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How To Have A Happy Low Income Household

povertyAre you struggling with your finances because you come from a low income household? When your income is not enough and you have a family to feed, it can be a bit stressful. And we all know that when there is stress, happiness will eventually go out the window. At least, if you cannot do something about your financial situation, you will soon find that it drains the happiness out of your life.

While we do not want to appear materialistic, it is a fact that the lack of money oftentimes drive couples to a fight. In fact, one of the most common reasons for marital fights involve finances. And we all know we do not fight about abundance of money. Usually, financial related fights stem from the lack of it.

According to an article from CNN.com, the US poverty rate is already at a decline but it is still a high rate. In 2013, it was reported to be at 14.5% – a slight decline from the 15% rate in 2012. This is still higher than the pre-recession days of 12.3% in 2006.

The reason for this decline is the fact that people are now finding full-time work. However, thanks to the inflation rate and the higher cost of health care, this is not really making a difference for most people. There are still a lot of people that are living from paycheck to paycheck. If you want to improve your financial situation and get out of a low income household, you need to do more than that. You need to find a way to find extra money to propel yourself forward to a better financial position.

But before you can do that, you need to find the motivation to make the sacrifices necessary to reach your goal. And here is where it might become a bit confusing. In order for you to find motivation that will last you until you reach your goal, you need to put yourself in a happy disposition.

The reason for it is for you to be able to set the right goals and change the habits that will make you happy with what you are trying to reach. Take note that finding happiness is more than just getting more money. It is about teaching yourself to value what is important and be content with what is necessary.

4 ways to live a happy life despite poverty

That last part can be quite a challenge because it is hard to find happiness when you can barely give your children what they want. When you are constantly worrying about paying the bills, it is tough to say that you are feeling light and happy about your current predicament. So what can you do?

The key is to determine the simple truths that will help you find financial happiness. Here are 4 tips that might help you get started.

  • Concentrate on the experience rather than your possessions. Not that we are saying that you do not need material things. We all need them. But, you need to learn how to concentrate on the experience that you will get from the materials – rather than from the mere satisfaction of owning something new. A study published on Colorado.edu, authored by Leaf Van Boven, said that focusing on the experience will help consumers get more positive memories about their lives. Happy memories are more evident when you have the experience in mind. It is also stated that it will help you foster better social relationships. That is because the experience is mostly associated with something that happened to you and those around you – whether directly or indirectly connected or not. So concentrate on having meals together – regardless of what is put on the table. Concentrate on enjoying cost-free weekends with the family – as long as you are together.
  • Have goals and monitor their progress. The next thing that you can do is to have a goal. A goal is something that will give your life direction. It will give you a reason to get up every morning regardless of the situation that you are in. It is one way to help you proactively motivate yourself further. Make sure that your goal is realistic. Big or small, it has to be well defined and something that you schedule to achieve sometime in your life. This will make it more tangible. As you track your progress, do not concentrate on how little you have. Instead, focus on being thankful that you are able to contribute anything to it at all. Even if the going is slow, at least there is progress.
  • Be close to people with the same situation as you. We mean surrounding yourself with friends coming from low income households too. This is to have someone to talk to and understand what you are going through. You can cheer each other up, find support during trying times and you cannot judge each other because you all going through the same thing. Not only that, you can find things to do together with the same budget. You do not have to work too hard to impress people because they know where you are coming from.
  • Change your mindset. Finally, you want to change your mindset about a low income household. It is not the end of the world. Granted that it is tougher compared to those who have more financial abundance. However, you both have something in common – you can both decide to take control of your finances. You need to accept that you have limited choices and instead of giving up, you take that as a challenge. Start by focusing on what you have accomplished despite your lack of finances. That should help make you feel better about your life.

Happiness, if you ask anyone, is actually just a state of mind. If you are willing to put yourself in a happy position, you do not need a huge amount of money to gain that.

How to level up from a low income home

Despite your pursuit  of happiness despite coming from a low income household, you need to make sure that you will still strive to make things better for you and your family. You want your kids to have the opportunities that were limited to you because of your financial state.

An article from HuffingtonPost.com revealed that poverty is still quite high in the US. 14.5% of Americans are living in poverty. That means 1 out of 10 people reading this article might be poverty stricken. The good news is, you can get out of that predicament. Here are some tips that will help you level up from a low income household.

  • Live a frugal life. First of all, you have to start living a frugal life. Face the facts that you have limited income. That means you need to prioritize where you will put your money. Live in a smaller home, get rid of the clutter and buy only what is essential. Frugality, when done correctly will give you a new perspective about your life.
  • Make sure you have extra money. The reason why you want to live a frugal life is so you can lower your spending so you can have some extra money. This is the money that you need for wealth building. It will help you increase your savings for your emergency fund. It will also allow you to invest some of your money to help it grow. Get that extra money and you should be able to grab opportunities that you never had before.
  • Involve the family. Getting out of a low income household will involve everyone in the family. You need to ask everyone to be wise about spending and to find extra money where they can. This is very important. It will keep the load from being too burdensome for you.

Here is a video from Bank of America that will give tips on how you can be smart with your money.

Why Budgeting Should Not Be Likened To Dieting

money and measuring tapeBudgeting is said to be the first step towards financial independence. If that is the case, then why is it that a lot of Americans are finding it difficult to maintain a budget? In some cases, they even have difficulty in starting one.

This is probably caused by the lack of motivation to follow a budget plan. This is especially true if you think that a budget is a lot like a diet.

In truth, there are a lot of similarities between the two. An article on Wisebread.com actually discussed various similarities between dieting and living on a budget. In fact, the author of the article mentioned that a diet is defined as restricting one’s food intake. The same is actually happening when you are budgeting. You restrict your spending on some things so you can keep yourself from running out of finances of the expenses that matters most. In general what you want to happen with your budget is to stop overspending your money.

However, there are people who have not been successful with their budgets because they associated it with dieting. That is because in terms of motivation, comparing a budget to a diet is not the best way you should go about it.

3 ways diet concepts can ruin your budget intentions

An article published on NYTimes.com in 2011 is titled, “Why a budget is like a diet – ineffective.” In one part, the article discussed how humans are notorious for not being able to follow plans. While there are those who undoubtedly can, there are also people who are incapable of doing so. In fact, some consumers frown upon budgeting as they would a diet plan. The article said that it is because a budget feels so much like dieting – that is why it is met with so much distaste. People end up shying away from budget plans simply because it is associated with diets.

The reason why people are scared to budget in the same way that they are of dieting is because it is oftentimes associated with these three concepts.

You feel you have fewer options

When you are on a diet, you are oftentimes told to eat only healthy meals. That makes your options quite limited. You are not allowed to eat certain food and drinks in order to keep yourself in tip top shape. Unfortunately, a lot of the food that we are told not to eat are those that taste good!

