Provident Living

Now, as some people (but not most people) know, the key to fixing your finances is to start at the ground up. A lot of people are afraid of the "B-word" . . . "budget". But, it's not scary and it's not a ball and chain tying you down and stopping you from enjoying life. In fact, it's just the opposite. It gives you the freedom to continue your standard of life even in the midst of economic uncertainty. A financial reserve is more than just a cushion; it's a life preserver, in that, if your situation turns south, it preserves your quality of life. It's a safe harbor from worries, and a goal to work toward.

Enough philosophizing. Let's get down to the nitty gritty. How? Well, that's simple. At least, it's a simple concept, which we all know are the most difficult to practice. It starts with living within your means. We've all heard that a million times before, and it's as ingrained in us as looking both ways before we cross the street, which is good and bad. Good that we know the rule inside and out. Bad that we've become desensitized to what it really means. So I am going to redefine the term. "Living within your means" means more than just not spending money you don't have. It also means planning for contingencies. As I was saying above, it means having a financial reserve. But, for some of us who live paycheck to paycheck, a financial reserve sounds like an absurd dream. Struggling to make ends meet causes unnecessary stress and worry, which can actually effect your physical health.

So, how do we do it? Well, here's where we start. For one week, keep track of everything cent you spend. If you buy a soda out of the machine at work, write it down. If you buy a treat at the store on the way home, write it down. Track everything. And, at the end of the week, look over your record and split your expenditures into two different columns, "Necessary" and "Unnecessary". At the top of the paper write how much income you bring in and then do the math. How much of that are you spending on unnecessary items? Is there any room to trim the fat? I think you'll be shocked at how many pennies here and nickels there go to things you don't even really want. That's not to say that budgeting some money for fun isn't a necessity because it is, but we'll get to that next week. For now, stay tuned, and as always, send your financial questions to financialfixutah@gmail.com.

Credit Cards; Good or Bad?

I would say credit cards pull a little from Column A and a little from Column B. Credit cards are not inherently evil; in fact, they can do a lot of good if you know how to handle them. Credit cards can help increase your credit by leaps and bounds but you have to know a few simple guidelines to help keep you safe from the credit card issuers:

1. Using a credit card does not mean carrying a balance. If you carry a balance on your card, you succumb to the green monster known as interest. To increase your credit score, keep your balance below 25% of your limit. A balance over 25% of your limit actually hurts your credit score. Who knew?

2. Do not get used to using credit cards for everyday purchases. Just because it's plastic doesn't mean it's free money. Credit card companies, just like everyone in this economy, are trying to get every last cent out of their users. Interest rates have risen, limits have been slashed, and terms are changing without notice. Using credit cards often, but sparingly at the same time may seem like an oxymoron, but here's what we mean; use your card to put gas in your car only. That way you have minimal charges that you are able to pay off at the end of every month, dodging the interest, and upping your credit score.

3. A higher limit does not necessarily equal higher risk. If you have some sort of self control when it comes to your spending limits, a higher limit actually looks better on a credit report. For instance, if you purchase a washing machine for $500.00 on a credit card with a $1000.00 limit, you have a balance that is 50%, or half, of your limit. If you carry that balance from month-to-month, not quite paying it off, that actually can cause your credit score to plummet. However, if you purchase that same washing machine on a card that has a $3000.00 limit, that's less than 20% of the limit, actually helping your credit score. *Disclaimer: for those of you who have little to no self-restraint when it comes to credit card debt, a lower balance will be a better option*

4. A higher interest rate isn't always a bad thing. I know this sounds so contrary to everything you've ever heard or thought, but hear me out. Credit cards with higher interest rates sometimes come with appealing perks, like rewards back on everything you spend. However, if you cannot control your spending, skip the rewards for now and stay with a card with a lower rate.

5. Have several cards and use each. We've all seen the movies where a well-off person pulls out their wallet and down goes a huge list of credit cards. We don't want to get that dramatic, but having several lines of credit with different issurers is a safe guard against slashed limits. Credit is all about your history of payments, and the ability to determine the risk you will pose to financial institutions in the future. Having several cards that you utilize and pay off regularly is better than maxing out one card.

Welcome to Financial Fix

Times are hard. We all know that. But, things don't have to be as hard as they are. This blog is dedicated to giving Utahns a glimpse at getting out of debt, staying out of debt, and building a financial reserve, because there's no better feeling in the world than knowing that you're in control of your finances, and not the other way around. So, feel free to send any financial based questions to: financialfixutah@gmail.com and I will choose some to answer every week. Remember; finances aren't scary once you're in control!