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Greetings!
This is the monthly newsletter of Sherer Financial Coaching, we hope you find it useful and entertaining. If so, please forward it to someone you know who might like to be on our mailing list.
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Beware the upsell!
 We've come a long way from "You want fries with that?" Businesses have gotten increasingly more sophisticated and the marketplace so competitive that not only does every sale count, but retailers have to make the most of every sale.
Retailers know it costs more to attract new customers then sell to existing customers. The solution? The upsell. If a retailer is good at it, you might not even realize you've been upsold ("Would you like fries with that?") Other times it may be like getting hit with a sledgehammer. ("For only five thousand dollars more you can get the gold package, designer vinyl steering wheel cling and a free hat")
Some examples of upselling include faster speeds of Internet service or packages of pictures sold by professional photographers. If you want enough 8 X 10's to send to grandma, grandpa and aunt Molly, you've got to purchase the platinum package for $50 more. These packages usually include enough useless wallet sized photos to stuff a mattress, but you're stuck with 'em if you want the bigger prints. Ugh... upsell.
So what does that mean to me? Do I really care if they sell me a bigger lemonade or extra pictures? Well, you do if your goal is to become debt free and be more purposeful with your finances. The upsell is just one more way consumers are being manipulated into spending more money.
Take for example, the way you purchase entertainment for your home. You can't decide individually which channels you would like to purchase from your cable or satellite provider, you have to buy a package. You might almost be satisfied with the basic package, but then you wouldn't get the Bolivian Goat Roping channel, and TV's just not worth watching without it. Since that channel isn't part of the basic package, you'll have to upgrade and add fifty channels you won't watch to add a few channels you will. Cha-chiiing! Upsell!
Oh, and did you know you can get Microsoft's Office program in 31 flavors? You can get the Office student edition for $121. But wait! For just $278 more, you can get the standard edition or, if you want it all,(and who doesn't) you can upgrade to Office Ultimate edition for $562. Hey, don't just think of it as purchasing another software package, think of it as helping Microsoft in it's quest for world domination.
Well, alright Eric, so Microsoft is taking over the world, the cable company is evil, "forcing" me to buy channels I don't want and my arteries are getting a bit thicker from upsizing my Whopper meal but come on... is it really that big a deal?
Once again, if your goal is to become debt free, job 1 is to make every dollar work as hard as you can and that means not letting retailers manipulate you into spending any more than necessary to get the job done.
We're not telling you to stay in the basement, collect yarn and only come out on triple coupon Thursday, but we've got to decide what's important, becoming debt free or upgrading to the latest cell phone model that will vaporize people who annoy you. Hmmm... now that I might have to buy!
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Don't worship at the altar of the FICO
 Many people ask how they can improve their FICO or credit score. We see commercials on TV telling us we should know our credit score. Some folks won't make a financial decision for fear of hurting their credit scores. They are "Worshipping at the altar of the FICO."
The FICO score is a computer model designed by the Fair Issacson company to determine a consumer's likelihood of repaying debt. To gage your ability to repay debt, you've got to do a few things. A: Borrow money, B: Pay it back, and C: Lather, rinse, repeat. Let's take a closer look at how the credit score works.
Your credit score will range from a low of around 300 to a high of around 850. To have a score you must have at least one credit account open for at least six months and have at least one account updated within the last six months.
There are five components of the credit score they are:
1. Paying on time - The most important aspect of your score, paying your bills on time comprises 35% of your credit score.
2. Credit use - 30% The ratio of credit available to you, relative to the amount of credit used. Lenders don't like to see you "maxed out." You'll have a higher score if you've only used 30% of your available credit as opposed to 85%.
3. Length of credit history - 15% Lenders like to see at least a two year history.
4. Variety of credit - 10% Lenders like to see experience with different types of credit, for example, credit cards and installment loans.
5. Inquiries - 10% Lenders do not like to see you "shopping for credit" as this indicates you could become overextended. Every time you apply for credit, you lose a couple of points on your credit score. There are some scoring models that will ignore multiple inquiries in a short period of time for a similar purpose such as automobile or mortgage shopping.
There many different "flavors" of credit scores out there and they all pretty much work the same way, the more you borrow and pay back, the higher your score, so the credit score is really an "I love debt!" score.
Notice how actual wealth or income never enters the picture in figuring your credit score. In fact, building a good credit score and building real wealth are conflicting goals. If you are borrowing money and building a good credit score,you are probably not building real wealth.
