Jeff McKinstry has been SO gracious to be our first guest poster on DFS! He has a finance degree, and also runs his own blog, Personal Finance For Teachers
Please read Jeff’s full bio at the end of the article!
4 Habits to Keep Your Finances on the Straight and Narrow
There is nothing magic that will keep your finances in order. You must do the correct things many times over – develop habits so they are second nature. The items below will not guarantee a perfect financial picture, but they will give you a solid foundation on which to build the rest of your financial future.
1. Pay Yourself First
This sounds easy at first, but in practice, it is much harder. There always seems to be something that takes the money that you were planning to save. You have to be deliberate in order to build up any savings. Whether it is saving for an emergency fund, a new car, or a down-payment on a house, you have to pay yourself first. You will have to decide how much you want to save, and transfer that to your savings account as soon as you get your paycheck.
The easiest way to do this is through automatic transfers. Most banks now have online banking options, and it is relatively easy to setup an automatic transfer. Just make sure that the money is going into an account that matches your goals. For example, do not put money that you will need in the short term into the stock market, which should be used mainly for a long-term investments.
2. Respect Your Credit Score
While a handshake was enough to make a deal in days gone by, your credit score is king now. Generally, your credit worthiness now comes down to your credit score and your credit score alone. Your credit score is a number between 300 and 850, and is calculated from the information on your credit report. Here are the categories and the priority given to them when calculating your credit score:
- Payment History – 35%
- Amounts Owed – 30%
- Length of Credit History – 15%
- New Credit – 10%
- Types of Credit Used – 10%
As you can see, the majority of your score is made up of how you pay your debts and how much money that you owe. Here are some very general “things” that you can do to maximize your credit score:
- Pay your bills on time
- Don’t use too much credit
- Don’t apply for a lot of credit at the same time
- When you do use credit, try to stay away from department store types of credit and use more traditional credit cards (Visa, Master Card) instead. And try to stay clear of finance companies, they can hurt your score.
3. Save for retirement
No matter how much you save each month, just save consistently in a retirement account. It would be optimal to start saving for retirement from the first day you start working. Most of the time we don’t do this. We just don’t realize the extreme power of money over a long period of time. Even if you are well along in your career, it is not too late. Just do it!
As far as percentages to save, that is totally up to you and your budget. However, if your employer has any kind of matching on your contributions, make sure that you put in enough to get the whole match. That is free money and that is the best kind of money!
4. Have an Emergency Fund
There used to be a saying about finances that “many, many people are just two flat tires away from bankruptcy.” That might be a little out-of-date, but there are still seemingly small things that can wreck one’s budget. Car repairs, dead air conditioner, medical bills, etc. can cause us to go into debt to pay for these small things if we do not have an emergency fund.
Depending on your career and other factors in your life, it is optimal to have an emergency fund equal to 3 – 6 months of your monthly expenses. I know that this seems like a huge amount – and it is. However, just having an initial emergency fund of $1,000 will keep your finances stable if something small comes along. Wouldn’t it be nice to not have to use a credit card to pay for your car repairs?
Work hard to get this first $1,000 and replenish it when you use it. Also, remember that this is for true emergencies and not when you find something that you want on sale.
About Jeff
Jeff McKinstry is the grandson of teachers, the son of teachers, the brother of a teacher, the husband of a teacher and the father of a soon-to-be teacher. So his degree in Finance makes him the black sheep of the family. He has worked for a finance company, been an accountant with Marriott and is now programs computers for a living.
He is trying to rid himself of the black sheep label by running the blog PersonalFinanceForTeachers.com; a corner of the Internet that discusses personal finance issues that are important to educators.
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Amazing blog! Thanks for the great contribution with this post….