Finances
Written by Raghvi Raghvi and Haroon Jemal Jehar
Credit Score
A credit score lends prospective lenders evaluate how likely you are to pay your debt. This in turn determines what kind of loan amount can be given as the loan.
The 5 factors, which can be ranked on the level of importance.
- Payment history (35%): Makes sense to, in layman’s language if you have been responsible in the past, you can be trusted further too. Avoid late payments at all costs. Never miss a payment, and if you did, never do it again.
- Amounts owed or credit utilization (30%): Here is a trick, if you want to notch the credit score it does not mean that you should not borrow, or not use your credit. Actually, tricky eh! It is actually worse than using tons of it. You want to show that you can handle a reasonable amount of debt without going off the rails. Having said that for example you have 1000$ limit on your credit card, you used 750 of it, well 75% needs to be repaid. UH! That can be problematic, not every time but you want to keep your use credit to 25%.
- Length of your credit history (15%): In simple terms based on the ages of your credit accounts, that is why older people have better credit scores than younger. So, getting a credit card early, but using it conservatively can help you.
- Types of credit and new credit (20%): Types of credit reviews how many sources of borrowing one uses, like uh car loan, education loan, mortgage, credit card. The idea is the more diverse the better.
Inflation
The most common effect of inflation is the erosion of purchasing power – in other words, when prices rise, your money buys less. See the simple illustration below, which shows the diminished purchasing power of $1,000 after 50 years – from 1970 to 2020.
What can you do to stay ahead of inflation?
Investing in a balanced portfolio, containing a mix of stocks and bonds, has a greater potential to outpace inflation and help build wealth over time. This is due in large part to the strong returns earned by stocks, which have historically beaten inflation by a large margin. Your portfolio’s asset mix of stocks and bonds is a key determinant of meeting your long-term investment goals. Think of bonds for income potential and as a shock absorber for your portfolio during stock market downturns. By contrast, stocks are the growth engine of your portfolio, with a higher allocation offering greater long-term return potential, but with a corresponding increase in risk.
On the other hand, if your investment portfolio holds a portion of assets in cash for a considerable amount of time, the minimal returns provided by cash may drag down your overall investment portfolio performance
Budgeting:
the process of calculating how much money you need to earn or save over a specific time period and planning how you will spend it.
Steps to make a budget:
1- Know your income, expenses and savings.
2- Review the results.
3-review the next steps.
keep all your receipts and bills
limit:
your spending as much as possible to what is in your budget
update:
your budget with any changes, for example, a pay raise, a bill increase, etc.
compare:
your budget to what you actually spend at the end of each month.
Savings:
One of the most beneficial financial habits to develop is the ability to save money. The question is frequently not whether you should save at all, but how much. While there is no hard and fast rule stating that you must have a certain amount of money in your savings account, having some realistic benchmarks can help.
When the unexpected happens and you need extra money to cover an important expense, an emergency fund is often your first line of defense.