Budget Sense

The financial world and the stock market have been rocked by the downgrading of the US credit rating by Standard and Poors.

Given the poor state of the US economy and the government’s recent infighting to reach a consensus regarding the debt ceiling in a short time, have all spelled an end to the United States close to 100 year of the maximum triple A rating down to a double A rating.

This is huge and unprecedented!

It is the personal equivalence of your credit rating being downgraded by your credit card company or bank, which as you may have guessed, results in harder and higher costs of borrowing to you.  This is exactly what happened to the United States and this can in no way be good for their already ailing and fragile economy.

So if this can happen to the United States, you can bet it can easily apply to you and me as individuals.  But what can you do to ensure it doesn’t happen to you? the short answer is, don’t go into debt and stay away from credit cards. The long answer? well let us go through a checklist:

• Live within your means: the US has been living beyond its means and budget for decades now, trying to fund two wars and lots more with borrowed money. Are you doing the same? are you spending more than you are taking in income? If you are, stop and change your budget right away!
• Eliminate your debt: Yes I know, it is getting tiring to have to hear this all the time, but that is the point! Sometimes we need to hear and read about something more than once or twice before we fully get it.  The US has so much debt, some government officials were thinking as far as defaulting. Yes, the United States was thinking of defaulting! What is this world coming to?
• Save Money: When you don’t have to spend your money on paying back your debt and the interest on it, you will have money to save and invest.  And when you have money saved, the future will no longer be as scary or uncertain, even in the unfortunate event of losing your job.  Saving money will help you not just for that rainy day but also to make big purchases such as a car, new furniture or even the down-payment on a new house.
• Pay your bills on time:paying your bills on time is easier when you have a job. But even if you don’t have a job, you should still make it a priority to pay your bills on time. If you are unable to, speak to the company and find alternative arrangements.  Paying your bills on time will not just save you from paying interest. More importantly, it will help you in maintaining a good credit down the road, which will come in handy when buying a house or car.

If you want to be seen as very trustworthy in the eyes of financial institutions, you have to start treating money with a little more respect and care.

You may look at the concept of ‘credit rating’ as your resume to the financial world: they will judge whether they should borrow you what you need-and how much interest to charge you-based on what they see on your financial resume. So be sure to polish your financial resume.

Needless to say, applying the above will help you maintain a good credit rating and that will make it easy to buy that new car or house in the future.  Furthermore, having a good standing credit history will help you stave off bankruptcy which is the last place you should think about, let alone get to!