Anchoring

We call ourselves homo sapiens, meaning the wise or clever human. If ever there were a mislabeled product, we homo sapiens are it. Our big brains are easy to fool. Optical illusions use foreground or background to convince us to see something that isn’t there. This webpage has many terrific examples of optical illusions that “bend” straight lines (image on the right), make two lines of equal length appear to be longer and shorter, make the same color appear different to us, and more.

These optical illusions rely on our preconceived notions of the world to trick us. Anchoring is a related phenomenon that warps our perception. While academics do not agree on the causes of anchoring, they agree on the result, which is that prior information skews our perception of new information.

For example, in store one, you find a piece of attractive clothing in your size on the “remainder” rack. Its price tag shows mark-downs in stages from $149 to the current price of $39. What a bargain, almost 75% off. It’s not that you need it, but there’s only one left . . .and you buy it.

In a parallel universe, you find a piece of attractive clothing in your size on the “new arrivals” rack priced at $39. The surrounding racks have similar clothing priced at $29, $25, and $19.95. It would look nice on you, but you walk away without a whiff of regret.

Same clothing, same price, different result because surrounding clues affected your perception of the item. The first store presented you with a super-attractive “bargain.” The second presented you with the most expensive item of its kind.

Marketers know how to trick your mind. Restaurants will include an entrée priced well above anything else on the menu making the other entrées appear “reasonable.” Here’s an interesting article on other tricks restaurants use.

We often use anchoring when we make estimates. Quick: in five seconds give me your best guess of what the product of (1x2x3x4x5x6x7x8) is. Tick Tock. Tick Tock. Your guess is _________? In an experiment, guesses averaged 512. The same experiment asked a different group the question with the numbers reversed (8x7x6x5x4x3x2x1). Those people’s guesses averaged 2,250, more than four times higher than the first group. The actual answer is 40,320, demonstrating we’re lousy at math, but also showing that by starting with small numbers, we guessed a smaller result when presented with larger numbers first.

We build our knowledge of the world bit by bit, comparing the most recent information to what we already “know.” The first article of clothing seemed such a good buy because we anchored around it sitting on a “remainder” rack with a high starting price. We have a false confidence in our “knowledge” and give it priority over new information, especially if that information contradicts what we “know.”

That is why first impressions are so important for people. They become our anchor. We evaluate future actions given the model of the person we have accepted. If the first time we see someone, they are helping a little old lady cross a busy intersection even though afterward they return across the street and head in a different direction, we think them a good person, going out of their way to help others. If the next time we see them, they are strong-arming a youngster into the back seat of a car, we sympathize because we’ve all had to deal with our kids when they had a hissy fit about doing what we wanted when we wanted.

But, if the first time we saw the same person, one police officer was handcuffing him while another comforted a crying youngster, we’d have a vastly different reaction when we saw the “bad” guy strong-arming the child into the back seat.

Readers, step close and let me tell you a secret: authors manipulate you the same way marketers do. Shocking, I know. We show a character performing a nice or heroic act early in the story to “make” you like the person, and that positive vibe carries through even if later they’re going to do some nasty things. This trope even has a name: “save the cat.”

We create red herrings or hide clues by giving you false anchors. In Granite Oath (Seamus McCree #7), releasing at the end of August, a trail camera photograph shows two male thieves, one tall and the other considerably shorter. I think of myself as tall (I’m a six-footer), and so I picture the tall guy is my height, maybe a few inches taller. The short guy must be around 5’4 – 5’6”. Turns out the tall guy is nearly seven feet, and the short guy is taller than me.

When an author pulls the wool over my eyes, I enjoy flipping pages back to discover how they tricked me. Anchoring is often involved.

I’d love to hear in the comments about your fictional reading or real-life anchoring stories.

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James M. Jackson authors the Seamus McCree series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

The Dow Makes an Orderly Retreat

Headlines screams we’ve just suffered the worst lost in the Dow EVER. True, only if your measurement is points, which misses the . . .er . . . point.

