Having money is fun. But managing money? Most people would rather clean their bathrooms.
Avoiding an uncomfortable topic or activity, like managing your finances or finally cleaning your bathroom, isn’t a solution. Avoidance can create an even larger problem when your attention now could help you meet your goals. To get started, focus on these five aspects of your finances as you shift your efforts toward marked improvement.
1. The Average Balance in Your Checking Account
Money comes in, and money goes out. It’s normal for your checking balance to fluctuate with life’s financial demands. But what balance remains once you’ve paid your monthly bills? Assuming you’ve already made transfers to your savings account, your remaining balance can tell you a lot about your financial health.
Depending on your income and expenses, your ideal number will be unique. Review your debits and credits to see what rolling balance is typical for you. If the number gives you pause, it may be time to reassess how low you draw down your balance. When your balance becomes too low, you run the risk of overdrawing your account. Consider ways to boost your balance to cover one month’s expenses to keep you in the black.
2. Your Credit Score
Reviewing your credit score should be part of your monthly financial review. Many financial institutions provide you with your score on your online account free of charge, making this task easy. Aim for a score of 620 or better. Generally speaking, major financial moves like a mortgage loan require a score of 620 or more. The higher your score, the more attractive you are to potential lenders.
If your score isn’t looking too hot, consider what changes you can make to improve it. Boosting your score will require you to build a good credit history. To establish a track record of on-time payments, consider a secured credit card, which can typically be obtained without a credit check. These cards are secured by a funds transfer or initial deposit, which eliminates the risk of default.
3. The Total Credit Utilization on Your Credit Cards
In a world that makes it easy to swipe, your credit card balance can easily get out of control. A total utilization rate of 30% or lower is ideal for maintaining a good credit score and a manageable payment. Review your balances to see where you stand.
If you’re over 30%, see whether you can pay down the balance to get it below that threshold. Make a plan to reduce your usage over time and maintain a rolling balance that fits your budget. Consider calling your card issuer to request a credit line increase. If they say yes, avoid tapping into the expanded credit and instead revel in your lower utilization rate.
4. Your Bill Due Dates
Does your checking account quickly drop to double or even single digits once you pay your bills? If so, review your bill due dates and determine whether there are opportunities to balance out your payments. Evening out your due dates can support a steady cash reserve for both emergencies and your peace of mind.
Most credit card issuers allow you to request a due date change every few months. Some landlords and mortgage issuers offer a grace period on payments. Whatever you do, make sure you are paying your bills on time. Avoid testing the limits of your due dates in an attempt to game the system. Seek out efficiencies when you can and use them appropriately.
5. The Interest Rate on Your Loans
Usually, you only review a loan’s interest rate the day you sign on the dotted line. Take time to review the rates you’re paying for all of the loans you are responsible for. Car loans typically have a fixed interest rate, while student loans can have variable or fixed rates. If any of the rates make your eyes bulge, it may be a sign that you should do something different.
You may want to focus on paying down the balance of one loan more than the others. It may also be time to consider whether refinancing any or all of your loans is worthwhile.
Recently, student loan refinancing has become more common, especially after many loan issuers were accused of predatory lending. Focus on repayment terms that meet your needs while eliminating the loan as fast as possible. Consider whether fixed rates would be preferable, especially as interest rates are projected to increase.
Finally Getting Your Finances Right
Finances are tricky. They’re part of your life no matter what you do, and your core behaviors can be hard to shake. One key thing you can do is create a financial review process that you repeat each month. Once you’ve reviewed these five aspects of your finances, consider how you can keep tabs on them regularly.
Add a credit check to your budget review. Track your credit utilization rate as you review your transactions. And keep tabs on your cash balances across your checking and savings accounts. Your watchful eye on your income and outgoing money can help you identify a problem in real time. With consistent and diligent effort, your monthly financial review will be a breeze.
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