Money isn’t what I want my life to be about. So it’s really annoying that we’re forced to pay for ‘experiences’ now, on top of everything else attached with a price. Why does life revolve entirely around money? I mean it ‘technically’ doesn’t but it has its hand in everything.
Money doesn’t buy happiness but a lack of money can result in a great deal of stress and anxiety. I don’t want to live in constant financial fear, so my goal is for money to be a low priority concern. The only way for that to happen is through strategic organization.
This is why one of my main goals for 2022 is improving my financial health. It’s one less thing to worry about, right?
Here are some of the impacts of financial struggle on mental health:
- Increased probability of anxiety and depression
- A cycle of hopelessness and futility that can result in unemployment
- Relationship struggles
- Increase of cortisol and other stress hormones impacting physiology; increases the likelihood of stress-related diseases
- Lower self-esteem and confidence, especially when one compares themselves to others
- Inability to take part in things that make us happy
- Turning towards unhealthy foods because they’re often less expensive
- Less social involvement due to inability to pay for events, outings, etc.
- So much more!
Point of Departure
The first step for me is independence; I don’t want my parents to keep paying for the gap between my expenses and pay. No more bailing me out… I already live with them and enjoy the food they pay for…I want to lighten the load and take on more responsibility. I figured a clean break would work better and teach me more.
I covered my February expenses alone! Yay! One month is a good start and I think I’ve learned more about the value of money in that month than my whole life. No matter how much you read or hear, there’s nothing like being solely liable to get your head straight and off of impulse purchasing! In short…I’m very grateful for the experience and excited to continue.
This was my financial picture at the start of the month:
- My 1 credit card was almost maxed out.
- This balance almost equalled my saving in investments which is sad. (That’s money I’ve been saving for about 7 years so…)
- I had to help Aaron with some of his expenses which made money tighter. (I don’t know when he’s going to pay me back 🙁 I wish I could tell him not to worry about it but I can’t.)
- When I first started with WordPress I foolishly got the business version. More foolishly, I had forgotten that the renewal date was coming up.
In January I had made a new budget on Excel and vowed to stick with it. My financing, insurance and subscriptions were covered for February and I was able to pay more than the minimum balance on my credit card. Then WordPress came through…ouch…and wrecked everything.
Still, I wasn’t going to give up on my plan. So even though it was painful, I redeemed some of my investments to cover the subscription. It was MY mess, I wanted it to be MY cleanup. I did fix the situation which inspired me to look deeper into resolving my debt.
Credit Card Fun
I found a new credit card with a promotional low-interest balance transfer rate and applied for it. I was approved! Unfortunately it turns out that it’s not allowed to do a balance transfer to a card from the same bank. Apparently it might be possible to work something out with Mastercard directly, so we’ll see…either way I do have a new, lower interest card which is a good idea. I really wanted to transfer some of the sizeable debt being carried over month after month incurring $55-$65 in interest charges to a card with a lower rate. It’s unfortunate.My new strategy if the transfer still doesn’t work though is to put some of my pre-authorized withdrawals on the new card so the total stops climbing on my 19.99% interest rate Cashback card.
I also applied to increase the credit limit of my first card, which they gave me. I was at $4000, applied for $6000, but they gave me $7000! Happy-happy! This increase is not with the goal of spending more money! I just want to be in good, reputable standing early on so I’m prepared for future financial instruments and acceptance.
Let’s Get Down to It!
The main purpose of my blog is to share my struggles and tips for better mental health. Since financial health has a distinct influence on happiness, it seems natural that I write about this too. So the first thing I wanted to write about is Credit Score. It’s a pretty important number but it can be a little mysterious. Let’s clear that up.
What is a Credit Score?
- Origin: The first idea of a credit score came from the Fair Isaac Corporation (FICO). Now there are many companies offering the same standardized measurement for evaluating someones’ financial picture.
- Why is it important? Your credit score (ranging from 300 to 900), is a measure of the risk you represent to a person or institution. If you have a low score, your approval chances for whatever the product or service is, are reduced. The higher the score, the greater your chances of approval.
So whether you’re applying for a new credit card, line of credit, mortgage, place to rent or trying to finance a new car, your score has a significant bearing on whether or not you’ll be accepted. It’s like an impartial testimony to your reliability to faithfully pay rent, monthly statement balances, etc.
- What’s in a score? A lot of our score is determined by our payment history, particularly on credit cards. Now maybe someone’s told you that as long as you pay your minimum balance every month, you’ll have a good credit score. Or perhaps a step further: The key is paying off your full statement balance each month. Both of these are good, however incomplete. There’s quite a bit more to it than that, as I’ve recently learned. I might be late to the party, but here goes:
P.S. I learned this on Investopedia. The percentages reflect the ‘weight’/importance of each factor when determining your score.
Payment History – 35%
This one is basically what we already mentioned: Do you make payments on time, do you pay at least the minimum balance, etc.?
- Avoid large outstanding balances month after month.
- Close old credit accounts associated with unfavourable payment history.
- Keep unused accounts that have a good payment history.
Credit Usage – 30%
This one surprised me a lot actually! It means that ideally, we shouldn’t use more than 30% of our credit limit at any given time. So if your limit is $3000, try not to exceed $1000. This is apparently the second most important factor. Since this one is about ratios, there’s a bit of a cheat you can do. Remember how I increased my limit but not so I could spend more money? Well, this is why. If you can’t lessen the amount of debt you can try to increase your limit thereby giving you a lower used/unused ratio.
