For a lot of us, the harshest of lessons learned far too late are the ones about the importance of financial planning and building/maintaining one’s credit. Typically, the understanding comes around the time a significant purchase (say a new car or home) is upon us. Then it hits home.

Good credit is an asset that should be intentionally grown and protected. With that said, Angel Rich shares some pointers on how to save, budget and ultimately repair and maintain good credit.

1. List Your Financial Goals

Take out a sheet of paper and number it from 1 – 10. At #1 describe your current financial status. At #10 describe your dream financial status. At #5 describe the mid-point. At #2 describe the next goal you need to achieve on your journey. At #9 describe the goal you need to achieve to reach #10.

Then complete #3, #8, #4, and #7.

In the end, you should have a complete list of SMART (specific, measurable, attainable, result-focused, and timely) goals.

Photo by Olu Eletu

2. Create a Savings Plan

Print all your bank statements for the past year. Take a pack of multi-colored highlighters and color-coordinate your expenses into groups – rent, utilities, beauty, car maintenance, gas, etc. Total how much you spend on average per month per expense group. Then minus that total by 20%. 80% of the average total is now your new monthly spending goal, and 20% will be placed into savings.

IMG: Budget Key. Photo by GotCredit

3. Start a Budget

Open an excel spreadsheet. In column 1 list your expense groups. At the bottom of the spreadsheet create three additional rows for emergency savings, savings, and charity.

In column 2 list the average monthly amounts you spend on each row. In column 3 list a reduced goal for monthly spending on each expense group at the 80% spending limit. In the remaining columns list out the months of the year Jan – Dec.

In the last column, after Dec, title it Correction. Copy the monthly spending goal across each month so that the entire spreadsheet is complete. Highlight all the spaces in green.

Each month review your bank statement for the exact amount spent on each expense group. If the amount spent is less than the goal, leave the space green. If the amount is over your goal, turn the space red. In the Correction column, write the amount you were over or under (-). This will create a visual illustration of how to track where you are with your budget.

All savings will go to the emergency savings until three months of income has been saved. After that point savings will be split between savings and charity. A charity will help to offset taxes.

4. Pay Your Bills on Time

Pay your bills one month in advance to create a self-installed grace period.  During hardships, you will be able to maintain a safe barrier while you catch up on bills. It is important to pay your bills before the due date. Once the due date has passed, creditors can start counting your payment as late. Paying your bills on time is 35% of your credit score. Not doing so can have an immediate dramatic impact to your score and ruin all the progress you are making.

IMG: Until debt tear us apart Photo by Terrie Ng

5. Pay Off Your Debt

Obtain a copy of your credit report. Divide items into large debt, small debt, and student loans by year.

For student loans, enter a rehabilitation program.

For small items that are less than four years, contact the creditor and attempt to pay the debt at 25-30% off the debt or create a payment plan.  

For large items that are less than four years, contact the creditor and create a payment plan. Attempt to negotiate at 20% off the debt.

For small items, that are four years or older, place them in a wait category. Most debt, expect student loans fall off of your credit report after seven years. Wait until you have paid off the other debt. Then you may choose to begin paying it off or wait the remaining time.   

For large items that are four years or older, place them in a hold category. You may choose to pay it off after the other debt has been paid or wait the remaining time.

So there it is; five (we won’t say simple but doable) steps that can turn your financial state of being around and poise you for financial freedom, a secure future, and ultimately a financial legacy for your future generations.

Let’s get started.

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