The Feed #2 — Finance Without The Ego

[This article originally appeared in the email blog The Fintech Feed.]

Welcome to the new format and the second (long overdue) issue of the FinTech Feed!

Actually, before we get into the Feed, a quick word about the new format. The feedback from the last issue was that there was a lot of helpful and actionable steps and some people have begun to get a handle on their finances, with some folks beginning to save and invest for the first time! This is AWESOME! However, some people found the advice and products overwhelming.

“Woah, Daniel wrote a lot of stuff! All this sounds like a great idea. I wish I had time to set it up. Maybe I’ll try setting up Mint.com now, check that out. Yikes, that seems complicated and/or a lot of steps… Oh hey! A funny cat video!”

^ Does that internal dialogue sound familiar to anyone else?

Entré new format.

One Cloud.
One Dirt.
One Feed each week.

Less is More.

The Cloud

I know it’s been a long time since I wrote you guys but a ton has happened in the FinTech space. But probably the most monumental thing that happened was not the PayPal spinoff from Ebay, or the launch of a ton new tech products, or more and more fees being exposed at big banks.The most important thing that happened was that this dude, Adam Nash, published this badass article on Medium and the Internet went more nuts than usual… actually everything was the same — with one minor difference:

I had an account with Wealthfront.

Now, I’ve been a fan of this company practically since they launched. They’re a smart, lean team in the Valley that uses machine learning algorithms to bring the most advanced (like Tax Loss Harvesting) and real-time (it’s, ya that’s obvious) portfolio management to you at a ridiculously cheap fee! Your first $10,000 are managed completely free of charge!

What!?!

So, awesome company but I never had an account with them because you needed at least $5,000 for an account and I didn’t start adult-ing fulltime until a year ago. And then they dropped all the microphones (and one zero) and made the minimum balance for new accounts $500.

You read that right. For $500 you can have a financial portfolio managed for you, free of charge for the first $10,000 and tailored to your risk profile by the Ph.D’s and engineers in finance and economics who built the software to be oh so simple to use. Don’t worry about setting up meetings. Just set it and forget it. Web and iOS app and all the tax info you need for April automatically compiled.

Why is this a big deal? Why is this our Cloud for the week?

Because it hails a change in zeitgeist that is exactly what this newsletter and blog are about; finance without the ego.

Banks have operated for centuries (seriously, centuries!) on the % of wallet strategy. They corner the market on a particular product (the older readers will remember the days of local bank acquisitions when local banks suddenly all became the same national chain) and then try and take incremental portions of a user’s wallet in fees and services.

Fees — add on more and more servicing fees while lowering the face ticket price of a financial product.Services — I have a checking account with Bank X so I’m more likely to get a loan, mortgage, investment account, savings account, retirement fund, etc. from Bank X instead of Bank Y.

That era is dying — and it’s dying because of companies like Wealthfront knowing what finance should be about. It’s about people. It’s always been about people. And banks can’t compete with people, especially when those people are doing good.

The Dirt

I mentioned in the last newsletter that I’d tell you all how I began adult-ing full-time with a credit score of 775. Here’s that story.

I turned 16 years old and started working as a lifeguard. I had already worked at the pool the summer before as a tag checker (think of this as a glorified bouncer where all 135-pounds-when-wet of me was going to stop you from entering the pool if you didn’t have your membership tag) but now I was responsible for people’s lives. Cue eldest brother syndrome — I started thinking about planning for the future and told my dad I should probably have a credit card.

I don’t think I actually got a credit card until I was 17 but when I did it was through USAA and had a $300 credit limit on it. It became my gas, vacation, college textbooks (don’t get me started), and furniture card over the next 3 years. Any time I paid for one of those things I used this card. Sometime around my sophomore year of college, probably when I studied abroad, I stopped using the card.

I literally put it in a drawer and forgot about it — for 3 years!

I moved to New York in September of 2014. In the craziness that is finding an apartment in NYC, all these building and apartment owners ran my credit score.

Now, I’ll admit — the only reason I even knew I had a credit score was because Mint.com shows a guestimate credit score in their app. And I remembered the USAA card, which I’d had bumped up once I got my contract for my job a few weeks prior to move and used to buy an IKEA bed (remember, furniture).

But a funny thing happened. When they ran my credit score I got a 775 and over three years of active credit management history.

This happened because I followed 2 steps with absolute diligence.

1 . I ran an active balance every month for 3 consecutive years
2. I paid that balance off IN FULL every month

It’s that simple.

When they ran my credit score they saw three years of credit history, 100% On Time Payments, and $0 MoM (that’s finance speak for Month-over-month) balance. This last one is key because most people can pay the minimum balance due at the end of each month. Where the real secret sauce is, and all the points towards your credit score, is in paying off the ENTIRE balance.

Ciao!

Until next time,

Stay curious. Stay brave.