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11 Financial Habits to Avoid

Developing good financial habits often takes years but it is very worth the effort to learn to be more responsible with your spending and to develop good practices. You will be able to more easily keep your family out of debt when you have your finances under control, you’ll be able to get the financing you need when you want to make big purchases such as buying a new car or home, and you will be able to keep a top credit score which will often mean lower interest rates.

The result of making bad decisions often causes financial problems and these create additional issues a person has to deal with. It will be necessary to identify these poor financial habits in order to protect your financial future and you will need to understand how to avoid making those mistakes. Making an occasional financial mistake is okay. It is not acceptable, however, to form bad financial habits that lead to routine mistakes.

Financal habits

1.Using Credit To Overspend

Having credit cards available for emergencies is not bad. The problem is when you use those credit cards irresponsibly and overspend. If the payments on those cards end up being more than your entire monthly income, that is a problem and it is a financial habits that you need to break.

The solution to this is simple and it is to be more responsible with those cards. Most purchases should be made when you can pay it off at the end of the month and avoid any interest and at most, you should never buy something that you cannot pay off within a maximum of 3 months. If you find that you are only making the minimum payment required by your card then that tells you that you’re heading down the wrong road. The only way you can avoid a financial disaster is to prevent yourself from making purchases that will generate ongoing monthly payments that go on for years.

You might want to consider creating a savings account that is specifically for making purchases that would otherwise be made with a credit card. If, as an example, you need to replace your TV then you could save up for that purchase rather than using a card. Buying something with a credit card that takes more than 3 months to pay off is not recommended.

2. Fail To Create A Monthly Budget

One of the most common failures people have financially is to not even know how much they really need to pay their bills and other expenses each month. The only way to really monitor this is to create an actual budget. On average, those who don’t have a written monthly budget are the very same people that are over-extended and heavily in debt.

You can make a simple budget by listing all of your expenses and bills on a piece of paper and then use that to schedule the payments based on when you get paid each month. There are a number of computer programs you can use to help create this budget as well. It is very bad for financial habits to not keep a monthly budget.

3.Buying On Impulse

It is a common joke that people make when they buy impulsively but it is one of the worst financial habits you can get into. When you buy things that you want but don’t really need you will overspend. When a person fails to pay attention to their impulse spending it can mean that they overspend by hundreds of dollars every month which will often lead to crippling debt.

This can be easily avoided by planning your trips when you’re going shopping and to only buy the things you decided that you need. A good financial habit is to control your impulse purchasing, you should try bringing only the cash you’ll need for those things you plan to buy and leave things like your checkbook and credit cards at home.

4.Overspending By Creating Unnecessary Monthly Expenses

If you have financial habits like stopping off at your favorite coffee shop for a $6 latte, you are creating unnecessary monthly expenses. If you did this only occasionally it might not be so bad but when it becomes a habit it’s wasted money. You can easily rack up a $30 to $40 a week expense which can add up to $1,500 to $2,000 a year. You could save that by simply bringing a cup of coffee from home.

Not paying attention to your spending will make it easy to allow it to get out of control but it is similarly easy to curb that spending and start buying only the things you really need. To get started down a more positive path you should start tracking all of your spending so that you know exactly what you’re buying and how much you’re spending and from there you can decide which things you really do need. When you begin tracking your spending you can see where you’re wasting money. Once you know where your money is being wasted it will become easier to start forming better financial habits.

5.Making Late Credit Card Payments

A surprising amount of people regularly pay their credit cards late every month. If this is you then you might think that as long as those companies get their money before the payment is more than 30 days late it’s no problem. The fact is that there are several things that will hurt your finances when you make these payments late regularly.

Whenever you fail to pay your card on time a late fee is applied and additional interest is added. Late fees can often be $30 or more for each late payment. These things just waste your money.

Making your payments late can have an effect on your credit score. When you pay your bills late regularly it can soon erode your credit score. By simply changing your financial habits to paying your bills on time you can soon fix any derogatory effects you’ve had on your credit score.

6.Failure To Plan Long-Term

The average person does want to be able to retire someday. If this includes you then the question is, what have you done to prepare for that retirement? If you are one of the few who actually has a retirement plan offered through your job then you will still need to make sure that it’s going to provide enough income so that you can be comfortable.

Unfortunately, those who have developed poor financial habits often treat their retirement as an afterthought. The average person will create their retirement account and faithfully make contributions to it without knowing whether it will be enough or not. A good habit is to start talking with a certified professional about your retirement and get their help in making long-term plans that make sense for you.

