Publish Date - November 12, 2021
Author: Katie Conroy
How to Develop Smart Financial Habits
Building a solid financial foundation and good credit history takes some time and effort, and unfortunately, one or two poor financial moves can have a negative impact on your credit that can take years to repair. Getting into good financial habits when you’re young is a smart move, especially if you want to make a big-ticket purchase, like buying a house or car.
Building a solid financial foundation and good credit history takes some time and effort, and unfortunately, one or two poor financial moves can have a negative impact on your credit that can take years to repair. Getting into good financial habits when you’re young is a smart move, especially if you want to make a big-ticket purchase, like buying a house or car. To create strong financial habits to help you now and well into the future, myAutoloan.com shares the following advice.
Money Management Strategies
Smart money management starts with creating a budget that allows you to live within your means and set aside money for savings. Start with a budget that includes necessities and set modest allocations for non-essentials, like dining out and entertainment. If you find your budget outpaces your income, it’s time to make more money, or find ways to pare back expenses. This could mean eliminating all but necessary expenses, getting a roommate, finding a less expensive place to live, or selling your car and using public transit or rideshares.
Build Your Income
When you’re new to the professional workforce, it’s likely you’re on the low end of the ladder. And it might take some time to climb up to a position that offers more responsibility and higher pay. While experience is critical to making these big steps, consider the benefits of enhancing your education to boost your career, and thus your income. A master’s degree provides the perfect opportunity to build your skills and knowledge, helping you give your career the extra kickstart it needs. Plus, online degree programs can be a boon when you’re trying to balance work and your studies. These types of programs provide plenty of flexibility so that you can manage your coursework at your own pace.
Maintain a Healthy Credit Score
Resist the urge to over-use credit cards, especially if you’re relying on them to be a bridge to cover costs that exceed your regular income. While you need to show responsible use of credit as a way of building your credit history, this can be done by carrying a moderate (less than 30 percent) balance on one or two low-interest cards that you pay off every few months. Many people fall into a trap of carrying high balances on high-interest cards and find it difficult to get out from under the growing balance. According to the Federal Trade Commission, it’s important to understand what’s in your report so you can clean-up inaccuracies.
Make Timely Payments
It’s critical to consistently pay all of your bills on time. Failure to do so can result in late fees, penalties, and even negative reports to the credit bureaus, which can impact your ability to qualify for future credit. Consider setting up automatic withdrawals from your bank account. This will ensure bills are always paid when due. If you miss a payment or find yourself falling behind, talk to your creditors. You may be eligible to skip a payment, reduce a payment, or make some other temporary arrangement. Whatever you do, don’t ignore past-due notices or collection calls. You could wind up in collections, which will be expensive, and further impact your credit.
Prepare For Big Purchases
If you’re ready to make a big investment, like buying a home, some advanced planning is in order. You’ll want to check your credit report, both for accuracy and to get a sense for what your numbers look like. The higher your score and the lower your debt, the better positioned you are to apply for a mortgage — and the better rate you’ll qualify for. Also, talk to a lender about the type of loan you might qualify for. This will help you understand where you need to be from a credit, debt-to-income ratio, and down payment perspective. Knowing where you need to be can help you focus on saving money, paying down debt, and repairing credit, where necessary.
If it’s too soon to buy a home, you can also boost your credit by purchasing a new car. With quick financing through a site like myAutoLoan.com, you can easily get approval for the purchase of a new or used car. Best of all, qualified buyers can take advantage of zero payments for the first three months.
Getting into good financial habits as a young adult can help reduce the potential for financial angst later in life. According to Forbes, not only can fiscal responsibility give you greater buying power and freedom, it can also be beneficial when you apply for a job - many employers check credit histories as part of their pre-screening process.