3 Simple Steps for Creating a Budget

 

What’s your favorite day of the month? Most people will agree, it’s payday. For some consumers though, paycheck to paycheck is a way of life (albeit not a very financially smart way of life.) “Where did all my money go??” If you ask yourself this question on a consistent basis, then it’s time to create a budget and find out exactly why your finances are so depleted. Read along and follow these steps to help get a better understanding of your spending habits.

Step 1: Calculate

 

First, let’s get a rough overview of your budget. Open up an excel doc or grab a pen and paper because we’re going to determine just how much you’re taking in vs how much you’re spending.

Calculate all sources of income. Make sure to include part-time work and side jobs you have or any real estate income you may collect. If you have a spouse or significant other you are living with, it will be easier to combine income and make a shared budget.

After you calculate your total income for the month, start listing all of the expenses you have. This includes EVERYTHING you are currently paying for monthly. When making your list, start with your necessities and work your way down. Top of the list should include:

  • Mortgage/Rent
  • Groceries
  • Household Bills
  • Autoloans
  • Insurance
  • Taxes
  • tender help
  • Gas
  • Cell Phone Bills
  • Loans

Now subtract your expenses from your income. If you get a negative number, then start looking to get rid of some expenses or take up a part-time job to help pay for them. Ask yourself if you really need the expense when looking to penny pinch. Is that magazine subscription or Netflix account really doing you justice? Or is it just another account adding to your growing expense list? Leave yourself a little bit of “entertainment money,” but use it sparingly. A budget with absolutely no fun is a budget that is doomed to fail.

Step 2: Track

 

Now that your budget is planned out, it’s time to track it. Mark down every bill you pay and purchase you make. Do this step for 1 month to get a general view of where everything is going. Based upon your spending habits, make changes to where you see fit. For example: if you see that ordering out for lunch is becoming too costly, you may want to start bringing a bagged lunch to work.

You can use an excel spreadsheet to keep track of your expenses or use a free program such as mint.com. Using an app like mint can make budget planning easy. Most budget apps will connect to your banking account and automatically categorize your spending. Now you can physically see where everything is going and adjust your budget to fit your needs. If you don’t have a bank yet, try finding a brand in the Business Savings Account industry.

Step 3: Agree on a Budget and Stick to It

 

You’ve planned, you’ve tracked, now it’s time to maintain! Take that planned budget from step one and the results from step 2 and make adjustments. Add any category you may have forgotten and start setting financial goals. If you have a joint budget with a spouse or significant other, make sure you’re both on the same page.

Make sure you’re also giving your savings account the love it deserves too. When it comes to saving, most financial advisers will tell you to put away 10% of your paycheck. The best way to do this is have it automatically come out on payday, and then go to a check cashing store near you to encash the rest of your check. Money that goes unseen will not be missed. Set up an automatic savings deposit and then leave the account alone so it can grow and flourish.

Just like savings, the same can be said for that family vacation or big purchases you’re planning to make in the future. Everyone needs time to get away and relax. When planning for a vacation, set up a separate account to which money will automatically get deposited into every paycheck. Map out how long it will take before accumulating your goal amount and adjust that into your monthly budget. If your dream vacation is looking to be too costly, then start looking at cheaper options. Maybe you should only go away for 5 days instead of 7? Or maybe you could get just as much enjoyment driving to a closer vaca spot rather than traveling across the country. Use this same method when looking to make a big purchase such as a new appliance.

 

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Things People with Good Credit Have in Common

What_people_with_good_credit_have_in_common

Good credit is not a commodity to be bought or sold; it’s something which has to be cultivated with time. All it takes is the right strategies and financial moves to acquire a good credit rating and its associated perks.

Your credit score falls anywhere between 300 and 850. The higher your score, the lower risk you are in the eyes of credit reporting agencies and lenders. Similarly, the lower the score, the riskier you are. While a good credit score can be considered anything over 720, a low credit score is permanent and can be changed with some hard work and good tactics. What are these tactics? Here are some financial moves people with good credit consistently make:

Use Available Credit Sparingly

use credit sparingly

The amount of money you owe in relation to your credit limits helps determine your FICO score. This is known as ‘credit utilization’ and people with good credit don’t usually max it out. In fact, they keep their utilization limits rather low.

People with good credit make it a point to pay their bills on time every month. FICO credit scoring scale considers your payment history to be 35% in determining your score. Pay your bills on time before your due date to improve your score.

Stable Credit History

good credit sparingly

People with good credit have a long history of taking their debts seriously. They have proof of paying their bills in full and on time. Patience is key to build a positive credit history. The longer accounts are open and in good standing, the more positive weight they will hold on your credit.

