Managing your money: Step one to building credit. It may seem like a step backwards, but before you can build and/or rebuild your credit, you must first make sure you have laid a solid financial foundation based on proper management of your money. You must be able to manage what you have before you can increase and expect what you are building to stand.
So let’s take a moment and talk about managing your money. In order to begin managing your money, you must first know exactly how much you have now and will have on an ongoing basis (your income). Then you must know how much you spend (your expenses). Start with the money you earn. What is your Gross (before taxes & deductions) income? Review your deductions – are you paying enough tax, too little tax? Are your other deductions in line with what you need? Are you carving out at least a minimum of savings for retirement? Now let’s take a look at your Net (take home) income. Be sure you are looking at this amount as a “monthly” number. Next, list out all your expenses that must be paid from that Net income. House/Rent, food, gas, lights, etc. Everything. Trips to the candy store. All of it. You can look at your bank statements or receipts to get an idea of what the average costs are and to be sure you haven’t missed anything. The most common issue people have when they get into financial trouble is that they do not know their numbers. Maybe round about – but money spent without a plan is usually much more than you would spend with a plan.
Once you have both numbers – total income and total expenses – subtract your expenses from your income. Do you have money left? Are you breaking even or are you in the hole? Now that you have an answer – it’s time to start making management decisions about your money. If your expenses are already at a minimum, what can you do to earn more? If your income cannot be changed, what can you do to spend less?
There are a lot of free apps out there that can help you put this information together and (if you’re old school) a lot of easy budgets you can print out to use. Start tracking everything every month. Know exactly what comes in and where it goes – and make decisions based on solid information.
Many say that as a rule of thumb, your house note or rent should be no more than 30% of your Net income. Example: you make $2,000 a month – your house note/rent should be no more than $600. Then 40% ($800) should go to NEEDS – utilities, food, gas, etc. The other 30% ($600) should be split like this: 20% ($400) to debt repayment, donations and WANTS with the final 10% ($200) going to savings/retirement/emergency fund. Of course, the more you can save, the more ahead of the game you will be and the faster you can begin to build credit and use credit wisely because you have funds stashed back for difficult times.
This is just one example of what is out there as a recommendation from online money management specialists. Do some digging – there is a lot of good advice out there about how to budget so that you can meet your needs, save, and prosper. It’s about having a budget and controlling your money – not letting it control you to where you are robbing Peter to pay Paul to make ends meet. Now there are times and situations where this is just life right now. You’ve done all you can and it may be time to speak to a bankruptcy attorney about wiping out the debt you simply cannot and will not be able to afford to pay.