If you’re like us, Thanksgiving is an excuse to get together with friends and family and eat your weight in turkey. And, if you can keep your eyes open after all that tryptophan, you may even find a moment to give thanks for all the good things in life.
Can you count your finances as one of those things?
If you’re struggling with subprime credit, mounting bills, or living paycheck to paycheck, that might be a hard no. It might be challenging to be grateful if you have to find out how to request a personal line of credit every time an unexpected emergency comes your way.
But this little thought exercise can help put your financial situation into perspective, no matter what is in your bank account.
With the holidays just around the corner — and a new year arriving soon after — Thanksgiving is the perfect time to take stock of your finances and identify things you want to change.
Not sure what needs to change to improve your finances? We have you covered.
Below are some small yet effective financial tips that can help you all year-round. Make them a habit, and your future self will thank you.
1. Budgeting Helps You Prioritize Your Finances
Do you ever feel like you’re putting out one financial fire after another? It’s exhausting!
It’s also not a great way to manage your money.
When you’re focused on the most pressing bill in your future, it’s hard to plan for bigger goals on the horizon. Less urgent things like buying a home or retiring by 65 often get put on hold as a result.
This is when a budget may be useful. It helps you juggle financial responsibilities, so you can handle unexpected expenses while saving up for the things you want.
What is Personal Budgeting?
Let’s keep it simple; personal budgeting is a way of planning your spending around your bills.
Besides organizing your finances, budgeting can help you:
- Balance your income to expenses
- Identify bad spending habits that hold you back
- Set aside savings for the future
- Pay off a line of credit or another loan
These all sound good, don’t they? If you’re ready to try personal budgeting this holiday season, check out the budgeting tips below.
1. Find out How You Spend Your Money
The first thing on the docket will be to find out how much money you’re spending. For simplicity’s sake, you might pick this number off the top of your head. You may even get fairly close to what you spend. The big, regular things like rent and insurance are easy to remember. But smaller, irregular expenses are even easier to forget.
A coffee here, a highway toll there, and a last-minute decision to cut your hair. These small purchases may not cost a lot on their own, but together, they may use up a considerable chunk of your income.
If you forget to add them to your list, your budget will be off.
For a budget to work best, it needs to be accurate. Otherwise, you might believe you have more money to work with than you actually do.
Rather than guessing, go back and look through your bank account and credit statements to tally your exact spending habits.
2. Track at Least Three Months’ Worth of Expenses
As a general rule of thumb, looking to the past three months of expenses gives you a good idea of how you typically spend your money.
But, if you have the time, cast your eyes back even further.
The further you go back, the more you stand to learn about your habits.
For example, taking a deep dive into the past year will help you spot irregular expenses. You’ll be able to see how your previous Thanksgiving travel and holiday shopping impacted your finances.
Once you have an accurate list of expenses, you’ll know two important things:
- How much money you need to cover the necessities
- How much money you have left over to indulge in the fun stuff
Ideally, you’ll have a lot of cash left over after paying the necessities. But don’t panic if you spend more than you make. Your budget helps you reset the balance between your income and expenses, so you aren’t overextending yourself.
3. Divide Your Spending into Two Groups
To do this, take a look at your list of expenses and group them into needs and wants.
Generally, needs represent bills you have to pay in order to survive. Having a roof over your head and food on the table are prime examples. Others may include utilities and insurance payments.
Your financial wants are all the other expenses that fill up your budget. They’re expenses and other purchases that fill your time in fun ways.
4. Let Go of Some of Your Wants
Start with these wants first. While you can find savings in both your needs and wants, your wants category will likely be the easiest to change.
Look at what you’re spending on entertainment, takeout, travel, and clothing. If you manage to reduce what you spend here, you’ll free up more cash to go towards bills, savings, and planning for the future.
When you’re used to of spending your money freely, it can be hard to say goodbye to treats and other splurges. But stick with it! Like any new habit, it just takes time before you get into the swing of things.
Tip #2: Make a Habit of Checking Your Credit Report
When was the last time you checked your credit report? If you can’t remember, it’s as good a time as any to do it now. You can check it for free, once a year from each of the three major credit bureaus (Equifax, TransUnion, Experian) at AnnualCreditReport.com[1].
You should consider visiting this site even if you have checked your credit report in the past year. The contents of your report will have a big impact on your credit score, and this information will be updated anytime you pay a bill or withdraw funds from a line of credit, as long as the account gets reported to a credit reporting agency.
Considering how many bills you pay every month, your score may fluctuate often. Keeping tabs on your credit report as it changes will help you make sure these fluctuations make sense.
How Often Should You Check Your Credit Report?
By law, the three major credit reporting agencies must generate a report free of charge each year. If you time it right, you can use these checks to peek at your file once every four months. This gives you pretty even coverage throughout the year.
Just be wary of any service that offers reports at a cost. With these free ways to check your report, there may be no need to spend money on additional reports.
You’ll See How Your Financial Decisions Impact Your File
There are many benefits to checking your credit report often, but perhaps the biggest one is knowing how your financial decisions impact your profile.