To compare relative losses what counts is the percentage drop not the number of points. Losing 100 points if the Dow started at 1,000 hurts exactly the same as losing 1,000 points if the Dow is at 10,000.

Given that, how did February 27, 2020 stack up? Not even in the top twenty percentage points lost[i].

I remember very well the worst day for the Dow: October 19, 1987. I was at a Society of Actuaries meeting in Canada. The Dow dropped “only” 508.0 points, but that equaled 22.61% of the index. In a single day. And not only that, but according to a friend of mine, also at the conference, who worked for one of the large investment banks, for much of the day, no one really knew what prices were because trading essentially stopped.

For perspective, the Dow closed its all-time high on February 12, 2020 at 29,551.42. It has dropped 12.81% since that high.

On October 28, 1929, the Dow lost 12.82% in a single day. (That’s the second worst percentage drop for a day.) On October 29, 1929, it dropped another 11.73%, and on November 6, 1929 it peeled off another 9.92%.

Unlike the 1987 sell-off, markets have been orderly. There has been no panic.

If you are still working, think of this as a 12% off sale on your next 401(k) contribution!

If you are retired, consider that on March 9, 2009 the Dow closed around 6547 and we are still up nearly 400% from that date. (Most of which occurred during President Obama’s term, not President Trump’s.)

What will tomorrow bring? I do not know. Another slide is justified by some because supply chains are still being damaged and more companies will report they are lowering their first quarter 2020 earnings estimates .

A dead-cat bounce is proposed by others because they believe the market has not recognized the Fed will soon lower interest rates to offset some of the damage.

A strong buy opportunity is proposed by others who think this virus is just a blip that will make us stronger in the end—and, housing starts are still on the rise with unemployment at all-time lows.

If you’re not against alcohol, I suggest a nice glass of wine, beer, or cocktail to take the edge off.

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James M. Jackson authors the Seamus McCree series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth and most recent novel in the series is set in the Boston area. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

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[i] https://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average

One Important Takeaway from the CapitalOne Hack

As part of a far-ranging conversation I had with a recent high school graduate, we touched on the CapitalOne hack. That breach did not affect her, but I said that she needed to act as if all her financial information was already available to criminals. Is it, even for one so young?

Doesn’t matter. The point was we all should act as though someone knows our Social Security Number, our driver’s license, our address, has our bank account numbers, credit card numbers, Medicare number, and health insurance ID. We should assume they know our credit score, have our picture, know our immunization status and all our other medical records. They have some of our old passwords (of course we change them frequently—well, maybe we’ve forgotten to do that), know our mother’s maiden name, where we attended school, the names of our first pet and our best friend growing up. They know our cell phone number, favorite usernames, and account numbers for many of our online accounts.

Act as if every important bit (or byte) of information about you is available to crooks, and you won’t be far wrong. If they don’t already have some piece of information, I have no doubt in some future breach they will.

Which means what, throw up our hands in resigned disgust and wait for someone to steal our money, our credit card, our identity? Of course, not. We can’t stop crooks from trying to steal, but we can make it very hard for them to succeed.

Two Steps You Can Take Today

Set up Alerts. Every credit card. bank account, mutual fund and brokerage account I have allows me to receive alerts whenever a transaction occurs. When I first started getting alerts, I chose them to apply for transactions over (say) $100. No more. Now I choose the smallest threshold their system allows--$.01 if they let me. I receive a text alert or email notification of every deposit, withdrawal, credit card purchase, interest credit, etc. It’s my first line of defense. If I don’t recognize any transaction, I go online and check out its particulars. (Note, I never follow a link in a text or email—it might be a phishing attack. I always access the applicable website directly through my browser.)

I’ve caught stolen credit card numbers minutes after the crooks made their first purchase and worked with the credit card fraud department to catch the thieves. A store once entered duplicate charges, which I spotted and had them immediately correct. I even noticed that a restaurant put through a $.10 tip when I had intended a $10.00 tip and corrected that mistake.

Yes, I get more emails and texts than I otherwise would, and this doesn’t stop theft, but it takes very little time for me to verify the transactions, and it limits the damage of a breach. Besides the extra peace of mind the alerts provide, catching a problem early saves time and aggravation straightening out the bad charges. As a bonus, the criminals get very little reward for their time.