Age of credit accounts – 15%
Experience comes to bear in a lot of things and this is one of them. Having had open credit accounts for a long time gives you points – literally. That’s why it’s best not to close unused credit accounts; they add to your unused credit in the above ratio, keeping your percentage low and stable. Cancelling those cards would cause your available credit to drop, so your percentage would go up. The result? Credit score goes down! (This seems contradictory to the first category, but it isn’t. If you have an unused account but your record was good – keep it. If you have an unused account but your record was bad – ditch it!)
Credit Mix – 10%
This is another interesting category based on the difference between installment vs. revolving credit. We need to understand both. Revolving credit is your common credit card, home equity line of credit and retail card (card issued by a merchant). These debts don’t have a fixed end date…a minimum is due every month. Installment credit would be your car financing, personal loan, student loan, mortgage, etc., where there’s an end date and a fixed amount to pay every 2 weeks, once a month, etc. How does this play into our score? Well, it looks good to have a mixture of both types of credit. ‘Don’t put your eggs in one basket’, as they say. So if you’re responsible with both kinds of payments that reflects well on your risk profile.
New Credit Inquiries – 10%
For this one we first need to understand hard inquiries vs soft inquiries: A soft credit inquiry for example is when you check your credit score through your bank or Credit Karma. It’s also the kind an employer is allowed to run when you apply for a job. A hard inquiry would be when a bank or dealership checks your score because you’ve applied for a new credit card, a mortgage, car financing, etc.
Saving and Investing
This is super important for everyone and I adamantly believe we should start learning about this in high school. It pays off to start saving and investing as early as possible so that time works in our favour. Why?
1. Retirement costs a lot these days and it’s only going to increase.
2. Extra money is always great to live our best life before retirement.
3. Having a buffer is essential; you never know what unexpected costs will pop up (most likely at the worst possible time).
Example: We had a nearly 3 hour work meeting the other day after our business hours. Muffin and I were very tired and looking forward to going to bed; it had been a pretty long day. Life had other plans! Not 2 minutes after we’d started the drive home (which is only about 6 minutes by the way, making this all highly ironic), we hit a terrible pothole. Thank you Quebec winters!!! It sounded rough but not unlike others I’ve regrettable failed to avoid. Hahaha, joke was on me. Within seconds I heard a constant strange noise coming from the front-right of my car. I was very concerned that I’d damaged my coil spring or something. My car started pulling to the right and I was very grateful to have been already driving slowly. The sound persisted and I pulled into the gas station 30 seconds away. By the time I parked and got out, my tire was completely flat. Time to call dad, read the section in my manual about the emergency tire kit and take everything necessary out of my trunk. (Car repair virgin over here…yippee! Muffin was also very confused.) My dad and I tried to use the kit but the flat was too bad. There’s no way I wanted to call a tow-truck and thankfully there’s a small garage close to where I got the blowout. Driving 5-10km per hour, I drove on the rim so my car would be at the garage in the morning. (My tire was mostly off the rim by the time we got there!) After all that I went to sleep just past midnight which is something I never do…and for a reason! My dad and I woke up at 5 and went to the garage super early before he drove me to work where I was supposed to start at 8 but ended up starting at 7:15 since…well…I was already there and had a lot to do. I’m grateful because things could’ve been much much worse and the repair was done quite early, but my tire had an enormous gash so it needed to be replaced entirely. $186 later…with my winter tires only being 4 months old…f*ck! Long story short, you never know what can happen. Bye bye money…it was nice knowing you for the few hours you were in my account. (Good thing I had been paid that day…I would’ve been screwed.) So yeah. Prepare for the unexpected.
Should I Invest or Pay Off Debt?
That’s a really great question and the answer is that it depends. If the interest rate of your debt is lower than the interest you’re making off investments, it’s worth it to continue saving while you faithfully pay back what you owe. If however your debt interest is higher than what you stand to make from investments, it’s better to concentrate on paying off your debts first. Example: I’m very happy with my placements. My mutual funds yield an average of 4%-6% which is really great, and my stocks have been higher though with COVID and current circumstances gains have been uneven. Unfortunately, credit cards often come in at around 19.99% interest. (That’s why I love my new 12.99% Preferred Rate card.) Being so high, it’s very difficult to find investments that top that magnitude of interest. My plan? I’m going to concentrate on clearing up my Cashback card before I invest more money. I can’t wait to invest again, but it doesn’t make sense to lose more (with certainty) than I stand to gain.
Despite the above, I think it’s super important to save some money and keep it liquid (readily available) despite your debts. Maybe the amount has to be reduced, but having a little padding is crucial. Put it somewhere you won’t spend it – that requires discipline (believe me, I can be terribly impulsive and stupid with money), but it’s incredibly worth it!
Now that I have a budget that I’m actually looking at it and sticking to, I see how everyone should have one. It’s simply too easy otherwise to lose sight of the ‘ins and outs’ of your money and before long, you have zero handle on your spending. That’s very very bad; we can’t get ahead and we can’t expect our financial picture to improve.
The budget doesn’t have to be fancy, complicated or time consuming. In fact the more it’s complicated the less likely we are to stick with it. That’s been a major problem of mine in the past. I created systems in moments of inspiration but when the fiscal obsession phase was over, nothing had really changed. Consistency is the key to success with everything and this is no different! Once you get the hang of your personalized system things will become clearer. Eliminating the guesswork reduces stress and it’s very reassuring to know that major payments are accounted for.
Before this gets excessively long, I’m going to end things here. There’s of course much more to say but I hope you found this helpful! If you have any suggestions or comments, we’d all love to hear them. Take good care!