Is gaining control of, and successfully leveraging finances to best advantage, one of your New Years resolutions for 2015? If so, here are some ideas that may help.
A good starting point is to perform an annual review of your current financial situation. It is critical to understand the existing strengths and weaknesses so you can develop a strategic plan of action. Listed below are a few common resolutions with accompanying suggestions for review and resolution.
Set up a budget
There are many good budgeting tools available online. Use them. If you are operating without a budget, that is akin to skydiving without a parachute. You have no idea where you are going to land.
Once your budget is established, the next step is to analyze it. A general rule of thumb is that your non-discretionary debt should not exceed approximately 45% of your take home income. Less then 45% is better. Non-discretionary expenditures include mortgage or rent, credit card payments, car payments and so forth.
If more then 45% of income is committed to debt, you may be squeezed in trying to cover necessities such as groceries, utilizes, insurance and transportation. View this as a weakness and resolve to find ways to reduce set expenses.
Improve your credit score
Perform an annual review of your credit score. If it is low, yet you are always punctual about paying debt in a timely manner, consider taking steps to clean up other areas that may potentially be creating a problem.
Credit card utilization is a common contributor to lower credit scores. Make sure that the amount of credit you have utilized is 20%, or less, then the amount of credit available to you. For example, if the entire available line-of-credit for all credit cards is $5,000, you want to owe a maximum of $1,000. If you exceed 20% it is likely to lower your credit score. Excessive credit inquires also lower the score.
Credit scores are fluid, so even if you have had slow payment or other collection issues, it is never too late to start down a better path. Over time you will reap the rewards of practicing good credit habits.
How much did you save last year? Did you save towards retirement and emergency savings? If you feel that an inadequate amount of money went towards savings, concentrate on setting up and following a budget. Improving spending habits will greatly improve opportunities to increase savings.
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