Freeze Your Credit. Consider the second step of freezing your credit. I say consider because freezing your credit is a great idea to stop fraud, but it comes with potential inconvenience. Freezing your credit means the company cannot release your credit information. If someone steals your identity and tries to set up a credit card in your name, the issuing entity won’t approve the application because they want to see your credit first. Each of the three major credit reporting agencies, Equifax, TransUnion, and Experian, has a process that allows you to freeze your credit. It’s free to both freeze and unfreeze your credit, but it takes some effort.

The disadvantage occurs because many transactions that require setting up a new account require a credit check. Want a new cell phone line—credit check. Want a store credit card—credit check. Mortgage—credit check. Leasing a new car—credit check. Applying for a new job—credit check. When I moved from Savannah to Madison, I unfroze my credit for a fixed period—long enough for me to set up the gas, electric, internet, etc. accounts—and then it automatically refroze. With a one-off—say you apply for a new credit card—the credit agencies can issue one-time permission for an institution you identify to check your credit during a short window.

It can be a bit of a pain, and it can delay a purchase process, but if you can put up with the hassles, freezing credit provides a strong block to any bad guys setting up fraudulent accounts in your name. [NOTE: at least some of the credit bureaus have set up a premium service to “Lock” and “Unlock” your account that accomplishes the same effects as freezing, for which they will charge money. These plans offer an easier way to lock and unlock your credit reports and provide additional monitoring reports. I haven’t analyzed the specifics of those programs because those benefits are not worth it to me. However, if you think you’ll need to frequently freeze and unfreeze your accounts, you might want to consider them.]

In future posts, I’ll discuss other ways to keep yourself financially safe in an unsecure world.

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James M. Jackson authors the Seamus McCree series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

A Debit Card Scam

Each of us has our preferred method of paying for things like pizza delivery. Some prefer cash, some credit cards, others debit cards, and a growing number use their smart phones. I’m leery about using a debit card that allows anyone direct access to my bank and only use them to get cash from an ATM. I rarely use cash, don’t trust my phone, and use credit cards with rewards whenever I can, paying off the balance each month. Which makes me a bit of a dinosaur.

If you use debit cards, make sure the cards never leave your sight. This cautionary tale comes from the Toronto, Canada area and involves pizza delivery.

You order your pizza and it arrives on time. You pay with a debit card and there’s a problem with the machine or the driver “left the machine in his car.” He’s apologetic and courteous. “Happens all the time.” He takes your card back to his car where the transaction goes through fine.

Except, the only transaction that happens is the driver takes your debit card and gives you back one that looks the same but is a fake. They leave not to deliver another pizza, but to the nearest ATM to remove money from your bank account.

The “beauty” of this scheme is the “driver” isn’t the real pizza driver. He’s an entrepreneurial scam artist willing to invest a little money in the scheme. He intercepts the driver before the pizza gets to your door, pays for your pizza, and delivers it to you in the hope you’ll fall for his debit card swindle. If you pay in cash, the scam artist is just out his time—although he might collect a tip.

It might be pizza in Toronto or a salesclerk in a convenience store in Oshkosh; the key to preventing this kind of debit card fraud is to never let the card out of your sight.

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James M. Jackson authors the Seamus McCree series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books athttps://jamesmjackson.com.

Financial Risk for Individuals

Most people don't have a good concept about how to consider financial risk when it applies to them as individuals. Here's a start:

Another word for risk is uncertainty. Financial folks often talk about “risky assets.” By that they mean assets that do not come with a guaranteed return. Investment textbooks contain formulae to measure risk based on volatility of returns, standard deviation of returns, variance of returns, ratios of those statistics relative to expected return and so on and so forth. Lots of measures but they all have to do with how uncertain the return is.

All the mathematical equations in the world miss a very large point about real risk as applied to individuals. You are only one person, and you only get one result, not an array of possible results.

