Step 01. Be responsible
Accepting responsibility is the first step towards financial success. You must be in control of your financial future. Every choice you make, leaves an impact on your financial goals and issue. You must be in control of your financial matters no matter your age or education.
Ask yourself these questions
1.do you do impulsive buying?
2.are you in charge of paying bills and managing your finance?
3.are you making thorough research before making a big purchasing decisions like car or company?
You must become fully aware of your responsibilities and obligations. It’s okay to ask for help but you need to do the work. If you take a loan or enter into another type of financial commitment, you need to understand your rights and responsibilities and must stick to your obligations to those loans.
This includes making payments on time and in full. Repaying debt in full including interest is also an obligation of taking a loan. If you don’t follow the obligations then the respective authority has the right to take your collateral into their own custody depending on terms of the loans. Partial payments, late payments and missed payments also affect your credit score in negative way. Credit bureau make your credit report and calculate your credit score by collecting information including payments history, borrowing history, outstanding debts.
You must estimate your monthly payments and how that payments will fit in your monthly budget in case you take student loans. Your financial responsibility report car is your credit report.
Your credit score is usually based on the following
1.if you pay bills on time
2.the total amount of debt you have and how close to your credit limit that amount is
3.the number of accounts recently opened
4.the number of recent inquiries about your credit score
5.length of time you have been building credit. Your creditors will grade you based on your performance and participants.
Step 2. Plan the goal
Careful planning is the next step. It’s not possible to have effective management over your finances if you don’t know how much money you have available to spend or have a plan on how to spend, invest and save. You need to create a checklist by defining your financial goals. Use a copy or mobile app or both where you can write your monthly budget, all expenses (mandatory, discretionary expenses, utilities, entertainment costs) and savings. Savings is monthly income minus all expenses.
Three steps to goal setting:
1.be specific- write the time when you want to achieve your goals. Goals can be short term it can take a few days, months, or year. It can also take long term ie 5,10,15years.
2.Be realistic- setting highly unrealistic goal will only lead to disappointment, anxiety and sadness. So make your goals attainable. Saying you want to be rich is vague term but saying I will be millionaire within 4-6years is achievable. 3.Write down your goal- keep records of your goals in a separate diary and mark them off when you achieve them. Regularly review them to make necessary changes.
Step 3. Understand your income
Calculate your income in net pay. Don’t calculate your income in gross pay. You net pay is the amount you receive after deductions like tax happens. There are lots of standard deductions which is federal income tax, social Security, medicare, income tax, gst. Review your paystubs when you receive them. Understand each deduction and report any discrepancies if you find them immediately. Talk with employer if your company doesn’t have a human resource department.
Step 04. Open a savings account
A savings account is a secure place to keep your money and helps you track your money. A savings account helps you to see how much money is available to spend. Before opening a savings account, research thoroughly to find a bank, other type of financial institutions that best suits your needs. Check for a account that don’t charge monthly. Choose a lowest service fees applicable account. You can withdraw money from bank using checks, ATM, debit card. In addition to writing checks, ATM(automatic teller machine) & debit card are commonly used to withdraw money from your account. If you don’t pay via checks then you can only order ATM card or debit card.
Tips for ATM and debit card usage
1.never share your PIN number
2.always record your transaction
3.it takes time to reflect the transaction in your account balance.
4.don’t go to unknown link. Avoid overdraft at all costs. Never spend more money than you have in income. Review your online account balance once a week. This will help you keep track of how much you have. You will quickly identify errors or possible fraudulent transaction. Beware of digital arrest. If someone calls you pretending to be the police , demands money. Simply disconnect the call. Report it to the relevant authorities.
Step 5. Start saving and investing
Creating a savings account is the best way to help you financially deal with uncertainties such as job loss or medical expenses, helping you achieve your financial dreams like pay for college, purchase a car, travel or save for retirement. Make sure you are able to save every month. At least you should save a balance that cover six to twelve months of your expenses. Small amounts add up and make a difference over time. A savings account with compounding interest will help you account balance grow. In compound interest you earn interest on principal amounts. Later you earn interest on new principal which is the total of previous principal and interest.
