Money Management: Learned the hard way..

     The following document outlines the importance of good money management skills and the importance of attacking money problems head on.  A person’s credit rating is just like a criminal record in that it will follow you for the rest of your life. A poor credit rating will have a negative impact on your quality of living. The following is a list of things that can cause long term money management problems.

• ·      Loss of income
• ·      Intermittent or no long term employment
• ·      Lack of budgeting skills
• ·      Failure to budget
• ·      Accumulating credit card debt
• ·      Failure to save for an emergency
• ·      Spending money on stuff you don’t need but think you want
• ·      Spending more than you make
• ·      Medical bills
• ·      Circumstances outside of your control
• ·      Utilizing predatory lenders to solve short term money problems
• ·      Rent to Own purchases

    We live in a world that bombards us with marketing messages that tells us that we must have this or that.  We must obtain this thing or service so that we can keep up with the Jones’s.  We are told that we can have that thing today and pay for it later. 

  

  Unfortunately, if you are not credit conscious and know how to ignore those marketing messages then you are going to fall into the trap and get deeper and deeper into debt.  

   From a spiritual stand point I also believe that the Bible warns us of the sin of gluttony.  The sin of gluttony does not only mean gluttony of food.  It can also mean the desire to own things we cannot afford.  Left unchecked our flesh will take us into places we should not be going. 

    

When you spend more than you make you are setting yourself up for failure. This can cause you to be late on payments. If that happens your creditor will report that inability to pay to the 3 credit agencies and your credit score (FICO) (BEACON) will take a hit and get lowered. 

    

Credit cards can be a powerful tool in your money management toolbox but if used improperly it can destroy your credit rating. The buy now and pay later mantra has gotten a lot of people into debt. 

    

 A good rule is that if you can’t pay cash for the item then you do not need it.  When you buy on credit you pay for the item and then you pay the interest payment which can be very steep especially if your credit rating is low. 

  

    Having a budget will help you to know where your money is going. It will help you to stay focused and disciplined.  If only one partner in the marriage is credit savvy but the other one throws all caution to the wind then that is going to cause some stress in the relationship.  It is important that both man and wife sit down and discuss money matters together and formulate a plan.  More times than not these discussions do not happen until it is too late and the credit problems have gotten out of control.

  

      One of the traps that people fall into is the false belief that turning to payday loans will provide a short term fix to a long term problem.  The problem with this thinking is that pay day loans are designed to hook you into a long term high interest loan that you are not able to pay back immediately.  Sure, you may be able to fix one short term problem with the ability to borrow 300 to 600 dollars but the high interest rate is so steep that you are not able to pay it all back on the next pay check without having to take another pay day loan in order to make it to the next pay day.  Pawn shops and car title loans are just as bad.  You take your item in as collateral and borrow money which has a high interest rate. 

  

     The key to money management and maintaining good credit is to start making good solid decisions when you are young and stick with them. Once your credit is destroyed it takes a long time in order to rebuild it. If your credit is not good do not be dismayed.  There is hope and it is possible to rebuild it. 

One of the things that happen when you run into long term money problems is that you feel overwhelmed and you can get so depressed over it that you think there is no hope.  You give up and figure that nothing you can do will matter.  I know about this from first-hand experience.  No matter what you do, do not give up. 

 Your credit history is like a criminal record.  It follows you your entire life and it affects your ability to manage your money in the market place.  In some instances it can keep you from getting a good paying job.  More and more employers are looking at credit scores to determine how people handle their finances.  Some employers do not want employees with high risk credit issues in positions where they are responsible for managing company assets. 

So, if you find yourself depressed and thinking there is no hope please be encouraged that there is hope.  Rebuilding your credit is a full time job.  The first thing you have to do is to want to do it.  If you are sick and tired of the high interest rates, and being denied credit for things you might need in day to day living, then you are going to have to determine to do whatever it takes to fix the problems. 

  Notice that I said that you are going to have to DO whatever it takes.  That means that this is going to be an intentional act by you and your spouse to make changes to how you manage your money. Here is a list that you can start with.

• ·      Talk to other people who are credit savvy and listen to their story
• ·      Use a basic excel spreadsheet to map out your budget for a month
• ·      Budget your expenses by how you get paid.  Either weekly, bi weekly or   monthly
• ·      Gain knowledge about good money management through reading books on the subject.  Dave Ramsey is a good start.

·      Once a year pull your free credit report from all three reporting agencies

·      Formulate a plan to pay off your debt. Any plan is better than no plan

• ·      Be disciplined to follow your budget
• ·      Do not buy now and pay later. 
• ·      If you can, cut up your credit cards and stop spending money on credit.
• ·      Do not become a victim of predatory lenders

Please understand that ignoring the problem is not going to make it go away.  The longer that you wait to address the problems the longer it will take you to fix the problems.

   Remember that banks that issue credit/credit cards are in the business to make money.  All it takes for your interest rate to get increased is for you to be late on one payment.  Banks want you to make the minimal payments on your credit card statement, so they can continue to increase that interest rate and thereby keeping you in debt to them.  Banks do not make any money on people who pay their bills on time.

    The first step in fixing the problems is to identify those problems.  Once a year you can obtain a free credit report from the three credit reporting agencies.  If you have never done this it might be an eye opening experience. You may also be surprised to find out that you may have negative items on your report that do not belong to you.  If you find something that does not belong to you be sure to dispute them with the credit reporting agency and get it removed.  Every negative line item on your credit report will impact your credit worthiness in a negative way.

In summary, doing nothing about the problems will not cause it to go away. Doing something, no matter how small, is much better than doing nothing. Formulating a plan will enable you to overcome long term money issues and will go a long way towards improving your outlook on the future.  Start today by telling yourself “I can do this” and look forward to watching your credit score go from poor to average to good.  Once that happens, you will be happy that you decided to do something.  

Written by James Moffitt  2015 

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