A Simple Illustrates Individual Risk

You have an opportunity to invest in a stock that after one year will be worth either nothing or earn 1,000 times the original investment. Each result has a 50/50 chance. To make this bet, you must put up everything you own up to $10 million. A math guy would tell you that your expected earnings are 500 times your investment—a very positive result. We'd all like a piece of that investment opportunity.

Except . . .

I don’t know about you, but I’m not worth $10 million. This deal requires me to invest everything I have. I’m retired and if I lose it all, I will be in very deep trouble. You could change the 1,000 multiplier to 10,000 or even 1,000,000 and I still could not afford to take the gamble. It is too risky for me because losing wipes me out, and I do not have a viable way to recover any semblance of a decent standard of living.

Bill Gates, however, could hop on this investment with little thought (other than to make sure the deal is as represented.) While he wouldn’t want to lose $10 million, the loss is less than .01% of his reported 100 billion of assets¹ — a drop in the bucket. If you are rich enough that you can easily afford a $10 million loss, this is a great deal.

If I were 23 years-old again with most of my working years remaining, I’d make that bet in a heartbeat. Sure, I only had a net worth of a few thousand bucks, but at that age I’d risk all of it (say $5,000) to earn $5 million.

When we look at financial risk as an individual, we can’t just look at it as a financial wonk would and based our decision on averages or "expected values." We must consider what it means to us if the investment pays off and what happens if it doesn’t.

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James M. Jackson authors the Seamus McCree mystery series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

¹ Bloomberg Billionaires Index

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James M. Jackson authors the Seamus McCree mystery series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

¹ Bloomberg Billionaires Index

Rethinking Charitable Contributions

If you used to itemize your deductions, last year’s massive tax law changes may affect the optimal way for you to make charitable contributions. Three major modifications in the law are responsible for the changed situation:

(1) The 2018 standard deduction increased substantially. It’s $12,000 single/ $24,000 married, which is significantly higher than in 2017. For those over age 65, the standard deduction increases to $13,600/$26,600 (assuming both members of the couple are over 65).

(2) The deduction for state and local taxes is capped at $10,000, regardless of whether you are single or married (a clear marriage tax penalty in a bill that is otherwise very friendly to families, especially if you have children – go figure).

(3) The provision for Qualified Charitable Distributions (QCDs) was made “permanent” in the new law, meaning taxpayers no longer need to wait until December to find out if Congress will extend the provision.

The combination of (1) and (2) means the standard deduction will now apply to a significant number of individuals who itemized deductions in the past. Charities have their fingers crossed that these people will not reduce their contributions because they have “lost” the deduction for them. It also means that the group of people who benefit from “doubling up” contributions changes.

The “doubling up” strategy involves developing a contribution schedule that crosses two calendar years. If your itemized deductions are less than the new standard deduction but greater than 50% of it, you might benefit by moving all deductions you can from year 1 to year 2 (or vice versa). For example, let’s say you routinely make $10,000 in contributions each year and under the new law that means you will take the standard deduction. Instead, make no contributions in year 1, and on January 1 of year 2, donate the carryover $10,000. Then donate year 2’s $10,000 sometime before the end of the year. If the $20,000 donation is sufficient to allow you to itemize in year 2, then you’ve converted some nondeductible contributions into deductible ones and reduced your overall taxes.

Also effective is delaying optional medical expenses (in standard deduction years) or pushing them forward (in itemizing years). To a lesser extent, timing the payment of real estate taxes or state income taxes might also help.

What’s up with Qualified Charitable Distributions?

Making the QCDs permanent means anyone who must take the Required Minimum Distributions (RMDs) from an IRA and donates to 501(c)(3) organizations might benefit. Once you turn age 70-1/2, current rules on IRAs, 401(k)s and the like require you to take certain minimum annual levels of distributions or pay a huge tax penalty. As with any such distribution, RMDs are taxable to the extent they do not reflect a return of nondeductible contributions.

QCDs apply only to standard IRAs and allow you to DIRECTLY donate up to $100,000 per individual to qualified 501(c)(3) charities and exclude the donation, to the extent it was taxable, from income. What’s the benefit?

