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Money

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The credit score

It is a three-digit number that lenders use to assess your creditworthiness and your ability to pay your bills on time.

  • The score ranges between 300 and 850.
  • The higher the score, the more creditworthy you are, and the more likely lenders will lend you money at a lower interest rate.
  • The FICO score is the most widely used, but there are also other systems.
  • Your history of payments determines your score as well as your credit utilisation.
  • Your credit report determines your credit score.

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Bill Fair and Earl Isaac developed credit scores in the 1950s to create a standard system to measure credit. They called it Fair, Isaac, and Company, known as FICO. Another credit score is the Vantage Score.

Both FICO and Vantage Score base their scores on analysing each credit report as collected by the three major credit reporting agencies: Experian, Equifax, and TransUnion. But FICO and VantageScore use different methods for a credit score, taking various data into account.

Mortgage lenders usually use FICO scores to determine one's ability to pay them back. Since the three credit bureau scores are different, some banks look at all of them to get an average, or tri-merge, score.

Two common factors in determining your creditworthiness are timely payments and credit utilization. Other factors like credit history, types of accounts, and recent hard inquiries are used to varying degrees. It means that the score you see may be different to the score a lender use.

  • Late or missed payments will drive down your credit score and remain on your record for seven years.
  • Credit utilization is the percentage of available credit you're currently using. If you use more than 30% of your available credit, scoring models will consider you unreliable.
  • Credit history considers your long-standing credit accounts. A long account history in good standing increases your score.
  • Too many recently-opened credit accounts can be seen as risk.
  • Having different credit accounts increases your credit score.

A credit report documents your credit history, your current status of accounts and payments, and when companies have pulled your report when you've applied for credit. A credit report is the source of your credit score.

It is vital to keep an eye on your reports and notice anything that could cause long-term damage to your credit. You can request a free credit report per bureau every year.

Common factors that could damage your credit score are negative items, such as bankruptcies, foreclosures, late payments, high credit utilization, and credit inquiries from potential lenders.

Some people employ the services of credit repair companies to dispute incorrect or fraudulent credit items on your behalf, but the outcome is not guaranteed.

Gross Domestic Product (GDP)
  • This is the most basic indicator of the overall market value of a nation's finished domestic goods and services and the country's health and size.
  • There are two types of GDP: real and nominal. The former is the economic output after inflation is factored in while the latter does not take inflation into account.
  • The GDP is important because it gives us an idea of whether the economy of the country is growing or contracting.

In order to calculate the GDP you must add all of these components:

  • Consumer spending: this is the value of the consumption of the goods and services of the country's households; this is the largest part of the GDP
  • Government spending: ALL consumptions, investments, and payments made by the government for current use
  • Capital spending of businesses: Expenditure on purchases of fixed assets and unsold stock by private businesses
  • Net exports: represents the country's balance of trade
  • This is the metric used to measure a country's economic output that is produced by all the citizens of a country regardless of their location.
  • It represents how its nationals are contributing to the country's economy.
  • In order to calculate the GNP, you must add the same components above along with the net income by domestic residents and businesses from overseas investments, then subtract it from the net income earned by foreign residents and businesses from domestic investment.
Wealth In The Modern World

Investing is about 9 percent theory, 1 percent execution and 90 percent emotion management.

Not everyone becomes a multimillionaire, at least not in the short run. The good news is that there are a lot of financial opportunities in the world, and it is possible to build wealth using public markets as a long term investment. Investment requires managing our emotions, and not to be bogged down by the ups and downs of the volatile markets.

Stoicism is a life-survival strategy, a way to protect one’s sanity while facing the ups and downs of life. It helps us focus on what we can control and to let go of the stuff we cannot control.

While not many are aware of this, stoicism embraces money and wealth, and advises a person to make money with honesty, dignity and trustworthiness.

No matter how little you earn using income-generating skills like writing, speaking, coding or managing, you can get started with investing by simply earning more than your expenses.

One needs to focus on the income-generation part and create value out of nothing, using one’s skills.

We all have loss aversion, preferring to avoid losses even with the opportunity cost of gaining profits. Losing money, in fact, is a necessary rite of passage that most are not okay with.

The best investors are the ones losing money, but who are smart enough to never lose more than 10 percent of their investment by applying diversification and other investment philosophies.

Stoic investors make smart, balanced bets. Most of us invest in secure funds with low returns. Investors looking at bigger returns opt for index funds. If you are okay with losing money, that does not mean that you should.

The 90/10 investing thumb rule states that we should put 90 percent of our money into stock investments in index funds with moderate to high returns. The rest of the investment money should be used to speculate on the short-term risks like currencies, Bitcoin etc, that offer a high upside.

Budgets and holiday celebrations

The holidays are usually filled with joy, celebration and the giving of gifts.

Having a financial plan in place will enable you to be less stressed and get through the holidays with your finances intact.

Our emotions are often more intense during the holiday season. Marketers are experts at using those feelings to make you buy things.

  • Make a rule for yourself: If an ad on the internet suggests a product to you, don't buy it.
  • Treat your emotions as if they are people. It can help you to detach from that emotion and be more mindful when you buy gifts.

Ask yourself what you think a realistic amount is to spend on gifts for yourself and others. It should be a number that you can realistically afford without dipping into your savings or creating credit card debt.

Then do your best to stick to your budget without getting caught up in consumerism. One strategy could be to use your travel funds. If you've cancelled a trip, you could redistribute a portion of those dollars for gifts.

For those who are able to see your family in person this holiday season, you can save money by doing a white elephant gift exchange instead of buying gifts.

Another fun activity is cooking a special meal or playing old fashioned charades.

Experiences often stand out over possessions in our memories. You can explore a nearby park or nature center with your friends and family, ice skate, ski, visit a zoo, or any number of other activities.

Online, you can host a talent show or take a virtual craft course. The memory of doing a tutorial together and the funny mistakes you made, will stick for a lifetime.

In 2009, Domino's ad campaign focused on a blind taste test for its new oven-baked sandwiches, claiming that its sandwiches beat Subway 2-to-1.

The people at Subway disagreed, and sent Domino's a cease-and-desist letter. Domino's CEO personally responded in a new ad. The feud died down a couple of months later.

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