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DID YOU KNOW?

	Unless you are able to pay cash for all of your purchases throughout your life your credit scores are vitally important. They are the basis for every decision lenders make on whether to exend credit to you. Unfortunately, as important as these scores are to your purchasing ability, you were never given a formal education on how to manage and maintain an acceptable score. Your credit score is only as accurate as the information is is based upon. If there is inaccurate information residing in the data bases of the big three credit reporting agencies - Equifax, TransUnion and Experian - your credit scores will be inaccurate and may cause you to be declined for credit by a lender. Managing your information in your credit files will be covered in another article. Here I want to cover the origin and process of credit scoring. In 1956 Bill Fair and Earl Isaac created the Fair Isaac Corporation to help companies apply computer technology to their business challenges. In the 1980's they began using the vast amount of information in the data bases of the credit reporting agencies. This led to the creation of the FICO credit scores. These scores are the defacto standard among lending institutions. These FICO scores are used by 99% of all lenders. There are, however, other scores out there. But unless they are advertised as a FICO score you will not be seeing the same information as your lender. Be sure to always obtain your FICO scores. There are many factors that affect your credit score but the one that most often is the culprit is a credit inquiry. There several types of inquiries and some of these do not affect your credit. The are also certain entities that have permission from the Fair Credit Reporting Act to check your credit. The instant your score is ordered, it is recalculated. Therefore, if you are in the market for a major purchase it is a good idea to begin monitoring your credit reports on a regular basis. Although your scores are calculated immediatley, it can take as long as 60 days for an update to appear on your credit report.

Everyone I have ever spoken with claims to have the desire to be in control of their money. Most of these people will admit that they don’t feel like they have very much control over where their money is spent and a surprisingly large number tell that their money is in control of them. The people who feel like their money is out of control are not the same people who don’t know how to stop spending when they are out of cash, or when their checking account is perpetually overdrawn.

If your money is controlling your life, you may have the feeling that you get up in the morning and go to work for the sole purpose of bringing home a paycheck and signing it over to the mortgage holder, the auto finance company, the utility providers, your eldest child’s college tuition office, your youngest child’s youth activity director and every door-to-door child pitchman selling school fundraising items.

How can you tell when your money is out of control? You fell as though it is simply getting up and leaving your wallet whenever it darn well feels like it. So what are you to do about your money and controlling where it goes?

1. Know where you stand

Anytime you are going to go change anything in your life, you have to know what it is that needs changing. This is the same whether you are talking about your finances or your weight.

What you need is a snapshot of where your finances are right now. The only way to do this is to create a Net Worth Index.

There is only one way you can create a Net Worth Index – and that is honestly. Drop the kids off with your in-laws, sit down with your spouse and start writing everything down on paper. You can use a computer spreadsheet if you want to.

Start by listing everything you have that can be sold, and how much you could reasonably expect to get for it. Do not claim your 19th Century rocking chair from Grandma Hopscotch is worth $500 if someone who isn’t sentimentally attached would only pay $100.

While you and your spouse are taking inventory, remember to include watches, diamond earrings, boats, vacation time-shares, stocks inherited from Uncle John and your retirement accounts. List everything and its’ sale value. When you do things like Certificates of Deposit and IRA’s where there is substantial penalty for early withdrawal use the face value. For our purposes we’ll figure you won’t be taking the money out until it has matured.

Now that you have inventoried everything of value and totaled up what it is worth, do the same for your debts. Add in loans from family, friends, banks, businesses, and mortgage companies, past due accounts with the Gas Company and all credit card balances. This is not the time to “forget” someone you owe.

Subtract how much you owe from how much you own. This number is your Net Worth and should be a positive one, though it could be kind of tiny. You won’t need to use this number again until next year when you calculate your Net Worth Index again.

If your Net Worth Index reveals a negative number you are definitely doing something right by working to bring your money under control. What you’ll have to do is follow these four steps, and if necessary taking drastic measures such as a second job, selling valuables, or even selling your current house and moving into a smaller, less expensive dwelling.

