Monitor Your Credit Report

We all know how important our credit score is. A good credit score leads to a lower interest rate on your mortgage and auto loans. A good credit score means you get approved for the premium credit cards (rewards cards). A good credit score leads to lower car insurance rates, and prospective employers can look at your credit score before deciding to hire you.

Most people know how to build a good credit score. The single most important factor is that you pay your bills on time. Keeping your credit accounts in good standing goes a long way in getting and keeping that high credit score. However, despite your good habits of keeping your accounts in good standing, one case of identity theft can derail your credit rating if it goes unnoticed. It would be awful to apply for a loan only to find out your credit rating has been trashed because someone stole your identity, opened a number of credit accounts, and then never paid on them. This actually happens a lot more often than you would think.

Regularly Monitor Your Credit Report
One way to help prevent this from happening, or at least catching it before it can do serious damage, is to regularly monitor your credit report. You can check this for free online at http://www.annualcreditreport.com. There are a number of other websites that claim to give you a free credit report, but then end up charging you a fee. Don’t fall for it. Also, keep in mind that this is only for your credit report, not your credit score.

By law, everyone in the United States is entitled to one free credit report from each of the major credit rating agencies (TransUnion, Experion, and Equifax). In other words, you can check your credit report three times every year. Personally, I check our (my wife’s plus mine) credit reports every January, May, and September (every four months). Your credit report will show all of your credit accounts and their status. It lets you know if your accounts are current or past due, and whether you’ve been late in paying on them. If anything on your report looks suspicious, they provide you with the steps you need to take to get your credit report corrected.

The Bottom Line
It’s easy to get caught up in all the daily responsibilities in life. We’re all really busy with work, family, and friends. But monitoring your credit report is an important thing to do. So get out your calendar (whether it’s a traditional paper calendar or on your smart phone) and set a reminder to look at your free report every four months. Don’t get caught unaware in the future when you go for a loan and find out that an identity thief trashed your credit.

When Looking For Expenses To Cut, Start With The Big Things

Today’s post is part of the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.

Expense Control
No matter your financial situation (though especially when first starting your financial turnaround), an important part of successful personal finance is getting expenses under control. There are a lot of ways to do this, and you’ll generally hear two schools of thought:
1. Cut back on a lot of little things
2. Cut back on a couple big things

Looking at the Big Things
For today’s post, we’re going to concentrate on the big things. Cutting back on these will give you the most bang for the buck and can really go a long way in improving your financial situation. This isn’t to say that cutting back on the little things doesn’t make a difference. It does, and we’ll discuss that in the future.

First things first, what do I mean when I say “big” things? Well, for starters you should have a list of all your monthly expenses as well as regular expenses that aren’t necessarily paid every month (such as car insurance or life insurance premiums). Your list should be pretty long and include everything you spend money on. There is no set threshold of what things are “big” versus “little” but a general rule would be to treat at least the five largest items as “big”.

Housing
For most people, the item at the top of the list is going to be housing. This is also the item that is probably the most difficult to reduce, but it can be done. If you own your home and have a mortgage, what is your interest rate? If you’re paying 6% or higher, you should definitely look into refinancing the mortgage. We refinanced our mortgage last fall, going from a 6.5% rate down to 4.75%, and reduced our monthly mortgage payment by around $150.

If you rent a house or apartment, look into the possibility of moving to another property with lower rent. Of course you have to consider the safety of the neighborhood and quality of the schools (if you have children). Additionally, you can look into the possibility of getting a roommate (or two) to split the monthly payment.

Vehicles
Another big item for many people is their monthly car payment. If you bought a car more than a year ago, check with your local bank or credit union about refinancing the loan. Interest rates have come down significantly, and refinancing can help reduce your monthly payment. One other possibility is to sell your vehicle and buy a lower-priced used vehicle instead.

