Financial habits and credit go hand in hand. Since your debt accounts for 30% of your credit score, it is safe to assume when your finances are in order, your credit should be as well (there are a few exceptions). This does not happen overnight. Similar to working out, you cannot eat a salad and go to the gym for 1 day and expect to lose 50 pounds. True success and results come with routine, discipline and sacrifice. Feel the burn!!
Set a budget – This is your foundation. Setting a budget will provide a guide for what expenses you have and how much income you have available to work with.
Monitor your spending – Mint.com is a free service that when connected to your acounts, tracks your spending and helps you set goals. CreditKarma.com is also great to automate monitoring your credit. They send you a message when there is activity or your score is updated. Numbers and facts are hard to deny. We can say that we are good with money but if you track your spending and see that you don’t save and eat out regularly and you have poor credit… something has to change. Additionally, this can help you capture any kind of fraudulent charges if your info is ever at risk.
Manage your debt – Pay off higher interest debts – Paying off higher interest accounts first will pay off in the long run. This will get you out of the rat race faster when it comes to minimizing debts, especially in credit cards.
Be proactive, don’t procrastinate – Avoid additional expenses and unnecessary late fees! Take advantage of any auto pay options to ensure payments are made on time. I simplified the process which helped me get focused very quickly… Do I want to give away my hard earned money? Interest payments are simply you giving your money away with no benefit to you. I am not cheap but I do not like giving away money if it is not for a good cause, my money going to a bank is not a good cause.
Eliminate bad spending habits – A little can go a long way. Bad spending habits will only set you back from your bigger goals. The monthly shoe subscription, coffee, eating out can add up to thousands yearly that you could be saving towards your financial goals. Spending less than you earn and sticking to your budget will allow you to have extra funds. Start setting these savings aside for your major purchases or for a cushion to fall on in case of emergencies. I save in a separate account that I do not have a card for, so in order for me to access the money, I need to transfer between banks which takes 3 days. This kills the urge to drain my savings.
Stop impulse expenses – Rely on the bare necessities. I’m not going to lie, it’s very hard to pas up sales that are thrown at you, especially in the coming months but if you don’t need it….walk away.
Invest in your future – I will put the disclaimer that I am a real estate professional so my investment advice is a little biased, moreso because I know that it works. If you do not own a home, consider purchasing a multi-family as opposed to a single or condo. You will have assistance with the mortgage and hopefully be cashflowing (passive income) from the rents you collect. This allows you to invest in other things and also brings a little more peace of mind.