Your broader report will list all the entries in your file. This unbiased look at your past borrowing habits will show you where you’ve gone right — and where you’ve gone wrong.
The right tends to look like paying your bills on time and keeping a low utilization ratio, while the wrong usually starts with a missing payment. The longer a bill goes overdue, the more likely it will turn into a bigger negative mark against your name.
You’ll Catch Pesky Inaccuracies
Another great reason to keep your eyes on your report is that it lets you know about changes in your credit score.
Because, let’s be honest, the reporting may not always be perfect. Human error can result in a mistake that may unfairly drop your score. Identity theft is another reason why inaccurate account activity may fill your report and impact your history.
If you spot any problems, make sure to file a dispute with the reporting agency that shows the error, as well as the company that this account is with. Starting the process as soon as you think something is wrong will help your score recover from its effects faster. For more information on this process, take a look at this article.
Tip #4: Pay Bills on Time, Every Time
When it comes to budgeting, your priority typically goes to bills of any kind. If you have ‘em, you want to pay ‘em.
More specifically, you’ll want to make sure you have the cash to cover these expenses by their due date — if not earlier.
Paying your bills on time may go a long way in establishing the payment history portion of your report. As long as your financial institution reports your payments to a credit bureau, how and when you pay bills will impact your history.
Notice how we haven’t said whether it’s a good or bad impact on your history yet? That’s because any information reported to a CRA will fill out your payment history, good or bad.
If you pay on time, this information is positive. This shows future financial institutions you have a habit of paying bills on time.
Paying bills on time comes with another added benefit. Your prompt payment schedule means you may avoid added interest, financing charges, and late penalties.
But if you miss bills regularly, the information that fills your history is negative.
How Does a Minimum Payment Factor into Paying Bills on Time?
If you’re familiar with a line of credit or a credit card, you’ll notice your statement shows two important numbers:
- Your balance
- Your minimum payment
Wondering how does a personal line of credit work if you’re only paying a required principal payment? It’s a good question to ask.
By making a minimum payment on time, you’re paying the least amount of money you need to avoid late charges or fees. It’s a handy fail-safe in case you run into difficulties one month.
But don’t get too comfortable relying on your minimum payment. While it may free up cash during a tough month, it’s not a long-term method of paying your bills on time.
We recommend paying off your balance in full and making additional payments if you can afford it. This may help reduce the interest you pay as you keep a low utilization ratio.
Tip #5: Take a Break from Credit
Yep, you read that right! Taking a break from credit can be one way to understand your relationship with revolving accounts.
Do you dip into it often to cover everyday expenses? Are you expecting it to boost your holiday budget?
If the answer is yes, you’ll want to go back to the budgeting drawing board. Here at CreditFresh, we don’t recommend using your revolving accounts for expected, regular, or unnecessary purchases.
A Line of Credit by CBW Bank offered through CreditFresh is better served as a financial safety net when unexpected emergency expenses test your budget. It’s there as a backup in case unexpected medical bills and car repairs blindside your budget.
For more information on how these line of credit loans work in emergencies, take some time exploring our blog. It’s chockful of good money management tips and credit facts to help you understand your line of credit’s place in your finances.
By easing off your revolving accounts, you’ll change the way you spend your money. Rather than relying on advances, you’ll have to use the cash in hand. This means you’ll have to follow your budget to the tee if you expect to meet your obligations.
It also may help you manage your utilization ratio.
What is a Utilization Ratio?
Your utilization rate is one of the five main factors impacting your score. It takes a look at how you’re using products like a line of credit or a credit card to see how you handle revolving accounts.
It compares how much of your credit limit you use to the total limit available on accounts reported to CRAs. Generally, the less you use of your limit, the better it looks to financial institutions.
A low utilization ratio suggests you’re budgeting is off to a good start. You aren’t relying on a line of credit or a credit card often. And, if you are, you’re paying off your balance as much as possible.
So, what’s the best credit utilization ratio possible? Technically, something as low as zero looks good on your report, but it’s a challenging goal to achieve.
You’ll find that 30 percent is the traditional threshold for a low ratio. Anything higher than this may impact your history negatively. Anything lower than this may impact your history positively.
This is as far as we can advise. The concrete results of your ratio will depend on the other four factors involved in creating your score.
Find Something to Be Grateful for
When money’s tight, and there’s a growing pile of bills with looming deadlines, it’s not always easy finding the good in your finances.
But as the saying goes, it’s always darkest before the dawn. Realizing you have more bad things tempering your finances than good could be a powerful turning point in your life. It may help you understand it’s time to change your habits, so this time next year, you have something to be thankful for.
If you have any questions about how a line of credit may help in an unexpected emergency, we're here to answer your questions. A member of our Customer Service team is happy to help in any way they can!
And if not, good luck budgeting and paying your bills on time. And don’t forget to enjoy the weekend. From our families to yours, Happy Thanksgiving!
Disclaimer: This article
provides general information only and does not constitute financial, legal or
other professional advice. For full details, see CreditFresh’s Terms of Use.
[1] https://www.annualcreditreport.com/index.action
Posted in: Lifestyle