Invest wisely
Investing is a great way to have your money work for you. Before you start your investing journey you need to understand your risk appetite & different investment products. Start investing as soon as possible. Best time is now. Think about your retirement. The sooner you start the bigger corpus you will have in future. There are stocks, bonds, gold, mutual funds, certificate of deposit. Make your investment plan by setting your goals, learning about investing and options. Determine if you need a stock broker, make a plan, stick to it. Don’t change the plan on daily basis.
Step 6. Create a budget
Make a budget and stick to it. It’s not easy but it’s the best way to control your finances. Think of your budget as a spending plan as it will help you be aware of how much money you have and how much you need to achieve certain goals.
1.Calculate your income Add all your regular income, don’t add irregular income like dividends, overtime pay.
2.determine your expenses See all the payments history of all payment apps,credit card,debit card, store receipts, biling statements. See all expenses like rent, auto, student loans, foods that must be paid every month. Let’s call it mandatory expenses. Try to keep them low if your overall expense is too high by substituting them with another alternative. You can use local transportation if transportation costs is high. move the costs of dining in the expensive restaurants with home cooked meal. You can also substract all unnecessary subscription plans of all apps that don’t serve your purpose or just provide entertainment. Always remember that savings must be first on list of expenses.
Now create the budget. Budget should meet the needs first then the wants that you cannot afford. Your expenses should be less than your total income. Reduce the expenses to adjust to your budget. When you divide your expenses into mandatory needs, necessary and unnecessary needs. You will be able to minimize expenses. You can use calculator, ms Excel spreadsheet, diary, money management apps. Use one or multiple depending upon your choice.
Review your budget
Does budget meet your needs, help you achieve your goals? If not then make necessary changes. Always carry a notebook in case you can’t track where your money is going
Step 7. Use debt smartly
At some point you may need to take out a loan. It’s imperative that you borrow smart otherwise it can make you bankrupt. We need to use loans to buy house, automobiles, fund education. When considering the purchase of any item, ask yourself “do you really need this item?”
When taking loans you should consider several factors like interest rate, additional fees, down payment. When you borrow the money you need to pay the interest and the principal. Higher the interest rate more you will pay.
Some loans have closing costs. Auto loans may include additional insurance or warranty costs. Student loans may have default fees. Before you take a loan make sure to understand the payments retirement and all of the fees associated with the loan. It’s important to know how much you need to pay.
Down payment are the large payments amounts paid toward your purchase. It reduces the amount you have to borrow. The more money paid up front toward the purchase, the more money you will save over the life of loan. Pay at least 20% for down payment for most large purchase. Monthly payments must fit into your monthly budget.
Few guidelines to guide you thoroughly
1.Your housing expenses should be less than 33% of your gross income. Many lending institution look at this factors in determining your loan eligibility. 2.other loan installment like student loans, auto loan, credit card, should not exceed a combined total of 20% of your gross income.
3.Loan installment of student loans credit card should not exceed a combined total of 20% of your gross income.
4.save money and have 6-12months in emergency savings. Always consider the guidelines above when inserting the figures in the new purchase. If amount of payments for the purchase exceed the recommendations then you do not allow yourself to save money,you may want to postpone your purchase until you have more money saved.
Step 8.Manage your credit card wisely
It’s easy to get credit card and managing it isn’t always easy. Credit card are borrowed money and you must repay them. Don’t spend more than you can afford to pay in full. If you don’t pay the amount in full each month interest will accrue and will be added to total amount you owe. You can build the discipline of paying the balance regularly and build a good credit score. Consider all consequences of a credit card. Careful use of credit card will help you to build a solid credit rating. Poor use of credit card can rapidly place you in debt. When selecting a credit card make certain that you have selected the one with most affordable options and no hidden costs.
Look for the following
1.a low annual percentage rate(APR). The lower the rate the less interest you have to pay. Interest calculation method affects how much interest is paid, even when APR is identical. Annual fees Or any fees should not be charged. If they charge it ask them to waive it or return it.
2.late payments or transaction fees over the limit fees etc will increase the total cost of your charges.
