Millions of folks the world over make New Years resolutions, vowing to quit smoking, lose weight, get healthier, become a better person… the list goes on. But one of the best resolutions you can make (no matter what time of year it may be) is to sort out your personal finances.
Give your finances a thorough checkup
While those other resolutions might be quite noble, and might help you get healthier and improve your outlook on life, resolving to improve your financial health and actually carrying through on that resolution will go a long way toward eliminating stress in your life, and could actually provide you with greater freedom to pursue altruistic activities.
The first and possibly most important step to improving your finances is to get a clear picture of all your debts, and make changes to reduce the impact of those debts on your budget. Look closely at the interest you are being charged on any outstanding debts, and take measures to reduce the interest you pay. Whether by paying off the outstanding loans or credit card balances with the highest interest rates or by transferring the debt to a lower rate card or loan, you will recapture the money you had been spending needlessly on those high-rate debts. Remember, the interest you pay doesn’t benefit you, and you could be putting the money you save into investment opportunities that improve your financial picture even further.
With interest rates remaining low for the time being, you might find that you can save a considerable amount by refinancing or, if possible, paying off even those lower interest loans such as your mortgage. And speaking of saving, you need to develop a plan to sock some cash away to cover any unexpected expenses you might incur, such as car or home repairs or to take advantage of some special opportunity. Having an immediately liquid source of cash can even prevent having to go into additional debt when the inevitable surprise expense hits you.
Be careful about taking on new debt
What with the widespread emphasis on eliminating debt, one might come to believe that debt is inherently bad. The truth is that the economy is based in great part on debt, from the low-income individual to the largest mega-corporations and wealthiest individuals. As such, debt itself is not bad; it is the reason for and ultimate result of the debt that determines whether it is a good or bad thing. Although working a plan to pay off your debts should be part of any financial fitness programme, some debt may be unavoidable or even beneficial. You just need to be careful to make certain that taking on new debt is necessary, or at the very least, in your best interests.
Sometimes new debt is necessary. For instance, you may lack the cash to cover an unexpected expense or other cash emergency, and find yourself in need of a loan to meet the new expense. The problem is that if you already have debt and credit difficulties, you may have trouble finding a sympathetic ear at your bank. Even if you are able to get approved at your bank, the process can be complicated, and take days or even weeks before you are approved and get your money.
But there are options for those with credit challenges, which includes a significant portion of the population, and for those who are in need of funds immediately. Qualifying for certain loans is not tied to formal credit checks (loan comparisons are listed online), instead based upon your steady employment and ability to repay the loan on time. You can often get approved for such loans in less time than it takes to fill out the numerous forms that banks require. Just take care to shop around to make certain that the loan is what you need, and that the terms offered will work for you.
Strive to improve your credit
You’ve heard it here before many times, but it’s too important not to mention again: building or rebuilding your credit should also be part of your financial self-improvement plan. This will aid you in every aspect of your fiscal life – qualifying for a mortgage, buying a car, even getting a good job or a decent place to live.
Unfortunately, many people have little understanding of what a credit score actually is, much less how it is calculated or how to improve it. While there is no set formula by which all credit scores are devised, there are elements that are common to all calculations, such as how much debt you have previously incurred, whether you made payments on time, whether you paid only the minimum monthly payment on credit cards, or whether you’ve ever had a debt written off for nonpayment or been declared bankrupt.
You might think that if you don’t have any negative reports, your credit score must be good, but you’d be mistaken. As a matter of fact, a person who has an extensive credit history, albeit with a few late or missed payments, will be looked upon more favourably by lenders than will someone who has no credit history at all. Obviously, a basic understanding of credit reports is essential to the effort to improve your score.
The road to – or back to – financial health won’t always be straight and narrow. Don’t worry if you occasionally veer off-road, and certainly do not use an occasional slipup as an excuse to give up on your resolutions. Old habits can be very hard to break but with patience and persistence you can lead a healthier financial life.