To help with retirement planning, read “Best RRSP Investing Basics for Beginners“.

7.Failure To Have A Contingency Plan

On any given month an emergency could happen that puts you into a financial bind. When financial challenges arise many people get themselves into trouble with their credit by relying on credit cards to get them through the unexpected event. This type of habit is the very kind that puts people into insurmountable debt that causes financial headaches for years.

One way to avoid this is to establish a savings account that is there for such emergencies. This is a separate savings account from one that you might have set up for making large purchases. Both of these accounts can be used as part of planning carefully for future needs. The account for emergencies is used only for such events so that you don’t need to use credit cards to get through the emergency.

8.Failure To Plan For The Future

Have you made any major changes to your life such as getting married? Lots of people have significant changes happen without ever making any changes to their financial plans. You have to make necessary changes to your financial planning that coincide with the other major changes in your life. Failing to do this is how people find themselves overwhelmed with debt and desperate.

One type of situation is when your child reaches college age. When your child was first born you may not have thought about the cost of your child going to college. But when parents fail to take advantage of the 17 years they have from the birth of their child to when they will go to college it could cause a number of financial issues.

You will find that it’s advantageous to take advantage of those years and set aside a certain amount of money each month over those years. Just as soon as your child is born you should start saving for their college tuition. By doing that you will have the money needed when your child is ready for university.

9.Redundant Spending

Are you using both a landline at home and a cell phone? Do you pay for streaming movies online as well as cable or satellite TV? Often these are unnecessary expenses that create redundant spending. It leads to spending money every month that is unnecessary.

You should take a look at the services you have and get rid of those that are unnecessary. When you are considering buying a new product, consider whether or not you have something similar that can do the same thing. If you already have a product or service that does something similar then don’t buy the new thing unless it’s really needed.

10.Failure To Take Advantage Of Better Pricing

If you’re considering buying a car you should ask yourself if a brand new one is really necessary. You could buy a very reliable used car and save thousands of dollars on the price. The average person regularly spends money without taking full advantage of the best pricing deals that are there for the taking.

If you need a big purchase like a car you might well want to consider buying one that is reconditioned rather than brand new. You should also check with the retailer to see if there are any special offers on trades or discounts that are available and take advantage of any coupons when it’s possible. Very often you might be spending hundreds of dollars that could be saved by developing these new spending habits.

11.Failure To Maintain Your Products

Maintaining large purchases such as your car can save you money and a failure to do so can cost you considerably. Having your furnace properly maintained by professional each year can extend its life and save you considerably. People make the mistake of trying to save money by putting off these maintenance costs when it actually cost them in the long run.

Following proper maintenance procedures can save you a lot of money on future repairs and replacement costs. If you have an expert come to inspect your roof they may be able to find repairs that can be easily and inexpensively done that will extend the life of your roof and save you on replacing it.

The act of developing good spending habits can put real money in your pocket and make your life easier. Taking a little time to understand the necessary steps can help you get your finances under control. This will then allow you to avoid debt and hassles which will reduce the stress that it often causes.

Credit Score Success in 10 Simple Steps

If you’re not getting approvals for loans and credit cards, or your available financing rates aren’t all that favorable, then it might be time to take some steps to improve your credit score. Building up your credit is not a process that is quick or even all that simple, but keep reading to learn 11 tips you can use to accomplish this goal.

Your credit ratings can be hurt by both errors in your reports, as well as various things that you are or aren’t doing. Some of them you may know you shouldn’t be doing, but there might also be quite a bit you don’t know. It can all add up to having a hard time getting new credit, which can do everything from making it hard to travel to paying more for an auto loan, or even a new home.

Credit score

Improving Your FICO Scores

When you want to improve your current FICO score, you should first check your credit report regularly, set up some kind of system for reminding you about payments, and work diligently to cut down on how much debt you owe. Your personal payment history is more than a third of the FICO score calculation, so this category has a substantial impact on how much you’ll be able to improve your FICO score, as you’ll learn in detail in the following information.

1) Ensure The Accuracy Of Your Credit Reports:

The initial step in making your credit score better is simply checking out your credit reports. Everybody has three of them. The three major credit bureaus are Equifax, Experian, and TransUnion, and all three of them issue their own reports. Credit reports can sometimes have mistakes on them, and it happens more often than you think.

The Federal Trade Commission conducted a 2012 study that found 20 percent of consumers had a minimum of one error on one of their three credit reports. A subsequent 2015 study discovered that consumers who reported unresolved errors on their reports believed that some of their disputed information was still not accurate.

