If your car were in need of repair or you unexpectedly became unemployed, how would this affect you? When you don’t have a financial safety net in place, such as an emergency fund, those unexpected events can set you back. Fortunately, with an emergency fund, you don’t have to take a financial hit that may be difficult to recover from.
What is an emergency fund?
Unlike your regular savings account where you might be saving a portion of your paycheck for a new car, refrigerator or other large purchase, an emergency fund is a savings account that is used to cover the cost of unexpected expenses. When rainy days occur, you can easily use the money in the fund to cover medical bills, home improvements and more.
Like others who have planned for the unexpected, if your financial security is a priority, you can benefit from an emergency fund in a number of ways.
A personal loan, payday loan, auto title loan or credit card is a viable option when people need quick cash to cover an expense. But with either of these options, you are adding to your debt. An emergency fund keeps you from accruing debt because you will have the money to cover your expenses, unexpected and expected, without having to seek assistance from a bank, credit union or online lender.
Protect your credit score
Things like a missed payment or hard inquiry can negatively impact your credit score. Rather than charging a large purchase that you might not be able to repay by the due date or applying for a personal loan, you can use your emergency fund. Ultimately, you’ll see no change in credit utilization, debt, hard inquiries or other areas that impact your score, which will keep your credit score safe.
Peace of mind during a period of unemployment
An unexpected change in your income can make anyone worry. The bills don’t stop coming just because you longer have a job, so you need to make sure you are safe during an unexpected period of unemployment. Your emergency fund can be used to pay bills and give you peace of mind even though you are uncertain about when you’ll return to the workforce.
Maintain your lifestyle
Not everyone has the same lifestyle, so when you have expenses that take money out of your pocket, cutting back may be out of the question. Things like going out to dinner or taking a vacation may be important to you, and you may want to ensure you maintain your lifestyle should you find you have to factor in an additional expense this month. You have the option to use your emergency fund to take care of the expenses and enjoy the luxuries that you deem a priority in your life.
Provide assistance to a loved one
There may come a time when a loved one needs financial assistance. Your emergency fund is for the unexpected, and while you may want to use the money for yourself, it can be used to help someone who is important to you. Of course, if you don’t want to just give them the money, both parties can consider it a loan and work out the terms of the agreement.
No one can predict the future, so you need to be ready for anything. People may not always consider how one unexpected expense, big or small, can negatively impact them until it happens. Rather than let something like this ruin you financially, have a financial safety net in place and have peace of mind knowing that you can survive the unexpected if and when it happens.
Managing Your Finances When Living Paycheck to Paycheck (Tips)
It is never ideal for a person to live paycheck to paycheck. And if the idea of living paycheck to paycheck sounds stressful, imagine actually living life this way. Many people who don’t have a high-paying job have to find a way to live comfortably, and learning to manage your finances is a great start.
Managing your finances may seem like a difficult task when you live paycheck to paycheck, but there are things you can do to ensure your success.
Create a budget
When you have a limited income and live paycheck to paycheck, it is important for you to create a budget. The reason being you can successfully manage your finances when you keep a close eye on your income and expenses. Additionally, you can cut out unnecessary expenses and have some extra cash.
Use the half method
The half method requires you to pay bills in two separate payments rather than one lump sum. For example, if your cell-phone bill is $100, rather than pay the full balance on the due date, you can pay $50 with one paycheck before the due date, and the last $50 with another paycheck on or around the due date. With each check, you will then have $50 to save or spend.
Pay the minimum balance
If you have credit cards, consider paying at least the minimum balance when the bill comes due. It may be tempting to just not pay it, but ignoring your credit card payment will only result in you owing more money and damaging your credit score. Between the additional amount you could pay in interest and late fees, it makes sense to just pay the minimum balance and keep your account in good standing. Of course, if you can comfortably pay the full balance, that is always an option.
Renegotiate your bills
Renegotiating your bills doesn’t mean you have to eliminate the expense but find a more affordable option for you. For example, you may be able to reduce your auto insurance payment by a few dollars if you change coverage or inquire about discounts. If you have both internet and cable, perhaps you could change the plan or discuss the possibility of a more reasonable price for your budget with your provider. Maybe even dropping cable and using online streaming services is an appealing option.
Put your savings on auto
Just because you live paycheck to paycheck, doesn’t mean you can’t save. Even if it is a small amount that you are putting away every payday, over time it will add up. Whether you are building an emergency fund in preparation for the unexpected or just saving for life, you can put your savings on auto and select an amount to automatically be withdrawn from your checking and deposited into your savings.
Why managing your finances is necessary
So, why is managing your finances necessary? Poor management of your finances will do more harm than good. In fact, if you don’t properly manage your finances, you could end up spending more money than necessary and even damage your credit score. And when your credit score is poor, you will have a difficult time getting approved for credit cards, loans, and even an apartment.
When you think about the issues that can arise when you don’t have a handle on your finances, you may think twice about your situation and what you can do to change it. When you are living paycheck to paycheck, you may feel helpless, but you have options. And with all of the financial troubles you could face leading to more stress, it could easily be avoided if you take the time to manage your finances.
Made poor financial decisions in the past that negatively impacted your credit? We can help! Contact Credit Absolute today for a free consultation.
Tips to Help Manage & Maintain a Good Credit Utilization Rate
When you think of your credit score, you may not consider how this number is calculated or how your actions play a role. Simply put, every credit score is made up of certain criteria, and each criteria can cause an increase or decrease in credit score. With credit utilization being one of the things that can impact your score, it may be time to learn how to manage your credit utilization.
In order to successfully manage your credit utilization rate, you’ll need to understand what it is and how it can negatively or positively impact your life.
What is credit utilization rate and how is it calculated?
Credit utilization rate is a number used to compare the amount of debt you owe to the amount of credit you have available. By dividing the amount of credit that you use by the amount of credit available, you can determine your credit utilization rate. The more of your available credit you use the higher your credit utilization rate.
For example, if you have several credit cards, one with a credit limit of $500, one with a credit limit of $200, and another with a credit limit of $300, your total available revolving credit amount is $1,000. If you use $400 of the $1,000 of available credit, your credit utilization rate will be 40%. Whereas if you were to use $100 of your available credit, your credit utilization rate would be 10%.
Why does your credit utilization rate matter?
Credit utilization is one of the many factors that can affect your credit score. It actually makes up 30% of your FICO credit score, which means it is one of the most important factors that influence your credit score. Depending on the number, creditors and lenders may or may not approve your application. This is because your credit utilization rate is another way for creditors and lenders to measure your ability to manage your finances.
If you have $2,000 of revolving credit available to you between one or multiple credit cards, in order to keep your credit utilization at or below 30%, you’ll want to use no more than $600 if you don’t want to see your credit score drop significantly.
Managing your credit utilization
Since your credit utilization rate accounts for 30% of your credit score, you want to pay close attention to this number to ensure it doesn’t start to negatively impact your score. This is especially true when you want to improve your score to increase your chances of being approved for things that require good credit such as applying for a home loan or apartment.
You can successfully manage your credit utilization rate by:
- Increasing your credit card limit
- Paying your credit balance in full instead of just the minimum balance
- Keeping credit accounts open even when there is little to no use
- Pay down debts
- Actively monitor your credit usage
Keep in mind that the goal of managing your credit utilization rate is to keep it at 30% or less. This doesn’t mean that you have to completely stop accessing your revolving credit, but you want to do so responsibly if you don’t want to see your credit score suffer.
For credit repair assistance and financial advice, contact Credit Absolute today for a free consultation!
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