Growing up, “credit card” was a forbidden word.

We were the “Let’s put these Christmas gifts on layaway,” type of household, not the “Just charge it all to my American Express” type, if you catch my drift.

Credit cards were assumed to only be used by the rich: people who could pay it off in time without falling behind on payments and falling into debt. We weren’t poor, but we were very close to living paycheck-to-paycheck. Any extra spending outside of necessities needed to be saved up over time, NOT thrown on a credit card.

Being in debt was the fear. 

Flash forward to my adulthood, after investing time to learn about healthy money management on my own, I realized that credit cards aren’t bad at all. When utilized correctly, they can actually help you save money and improve your credit score.

For those of you who don’t understand the importance of a good credit score, let’s break down the reasons why you need one:

  • Renting an apartment
  • Buying a car
  • Buying a home
  • Starting a business
  • Receiving low-interest rates or waived fees

Aside from renting a home, you’ll need a loan for the remaining listed examples. A good credit score (generally a 680 and above) shows lenders you’re a reliable lendee and able to pay them back. Even with renting an apartment, good credit scores show property owners that you’re responsible and will pay your rent in full and on time. Yes, some companies and leasing agencies work with you if you have a lower than average credit score, but that’s usually by charging you higher interest rates, extra fees, and unnecessary requirements, such as higher security deposits and needing a cosigner.

Even if you don’t have a credit card, there are other ways you’ve developed credit over time that can make or break your score. So, if you’re convinced that your credit score can use some tender, love, and care, let’s get down to the nitty-gritty.

photo of improving credit score

 

1. Pay Bills on Time

Rent or mortgage, utilities (electric, water, gas) cell phone plan, car loan…you name it. Any and every bill in your name is attached to your credit report. Payment of these, or the lack thereof, is reported to credit bureaus.

Any time you make a late payment or miss a payment, they’re notified. Several late or missed payments can result in higher interest rates on your balance, which means more money for you to pay back, as well as lowering your credit score. If the pattern continues, your credit card account can be frozen and sent to a collections agency, which is problematic. This can negatively impact your credit score for several years, which can prevent you from qualifying for loans, renting or buying a home or car, and more.

With that said, do what you need to do to make sure your bills are always paid and paid on time. Mark the dates on your calendar, set reminder alerts on your smartphone, set up auto-pay for the bills you can pay online (if available), and most importantly, set aside money each month designated to bills (I’ll talk more about how to budget in another post).

2. Keep Your Credit Card Balance Low

The ideal balance (that looks good to credit companies and loan lenders) is when your balance or spending stays below ⅓ of your total credit limit. For example, if your credit card limit is $2,000, try not to spend more than $700 and always pay it off (or at least a large portion of it) by the due date to keep from building interest and accumulating debt.

Sometimes life happens—car repairs, unexpected bills, etc. that require money than expected—and using your credit card is more convenient. I’ve been in those situations and completely understand. This is why it’s important to have an emergency savings or rainy day fund set aside (we’ll talk more about that in another post). If you don’t have any savings in this situation, try to at least pay a portion out of pocket and put the remainder of your credit card. Then, analyze and adjust your monthly budget to make sure you pay off that balance on time.

3. Check Your Credit Report Annually 

By law, you are allowed one free report of your credit history from each of the three national credit bureaus—Equifax, Experian, and TransUnion—per year (they charge a fee to request more). This helps you keep track of any account of credit you’ve opened within the past decade. Sometimes there are errors or things the credit companies overlook, such as an old utility bill that may not have been paid because the bill wasn’t mailed to your new address. Small things like that can build up over time and lower your score. Once discovered and corrected, it can make a huge impact on raising your score.

 

 

So, here’s a quick recap: a good credit score means you’re reliable, responsible, and a force to be reckoned with. Remember, a 680 score and above is considered good, so aim high! You got this!

Let’s face it: no one wants to be told how to spend their own money. After all, it belongs to you. You worked hard for it. I completely understand.

 

With that said, not everyone is gifted in healthy money management. What may be a temptation to spend for one person may not be the same for someone else. Two people may have the exact same income, but live two completely different lifestyles. The spending habits of an individual who is single with no children may not be ideal for someone married and has a toddler.

 

In order to develop a realistic budget that you can abide by, there are a few fundamentals one must first understand.

 

PRIORITIES

Here’s a secret: “need” and “want” are NOT synonyms. They’re not even close. Consider the following:

 

You need food. . .but you want to have dinner at fancy restaurant with your friends.

You need shoes. . .but you want an expensive pair of Adidas/Vans/etc.

You need a home. . .but you want to rent a deluxe, beachside, condo in Miami. 

 

The key is prioritization: understanding and giving attention to important things first. In the case of finances, necessities are important and come first; the things you need. Don’t get me wrong, a fresh pair of sneakers, a deluxe condo, and a gourmet dinner are all nice things that anyone would want for themselves. But if these aren’t things you can afford or live comfortably without financial strain, they’re not a good choice.

 

Even if your salary is high enough, there may be a certain number of necessities that your income must tend to first, which can still leave you with less money to spend on the things you want. Which brings us to the next subject.