Given how your credit scores are a result of the data found in your credit reports, it’s very important to be sure that any information contained in them is accurate. If your credit reports have discrepancies or mistakes, then your credit scores are going to reflect that as well.

Fortunately, checking your credit reports from each of these three major agencies is easy enough. Per the Fair Credit Reporting Act, you have the right to one free copy each year. You can get these free credit reports through AnnualCreditReport.com, which is a government-required site that the major bureaus run. Credit.com is another way to get a free credit report snapshot.

Many credit scores, including your FICO score, run a range starting at 300 and going up to 850. The various credit tiers within that range typically break down as follows:

Under 600: Bad credit rating

600-649: Poor credit rating

650-699: Fair credit rating

700-749: Good credit rating

750-800: Excellent credit rating

Once you have access to all three of your credit reports, there are a few quick questions you can ask yourself in the pursuit of possible errors:

Is there anything left over from decades ago still showing up?

Does all of your personal information appear accurately? That can include your full name, birth date, address, and Social Security number.

Do you see applications for credit or accounts which you don’t recognize?

Do you see missed or late payments that you know you made on time?

Is every one of your credit reports getting reported?

It’s helpful to go through each credit report using a highlighter to single out every inconsistency. Be mindful of the fact that one credit bureau or report might contain an error the others do not. This is why it’s so essential to check all three of the reports from every agency. You might not find any, but you also might find a few or even a lot of errors.

If you find errors, you have to dispute them with each credit bureau whose report shows them, since each of the three are different establishments. Also, each error has to have a different dispute. You can dispute errors alone for free, but reputable credit counselors and credit repair companies can help you out for a fee.

2) Make A Plan For Improving Your Credit Score:

If you know that your credit reports are accurate, and you know what you’re doing or did wrong, but would like to improve it, then create a free account at Credit.com in order to create an action plan that raises your credit over time. You’ll even have access to tips on your potential problem areas.

If you want your credit score to start improving, then you need to aim to keep your various credit card balances low, as well as with any other kinds of revolving credit you might have. You also need to start paying down your total debt instead of shuffling it around, but don’t close any credit cards you don’t use if you’re looking for a fast fix.

Also, don’t attempt opening a new credit account as just a way of boosting your available credit.

3) Fix Any Late Payments:

Closing an account isn’t going to make late payments go away. The best thing to do is to make sure that you don’t make any more late payments. Establish payment due date alerts for every bill you have so that you can start getting organized. Many lenders and banks let you move credit card payments around with ease. Try to line up your due dates to align with your paychecks, but also don’t cluster too many bills together at once.

Ask your lenders or credit card issuers if they might forgive some of your late payments. You might have missed the bill entirely, your check could have gotten lost in the mail, or you were even overseas on vacation. If you have a good track record of making payments on time, then credit card companies are usually pretty forgiving.

A delinquent payment might stay on a credit report for as many as seven years after the payment that was late or missed was reported. That original date might also be known as the original delinquency date.

However, credit bureaus don’t consider payments late until things are 30 days past the originally intended due date. Just keep in mind that the 30-day rule at credit bureaus won’t spare you penalties or late fees from credit issuers if you’re only days late.

4) Age Your Credit Well:

If your credit history is short, there’s not a lot you can do in order to improve it fast. You might try piggybacking on the credit card of a friend or family member if they’re willing and they have a long history of paying on time.

You can have them add you as one of their authorized users. On the other hand, you might not find anyone willing to do that since they’d be responsible for charges you make. Another option is just waiting things out without closing any accounts.

A good average age for strong credit history is five years or more. The longer a run positive credit history has, the stronger the scores tend to be. For instance, a consumer with an only average credit history of a year might see a credit score in the low 600s, even though someone of average credit for five years could be a lot higher.

Be mindful of the fact that without any history at all, it might be a quarter to half a year from activity starting before it starts showing up on credit reports. If you just got a credit card, stick with smaller purchases you can pay off by full each month so that you can start building credit and demonstrate your ability to manage monthly payments.

5) Clear Up Collection Accounts:

Rather than endlessly transferring the debt to new accounts, pay it off. Contact each debt collector you see listed on your credit report, and see if they’d be interested in stopping their reports of your debt to the major credit bureaus in exchange for you making a full payment. That technically would violate the agreements some collectors have with Equifax, TransUnion, and Experian, but it doesn’t hurt to try. It’ll be a nonstarter for some, but others will bend the rules to collect the money.

