One of the hardest parts of growing up is learning to manage your own finances and making your money work for you. It becomes obvious, in your adult life, that money plays a significant role. It would help if you learned how to be both financially responsible and prudent. You must learn how to save and make sure that you are living within your means and not over or under them.

The question now becomes how can achieve financial freedom in a world where the economy continuously shifts; sometimes the economy shows promise of growth, and sometimes it takes an unexpected plummet, especially during a time like this with the COVID-19 pandemic. People have lost their jobs due to retrenchment and have ended up in difficult financial situations.

What does that tell you? That you need to be smart with your finances in order to stay prepared in case of any sudden changes. The following ways can help you manage and monitor your finances:

Having a savings account

A savings account is sometimes referred to as a ‘rainy day account’ because you want to have some money put aside for emergencies. A contingency fund goes a long way in preventing borrowing money from other people or places and being in debt.

Please make an effort to put some money into a savings account and do not touch it unless it happens to be for a dire situation. It teaches you discipline in terms of having money at your disposal but not rushing to the bank (or whatever firm you have saved in) whenever you need money in your hand. In the event you feel like you might forget to transfer your money, you can set it to automatically transfer a certain amount from your checking account to your savings account.

Avoiding unnecessary monthly bills

Sure, you have great credit and possibly qualify for certain loans at your bank, but that doesn’t mean that you should take out that loan. For example, say you are married and have a family, and both you and your partner drive separate cars, there is no need to take out a loan for a family car.

It is an unnecessary expense that you will need to count every month. In addition to that, it would be just another way to contribute to the pollution of the environment. Exhaust fumes from petrol-fueled cars add to the already building greenhouse effect in the ozone layer.

Taking out insurance policies

It is smart to take out insurance policies for medical cover, homes, and cars. They cover expenses you might not be able to pay for upfront. For example, medical cover and car insurance can cover the expenses incurred during a road accident. The car might be damaged and will need to get repairs done on it. The people in the vehicle might have sustained injuries, and that is where health insurance comes in.

House insurance usually covers theft and damages caused by natural causes such as fire or floods. Putting money into such an account also pays off in the long run.

Limit your credit card use

The number of times you turn to your credit card when you do not have cash in your pocket is ridiculous. There is the urge to swipe your card when you feel like you really need to purchase an item. The reality of the matter is you probably don’t need that item!

Human beings are seemingly covetous in nature; you’ll see something and feel the need to instantly want to own it, though you could do without it. Just like saving, using your credit card also requires you to be disciplined enough not to turn to it. If you want it, you don’t need it.

Keep track of your expenses

A habit that is important to cultivate is monitoring how you are spending your money. Think of yourself as your own personal auditor. You can use applications such as Microsoft Excel to make a spreadsheet showing how you have spent your money and work on updating it maybe twice a week.

That way, you can also learn how much you typically spend within a given amount of time and see what you can cut out.

Budgeting

As you track your expenses, you also learn to budget for your income or any other money you earn on the side. It is one thing to come up with a budget. It is a whole other thing to ensure that you are living by it such as paying for home insurance, bespoke car insurance & likewise. It is already clear that part of managing your expenses requires integrity and discipline; you need to be honest with yourself as you come up with your budget.

Proper financial planning

Learning to manage your money does not happen overnight. Be patient and learn from others, and do what works for you.

Every major purchase you make as an adult will be affected by your credit score. Those three digits will dictate whether you can rent an apartment, buy a car, or purchase a home. Your credit score is a measure of the likelihood that you will pay back money loaned to you. It is dependent on many factors and changes based on your fiduciary actions. Understanding your score is the first step in trying to improve it for your financial future.

Deciphering the Score

Ninety percent of lenders use FICO scores to judge the financial viability of a loan applicant. FICO stands for Fair Isaac Corporation, which is the original name of the company that created the credit-risk model to assess financial risk in lending. A FICO score is a complex calculation based on a consumer’s credit report provided by the three main credit bureaus: Equifax, Experian, and TransUnion.

Credit scores range from a low of 300 to a high of 850. Anything below 580 is considered a poor score and below the average of most consumers in the country. A person with a score below 580 would pose a high risk of future loan delinquency. A score between 580 and 669 is a fair score, although below the average. Most consumers that fall in the 670 to 739 range are thought of as good credit risks. Anything above 740 shows a consumer is dependable and would be a low risk to lenders.

Establishing Credit

If you’ve never held credit, you won’t have anything in your credit report that can be used to calculate a score. Consumers typically need at least one open account that has been active for at least six months and one account that has been reported to the credit agencies within the last six months. These are the minimum requirements needed to establish a score. Continuing to use credit wisely over time will increase your score and your credit history.

Although many people may think purchasing items with cash and having zero debt is fiscally responsible, this will not help your credit score. There is no history of credit usage and repayment to offer lenders a look into how likely you are to pay back a loan. Lenders need historical data to judge your risk. When you pay cash, there is no paper trail for lenders to follow.

Calculating Credit Worthiness

Many factors go into the calculation of a credit score. These include:

• The amount you owe
• Your payment history
• The types of credit accounts you have
• The number of new credit inquiries on your report
• The length of your established credit

The most critical factor in determining a credit score is your payment history, as that makes up 35% of the calculation. The next important component is the amount you owe, which makes up 30% of your score. The length of your credit history accounts for 15% of the calculation. The number of credit inquiries you’ve recently made as well as the types of accounts you have open each account for 10%.

Interpreting Variances

The exact numerical score a lender will accept can vary greatly. For example, if you’re purchasing a car, the minimum credit score at a dealership for luxury vehicles may be higher than the required score at another dealership that specializes in economical cars. The same is true for mortgages. Many mortgage lending companies will relax their requirements for first-time homebuyers but may hold buyers of million-dollar homes to a higher standard.

Variances also exist among credit bureaus, which may each have different information cataloged for you. The inconsistencies may be due to name differences. Perhaps one credit bureau has accounts associated with your maiden name while the others do not. Sometimes the variances are due to errors. Someone else in your family with the same name may appear on your report. Make sure to monitor your credit for these types of issues to ensure any financial responsibilities that are not yours are removed. Establishing a good credit history is the key to reaching your financial goals.

Monitor your credit reports for accuracy and to keep you on track. Understanding what goes into a FICO score will help you govern your financial decisions and help you plan for large purchases.