Your Questions Answered – June 2023

We put “Haider in the Hot Seat” to answer the questions you are asking! Here are the questions we answered this month.

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Do you have a question you want answered? Comment below or on any of our social media accounts with your question, and we will have Haider address your questions in future posts!

How Important is my Credit Score?

Your credit score is a measure of your overall financial health and credit worthiness. It can impact your ability to get certain loans like mortgages, car loans, credit cards. If you have a good score, you could potentially get lower rates and it can impact your approval. A lot of people don’t know that a good credit score could also impact other areas of your life, like rental terms, i.e. when you’re renting a house, renting a car, renting an apartment. It can also impact things like job prospects, and better insurance rates. Conversely, a poor credit score can impact all those as well.

There’s a lot of emphasis on credit score, but it really is only a small piece of your overall financial plan. So having good financial health across your whole plan is very important as well. Always look at your credit score in light of a comprehensive financial plan.


What’s the Difference Between Good Debt and Bad Debt?

Traditionally, bad debt is assigned to debt that you use to acquire an asset that might be rapidly depreciating or is for consumptive use only. It doesn’t increase your net worth or your long-term financial health. For example, buying a sofa or a TV doesn’t really increase your financial health. It’s just used for your own purposes and your own pleasure.

On the other hand, good debt might be something like, a mortgage you’re using it to acquire an asset that will likely increase in value, or a business where you’re using the debt to acquire an ongoing concern that increases your potential net worth and your income.

That’s the main difference between good debt and bad debt. However, when it comes to your personal financial plan, you have to consider what kind of debt service you might have, what it is you’re doing for your long-term goals, and how this use of debt will help you achieve your goals.

How Do I Save on a Tight Budget?

You first need to be clear on what your budget is. Are your expenses greater than your income? If that’s the case, we need to flip that around. You need to track the expenses and understand where the money’s going so that you can understand what your margin is.

Once you have that margin, you can also figure out how to increase it by identifying the areas that you’re spending most in or things that are really in your control, for example, entertainment. Rather than going out to a movie and dinner, have a movie night at home and make your own pizza. Or things that are more in your control, like how much utilities you use, whether it’s your thermostat or the water you use around the house. Find that margin.

Lastly, go ahead and start saving. It doesn’t matter what it is, if it’s $25 a month, $50 a month, $1,000 a month. Start doing that and putting it away in an account that you can’t see.

I’m Debt Free, What Now?

Getting debt free is a huge accomplishment and something to celebrate. So first and foremost, don’t be afraid to celebrate and do something nice for yourself, because it takes a good bit of discipline and sacrifice to get debt free. That being said, don’t go overboard.

1) Take steps to start securing a good financial foundation. Make sure you build up a solid emergency fund that’s 3 to 6 months’ worth of your expenses.
2) Start saving. Start putting money away, not just in an emergency fund, but in retirement plans for long-term savings. Open some kind of IRA or work retirement plan. There are lots of different options.
3) Save up for those midterm goals. The last thing you want to do is get back in debt because of a failure to plan for things that will happen in life, like replacing the brakes on the car or replacing the roof on your house.

If you would like more information on any of the topics addressed above, please click HERE to schedule a free 30-minute call with Haider Sharifi, CFP®.