A Mix of Credit

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FICO considers your mix of company accounts, credit cards, mortgage loans and installment loans while determining your credit score. Those with various types of open credit like car loans, credit cards and mortgages have the best scores. So diversifying the type of credit you use proves helpful to you.

No Frequent Opening or Closing of Accounts

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Frequently opening and closing accounts will cause your credit utilization ratio to change and almost always bring down your score. Every time you open a new account, your credit will automatically drop. The credit bureaus are unsure of how the new account will be used. After several months of on tie payments you will see your score bounce back.
Closing old accounts will also drop your score because your utilization and credit history are changing. Often times those old accounts in good standing are your super star accounts, giving you the best positive credit. You should only consider closing old accounts if your card has outrageous annual fees or interest rates.

Remember, you can’t get a good credit score overnight. No matter what your financial situation may be, you need time to prove your creditworthiness. Patience and good practice will increase your score on your journey to the 700 club.

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How to Build Your Credit From Scratch

Build Your Credit From Scratch

From Zero To Hero

Consumers who have no credit often have a hard time getting approved for loans. If you are one of these individuals then you probably already know this. Normally you’ll need a credit card or loan in order to establish credit, yet you need established credit in order to get approved for a credit card or a loan. Sounds almost like a catch 22.

Credit can be tricky, but never fear! There are ways to build your credit from the ground up without hopelessly applying for credit cards only to keep getting declined. First, let’s take a gander at the credit score influences to better understand what makes up your score.

How are Credit Scores Generated?

What Determines your credit score? (Source myfico.com)
What Determines your credit score? (Source myfico.com)

A couple of months ago we wrote an article (and released a video): What Makes Up Your Credit Score. In the article, we went over the 5 main factors that are responsible for generating your credit score. They are as follows:

  • Payment History (35%): Make your Payments on time. Just one late payment will bring your score down drastically and can go against your credit score for up to 7 years!
  • Amounts Owed (30%): Credit utilization plays a big factor when it comes to determining your score. Best practices say you should use your cards regularly, but never go over 20%-30% of your credit limit.
  • Length of Credit History (15%): Try your best to keep cards open for as long as possible. Closing old accounts will cause your utilization to rise and credit history to shorten.
  • Variety of Credit (10%): Having a variety of credit shows the credit bureaus that you can handle different types of credit. This is something that should be obtained over time.
  • New Credit (10%): Any new credit account will drop your score simply because the bureaus aren’t sure of how well it will be maintained yet.

Now that you understand the basics of scoring your credit, let’s start focusing on what we can do to build your score.

Check your Credit Report

Check Your Credit report

In 2013, a study by the FTC found that 1 in 5 consumers had errors in their credit report. Your credit report should be checked on a regular basis. Every consumer has a right to a free credit report from all 3 bureaus. Go to annualcreditreport.com and check to make sure everything is reporting correctly. These reports won’t give you a credit score, just the history (that’s alright though, if you have no established credit you won’t be able to generate a score yet anyway.)

Apply for Cards

build your credit from scratch apply for cards

Without any established credit, chances are you’ll get declined for most credit cards. Luckily, there are other options for people with no credit.

Secured Credit Cards: Secured credit cards are credit cards that are backed by a cash deposit. The credit limits are usually low (only a few hundred dollars) and you’ll get the deposit back once you close the card. Once backing your secured card, you’ll use it just like a regular credit card. Pay of the account each month, don’t max it out and make sure you make on time payments.

After a couple months of use, the secured card should generate you positive lines of credit. At this time you can graduate to a regular unsecured credit card. You can obtain secured credit cards from your bank or our website here.

Become an Authorized User: You know that family member or friend you have with immaculate credit? If it’s okay with them, you can become an authorized user on their account. After becoming an authorized user, your credit report will start show the said account, helping you generate some positive credit!

Student Credit Cards: Student credit cards are great options for a young person looking to start building their credit. Although the credit limits are usually low with a high interest rate, the acceptance rates are high, allowing you to build credit at a young age.

Retail Cards: Retail store cards can help consumers save money at their favorite stores and are pretty easy to get approved for. There are some drawbacks to retail store cards though. Aside from the fact that you’ll have to go shopping regularly, they usually have a small limit with above average interest rates.

Get a Cosigner: If you don’t like the previous options, you can still obtain a regular credit card with the help of a cosigner. Just know you will be partially responsible for the fate of your cosigner’s credit. Any derogatory remarks you make on the cosigned account will also appear on your cosigner’s credit report, so make sure you always pay on time and keep your utilization low.

