10 Things Every Single Mother Should Know About Money Management – Part 3

Hey Mama:

Hopefully, you read 10 Things Every Single Mother Should Know About Money Management Part I and 10 Things Every Single Mother Should Know About Money Mangement Part II; if not, read those first:-)

#7 Your Credit Score Is Important–And It’s Not

Almost every financial guru will tell you that your credit score is uber important–after all, there are so many consequences of having bad credit, including:

• BEING DENIED EMPLOYMENT BASED ON POOR CREDIT:
  You might get denied employment based on dis-qualifiers on your credit report, which each employer determines individually. And, while Federal Law allows employers to check your credit during the employment process, these 10 states have outlawed employers from doing so.

  Most states, however, allow employers to check your credit. In states that allow these types of credit checks, an employer MUST get your signed consent. BUT employers do not get all the information on your credit report. Your credit score, for instance, is not shown to employers but other disqualifying criteria might be.

For more detailed information on who can access your credit report and what they can see, read The Federal Fair Credit Reporting Act (FCRA).

• YOUR CREDIT AND LOAN APPLICATIONS MAY BE DENIED
  If your credit score is low, your credit card and loan applications may get denied or the approved amount might be significantly lower than what was requested. According to this post on The Balance.com, there are 15 Possible Reasons Your Credit Application Is Denied. Even though your score is only 1 of the 15, all the reasons can negatively impact your credit score and result in a credit denial.
• YOU WILL HAVE HIGH-INTEREST RATES
  High-interest rates are a direct consequence of bad credit. What’s a high-interest rate? According to Experian.com, as of April 2018, an interest rate ABOVE 16.81% APR is considered a high-interest rate. With a higher interest rate, you will pay the credit card/loan company more money, and it will take you longer to pay down your debt if you only make the minimum payments.

You can find out what your APR is by checking your credit card or loan documents:

• YOU WILL PAY MORE FOR AN APARTMENT OR HOUSE
  With bad credit, renting an apartment or qualifying for a mortgage on a house in a decent area can be challenging. And housing that doesn’t require credit checks can be in bad areas with high crime rates, high unemployment rates, and under-performing schools. Poor areas, disproportionately, have poor performing schools, due to lack of funding and resources. Read The Atlantic’s article on the inequality in Amercia’s school system for information on how the area you live in determines the quality of the schools your children attend.

According to this CreditKarma.com blog post, there are seven ways to get around renting an apartment with bad credit, including paying a larger down payment and getting a co-signer.

For the most part, qualifying for a mortgage with bad credit has the same financial penalties as renting an apartment with bad credit. If you insist on buying a house while you have bad credit, go into a sub-prime mortgage knowing that you are going to pay a lot more money than someone with good credit.

The good news is that a high-interest mortgage can be temporary. If you establish a solid on-time payment history, you can refinance to a lower interest rate in the future. If you already own a home, and you’re in the market to refinance your mortgage, read Best Refinance Mortgage Lenders (2018) by U.S. News and World Report.

To avoid high-interest rates and, consequently, a higher-than-necessary mortgage payment, I suggest cleaning your credit up first, so you can get the lowest payment possible. (Let me know, in the comments, if you’re interested in a post about my single mother home ownership story and/or how I cleaned up my credit fast to purchase my home).

• HIGH-INTEREST AUTO FINANCING = HIGH CAR PAYMENT— If you have bad credit and need a car, you might be tempted to go to a pick-pay lot or a subprime auto lender, but be careful. Having a high-interest rate on a low-quality car could cost you a lot in the short and long run. Here’s why The New York Daily News Says You Should Avoid Subprime Auto Loans and I agree. If you can, buy a cash car while you have bad credit. Listen to this caller on the Dave Ramsey Show tell his story about living with sub-prime auto loans:

• SECURITY DEPOSITS ON UTILITIES – For people with bad credit, utility companies may require a security deposit up to $500. Each utility company has its own criteria for determining creditworthiness and required security deposits, so check with your utility company for more information.
• NO CELL PHONE CONTRACTS – Bad credit can keep you from getting a cell phone contract with the big telecom companies–but this can be a blessing in disguise. Big cell phone companies have sneaky ways of locking you into long contracts with high monthly cell phone bills. And don’t make the mistake of upgrading to the latest iPhone or Samsung phone–with a whopping $1K price tag–you could have a cell phone bill that costs you hundreds of dollars a month.