The same is true for budgeting. When you create a budget plan, you are faced with the reality of how much you can really afford to spend. After you identify your net income, you need to divide it among the important expenses that you make each month – for the house, utilities, food, transportation, etc. Whatever is left will have to be put aside for your savings. There is not much room for splurges or unnecessary spending especially when you have debt payments to include in your budget.

However, you do not have to feel this way about budgeting if the few options are the most important expenses that you have in your life. Even if you had to cut back on a lot of things, if the vital expenses are met, then you should not feel that you have fewer options. You just gave up on the spending that you do not really need.

You feel deprived

Since you have fewer options when you are budgeting, you will naturally feel deprived. When you are on a diet and you love to eat junk food, greasy food and all the other fattening stuff, you will feel deprived after entering a diet plan. These are the big no-nos in dieting.

In the same way, following a budget would also mean you have to stop doing the habits that are bad for your finances. Things like impulsive buying or buying things without comparing prices. These practices can be harmful to your finances. Your budget plan will deviate you from these practices and this is why you are bound to feel deprived when you are budgeting.

But just like the first, you do not have to feel deprived if you also focus on your priorities. As long as the priorities in your life are satisfied, you should not feel deprived at all. We make budgets hard to follow because we keep our eyes on what we cannot do. But if you concentrate on what you can now achieve (e.g. bigger savings, room for investments, lower debt balance), then you should not feel the deprivation at all.

You feel the pain

Lastly, dieting is usually associated with a lot of pain. This is mostly caused by the exercise that you need to do while you are regulating your food intake.

In the same way, budgeting could bring you some sort of pain as well. First of all, a budget plan is not a one time effort. You need to constantly monitor it and revise it as your financial needs change. Not only that, if your budget reveals that your current income is not enough, you may be forced to look for a second job in order to make ends meet.

Some people may say that if a budget will force me to work 2 jobs, why would they want to create a budget plan in the first place? While the sentiment is understandable, you should realize that not acting on what your budget plan encourages you to do is only delaying the inevitable. If you are spending beyond your means, you are bound to accumulate a lot of debts. Your budget will save you from that but you need to deal with the sacrifices that come with it.

Tips to make budget plans more bearable

In the end, budgeting and dieting may have some negative things in common but the bottom line is, they are both necessary because they keep you from bigger problems in the future. But if associating one with the other will keep you from incorporating a budget plan in your life, then you do not have to treat them the same way.

A budget plan is still different because it involves your finances. You need to look at a budget in such a way that will liberate you from the threat of a financial disaster. A budget can really improve your finances because it helps you be in control of your money.

According to an infographic found on Prafulla.net, more than half of Americans do not have a budget and that one-third is unable to pay their bills on time. There may be a lot of factors involved as to why consumers cannot pay their bills on time but you can bet that one of these reasons if a lack of a budget.

In case motivation is a problem, here are some tips that might help you set up a budget in your life.

  • Start with a goal. This is the best motivation that you can give yourself. It can be to get out of debt or save up for retirement.
  • Go slow. If you discover that you have a lot of expenses that are unnecessary and that you have decided should be cut off, try to do it one at a time. Do not go cold turkey to keep the pain from becoming too hard to bear.
  • Create a timeline for your goal. Keeping in mind that you need to go slow, create a reasonable and realistic timeline to achieve your goal. That way, you will not push yourself too hard or be too relaxed in reaching your goal.
  • Make your budget as accurate as possible. Wrong entries in your budget might lead to incorrect assumptions and thus the failure of your budget.
  • Get support. If things get really tough, you may want to get support from family and friends. Or if you can afford it, go and get professional help. In most cases, the first few steps are always the hardest. But once you get one foot in front of the other, you will find yourself effortlessly following your budget.

To learn how to set up a budget, here are some tips from National Debt Relief.

How To Put A Lid On Your Impulsive Buying Habits

woman with percentage signs and credit cardWhen you are analyzing the American spending habits, one of the problems that you will encounter is impulsive buying habits. Almost all of us are guilty of this – some much worse than the others. It is when we develop the habit of buying things that we do not really need – even if it is something that we cannot afford. It is a result of both consumerism and materialism. It is an action born out of a belief that the more we have, the more successful we are.

According to an article published on MedicalDaily.com, compulsive shopping is called Oniomania. It comes from the Greek words “onios” that means for sale and “mania” that means insanity. Simply put, it is a habit that means we do not use our minds whenever we go shopping for something new.

While some people may argue that shopping helps them find emotional relief, especially from stress, doing it in excess can prove to be quite destructive. This is why this is one of the buying habits that you need to get rid of, before you totally ruin your future and that of your family.

What to do to stop the habit of compulsive shopping

Obviously, you need to stop those bad spending habits as soon as you realize that you have them. Fortunately, there are many things that you can do to keep a lid on your impulsive shopping sprees.

  • Prefer to use cash. First of all, you may want to prefer using cash. We are not saying that you should completely eliminate credit cards because it is very helpful in maintaining a good credit score. However, an article from PsychologyToday.com reveals that using credit for purchases makes you more susceptible to compulsive buying. That is because we do not get the same psychological effect to parting with money as what we experience when using cash to pay for expenses. This is why for most of your spending, try to use cash instead of credit.
  • Make a list before shopping errands. Before you go out to buy groceries or even clothing and accessories in the mall, make a list of what you really need to buy. This will help you focus on what is really essential. Not only that, it will help you budget your money and keep yourself from overspending.
  • Take note of sales and promotions. Since making a list is already a form of planning for your shopping errands, you may want to take it a step further by knowing when sale events are happening. Even if it is not in your favorite store, be aware of promotions and discounts in other stores. Take advantage of the savings that you will get. This will help you exercise your self-control when it comes to buying items.
  • Avoid buying items one at a time. You should also consider buying items on a weekly or monthly basis. That way, you can buy things in bulk to save money and also time. If you go to a store with only one item in your agenda, you might be more tempted to pick up something else that is not really needed.
  • Wait before you buy. Develop the habit of waiting before you buy anything. That way, you will strengthen your resolve and counter your impulsive buying habits. Not only will you give yourself time to think, you can also determine if your compulsion to buy is born out of a need or a hype.
  • Be patient and compare prices first. In connection with the previous, being patient will give you the time to compare prices before you decide to buy anything. In case the compulsion to buy is still there, you can choose to buy the least expensive item.
  • Go on shopping errands alone. It can also help you case if you go on your errands alone. Bringing the kids might end up putting more items in your basket. After all, a simple tantrum can convince you to buy something that is not on your list. Shopping alone can help you focus on what you really need to buy and stick to it.
  • Get rid of the old before buying something new. In case there is a purchase that you really want to make, check your closets first and see if there is an old item that you can get rid of. If there is none, then you probably don’t need that new item just yet. This practice will allow you to overcome the compulsive buying habits and avoid cluttering your life with too much possessions.
  • Take note of your emotions. In 2005, Croatians made a study about American buying habits. According to their study published on NIH.gov, it is believed that impulsive buying is caused by a psychiatric comorbidity that includes your mood. When you have a high emotion, the chances of you using your emotions to make decisions is more likely to happen. That could heighten the chance of irrational decisions being made.
  • Budget your entertainment and shopping expenses. One way to satisfy your buying habits is to budget for it. That way, you will know that you can buy clothes and other things that are not planned but this time, it should be within your budget. The reason why impulsive buying is dangerous is the fact that it can make you overspend. If you can remove the threat of overspending, buying items will not bring you too much guilt.
  • Manage your money. Lack of money management is one of the reasons why people become irresponsible spenders. If you know your money, you know if you can afford to buy something or not.

