FIRST TIMER’S GUIDE Budgeting - Consolidated Credit U

FIRST TIMER¡¯S GUIDE

Budgeting

WH ERE TO

BEGIN?

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There are a lot of myths about budgeting.

Maybe you think only your grandparents bother to budget.

Or that a budget will be complicated, requiring hours of

paperwork. Or that with a budget, you can¡¯t have any fun.

But ¡°budget¡± isn¡¯t a bad word and setting one up can be

as easy as a few taps on an app. Knowing where you stand

financially and having a plan will make your finances a lot

less stressful and help you achieve your goals.

But we realize it¡¯s sometimes hard to know

where to start. That¡¯s why we¡¯ve put together

this First Timer¡¯s Guide to Budgeting.

It will take you through 5 easy steps:

1: Where you stand today.

2: What¡¯s coming in and what¡¯s

going out.

3: Where you want to be tomorrow.

4: Build your budget.

5: Build your financial plan

for the future.

These steps will help get you started, and your credit

union is here with all the information you need to get

your financial house in order.

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Step 1: Where you stand today.

To get a sense of where you stand financially, you need to understand

your net worth and find out your credit score.

Understanding your net worth

Understanding your credit score

With your finances, as with most things in life, you need

Your credit score is a three-digit number, ranging from

to know where you are right now in order to know where

300 (worst) to 900 (best), that reflects how well you

you¡¯re going. Your net worth is your assets (house, car,

handle having credit. Your credit score starts when you

cash, investments) minus your debts (loans, credit cards,

get your first credit card, loan or line of credit. The score

mortgage). You can use a Net Worth Calculator or

is based primarily on your credit payment history, your

download our Personal Balance Sheet to figure out your

current debts, the length of your credit history, what mix

current net worth.

of credit you have, and how frequently you apply for new

credit. The more responsibly you use the credit you have,

Ideally, you want a positive net worth, but that¡¯s not easy

the better your score. When you apply for a bank loan or

to achieve. If you do calculate your net worth and it comes

mortgage, your score can be checked and can affect your

up negative, don¡¯t be discouraged¡ªit tends to improve as

ability to secure a loan.

you advance in your career and your income increases.

Instead, focus on what you can change: start tracking your

You should check your credit score once a year to make

spending, building a budget, paying debt sooner, building

sure there are no errors, like incorrect personal information

an emergency fund, building an investment plan, and

and false credit information (like a payment you made on

seeking expert advice. That way you¡¯ll be on your way to a

time showing up as late). You should also look out for credit

positive net worth in no time.

you haven¡¯t taken out as this could signal identity theft. In

Canada, we have two credit reporting agencies, Equifax

and TransUnion. Since not every creditor reports their

information to both agencies, Equifax and TransUnion may

not have exactly the same information about you or use the

same software to calculate your score. As recommended by

the Financial Consumer Agency of Canada, when checking

your score, it is recommended to contact both agencies.

WANT TO KNOW

YOUR CREDIT SCORE?

TransUnion Canada:

1-866-525-0262 ? transunion.ca

Equifax Canada:

1-800-465-7166 ? equifax.ca

Now that you¡¯ve calculated your net worth and know your

credit score, you should have a good sense of where you

stand financially.

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5 Tips on How

to Use Credit

Cards Correctly

1.

Pay on time.

The first, most basic rule of responsible credit card

use is to pay on time. Don¡¯t use your credit card to

pay for items you couldn¡¯t afford otherwise. Credit cards

are useful for building credit, making convenient online

purchases, placing deposits on larger purchases, or taking

advantage of reward programs. But if you¡¯re using them to

pay for things you don¡¯t have enough cash for, soon late

fees, charges, and interest can build, and your credit score

will suffer. And you could find yourself spiraling into deep

personal debt that can be difficult to recover from.

2.

Don¡¯t just pay the minimum.

Running a balance close to your limit

can negatively affect your credit score.

Try to keep your balance around 50% or less of your

total available credit.

Your minimum payment is often a tiny fragment

of the total amount you owe. Don¡¯t just pay off

that small amount. Credit cards usually charge anywhere

between 10 and 20 percent in interest, meaning you could

end up with big interest payments fast. But if you pay off

your entire bill, you¡¯ll not only avoid paying interest on your

purchases¡ªyou¡¯ll be improving your credit score as well!

3.

4.

Stay below your limit.

5.

Report a lost or stolen card ASAP.

You won¡¯t be held responsible for purchases

made on a lost or stolen credit card¡ªas long as

you report the loss before the card is used. So make sure

you call as soon as possible if you think your card has been

lost or stolen. Your credit union has a 24-hour, toll-free

Check your statements.

number on its website you can use to cancel your card

and get a new one.

Even with all the technology we have today,

mistakes happen. Read your statement every

month and make sure all the charges listed are right.

Contest any charges that were made in error.

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