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?