How impulse buying hurts your finances

Some people acknowledge that they have a problem with their spending but they fail to act on it because they lack the motivation to change. Well if you need a reason to change your impulsive buying habits, there are a couple of effects that might convince you to develop a better spending behavior.

It puts you in debt.

First reason to correct your bad spending ways is it puts you in debt. Compulsive buying usually ends in you overspending beyond your budget. According to an article published on ChicagoTribune.com, the American economy practically lives on credit. The financial industry thrives on it and everyone, businesses and consumers alike are reliant on this industry for their finances. This is why our credit system is very relaxed. They encourage us to buy on credit and it is a dangerous scenario as it is. Combine that with compulsive spending and you are in for a life full of debt.

It keeps you from paying the priority expenses.

Another danger in compulsive buying habits is it could keep you from paying your priority expenses. That is because you spent your money on things that you do not need at the moment. It is one of the common obstacles of budgeting that you need to overcome if you want to be a good manager of your money. By the time you need to pay the important bills, your money has ran out on you.

It eats up your savings.

But even if you are able to pay for the important expenses, being an impulsive spender keeps you from building up your savings. It can be savings for your emergency fund, a new house or a car. It can compromise your financial security so you need to correct this habit.

It ruins your future.

With all three dangers, you can assume that impulsive buying habits is powerful enough to ruin your future. If you want to set up your future to be financially stable, you need to improve how you make your purchases. You need to eliminate your debt and build up your savings.

How To Budget Your Spending This Halloween

skeleton hand and piggy bankThe holidays are around the corner and it marks one of the most expensive times in our consumer lives. We have a lot of events coming up and the first of them, is almost at hand. We are referring to our annual Halloween celebration of course.

This is considered to be second to Christmas when it comes to spending. Naturally, you would be concerned about finding ways to budget your spending so you will not be too broke to spend on the other festivities lined up until December. After all, you still have Thanksgiving, Christmas and New Year to think about.

According to the Halloween Consumer Spending Survey done by the International Council of Shopping Centers, 74% of American households plan to spend this Halloween. The survey results published on ICSC.org also revealed that the expected spending for the 2014 Halloween festivities will amount to $11.3 billion. If you exclude the families that do not plan to spend this year, that puts the average spending to around $125. In fact, an estimate of 80% of consumers will spend the same or even more than what they spent last year. Around 20% of consumers are preparing to spend more in 2014.

If you think that you will be increasing your Halloween expenses this year, you may want to budget your spending to make sure that you will not go beyond what you can afford. Budgeting can help stop debt so try to head off the holiday debt by creating a foolproof budget plan.

Create a list of the things that you need to spend on and filter the details so you only spend on what is essential. Your Halloween spending comprises of three important categories: costumes, treats and decors. Find out how you can budget your spending on these three through our tips below.

How to save on Halloween costumes

First up is the costumes. This holiday will not be the same without a costume so make sure you are prepared for it.

According to the data coming from the National Retail Federation, 2 out of 3 consumers who plan to celebrate Halloween will purchase a costume. The results published on NRF.com mentioned that this is the highest for the past 11 years that this survey was being conducted. The average person is expected to spend $77.52 – an amount higher than the average of $75.03 in 2013.

But if you want to save money on your costume or that of your kids, there are a couple of things that you can do.

  • DIY your costume. Look into your closet and see what you can come up with. You can dress up as a Sims character by putting on any clothing and adding a green diamond cardboard on top of your head. If you have a black and white striped shirt, put on a robber’s mask and come as a burglar. You can even get a roll of tissue, wrap it around yourself and be a mummy. You do not have to buy anything else.
  • Swap with others. If you have neighbors with kids, you can probably exchange costumes and make a few modifications to it. Just make sure you clear it up with the original owners in case they want the costume to be returned as is. You can do the same with your own costume. Swap with family and friends so you can budget your spending on something else.
  • Use makeup and accessories that you have at home. Buying makeup and accessories will cost you unnecessary money. Why not just use food coloring, some gelatin, and your makeup kit to transform your look to compliment your costume.
  • Buy a 2nd hand costume. If you cannot swap with someone, you may want to just buy a 2nd hand costume. It will be cheaper and it should give you some selections. Just make sure to wash them first before wearing. Who knows where they came from.

You are also encouraged to keep your old costumes. You can probably come up with something new just by combining different pieces from old costumes.

How to spend less on Halloween treats

The next category that you need to budget your spending on is the Halloween treats that you will be giving away. Save yourself from holiday debt by making wise choices about your giveaways this year. Here are a couple of suggestions that will help you lower your spending on treats.

  • Buy them in bulk. This is one of the things that you can buy in bulk and not waste any. Candies typically have a long shelf life anyway so this should be safe. Buy them in big packs so you have enough to go around when the kids come knocking at your door.
  • Buy treats with the community. In connection with the first, you can team up with your neighbors and assign a particular treat for them to buy in bulk. Then, you can divide everything so you will have variety while still taking advantage of the savings you will get when you buy products in packs.
  • Have two varieties. If you have neighbor friends whom you want to give special candies and treats to, separate what you plan to give them. Give the cheaper ones to the kids whom you do not really know. That way, you can give treats to more kids.
  • Control what will be given. Do not let the kids dip their hands in your candy bowl. Make sure you give them out so you can control the amount of candies to last the whole night. Otherwise, you might run out early in the evening and you will have to deal with turning away other kids in the process.

It helps if you collect coupons so you can get discounts for the things that you need to buy. Also, take note that you do not only have the option to give away food and candies. Here is a video from Connecticut Style about an interesting tip on giving away treats this Halloween.

How to lower your budget on Halloween decors

The last thing that you need to budget your spending on are the Halloween decors. Nothing makes Halloween more fun and exciting than when you have the decorations to heighten the festivities. However, these will also cost you so make sure you plan how you will spend on this.

An article published on WFXG.com revealed that consumers are more cautious when it comes to buying decorations this year. It is said to be caused by the Great Recession. They are not too keen on spending much on decorations. In fact, the article reported that retailers have displayed their Christmas decors together with the Halloween because they know that demand will not be as high as it was before.

It is understandable if you want to skip on the decors this year because you want to save on your overall holiday budget. However, there are some ways that you can still have Halloween decors without spending a lot of money on it.

