Understanding your financial health

I just heard on the radio yesterday that money is the number #1 thing couples fight about and this is not the first time I've heard that. As unimportant as we all want to say money is when it comes to real family values, unfortunately it is a necessity. How much there is and that lovely credit number attached to our name can cause A LOT of stress. I honestly think the only thing more stressful would be to be faced will a debilitating or terminal illness or injury of a loved one or yourself.

Every relationship handles the responsibilties of money differently. Fortunately and unfortunately because again it's a lot of extra stress, I've been the one in charge of managing our finances for the last decade. My husband is good at a lot of things but managing money is not one of them, and I've admitted many of my multitasking, wife failures on here so you know I'm not so great at a lot of things, but I'm pretty good with making every dollar count and raising those credit numbers. We still have lots of room for improvement. I would like more money in savings and less credit card debt, but we have good credit scores and can easily get approved for things. Through these last ten years of managing household finances and going through the process of multiple car loans and two mortgage loans, here is a top 10 list of things I've learned.  

1. Make yourself a budget and stick to it. I do a budget for the month and I do one for the year to budget in those expenses that only come up once a year. Those once a year expenses can sometimes be huge and if you don't have a plan to cover them, it can cause huge ripple effects in your monthly budget. You have to have a clear understanding of what is coming in and what is going out.

2. Pay yourself first and save. Put aside a little bit of money each check to save. Start a change bucket. All that pocket change can add up.

3. Take your spending or fun money out in cash. So when it's gone you know no more spending until next paycheck. We are 30 + years old and our whole married life we've been on a weekly spending allowance.

4.When it comes to credit cards you want to keep the credit balance below 40% of your eligible credit line.

5.You actually don't want to completely pay off your credit card balances. You want to have a little bit of a balance on them. I still like to have the goal to completely pay them off though.

6.I try to keep our credit cards to one major visa each and if we do use a department credit card I do try to pay those completely off as soon as possible because it's usually a few months later I'm putting something on them again. ( Especially those Lowes/Home Depot and Walmart/Target type cards)

7. Again 40 is a magic number in the credit world. Keep your overall debt to income ratio below 40%. You can figure what your debt to income ratio is by adding together your gross monthly income and then adding up your monthly debt (all credit accounts including mortgages, school loans, credit cards, personal loans, auto loans). Say your gross household income is 10,000 multiply that by .40 which equals $4000 so in order to be below 40% your monthly credit debt should be less than $4000. This is a good way to assess your financial health. A mortgage loan approval must have below a 50% debt to income ratio.

8. Check your credit score at least once a year. A good credit score is 680 or higher. When we started looking into buying our house though I knew I wanted both of ours to be over 720, which even though it's not very many points, it can make a big difference on interest rates. 

9. One small collection account of even $100 or less can lower your credit score over 50 points which again could be that difference between an excellent 720 or a good 675. 

10. Your credit score is one of the big factors when applying for loans but your debt to income ratio can be just as huge of a factor in determining your approval, purchasing power, and interest rate.

All of these recommendations are based on my own personal experiences with household budgeting and going through the credit approval process too many times in these last ten years. Every time I go to apply for a loan I always learn new things about how the credit lending world works.  Before I bought our house I monitored our credit monthly for about six months with a credit service like the one below. It really helped me understand our financial health a lot more.

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