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MESSAGE TO MILLENNIALS

Dear Millennials,

I often joke tongue-in-cheek with my attorney wife that I can’t make her do anything, all I can do is “offer good counsel”. I’m offering the same advice to all millennials who care to take note. Trust me, as the father of four intelligent 20-somethings, I have a great appreciation for the millennial mind. They demand more freedoms and often challenge the “status quo” of how things have always been done. They want to know why. They aren’t shy about speaking up for their beliefs and taking charge. From observing many millennials, I’ve noticed they often have a desire to help others and fulfill inspiring missions, and their life goals may not necessarily align with those of the generations before them. 

For older generations, success may have looked like a single-family home, 2-4 kids, a comfortable retirement plan, and the annual family vacation. Many of today’s young people are spending their 20s and 30s traveling the world, going to happy hours, and posting on Instagram, unafraid to try a new and different way of life. This may partially explain why there are 618,000 millennial millionaires in the United States. That was not a mis-print, 618,000! Although some reaped the benefits of inheritance, the majority did not. Typically, this doesn’t happen by accident, as some have already figured out the “cheat code” for becoming wealthy: ownership, entrepreneurship, and investing. 

Even with the great success of some of our young and bright stars, the vast majority can benefit from this seasoned guy’s straight talk. Follow these tips that admittingly aren’t always fun, and your financial life will get much better. The test answers begin with establishing a budget. This alone will put you ahead of 78 percent of the population. Please name me anything you can accomplish without a plan…I’m waiting…thought so, enough said. 

Secondly, control your debt. You don’t want to be a prisoner of society’s norms, so why subject yourself to debt prison (P.S. ignoring it won’t make it go away). I’ll go into more strategy details on this in future blogs. 

Thirdly, manage your credit. I’ve spent previous blogs addressing this, so that’s a good place to start. Take time learning about how credit works if you, like many, weren’t necessarily taught that in school. Just remember the primary way credit is scored: payment history 35%, credit utilization 30%, length of credit 15%, credit mix 10%, new credit 10%. Spend the majority of your focus on the first two. 

The fourth leg of my “good counsel” is to start investing (pay yourself first). I can feel voices saying, “I’ve got debt so why should I care about saving or investing?  Before I finish answering that, I want to make a few recommendations. Always contribute as much as you comfortably can to your employer’s 401K, whatever percentage your employer match is, take it! I’ve read all the books— Suzy Orman, Dave Ramsey, Chris Horton etc., and guess what? There aren’t many secrets and magic formulas. Shoot, the majority of their income is telling you the same dang thing I’ve just covered in one blog, for free!  You don’t have to be a financial genius to get started. If you tune into CNBC, they’ll sound intelligent about technical market trends, asset allocation, and diversification. Remember your parents telling you don’t put your eggs in one basket? Boom! That will take you a long way. If you just invested in index funds, you’d have a higher return than what most financial consultants recommend, and much lower fees. I know, I used to be one. They get paid when you buy and when you sell. So, you think you don’t have enough to invest?  Baloney, you can buy $10 worth of stock, bitcoin and so forth, just with “Cash App” alone. Other apps I recommend are “Acorns” and “Simple”. A good rule of thumb is for every dollar spend on “wants”, match the same amount to your investment accounts. 

Let’s get back on point regarding why it’s a bad idea to wait to invest. Let’s look what happens when you wait to invest. Ashley, 27, earns $50,000 a year and receives a 3% match from her employer. She puts $250 per month into her 401(k), and her employer contributes $125. Ashley’s annual contribution is $3,000, and her employer’s is$1,500 for a total of $4,500 per year.

Hypothetically for our illustration, Ashley never gets a raise and manages to stay with this employer for 40 years. Her average return over those 40 years is calculated at 8 percent. When she retires, she has $1,165,754 in her 401(k), thanks to what I call magic math (compound interest)!

Had Ashley tucked $4,500 into a savings account earning 0.01% for 40 years, it would only be worth $180,351. But wait, what happens if Ashley doesn’t start saving until she’s 37?  The same $4,500 for 30 years only nets her $509,774. If she waits until 42, Ashley only has $205,928 in her 401K. The earlier you start investing, the better!  