  • Recycle what you used last year. If you do not want to appear exactly as the previous year, you can add a bit of decors or change their locations. Use your creativity and any arti supplies lying around the house. An unused cardboard box can be painted gray to become tombstones in your front yard.
  • Swap with neighbors and friends. Another way to recycle old decors is to swap with your neighbors and peers. You can swap a few items so you both have something of the old and the new in your home.
  • Buy from the dollar store. You will find a lot  of great deals when you buy from the dollar store. With only $10, you can get a whole lot of stuff that you can use around the house.
  • Clip coupons. You can opt to cut out coupons to use when you are buying decors. Be on the lookout for great deals and discounts.
  • Be aware of sale promotions. Find out when your favorite store will hold a sale and opt to buy decors then. You will get a lot more stuff with just a little amount of money.

If you plan on buying decors, make sure that these are things that you can use again next year. That way, you won’t have to buy anymore products and thus lessen what you normally spend on Halloween.

Learning how to budget your spending for the holidays is not really rocket science. All it really takes is some early planning a sound judgement as to what you really need to spend on to enjoy Halloween.

How To Dramatically Improve Your Financial Life In Just Six Weeks

paying through a card in a pubWhen you look at your financial life what do you see? Do you see a big stack of unpaid bills? Bank statements you never bothered to open? A checking account that’s just about bottomed out?

Well, the good news, if you see this as good news, is that most of us have problems with our money. Our lives are demanding, we have busy stressful careers and our families eat up most of our calories and our energy. Again, if you’re typical you probably just don’t feel that you have either the desire or the time available to get your finances under control

Getting started

In your heart of hearts you probably want to have a better financial life but it’s tough to know where to get started. Fortunately, it’s not really that difficult. What you need is a monthly schedule to get your finances on track. It’s really not much different from having a daily and weekly routine for yourself. You need to develop a plan that will help keep you concentrating on accomplishing your financial and personal goals. And you can really get the majority of your money problems behind you in just six weeks.

Here’s the blueprint.

Week one: Create two or three personal goals

Sit down and think about your life and organize your future by creating a series of short-term goals. Then make an action plan to achieve those goals that has a timeline with some small steps to get you to where you need to go. Start saving money for those goals and you’ll reach them quicker. If you have a problem setting goals here’s a video courtesy of National Debt Relief that could help …

Week two: Make a spending plan

You’ve probably heard this 1000 times but if you’re now in a money in/money out cycle that leaves you grasping for pennies at the end of a month, this is the time to take the guesswork out of it. If you want to reach your goals and in time you will need to find ways cut your spending. Good places to start are entertainment, dining out, clothing and groceries. These are the areas where it’s usually easiest to cut spending. In comparison, it can be very difficult to reduce your spending on fixed expenses such as your rent or mortgage and any auto payments. The category of groceries is one where most people find they can reduce their spending without really sacrificing anything. All it takes is menu planning, careful shopping and some coupons.

If you find you’re having a hard time making a spending plan, you might book a session with your local, nonprofit credit-counseling agency. You would be assigned a counselor that will review all of your spending and help you create a plan for reducing it. Most of these agencies charge nothing or very little for their help and sometimes the most important thing you can do is have an objective, third-party person analyze your spending and help you develop a plan for cutting it.

Week three: Work on reducing your debt

Unfortunately, it’s easy to overspend especially when it comes to credit cards. When you don’t have enough cash to pay for something it’s just too darn easy to whip out that piece of plastic and charge it. But if you’re carrying a big load of debt, you may be paying so much interest that it’s weighing down your finances. Make a plan to get rid of any debt you have that that isn’t fixed such as a mortgage. You need to find ways to simplify your payables. If you have high credit card debt, you might check into a debt consolidation loan. The upside of one of these loans is that you would then have just one payment to make a month in place of the multiple ones you’re probably making now and that payment should be lower than the sum of your current payments. However, there are a couple of downsides to a debt consolidation loan. First, it will have a longer term such as seven or even 10 years, which means you’ll end up paying more interest over the life of the loan. And if you don’t have good enough credit to get a personal loan you may have to get a homeowner’s equity line of credit (HELOC) or homeowners equity loan. In either event, you would be putting your house at risk because if you were to default on the loan, you could end up out on the street.

Week 4: Consolidate your credit cards

How many credit cards are in your wallet? If you have three or more, this is just making your financial life that’s much more complicated. This means you have to keep track of all of those different transactions and balances and which days of the month you must make your payments in order to avoid missing one, which would damage your credit score. Instead, try to consolidate down to just one or at the most two cards. For that matter, you could transfer all of your credit card balances to a new 0% interest balance transfer card. You should be able to find one of that offers as many as 18 months interest free, which would give you a year and a half to pay down your balance before you would be required to pay a cent in interest. Plus, you would then need to remember and make just one payment a month.

Week 5: Put everything on autopilot

Take sometime this week to put your savings and your bill paying on autopilot. You know you need to pay yourself first and that you want to have a decent retirement. When you set up an automatic transfer each pay period from your checking to your savings account, it’s money you hardly miss because you never really see it. Ideally you should begin with an emergency fund equivalent to six months worth of living expenses. If that seems too daunting, try for at least three months worth. You should be able to pay all or virtually all of your bills automatically and electronically. That way you could stop worrying about missing a payment and having your car repossessed or your electricity turned off.

Week 6: Review your insurance policies

Take a few hours to sit down and review all your home, life, and auto insurance policies and their coverage so there will never be any unpleasant surprises. Do you know your coverages especially when it comes to disability? They might have changed recently. Even if you’re content with your current insurer you should comparison shop at least once a year. This is relatively easy to do through sites such as esurance.com and netquote.com. Be sure to check your auto insurance’s liability limits to make sure you would be adequately covered in the case of an accident.

If you have a will get it out and review it. This is especially important if your family situation has changed due to marriage or a birth. And if you don’t have a will you need to get one. It’s the only way you can control what happens to your money should you die suddenly and without warning. Otherwise, a court will likely be required to do this for you, which could be a very bad thing.

You might not be able to solve every money problem in just six weeks but if you follow this program you should be able to take much of the stress out of your life and get your money under control. The important thing is to focus on these easy-to-implement strategies. This will free up time for you because you’ll be worrying less and more able to focus on what really matters the most – which is living your life to the best today.

Is Yours An Egalitarian Marriage?

couple looking at a laptopA number of things have changed in our society over the past 40 years. For example, as we learned recently it’s no longer okay to punish your child by spanking or whipping him with a branch. And while it was maybe never okay to hit a woman we know now it really, really isn’t – especially if you’re a pro football player.

The idea of marriage has also changed dramatically. Some states now recognize same-sex marriages. And many of those that haven’t done this at least recognize civil unions. Divorce has become almost as common as, well, the common cold as about 40% to 50% of married couples in the United States now divorce. Finally, one of the biggest changes is due to the fact most families cannot afford to have one parent stay home with the kids while the other works. As a result two working parents now head 44.8% or nearly half of all US families. There are also couples known as DINKS (Double Income No Kids).