I meet folks all the time who are more concerned with their credit score than with building wealth. And not only are they concerned with their scores.. they want to "help" their adult children establish credit as well. I have seen parents at car dealerships with their children, financing new cars. The parents usually instruct the dealer to make sure they put the children's name on the loan so they establish a credit history. So what are these parents teaching their kids? That it's normal to borrow large amounts of money to purchase a liability that will depreciate. How many anti-wealth building things can we teach our kids in one transaction? This is normal in America today and normal is broke!
People argue that they need a credit score because today employers and insurance companies look at credit. But are there ways of establishing a credit score consistent with good financial habits? Absolutely!
A credit union is your best bet here. Many credit unions offer "pledge loans". These are loans backed by money you place on deposit with he credit union. You can place the borrowed money into another account and use it to repay the loan. These loans are usually available at low rates, so for only a few dollars, you'll establish a positive credit history. You'll develop the savings habit as you save money to put on deposit. You'll even earn interest on the money you have on deposit! Another option may be a secured credit card where the credit union gives you a card with a credit limit equal to money they hold on deposit. You can "borrow" the money, place it into an interest earning savings account, then repay it over time.
If you follow these steps, you'll have a positive credit file and likely all the credit you'll ever need. Then you can concentrate on building wealth, not credit.
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What are you willing to do for success?
 For those of you who only recently began your journey to become debt free, get ready, you will be tested! Once you save your emergency fund, something will happen, and you'll have to spend some of that cash you fought hard to save on medical bills or car repairs.
Those of you who have been at this a while know the frustration of having to interrupt your debt snowball when life happens.
The process of becoming debt free can be a challenge. A challenge not unlike that hike we took out by the Hamburg reservoir...Remember that? It was a hot, August day when we started out for the top. The trail was long and steep. Around each twisting corner we thought we'd see the top but all we saw was more trail. At times the trail seemed lonely and it seemed we weren't making any progress. We wondered if we were crazy to start this journey and if we should just give up and go home. Just then we turned around and looked back through the trees and saw how high we had climbed. We could see for miles! How beautiful! By taking a look back, we could see now that we had actually made quite a bit of progress up the mountain.
We continued around the steep curves, sweating, climbing, one footstep at a time. There seemed to be no end to the trail. We were exhausted and just about ready to quit, but then we noticed a small white hut just ahead. The hut had what looked like a big satellite antenna on it. "That's a stupid place for a building with an antenna on it!" we thought, "Unless it's at... THE TOP!"
We had made it!
It had been a tough journey. At times, we weren't sure we'd make it, but it was worth it! The view was stunning! It seemed we could see forever... remember that day? We had a challenge to face, at times we felt like giving up, but it was worth the sacrifice, right?
What...? You weren't there? Oh ... OK...
Well... how about this then...
It's time to take a stand! Time to draw a line in the sandbox! That's right! You and kitty working side by side securing your financial future!
Oh.. I see ... you don't have a cat....
Hmmm .. this visualization thing is going to be harder than I thought.
The point is, you will be challenged over and over again. You'll have to be strong and rise to the challenge to win. Winning is about making wise decisions again and again. The good news is, as you make these decisions, they become habit and each time it gets a bit easier.
Yes, budgeting is hard and you'll make mistakes, but it gets easier. Yes putting that first $1000 in the bank is hard, but have you heard millionaires say the second million is easier? That's because they learned the skills necessary to make the million the first time, then it was easier to repeat the process.
Recently a newspaper headline read "Many say gas prices hurting them" The article went on to say that at the same time, few people were changing their driving habits.
The Chinese have a saying that "If you don't change direction, you'll end up where you're headed."
If you need to make a course correction, what actions will you take this month to get where you want to go?
"Many of life's failures are people who did not realize how close they were to success when they gave up."
- Thomas Edison
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We'd like to hear from you!
We'd like to know how you're doing on your journey to becoming debt free. Drop us a line and let us know! We'll include it in upcoming newsletters to encourage others!
Have a question? Send it to us and we'll answer it in an upcoming issue of the newsletter.
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Events If you enjoyed our last "Dumping Debt and Building Wealth class, tell your friends! We will be running another class at Northampton Community College in August. The class will meet the first two Thursdays in August from 7 - 9 PM. For more information contact Northampton Community College.
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Whatever your goal, strive to be great, then help others!
Sincerely,
Eric Sherer
Sherer Financial Coaching
Phone: 610-570-0948
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