Hey millennials, we can’t conquer the whole financial world in one blog, but I promise if you just execute the few suggestions I’ve shared, you’ll find there’s no need to re-invent the wheel. Your financial life will surely improve! Remember, all I can offer is “good counsel”!

James Holmes
President, Black Lion, Inc. 

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How to Build Credit

When building credit, you have to first start by getting credit. Sometimes it comes to you via unsolicited credit card offers, and sometimes it’s not so easy to figure out. Many times, it needs to be built from nothing, primarily because lenders are hesitant to offer credit to someone with no credit history. No worries, though, because you can start with a secured credit card, which uses your money deposit as collateral for the credit.  

Secured cards work similar to standard credit cards when you start using them; generally, the naked eye can’t tell the difference. You can also consider starting with a retail store credit card, like Target, Macy’s, J.C Penny etc. They are usually pretty easy to get and will generally start you off with a small credit limit. If you decide on a retail store card, I caution you to not overuse it because the rate is generally pretty high, sometimes as much as 26.99 percent. Once you obtain a standard card with a lower rate, I encourage you to dump the retail card for good, regardless of all their flashy offers.  

Another way to obtain credit is to become an authorized user. This is pretty much the flavor of the month, gaining a lot of speed now, because it’s widely used as a credit repair tool these days. On this you also need to proceed with caution because you’ll basically be listed as a user on someone else’s credit card. There has to be a lot of trust on both sides, because if either overuses or misses payments, both scores will go down. In my many years in finance, I’d say this was best used in a parent/child situation. If a parent has good credit, it’s a great start for their child because when the child fully enters financial society, they start with established credit and a pre-made good score. 

Perhaps the oldest way to get started is with a co-signer, having someone else sign on the credit obligation with you. In that case, you’re both responsible for timely payments, and similar to being an authorized user, both scores are affected. 

At the risk of stating the obvious, once you’ve obtained credit, it is essential to make your payments on time. Payment history is the biggest factor in determining your credit score. The more on time payments you have, the more your credit score will improve. It’s a good idea to start with no more than one or two credit cards and be careful how much you spend. If I had a dollar for every young person on the other side of my desk explaining how they over spent when they were younger and are still paying the price many years later, I’d have a wheel barrel full of money. In other words, overspending is common; it’s a good time not to be common. Never make minimum payments. When it comes to your financial health, minimum payments on your credit card are poison. A $2000 credit balance with an 18% annual rate, with a minimum payment of 2% of the balance, or $10 dollars, whichever is greater, would take 370 months or just over 30 years to pay off. Another good thing to be aware of: routinely check your credit; it helps to spot inaccuracies, which will allow you to more effectively dispute them and guard against identity theft.

Now that we’ve covered much of the basics, let’s tackle a couple of cool and legitimate ways of jumping your score 30 to 90 points in 45 days if you are fairly established and currently not in a distressed credit status. You can improve your credit utilization and raise your limits. 

Let’s say you have two credit cards. Card A has a $6,000 credit limit and a $2,500 balance. Card B has a $10,000 limit and you have a $1,000 balance on it. This is your utilization ration per card:  Card A =42% (2500/6000=.416, or 42%), which is too high. Card B=10% (1,000/10,000=.100, or 10%), which is excellent.  In this scenario your overall credit utilization ratio is good.  

Next, get your credit limits raised.  All you have to do is call your credit card company and ask for an increase to your credit limit.  Have an amount in mind before you call.  Make that amount a little higher than what you want in case they feel the need to negotiate.  Remember the example in #1 Card A has a $6,000 limit, and you have a $2,500 balance on it.  That’s a 42% utilization ratio.  If your limit goes up to $8,500, then your new ratio is a more pleasing 29%.  Remember you were already at 10% on your other card.  Congratulations your new overall hypothetical utilization ratio is a very good 19%, and you just got a nice bump in the credit score!

A low credit score can have many adverse effects on your financial health, which can make the challenge of raising it seem insurmountable to some. But there’s hope! Being intentional about your spending, coupled with an understanding of what your FICO score reflects, is a great start. When my kids were younger and would be visibly stressed about a colossal task in front of them, I would always ask them, “How do you eat an elephant?” They learned to answer correctly: “One bite at a time.” The same is true with credit. You are not doomed to a life of high interest rates and rejection; all we have to do is tackle that elephant one bite at a time. 