(1) If you take the standard deduction, this provision allows you to effectively deduct what would otherwise be nondeductible contributions. A clear win.

(2) Even if you do itemize, making a QCD reduces your adjusted gross income. That reduction may help you avoid the Medicare High-Income Surcharge, possibly reduce the proportion of Social Security benefits that are taxable, and reduce the limit before medical expenses can be deducted.

(3) Because you’ve reached the age requirement for RMDs, you were going to have to take money from your IRA anyway, and this might be the most efficient way to do it.

What are the rules for QCDs?

(1) You must have reached age 70-1/2 before the distribution is made.

(2) It must come from a regular or rollover IRA, not a SEP or Simple IRA in which employer contributions are still being made. They can’t be from a 401(k) or 403(b).

(3) The receiving organization must qualify as a 501(c)(3) organization (not all charitable organizations do, and private foundations and donor-advised funds are not eligible)

(4) The contribution must come directly from the IRA. If you cash out the IRA and make a contribution with those funds, it will not count. Many IRAs offer a check-writing privilege and that technique will work because the check is coming directly from the IRA. Otherwise, you’ll have to donate securities from the IRA.

(5) Had you not used this technique and instead deducted the contribution in the normal manner, it must have been entirely deductible (e.g. you can not receive any benefit from your deduction—so make sure to reject that coffee mug from NPR and turn down those tickets to the charity ball.)

QCD Implications

Since 401(k)s and 403(b)s do not qualify for QCDs, and if you make considerable charitable donations to 501(c)(3) organizations, you can consider rolling over the qualified plan into an IRA to take advantage of the QCDs.

Increasingly, states income taxes use different rules than Federal income tax law. Any analysis of your contribution strategy must include how any change affects your state income tax in addition to the federal effects.

If you are approaching 70-1/2, QCDs are one more thing to think about as you determine whether to take your initial RMD in the year you turn 70-1/2 or wait and take it by April 1 of the following year.

Warning

We’re talking taxes here, and these are my understandings of the rules. I’m not a lawyer or accountant, and I’m not providing any advice. You really must check with your own tax advisor before making any decisions (or make sure to do your homework).

Six Steps to Help Prevent Financial Abuse of the Elderly

I have been working on two short stories this month. Although the stories are very different, they share two similarities. Both involve my series character Seamus McCree and crimes against the elderly or mentally diminished.

Fellow Writers Who Kill blogger Tina Whittle and I are writing one of the stories together. That one is for an anthology expected to be titled 50 Shades of Cabernet. The co-authoring thing is a new experience for me, and I am enjoying it. (I hope Tina is, too.) The second story is my planned submission to the fourth Guppy Chapter of Sisters in Crime anthology titled Fish Out of Water.

This need of mine to write about financial abuse of the elderly is not new. Perhaps it stems from my current responsibility to handle my mother’s finances, and I am more aware of the potential. Maybe it’s because I write about financial crimes. Criminals always follow the money, and today’s retirees as a group have a lot of money. Maybe it’s because news articles have suggested the way we now treat elder abuse is similar to the way we used to treat child abuse: severely underreporting the extent of the crime, blaming victims, allowing institutional practices to remain unchallenged. Whoa! That’s a charge.

Consider these facts:

Much as child abuse often happens within the family, according to AARP, nearly 60 percent of the Adult Protective Services cases of financial abuse nationwide involved an adult child of the elderly person.[1] According to a study sponsored by the Journal of Internal Medicine, friends and neighbors account for another 17%, and paid home aids 15%.[2] In this study, only 10% of the reported cases are perpetrated by strangers.

We don’t know for sure what percentage of total financial abuse is reported. Victims are often unaware. When they do realize they are victims, they are often too embarrassed to report the crime. Sometimes they are afraid to report the crime, fearing physical or psychological abuse from the perpetrator. Those suffering from dementia, depression, or disabilities are most at risk.

Sometimes the abuse is hard to catch, taking the form of “loans” that are never repaid, cheating not only the victim, but others who should have shared in the estate. Often the crime is simple theft, extracting money from an ATM, writing checks to themselves, buying stuff with the victim’s credit cards.