Use Best Practices

build your credit from scratch. use best practices

After getting your card, make it a point to use it correctly with these best practices:

  • Use your card regularly: The credit bureaus want to see you use your card (just make sure don’t live beyond your means and charge what you can’t afford.) If you don’t use the card the lender may close it due to inactivity, which will cause a drop in your score.
  • ALWAYS Pay On Time: Late payments are the #1 reason for declines in credit scores. They’ll drop your score and go against your credit for years. Make sure you always pay on or before the due date each month.
  • Pay Off the Balance Every Month: Pay off the balance so you don’t get killed with interest. Doing so over a period of time will also generate you a good credit score.
  • Keep Your Balances Low: Consumers with the best scores have them because they keep their balances between 1%-10% every month. Try to replicate their practices and give yourself a limit of 30% or lower of your high credit limit and NEVER max out!
  • Keep Accounts Open: Old credit cards aren’t like old appliances. The older they get the more beneficial they are to your credit. Try to keep your old accounts open as they are helping your credit the most.

Monitor Your Progress

You’ve educated yourself, you’ve gotten your first card and you’ve learned the best practices, now’s the time to watch your score go sky high. Watching your credit score rise from scratch can be fun and exciting. Enroll with a credit monitoring program to ensure everything is still reporting correctly and make sure you make good use of the best practices above in your journey to the 700 club (or higher!)

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The Right Steps to Applying for Student Loans

Right Steps to Applying for student loans

Summer is coming to a close and for college students, that means it’s time to head back to school (or start school for you freshmen out there.) Everyone knows college is expensive, and the price only seems to be increasing every year. In fact, the average 2015 graduate with student-loan debt will have to pay upwards of $35,000 making them the most indebted class ever.

Student loans go hand and hand with your personal finances and credit report. One of the critical factors which is considered by financial institutions before they had out a loan to any borrower, is their credit report.  And having bad credit can reject any person’s application. This is one of the main reasons why many personal financial institutions have begun to offer a loan for veteran even if they have bad credit. When you or your kids apply for student loans, make sure they’re taking the right steps to applying for student loans to avoid crippling debt come post-graduation. If you have already graduated and are struggling with your student loans, check out our blog post: Game of Loans – A Guide to Defeating Student Loan Interest.

Step 1: Apply For Scholarships

Applying for Student Loans Scholarships

There are millions of scholarships out there just waiting to be awarded to students like you (assuming you are a student.)  There’s just about a scholarship for everything, whether you’re artistic, intelligent, athletic or speak Klingon (yes you read that right, there IS a scholarship based on the Star Trek language.)

Find out if you are eligible for a scholarship that’s right for you. Use this free search from Discover.

Step 2: Compare Financial Aid Offers

applying for student loans compare offers

I’m sure the financial aid offers will be rolling in. Make sure you read the fine print and compare all of the financial aid packages you may receive. It’s always good to have options, so choose the offer that you believe is the best fit for your situation.

Step 3: Plan a Budget

stepst to applying for student loans budget

Having a good budget in mind will help when determining how much you need to borrow. Always take into consideration the college cost, your cost of living, your contribution, financial aid & scholarships. Crunch the numbers and see how large of a loan you’ll need.

Step 4: Only Borrow What You Need

Just because Sallie Mae is offering you more than you expected doesn’t mean you have to accept it. Only borrow what you need based upon the budget you came up with in step 3. Doing so will mean less money to pay off after you graduate and also less money you’ll be paying in interest.

Step 5: Talk with Your Financial Aid Officer

applying for student loans talk to advisor

Your financial aid officer is there to help you. If you see something you don’t understand, ask questions and ask for their advice. If you think you may need to borrow more, you might want to look into Private Loans. Just so you know, if you are planning to take out private loans you will need a cosigner with good credit.

Step 6: Know your Loans Before you Sign

applying for student loans know your loans

You’re finally ready to sign for your student loans! Make sure your know everything about them before doing so. Read the fine print. Know specifics like: How much is the total amount of the loan? Can you get a lower interest rate? What will the monthly payments be? How long before you will have to start paying? Are any fees involved?

Ask your student loan officer if you have any questions and make sure you know your loan through and through before signing away.

Step 7: Get a Part-Time Job

applying for student loans part time job

Securing a part-time job while away at school can help you cover your living expenses, giving you more money to put towards the loan. You may even want to consider a work-study program at your college.

Step 8: Start Making Payments While in College

applying for student loans pay down accounts

Just because your payments don’t start until after you graduate, doesn’t mean you have to wait to pay. You’d be surprised how big of a chunk you can take out of your loans within the 4 years you are in school. You don’t have to pay a ton of money either. Pay what excess money you can afford, every bit counts!

 

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Do you need business credit?

So you’re getting ready to show off some properties to your new clients. You map out where you’re going and pile into your trusty, but dated, automobile.

It’s about that time you realize the “old girl” isn’t what she used to be. Perhaps a new car would look a bit more professional, but you’re not ready for a new car loan. Maybe business credit is right for you.