Easy Financial Moves For Everyone

There are a few pretty easy financial moves most people should consider.  The below moves can protect you and those you love. 

1. Freeze your Credit

Freezing your credit is the #1 easy financial move.

When you apply for credit, whether it’s a mortgage, credit card, or car loan the lender that is going to give you that credit will run your credit score prior to approving the credit.  The lender does this by giving your personal identifying information (PII) (SSN, DOB etc) to the three credit reporting agencies (CRAs) – Transunion, Experian, and Equifax – which in turn give the lender your credit score. The lender looks at that score and decides whether you are a good credit risk.

Well the bad guys can get ahold of your PII, open a line of credit such as a credit card, run up huge bills and never pay them.  This will crush your credit score making it difficult if not impossible for you to get credit the future.   Not only that, the credit card will come after you to pay the bill.  This is a huge headache and will take hours and hours of your time to fix.

There’s an easy solution to this – freeze your credit.  It’s free and easy to do.  Go to each of the three CRAs, Transunion, Equifax, and Experian, and open an account and put a freeze on your credit file. When the bad guys try to open a credit card in your name, the credit card won’t approve them because it can’t access your credit score.  If you want to apply for credit, you simply go to your account at each of the CRAs and ask them to temporarily lift the freeze.  It occasionally takes a few minutes for the freeze to be lifted so you’ll want to try to plan ahead when possible.

To me, this one is a no brainer.  I’ve had my credit frozen for years.  So do my wife and my parents.  Yes, it is a little bit of a hassle to unfreeze your credit filed but the risk definitely out weighs the inconvenience.

2. Term Life Insurance

We’ve written about insurance needs before but it bears repeating.  If you have kids or others who depend on your income you should strongly consider a term-life policy.

Term life insurance is life insurance that exists for specified number of years.  If you die during the specified period, your beneficiary will be paid the policy amount.  Once the term ends, then the policy is void. 

For example, say you bought a 20-year $1 million policy 8 years ago.  That should cost about $45/month. If you continue to pay the premium and you die in the next 12 years, the policy will pay your beneficiary (whomever you designate) $1 million.   After 12 years go by the policy will be void. Most advisers recommend buying a policy that equals 10 x your annual salary. You should choose a term that doesn’t expire until some of your major life expenses will have come and gone, such as your kids college.

Don’t confuse term life insurance with whole life insurance or universal life insurance.  Whole life and universal life are financial products that combine a death benefit with an investment portfolio.  Basically, part of the premium goes toward paying the death benefit and part of the premium gets invested. So unlike term life, a whole life policy has a cash value.

This sounds pretty good at first blush.  However, whole life premiums are higher than term life. And a lot of the premium goes toward paying fees – especially at the beginning of the policy. Most people would be better off buying a term policy and investing any additional $$ in mutual funds.

Check out these two websites that discuss the differences between to the two policies: Dave Ramsey and Investopedia.

3. Have An Emergency Fund

If the past year has taught us anything, it’s that life is going to throw us some curveballs.  Be prepared by having an emergency fund that can cover at least 6 months of your living expenses.  If you don’t have a lot of disposable income, start small.  Open a savings account an automatically send $50 or even $25 each paycheck to the account.

An alternative if you have some equity in your home would be to open a Home Equity Line of Credit (HELOC).  This is a line of credit secured by the equity in your home.  You never have to use it, but it’s there if an unexpected job loss or expense comes up. 

Conclusion

Not every financial move is complicated. Above are three easy financial moves for everyone.

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