Why Financial Education Should Matter to You
By Bruce McClary
Senior Vice President of Membership and Communication, National Foundation for Credit Counseling
Financial stress impacts every area of your life, marriage, work, relationships, sleep and health. On top of that, everything is more expensive if your credit isn’t in order. Having a high credit score equals a low-interest rate on loans and credit cards. Lenders look for a long credit history with responsible credit use and it’s often not just lenders who are interested in how you’ve managed your credit. If you want to rent an apartment or purchase insurance, it’s likely that your credit will be reviewed.
To achieve financial stability it takes small, smart steps for a solid foundation. Here are five building blocks for financial success:
Review your credit report. Go to www.annualcreditreport.com and access your credit report. It’s important to keep an eye on activity to guard against identity theft and make sure there are no errors. Your credit score is based on the content of your credit report, Many credit card issues, banks and credit unions offer free access to your credit score. FICO is the creator of and most widely used credit scoring model. The range for FICO scores is 300-850 and a good target is the mid-700s.
Track your spending. Keep track of every purchase you make for 30 days. Commit to having everyone in the household who spends money write down everything they spend. At the end of that period, review the findings. Becoming aware of where your money is going, gives you the power to identify any leaks, move money around and spend responsibly.
Create a budget. A budget is a tool that puts you in charge of your money. The NFCC has a free budget template with a simple “money in, money out” methodology, that’s great for helping you get started. For success don’t be too strict. Be flexible and figure out what you can actually live with.
Prioritize your expenses. If there’s not enough money to pay your monthly bills each month. Pay your living expenses first, followed by any secured debts, and then the credit cards. Keeping the roof over your head, food on the table, and utilities current is a top priority. If you find yourself in this situation, consider talking to a credit counselor. They can help you prioritize and find savings.
Save for emergencies. It’s not a matter of if the emergency will occur, but when. Having no savings puts your financial stability in danger. Get started by putting 10 percent of each paycheck into your emergency fund, if possible, only touching it in a true emergency.
Experts recommend having six to eight months of income saved for major emergencies, like job loss. That is admittedly a very large amount of money but every little bit adds up over time.
If you’re still uncertain about how to get started, check out free resources offered by the National Foundation for Credit Counseling at nfcc.org.
