Savvy Savings
Part 2 of 2
By Bernard Freeman
It’s important to have a savings account — or two — and keep them funded as well as you can.
These accounts can be an emergency fund or help you work up to a goal, such as owning your own home or starting a business. Here are some tips for how to save from AmericaSaves.org.
Start an emergency fund. If you’re having trouble, start small. Go for an account with at least $500 in it, then work up to at least three months of expenses.- Set a budget. Start by getting real about your spending habits. On the first day of a new month, start getting a receipt for every purchase you make. At the end of the month, take a critical look at where your money is going.
- Save automatically, if you can, by setting up automatic savings through your bank. It puts your cash out of sight and out of mind (and out of stores). You can ask your employer to do this through direct deposit.
- Start saving for retirement as early as you can. Take advantage of employer matches to a retirement plan, such as a 401(k).
- Save any unexpected windfalls or tax refunds. It’s good to treat yourself, but also make sure you set some aside for a rainy day.
- Use the 24-hour rule. Avoid purchasing expensive or unnecessary items by waiting 24 hours for anything nonessential. If you’re shopping online, just add it to your cart and leave it there for 24 hours.
- Calculate purchases by hours worked. Take the amount of an item you want to purchase and divide it by your hourly wage. This can help you visualize how many hours you’d have to work to buy it, and make you realize that some things aren’t really worth it.
- Check your credit report annually, for free. Use your annual free credit report from the three reporting bureaus to look for inaccuracies that can lower your score.
- Pay your bills on autopay to ensure they are paid on time and in full to avoid late charges. Some loan providers may decrease your interest rate if you enroll in autopay.
- Designate one day a week a no-spend day. Cook at home, plan free activities and enjoy the savings.
- Plan your meals in advance and stick to a list while grocery shopping.
- Take advantage of preventative health care to keep costs low and stay in front of any big health expenses.
What Does your Credit Score Mean?
A credit score is a three-digit number that sums up all the information in your credit report into one number.
You may have two credit scores, one called a FICO score and the other a VantageScore. The FICO score dates from the mid-1980s, while the VantageScore is a more modern invention designed to produce a more consistent score across the three credit reporting agencies.
FICO Scores
FICO scores, named for the Fair Isaac company that started them, range from 300-850. There’s no definition of a good or bad score, but you can generally consider the mid-600s the dividing line between better rates and terms.
VantageScores
Vantage Scores, on the other hand, range from 501-990. Super prime borrowers have a score from 901-990, and they get a lender’s best rates and terms for credit. Prime plus borrowers, with a score from 802-900, get good rates and terms. Prime borrowers score from 701-800 and get generally reasonable rates and terms. Non-prime borrowers score from 601-700 and high-risk borrowers get from 501-600. High-risk borrowers are generally not offered credit.
How It’s Calculated
Both VantageScores and FICO scores weigh your payment history – if you’ve made payments on time – and the number of new credit inquiries in your history when they calculate your score. VantageScores, however, emphasize how much of your available credit you use. FICO scores, on the other hand, emphasize the length of your credit history and the types of credit you’re using.
A home loan may score better than a store credit card, for example.
Improving Your Credit Score
To boost your credit score, pay your bills – all of them – on time every month. Try not to use more than 30% of the credit you’re approved for at any given time, and pay off any balances as soon as you can. Keep the number of credit inquiries in a year low. An exception is made for insurance, mortgages and auto loans because lenders expect you’ll shop around for these products. You should also have a good mix of types of loans, including credit cards, auto loans and personal loans.
