Now that April 15 has come and gone you might feel like kicking back, regardless of whether you got socked on your taxes (like I did) or made a nice little refund (as I hope you did). But as I like to stress in these columns, the act of financial education and improving your financial health represents a year-round project. Rest if you must, but never stop making your game better.
Since tax time was particularly painful this year (I paid more as a result of crossing into a higher income bracket, which I suppose offsets the pain a bit), I decided to reexamine two facets of my financial health that I encourage you to do as well: your credit score, especially as it pertains to errors on your credit report, and your monthly line-item budget.
First, let’s start with the credit score. If you aren’t monitoring your credit reports closely, you’re at risk on a number of levels. First, if credit fraud or identity theft are victimizing you, you’ll likely see it on your credit reports first. Second, and just as important, credit reports often contain mistakes. You don’t want to find out on the day you’re denied a home loan, for example, that your credit report contained errors that drove down your score.
Insofar as that second point, I wish I were speaking hypothetically. I checked my score via one of the three credit bureaus on April 17. It was 705 — encouraging, since that puts me in the “good” range, but not outstanding either. Then I noticed that one of my credit cards, which I’ve always paid on time, reported a couple of late payments. I’d caught a mistake! Now what to do?
The fact is, the average create score for American consumers is 661, according to Credit Karma. And that’s not very good — which leads me to believe that many of those low scores may result, in part, from unaddressed errors. Of course, it’s hardly a picnic to begin the letter-writing campaign I describe below.
The Federal Trade Commission describes a two-step process for disputing and fixing mistakes on credit reports. The first involves telling the credit reporting company, in writing, what information you think is inaccurate. You’ll need to include copies of documents that support your position. Next, you’ll inform the creditor or other information provider, in writing, that you dispute an item. Unless your dispute is frivolous, the credit reporting companies will usually reach a decision within 30 days. When the investigation is complete, they must give you the results in writing — and a free copy of your report if the dispute results in a change.
Wondering how to get a free copy of your credit report? There are many ways to do this. In this Money Under 30 piece, we discuss how you can get free reports from all three credit bureaus via annualcreditreport.com, or by or calling (877) 322-8228. Federal law mandates that you can download or receive your reports for free at least once a year. You can also contact credit rating agencies directly: TransUnion (800-916-8800), Equifax (800- 685-1111), and Experian (888-397-3742). And our friends at Credit Karma offer a free service for checking and monitoring your credit score.
If you discover that your score isn’t where you’d like — regardless of any errors you discover — it could be a sign that you need to reconsider how much you spend and where your priorities lie. After taxes, I find, marks an ideal time to revamp your line item budget.
You may think, for example, that your expenses begin and end at rent, utilities, groceries and gas/insurance for your car, with most other items qualifying as incidentals. Roll your eyes if you like, but that’s how lots of people under 30 manage their finances — and for a good reason. The beginning of adulthood usually has less to complicate it, financially speaking. But as the years go by, new expenses, investments and budgetary categories enter the picture … lots of them.
I’m a daddy in a family of four, and discounting any college savings or special purchases, my line item budget breaks down to a whopping 30 items — and some of those are condensed categories. When I recast my budget this week, I was surprised by how much I spent on certain things (groceries and Starbucks, for example), and how much I wasn’t spending on other priorities (putting money aside for taxes, car expenses and utilities, which rose sharply in 2012).
Laying it all out on an Excel sheet helps me to see where I need to cut back — especially when I compare the spending total to my family’s income total — and make the necessary adjustments. And there are lots of online tools that make the budgeting process easier than ever. Mint.com, for example, consistently earns high marks for its budgeting tools. And as I wrote about recently, Moven.com takes online budgeting a step further by telling you if you’re meeting your goals based on the data the Moven app collects from your purchases.
If you’re in the budgeting habit, great. And if you’re not, consider whether your avoidance may be emotional, when the subject of money is best addressed rationally. We all want to defend our spending quirks and bits of wastefulness. I do it all the time. But a budget doesn’t wag its finger at you in shame; it merely gives you a crystal clear view of where your priorities actually lie. And having one’s eyes opened to folly and misspending isn’t easy to swallow.
As once-a-year priorities, checking my credit and tweaking my budget help me to achieve not just financial security, but financial serenity as well. Life’s full of rude surprises as it is. If you have to get $10,000 of dental work, or pay more in taxes than you expected, those things never tickle.
But the worst surprises of all — and I know this from experience — come when we’re asleep at the wheel, and have to deal with monetary miseries we could’ve easily nipped in the bud, if only we’d paid attention.
What times of the year do you re-evaluate your budget?