Four Fast Financial Fixes
by Jim from Bargaineering.com
With the recession in full swing, every little bit counts. With half the year over, a lot of people are doing their mid-year reviews, seeing how they’ve progressed relative to their goals. Part of that process involves looking at your finances. Here are a few things you can do right now to have a big impact on your finances, if you aren’t doing them already.
Check Your Credit Report & Score
One of the best things you can do for yourself is review your credit report, free by virtue of the Fair Credit Reporting Act, once every twelve months. Go to AnnualCreditReport.com to request a report from each of the three credit reporting agencies. Review the report thoroughly and make sure it’s 100% accurate, dispute anything that is incorrect, no matter how inconsequential it seems. Accuracy is paramount.
You might also want to review your credit score. You can get a free FICO credit scores if you are willing to sign up for a trial membership to credit monitoring, which you can cancel later. Knowing your score is important because it’s being used more and more by other companies.
Start An Emergency Fund
If you don’t have an emergency fund yet, start one! It’s very very simple, just start putting money away for a rainy day and then put that fund into an online savings account. You ultimately have to decide how much to save but for now just start saving. A general rule of thumb is six months of expenses, so that you can weather losing your job for half a year, but in our current economic situation, you might want to increase that.
Start A Roth IRA
If you don’t have a Roth IRA and your emergency fund is on track, consider starting a Roth IRA. It is a retirement investment account that grows tax free and one of the most valuable things you can do for yourself, especially if you are young. The contributions aren’t tax deductible but the growth is, which is why it’s so powerful.
Simplify Your Finances
If you’re like me, you probably have a bunch of bank accounts, a bunch of credit cards, and other financial accounts. Consider trying to consolidate as many of those as possible. Don’t cancel credit cards just yet, as that will impact your credit score, but bank accounts and brokerage accounts can be safety consolidated. The fewer accounts you have, the less you have to manage. The less you have the manage, the fewer mistakes you’ll make and that can save you money down the road.
Jim writes about personal finance and other money issues at personal finance blog Bargaineering.com.
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If you sign up for the free trial of credit score monitoring, be SURE to cancel it. I forgot to cancel mine and I ended up paying $15.95 a month for it.
I did the multiple accounts thing for a long time trying to trick myself into saving money, that was a big one for us finally getting on a budget and consolidating to one account. With too many accounts you just can’t monitor them appropriately.
I got a shock when I got my credit report – I simply hadn’t realised how much information they held going back six years. They even had an incorrect address a credit card lender had typed on their system by mistake following a move of house (a neighbour kindly brought the letter round as it had been sent to their address instead). Even though I contacted the lender and they corrected the address on their system, the credit report still had a note on their account saying “may be associated with the following address (my neighbours)!”
Nice tips Jim!
Another good way to simplify your finances is to sign up for automatic bill pay. This way, you’re never late with your bills. It’s made my life a whole lot easier. You just have to be sure you keep enough in your accounts so that you never over-draw them.
Kristen
@ filife
Thanks for the tips Jim. I have already done the first two things on your list. Starting an emergency fund was easy, but contributing to it on a regular basis is proving to be quite a challenge. I will look into getting a Roth IRA as soon as possible.
Good article Jim. I think you could add budgeting to the list. An obvious thing, but really the foundation to long term financial success. One thing that helps make budgets easier to manage and to keep, is to use an allowance system. Each member of the family gets an agreed amount of money on “payday” to spend on things they need, want and as they please! The budget master of the house sets the allowance amounts for each family member and knows the spending will stay in budget because no one can spend more than their allowance for each pay period. That way you stay disciplined and on course month after month.
And of course, the emergency fund you have takes care of the unexpected.
See http://www.theallowancesystem.com for more details on setting up an allowance system.
I was just about to make the comment about budgeting when I realized David beat me to it. I personally do a combination of budgeting and putting things on automatic, which is something I picked up from David Bach. Works like a charm once you set it up and start doing it for a couple months.