the application yet. This was the case with me.
-Too many accounts with balances. This one makes me mad because I always pay my balances in full and on time each month. Who cares how many cards I use? Different cards offer different benefits. If I want to earn 5% back on my clothing purchases, the only way to do that is with my Gap card. If I want to earn 3% back on groceries, the only way to do that is with my Chase card. You get the idea. If anything, shouldn't I be commended for maximizing my cash back and being able to manage multiple accounts responsibly? Apparently not.

-Ratio of balance to limit on revolving accounts is too high. This scoring measure is also highly flawed. Let's say you have only one card, that the card has a $1,000 limit, and you charge about $900 on it every month. You then pay off the balance in full and on time every month. You'll get dinged for this on your credit score because you're using 90% of your available credit. Instead of credit bureaus looking at you as perhaps being, oh, responsible, they whine that you're using too much of your credit. What's the point of having it if you can't really use it? I've read that you should always keep all your balances under 50% of the limit. So doesn't that effectively make your credit card limit half of what it actually is? Oh, and if you call the credit card company to get your limit raised, they'll probably do it, but that will count as an inquiry on your credit report (also known as a "hard pull") and that will ding your score, too! It's really a lose/lose situation.

-Don't have a mortgage. This is my favorite one (note the sarcasm). Apparently, having a mortgage and paying it on time improves your credit score. Why should people not be able to get the maximum credit score just because they rent? That's ridiculous. Of course, as I've stated before, having the maximum possible score doesn't get you anywhere special, and, for silly reasons like this one, no one can really achieve the highest score.

Putting aside my A student complex for a minute, the one that tells some nagging part of my brain that I should be able to get an 850, the credit scoring system really is flawed. It's easy for me to tell myself, or you, that because of this, you should just ignore their petty rules and do what works best for you, whether that means committing the sin of closing your oldest account or opening five new cards because you want the frequent flyer miles. However, when you need a loan, suddenly it's easy to feel like a slave to your credit score and wish that maybe you had done some things differently.

The moral of the story basically remains the same as in my original post, though: if you have excellent credit, playing the credit card bonus game probably isn't going to hurt you. However, if you're trying to improve a low or average score, play nice and follow the rules, ludicrous though some of them are. Remember: the watchful eyes of the credit reporting bureaus are upon you.

Photo by mikebaird

Related posts:
How Opening New Credit Cards Affects Your Credit Score
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The Effect of Credit Scores On Mortgage Interest Rates

Updated June 15, 2013

Did you know that once your credit score exceeds a certain threshold, it doesn't matter how much higher it goes? You'll still get the same mortgage rate whether your score is 760 or the highest possible score, 850. Check out this calculator from myFICO, which will show you what interest rate you can get given your credit score.

This chart shows that in the 700-759 range, you'll pay 0.22% more than borrowers with the best credit scores (those in the 760-850 range). Those in the lowest credit score bracket of 620-639 will pay 1.59% more than borrowers with the best credit scores. That's fairly significant both in terms of monthly payment and the amount of interest you'll pay over the life of the loan.

In other words, if you can do a few things to quickly improve your credit before applying for a mortgage, do them. If you are carrying credit card balances and can afford to pay them off or pay them down entirely, for example, do it. Just don't close the account when you're done (if you can avoid it) because that will lower the average age of your accounts, which will hurt your score. I say if you can avoid it because some cards charge an annual fee, and I would want to ditch that card even if it hurt my score--but that's just me. Bumping your credit score up a bracket could lower your interest rate by at least 0.2%.

I know there are things I could do to improve my credit score, but since my score is already above 700, I think the best plan for me is to do nothing. My fear is that with some of the ambiguity in credit scoring, I might do something I think is helping my score and end up hurting it instead. I figure if I keep doing what I'm doing, my score should stay the same and keep me in good standing.

Photo by alisdair

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Book Review: A Million Bucks By Thirty

I just finished reading A Million Bucks By 30 by Alan Corey. It's 210 pages and a fast read with short chapters--I made it through in about three hours. The basic premise of the book is that this kind of loser guy managed to make a million dollars in seven years while living in New York City and making a salary of $40,000-50,000 a year at his day job. He repeatedly says throughout the book that he has no special skills.

He does have some useful personality traits, though: determination, a willingness to take calculated risks, a great work ethic, and a willingness to make sacrifices. As I read the first several chapters of the book, I felt that I wasn't really getting anything out of it because I already have most of the habits he does. I never make an online purchase without looking for a coupon code. I never buy a non-necessity without taking at least a day, and often several months, to consider the purchase. My rent is about as cheap is it can get. I resell things I'm finished with all the time. You get the picture.

And throughout the first several chapters, his net worth grows at a reasonable speed for someone who is simply very thrifty. It all seems very doable. I am already doing it. Where is my million dollar payday, I wondered? After all, in addition to similar habits, we also have several similar personality traits. We are both willing to make short-term sacrifices for what we hope will be a future gain. We both look for odd jobs and extra ways to make money. For him, it was gigs on reality shows. For me, it has always been having second and third jobs while I was an employee. In the last ten years, I think I've had about 40 different jobs, and that's excluding the paid psychology experiments, surveys, and focus groups. I've worked nights, I've worked weekends, I've worked at places with side benefits like free housing or free food. I've worked as a full-time student and been a student as a full-time employee.

