With great probability, more than 70% of the Portuguese have a credit responsibility. There are many purposes for using credit, whether through credit for home purchase, credit for car purchase, holiday credit, appliances, furniture or even the simple credit card or overdraft, the truth is that most of us own one or more of this type of credit.
A simple example is opening the account to the order with the domiciliation of the salary that in most cases and almost automatically, we are granted a ceiling or overdraft authorized to face times of less financial availability.
Likewise, it is now possible to begin the relationship with credit in a simple way and to the counter of any commercial establishment or in the comfort of our homes through the request of a credit card or an online credit (we suggest reading the article ” Beware of online credit applications “so as to avoid some very common hassles.
Regardless of the type of credit, its existence presupposes a proactive attitude towards it, unless such credit is not or will not be used. However, whenever you benefit from it you will have to formulate a method of management that does not harm your Personal Finance.
Your Money is Your Guide
It is true. Knowing exactly everything about your money is the best indicator you can have to make valid reviews. We have already talked a lot about this topic, but remember that it all boils down to the correct management of the well-constructed family budget, a deep knowledge of its revenues and expenses, the definition of strategies to save money and the importance of planning to term.
However, as far as credit is concerned, we have to be more ambitious with our money, including our responsibilities in the analyzes and defining strategies to liquidate them or protect ourselves in difficult times.
There is therefore a need to create emergency plans and ensure protection for the unexpected, such as addressing life insurance as the best protection and setting up an emergency fund that assures at least 6 months of its overall burden.
Calculate Your Rate of Effort
It is one of the indicators most banks use to grant credit to their customers, since they consider that it reveals information pertinent to the calculation of the risk of the operation. However, you can also regularly check your effort rate by making this static ratio dynamic and current.
Let’s see, have credit housing and a credit card. At the time of the granting of the credit it had a rate of effort of 45% that reduced to numbers is nothing more than a provision of 450 euros in relation to a salary of 1.000 euros considering that it no longer has any charge.
By utilizing your credit card is increasing your monthly effort in as much as paying off your credit card bill is responsibility. For customers who do not use their credit card intelligently, this charge may last for several months (see: minimum payment).
If each month have a provision of 100 euros in the credit card and add the same with the provision of credit housing will have a 55% effort rate.
How you can verify your ability to match your responsibilities decreases as a warning sign for the correct management of your credits against your budget.
He should prudently have a monthly effort rate of less than 50%, taking into account the fixed expenses he has in addition to any credits, thus allowing him room for other noble activities, such as strengthening his emergency fund every month or devote 10% of your salary to the planning of your retirement.
“1 + 1” WILL ALWAYS BE “2 – X”
We have a habit of complicating and giving up as soon as something goes wrong. There is no reason to alarm because if you remember the result of the previous equation you clearly know that you do not take risks in the management of your credits.
Although mathematics is an exact science, financial life is a little more human, so the result of 1 + 1 is not 2, because the biggest mistake begins when we spend all that we earn (1 + 1 = 2) or spend more than we gain (1 + 1 = 2 + x).
Therefore, it is always appropriate to keep in mind the following formula in our lives because of its complexity at first sight, allows the management of your credits and consequently your Personal Finance become extremely simple.
The secret is still present in the maxim to spend less than is earned and to apply the savings in view of the sustainable financial future. This will save money, cut costs, reduce benefits and have a happy and healthy financial life.