Just make sure that you get their promise in writing prior to making a payment. Also, any debt that looks inaccurate or you don’t recognize should be disputed with all three of the credit bureaus anyway. Getting those removed can mean rapid improvement in your credit score.

6) Don’t Be Unfairly Hurt By Old Mistakes:

If you have ever suffered a short sale, gone through foreclosure, or filed for bankruptcy, you might be wondering when your credit score nightmare could ever end. How long is going to take to honestly get out of the hole you’re trapped in? Despite the severity of these circumstances, the biggest hit to your credit score is when it first happens, and the impact will go down over time. In fact, federal laws put time limits on how long those events can hurt you credit-wise.

7) Get Yourself A Credit Card:

If a credit card is something you’ve never once had before, then your scores might be choking a little bit because of the previously mentioned account mix. Just be sure you always pay on time. New credit cards with a bad history of payments are going to hurt you rather than improve your various credit scores. If your credit is fair, good, or excellent, then you’ll have a lot of credit card options, some with perks, like gas savings or travel points. If your credit score is poor or bad, then keep reading.

8) Open Up A Secured Credit Card:

Secured credit cards are the kind of credit card where you deposit money into a checking account which secures your line of credit which the lender or bank is extending you. For instance, you might put $200 into an account and then get an equivalent line of credit, or sometimes higher.

Secured cards let people with bad credit get an account and establish a positive payment history, which goes a long way in showing the world that you’re back on solid ground.

Defaulting on payments for a secured credit card, though, can mean the initial deposit gets forfeited and used to cover the balance left on that card.

9) Limit Yourself In Terms Of Credit Applications:

In the heat of the moment, getting 10 percent off just for signing up for a store credit account seems like a great idea, but your credit score is going to get dinged for the application, and it won’t matter if you got approved or not. Hard inquiries impact credit scores for a whole year, but your score does start improving again nearly immediately after you apply.

Such hits are typically small, say 3 to 5 points, but if you’re straddling the line of two tiers and putting in lots of applications quickly, the damage can add up.

If you discover hard inquiries in your credit reports that you don’t know about, contact those lenders to find out what was going on. If it’s not accurate, or you don’t know what happened, you need to assume identity theft or fraud has taken place. Alert each credit bureau promptly so they can investigate the alleged fraud. Doing this might get those hard inquiries removed, although that might take time.

Soft inquiries are different in that they don’t impact your credit score, and they happen in cases of background checks or if a current lender is considering raising your line of credit. Soft inquiries can happen even if you don’t give permission, but they don’t impact credit standing at all.

10) Adjust Your Debt-To-Credit Ratio:

If your monthly credit card balances each month exceed 30 percent of your available credit limits, then your score is suffering, even in months where you pay off the whole balance on time. The reason for this is that your statement balance is more than likely getting reported to credit bureaus. So, watch your balances, and think about paying off some of your balance early if you know you’re going to go above the 30 percent mark in any given month.

Your credit utilization ratio is certainly a primary factor used in determining consumer credit. That’s why you might hear it’s not a good idea to close out any credit card accounts you aren’t using in an attempt to boost your credit scores. Doing this can depress your utilization ratio percentage in a way that hurts you more than helps you.

If you do choose to close a consumer credit account, be sure you can keep up at least a 15 percent utilization without that account. If you can’t, you need to look into other options in regards to that account, such as replacing it with a new account, just so you can keep your good utilization ratio up.

Another ratio that has a central role in determining your credit is your debt-to-income ratio, and that’s really just all of your monthly debt divided by the amount of money you make every month. Lenders frequently use this ratio to see if you can make monthly payments to them or not.

The primary difference between a credit utilization ratio and a debt-to-income ratio is that the first one is the one which influences your credit scores. The second is used by lenders in determining whether or not you are extended credit, which is still important and why it needs to be watched carefully.

If you happen to be going over that 30 percent mark consistently, talk to your credit card provider about a possible credit limit increase. You might even open up a whole new credit card so you can divert some spending to it. Remember that credit inquiry, though, and make sure your card is able to handle it. In many cases, a small hit is more than offset by new credit, but if you apply for a lot of credit at one time, or you’re at risk of rejection, proceed carefully.

In Conclusion

As stated earlier, improving poor credit ratings isn’t simple, nor will it happen overnight. Yet, the efforts are well worth it. You don’t want to spend the rest of your life constantly worrying about getting approvals for credit cards, mortgages, and car loans.

