It seems like everywhere you look these days there are people giving advice about how to manage personal finances. I’ve read articles on: the 8 steps to financial security, 6 steps to stabilizing your finances, 10 steps to getting your credit back on track, etc.
When you put all the advice together, you soon realize there really isn’t anything new. Even though our economy has changed, what we need to be doing in order to manage our finances as faithful stewards is the same as what we should have been doing prior to the collapse. Perhaps the biggest difference is that we need to get serious about it – be more vigilant in doing what we should have been doing all along.
In my last article in the Mosaic, I spent some time talking about the importance of budgeting and including God in our budgeting process. In our current economic climate, developing a budget and tracking your spending are more important than ever.
In this article I want to focus on some very practical things you should do to help you weather the downturn in the economy. This is certainly not an exhaustive list, but rather some suggestions of things you can start working on today.
Credit Report and Score
The first is about your credit report. I believe everyone should be checking his or her credit report at least once a year. There are two companies that provide this service in Canada: Transunion (www.transunion.ca) and Equifax (www.equifax.com/home/en_ca). It is important that you contact both service providers to know what each of them is reporting about you.
Your credit report outlines all the credit accounts you have such as credit cards, mortgages, car loans, student loans, etc. It also indicates if the account is in good standing (if you regularly pay your bills on time), what your credit limits are and the outstanding amounts owing on loans. Closed accounts are also listed as well as the reason the account was closed, for instance, you paid the loan off in full or you asked for a credit card account to be closed.
Given all the information that is collected and communicated about your credit worthiness, it is important that you know what is in your report. It is up to you to ensure that the information reported is correct. If a mistake has been made on your credit report, there is a process that you can go through to correct it, but it is up to you to identify the mistake and prove that what is being reported is incorrect. The sooner you discover the mistake, the easier it will be to correct.
Transuion and Equifax both calculate a credit score for each person. The credit score ranges from 300 to 900, 900 being the best score possible. Your credit score is calculated based on a number of factors including: number of credit accounts; total of outstanding debt; credit limits on credit cards and lines of credit; number of inquires from creditors; and of course your payment history. The higher your credit score the less risky you are deemed and therefore the better “deal” you will receive from creditors. The lower your credit score, the higher the interest rate you will be required to pay to offset the additional risk.
By knowing what is being reported on your credit report as well as knowing your credit score, you will be in a much better position to renegotiate your mortgage and other loans, thus enabling you to get out of debt faster.
Emergency fund
Saving for an emergency fund is crucial at this point in time. To begin saving for an emergency fund, start off by saving $1000 and placing it in a short term savings account. By having $1000 saved, when the car breaks down or the refrigerator needs to be replaced, you have the money to pay for it without resorting to a credit card.
Ideally your emergency fund should contain the equivalent of 6 to 8 months worth of income. This provides you with some financial margin, some breathing room in case a job is lost, hours are cut, or someone gets sick and is unable to work. In our current economic climate with layoffs happening regularly, those people who were able to build up their emergency fund are in a much better position to respond to a financial crisis.
Cut the Fat
Today is the day to get serious about cutting your expenses. And because of the current economic climate, we as consumers have much greater negotiating power than we did when business was booming. It costs approximately 10 times more money for a company to gain a new customer than it does to keep a current customer. So now is the time to go line by line through your budget and take a look at where you can save money. Just remember… everything is negotiable!
Companies count on us to be lazy or at least too busy to do our homework, check out the competition, and ask for the best deal. If you are willing to spend some time doing this, you can save yourself a lot of money.
Telephone, cell phone, cable companies are actively pursuing new customers with amazing new deals and plans. As an existing customer, take the time to call your service provider and ask for the same deal. I recently made a call to our telephone company and within 20 minutes was able to save over $200 per year. That’s a return of $10 a minute or $600 an hour (of after tax income!).
Here are a few other areas to look at cutting the fat out of your budget:
- Eat at home more – stop going to restaurants as often
- Make a lunch to take to work or school rather than buying it
- Start using coupons – don’t just rely on the ones in the weekend flyers, check out the coupon sites online and download coupons for products you are buying anyway – Google is a great way to find Canadian coupon sites
- Turn your heat down a degree or your air conditioning up a degree – you can save up to 3% on your energy bill each year with this easy tip
- Use mother nature to dry your clothes rather than the clothes dryer
- Carefully review your banking fees – ask your bank to decrease your fees or consider changing banks – there are several that have no fee banking
- Shop around for home and auto insurance – there can be significant differences between insurance rates from company to company
- Stop paying so much for entertainment – there are many free community events and recreation opportunities you can take advantage of
- Get together with friends and develop a movie lending group
- Don’t go shopping so much – what you don’t see you can’t buy
I’m sure you each can come up with additional ideas of creative ways to decrease your expenses.
Wouldn’t it be great if within each of our churches we could pool ideas and resources that would enable us to help each other as well as members of our communities to not just survive but to thrive during these turbulent times. By investing some time in these activities, you will be in a much better position financially and will be able to be more generous towards God and others.
