Getting Your Finances in Order
It’s time to get your house in order. Your financial house, that is.
Finance management is more than balancing your checkbook. It’s a combination of earning, spending, saving, budgeting, planning and monitoring things, such as your accounts and your credit score.
Putting a little effort in each month will help you now and in the long-term. For example, if you want to buy a home, saving today and making on-time payments to creditors will help tomorrow when it’s time to purchase.
Here are some ideas on what you can do.
Assess Your Spending
Make an honest assessment of what you spend each month. This might seem tedious (or even shocking), but you need to know exactly where your money goes. Your rent or mortgage, car payment, insurance, credit card ─ those are obvious expenditures. The sneakier ones are entertainment expenses, dry cleaning, shopping online and downloading songs, buying a gift, paying a magazine subscription and even stopping for gas. And don’t forget the smaller budget bandits, such as coffee, lunch and lottery tickets.
Get a handle on what you spend by:
- Looking through your statements
- Adding up receipts
- Keeping track of what you spend cash on
Add everything up for a month. This isn’t a time of judgment. It’s an assessment. After 30 days, you will have an excellent idea of where your money goes.
Create a Budget
It doesn’t need to be complicated. List what your monthly income is, then categorize what you spend in a way that makes sense for you. For example:
- Rent: $850
- Car Payment: $250
- Insurance: $125
- Cell phone: $100
- Utilities and cable: $150
- Entertainment: $100
- Groceries: $250
- Credit card: $100
- Student Loan: $150
- Savings: $300
Once you know what needs to be spent where, you can allocate money to a savings account, paying off a debt, etc. You can also assess areas that you can reign in. For example, you might be able to save $50 on your groceries by shopping at a different store, using coupons, or making a list before you shop.
There are software programs, apps and other resources that can help you budget and find ways to save. Try myBalance, a free financial fitness service provided to you as a member of the Credit Union.
Build Your Savings (Even if You Think You Can’t)
If your monthly budget did not include “Savings” as a line item, add it in. You don’t need to save an exorbitant amount, but it’s important to think in terms of creating a savings, whether it’s for emergencies, a house, a wedding or a splurge, such as a vacation.
A good rule of thumb is to “pay yourself” 10% to 15% of your income. An easy way to do this is to set up an automatic transfer from your checking into your savings.
When budgeting the amount for your savings, be realistic. If you can’t afford 10% or 15%, then budget what you can. (There’s no point in putting money into your savings if you immediately withdraw it.) Even a small amount will add up.
If you’re having trouble saving, try paying cash for things when you’d normally use your debit or credit card. Studies show you will spend less money if you pay cash. This leaves more for you to save!
Monitor Your Credit
Your credit report is the “report card” that will follow you through life. Lenders, landlords, assorted creditors ─ and sometimes employers ─ will look at it to see how responsible you are with money. This gives them an idea about how risky it is to do business with you and/or how responsible you will be with them.
Federal law entitles you to a free credit report each year from the credit bureaus. You can learn more about it on our website here or make your request by visiting www.annualcreditreport.com. This is the only site sanctioned by the government for a free report. Other sites might offer free reports, but watch out for those that ultimately want you to pay for your report, monthly monitoring or your FICO score.
Once you have your free reports, check them for errors or fraudulent activity. You might find a wrong address, an account you don’t recognize, or an open account that you closed, etc. You might also find more serious issues, such as collections accounts you didn’t know about, liens and charge-offs. These harm your credit. If you find a discrepancy, contact the credit bureau to challenge it.
Maintaining good credit pays. A higher score usually means lower interest rates and opportunities for loans others can’t get. Your financial management ─ which includes your payment history, credit card usage and loan balances ─ all can affect your credit.
Your financial world is vast, varied and ever-changing. If you’d like help getting things in order, check out our BALANCE Financial Fitness Program. This partnership will offer you free and confidential help to get your financial house in order. Click here to learn more.