James Holmes
President, Black Lion Inc. 

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Black Lion Auto: Who We Are

Explaining Our Mission Statement

At Black Lion, Inc. we say we are the financial voice of the underserved. What does that mean?

I thought it fitting for our first published blog to explain Black Lion’s Mission Statement to help our audience understand what we are, why we do what we do, and what we hope to accomplish? Black Lion is a Christian-based automotive dealership focused on providing vehicles and automotive financial knowledge to the underserved. Our mission is to provide better rates, lower prices, and lower fees to our marketplace, while offering better customer service. Our motto is, “Financial voice of the underserved”. 

If you review Black Lion’s public incorporation records, we are categorized as a car dealership. Yes, that is true, along with much more. We do sell cars and trucks and offer related financial services, but if you stay tuned, you’ll see we do a lot more. Black Lion is also committed to providing financial literacy free of charge to anyone who desires the information. 

Statistically speaking, people of color have been charged higher rates and fees for a number of things, including auto loans and financial services. There are a lot of reasons for this, including institutional racism, corporate greed, and lack of financial literacy. When attempting to negotiate a car deal and loan package with a dealer, it’s very much like David vs Goliath. But in that reality prism, Goliath wins almost all the time. 

There is a colossal amount of built in advantages to the person with the knowledge. In this old model, the dealer holds almost all the cards. They have the detailed pricing information and more. They withhold things like manufacturer’s holdback, an undisclosed amount the manufacturers provide to auto dealers for each vehicle that is sold. On many loans, there are wholesale rates given to the dealership that they mark up one or two percentage points before presenting to you. In my experience the customer almost never is aware of this, which could easily be $1000, $2000 dollars or more, depending on the loan amount and dealer mark up. 

This is just the tip of the iceberg. In short, it’s like taking a water pistol to a live ammunition gun fight. The odds are stacked against you. For those that follow us, we’ll arm you with enough information to see true savings. After all, the less you spend on excessive prices, rates and fees, the more you have left for yourself. Let’s not forget the elephant in the room, credit. Over the coming weeks we will address this early and often because this has much more of an effect on our finances than meets the eye. For example, based on a $25,000 loan, the difference between a good rate and a bad rate can be over $11,000 during the full course of the loan. The unpleasant truth is that this process can be like watching sausages getting made: we need to eat but don’t want to know the details. Well, that’s going to change. 

James Holmes
President, Black Lion Inc. 

How to Pay Off Debt

My perspective is largely based on the things I’ve learned from 34 years of professional finance experience, along with trial and error from the school of hard knocks.  I would love having middle-aged sage/seasoned James to counsel 30-year-old newly married James who was trying to figure things out.  I qualify that by saying, through it all I’ve been abundantly blessed.  However, for those not seeking to take the long way, my debt payoff strategy will make your life better.

In the interest of time, it’s not necessary to break down the latest Forbes mathematical analysis.  We will discuss real life strategies I’ve witnessed that work well, and those that don’t.  Did you know personal finance is 80% behavior and only 20% head knowledge?  Yes, it is true!  We know there are a lot of resources out there that will tell you to pay off either your largest debt or the one with the highest interest rate first.  While that makes sense mathematically, paying off debt is more about motivation than it is about the numbers. (That’s pretty funny coming from a numbers guy like me…lol).  In all honesty, hope has a lot more to do with winning with money than math does.

Let’s retreat to cover some basics.  First of all, we are mostly addressing revolving debt (credit cards) because of all types of debt, I view it as the biggest, most damaging, and most un-necessary of all.  It’s primarily the culprit of “debt prison”, the rates are crazy high, and frankly it’s not a good use of money.  Most often when I’m helping someone with credit problems, revolving debt is the main reason.  So, for anyone looking for credit repair, start there.  According to the Federal Reserve, credit card balances stand at $848 billion.  That means the U.S. as a collective has an insane amount of credit card debt.

