Five Things You Need to Build Your Financial Life
It’s time to take control of your financial life. Too many people are willing to let their money woes just happen instead of taking action and making their money work harder. In these tough economic times, now more than ever, your financial security depends on making smart choices.
However, it can be hard to know where to begin, especially if you’re just starting out. The good news is that you probably already have some of the basic building blocks for financial freedom, and you can start making proactive decisions now. Here are the five basic things you need to get going.
A budget. You need to write out a realistic budget, with all of your income and expenses, as the first step to starting your financial life. You can’t go anywhere unless you know your current situation. Getting a clear picture of your expenses compared to your income will help you make some tough decisions. What monthly expenses can you cut? How much money are you spending on unnecessary items?
A checking account. Set up a checking account with direct deposit for your paycheck. Keep your money safe with the security of a federally insured checking account, and don’t waste money on unnecessary check cashing fees. To open up a standard bank account, visit some institutions in your neighborhood and compare fees, interest rates and other benefits before deciding which bank is right for you. Make sure to compare a national bank, a regional institution and a credit union, if you can become a member.
A savings account. With your budget implemented and all transactions handled through your checking account, you may be able to start saving money. It’s good to have a six-month emergency fund stashed away—you’ll be able to figure out this number from your budget—especially in these financially uncertain times. Once you have that safety net, think about what else you want to save for: A vacation? A new car? The down payment on a first home? A savings account is better for shorter-term goals that require easily accessible money. Consider alternative investment options for longer-term savings goals like retirement and your children’s college funds.
A credit card. This is a tricky piece of the financial puzzle. If you can’t find a way to charge to a credit card and pay off the bill at the end of the month, you may not want to get one right now. However, managing credit accounts and showing a strong history of paying your bills is a big component of a traditional credit score. Consider opening a credit card with a low limit, charging small amounts and paying the balance back each month. Once you get in the habit of paying your credit card every month, you may be able to increase the limit. Credit cards can also provide benefits for responsible spenders, and you may even be able to earn rewards for your purchases. Compare credit card terms, fees and rewards for the best option for your financial situation.
A loan. This falls into the same category as the credit card. Not everyone needs or may be able to get a loan. However, if you need to buy a car or think you’re ready to buy a house, you’re going to need to get a loan. If you think you’ll need to apply for a loan within the next year, get a copy of your traditional credit report at annualcreditreport.com . However, you will have to pay a fee in order to get your credit score. You’ll probably need at least a 720 credit score to get the best interest rate and loan terms. You can also build your AMP Credit Score® by adding other payments like rent and utilities to show potential creditors you’re a good bet. Visit the FAQ for more information on submitting your AMP Credit Score to potential lenders.
These five items are only the beginning. Once you understand how all the pieces of your financial life work together, you can make informed decisions and achieve your financial goals. Read through some of the other materials here on eCredable for a roadmap to establishing your finances.