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6 Ways to Make Sure You Get the Loan You Need

6 Ways to Make Sure You Get the Loan You Need

Remember in grade school when your teachers would warn you about your “permanent record?” At some point, you most likely figured out that was just a scare tactic to keep you in line until you graduated high school.

Once you entered the “real world,” you were soon introduced to another permanent record of sorts: your credit score. However, unlike the enigmatic permanent record of your schoolyard days, your credit score does, in fact, exist, and absolutely will affect the rest of your life in one way or another.

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So how do you keep it in good standing and ensure that you’re never denied from taking out a car or home equity loan?

Check your credit score often

If you’re gearing up for a large purchase that will depend on your ability to receive a loan, you should keep up-to-date with your credit score on a monthly basis. There are many ways to check your credit or CIBIL score for free, or you might opt for a more in-depth report that will usually come with a fee. While it’s a good idea to keep track of your credit score even if you’re not in the market for a new car or home, you shouldn’t obsess over it; it won’t change more than once a month. Focus less on your actual score, and more on improving it as best you can.

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Keep credit balances low

A lot of people fall into the trap of overspending using their credit cards simply because they can. This sort of irresponsible behavior can lead to missed payments, increased interest rates, and decreased credit scores. On the other hand, using your credit cards only for expenses that will immediately be paid off will show creditors that you are responsible with borrowed money, and they’ll be more likely to offer a loan in the exact amount you’ve asked for. A good rule of thumb is to keep your balances under 30% of your maximum; this shows lenders you have restraint, and will also give you some wiggle room if an emergency arises.

Pay your balances on time

While it’s pretty obvious that letting your bills go unpaid will result in a low credit score, it needs be said that late means late. It doesn’t matter if you’re a day late, or 29 days late: if you’re late with a payment, it’ll immediately be reflected on your credit score. Though it’s recommended that you pay much more than the monthly minimum, you should always pay at least that every single month. This goes back to the last point: if you’re unable to pay off your debt, you shouldn’t have made the purchase in the first place.

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Take care of small debts

As should be clear by now, credits and loans should only be used to make purchases that you’ll be able to pay off in the near future. You should never use a credit card simply because you don’t feel like “actually” paying money out of your pocket at that very moment. If you run into a jam and absolutely must use a credit card for a purchase while you’re out, make it a point to transfer money over to pay off your debt the first chance you get. You don’t want to be late on a small $30 payment because you forgot about it later in the month.

Similarly, don’t spread out these small debts over multiple credit cards. Keep your debts focused into one or two accounts, and close out the rest. There’s no need to tempt yourself with five different credit cards with no balance. Remember: the limit on your card does not represent money you actually own, but it could represent money you owe.

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Flaunt your good standing

It’s possible to request that certain loans be removed from your credit history once they are paid off. However, doing so will usually end up doing more harm than good to your ability to receive a loan. Say you’ve paid off a car loan in full at some point in the past. You made the monthly payments on time, and even paid it off quicker than you had planned. Why would you want to hide this? You want potential lenders to see that you can take out a loan and repay it responsibly. The only time you’d want to hide an account is if it’s in bad standing; of course, getting this history off your report won’t be nearly as easy.

Don’t give out more information than is reported

Credit scores exist for a reason: they give lenders a ballpark idea of how trustworthy you’ll be with their money. If lenders operated on the information given to them by potential borrowers…well, I’m sure you know what would happen. If your credit score comes back lower than expected, don’t make excuses. Everyone has a sob story to tell, so it won’t help your cause explaining that you broke your leg last year and couldn’t work, or you lost everything in a flood and needed to max out your credit cards. Your lender might feel for you on a personal level, but when it comes to business they’ll have to deny you the loan based solely on your low score.

On the other hand, if your score comes back better than expected, keep your mouth shut! You’re right where you want to be, but anything you say has the potential to be misconstrued. Save the happy dance for your living room after you’ve signed the loan papers.

Featured photo credit: JJ / Piggy bank full of dirty coins / Flickr via farm4.staticflickr.com

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Matt Duczeminski

A passionate writer who shares lifestlye tips on Lifehack

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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