Stability in employment, maintaining good credit, and following a household budget is the key to creating long-term financial security. Good credit scores and wise spending habits will help you save more of your money through lower interest rates and less debt. The following steps will help you maximize your credit scores and create a household budget that will eliminate waste and create savings.
• Step One – Request a free copy of your credit report from annualcreditreport.com. This report includes information from the 3 main credit reporting agencies (TransUnion, Equifax, and Experian). You are legally entitled to one free credit report annually.
• Step Two – After you receive your free credit report, thoroughly review the entire credit report for any errors or discrepancies. If you find any errors, such as: late payments, collections, inaccurate balances, or any other inaccuracy you can dispute the errors with the credit bureaus. Typically, the credit agencies reporting the disputed information will investigate the account in question and require the creditor that reported the information to provide proof of the account in question. If the creditor cannot provide evidence that you owe the debt, it would be corrected on your report.
• Step Three – Before you create your budget, you should collect your bank statements, credit card statements, receipts, and any other documentation that shows your expenses.
• Step Four – To determine your monthly income, you should collect your most recent pay stub. For budget purposes use your income that you take home on your pay stub (after taxes). If you are an hourly employee and work full-time or if you are a salaried employee calculating your income will be simple. For individuals that are self-employed or receive tip, bonus, or commissioned income you will need to average your income over the last 12 or 24 months to create your budget.
• Step Five – Always put your budget in written or printed form. You can use a software program to create a spreadsheet or write out your budget on paper. First write down your monthly income and then break down your current expenses. This will allow you to see where you spend your money and how you may be able to cut expenses and save. Further break down your expenses under fixed and discretionary. Fixed expenses are permanent, whereas discretionary expenses would include: entertainment, groceries, clothing, vacation savings, etc.
• Step Six – Review your budget and look for ways to cut your spending. Hopefully, you find areas to save money each month by eliminating unnecessary spending. Try and pay off any credit cards that you carry balances on, before putting any money into your savings.
After you have reviewed your credit report and created a budget, it is a good idea to review your budget each month and make any changes. Also, if your income or bills change, make sure you adjust your budget accordingly and always consider saving before adding new debts. Remember you are entitled to one free credit report annually, so be sure to review your credit annually to check for any inaccuracy or for possible identity theft.