Monday, March 18

Are You Making Important Financial Resolutions?


Here's a question on everyone's mind: Will the economic picture continue to improve in the coming year? Things can improve for your personal finances—and your family's—if you adopt three powerful resolutions for this new year.

1. Perform a personal credit check up.

Do you know your credit score? This three-digit number, based on your credit history as recorded in your credit report, influences many things in your life.

These range from the interest rates you pay on credit cards and loans (ranging from auto loans to mortgages) to what you pay for insurance to whether you qualify to rent that apartment or house you like. Of concern if you are job hunting, some employers even take credit scores into account when considering new hires. Consequently, having a good credit score—and an accurate score—is important to your financial well-being.

The first step in performing a credit check up is to review your credit report for accuracy. Federal law requires that each of the three major credit reporting agencies—Equifax, Experian, and TransUnion—each year provide you, at your request, one free copy of your credit report. The only site to get these free report is If you haven't checked your report recently, you may wish to look at all reports because different agencies may have different information. If you wish to keep a check throughout the year, request a report from a different agency every four months. Your goal is to check your report for accuracy and to dispute any errors you find. My reports What's Your "Credit Score" and How Can It Affect Your Credit? and Tips for Improving Your Credit Score walk you through the process.

A Tip: Thinking of clicking on one of those "free credit score" offers that litter the Web? Don't. There's no guarantee that the number is accurate because many of these sites may base their score on out-of-date information and the major purpose of all is to sell you their products, many of which are costly and not very useful (such as "credit repair" services). If you need to know your credit score, buy it from one or all of the big three when you get your free annual credit report. The official site mentioned above offers this option.

What if debt or other financial problems have lowered your credit score? Maybe your credit score has taken a hit because you've paid bills late or missed payments. Your payment history has a big impact on your credit score; so one of the best things you can do to raise your score is start paying every bill on time. If you are carrying a lot of debt, usually on credit cards, then paying down that debt is another thing you can do to raise your credit score. Both these steps start improving your score in months. For more tips see my report Tips for Improving Your Credit Score.

A Tip: One thing to avoid is "debt settlement services." For the many reasons why this option is not wise, see my report Considering Debt Settlement? Why That's Probably a Dangerous Idea.

2. Make Savings a Priority

Have you saved up a 3 to 6 months emergency fund? Financial planning experts recommend that you make this a priority. I like to think of these savings as a "security" or "peace-of-mind" fund, not just an emergency fund. The goal is to have enough money put aside to cover the basic expenses of your family including food, bills, auto and mortgage payments.

When you have an emergency fund in place, it's time to think of planned savings toward larger goals such as an education fund for your kids or retirement savings. For information on general financial planning and retirement planning see the Financial Planning section of our Fifty Plus Guide and our Retirement Guide.

3. Plan Ahead for Major Expenditures or Investments

Is this the year you plan to buy a new car or truck? Perhaps you are thinking of buying a new home or refinancing your current mortgage to take advantage of low rates. Maybe, some home repairs or renovations are on the horizon. If so, start planning now to get the best savings.

Saving on cars. If you are planning on buying a new car or truck, our FoolProof Car Buying Guide shows you how to shop for a vehicle the right way—the way that gets the most bang for your buck. Go there now to refresh your memory. You'll discover how to calculate how much money you have to buy a vehicle, how to shop your financing, how to locate the vehicle you want, and how to negotiate the sale.

Here are three more tips.

  • If your old vehicle is paid off (or if you can squeeze the extra savings out), start saving for a down payment now. Put aside each month the amount of monthly payment you can afford in a savings account. Having a good size down payment (equity in your old car and cash) enables you to take best advantage of manufacturer's rebates and other incentives. The Car Buying Guide shows you how.
  • Shop your financing first. Start with a credit union. You'll typically find that a credit union offers better or competitive rates compared to other sources. Often you can take a manufacturer's rebate in cash (or use a part of a down payment) and use your credit union financing and beat lower rate incentive offers.
  • Be sure to get your loan pre-approval from your credit union, that way you can avoid the high-pressure and high emotion sales tactics so often a part of the new car buying process.

Perhaps you already bought a vehicle this past year and financed somewhere other than a credit union. Are you paying too much? Call the credit union and compare what you are paying with the opportunity to refinance your vehicle loan with the credit union. Such "second chance" refinancing has saved many members more than a thousand dollars.

Saving on mortgages. If you are considering buying a new home, you want one that fits your family's needs and your budget. The FoolProof Home Buying Guide and FoolProof Mortgage Guide can help you plan wisely by considering all aspects of the buying process from determining how much you can afford to spend on a home, to shopping for a mortgage, to finding a house or condo that fits your needs and budget and is in the location right for you.

If your current home meets your needs, you may wish to consider if now is the right time to refinance to take advantage of low mortgage rates. My report Is Now a Good Time for a New Mortgage or Refinancing Your Current Mortgage? can help you consider the issues.

Other large expenditures. Is it time to replace old appliances or an old, less energy-efficient heating and cooling system? Or is it time for a new roof. Whether you're facing smaller or larger expenditures, planning ahead can help you save toward these needs. Home improvements may also be a good use for a home-equity loan, My report Thinking About Home Improvement? What Do You Need to Know? Tips for Saving Money and Avoiding Rip-Offs can help you plan.

Make this year a prosperous year for your family—start by making and following through on some money-saving and wallet-protecting financial resolutions.