It
is important to re-evaluate your financial needs at least once a year.
Changes
to your life and lifestyle – such as a change in relationship status, new job, relocation,
or other significant change should be considered first. Planned purchases such
as a new home or car often need a significant deposit which must be accumulated
prior to purchase. In addition, increasing expenses from inflation should be
noted. New goals should also factor into your review.
Here
are three ways to get a great start:
1 Emergency Fund
Have
a generous emergency fund. It’s a wise idea to keep the equivalent of six
months worth of expenses in an emergency fund so you don’t accumulate debt if
you lose your income.
Factor in costs for housing, insurance, transportation, food, medical, basic personal needs and (modest) entertainment expenses.
If you
have other necessary expenses, include them as well in your monthly projection.
Then multiply by six and that is the amount you should keep in reserve.
If you have an older home, you may wish to create a
separate emergency fund for that in case you have sudden necessary large
repairs.
Apply the same principle for an older personal vehicle.
Don’t be tempted to dip into these funds for
indulgences such as electronics or vacations.
Discretionary purchases should
have separate savings accounts!
2 Manage and Eliminate Debt
Once
you have a plan to fill your emergency fund, the next best way to ensure
financial health is to pay bills on time. This includes utilities, services, and credit cards. Set up a system to make all payments on time. When deciding on
how much to pay over the minimum on any consumer debt, eliminate debt(s)
with highest interest first.
If
you are not able to make your minimum payments, there are debt consolidation
agencies that may be able to help you. It would also be a good time to review
your spending habits and eliminate anything that is not absolutely necessary for your survival.
3 Improve Your FICO Score
Paying
your bills on time is a great way to improve your credit score. This is
important if you are planning to refinance a car or home, or are planning a new
purchase. It is a good idea to review your credit score three or four times a
year. In this way you can also monitor for fraudulent activity and identity
theft.
Contrary
to popular advice, do not “cut up” and cancel your cards once you have paid them off---IF and only if they do not charge an annual or other fee. If you feel you
may slip and use them again, put them in a safety deposit box at the bank (and leave
them there!) The rental of a box will cost you about $20 per year and may be well worth the cost!
The
reason this is a GOOD IDEA (again – only if there is no cost to you to have
them) is that it increases your credit to debt ratio. What that means is that is
better to owe $500 if you have $5000 of available overall credit than it is to owe
$500 if your limit is $750.
It
shows potential creditors that you are only using a small percentage of
available credit – which makes you a better risk.
Some
people don’t realize that you can get a free copy of your credit report (FICO) from
each of the three major credit bureaus every 12 months. If you spread that out
over the year, that is one free report every four months!
Learn more at www.annualcreditreport.com
These steps are good places to start a more conscious and directed route to achieving your financial freedom. Read, reflect and take what will work for you.
Bottom line is that there is no blanket strategy. Each person must evaluate their own circumstances, needs and desires. Get the help you need to achieve financial freedom.
Above all, believe in yourself and believe that you will achieve your goal!
Above all, believe in yourself and believe that you will achieve your goal!
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Sources:
Lynda at Sonoran Sun | Private Equity Investments
Sources:
Lynda at Sonoran Sun | Private Equity Investments
