What I’ve Been Up To

This Week in Your Wallet: Target Misses the Bullseye Again

It doesn’t seem like we can catch a break where the safety of our data is concerned. On Friday, Target revealed that personal information — names, addresses, etc. — of 70 million customers had been stolen. This was in addition to the prior theft of card data from 40 million, which raises the number of people potentially affected to one-third of the adults in the U.S.

As I said on Saturday’s Today show, the big threat is not that someone is going to make a purchase on your credit card (for which you will not be liable) or draw funds out of your checking account using your debit card (a bigger hassle because it can take a couple of weeks to have the funds replaced, but again you will not be liable). The big threat is that someone takes both sets of information and uses it to build a fully formed picture of you that they can use to apply for a credit card, a mortgage, a job…as you.

For me to say you can prevent this from happening is an exaggeration. But there are things you can do to both reduce the chances and to be quicker on the uptake when it comes to shutting it down. First, look at your credit reports. They’re free at annualcreditreport.com so you have no excuse. If you see anything that looks fishy, get in touch with the credit bureau and any involved creditors ASAP. Second, be smart about if and when you give out any personal information. Keep your eyes and ears peeled for phishers — people posing as legit companies you may do business with. The best rule to follow is to never give out any personal information unless you initiate the conversation.

Before we talk headlines this week, I’d like to do a little shameless self-promotion for jeanchatzky.com…it got a makeover! Be on the lookout for more fun changes to the site, and this newsletter in the coming weeks. (Hint: Let’s really pick up the conversations on Twitter and Facebook.) I love reading what you have to say, and I’d like to start sharing it too. Speaking of which, I try to answer as many of your questions as possible. This week on the blog, I tackled Elizabeth’s question on chasing the best interest rates for her savings accounts. See my suggestions here, and remember to stay tuned!

New mortgage rules to know

Last week the Consumer Financial Protection Bureau issued new regulations for mortgage lenders aimed to prevent the kinds of irresponsible lending practices that result in defaults and foreclosures.  Roughly 10% of homeowners (with mortgages) still owe more than their houses are worth, and roughly 2 million households are still at risk of foreclosing, said CFPB Director Richard Cordray in his speech last week. And while these new rules are for lenders to follow, don’t be too quick to think they won’t affect you as a borrower. CNNMoney tells us how:

• Ability to Repay. Before offering any loans, it’s now up to lenders to make sure you’re capable of paying them off. In doing so, they’ll likely check your debt-to-income ratio. To calculate yours, add up all of your recurring monthly expenses like car payments, credit card payments and student loans.  Divide that total by your monthly gross income, and that figure on the calculator is your rough estimate. Lenders will do the same, while likely factoring in the highest mortgage payments you’d be required to make throughout the life of the loan. To increase accountability, the CFPB is now requiring lenders to document and verify not just this ratio, but your income, assets, credit score and debt. All this means more paperwork and longer processing times for all parties involved — including you.
• Qualified Mortgages. Ideally an applicant’s ratio must be under 43% in order to receive a loan. However, this aspect of the rule isn’t set in stone. For instance, banks can justify the risk and accept higher percentages if the applicant has a high level of assets. But reducing risk is the main goal here so qualified mortgages can no longer have red-flag features like terms exceeding 30 years or interest-only payments. Also, say goodbye to upfront fees and charges that come out to be more than 3% of the mortgage balance. Head here for the CFPB’s predictions on how the rules might affect you.

Maximizing your employee benefits

Did you take full advantage of your employee benefits in 2013? Given that the average contribution to a 401(k) retirement plan in 2012 (the last year for which data is available) was roughly $2800 — a far cry from the $17,500 workers under 50 could have kicked in, it’s a pretty safe bet that the answer’s likely no. If you want to do it better in 2014, DailyFinance has a few suggestions.

Aside from my personal favorite of beefing up the amount you’re contributing to your retirement plan, another good take-away is giving your portfolio a once-over. The market has been on a nice little tear lately, which means that even if you had an asset allocation (or investment mix) that you were comfortable with at the start of 2013, the rise in stocks has likely driven it out of whack. You may have a greater percentage of your money in stocks than you’re aware of or comfortable with. If so, rebalance. On the other hand, if you played it safe in 2013 and are open to raising your risk level, then diversifying your assets to add more stock exposure could be your next move.

Mindless Accumulation

Do you work more than you want to? More than you have to? If so, a recent article by the New York Times may provide the ammunition to let yourself off the hook. It explains that we are programmed to earn more than we can consume, even if these earnings sacrifice our happiness, according to a study conducted by Christopher Hsee, Cindy Cal, Jiao Zhang and Shirley Zhang. The scholars are calling this “mindless accumulation.” It’s essentially a waste of effort that isn’t driven by what we need, but by how much work we think we’re capable of doing.

What can we do with this information? Michael Norton, associated professor at Harvard Business School, says people can use it to better understand why they’re making work-related decisions that make them unhappy. For instance, how many times have you immediately dismissed the thought of taking a vacation despite having plenty of days to use? In the article, he says even though contentment isn’t really quantifiable, “‘Most of the things that truly make us happy in life are harder to count.’”

Have a great week,

Jean