So what type of marriage do you have?

When both people work, what’s the division of labor? Is it sort of typical where the woman is responsible for cooking, cleaning and grocery shopping, while the husband takes care of the lawn and home repairs? Or is it what’s now called “egalitarian?”

The dictionary definition of egalitarian is “asserting, promoting, or marked by egalitarianism, which is defined as “a belief in human equality.” So how does this relate to marriage? It’s a marriage where tasks and responsibilities are shared equally and not based on sex. For example, in an egalitarian marriage, the husband may do some or all of the cooking and vacuuming, while the wife handles storage, dishwashing and home electronics. They may split the grocery shopping or one of the two might take full responsibility for menu planning and food shopping. In other words, responsibilities and tasks are split based on each partner’s idiosyncratic preferences, skills and interests.

Where problems arise

While an egalitarian marriage can be a good thing for many couples, it can have its issues unless boundaries are drawn very firmly. For example, consider the kitchen. Let’s suppose that the wife is responsible for kitchen equipment, organization and cooking but the husband is in charge of dishwashing and storage. Guess what can happen? The woman has a carefully thought out scheme of what goes where that is completely intuitive. However, the husband has no idea where measuring spoons go so he puts them wherever he thinks makes sense and half the time the wife can’t then find them.

That old way of doing things

In traditional marriages things might not have been great but they were simpler. Either dad handed over his paycheck to mom and in return she gave him an allowance for beer and cigarettes. Or the man took care of the money and mom had an allowance for household stuff and clothing and then had to beg dad for big purchases such as a dishwasher.

Live like roommates

How does this work in an egalitarian marriage? There have been a number of alternative solutions created by couples to try to get around the problem of who pays for what. Some choose to live like roommates where each person contributes money to household expenses. This can reduce the need for negotiation but may create even larger problems with “gaps.” What are gaps? These can be fights over things such as whether one partner needs to pay when the other calls a plumber about a slow drain.

Pool some of your income

A second option for handling finances in an egalitarian marriage is where you pool some income but each of you keeps some back. This can work well for young couples whose earnings are nearly equal. Unfortunately, if the earnings are unequal this can lead to problems such as you’re enjoying your new computer while your partner is trying to decide whether to buy a suit for a job interview or replace his dying phone. Under this option, you have fewer gaps but more overlap over personal and joint expenses. These then have to be negotiated, as does the issue of how you spend the larger pool of joint money.

Pool all of it

Of course, you can always pool everything and then each person could have an allowance. This can be a satisfactory solution if you have joint expenses that have begun to dominate your individual expenses. This would include things such as home renovations, having kids, pets and the like. This option does have a decided advantage in that it forces couples to define household goals and then enables them to direct all of their money towards them. However, to make this work you will need to create a detailed budget, track expenses and then negotiate basically everything that you spend money on.

Everyone spends what he or she wants

A fourth and final option is where everyone spends whatever they want out of the joint account. Unfortunately, this is the worst possible system outside of living like roommates. It is the favorite of DINKS until the day of reckoning comes when they wake up and find that they are 45 years old, overextended on their mortgage and have nothing saved up for retirement. The benefit of this is that right up to that point there will be a lot fewer fights over money.

What the modern family needs

As you have read, there is a downside to all of these options for handling a couple’s money. The best solution for the modern family is to use modern financial controls. This is where you have an explicit plan for how you handle money, use good accounting and recognize that no matter the system you use, there will be gaps and overlaps that you will need to resolve or figure out how to prevent them.

What is that explicit plan? It’s basically tracking all of your expenses, creating a budget and then determining precisely who is responsible for what. The good news for those that are seriously budget adverse is that tracking expenses and creating a budget is much simpler than it used to be. There are numerous financial apps and software available that make these tasks incredibly simple. For example, one of the most popular is Mint.com. It’s available for use on all types of smart phones and computers and is just amazingly simple to use. It will track your spending for whatever amount of time you decide and then organize it into logical categories such as clothing, entertainment, food, utilities, transportation and the like. You assign an amount to each of these categories and should you overspend in one of them, Mint will alert you via email. It will also alert you if it finds a financial product better than something you’re currently using (think credit cards).

Another good money management tool that’s becoming increasingly popular is Learnvest. With it you can sign up and add your bank accounts directly from your iPhone so that it’s very simple to track spending, stay within your budget and master your cash flow. It also offers access to financial advice and money-saving tips.

If you feel like you could use some help with your budgeting, here’s a video courtesy of National Debt Relief with some information that  features noted financial expert Dave Ramsey …

 

There are even apps available that can help if you’re having a problem with debt. One of the most popular is ReadyForZero, which will help you create a debt-repayment plan and then track your progress as you get closer and closer to zero or owing nothing.

After you’ve created a budget

You may find that creating a budget is not half as troublesome as deciding who will be responsible for what. This is where you will need to do some good negotiating and try to draw firm boundaries. But understand that no matter how good a job you do there will always be gaps and overlaps and the real secret of good money management is how successfully you are in resolving them.

 

Amazingly Simple Solution To Money Problems – Shred Your Credit Cards

cutting a credit cardCredit card debt has become an increasingly big problem for many Americans. We owe an average of $13,177.75 per household just in credit card debts. But that’s only an average. The fact is that many individuals owe $15,000, $20,000 or even more on their credit cards. Here’s an example of what this amount of debt could mean. If you owe $20,000 at an average of 16% interest, and paid $400 a month on your credit cards it would take you 83 months to pay them off and would cost you $13,177.75 just in interest alone. And that’s assuming you charge exactly nothing on those cards for the whole 83 months (nearly seven years).

We’ve become a nation of credit card junkies

The fact is we’ve become a nation of credit card junkies. As of July of this year, there were 1,895,834,000 credit cards in use here in the U.S. That’s nearly two billion credit cards. And wee have an average of 3.75 credit cards per person. Given these numbers it’s no wonder why many Americans are struggling with their credit card debts.

It’s borrowing from your future

The really destructive thing about using credit cards is that it means borrowing from your future to pay for things today. There’s an old saying that if you want to dance, you’ll have to pay the piper. In the case of credit cards what this means is if you want to buy things today you can’t really afford by using credit cards, you’re basically borrowing money you’ll have to repay some time in the future. And when that some time rolls around, you’ll have less money available to pay for the things you’ll want then.

The nasty power of compounding interest

If you don’t pay off your credit card balances every month, you’ll soon run into the power of compounding interest. If you’re not familiar with this it’s when the interest you owe on a credit card debt is added to your balance so you end up paying interest on the interest. Here’s an example of how this works. Let’s say you have a credit card with an interest rate of 20% monthly on your unpaid balance. If you factor this into an unpaid balance of $1000 at the beginning of the year this will turn into $1200 in debt by year’s end. Multiply this by 20 (an unpaid balance of $20,000) and you will see how much you could be hurt financially by compounding interest.

