Contributed by Phylecia Jones, Budgetologist & Solopreneur Money Management Expert www.keepupwithmrsjones.com
Your credit score is one of the most important numbers in your life. A score of 800 opens up many avenues for better loan options, approved applications, and lower interest rates. But what does it take to get there? I had the pleasure of interviewing Lydia Thomas, a Senior Accountant and Women of Denver member, about her journey of moving to the United States from Ukraine five years ago, alone and with little money.
Lydia knew that focusing on her finances, establishing credit, and educating herself about money was the key to reaching her dreams. In a short amount of time, she launched a successful career, quadrupled her salary, paid off a car loan, and reached a credit score of 800. Her story will not only inspire you, but give you a glimpse of what it takes to achieve a financial transformation.
Lydia, you started with virtually no established credit when you moved to the United States and now you have an 800 credit score. How did you do it?
I started working on my credit score as soon as I moved to the U.S., because I knew how important it was in order to get a good rate on a loan if I needed one. The most important rule I learned was to keep my credit card usage to a minimum and pay off the balance every month. NOT a minimum payment, but the full balance. To fast-forward credit score growth I did not close my oldest credit card, I requested an increase of my credit line, had various credit cards and loans, and avoided unnecessary credit inquiries. It works and your credit score will move up, only if you pay off the balance regularly, or pay the monthly payment if it’s a car loan or a mortgage.
Coming from Ukraine to the US, what did you find different about money and personal finances?
In Ukraine, there is no trust in the economic and banking system. People tend to save their money, “under the mattress,” meaning that the best way to save is to convert the national currency into dollars or euros and keep it in cash at home. Talking about money is generally taboo and personal finance education is non-existent. In the US, conversations about money are more open. There’s more information about various ways of managing finances online and in print, and there is more stability and trust in general. I learned very quickly in the States that when you have it together, do some research, and organize your finances, you are likely to succeed financially.
Having a budget is very important to managing money. How has it been living on one?
I have been living by a budget for a few years now. Having an effective budget is pretty hard, I have to say. A budget made me go from an extreme of watching every penny, (exhausting, to say the least), to splurging when I felt like I’ve been a good girl for a while, (which would turn into the feeling of guilt and regret).
How did you get over the extremes of watching every dime to feeling guilty for ‘splurging’?
After a while I came up with the expense vs. investment rule. Take a pair of shoes for example: If you buy a pair of cute sandals that will be your fifth pair of sandals, you will probably wear them only a few times. This is an expense. If you buy a pair of good leather shoes that you need for your job interview that will serve you for a few years, this is an investment in your future. Following this rule helped me shop less, save more money and end up with the purchases I really needed.
With your smart money moves, what is your biggest financial goal right now?
My biggest financial goal right now is to buy a house. It is one of the most important financial decisions I will make in my life, and what I learned from other people’s experience is that buying one is easy, but paying it off is hard.
What are three simple things readers can do right now to get ahead of their finances?
First, set up a direct deposit to your savings account from your paycheck. The psychological aspect of the “invisibility” of such transaction does wonders. Make it $20 or $200, whatever you can afford. Second, watch your budget. Make your budget real and attainable, not ideal (otherwise you’ll get discouraged very quickly) and have Friday “dates” with your budget and the expenses for the past week. Taking control is gratifying and reduces stress. Third, get a debit card for your “shopping” needs and have a certain amount deposited there from your paycheck. This will be the only money you can spend on the things you enjoy. It is a great controlling tool. Speaking from experience!
As the end of the year draws near, let’s place a spotlight on the importance of financial planning. Due to varying circumstances, many of us do not know if we are prepared for retirement, and as a result, may be playing catch-up when it comes to investing for retirement and other long-term financial goals.
Life expectancy in the US has increased around to around 80 years of age. This longevity, along with potentially volatile financial markets and life’s uncertainties, translates into changing questions and complexities regarding our future. Having the resources to achieve your long-term goals and support those you love, depends on making sense of that complexity, which you can start to address via financial planning.
Financial planning can seem like an overwhelming project, so here are some tips to help you simplify achieving your financial goals:
1. Determine your retirement assets. As you progress through your career, watch your family grow, and retire the way you’ve always dreamed, it is likely that you'll have to make adjustments to your portfolio along the way. You should develop a system with your financial advisor to periodically review the investments you've chosen and make sure they are still an accurate reflection of your current and future financial goals, risk tolerance and time horizon.
2. Assess your income tax picture. You may be able to reduce your tax burden, sometimes significantly, by making strategic tax decisions before the end of the year. Your tax professional can alert you to any tax planning strategies that might make sense for your situation.
3. Review critical documents. Because life's circumstances continually change, you should review your legal documents and beneficiary designations every year. This will entail combing through any wills, trusts, retirement plan documents and life insurance policies to make sure they are up-to-date. Seek the assistance of a qualified advisor if any modifications are necessary.
4. Establish goals for next year and beyond. A year-end review is an excellent time to start thinking about next year and setting or revisiting long-term goals. Take a close look at your day-to-day finances to see if you can reduce expenses and save more. Then assess which of your goals are most important to you and commit to accomplishing them.
