Organization 101

This is the mantra of Food Network star Alton Brown, but it applies to finances as much as food.
Organization will set you free.

You financial house should not only be in order in the monetary sense, it should be in order in the physical sense. Business receipts and bills don't belong in a pile in a shoe box. When tax time rolls around, you should be able to hand your tax preparer what he or she asks for in less than a minute.

Service providers are not perfect. Banks are not perfect. If something looks off on your gas bill, you should be able to pull up a full year's back bills and compare your usage levels to the bill you are questioning. You should have all of your ATM receipts ready and organized when your bank statement comes in, and you should reconcile your bank statement with your records every month. Many debit card based money thefts start with the theives stealing small amounts and then, if there's no reaction, they drain the account. If you have all your records and you reconcile your statements, you'll be able to catch the small amounts and alert your bank. If you try to reconcile your statement and you can't find your ATM records, you're going off memory, and that allows a lot more to slip through.

For the Small Business Owner
Don't, absolutely positively do not, keep your personal finances in the same place/container as your business finances. At all times, you should be able to pull your business financial paperwork out without touching a single personal bill or receipt. You do not want to be telling an IRS auditor that you included your daughter's ballet lessons as a business expense because you didn't have time to sort your bills.

Now, this doesn't mean you have to be absolutely anal and file everything the second it comes in, but you should have a system. Get an accordian file or a plastic filing case and label each section with a type of bill or statement and once a month or so file your various bills in their appropriate sections. One day sit down for five minutes and mark your calender for the entire year with the day big bills are due, like car and house payments. Put your tax paperwork for each year in one folder, clearly labeled, and keep all the folders together. Put bills to be paid in the same place every time they come in so you get in the habit of looking at the same spot every day to see what's due.

If you want to take it one step further, create a spreadsheet of bills and expenses for each month and record your expenses by category, such as food or utilities, and have a spot to put in your income after tax withholdings. Each month total your expenses to find out what you spent where and if you made enough to cover it. Do this for every month for a year and give yourself an idea of what you spend the most on, how much you save after spending, and where you need to make cuts in your spending. This will give you a good idea of what to budget and what to change for the next year.

Remember, organization will set you free.

Good Credit 101

There are a lot of things that affect your credit score and I won't pretend to know everything that does and how those things change your score. I can list a few things to keep in mind when considering the various things we consider in our life.

1. The more your credit is pulled by companies, the lower your score will be. If you pull your credit as you, which I would recommend once a year just so you know where you stand, it won't affect your score. A company pulling your credit to evaluate you for employment has a small impact. A company pulling your credit to evaluate you for a credit card, mortgage, financing, or a big purchase will have a larger impact.

What does this mean? Keep the number of credit cards you have to as few as possible. I have 2. I might go to 3 for American Express when I start to travel more. Do in-store financing as little as possible. (I'll expand on this issue in another post) Check out mortgage rates and companies before approaching them so you don't end up shopping for a mortgage and having each company pull your credit lower and lower.

2. Pay your bills. And I mean all of them. $2 late fee for a book at the library? They're starting to send those little items out to collection agencies and that means they show up on your credit report. Pay the big ones too. Especially your mortgage. With the number of mortgage fraud cases going up(which I'll expand on in another post) lenders are getting more efficient at their foreclosure processes. A trip to Tahiti for two weeks is not worth losing your home. And, maybe most importantly, PAY YOUR CREDIT CARD BILLS! Even if you can't afford to pay the whole amount(which is a big issue I will expand on in a Credit Cards 101 post) pay as much as you can, NEVER EVER pay just the minimum amount.

3. Pay on time. Late may be better than never, but now is better than later. Don't wait until the last second to mail your check in. Have your check in the mail at least a week before the due date listed. Remember, the postal system takes time. If you can have bill payment automated at no charge, do so. I have Discover, it is my primary card because of the cash back feature. Every bill that I can have charged to my Discover card automatically, I do. Because the automation is handled by the company billing me, the amount taken is always enough and it's always taken on time. Not paying your electrical company for a couple months doesn't just shut off your electricity, it'll probably end up on your credit report.

4. Don't max out your credit limits. This includes Home Equity Lines of Credit(HELOC) as well as credit cards. Stock accounts have margin accounts and those are included too, although for slightly different reasons that I won't cover here. Most credit reports have a 3 line summary of issues with your credit under each credit agency's score. One of them is often "amount of balances relative to credit limits too high" or something similar. If the rest of your credit is fine, this is pretty meaningless, but if your credit is shaky, this is seen as an indicator of poor ability to manage bills.

Remember, your credit score affects many things. Your ability to get a job, a car, a home, a celphone. The lower your score, the harder and more expensive it will be to get these things. So, do what you need to do keep your score up. You may find other parts of your financial life falling into place.