Three Important Lessons to Learn in This Time of the Global Pandemic

Since everyone is stuck at home, why not learn some important financial lessons that can help in future investments and saving plans. This write-up is an educating read for people willing to learn more about finances.

With COVID 19 dominating our lives, we are practicing social distancing and other precautionary measures to flatten the curve. We are at home, spending our time either learning new things or closely observing our lifestyle choices. Several credit unions and banks in Wareham have pointed out that it is the right time to evaluate our financial goals and achievements.

This is the right time for the millennials, who are yet to make their financial road map, to learn about money management and how to plan for a financially secure future. Here are five pointers to get you started:

1. Monthly budget and how to make one

The household monthly budget is a detailed list of expected expenditures in a month against the income. This classification helps in managing the money better as well as planning savings for a secure future. It is a helpful tool in keeping track of your spending habits and avoiding frivolous expenses.

There are different categories of budgets, like:

a. Proportional budgeting

Here, the after-tax income is divided into different percentages and assigned to different requirements. In the 50-20-30 rule, being the most popular example of this type of budgeting, the highest percentage (say 50% of the post-tax income) is allocated to needs. While the remaining portion of the income is distributed among savings and wants respectively (20% - Saving, 30% - wants). This type of budgeting is simple and does not require much brainstorming.

b. Traditional budgeting

In this method, after necessary tax deductions, the remaining income is calculated. Next, the expenses are added up and the amount of money is dedicated to these expenses. The portion that remains goes to savings.

c. Value-based budgeting

Here, instead of allocating the money based on wants, needs, and savings, the money is distributed based on the value placed on a certain item. In simpler terms, the things you value most will be allocated the most amount of money, while things of lesser value would get less amount each month.

2. Valuing the credit score

A credit score is the value of credit holders’ creditworthiness. Based on a credit report, it primarily contains the information sourced from credit bureaus within the country. Usually, the score is marked on the scale of 300 to 850, where the score below 630 is considered as poor while the above-720 score is regarded as excellent.

People with bad credit find it

a. difficult to get loans at a favorable interest rate

b. are charged higher insurance premiums  

c. issues in getting loan approvals

d. have to pay security deposits for utilities like electricity, gas, or phone

Here are a few of the methods to maintain a positive credit score:

a. Make loan repayments on time

b. Avoid bankruptcy

c. Maintaining a healthy balance between the credit available versus credit used

d. Limit new credit inquiries

3. Learning about interest

Interest is the money the borrower has to pay as a cost of borrowing the money from a lender or the financial institution. The amount of interest is based upon the borrower’s credit score and their financial profile. A debtor, with a good credit score and within the eligible income slab, is often offered a lower interest rate.

With this set of information, you can confidently carry your future discussions with the credit unions, private lenders, or banks in Wareham. But for more insight on the topic, you can always approach the PCT Federal Credit Union at http://www.pctfcu.org/ or call 508-291-0777.