Shred them but don’t close your accounts

According to a recent study done by the National Foundation for Credit Counseling about 20% or one in five people live without credit cards. This means it obviously can be done. So if you want to get your finances back under control, you need to shred all your credit cards. But don’t close the accounts. You may eventually want new credit in the form of an auto loan or mortgage. When you apply for new credit the first thing your lender will do is check your credit score, which is made up of five components. One of the most important of these is your debt-to-credit ratio as it accounts for 30% of your score. This ratio is calculated by dividing the amount of debt you have by the total amount of credit you have available. For example, if you have $10,000 in available credit and only $2000 in debts, your debt-to-credit ratio would be 20%, which would be excellent. But if you were to close your credit cards your available credit might drop down to something like $2000 and your debt-to-credit ratio would be 100% and that would have a dramatically negative effect on your credit score.

How to live without credit cards

Despite what you might think, it should be fairly easy to live without those credit cards. While you have to basically pay cash for all of your purchases, this could be in the form of a check or debit card. You could also purchase prepaid credit cards or secured credit cards and use them to pay for your purchases.

The differences

Before you trot off to get either a prepaid or secured credit card, you need to know their differences. A prepaid card is just that – you deposit money in advance and then use the card to pay for your purchases until your balance reaches zero. At that point, you can then either add more money to the card or simply throw it away and get another one. A secured card is different in that you make a cash collateral deposit usually $300 or $500 – that gives you a line of credit, which usually will be a percentage of your deposit or possibly the full amount. You then make monthly payments on your balance just as you would with a standard credit card. Also like a standard credit card if you fail to make your payments on time you will be charged a late fee and there will probably also be a fee for any over-the-limit transactions. However, unlike a regular credit card if you exceed your balance or default on your payments you could lose your deposit and your account would likely be closed.

How could you pay cash for all your purchases?

If you’ve been living on a steady diet of credit card usage the idea of shredding your cards and paying cash for everything can be scary. But it shouldn’t be. The secret is to start tracking your spending so that you can develop a budget. There are a number of apps available that make tracking spending just about brain dead simple. One of our favorites is Mint.com. It’s free and not only tracks your spending but will automatically divide it into categories such as rent or mortgage payment, groceries, utilities, medical bills, clothing, entertainment and so forth. You could use this information to create a budget and Mint.com we’ll even help you stay on it. In fact, if you overspend in any of your categories, Mint will send you an alert via email.

Is A Frugal Budget Really HelpfulWhen you know what you’re spending, you’ll know where you can make cuts

Once you’ve had some experience with your budget, you should be able to find areas where you can cut your spending. Most people divide their budgets into two major categories – fixed expenses and discretionary expenses. You may not be able to do much about your fixed expenses such as your rent or mortgage payment, auto loan and utilities. But you should be able to find areas in your discretionary spending where you could make cuts. Take groceries as an example. If you focus your attention on cutting your food costs by careful shopping and the use of coupons, you might be able to cut those costs in half or better. This will free up money you could use to pay down and ultimately pay off those credit card debts.

The snowball strategy

If your goal is to get those credit card debts paid off, one of the best ways to do this is what’s called the snowball strategy. This means ordering your debts from the one with the lowest balance down to the one with the highest. You then focus your attention on paying off that debt with the lowest balance while continuing to make at least the minimum payments on your other debts. When you get that first debt paid off, you will have extra money to pay off the debt with the second lowest balance and so on. If you’re wondering why this is called the snowball strategy it’s because the idea behind it is that as you pay off each of your debts, you will gain momentum to continue paying them off just as a snowball rolling downhill gathers momentum.

Note: If you’d like to know more about how to snowball your debt, here’s a short video with more information …

Los Angeles To Be Among The Highest Minimum Wage Cities

minimum wage signThe minimum wage is always something that we will aspire to increase. According to the definition from Wikipedia.org, it is the lowest hourly wage that employers are required to pay a worker. No legal employer will ever give you anything lower than the minimum. That will give you grounds to sue them.

While a lot of people are convinced that a higher minimum compensation rate will lower the poverty level in the country, some people believe it is not the real solution. In case the minimum salary does increase, soon enough, we will be asking for another increase, again.

One by one, local governments have come forward to express their intention to follow through with the encouragement from President Obama to increase the minimum wage. And among, them, Los Angeles is the last to consider raising the income level of its local constituents.

Los Angeles plans to increase the minimum salary

Ever since the President announced that he will be increasing the Federal minimum wage, local governments have started considering if they will impose the same changes in the private sector. If the local governments decree that the minimum salary will increase, the private businesses will be forced to increase the wages of their respective employees.

Of all the cities, Los Angeles, is the last city to declare that they have plans to follow the suggestion of the President when it comes to increasing the wages of American workers. According to the article published on the CBSLocal.com, Mayor Eric Garcetti intends to raise the minimum wage as high as $13.25 per hour.

The Mayor said that this raise intends to help workers improve their financial situation. Those who are working hard, according to the Mayor, should not have to live in poverty.

Before employers raise their concerns, this increase will not be done immediately. The initial increase during the first year will be $1.25. In the next two years, the increase will be $1.50 per year before it finally reaches $13.25 per hour in 2017.

This is intended to keep the inflation rate from rendering the hike useless. In the past, the wage hike fails to alleviate the consumers from poverty simply because it cannot keep up with the inflation rate. Of course, we cannot increase the wages immediately because a lot of businesses will suffer. This is why the local government is targeting a slower and more gradual increase of wages.

The current minimum wage in California is $9 and the intention of Los Angeles to increase the minimum wage to $13.25 is considered to become the highest among the other cities.

This announcement is met with mixed reactions from the public. Workers take it as good news, because a higher wage means better financial conditions for them and their family. For one, an increase in income can help pay off debt. It can also boost savings. Not only that, it can also allow consumers to spend on things that they used to hold back on – especially when it comes to their kids.

However, some workers, especially part time employees are concerned about job stability. After all, to cut back on the overhead expenses, business owners might end up laying off workers to keep the higher minimum wage from eating their bottom line.

But the article stated that a study done on the plans of Los Angeles revealed that the effects on employment might not be as significant as one would fear. There may be increase in commodity prices but the article mentioned that businesses should be able to absorb this change without a problem.

Effects of increasing the minimum compensation rate of workers

According to the analysis done by the CBO.gov, the minimum wage increase has two effects on low income households.

It will increase the household income.

Obviously, low wage workers will not have an income boost. For instance, a $9 per hour income that is increased to $13.25 is a big increase. If you work an average of 8 hours a day, that means having $34 more each day. Even if you have a part time job of 5 hours, that is still an increase of $21.25. For a full time worker, that increase means they have $170 extra a week. For part time workers, that is $106.25 increase each week. For a low income family, that is something big. It can guarantee better food for a lot of people.

