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Staff Writer at Debt Reduction Services

Stabilize your finances by managing your budget and credit.

How to Manage Your Money, Credit, and Spending

SIMPLE Personal Finances Series

M Is for Managing Your Finances

As a reminder, SIMPLE finances represents: Spend, Invest, Manage, Plan, Limit and Eliminate.

Today’s topic addresses the third part: M Is for Management

Many will hear “management” and think immediately of money management, meaning retirement planning. I am not a financial advisor or certified financial planner, so I do not give investment advice, sell or suggest life insurance strategies, or broker stock sales. When I refer to management as a critical part of SIMPLE finances, here is what I mean:

1. Manage your day-to-day money
2. Manage your credit
3. Manage your spending

Quote of the day: “If Managing Were Easy, Everyone Would Do It… and Nothing Would Ever Get Done.” I’m not sure what that has to do with managing finances, but it still cracks me up.

Manage Your Day-to-Day Money

Putting together a spending plan, as mentioned in the first blog under “S is for Spend,” is part of managing your finances. Regardless of what format you use to budget – whether you do it on paper, use an Excel spreadsheet, enter your figures into an online program, or post it on a refrigerator whiteboard – planning out your spending for the next month and beyond helps you to hold onto the money from your paycheck that you will need for future purchases and expenses (rather than spending it now and using credit cards later).

As with most of the important money-related behaviors we have identified over the years, managing your money on a daily basis is much more of a commitment to yourself than it is the development of a skill. Whether you write it down, post it on a mirror, make it the wallpaper on your PC, or keep it on your nightstand, keep your budget where you will see it regularly. By living within your budget, you will be empowered to reach prioritized goals that bring both peace of mind and long-term satisfaction.

Manage your credit

When was the last time you checked your credit report? Since 2004, you have had the right, thanks to the Fair and Accurate Reporting Act of 2003, to get a free credit report (aka credit history, credit file, credit record, etc.) every twelve months from each of the three main credit bureaus. You can get one, two or all three at a time. Just go to www.AnnualCreditReport.com, identify yourself and, voilà, you can view and download your credit history.

Check for accuracies and follow the instructions at the back of the report to dispute any errors. If you do have trouble accessing the report online (not uncommon), use the form found at www.annualcreditreport.com/manualRequestForm.action to mail your request. You may also order your report by phone at (877) 322 8228.

These reports do not come with credit scores. In order to get your FICO score (really, the only one that matters in 90% or more of all credit-based decisions in this country), you will either have to pay for it at MyFICO.com or ask a lender for it when you apply for a loan. Otherwise, you might consider using a service that provides an “educational score.” It looks and smells like a FICO but is not exactly the same. Still, scores from CreditKarma.com and CreditSesame.com can provide you with helpful snapshots and monthly patterns to help you better understand your credit rating. Your bank’s website may provide a score as well if you have set up online access to your account.

Keep in mind that credit scores are numerically calculated representations of the risk you pose to potential lenders of missing future payments. Based upon your recent history of payments, debts, credit limits, missed or late payments, and efforts to acquire additional debt, the score estimates the likelihood that you will make payments on time in the near future. The higher the score the better, with the FICO rating ranging from 300 on the low end to 850 at the top.

However, this does NOT mean that you have to fixate on getting an 850 score. Once your score is in the 750 to 775 range (like 40% or so of the American population), when you qualify for a loan, the lender will likely give you their best interest rates. For example, someone with an incredibly high score of 840 will be no more likely to qualify for the lowest interest rates offered by a lender for a car loan than will another person that has a 780 score. Another way of putting it is this: any score above 770 or so might provide you some bragging rights, but it will not secure you any lower interest rates.

Keep your credit clean by checking your credit report regularly.

Manage your spending

One of the most helpful financial habits to develop is that of tracking your spending. If you have never written down where every penny of your paycheck goes over a two- or four-week period, it is a task worth more than the energy required to complete it. Simply write down your expenses at the end of each day in 10-15 categories (e.g. dining out, vending machine, groceries, utility bill, etc.), then add those categories up at the end of the month. Actually, summing your expenses after just one week can be an extremely eye-opening experience. Get into the habit of asking for and keeping receipts for all purchases, at least until you have noted them on your expense tracker. And don’t forget to track your online and smartphone app purchases as well.

There you have it. A few keys to managing your SIMPLE finances. If I were to expand upon the idea that “M Is for Management,” I might expound upon the importance of managing your investments (except that I am not a registered investment advisor, so I cannot give individual investment advice). Or, I might pontificate upon the power of managing your savings accounts (actually that will be the next blog in this series, so watch for “P Is for Plan for expected and unexpected expenses through savings”).

Of course, I would also pitch the gravity of getting a handle on risk through certain insurance products (and while I am not a licensed insurance broker and cannot sell products or give individualized insurance advice, I can certainly provide general guidance on the value of risk management… so stay tuned for “L Is for Limiting your Liability”).

Finally, I would most certainly discourse upon the derogatory nature of excessive consumer debts and the seriousness of disposing of it (but I’ll wait until “E Is for Eliminating the Burden of Debt”).

Obviously, we still have a ways to go to get to S-I-M-P-L-E finances. Thanks for sticking with me thus far!

Todd Christensen

Director of Education

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