  Why Prepaid is the best option for people with credit issues:
  If you have bad credit (or not), pre-paid is the way to go in my opinion. You can get a prepaid account with AT&T Pre-Paid, T-Mobile’s Prepaid Plans, Sprint’s Forward Plan, and Verizon Prepaid, along with some of the smaller companies, like Cricket Wireless (Owned by AT&T); My Simple Mobile (Owned by TracPhone) and MetroPCS (owned by T-Mobile).

  (1) NO CREDIT CHECK REQUIRED:
  No credit is required since you’re pre-paying your bill.

  (2) FLAT-RATE BILLING–BEST FOR TIGHT BUDGETS:
  While I  have good credit, I’m a fan of prepaid cell phone bills. Nothing beats flat rate billing. Period. My bill is a contract-free $50 per month, every month with T-Mobile’s Simply Pre-Paid Plan for 10G of 4G data. I NEVER use even close to 10G, but if you do, T-mobile also has a prepaid unlimited plan at $75 a month.

  (3) ABILITY TO PRE-PAY YOUR BILL MONTHS IN ADVANCE
  I also like that I can pre-pay my cell phone bill for 3-6 months at a time–and I enjoy the same quality service.  Score!

• YOU MIGHT GET CREDIT CHECK FEAR – Having bad credit can be like having a dark cloud over your head. Whenever you need credit, you might get anxiety about having your credit checked and being embarrassed by rejection or having to explain why your credit is bad, which sucks.

As you can see, having bad credit is not only stressful, it is expensive and, as a result, you will pay significantly more for the same products and services as someone with good credit.

…Even so, there are benefits to having bad credit…yup, I said it. LOL

SIX UNEXPECTED BENEFITS OF HAVING BAD CREDIT:

1. 1. You Will Be Forced to Live Within Your Means – If you can’t increase your buying power with credit cards and personal loans, you will be forced to live within your means, which is a great thing.
   2. You Can’t Incur More Debt – Depending on how bad your credit is, you might not be able to qualify for additional lines of credit, so you won’t rack up more debt.
   3. You Will Be Forced to Plan for Large Purchases – Not having access to credit means that you will have to save up or use lay-a-way for large purchases, which can take a while, depending on your financial situation–but you won’t have hefty monthly bills to pay each month, either.
   4. You’ll End Up Using Cash More Often – Cash is still King (as you’ll read later in this post). I pay cash for everything. I own everything in my house and don’t make monthly payments on anything. When I say this is the most liberating feeling in the world, please believe me.
   5. You Will Have the Time to Grow Into Being a Better Money Manager. Not having access to credit will give you time to gain the financial skills you need to not make the same credit mistakes again. Use this time to read personal finance blogs and books, and listen to personal finance podcasts to turn a negative–but temporary–situation into a healthy respect for money and credit.

   6. You’re Less Likely to Be Target of Credit-based Identity Theft. If you can’t get credit, neither will a scammer, so you’re less likely to become a victim of identity theft. But as always with thieves: where there’s a will, there’s a way, so take every measure to protect your identity by using a service like LifeLock (I have this service and highly recommend it. LifeLock also gives you a complimentary credit report with your score that’s updated monthly). Here’s How to Protect Yourself From Identity Theft (US News and World Report).

#8 Cash (and Debit) Rules Everything. Always.

Ninety-nine percent of the time, your cash will not be declined. While there are exceptions to every rule, most establishments take cash, and some will even give you a discount for paying with cash since credit card companies charge them transaction fees. Additionally, your credit score doesn’t matter if you’re paying cash.

I pay cash for EVERYTHING–except big-ticket items like my house. If I can’t pay cash for it:

1. I can’t afford it;
2. I don’t need it;
3. I need to save up for it;
4. I need to put it on lay-a-way;
5. I need to find a gently used or less expensive option.