It will jeopardize employment conditions.

While the article from CBS Local stated that the effects to the employment will not be significant but they did not say there will be no effect. It will affect some people and low wage workers might lose jobs in the process. That is because increasing the wages of the minimum earners does not mean companies do not have to increase the wages of the high income earners. Some of them could ask for an increase as well. If that happens, business will have a hard time coping with the increase in minimum wage.

In truth, the drive to boost the minimum salary is brought about by the growing debt in the country. It is not really just about poverty, it is about debt. But you have to keep in mind that an income increase will not help you stay away from debt. You can earn more but if you do not change your financial habits, you might end up still feeling like your finances are not enough.

Tips after getting a salary increase

Since the minimum wage increase are all likely to happen, you may want to ensure that you will be maximizing the benefits that it will give you. Here are 4 important tips that you need to follow so this increase will lead to your financial independence.

  • Improve your debt payment plan. Most low income earners have debts. This is why our first tip is for you to improve your debt payment plan by making more payments towards your debts. Try not to do anything else until you have paid off what you owe – or at least a significant percentage of it. By freeing yourself from debt, you are actually increasing your extra money for basic commodities.
  • Do not be too quick to upgrade your lifestyle. Do not move to a bigger apartment or do not buy new clothes if it is not needed. Concentrate on the things that matter the most like your debts or savings. The only thing that you can improve on is your food purchases but that does not mean you will eat out more often. Be wise about where you will put this extra money that you have.
  • Come up with saving goals. If you do not have one, make one up. Save up for your emergency fund. Save up so you can purchase more energy efficient appliances. These are better uses for your extra money. Instead of blindly increasing your purchases, it is best to just save up for future needs so you do not have to borrow money in case of an unexpected need.
  • Invest your extra money. The last tip is to see if you can invest your money. This is the most proactive way that you can use your money to improve your finances. You do not have to invest a lot – you can start small and then increase that as soon as your initial investment gained profit. Soon your investment will grow without you knowing it.

While the minimum wage seems like the answer to your prayers, make sure you do not depend on it to improve your financial situation. It is best to work with what you have right now and save or invest whatever increase you will get in the future. That is the secret to being rich.

17 Nuggets Of Wisdom That Could Help Improve Your Financial Life

Couple Using Laptop And Discussing Household Bills Sitting On Sofa At HomeLet’s face it. Thinking about personal finances isn’t much fun unless you’re a member of that fortunate 1%. Of course, if you’re a member of the 1%, you probably don’t have to think much about your financial life anyway. But if you’re like us and are a member of the other 99% then finances are something you think about a lot. You’ve probably read articles or even books about personal finance with advice about creating a budget, having an emergency fund, paying down your debt and so forth. Beyond this, there are some other things you could do that would help improve your finances and here are 17 of them.

Create a roadmap of your goals

Just sitting down and asking what are your goals can get you on the path to realizing them. Don’t be afraid to think big and pursue those really big dreams even if they don’t seem doable. If you want to increase the chances that you will succeed, create a spreadsheet and do some number crunching to make sure you will have enough money to fund those adventures.

Drive less

This may seem a bit radical but the less you can drive your car the better. While driving is very handy, it can also be incredibly expensive when you take into consideration the oil and gas, insurance and depreciation. Automobile accidents are very common these days and if you get into one – even if it’s not your fault – you would have to at least pay the deductible. If you do have to drive a lot, make sure you do regular oil changes and all of the maintenance recommended by your car’s manufacturer.Avoid products that could be dangerous

Avoid products that could be dangerous

The Consumer Product Safety Commission is now issuing hundreds of product recalls a year. This makes it hard to keep track of all of them. It’s easier if you sign up for alerts from the Commission or download an app that will alert you when a recall occurs. Be particularly careful when it comes to used baby products, as there has been a number of crib, stroller and highchair recalls.

Cut your spending dramatically

If you focus your attention on monthly expenses such as cable, phone and Internet, you should be able to reduce them and your spending dramatically. Once you’ve done this, get to work on some of your variable expenses like groceries. We know of one person that did all of this and managed to cut his spending by $1000 a month.

Use the new online tools

There are a wide variety of web-based tools and apps available to help you manage your money. The company Corporate Insight recently found there are more than 100 new startups with apps or software that could help you manage your finances. In addition, there are apps such as Shopular, RetailMeNot and RedLaser that make it easy to use coupons and discounts when you’re making purchases.

Commit to earning more

If you’re one of the many Americans that are under-earners, commit yourself to earning more money. The best first step is to promise yourself to earn more and to make sure you say “yes” to any opportunities you come across that would allow you to do it.

Keep your finances off of Facebook

While it might be fun to brag about your high credit score on Facebook, it’s much better to keep that kind of information off the Internet. Facebook and other types of social media are very public and are places where the scam artists hang out and look for financial information they could use to defraud you. When it comes to your personal finances, a good rule is that less sharing is better.

Review your auto and life insurance policies

Automobile insurance policies can have different deductible amounts, coverage limits and important limitations. These are things that could surprise you if you’re in an accident. Review your policies and make sure you understand them including your life and disability insurance. If there is insurance available where you work think about supplementing it with your own policies.

Be ready for an increase in interest rates

Interest rates are now very low. However, most financial experts say they will eventually rise and possibly more sooner than later. To get ready for this, you need to pay off any debts where your interest rates could rise, and if you are a homeowner you should think about refinancing if you haven’t already done so. If you are a first-time buyer and are looking to buy a home, you might want to think about doing it very soon so that you could get rates that are still low.

Reduce your tax bill

The ugly fact is that many people pay more in taxes than they really should. If you put money into a retirement account that is pre-tax, buy some municipal bonds or start your own business, you will pay less in taxes. If you’re part of a gay couple you might also check to see what refunds you’re entitled to for the past two or three years as the Internal Revenue Service now recognizes same-sex marriages for income tax purposes.

Trade for or rent a high fashion dress

While you may not be aware of this, you can rent and trade for high-end clothes on the Internet. For example, Tradesy makes it very easy to sell and buy seldom-worn fashion items including designer dresses. This gives you the opportunity to wear fancy clothes without buying them. There is also a number of websites growing in popularity such as Bag Borrow or Steal and Lending Luxury where you can rent accessories and dresses for that big party. While it will cost you some money, you will spend a lot less than if you were to purchase the items and will still look like a million bucks.

Kick something off on Kickstarter

More than one hundred thousand projects have been launched on this site and about 44% achieved their goals as of December 2013. You don’t have to be a celebrity to use Kickstarter to fund that creative idea of yours. If you do go for it, promote your project first on Facebook and Twitter and to your friends. Make a great video and, above all, have a very appealing product like the Coolest Cooler that just raised millions of dollars.

man holding credit cardsGive gift cards

While gift cards might seem a little soulless, they really are an ideal gift in a lot of ways. And this reduces the time and strain of gift giving. The majority of people say they really like to get these cards. If you choose cards that are retailer specific (think Cabela’s or Ace Hardware), they generally don’t have fees or penalties for delayed use. Be careful about gift cards from the credit card companies as they generally come with fees that can range from $4 to $6.95. Also, you can get some additional protection by registering the card in the event it is stolen or lost.