 

INCOME VS. EXPENSES

Your salary or pay stub shows how much money you make each month, but do you know how much of it you have to spend each month? The best thing to do before spending money on extra things is to analyze the amount that must be reserved for expenses. Make a detailed list of all of your bills for the month and add them together for a total. Here’s an example:

 

  • Rent/mortgage: $800
  • Utilities
    • Electricity: $50
    • Water: $40
    • Cable/Internet: $60
  • Car loan: $280
  • Car insurance: $100
  • Gas: $150
  • Cell Phone: $70
  • Medical Insurance: $150
  • Home/renters insurance: $30
  • Groceries: $250

TOTAL:  $1,980

 

Now, subtract that total from how much you make each month. Let’s say you make $1,500 each pay period and have two pay periods per month. Your total monthly income would be $3,000.

 

Subtract your total monthly expenses from your total monthly income: $3,000-$1,980= $1,010

 

So you have an estimated $1,000 left over to spend per month, which is about $250 per week (considering four weeks in a month). If you’re buying lunch every day during the work week, which is about $10 to $20 per day, five days a week, you’re already spending nearly $100 of the $250 per week on food alone, and that’s not including weekends.   

 

This is why it’s imperative to pay attention to where your money is going, which takes us to the last principle.

 

TRACK YOUR SPENDING

This may sound obvious, but it’s easy to get caught up in the moment and forget how much money you’ve spent. We live in a consumer-driven society where everything we see, from billboards to commercials and even Instagram posts, are convincing us that are lives are miserable without their products and if we don’t buy their products we’ll remain unhappy.

Don’t fall for it.

The only thing that will make you unhappy in this scenario is your debit card getting declined at the register, or finding yourself knee-deep in debt.

 

The easiest and most effective way (in my opinion), of tracking your spending is writing it down. You can easily use a basic notebook or binder to update every evening and keep your receipts inside for reference. I’ve created a budget tracker that helps me stay organized each month. You can download it, for free, here.

 

I manually budget and track my finances bi-weekly using my Budget Journal.

 

There are also helpful apps and online tools available that do the same thing digitally, such as Mint. Whichever works best for you. Personally, I prefer writing things down so that I don’t have to depend on my phone or the internet for everything.

Keep in mind, we didn’t account for other forms of debt, such as a credit card bill or student loans, in the example expense list. Ignoring and not paying off those types of debt can do a load of damage to your credit, which is a big no-no. (You can learn more about the dangers of bad credit in another post.) For now, take advantage of budgeting apps and make a healthy habit of saving receipts. Writing down everything you spend may not be easy at first, but once you get the hang of it, you’ll see it was well worth it.

In the beginning….you had money.

You received the paycheck (or direct deposit), saw that everything added up correctly, and deemed it good.

And then you said “Let me buy this, that, and the other.” And before you knew it, there wasn’t enough left for necessities.

Stress and debt followed, and it became a pattern, then a lifestyle. And now…you’re stuck.

 

Living paycheck to paycheck is not a life you want to live. No one should have to wait for their next source of income before making a financial decision. A lack of sufficient funds has 10% to do with your income and 90% to do with your lifestyle and mentality. Being rich isn’t an immunity to bad spending habits. Many famous and wealthy people have splurged beyond their means, resulting in debt or filing for bankruptcy. Those who successfully managed their wealth wisely invested in financial advisors.

 

If you suffer from the I-don’t-know-where-my-money-went syndrome (be honest with yourself), you mostly identify with one of two reasons below:

  1. Living beyond your means (spending more money than you make)
  2. Having accumulated debt from student loans, hospital bills, car problems, or other circumstances that put you in a financial bind quicker than the average person can pay back

 

Whether you deal with #1, #2, or both, a budget will save your life. Waiting on your next paycheck to buy things you need or constantly needing to borrow money from someone is not the type of life you want to live.

 

You have to get serious about your finances. I repeat: Get SERIOUS about your money.

And the best way to do so is to change the way you think.

 

Budget savviness is a mindset. Living within your means is a discipline. It’s not a one quick fix or an overnight miracle. It takes strategy, patience (especially with yourself), trial and error, and most importantly, dedication.

definition of financial literacy

 

The secret is to do what the wise do: invest in financial advisors. And that’s exactly what we’re going to do.

 

THE MASTER PLAN

This website is your financial advisor. This is where you can come, any day of the week, any time of the day, to receive what you need to overcome debt and regain control over your money:

  • Tips and money advice
  • Budgeting tools & guidance
  • Inspiring stories from everyday people who’ve successfully reached financial freedom
  • Interviews & insight from financial experts
  • Reviews on products & price comparisons before you purchase
  • And much MORE

 

The best part is. . .it’s all FREE.

 

You shouldn’t have to spend more money to learn how to spend less money (because that’s complete nonsense).

 

No more “I’m going to show you how” posts by bloggers who say they’ll show you everything, step-by-step, but in the end give no real explanation and request that you purchase what they’re selling to receive “all the secrets.”

 

No unrealistic expectations.

No more gimmicks.

No wasting your time.  

 

I’m tackling my debt and building my savings the old fashion way: researching and reading about proper money management, cutting back on spending, and living on less than half of my income. If you’re here, it means you’re ready to do the same.

So, join me. Let’s do it together. Your debt free journey begins now.