Paying cash for everything means you always have cash because your money is not tied to debt and monthly payments. Oh, what a feeling!

*Note: I do use my credit cards ocassionally to keep my lines of credit open and in good standing. I’ll write a spearate post on that in the future.

#9 You NEED an Emergency Fund Now

I recently wrote an in-depth post called, “Emergency Funds: Why You Need to Start One + 10 Easy Ways to Start One,” please refer to that post for more information on emergency funds. But, basically, START an EMERGENCY FUND ASAP.

#10 Why You Should Fund Your 401K Now

As a single mother–a woman without a spouse–you are the sole breadwinner, which means you–and you alone–are responsible for your retirement. Sure, you could wait until you find Prince Charming to get your financials in order, but what if he never shows up? Even worse, what if he shows up, and he’s not thrilled about your financial baggage and lack of financial planning? What then? Do you scramble to get your finances in order?

Watch this quick video on how much you need to save (by age):

I think you should plan for your future like you’re going to be single indefinitely. That way, you take full control and responsibility for your financial destiny, which will make you a more attractive partner, should the right mate come along.

With that said, planning for retirement should be one of your top financial goals–regardless of your age or your income. In 2018, the maximum 401K contribution is $18,500, for a person under 50, which is a $500 increase over previous years. For those age 50 or older, there is a catch-up contribution, where you can save an additional $6000 for traditional and safe-harbor plans, and an additional $3000 per year for Simple 401K plans. Read more about 401K contributions on the IRS’ website

But what are the benefits of funding your 401K plan? Here are three:

1. Automated Retirement Savings – All you have to do is enroll in your employer’s 401K plan and decide how much of you want to contribute toward your retirement each paycheck. Your employer will do the rest. It’s that simple.
2. Company Matching – If your employer offers company matching, this is a win-win situation. Basically, your company is giving you free money for your retirement. Now there are some catches, like leaving the company before you’re fully vested, so check with your employer’s 401K plan to understand the specifics. But generally, most company’s match up to 100% of up to 6% of your annual salary. Wondering how your company’s 401K stacks up against the competition? Read Glass Door’s list of  15 Companies with Amazing 401k Plans Hiring Now (March 2018)
3. Tax Savings – There are several tax benefits to funding your 401K but here are two:
   – PRE-TAX CONTRIBUTIONS: Your 401K contribution is pre-tax, which means that
   your contribution is exempt from federal income tax.
   –  LOWER TAXABLE INCOME: It lowers your taxable income, so you pay the IRS
   less in taxes each year

To learn more about the tax benefits associated with funding your 401K plan, read more on Investopedia:  Understanding 401(k)s and All Their Benefits

As single mothers, we don’t have the luxury of a spouse’s income, so it’s our duty and responsibility to ourselves, our children and society to be financially responsible.

I don’t know about you, but I refuse to be a burdon on anyone now or in my older years, so I’m doing everything possible to ensure that I’m in the best financial position I can be in. Of course, life can and will throw you a curve ball, but if you develop a solid financial game plan, you’re more prepared to survive this game called life.

CONCLUSION:

Ultimately, there is no one-size-fits-all approach to money management–especially for single mothers. There are some best practices that have worked for millions of people, but what works for others may not work for you.

The best thing to do is to find a money-management system that works for you–preferably, one you can stick with, and the one that will help you achieve your personal financial goals.

Recommended Reading:

1. BUDGETING: The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness by Dave Ramsey $14.09
   
2. CREDIT REPAIR: How to Remove ALL Negative Items from your Credit Report: Do It Yourself Guide to Dramatically Increase Your Credit Rating $8.99
   
3. THE ENVELOPE SYSTEM: Designer Envelope System – Red: Financial Peace University (Dave Ramsey’s Financial Peace University) $30.00
4. 401K & RETIREMENT:  How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won’t Get from Your Financial Advisor $14.97
   

Got questions? Ask away. I’m here to help you in any way I can.

Thanks for reading,

And as always, keep it real and drama-free.
Ms. No Single Mama Drama
Single Mother Blog | Single Mom Blog | No Single Mama Drama

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