2. Develop Your Goals

After you know where you stand financially, you need to decide where you want to go. This involves setting some reachable targets or goals.

Goal setting is not very complicated and in this instance, we are referring to the overall target of gaining control of your money. To do this requires a few measurable small goals, sort of like baby steps.

Your first baby step is to create a plan to pay off your debts. Look at your list of debts again and find which one is the smallest. This is the one you want to pay off first. Pay your minimums on all the others, and then pay everything you can extra a month on the smallest debt.

When it is paid off, take all the money you had paid on the smallest and add it to what you are paying on the second smallest. Keep doing this until you are out of debts to pay off. It doesn’t matter if your debt is for a house or for your soda pop at the corner gas station Following this plan you have created to pay them off is your first baby step.

The second baby step will be the creation of an Emergency Savings Account. This account needs some money added each month until you have accumulated enough money to equal six months of your income. The money you set aside here will help you avoid debt when you have to make a surprise car repair or meet the deductible for your child’s appendix operation.

Your third baby step will be found in the next paragraph, under the heading of Spend with a Plan.

3. Spend with a Plan

Now that you know you are serious about controlling where your money goes, and you are seriously doing something about your debt it is time to make a plan. A spending plan is comparable to a budget in the same way an imported pickup compares to an F-150. When you use a spending plan to guide your finances, you know critical work is getting done.

You need to know what your take home, or net, pay is. Start with your gross monthly salary and deduct all taxes and Social Security contributions. Next you should subtract how much you tithe or contribute in charitable giving each month.

The amount you have left is your Spendable Income. The next thing to pay for is your house expenses and your grocery bill – include only the food you buy in a grocery store to prepare yourself, no eating out or fast food here.

The very next thing to subtract is your debt payment. Once this is taken out, you are left with the money you can spend on everything else you require to live on for the month – also known as your Disposable Income. Write down everythingwhat all you spend money on and see just how much it costs you.

Since it wouldn’t do any good to be working at paying off your debts if you are adding to them every month, you had better find a way to cut your spending down below your Disposable Income or else you will never have control of your money.

Working with your spouse you can decide how to buy store brand things for a fraction of the cost, do without the monthly beauty saloon treatments, cancel club memberships and eat at home instead of dining out 3 nights a week. Perhaps you could even take your lunch to work instead of eating in the cafeteria every day.

The key is to find fun ways to decrease your spending amounts. Involve the children and find small ways to reward them for their practical money saving ideas, after all, they are part of the family and can help too.

Once your spending is under control and kept below the level of Disposable Income available, start to enjoy life. While you are probably not quite as materialistic as the Jones’, you can enjoy a great quality of life than they do as they run controlled by their money.

4. Clean Up Your Clutter

I’ve found that after setting debt repayment as a goal, wrangling the spending into line and in general improving my life by gaining control of my money there is too much stuff in my life. Not activities, but material things.

This is a good time for you to have a garage sale and clean out your closets, the attic and wherever you have hidden all that stuff over the years. The money you raise could be applied towards your smallest debt to speed along its repayment.

Another thing you can do is look for larger things in your life you can dispose of that will help you reach your goal sooner. Do you have a vacation home you haven’t taken a vacation to for several years? What about that second or third car – can you sell it, pay off the loan against it and use cash to outright buy a good used car?

You might think it will hurt to make large changes like this, and it might. Once you have taken the step though, you will feel an easing of the burden on your shoulders.

These four things are just the tip of the iceberg when it comes to controlling money. This short over view is enough for you to get started thinking about ways to begin taking control of your money, but it doesn’t begin to be a step by step guide. Those kinds of guides are out there, but they are too thick to include here.

Using this as a quick start guide to controlling your money will get you pointed in the proper direction. As you progress you’ll find dozens of ways to write your Spending Plan, a hundred more goals to set, and plenty of ideas on how to cut costs. When you are debt-free and telling your money what to do, instead of following it around, you’ll be a happier person.