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The second most important thing you can do for your personal financial well being in my opinion is to safeguard and build your credit rating. A score of 700 should be your minimum goal. Additionally, you should be able to demonstrate a history of paying your bills on time all the time. For some that may sound like a very tough goal considering where they currently are. However, most people don’t realize what this number means to their overall lifestyle. You need to remember that today your credit score is the way the lending and business world measures your integrity and character. It means a lot more than someone’s good word. There can be many people looking at your credit history. First, understand that many people are going to look at your credit history. You may have thought that only those looking to lend you money are reviewing your credit history. Not true. Your credit history is looked at by landlords, insurance companies, and even potential employers. They may all be looking for different aspects or for the same thing. The point is they don’t know you and your history of dealing financially with other entities gives them an indication of your creditworthiness and trustworthiness. I would put a word of caution out there. Building credit is not an overnight event. Don't let anyone fool you into believing your can rush through the building / rebuilding process. The credit reporting bureaus are looking for a history of responsible behavior. Mistakes can happen.
The next thing to do is work with your personal finance coach to set up a plan to pay off any outstanding, legitimate debts. Getting those issues cleared up as soon as you can will also help you gain back precious credit points. Real Life Story: You can arrange your finances so that every day expenditures turn into credit building exercises. Here is one thing that worked for me. I had to file for bankruptcy due to the poor business decisions I made and of course my credit was immediately shot. It was a huge blow to my ego because for the longest time I was treated like retail royalty. I would walk into the store, accept the offer to open an account, and they would fall over themselves trying to give me much more than I had expected that. Well that treatment was gone instantly when the bankruptcy paperwork was finalized. I didn’t let the new form of treatment I started to receive from my now former business buddies paralyze me. I got to work on rebuilding my blown credit. I was fortunate to find a lender who was willing to give a "bad risk" like me a $500 line of credit. For a guy who used to have a $50,000 line of business credit available this was a major change! However, I took that $500 line of credit and immediately spent half of it! I started spending. "What?? You started spending money on credit right away? Now I understand why you were sporting that new 'bad risk' label on your pocket!" Well, there is so much more to the story. You see, I didn’t go throw a wild party with that credit limit. That month I bought groceries as well as used it for planned expenditures like tires for my car. The very day that bill came for the $250.00 I paid it. I had already put aside, in cash, the amount I was going to spend on groceries and car repairs. So when the bill came the cash to pay for those expenditures was used to pay off the credit bill. Since I paid it immediately there was no interest charge and certainly no fees as I was very careful not spend over half of my $500 limit. You can learn more about this plan by visiting my 8 Steps to Rebuilding Credit. After you have a realistic, written budget in place and you have arranged your financial affairs to expedite the building of your credit score you must be setting aside money for unplanned emergencies, your retirement, and cash saving opportunities. Through your expense management plan you will eventually put yourself in a good position to handle unforeseen "disasters" with a lot less stress. Also, just as important you will be in a position to take advantage of discounts, deals, or offers that come up without going into debt that can save you lots of money but are only available right now. Black Friday / Cyber Monday are good examples. Let me explain each.
For many reasons
sellers will sometimes make available to you discounts that are much more substantial than
usual. Of course, you want to be in a position to take advantage of
them AND have a real need for the item(s). That is why you plan, in your
budgeting, for these special events throughout the year. If you don't have good
credit or don't have cash on hand you may miss out on these offers. I recently
saw an offer in the newspaper for a
Now remember that taking advantage of the offer through credit debt beats the purpose of the budget. Debt is nothing but a chain around your neck. You need to get rid of it. That is more important that saving for retirement. The credit debt you owe is more likely at a higher interest rate than you would make saving the money for the future. Find out what rates are you paying on all your debts. Focus on paying off or transferring the highest rate debts first. Once your immediate high interest debt is gone you can begin to plan for your retirement. Having good credit opens a lot more doors for you. We just looked at a money saving opportunity. Saving the money on a needed purchase allows you direct that money somewhere else such as eliminating debt or saving for something important to you. Maintaining good credit can have the same affect on your finances as a giant sale. Things are going to be cheaper and that improves your purchasing and saving power. That is a nice benefit in addition to the fact that a high credit score means you have your credit affairs in order! |