Taking a few simple steps can make it more difficult for perpetrators of elder financial fraud.

(1) As early as possible make sure you (and your parents, if alive) have an estate plan in place, including a will (and/or living trust) and health directives. Discuss your wishes with family so everyone knows what is to happen if you can’t take care of yourself in the future. This may be an uncomfortable conversation with your loved ones, but bright sunshine on your finances helps makes it harder for the mold of later abuse to take hold.

(2) Be wary when “new best friends” enter the life of a loved one. Any hint of “sharing” finances or the new friend “taking care” of finances should shoot off rockets of concern.

(3) Institute checks and balances wherever possible. Only a small percentage of lawyers and financial advisors are crooks, but alarm bells should go off if your lawyer recommends a financial advisor or vice versa. Independently verify referrals. Conversely, you may be able to use a lawyer or financial advisor as a resource to help prevent financial fraud.

(4) Use technology to help monitor spending. Credit card companies provide transaction alerts, which can provide early warning of a stolen number. If you worry about a relative who is still independent but potentially at risk, you can purchase monitoring services to spot unusual activity. An example is EverSafe.[3] (I mention them only as an example of what can be purchased. I have not used them and have no personal knowledge of how well they perform.)

(5) If one family member is responsible for a parent’s assets, make sure a second person has the ability to review transactions, asset statements, etc. I use DropBox to store my mother’s credit card, bank and mutual fund statements so one of my sisters can look over my shoulder. This protects Mom and also allows my sister to easily take over if something happens to me.

(6) If anything seems suspicious, ASK QUESTIONS.

Is financial crime against the elderly a concern for you, either for yourself or a relative? What have you done about minimizing risk of abuse?

~ Jim

This post first appeared on Writers Who Kill 2/21/16

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[1] http://www.westernjournalism.com/elder-financial-abuse-near/

[2] http://www.springer.com/gp/about-springer/media/springer-select/older-adults-are-at-risk-of-financial-abuse/30696

[3] https://www.eversafe.com/

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No Social Security COLA Adjustments for 2016

Unless something really wacky happened to cost-of-living in September that I don’t know about, Social Security recipients will not receive cost-of-living benefit increases for 2016.

Here’s the math:

The benefit increases only occur if the average CPI-W for July, August and September exceeds that for the highest previous average for the same months (which occurred in 2014). In 2014 the three CPI-Ws were

234.525 for July 

234.030 for August 

234.170 for September

702.725 total for the three months (average 234.242)

In 2015 we already have:

233.806 for July 

233.366 for August

Meaning that to equal the 2014 total of 702.725, we’d need September to come in at 235.553. However, the cost of living adjustments occur only in 0.1% increments, which means a small increase in the average won’t trigger a COLA adjustment. It has to minimally round up to 0.1% and that requires the total to be at least 703.077. September’s CPI-W must come in no less than 235.905 to trigger a COLA adjustment, and to do that cost-of-living must have jumped over 1% in September!

The CPI-W is not seasonally adjusted, so it is more volatile than some other measures of cost-of-living, but a 1% jump did not happen in a month when gasoline prices continued to decline.

We’ll know for sure on October 15 at 8:30 A.M. Eastern Time, but the bottom line is: No Social Security COLA adjustments for 2016.

~ Jim

Protecting Your Identity in a Cyberworld

The headlines continue to shout examples of major retailers, banks and insurance companies whose databases have been hacked, providing the hackers with your personal information. What can you do about these breaches of security?

Short of dying or cutting yourself off from all commerce, you can’t do anything to stop the security breaches, but by preparing you can limit their damage to you when they occur.

It will happen; your credit card information will be stolen.

The most important first step to protect yourself is to assume your credit card information will be stolen.

It is going to happen. It may happen the old-fashioned way and someone steals your wallet and grabs your credit card. Maybe a restaurant worker has a magnetic strip reader and necessary tools to duplicate your card. Maybe the bank is hacked, or the retailer or insurance company. Maybe your computer is stolen or someone snags your userID and password while you are online. Or your “safe” cloud backup is hacked. It doesn’t matter how it happens; what matters is how prepared you are for it.