Cell Phone
Did you know that the average household with a family cell phone plan including data and texting pays around $150 a month? There are multiple ways to cut this down. First, monitor your cell phone bill for a few months and see if you’re actually using all the minutes included in your plan. If you signed up for a 1,000 minute plan, but only use an average of 600 minutes you are over paying for service. Contacting your wireless carrier and switching to a plan with fewer minutes can easily save you $20 or more a month.

Another thing to consider is your monthly data plan. The average data plan now costs more than $30 a month. While you’re monitoring your monthly bill for how many minutes you use, you should also check how much data you use. If you aren’t using much of your plan’s data, you should really consider dropping the service. However, keep in mind that dropping the data plan will limit your phone choices, as most of today’s smartphones are only available if you sign up for a data plan.

Finally, consider using a pre-paid or no-contract cell phone plan. This way you can make sure you’re only paying for what you actually use, and there will be no large early termination fee if you decide to cancel or switch carriers.

Groceries
One final “big” item for most people is the monthly grocery bill. We all have to eat, we have to do laundry, and we have to shower, brush our teeth, etc. But there are many ways of reducing the cost of all these things. For food purchases, use your weekly grocery store flyers to plan a week’s worth of meals around the items that are on sale. This will help you stretch your grocery dollars and can also help encourage you to try new foods. Buying store brand products and using coupons for name-brand products can also put a big dent in your grocery bill.

There are also many other tried and true methods to help lower the cost at the grocery store. Always make a list beforehand of what you need, and stick to the list once you’re at the store. This helps to avoid purchasing unnecessary items. And it’s true when they say not to go shopping on an empty stomach. Everything in the store looks so good when you’re hungry, and you end up buying more.

The Bottom Line
By first focusing on cutting your largest expenses, you can really get a good start to getting your personal finances under control.

Keep The “Personal” In Personal Finance

Personal finance sounds so simple, doesn’t it? I am an accountant by profession. I enjoy working with numbers, tracking progress, and working in spreadsheets. From that standpoint, personal finance is mostly made up of simple arithmetic. I know that I bring home a certain amount and that so much goes toward non-discretionary monthly bills (the must-have’s), so much goes toward discretionary monthly bills (the nice-to-have’s), so much goes toward groceries and other monthly spending, so much goes toward retirement savings, etc. I can do the math. I can see where the money is going. I can see the slow but steady progress of our finances improving. But there is a lot more to personal finance than math and numbers. There is a reason the first word in personal finance is “personal”.

Beyond The Numbers
When I make spending decisions, is it really about the math? To an extent, yes; but not really.

I know that when my mortgage payment is made that I need to subtract that payment from our checking account balance. I know that more than half of the mortgage payment is going to interest, taxes, and insurance, with a small portion going to pay down the principal. But what I think about most is that making that mortgage payment gives my family a place to live. It gives us someplace to call home.

I know that a portion of every paycheck I receive is deducted and put into my 401k. I know that by making these contributions consistently over my working years the balance will grow significantly by the time I reach retirement. My wife still laughs when I tell her that we’ll have a nest egg well above $1 million by then, based on maintaining my current contribution levels. I know the math behind it: how the sum of my contributions, the employer match, and compound interest over 40 years can really add up. But what I think about most is that making those contributions will give my wife and me a future where we aren’t relying on Social Security for our retirement years (if it even exists by then). I think about a future that is secure, where we can focus on things like spending time with our friends and family without worrying about running out of money.

Last night I went to the Dairy Queen drive-thru and bought my wife and I each a blizzard. From a purely financial (math) aspect, was this the best use of our money? No. Technically I could have put that money toward one of our loans or put it in savings. But we really enjoyed sitting at home eating our blizzards while our little boy was sleeping. It was one of those once-every-once-in-a-while treats that make life a bit more enjoyable.

It got me thinking. Focusing on the math is not the key to successful personal finance. It certainly is an important component of personal finance, don’t get me wrong. The numbers do matter, and you can’t ignore them. But if that’s all you think about, you’re leaving the “personal” out of personal finance.