With the economy ever shifting and job security being as questionable as ever, being financially prudent is more critical than ever. Consumers are seeing the importance and the benefits of smart spending, smart saving and building good credit.
All of these traits not only provide a more stable financial future but reduce stress and provide a sense of security that comes from being in control of one’s finances. Creating a personalized saving money strategy is the first step on the path to building credit and savings for your future.
Save First and Splurge Second
It is very easy to succumb to the urge for a shopping spree when you land a new higher paying job or get a great raise. Having less pressure when it comes to meeting your monthly bills feels good and you want to celebrate. But step back and look at the items that you are considering purchasing. Will any of these items change your life? Will these items even make a difference in your daily life?
Most of the time the answer is no. You are now in a position when you can easily afford what you need and suddenly the things that you want are coming within reach. But your first priority should be to fund a cash reserve or emergency savings account. This will not only afford you a safety net if you incur an unexpected expense but it will also let you establish a new budget and easily live within your new means for a few months. During this time you will have no problems paying all of your bills on time and beginning to establish a strong payment history for your credit history.
Don’t Worry about Student Debt Too Much
Many people are carrying student debt for years after graduation. When you get a pay raise or a new job it can be very tempting to try to quickly pay off student loans. That is not really a good idea for two reasons. First, student loans are normally at a very low interest rate so the debt is not increasing as quickly as any other type of loan would. So paying the debt off over a longer period of time helps you to establish a strong payment history. That factor is a large part of your credit score and paying for a few years on a student loan is a strong indicator of creditworthiness. Second, you have time to pay off your student loans so take advantage of that factor. A better use of some extra money is to establish or increase a retirement fund. Time is your best friend when it comes to saving for retirement. The interest will compound over the years and grow to an impressive amount. Funneling even a few dollars a week into retirement will provide your best return on investment.
Focus On Creating A Personalized Budget System
Creating a budget is only half of this important financial project. The other half is creating a system that ensures that you will be making your payments on time every month. The secret is finding a system that works for you and is as foolproof as possible. It can be easy to forget to mail a check or to set up an electronic payment and when that happens you are not only paying late fees but you are also hurting your credit score. Using automated bill pay from your bank and choosing to get bill alerts from your lenders are both great tools to help you stay focused on getting all of your bills paid on time every time. The most important part of your system is that you turn it into a habit. Research states that it takes the average person 30-45 days to truly create a habit. So you will want to focus on turning your bill paying and budget monitoring into a habit for a few months. After those few months, it will simply be a part of your routine to pay bills and monitor your accounts.
Set a Goal
Most people like to have a goal to focus on so that they can track their progress and see their accomplishments in a more concrete manner and not just in the abstract. Knowing that you are saving, paying off your bills or improving your credit score are all great concepts but setting a goal, tracking your progress and then finishing the plan can be a big help in keeping you motivated to be financially savvy. Picking one credit card or one large debt to pay off is a good way to motivate yourself, reduce the term of the loan and therefore save on interest and also improve your credit score. Not only will you be making regular payments but you will also be reducing your debt to income ratio which is also going to boost your credit score. Once you meet one goal then you just select a new goal and begin charting your progress again.
Reevaluate Your Needs and Wants
Part of being financially responsible is knowing the difference between needs and wants and being willing to give up a few wants. Paying down your debt and living within a tighter budget is a smart way to increase your credit score. Doing that will afford you the option for a better loan interest rate in the future, a better interest rate on a future mortgage and ultimately lower your stress level with regards to your finances. All of these are worthy ambitions and worth making an effort to achieve. So take a look at your monthly bills and decide if there are some that could be reduced or even eliminated to let you pay off debt faster and save more for the future. Eliminating a costly extra tier on your cable, eliminating a home phone that you never use or subscriptions to magazines, club memberships that you don’t use or any other monthly fee that you get little or no benefit from will help. All of these wants can be removed to help you reach a need which is reducing your debt and increasing your credit score and savings. These few tips can be a good start to creating your own saving money strategy.