The best way to limit the damage is to have strong safeguards in place before your information is compromised.

Create Strong Passwords: 

Yes, you’ve heard it a thousand times, but if you haven’t already done it, do it now: create unique, strong passwords for every online account. Strong passwords include at least one capital letter, one small letter, one number, and one symbol and are a minimum of eight characters long. You can use a program that develops long unmemorizable passwords and keep track of them for you. Alternatively, you can develop your own, based on a system that you remember, but that will not be obvious to someone who comes across your written list.

Of course you keep a written list; you’re human, aren’t you?

You can develop a system that you will remember given a password clue. Here’s an example. Your password list has “4T” next to Chase.

Your actual password is aHc16@jmj#X arrived at by taking the first three letters of the company (cha), writing them backwards (ahc), capitalizing the 2nd letter (aHc) adding a standard (to you) 7-digit group (16@jmj#) and then (the code part—4T) which means the letter at the end will be 4 after T and since T is capitalized, so will be X (the 4th letter after T).

If you lose your list of passwords, no one is going to figure out that Chase 4T means aHc16@jmj#X and BOA 2c would convert to aOb16@jmj#e. Yet after just a few days, you’ll know your passwords for almost all websites without having to look them up. With such a coding scheme, you should keep a note detailing your conversion key in your safe deposit box so upon your demise your executor can sort out what your passwords are and access your accounts.

Also note that however a thief/hacker obtains your information for one account, they won’t be able to figure it out for other accounts.

Set up Credit Card Alerts

Most major credit cards and many retail cards allow you to set up alerts so whenever your credit card is used, you get an email. For example, Chase allows alerts for the following transactions:

• Any charge on the card over a specified amount (I use $1.00, so I see them all.)
• Any international charge.
• Any online, telephone or mail charge.
• Any gas station charge.

They have a number of other alerts available (credit limits, bill paid, etc.) I chose to receive an alert for any balance transfers (since I don’t transfer balances, I’d learn of the fraud immediately.)

The point of these alerts is to catch a problem early. Thieves often put through a small charge to make sure the credit card information is working, and, if successful, follow up with a series of larger charges. If you spot any suspicious activity, immediately contact the credit card company’s fraud group. Usually, they will cancel your card and issue a new one. Once, (years ago with a corporate card) they asked to keep the card active so they could follow the merchandise and attempt to apprehend the criminals. They issued a new card for my purchases.

Utilize a single credit card for automatic payments

Designate one credit card for use in automatic payments: utility bills, cable, newspaper, whatever recurring payments you set up. This isolates your automatic payments from your every day credit card use.

It’s a pain to have to change all your automatic payments. Making this division means that when the card you use for regular purchases is compromised (in my case usually because I left it somewhere), you don’t have to bother with notifying other companies.

Credit Rating Agencies

The three credit rating agencies, Equifax, Experion and TransUnion, have tools to help you protect your credit. You should request your annual free credit report from each as a matter of course. (I suggest spreading them out every four months to give yourself the best coverage.) Should you spot any incorrect or suspicious information, follow-up with the company and make sure to keep all documentation.

The agencies also have methods to limit access to your credit information. Putting them in place will make it much more difficult for you to get new credit and in some cases will make it hard to obtain new services (cable for example) because the provider checks your credit before agreeing to sign you up and that check is blocked. However, if you are concerned about unauthorized persons or companies accessing your credit, a freeze will solve the problem.

If you suspect your personal information has been compromised, you can have the three companies put on a Credit Fraud Alert, which notifies companies to contact you before approving any credit. Experian’s, for example, lasts 90 days – unless you have been a victim of fraud—in  which case they have a seven-year extension with proof of the fraud.

Summary: (1) Recognize your information will be stolen (2) Implement strong passwords (3) Set up credit card transaction alerts for early warning (4) Make sure to utilize free credit rating agency tools.

~ Jim