For most people, as we get older we begin to take to heart the life lesson on money and personal finance. For this newsletter, AFS is listing some of the most important rules to follow if you want to keep more of your money and make informed financial decisions. Where you see a name beside a point that is advice straight from our certified credit counselors. We begin with a point that combines several objectives.
1. Spend less than you earn. If this is still a hard concept to implement try automating as many financial functions as possible. Most work places have direct deposit, so you can direct a part of your pay right into a savings account. Viola! You have an emergency savings account and you are spending less than you earn. This goes hand-in-hand with number 2.
2. Also, have your bills deducted from your account as close to payday as possible. Whatever money you have left over after meeting your bills is yours. You will use it for the normal monthly household expenses (groceries, gas, etc.) and your “mad” money. – See, you’ve just handled spending less, budgeting and saving money.
3. Make saving money purposeful. Here is some advice from our Treasurer, Therese. Have accounts for specific purposes. Have a “fun” account out of which you take your vacation and entertainment funds. Save for things such as gifts for holidays, birthday gifts, and big-ticket items. Consider another account for emergencies such as appliance replacement, car repair, home maintenance.
4. Let the future remain the future. Often, when people face a financial crisis, they turn to their retirement accounts to help make ends meet. The reality for most people is that there will be a serious economic penalty for using that money. First, you lose interest that has accumulated on the loan. Let’s say someone is earning 8 – 10% interest on the contributions. They have to repay the loan at a 4% interest rate. That means they lose 4 – 6% of their return. They also lose the compounded growth on those earnings.
Second, in most situations people cannot make contributions to their retirement accounts while they have an outstanding loan. This is a big loss in savings and in compound growth.
5. The credit card shuffle will not help a financial crisis. Sometimes people will open new credit cards because they believe it will improve their credit. However, if you have two to three credit cards that is usually enough.
If the credit cards you have are maxed out or have high balances, work on paying those accounts down. This will typically help your score and credit more than applying for new credit cards. This also benefits people by keeping their accounts manageable. Numerous credit accounts can feel overwhelming when it is time to make payments. It also leaves people more susceptible to missing payments, which can further damage credit.
6. That new credit card may not be worth it. There are a few ways opening a new credit card can damage your credit report and score. First, if you have multiple inquiries from attempting to open credit card accounts, that can reduce your credit score. If the new card(s) is approved and opened, that can decrease your score. The new card shortens the average length of time your accounts have been opened. Bottom line: we recommend having no more than two credit card inquiries in a 24 month period.
As you can see there are many variations in how people prioritize their income and how they save money. No one is the same and people have to decide what their goals are. Hopefully, these points gave enough information to start people thinking about how to effectively managing finances. And if yo need more help, please contact one of our certified credit counselors. They can help you with budgeting, debt repayment options, student loan assistance and much more!
Addtional point from our counselors: For those of you receiving our paper newsletter, below you can find the rest of the list. Where you see a name, it is the counselor or staff who provided the tip.
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