Money is inextricably linked to our present well-being, indisputably connected to our future, and irrefutably associated to a mounting source of frustration. Whether you are a rising corporate executive, a veteran blue-collar worker or a recent college graduate, odds are that money, its presence or lack, is of paramount concern. Money is, as has been said, “a resource of epic use in a society destined to misuse it.”
But money doesn’t have to be the thorn in your side. It is the correct use and understanding of money, regardless of the amount you currently have, that will ultimately make the difference in your bottom line. A clear understanding of and action upon the relationships among credit, debt, and saving will transform your financial picture, and your life, from just-getting-by to getting ahead.
“You are the captain of your financial ship and the master of your economic destiny,” says financial expert and commentator Kelvin Boston, host of the PBS television series Moneywise with Kelvin Boston and author of Smart Money Moves for African-Americans (Putnam, 1996).
“Financial education is the key that unlocks the door to financial success,” Boston says. “We must take a few minutes and determine how our economic view of the world has been shaped. Then, we must decide if it is time for us to reshape it. In many cases, we find that it is time for a new comfort zone — one that we create, and not one that was created for us by our parents, friends or coworkers.”
“The good thing about credit scores is that they reflect the past and not the future,” says Boston. “We can all improve our future credit scores by making a decision to change our financial comfort zones.”
Start by ordering a free copy of your credit report, to which you are entitled by law. Experts recommend that you review your report at least twice per year, checking for errors. “According to David Szwak, a consumer attorney who spends most of his time suing credit bureaus, more than 90 percent of credit reports have errors,” warns financial expert and commentator Glinda Bridgforth, author of Girl, Get Your Credit Straight! (Broadway, 2007) and a featured contributor on Oprah’s “Debt Diet” series.
Furthermore, Bridgforth says, “according to a 2004 survey by the U.S. Public Interest Group, 25 percent of credit reports have errors serious enough for you to be turned down for a loan or a job.” So check your report and, after correcting any errors, begin to pay down the balances on your debt.
“If you’ve got credit cards and you keep them at the max, you will drain your credit score,” warns Bridgforth, owner of Bridgforth Financial in Detroit. “You want to get your balances down between 20 percent and 50 percent. This way, you reduce your utilization ratio, and in turn, increase your credit score.”
If your balances seem insurmountable, “contact creditors and make a deal,” suggests Shannon Nash, tax attorney, CPA and featured expert on BET’s “The Center” and Style Network’s “Modern Girl Guide.”
“Remember, be firm and request that, in exchange for paying off your debt, they agree to remove the negative information from your credit report,” explains Nash, owner of Nash Management Group in Los Angeles. “Many creditors will do this, but not all of them will. For those who will not, request that they indicate that the debt has been paid in full. If you decide on a payment plan, request that the account is listed as ‘up-to-date’ and that you are listed as ‘current’ on your payments.”
Finally, “whatever happens in this step,” Nash adds, “make sure that you get the final result in writing.”
Handling current debt is not the hard part for many people. It’s refraining from creating additional debt that creates difficulty. But experts agree: This is where you must begin.
“Stop creating debt. Period,” Bridgforth urges. “If this is a problem for you, and it’s got you into a hole, then stop digging. If you stop creating more debt, you will have more cash on hand which you can then use to pay the debt that you already have. Once you begin paying the debt that you already have, in a timely manner, you will be eligible for lower interest rates. Lower interest rates, in turn, will lower your payments and free up even more additional income.”
“Write down your daily expenses every night for two weeks,” Nash suggests. “Don’t think about it, just do it. Knowing where your money is going is the first step toward financial responsibility.” Once you’ve tracked your spending habits for a couple of weeks, identify where you can cut back or eliminate things that are not necessities.
“We must train ourselves to live within or, at best, below our means if we want to move forward,” adds Bridgforth, who offers a monthly newsletter to registered subscribers to her Website. “Minimize your spending by understanding what a need is and what it isn’t. We mistakenly spend as though everything is a need, when in reality, very few things are needs – most are wants.”
Saving and Budgeting
We know we should save. We honestly want to save. But at the end of day, we simply don’t save, or we don’t save enough, or we save it just long enough to spend it on the next “big want.”
Few Americans are really saving as much money as they should today,” Boston says. “But the reality is that there is no such thing as a guaranteed job in America. Today, any American can lose their job due to downsizing, new technology or overseas competition. For this reason, we must save as much money as we can.”
“For African-Americans, it is also important to remember the lesson we learned from Hurricane Katrina, which is ‘you cannot afford to be poor and live in America.’ We must save as if our financial lives depended upon it, because they do.”
To get really serious about saving, it helps to have a goal. “You’ve got to have a strong motivating factor to help you stay disciplined,” Bridgforth says. “You’ve also got to have consistency. It doesn’t matter if you’re saving $10 per month or $100 per month; if you do it consistently, you will see a difference.
“A lot of people only save when they get a big chunk of money, often after a large tax refund,” Bridgforth adds, “but you’ve got to make saving a habit, not an annual event.”
As for budgeting, “when you’re creating your spending plan, you cannot wait until your check comes to start assessing what goes where,” she says. You have to know where your money is going long before it gets to you. That way, you have a path to follow that will help you remain disciplined toward your long-term goals.
In the end, it is net worth that Americans should seek to build, according to that simple equation: assets – debts = net worth. “You will never build true personal wealth, net worth, by working a 9 to 5” job, says Nash. “You must look to build net worth through being an owner. I knew that being an employee would never give me true wealth so at some point in time, I knew I was going to strike out on my own.”
Nash cites the “happiest day in my life” as the day she made her last student loan payment. “That was the day that I knew, no matter what went on with my job or career, I had the financial independence to do whatever I wanted….I didn’t owe a dime and I had the potential to make great money. That’s true freedom.
I would not have been able to make the move [to start a business] without first achieving this financial independence,” she adds. “You cannot reach true financial independence until you get your debts to a manageable level.”
Financial freedom doesn’t come easily, but it’s in your future if you start today.