It’s the time of year when many of us make new year’s resolutions – from losing weight to improving relationships. Often, sorting out our finances is on the list too. But how to do it and where to start? Let’s see how you can improve your financial wellness in 2021.
As new year’s resolutions go, “sorting out my finances” can be daunting – a real elephant that needs to be eaten. Fortunately, as with eating an elephant, the trick lies in not trying to do it all at once.
Given that debt is a reality for most of us, a good place to start is your credit health, which is reflected by your credit report and credit score.
What is a credit report?
It is a record of your borrowing behaviour that is updated every month. As some information drops off and new information is added each month, you can improve your credit report – and score – by improving your credit behaviour.
Once a year you can get a free credit report and score.
What is a credit score? Your credit score is drawn from your credit report. The higher your credit score the better, as it means that you are a low-risk customer to a credit provider. The lower your score, the higher the risk you present to the credit provider. As a financial planning tool, your credit score shows you whether or not you can plan to use credit to achieve your financial goals.
The information does not stay on your credit profile forever, therefore you can improve your credit score by being responsible with credit.
How to work with your credit report
Budgeting as the secret to success
While reading through the credit health information above, you might have asked yourself where the money is supposed to come from to get your debt under control. Well, apart from debt solutions like debt consolidation, the answer is budgeting.
Only when you plan your spending, can you improve your financial wellness in general and your credit health specifically.
A budget can be really simple: list and add up all the money that comes in (such as your salary, a government grant for an elderly or disabled member of your family, and money you make with a side hustle), and list and add up all the money that goes out. Look at the difference between the two amounts and then find ways to reduce your expenses until your budget balances.
Once you have this basic budgeting under control, start using your budget to achieve specific goals, such as improving your credit score or saving for a big-ticket item. Using your budget to achieve your goals, means that you plan your expenditure by allocating money to specific categories. For example, if you want to improve your credit score, you will increase your debt repayments by spending less on nights out with your friends.
When you actively work with your budget, you will be amazed at the results you achieve.
So, how to make 2021 your best money year yet? Use your credit report as a tool to improve your credit score, and use your budget to plan for and achieve your financial goals.Go back