Steer clear of debt reduction program and plans.  They are advertised all over the place.  Luckily, I’ve never personally been duped on one, but I’ve had to help a lot of people who have.  Debt settlement companies are the seedy underbelly of the financial world.  Run from this option.  Companies will charge you a fee and then promise to negotiate with your creditors to reduce what you owe.  Usually, they just take your money and leave you responsible for your debt.  I despise the damage these companies have done to so many people.  Can you say scam?  Debt consolidation programs have more legitimacy, but they’re still not my preferred way.  This is basically a loan that combines all your debts into one single payment.  This sounds like a good idea until you discover that the lifespans of your loans extend, meaning you’ll stay in debt longer.  Also, the low interest rate that looked so appealing at first usually goes up over time.

My preferred debt payoff strategy is the snowball method, because as stated earlier, paying off debt is more about motivation than it is about numbers. I don’t think it can be overstated.

But first things first:  It’s time to get on a budget (that alone puts you ahead of 78% of the population).  Anyone that knows me well, especially my kids and wife will tell you that I strongly believe in the benefit of having a plan!  Heck, when my kids come back in town to visit, in order to maximize our time together, I organized Itineraries for them…funny but true, and it works.  I also believe in Warren Buffet’s quote, “An idiot with a plan can beat a genius without a plan.”  Remember, you won’t ever get ahead if you’re spending more than you’re making each month.  In order to start winning with money, you have to start telling every single dollar where you want it to go.

The debt snowball plan is a strategy to pay off debts in order of smallest balance to the largest balance, one by one.  You want to aggressively pay off the smallest debt first, while making minimum payments on the others, then move to the next and so forth.  Paying off credit card debt by starting with the smallest balance will help your see progress early on.  And that progress will fuel your motivation to pay off all your credit cards!  Before you know it, your debt will be greatly reduced, which automatically brings your credit score up, and improve your financial health!   Follow this strategy and you will master your finances, by controlling your debt.  Congratulations, you’re a financial winner!

James Holmes
President, Black Lion, Inc. 

CREDIT 101

In the coming weeks, we have many topics to cover, some of a more advanced nature, but I view it as appropriate to lay a foundation starting with a basic understanding of credit and how it works. There will be plenty of opportunities in the upcoming block to get into more advanced concepts, finance matrix, finance ratios, credit mix, and various strategies. 

Understanding credit is a basic element of financial literacy. It’s very important to understand how it works because if used properly, it can help you; if neglected and allowed to erode, it can cost you missed opportunities and several hundreds of thousands of dollars over a lifetime. 

Credit is a key aspect of your financial power. It helps you to get the things you need now, like a loan for a car or house, based on your promise to pay later. Working to improve your credit helps ensure you’ll qualify for loans when you need them. 

There are many types of credit. The two most common types are installment loans and revolving credit. Installment loans are a set amount of money loaned to you for a specific purpose; common examples are student loans and auto loans. Revolving credit is a line of credit you can keep using after paying it off. Credit cards are the most common type of revolving credit. 

A credit score is a three-digit number that banks and lenders use to gauge how likely someone is to repay debt. A high score, usually 800 or above, is considered excellent. A lower score, 580 or below, is considered “poor” and will sometimes prevent someone from being able to borrow money, or it may force them to pay a much higher interest rate. 

There are several entities and several matrix formulas for calculating credit scores. The most often used score is FICO, or Fair Isaac and Company. According to FICO, there are five things that can impact your score. 

  • Payment History (35%)
  • Amounts Owed (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Credit Mix (10%)

The credit bureaus are required to give you a free credit report once a year. The only place you should request a credit report is at annualcreditreport.com. 

Your credit score can be used to evaluate home loans, auto loans, credit cards, rental/lease, employment, and insurance. Negative information generally stays on your credit report for at least seven years. Late payments, foreclosures, and collections all remain for seven years, while bankruptcy remains for 10 years. 

The good news is that bad credit can always be improved. Practicing good credit habits can raise a low score, as well as help maintain a good score. Next week we will start talking about those good credit habits and how to implement them. And you’ll be on your way to the score of your dreams in no time. 

James Holmes
President, Black Lion Inc. 

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