The following is a guest post from my colleague, Spencer. Spencer writes at the Military Money Manual on achieving financial independence while serving in the...
Good Financial Hygiene: Basic Tips, Best Practices
Financial literacy is not taught in American schools. It is up to each of us to educate ourselves, or we leave ourselves open to making bad financial decisions or being scammed. Here are seven basic financial tips to help you better manage your finances. Put these "best practices" in place to keep from falling into financial trouble.
- Make a Budget — Developing a personal budget is a crucial first step to building and maintaining your financial health. An accurate budget helps you:
- Figure out what you can afford
- Understand where your money is going
- Set appropriate spending targets
- Make a realistic plan for a solid financial future
Use the Bills.com budget guide to get started.
- Cut Spending — The modern world is full of pressure to spend money. As our consumer culture expands, it takes more discipline to separate what you need from what you want. Don't let a desire for the newest phone or fancy car lead you into spending more than you can afford. Trim expenses where you can. Even a small change in habits can save a lot of money. Look at the Bills.com Savings Machine, to see how even cutting out a daily latte can add up to significant savings over time.
- Pay Down Debt Effectively — If you are already accumulating credit card debt, take the steps to correct that problem before it spins out of control. Don't develop the habit of paying only minimum monthly payments. Find a way to pay more, if at all possible. Use any funds you free up by trimming expenses and apply them to your debt. You can choose to put the extra money towards your smallest debt or towards the one with the highest interest rate. Either way, stick with the strategy you choose and keep your total monthly debt payments the same, even as you pay off creditors. This way, you pay off the debt quickly and save a large amount of money in reduced interest costs.
- Use Debt Relief Programs Cautiously — If your credit card debts are already out of control, you may consider working with a Consumer Credit Counseling Service or a Debt Settlement firm. Credit counseling offers budget advice and a debt management plan that can lower your interest rates, so you get out of debt faster. Debt settlement works by negotiating reduced balance settlements, so you pay back less than you owe. To do debt settlement, you have to choose to stop paying your creditors, so your credit is harmed. Before signing up for any debt relief program, check into the effect the debt relief program has on your status with military, including security clearance.
- Monitor Your Credit — If you don’t have strong credit, you can't qualify for the best interest rates available. Check your credit report for free at www.annualcreditreport.com, where you can get one free report from each bureau once a year. Stagger your requests every four months, pulling one bureau at a time, and you can check your report for free three times a year. Dispute any incorrect information.
- Build Your Credit Score — Even if you're not planning any large purchases in the near future, you should work to build a strong credit score. This way, when the time comes to buy a car or home, you can get the best financing available. It takes using credit responsibly in order to build a good score. You should have three active accounts in good standing. Don't run up debt on your cards, but use them and pay them off each month. If you don't have any credit history because you have never had any credit accounts, you’ll have to start from scratch. Applying for a secured credit card is a good way to build credit when you have no credit history. Just make sure the secured credit issuer reports to the three main credit bureaus.
- Watch Out for Scams — Don't fall for any of the variety of scams that target military servicemembers. Many scam-artists use the internet to lure their victims. Common scams include online offers to sell cars at extreme discount or offering loans that don't require a credit check. If you are looking to rent a home or apartment, make sure that you know whom you’re dealing with. Scams exist where someone who is not the lawful landlord offers a home for rent. One red flag is if you're asked to wire-transfer a security deposit.
If you can follow the basic advice in this article, you'll find ways to save money and establish the foundation for a solid credit future. Before you take any action, be sure to carefully evaluate your financial decisions so you don't rush into a bad one.
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