Managing Your Money in a Tough Economy

As we move through a continued challenging economy, many are finding it difficult to manage their finances on tighter budgets. There are some simple steps that can be followed; however, to make the road a bit more smooth.

One good place to begin is by taking a hard look at your spending and cutting down on non-essentials. This may be difficult because of a grey area that often exists between needs and wants. It can be helpful to make a list of items that you actually need to survive and those that are pure desires. Once you have your list, take another look to see if additional reductions can be made. For example, perhaps you can make coffee at home rather than buying it at the expensive coffee shop. You might want to consider having only a mobile telephone instead of both a mobile and land line.

You can also find ways of spending less with your financial products and services. Examine credit card and bank statements to find fee-free products. Use only your bank’s ATM to avoid fees. Negotiate lower interest rates on credit cards. Oftentimes, companies will forgo higher interest rather than lose you as a customer. Pay credit card balances in full to avoid interest altogether.

Now that you have reduced your spending, it’s time to begin saving more. This is when you look for a little excess money that you can start putting aside on a consistent basis. Even the smallest amount will add up over time. If you pay off a debt, continue saving that monthly payment in an emergency savings account. If you receive a financial windfall, don’t spend it – deposit it into your account.

You will want to be somewhat careful about where you place your money once you begin saving. Your best bet is to look for a financial institution that is insured by both the FDIC (Federal Deposit Insurance Corporation) and DIF (Depositor’s Insurance Fund). The DIF, which insures deposits at Massachusetts state-chartered savings banks like Legacy Banks, covers all amounts over and above FDIC limits, which until December 31, 2013 has been increased to $250,000.

When it’s time to borrow money, you should also proceed with caution. While current economic conditions have caused some lenders to tighten standards, there is still financing available, especially with smaller community banks, such as Legacy. Before applying for a loan, make sure you are in the best possible position to be approved and receive the best rate. The most important factor in accomplishing this is your credit score. Many people are confused about what contributes to a credit score, so here is how it is calculated:

• 35% is based on payment history with more weight placed on current payments.
• 30% is based on capacity – how much credit you could potentially have. For example, if you have a credit card with a $10,000 limit, but you only have $2,000 charged. The other $8,000 is considered additional capacity.
• 15% is based on length of credit – it’s better to have a longer payment history. 10% is based on the accumulation of debt in the last 12-18 months (number of inquiries and opening dates). This means how many times you have applied for credit.
• 10% is based on the mix of credit that you have – the types of credit. It’s better to have a mix of revolving and installment debt.

If you are concerned about your credit, here are some tips to improve your score:

• Pay down credit cards
• Consistently make payments on time
• Pay at least the minimum amount due
• Move revolving debit into installment debt.

If you find yourself in a position of being unable to make your payments each month, be sure to contact your lender immediately. It’s important to maintain open communication. Lenders can sometimes make adjustments to loans if you notify them in a timely manner. Once a loan is in default, the options are limited.

You can feel free to contact Legacy Banks at 800-292-6634 if you have any questions about saving, credit or money management. The financial professionals at Legacy are here to help.