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Your Personal Finances – 5 Ways to Improve Them

There’s no denying that the economic doom-and-gloom from the media got really bad a few months back. Fortunately, the nation seemed to have gotten past all that and now there’s talk of economic recovery. The US is still in recession but Obama administration had said that economic recovery will happen…slowly. So if you’re in a tight bind, what should you do? There are a few smart techniques that can help you improve your personal finance.

· Learn How to Tract Spending – most people know what their income streams are but they lose track of their spending. Be aware of the things you buy here and there because its costs can quickly add up. In addition, take note of your credit card usage. If you’re using it too much, chances are, you’re spending more than you can afford. Use a spending plan as a tool to motivate you.

· Identify Your Buying Pattern – are you an impulsive buyer? Do you look for deals all the time? Or do you have a soft spot for certain products? Know what your weaknesses are and then identify the reasons why. Make an effort to stop spending on unnecessary items.

· Save Some Money – every financial guru will tell you this: you really need to save. You might not be able to save as much money with the situation right now, but set aside as much money as you can. Also, remember that having an emergency fund is a must, not an option.

· Don’t Dig Yourself Deeper in Debt – many people try to pay their previous debs by refinancing or borrowing from a new source. Eventually though, this technique may no longer be feasible. It is also becoming harder to find sources of financing so you will eventually need to face up to your obligations.

· Diversify Your Income – now, this is the best solution to your problem. But this requires a lot of planning, effort, and strategizing on your part. Some ways to get multiple income streams include starting a small business, offering your services online and offline, selling some unused stuff, or going into dividend investments.

What you should learn from all this is the fact that your financial future is actually in your hands. The economic climate might have an impact but it is up to you to change your situation.

FICO Score – Is it Still Reliable in Today’s Economy?

As the United States experienced the deepest recession in five decades, banking institutions are responding by scaling back on lending,  applying credit card rate changes, and cutting back on the available credit limit of their customers. The quarterly survey from the Federal Reserve (released May 4, 2009) revealed that 65% of all banks have decreased the credit limit available to new and existing credit card holders. Aside from the obvious fact that consumers cannot borrow as much as they used to, what is the implication of these developments on their FICO score?

Take the experience of Sharii Rey who works as a paralegal in Oregon. Her credit limit was drastically cut from $42,500 to $12,000 by JPMorgan Chase & Co. The lower amount of available funds is the least of her problems though. This is because her debt relative to funds available to her quadrupled and this will reflect badly on her FICO score. It will essentially crush her ability to borrow especially if she has a high outstanding balance.

According to an Illinois Democrat Luis Gutierrez, the FICO formula has a lot of loopholes because it lowers the consumer’s rating no matter their individual risk profiles if banks decrease the available amount of loans. In the second half of 2008, 30 million Americans had their credit limits decreased. This is because three of the country’s largest bank – Citigroup Inc., JPMorgan, and Bank of America Corp. had cut a total $320 billion from the consumer’s credit lines.

The economic collapse raised doubts on the validity of credit scores. Around 90 percent of US banks still use the FICO score to gauge the customer’s credit worthiness. However, the FICO scoring system, which was developed in 1956, seems inappropriate in today’s turbulent times. Still, the FICO CEO Mark Greene said that “FICO scores have held up quite well in terms of predictive accuracy”. And that the score change because of the banks’ actions may just be a signal that the environment is riskier thus, those who had their ratings cut have become “riskier consumers”.

Federal Reserve Bank’s Additional Powers – Weekly Round-Up

This past week, talks in Washington centered on regulating the financial industry. The Obama administration has proposed to give the Fed systematic powers in overseeing the banking sector as a whole. A lot of lawmakers are criticizing this plan, arguing that giving too much power to the Fed might be risky. There is currently limited disclosure about the Fed’s multibillion-dollar lending programs. If they weren’t transparent in the past, why would they change in the future? Another concern is the structure of the Federal Reserve itself. Regional branches are not classified as government agencies.

Meanwhile, other lawmakers cite that the Fed has a conflict of interest. If it tasked to conduct monetary policy then it might not be the best body to supervise banks. Senior Fed officials have argued, however, that the two tasks are actually complementary. Since the agency is involved in crisis stabilization, they need to have other roles in the financial system.

Whatever the case may be, ultimately, it is the public who has to pay for the decisions made on Capitol Hill. Bloggers from all over the country have expressed their opinions about these developments. Here is a list of blogs that talk about the Fed’s proposed systematic role, the criticisms of the system, and how it will affect ordinary Americans:

Paul Joseph @ Prison Planet wrote an insightful blog post entitled “Ron Paul Slams Federal Reserve’s New Dictatorial Powers“. Here, he provides a lot of quotes from Ron Paul and explains his argument. The criticism of Obama’s proposal is centered on giving the Fed additional authority. It might be too risky for the industry as a whole.

The Look at Vietnam blog provides updated information about the news in Capitol Hill. One article uploaded this week is titled “Geithner Says Federal Reserve Best Positioned for Super Regulatory Role“. It explained the position of the Treasury Secretary. He also said that the plan will only give the Fed a modest amount of additional powers.

Sudeep @ the Wall Street Blog wrote an in-depth blog post, “Financial Regulation: Congress Takes on the Federal Reserve“. It basically outlines the arguments lawmakers have over Obama’s proposed reform and the administrations answer to these concerns.

Credit Card Act – Weekly Round-Up

The Senate has passed a new credit card legislation designed to stop abuses in the industry. Consumers will particularly benefit from this measure because of unfair rate increases, provisions in small print, and fee traps will no longer be permitted. In addition, there will be greater accountability required in the credit card industry.

If you have been burned by a credit card company in the past, you can relax. With the new measure, you can start using your credit card again without fear that you will be mercilessly charged penalties, finance charges, and other types of fees without your previous knowledge or consent.   This week’s round-up of blogs focus on posts that talked about the new credit card measure and how it will affect your finances.

Jim Manzi @ National Review Online wrote an interesting article titled “Credit Cards Don’t Kill Credit Ratings, People Do“. Essentially, he cited the reasons why bad credit should be attributed to individuals, not financing institutions. It is still an individual’s own responsibility to oversee their personal finances by determining how much they can afford to spend. Credit card companies are simply the medium that lets them borrow money.

Jennifer Freeman @ Think Glink wrote a short blog post “Credit Cards: Changes in New Credit Card Legislation“. Here, she discussed about what the average consumers can expect from the new bill that has been passed. The blog post was particularly inclined towards outlining the benefits of the new legislation. At the end, she posed a question about what readers think will happen with this law being implemented.

Ismat Mangla @ CNN Money outlines the effects of the newly revised legislation on credit cards for the ordinary consumer. The post entitled “What Credit Card Legislation Means to You” was especially helpful in identifying the areas in which the law will make the most impact on your life.

Bart Narter @ Celent Banking Blog stated his musings about the new credit card legislation in his post “Credit Card Legislation“. His blog post gives an unbiased view about how this law will affect the banking industry and consumers alike. While consumers will benefit from exorbitant penalty fee, credit card companies will suffer because they cannot appropriately penalize irresponsible cardholders. The blogger calls for a compromise.