Financial planning is a lifelong endeavor. Make sure you have a trusted team of advisors to help you in achieving all of your goals.
by Phylecia Jones
What exactly is financial freedom?
Financial freedom is a buzz term, or rather a buzz achievement, that many Americans refer to as a milestone in their financial life. With a simple search of the internet, you can instantly find over 250 articles all with varying definitions of financial freedom.
Some see it as quitting a job to travel the world or reaching early retirement to spend more time with family, while others see it as generating passive income through entrepreneurship or having a lot of money to buy whatever they want.
As you can see, it can be a bit difficult to define this coveted goal, but there’s a simple way to look at it. At its core, financial freedom is reaching a point in your finances where you have “enough” in order to have the option to live more and work less.
According to The Transamerica Center for Retirement Studies, most people believe they need $1 million in order to retire comfortably but with the average fortysomething only having $63,000 saved, that goal can feel unachievable.
So what will it take for you to reach financial freedom?
The principles of reaching financial freedom are quite simple. It relies on your ability to prioritize your spending and save a lot of money. In order to reach this milestone, you will have to make it an absolute goal and do the following:
Define what financial freedom would like for you
Since financial freedom looks different for everyone, it’s up to you to determine what your life would look life if money was not an obstacle. Travel? Spending time with family? Starting a business? Launch a passion project? This is the time for you to dream about the life you want to live.
Determine what is enough
Based on the life you want to live, do some research to find out how much money it would take to get there. Connect with people living your dream and find a well trusted CFP (Certified Financial Planner) to help you run the numbers.
Get, and stay, out of debt
Debt and financial freedom don’t mix. The path to financial freedom requires getting rid of debt and never getting into it again. Create a debt repayment plan where you can track and pay off debt as quickly as possible.
Master the art of managing a budget
This is one of the best ways to stay on top of your finances to see what is coming in and what is going out. Budgeting may seem like a chore, but once you put it on your calendar and stick to it, this will give you permission to live the life you want.
Cut your expenses
If you read any article on reaching financial freedom, it will always come back to cutting expenses. This is
the moment where you will have to decide what stays and what goes. It’s a hard task, but revisit the first
step. If you want the life of your dreams, you will have to be willing to make sacrifices and prioritize your
spending along the way.
Save more money
Unfortunately, there’s no way to put this lightly. You will need to save a lot of money in order to achieve financial freedom. Start maxing out your 401k, open an IRA, investigate other pre-tax saving options to get you on the right track.
Learn how to invest and grow your money
The key to having money to support your lifestyle during financial freedom is investing. Search for local investment clubs, classes, or workshops so that you can understand the many options available to building your wealth.
While the average American household has a median savings balance of $4,830, according to The Motley Fool, financial freedom can seem like a pipe dream for most, but it is absolutely achievable with a bit of work and focus. It doesn’t matter how much money you have; it really matters how much you value the money you have. Following the steps to reach a point where you have more options to live more and work less will require a dramatic shift in your mindset, your lifestyle, and how you view money. In short, achieving financial freedom will require you to be consistently vigilant to reach a milestone that many can only dream about.
by Phylecia Jones, Budgetologist & Solopreneur Money Management Expert www.keepupwithmrsjones.com
When it comes to your financial matters, how serious are you? It’s a tough question, but with consumer debt estimated to reach $4 billion dollars according to CNBC by the end of 2018 and Americans struggling with having savings for small emergencies, it brings the issue of financial priorities to the forefront. Creating financial goals is not an issue for the average person. The Motley Fool says paying down debt, saving more money, and avoiding further debt are the top 3 financial goals most people set.
But, at times, our goals do not match the realities of how we are actually managing our money. Facing the hard truths about how you see and interact with your finances is difficult, but for significant changes to happen you will have to start with YOU. If you are constantly missing your financial goals or never taking action, you may be falling into some common traps that can take you off course from achieving your money milestones:
Being comfortable. When the bills are paid, money is coming in, and life is running like a well-oiled machine, it can be hard to take action when everything is okay. This is the perfect time to look 5, 10 years down the road and create financial milestones for where you want to be versus where you are right now.
Trying to keep up. Keeping up is a one-way ticket to debt, stress and despair. Stop worrying about others and focus only on your financial goals.
Assuming the bread winner will always make bread. For many couples, assuming the other person will always make money can be financially dangerous. Losing a job, sickness, loss of income are things we never think of when it comes to being in a relationship, but a small change can cause major waves. Create an emergency savings plan to cover the unexpected.
Avoiding doing the work. Getting out of debt. Saving 9-12 months of emergency funds. Paying off student loans. All are very intimidating tasks but avoiding them is not an option. Take the time to gather the resources needed to set you up for success and create a plan to tackle one task at a time.
Having priorities that do not match your goals. You have the goals, but you keep putting them off because of the next shiny object. Impulsive shopping and overspending has ruined many financial plans. Take the time to track your spending over the last three months. This simple action will put you face-to-face with a financial reality check. Ultimately, making a small shift to take ownership of your financial matters is key to getting out of debt, saving more money, and avoiding dire situations.
Facing the hard truths about money management can be uncomfortable, but change does not occur in your comfort zone. With record high debt and 65% of Americans saving little to nothing, it is time to put a stake in the ground, change your perspective, and take your financial matters more seriously.