Watch out for online scams

It’s easy to buy items on websites like Craigslist but there are fraudsters that prowl these sites. To make sure you’re safe, always arrange to meet the person face to face when paying cash for goods. Be sure to meet some place public and if possible bring along a friend for added protection. And under any circumstances do not wire money before you see the item, as this is how much fraud occurs

Talk to your honey about money

Finances are one of the biggest reasons why couples end up splitting. You should always be honest with your spouse or partner. One good idea is to make a periodic “money date” to review your finances, talk about the big decisions and consider each other’s financial mindset. Do this and you should be able to work together to set and reach big-money goals whether it’s buying a home or traveling to Europe.

Stop worrying and be happier

Finally, sitting around and worrying about money can waste a lot of time. One recent study found that 36% of the people queried said that they spent at least two hours a day worrying about their money or managing it. There are a number of free resources available that can help reduce some the strain of personal finances and save you time to boot. So get busy, find a few apps and stop worrying so much.

Wake Up, People! You Absolutely Must Know These Things About Your Credit Score

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeA study done in 2013 revealed some amazing facts about how ignorant many Americans are regarding their credit scores and credit reports. For example, 2/5ths of those surveyed did not know that credit card companies and mortgage lenders use credit scores to determine their eligibility for credit. Another 2/5ths incorrectly believed that personal characteristics such as marital status and age are used to calculate credit scores. Between 25% and 33% did not know when it is that lenders must inform borrowers of the credit scores used in their lending decisions. More than 25% do not know how to raise or maintain their scores. And 36% incorrectly believed that credit repair agencies are usually or always helpful in improving credit scores and correcting errors in credit reports.

Wake up, people!

If you don’t understand credit scoring and credit reports you could be facing big trouble. If you’re not aware of this, you definitely need a good credit score to qualify for an auto loan, a mortgage and other financing. And if you make just one misstep such as forgetting to pay a credit card bill, you could be on the slippery slope to serious credit problems.

Do you know who compiles your credit reports?

Your credit reports are compiled by the three major credit bureaus – Experian, Equifax and TransUnion. The information they use comes from banks and the financial institutions with which you do business and includes every credit contract you’ve ever had related to debt. Debt collectors even report to the credit bureaus. So if you have an old unpaid medical bill, this could pop up on your report and damage your credit score.

In addition, the three credit bureaus collect information from public records on tax liens, court judgments and bankruptcies. Any time you apply for any type of credit (called a credit inquiry), this will be reported to the three credit bureaus. In turn, the credit bureaus provide your credit report to the lenders when you apply for new credit.

Banks and credit card companies aren’t the only ones that access your credit reports either. Cell phone providers, landlords, insurers and utility companies will also ask for a credit report in determining whether or not they want to deal with you.

What about employers?

According to the Fair Credit Reporting Act, employers can check your credit reports but they have to get your permission to do this. Of course, if you’ve applied for that dream job and your prospective employer has asked to check your credit reports, you’ll probably feel pressured to say yes. If you say no this would be as good as saying that you have poor or bad credit. And under no circumstances are employers or prospective employers permitted to check your credit score.

The inverse ratio

There is an inverse ratio to credit scores. The higher your score the lower the interest rate you will be charged on an auto loan, a personal loan, credit card, and a mortgage. Even your auto insurance will cost less if you have a high score. Conversely, the lower the score, the higher your interest rates will be.

One freebie a year

You can get a free copy of your credit reports once a year. This is a perk that was legislated by Congress a few years ago. There is a website, www.annualcreditreport.com, where you can get all three of your credit reports either simultaneously or one at a time. Alternately, you can get your credit report free from each of the “big three” credit bureaus. You should get these reports and review them carefully to make sure they do not contain errors. If you do find an error in one of your reports you need to immediately dispute it with the appropriate credit bureau. What some people do is get their report from one of the credit bureaus every three months, which is a way to monitor their credit and immediately spot any fraud.

Man climbing range of credit scoresThey won’t include your credit score

Your credit reports will contain a lot of information but they won’t include your credit score. While there are a lot of different credit scores floating around the most important one is your FICO score as this is the score that most lenders use in determining whether or not to extend you credit. You can only get your FICO on the website www.myfico.com.

Where else to get your credit score

Getting your credit score used to be a fairly big job. But it’s becoming much easier. You can get your score free on websites such as CreditKarma.com and CreditSesame.com and from the three credit reporting bureaus. These won’t be your true FICO score but should be close enough to give you a good idea of how you stack up. Whatever your number is, don’t fixate on it. The important thing is to understand how you stand in the range being used. FICO scores range from 300 to 850. This means that a score of 800 would put you in the range of very good or excellent credit. However, the VantageScore, which was developed by the three credit reporting bureaus, has a range of 501 to 990. It also assigns a letter grade to scores. If you were to have a VantageScore of 800 you would be ranked as C or Prime, which wouldn’t be as good as an 800 FICO score.

It’s becoming easier

If you have a Discover card you’re probably seeing your credit score every month on your statement. The credit card companies, 1st Bankcard and U.S. Bankcard have said that they will soon be sharing FICO credit scores and related information with their customers. This is in response to the US Consumer Financial Protection Bureau (CFPB), which has been urging the credit card companies to do this because it believes the more information a consumer has, the better a job he or she will do in managing their credit. While this has not yet proven to be true, it certainly can’t hurt for people to be able to see their credit scores every month and whether they’re getting better or worse.

How your score is calculated

No, your age, marital status, number of children or any other personal information is not used in calculating your credit score. It is based on six factors: Your payment history, debts owed, length of credit history, amount of available credit, types of credit and your credit inquiries.

If when you get your credit score you find that it’s either poor or bad there’s nothing you can do about your payment history. History is, after all, history. You also can’t do anything about your length of credit history. However, there is one factor you could get to work on – which is your debt-to-credit ratio. It’s calculated by dividing your debts owed by the amount of available credit you have. For example, if you have available credit in the amount of $10,000 and $5000 in debts owed, your debt-to-credit ratio would be 50%. Since this accounts for 30% of your FICO score this is an area where you could do something to affect it positively. The two alternatives are to either pay off some of your debts or ask one or more of your creditors to increase your credit limits. Do either one of these and you would lower your debt-to-credit ratio and this should have a positive effect on your credit score. If you’d like more tips for improving your credit score, watch this short video courtesy of National Debt Relief.

The net/net

What all this boils down to is that your credit score pretty much rules your credit life. And since your credit score is based on your credit reports – or how well you’ve used credit – the best policy is to always use it sensibly.

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