Some of Corey's other personality traits, though, make him able to take some additional frugality measures that I know I couldn't implement while still enjoying my life.

-After buying a cheap one-bedroom apartment with a living room, Corey puts up a curtain, calls the living room a second bedroom and rents it out to a stranger. I could not turn my living room into a spare bedroom and rent it out, let alone to a stranger. I hate living with people, and I need peace and quiet to successfully work from home. Corey hated living alone, and was able to benefit both emotionally and financially from having a roommate.

-Later, when he buys a duplex, he turns it into a single-family home so he can increase his rental income by renting out all of the bedrooms instead of just having two units to rent. He also lives in the building, in a windowless room. Having six roommates and no windows would never work for me.

-He has a day job with a 401(k) and health insurance and he keeps the job all the way until he reaches millionaire status. I don't want a day job and I've never been offered a 401(k), which is unfortunate because it's a great way to make extra money and I'm sure I would have socked away a ton of cash in one by now. However, I do now have a self-employed 401(k), so in a few years when I'm making more money and comfortably affording my house I might start maxing out those contributions instead of contributing the paltry sum that I am now.

-He lives in marginal if not downright bad neighborhoods in order to have super-cheap rent and, later in the book, to profit in real estate. As a woman, I feel that I probably have to keep my standards for neighborhood safety a bit higher than the average man does. If the author ever had any problems with crime, he didn't write about them (except for a tenant who got mugged walking home one night and promptly moved out). If I wanted to buy property in the types of neighborhoods Corey lived in, I could do it tomorrow and with considerable more financial ease, but I'd be a terrified prisoner in my own home, afraid to go outside, and that's not an acceptable sacrifice to me.

-I really don't want to be a landlord. I know it's a great way to make money, but it's not for me.

-He eats ramen for lunch and bagels and peanut butter for dinner. Probably my biggest spending weakness is gourmet food, which I consider the affordable luxury in my life and something that is essential to my happiness (on some level, I realize that this is as unreasonable as people who need designer purses to be happy, since the only food I need to survive is some rice and beans). Gourmet food, if you will, is my vice (that and Diet Coke). Corey not only eats cheap food, he doesn't seem to have a single vice that cuts into his bottom line. His vice is being cheap.

Clearly, our personality differences give Corey the edge in saving money. But that's not the big issue. The main problem with the book is that this guy happened to be in the real estate market during the bubble and made his million before it burst with a combination of being a landlord and flipping properties. It's not that his tips and advice aren't solid, but I have little faith that he would have made so much money so quickly had he not been in the right place at the right time. Corey says that because his investments were diversified (real estate, stocks) he was in a position to profit from any market upswing and weather and downturns. Since real estate was skyrocketing, that's where he put his money. His investment accounts have relatively small balances throughout the book. Of course, the real estate bubble was a phenomenal event on par with the dot com bubble. In the absence of a runup in the stock market or real estate, I wonder what tactics the author would have pursued to make his million. Would it have even been possible?

Since the real estate bubble has burst, this story doesn't provide a model that most people can follow. It's also notable that the author is often single during the book and reportedly sacrifices some relationships because of his frugality. When you have a serious significant other, you have less freedom to do the sorts of things that Corey did with his time and his money. If I worked 80-hour weeks away from home, it would be nearly impossible to sustain a relationship. While many millionaires ascribe their success to their supportive spouses, I would say that in Corey's case, being single was integral to his success. It allowed him to do things like live in a windowless room in a house with six roommates. Had he been married, such an arrangement would probably have been a major strain on the relationship.

That being said, I do admire the author's determination, work ethic, and willingness to make sacrifices. The book was still an enjoyable read that made me feel inspired to find more ways to reduce my own expenses and made me more determined to buy a fixer-upper home priced way below market. I still don't know how to become a millionaire in seven years, but since I seem to share many personality traits with the author, I still have faith that I might find my way to riches sooner rather than later.

Photo by morrissey

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Found An Agent

Well, I met with the friend of the family agent I mentioned two posts ago. He may not offer a commission rebate, but I've decided that commission rebates aren't all they're cracked up to be. This agent has much more experience in real estate than most of the agents I contacted who offered commission rebates, so while I may not be getting a commission rebate, I think he will be more effective in helping me find a great house and negotiate the selling price and closing costs than the other agents would. Good negotiating will save me at least as much money as a commission rebate would, if not more.

While the bar was set pretty low based on the experiences I had with other agents, I think the agent I have now would be impressive no matter what. He contacts me daily, if not multiple times a day. He responds to all my emails within a few hours. He answers all my questions, is very knowledgeable about the area where I want to buy, and has been nothing but patient and helpful though my situation is somewhat tricky since I am self-employed. Best of all, he is willing to stick with me for the long haul even if it takes months for me to secure financing and find a cheap enough house. And he doesn't seem to mind that my goal is to buy pretty much the cheapest habitable house on the market (that isn't in a crappy neighborhood).

So despite what I always thought about not going with a full-service agent, I am glad I have one, and I'm relieved to have found someone who comes highly recommended and has already done a lot to impress me in the few days I have known him.

Photo by e453753

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