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December 19, 2013

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It never fails to amaze me how the credit bureaus' marketing teams have handled the complete 180 degree turn from "you are not our customer and your credit score is not for you" to "every single person must know their credit score at all times (which you can buy from us for a reasonable fee)" in less than ten years. Check your credit score seems to appear in practically every personal finance story that comes along these days.

I have never once checked my credit score. I use credit responsibly and I pay my bills on time. I always have, as indicated on my by regularly-checked (free) credit reports. I can't imagine why I would need to check my score. What would I change if I wasn't happy with it?

Sure, there are some people who should check their score. If you had some unfortunate event that lowered your score, and you want to make sure it has rebounded into the good range before seeking a loan so you get the best rate, that makes sense. But the idea that everyone should know it all the time is kinda silly.

FMF,

Why do you let tax rates lower your spirits so? Tax money goes to things beneficial and needed for our society in much the same light as charity giving.

Luis --

1. It's an expense. I dislike expenses.

2. Much of tax money is severely wasted. I dislike waste of money, especially my money.

3. It's beyond my control where it is spent. I dislike my money being taken and spent in a way I don't control.

If you look at the above and compare it to charitable giving, I think you'll see a big difference.

FICO credit scores are used to monitor financial risk without the expense of employing an army of underwriters. Kind of like self-checkout at Wal-Mart, two employees perform the work of ten because computers can do it cheaper. Like every other automated function in modern society, accuracy is optional without human supervision and intervention. And so is FICO.

While at the end of the day, I can see value in knowing these numbers, I think it is a little too specific. Knowing you student loan debt is really kind of stupid as I have 3 mortgages (on 3 different properties) and zero student loan debt. So does that make me debt free?

I can see the credit score (how worthy are you of getting more credit), tax rate (so you know how much taxes will affect you), savings rate (how much budget surplus you have), and your net worth (how much you are in the positive). I would say the student loan thing should just be "how much debt you have" and be done with it. It gives you an overall picture of how much you owe. However I would say if you want a complete picture, I would add how much savings you have (emergency fund, retirement, stock trading, etc.). You need to find that number anyways when you calculate your assets for the net worth statement. If you had to stick to the 5 that MSN did, I would remove net worth, as that can easily be calculated using the numbers provided above.

So here are my numbers I would include in any financial health checkup:
Credit score
Financial assets
Finanical debts
Net Worth
Personal savings rate
Tax rate

Let's see...
1. Credit score was 780 on Credit Karma a few days ago. Last annual report was close.
2. In 5 days my tax rate is zero! Wife stops working and we love off of savings until I graduate.
3. Loans sit at around $200,000 and expect to peak at $300,000
4. Net worth is -$100,000 when that debt is set against our savings in 401k, Roth, and loving savings for the next two years.

Been a follower of FMF for a while, while slipping consciously into heaps of debt. With repayment programs and an expected salary of 300k+ as a physician, I don't mind too much, but you're right, being aware of these numbers does impact decisions and help keep the ship on course.

@FMF - unsolicited advice for a post/guest post - the mechanics of Quicken using the FMF principles, ie, how to budget, how to track retirement savings in Quicken (or one of the other *gasp* online financial trackers like Mint etc.) I know there are probably a million other how to guides out there on those programs BUT it would be cool to see how you do it.

@Mark - keep grinding, there is light at the end of the tunnel (and its not an oncoming train).

Does "tax rate" refer to effective income tax rate (printed on the summary page of my Turbo Tax return) or the marginal tax rate (the income tax paid on my next dollar of earned income)?

FMF, Where do taxes fall into your giving/saving/spending categories? My effective tax rate is almost a third of my gross all on its own when considering all forms of taxation (federal, SS, property). My family is also at one of the higher marginal tax rates.

Jake --

Thanks for the idea!

LH --

I list taxes as an expense, so they would be in the spending category.

I haven't looked at the mix lately, but I'd guess my finances break down something like this percentage-wise (of gross income):

Giving - 25%
Spending - 50%
Savings - 25%

But I could be wrong. Maybe an idea for a new post! :)

Of the spending category, taxes are by far my largest expense.

At the age of 79 & 80 and 22 years into retirement these numbers don't matter one iota to me.

If you don't need credit you don't need to find out your score.

I have already done everything I can to lower our taxable income so at tax time I just have to pay up. The MRDs on our IRAs are our largest taxable items and I took care of them yesterday.

We're not trying to save these days but the money keeps rolling in from our Bonds, CDs, and Bond funds and gets larger each year.

I never needed to borrow for my education - it was free.

Our net worth doesn't matter to us, as it grows it just means our three chilren will get more when we're gone.

This is why retirement can be a wonderful, stress free time of your life if you have planned well.

1.) Credit score = ~800

2.) Tax rate = typically around 20% after itemized deductions etc.

3.) Personal savings rate = > 50% (closer to 60%) for a while now. This metric is VERY important for us. We have a stretch goal for saving 70% in 2014 as we finish, "planting and watering the field", in preparation for the harvest.

4.) Student loan debt = we eliminated our student loans 3 or 4 years ago (massive amounts of hard work and overtime at work). No debt except for 2 very conservative mortgages.

5.) Net worth = > 230K. We are 28 years old. I make a 6 figure income and my wife is a preschool teacher. Her position has fantastic benefits (this has allowed me be much more aggressive with my career and we are enormously grateful for them).

I have found that when you are younger - the savings rate metric is MUCH more important than net worth. This behavior will tell me a lot about what your net worth has the potential of becoming :-) We were saving ~20% 5 years ago when I was making a little over 38K a year and my wife was finishing graduate school with no income.

I find i spend 1/3 (that includes some giving), save 1/3 and then pay 1/3 in taxes. That's of my gross.

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