TIP OF THE MONTH
How to Increase Your Take-Home Income
The first step in our four-step wealth creation system is to increase income. An effective and often ignored method is adjusting your Form W-4. Most of us are getting big refunds every year because we are having too much federal income tax taken out each payday.
Many people struggle to make ends meet monthly because they are overpaying on their taxes. Even the IRS encourages taxpayers to review their Form W-4 annually and to make the necessary adjustments.
While it feels good to have a large tax refund, what good is it if you struggle to meet your monthly obligations? By correctly adjusting this form, your employer will withhold taxes close to your actual tax liability and thereby increase your take-home pay and cash flow.
Use the IRS withholding calculator to determine what your actual withholding status should be or consult with your tax preparer.
With this increased cash flow, you will be able to speed up your debt elimination!
Why it Pays to Have Good Credit
Did you know that people with high credit scores pay less for everything than people with low or poor credit scores? Yes, it is true. As you know, your credit score is used as the principal determinant in your getting approved for various loans such as auto, mortgages, personal loans, and credit cards.
However, your credit scores go beyond loan approvals. They are also used by the following entities:
- Employers
- Insurance companies (auto & homeowners coverage)
- Landlords
- Cellphone companies
- Utilities (water, electricity, etc.)
A good or excellent credit score will allow you to save a lot of money over your lifetime. For instance, you could save $140,000 in interest on a $350,000 mortgage with a credit score of 760 or above compared with someone with a credit score of 620-639 for a 30-year fixed-rate loan in November 2023.
Were you to have invested the $140K at an annual rate of investment of 6.5%, for 30 years, it would have grown to $926,000.
Ways to Build or Improve Your Credit Score
Building Credit
If you currently don’t have credit, there are two ways of building credit:
1. Apply for a credit-builder loan. This type of loan deposits the money you borrow into a CD (certificate of deposit) or savings account that you can claim after you make 12 monthly payments.
2. Apply for a secured credit card. A secured credit card gives you a credit line that is equal to the amount you deposit with the issuing bank.
Improving your Credit Score
There are several ways to boost your credit scores, below are a few primary ways:
- Paying your bills on time. Missed a payment and your score could drop 75-100 points.
- Use your credit card(s) regularly. However, make sure you know your credit limit and avoid using over 30% of your limit.
- While you may not be able to pay off the account balance each month, be sure to pay-off the statement balance. This will ensure you do not pay any interest; thereby using the credit card for free.
- Do not close credit card accounts, especially accounts with high credit limits as it will negatively impact your scores.
Since credit scores play such an integral role in our financial lives, it is vital that we keep track of our scores and understand how our actions impact the numbers.