3.a grace period is often provided if you agree to pay off your balance before interest charges begin to accrue.
4.Various services and feature such as cash rebates frequent flyer miles, extended warranties, etc may have hidden future costs.
Think carefully about the true costs of these programs.
Limit the number of credit card.
Having only a few credit card will make it easier to manage your spending and prevent overspending. You need to make payments for each credit card with balance preferably to pay the balance in full each month. Don’t always carry your cards with you. It gives you easy access to money you don’t have. Don’t carry it then you will think twice before buying items you don’t really need.
Track your spending. Save receipt, maintain a ledger to track your expenses and match it with monthly statement. Photocopy the front and back of your card and store it in safe place at home.
Step9. Understand credit report
A credit report is a collection of information about you and credit history and will have a significant impact on your financial future. Potential creditors will review your credit report to determine the eligibility for a loan. Landlords, potential and current employers, government licensing agencies, insurance underwriters also may view your credit report. Credit bureau report answers to the following questions
How promptly are your bills paid?
How many credit card do you hold?
What’s the total amount of credit that is extended?
How much is owned on all of your outstanding account?
Negative information like late payments, bankruptcies, too much debt found on your credit report can have serious impact on your ability toborrow loans, seek employment in certain occupation, receive a promotion, purchase or rent a home. Positive information will remain on your report indefinitely.
A credit report typically include the following
Personal identifying information- name, social Security number, date of birth, current and previous addresses, employers.
Credit account information-date opened, credit limit, balance, monthly payments, payments history. Public record information- bankruptcy, tax and other liens, judgement, in some states, overdue child support
Inquiries-name of the companies that requested your credit report.
You should review your credit report at least once per year, verifying that all of information is accurate. You can request your credit report annually free of charge. Report all inaccuracies on your credit report to the agency immediately. Be certain to notify both credit bureau and information provider, in writing, of the discrepancy.
Include the following in the notification Name, complete address, a summary of information that you are disputing and why, a copy of credit report with information highlighting, copy of any supporting documents.
When dispute is received, credit agencies have 30days to investigate and respond to you in writing. Review and contact all respective credit agencies when disputing information. Your credit score evaluates your credit worthiness by assigning values to factors such as income, existing debts and credit reference. Bank and lending institution use the score to evaluate the risk of loaning money.
Credit score is based on credit history. There are five components of credit history weighing some higher than others.
Payments history-35%
Debt owned-30%
Length of credit history-15%
New credit-10%
Types of credit used-10%
FICO score range from a low of 300 to max of 850.Most lenders will not use your FICO score alone to determine your eligibility for a loan but it can have a significant impact on interest rate you receive. Higher score typically results in lower interest rates- which result in lower monthly payments and less interest paid over the life of loan.
Step 10. Protect yourself from identity theft
It’s fastest growing crime. Perpetrators borrow money in someone’s name and leave their victims with mountains of debt and serious credit problems. They may commit crime using someone’s identity.
To prevent identity theft it’s critical to keep the information safe
1.shred financial documents and paperwork with personal information before you discard them
2.protect your social Security number, don’t always carry it, use it only when it’s necessary.
3.don’t give personal information over phone, through mail, over internet, unless party is known and reputable.
4.never click link in unsolicited email message
5.protect your computer using strong anti virus software
6.donot use an obvious password like date of birth, names, mother’s name
7.keep all personal information in a secure place at home.
Step 11. Understand your tax liability
Calculate taxable income. Tax slab vary from country to country.
Step 12. know when to ask for help
The final step on the path to financial success is knowing when to request assistance. These warnings signs may help you
1.are you living paycheck to paycheck with no money going into saving?
2.are you alternating which bills to pay each month,leaving some unpaid?
3.are late making payments?
4.are you using one credit card to make payments on another?
5.do you have creditors calling you?
6.are you being denied credit?
A plan of action1.review your budget and make changes where necessary
2.increase your income
3.decrease your spending
4.look into debt consolidation, carefully weighing the pros and cons,
5.look for creative ways to change your financial situation. Eg sell unused items on ebay
6.take help of financial planners,
Thanks for reading.
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