Using the 10 steps in the article will help you save money, but you’ll also pick up valuable skills you can use to keep a great credit score once you have one. Don’t give up completely on credit if yours is bad right now. It’s better to stay on top of things over time, handling your finances soundly and successfully while working along a credit repair plan that suits your circumstances.

To learn more financial success tips read “11 Tips for Financial Success“.

Best RRSP Investing Basics for Beginners

An RRSP account is the best option when someone is planning for retirement. This is a good approach that works great. Below are some of the RRSP investing basics you need to know.

There are a lot of benefits you can expect to get when you choose an RRSP account. Your retirement account is going to experience compounded and tax-free growth. Your annual tax bill is also going to go down. You can start to see these and more benefits as soon as you start earning an income and filling your tax with the CRA. RRSP investing is going to help you with your retirement.

RRSP investing

What is RRSP investing?


This is a Registered Retirement Savings Plan that lets you contribute to it over your working life. The account is going to be converted into a Registered Retirement Income Fund when you retire so you can withdraw an income.
Before then, you can treat the account like a regular savings account by depositing and leaving the money until you reach your retirement. There is also the option of investing the money in common RRSP investing vehicles, like mutual funds, segregated funds, and more.

What are the benefits you can expect from RRSP Investments?


RRSP is registered and it means that the CRA acknowledges the account – and the efforts you are putting to save for your future. This is why you will be rewarded through tax benefits, which you can start taking advantage of as you open the account. Below are the two major benefits.

Paying less income tax


The amount contributed to the RRSP (up to the allowable limit) is deducted from that year’s taxable income – or a later year if you want to pay less when you have a higher income. What this means is you are going to get a bigger tax refund or a smaller tax bill every year you contribute to the account. You have to pay the tax when you withdraw the money from the RRSP account, but you will pay it at a lower tax rate because you will most likely have a lower income in retirement.

Enjoying tax-deferred growth on your investment


You won’t pay taxes on the money you are investing which is more than lowering your income that you are taxed on in the first place. You are going to avoid paying taxes on the returns in your RRSP account until you decide to withdraw. The account is going to keep growing tax-free, which is going to help you reach your goals faster.
What is RRSP investing? This is a way of saving for the future.

What can you use RRSP Investing for?

Retirement


These are designed to encourage Canadians to save for their retirement. The boomers are retiring from work and government pension plans (OAS and CCP) will see fewer contributions. The government pension benefits that generations after get are not going to be that generous. You need to have a retirement income to supplement the government pension. Your own RRSP savings provide you with a good retirement income.

You can see the strongest benefits of RRSP investing is by using the funds as retirement income. To do this, you must convert RRSP into an RRIF (Registered Retirement Income Fund) or an annuity. You can do this in the calendar year when turning. You have the option of doing it soon if you choose to retire earlier.
Continued education or first home
The only way you can withdraw from RRSP without tax implications is by putting it toward your first home or education. Below is a good explanation of the above benefits:

Home Buyer’s Plan


This RRSP benefit is going to help with the down payment you need to build or buy your first home. You can borrow up to $35,000 from your RRSP and use it for a down payment. This is tax-free. There is a catch if you want to escape tax penalties. You have to repay the borrowed amount to the account in equal increments over 15 years.

Lifelong Learning Plan


Do you want to continue your education? RRSP lets you make a withdrawal for education. With this plan, you can withdraw up to $10,000 a year from your RRSP investing account to pay for your full-time education or training. This can be used for you or your spouse. This is tax-free, but if you want to escape taxes totally, then make sure you have paid back the funds in equal increments over the next 10 years starting the year after making the first withdrawal.

Your other financial goals


You can use the money in your account whenever and on whatever you want provided the RRSP contributions are not locked in. In most cases, withdrawing the money before your retirement means that the money is going to be taxed at current tax rates. This is why many financial experts advise against this. If you want to save money for short-term and medium-term goals, then consider a TFSA.

When is it best to get started?


The earlier you start to contribute, the better for you. Compound interest and upward market trends with time are going to help a lot especially when you start early. If you start RRSP investing at 26, you can expect to see more growth compared to investing the same amount at 36. You don’t need much to get started with it. You can begin by saving as little as $50 monthly with co-operators.

If you feel like you are late, don’t worry because you are never too old to invest in your retirement account. You can contribute to the RRSP investing account till December 31 of the year you turn 71. You can still save for your retirement even if you begin making contributions in your 40s, 50s, and even 60s.

Interested in improving your credit score? Read “Credit Score Success in 10 Simple Steps“.