The weather is getting better and flowers are starting to bloom! Yes, it's that time of year ... Financial Literacy Month. Let's review these 5 basics:
#1: Debt & Credit Scores
Understanding the ways in which credit or debt can work with or against you should serve as the foundation of your financial knowledge. It’s important to have a firm grasp on your financial standing and a plan for tackling debt responsibly.
When used correctly, debt can be useful. Responsibly managed debt can help you reach important goals like buying a car, purchasing a home, going to college, or starting a business. But when misused, such as borrowing to meet monthly living expenses, debt can spiral out of control fast. Missed payments can accrue interest or penalties and may negatively impact your credit score.
Your credit score is one of the factors that lenders use to judge your trustworthiness and qualification for mortgages, auto loans, and other lending opportunities. Landlords and employers may also check your credit before renting to you or offering you a job. Your credit score is dependent on a number of factors including previous credit history, current debts, history of payments, and more.
Experian, Equifax and TransUnion are the three major credit reporting companies. The FCRA requires each of these companies to provide you with a free copy of your credit report, at your request, once every 12 months. To order a free report, visit annualcreditreport.com, the centralized website set up by the three major credit reporters.
Checking your credit report also helps guard against identity theft – when someone uses your personal information such as a social security number or credit card number, to commit fraud. They may open an account in your name. When the bills don’t get paid, the delinquency is reported on your credit report.
Have you started your 2023 budget? Having a budget will help you save more and alleviate financial stress. It doesn’t need to be complicated: Do you spend more than you earn? If you are retired, are you spending the amount budgeted in your financial plan?
As a guideline, check your spending against the 50/20/30 Rule.
#3: The Value of Time
It’s never too early to start saving – for retirement, home buying, a child’s education, or whatever is coming down the line. The earlier you start, the more you’ll be able to tuck away over time – especially with the power of compounding interest. This leverages the value of time to your advantage.
Inflation will eat away at the purchasing power of your money. Keeping all your cash in a zero yielding bank account literally costs you money. Assuming the annual rate of inflation is four percent, every dollar you keep there would shrink in purchasing power to $.96 next year.
#5: Identity Theft & On-line Safety
Especially as the world shifts to doing everything virtually, identity theft remains one of the biggest threats to financial and personal security. A cracked password or misplaced Social Security number can have big consequences on your current and future finances. Use a secure and unique password for each site or service you use. A password manager makes this easier by generating and storing strong passwords automatically.
Please reach out if you have questions about any financial basics, and take this month to reevaluate your current financial situation and identify potential areas for improvement.
Shari Greco Reiches
Shari co-founded Rappaport Reiches Capital Management with one goal - to maximize the return on life for her clients. Please connect with Shari below. She loves to talk about investing, financial planning, and Barry Manilow.