Are you in the midst of preparing to buy a home? We know how that feels – nerve wracking yet exciting at the same time!! One thing on the forefront for would-be homeowners’ is their net worth (total assets – total liabilities).
Are you aware of your net worth?
A loan officer will look at your net worth to decide whether to approve your loan or not. Ideally, you should have more assets or savings than liabilities or debt. Here’s what you need to know about getting out of debt and growing your assets.
You Can Escape from the Debt Cycle
What’s a debt cycle? A debt cycle promotes spending habits that put you in a cycle of deficit. You are constantly drawing from existing funds or living on credit. These habits can include frequent vacations, eating out, shopping, and spending frivolously in other ways.
Emergencies do happen, and they can force you to dip into your savings. You may also pay off debt, and then use your credit card for yet another surprise bill. This can become a drag, and it’s not the best position to be in when a loan officer is scrutinizing your finances. However, don’t be discouraged. You can stop the cycle, start to save, and grow your net worth.
You Have the Power to Break Free
Recognizing the problem is the first key step. Next, you have to change your spending behavior! If you can’t stop ordering things from Amazon, stop visiting the site and cancel sales notifications. If you eat out too much, cut back to once a week.
Getting out of debt is only the first step. The crucial step lies in changing the way you spend and save. If you don’t, you’ll find yourself going through the cycle again and again. Identify habits that cause you to spend money you should not spend.
How do you track your bills? Are you looking far enough ahead financially? An overview of your upcoming expenses will help you plan your finances correctly.
Grow Your Cash Flow
It’s all about having cash in your savings account. After paying off expenses, put the leftover amount in your savings. Create a budget, and set aside an allotment for any surprise expenses. By planning your finances this way, you will be prepared for any last minute expenditures without dipping into savings!
If you are a proud pet owner, for example, it’s wise to put money aside for monthly vet visits – even if you don’t visit each month. You will then have a budget available for times when you DO need to pay the vet a visit – without taking money from your savings.
Less Debt = More Freedom
Increasing your savings is a powerful thing! It opens more options and doors in life – from being able to pay cash for a new car to obtaining a lower interest rate on a mortgage. The possibilities are endless! It may be difficult in the beginning, but it’s worth working on! What’s better than financial freedom, eh?
It takes time, but you can greatly improve a loan offer by working on your net worth first. Not sure where to start? Our professionals can assist by setting up a plan for paying down your debt and improving your score. Contact us today to help get on the right track!