Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. For the next two months, we're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.
My father died at the young age of 61. Not only was he my role model, but he was my best friend. I learned a lot from him, and I was not emotionally prepared for his death.
However, because my father planned and wasn't afraid to have difficult conversations, I was prepared to step up and handle the financial aspects of the situation. And his willingness to force those conversations helped me organize my own life.
My father's death resulted from complications of open-heart surgery. Before the surgery, my father brought me into his office and walked me through everything. In particular:
He showed me his trust, explained how it would work, and explained my responsibilities.
He walked me through his finances. He showed me the balances in the investment accounts, the 401(k) and the pensions. He walked me through his budget. He had also thought about what would happen to my mother, his high school sweetheart, and had prepared a budget that I could use as a guide.
He knew that if something bad happened, we would need easy access to cash in the short term (to pay for funeral, living and other expenses). He also knew that my mother would be in shock. So, he gave me a checkbook where my mother could just sign and have money deposited into my account, so that I could handle the short-term bills.
He wrote me a letter that I wasn't allowed to open until he went in for the surgery. Those details I won't share. But I still have the letter today.
I can't imagine how difficult that must have been for my father. He was a very optimistic person, and he was confident that he would make it through what was supposed to be a routine operation. But he cared enough about his wife and children that he organized everything in advance.
He Was Right
My mother was in shock. She had been with my father since they were teenagers, and the last thing she wanted to do was handle the finances. Although I was in my 20s, it was time for me to step up. And because my father had done such an excellent job preparing, I was able to do just that. My mother could mourn, and we didn't have to worry about where money for the funeral, groceries or gas would come from.
And, later, the budget and planning was incredibly useful. My father had a plan, and I was just helping my mother execute that plan. And my mother has been able to live a comfortable retirement, because he thought ahead.
And Then I Did the Same Thing
I realized that I had not made the same preparations. And I understood how selfish it was to not have a plan.
I think it scared my wife, but I sat down with her and made sure I walked through a complete plan in case something happened to me. We were only in our 20s, so I am sure she thought I was crazy. But the more unexpected the death, the greater the shock can be. And I just wanted my wife to know the details of my life insurance, 401(k) and other financial items so that she would have a similar checklist. The stress of death is great enough, and I never want my family to have that stress compounded with financial chaos.
These conversations are never easy. But, at some point, they have to be had. Even in death, my father was not selfish. He always wanted to take care of us, and forcing that conversation was a great gift to all of us.
Nick Clements is the co-founder of MagnifyMoney.com, a website that makes it easy to cut your costs without cutting your lifestyle. He spent nearly 15 years in consumer banking, and most recently he ran the largest credit card business in the U.K.
10 Ways to Boost Your Credit Score
The 2 Most Difficult Conversations I've Ever Had About Money
You're entitled to a free credit report every year from the three major credit reporting agencies -- Equifax (EFX), Experian (EXPGY) and TransUnion. Go over your report line by line. Do your balances match your records? Are there any claims of delinquencies for accounts you never opened, or late payments you don't remember? If you spot any errors, contact the reporting agencies to dispute them.
Your credit history reflects how responsible you are with your credit. Missing a payment -- or multiple payments -- lowers your score and makes you look risky and unreliable. Set up a system to guarantee you're on time with all future payments. Mark due dates on your calendar or (even better) set up automatic payments from your checking account.
It's not just the fact that a payment is late. Credit agencies also keep track of how late your late payments are. The longer it takes you to pay an overdue amount, the worse the damage it will do to your score, so if you're late on any bills, take care of them as fast as possible.
Credit agencies pay attention to your credit utilization ratio -- how much you owe compared to the maximum your credit cards would allow you to borrow. If you're using most of your available credit, it's time to adopt an aggressive strategy to pay down your balances.
There are two popular strategies. One version of the "snowball method" involves paying off the card with the lowest balance first, then working your way up the line. This gives you the fastest psychological victories from crossing debts off your list, which motivates you to keep going. Or you could follow the traditional snowball method of paying off the debts in order of the highest interest rate first. Resist the urge to play the balance transfer game. Instead, focus on genuinely paying off the balances, once and for all.
As long as you keep adding to your debt, you'll never get ahead, so it's time to drastically reduce how much you charge on a regular basis. Put your credit cards in a drawer or cut them up altogether. Take a red pen to your budget. Get a second job for extra income. Do whatever it takes to stop adding to the balances you're trying to pay down.
It seems counterintuitive, but if you've paid off an account, you should still keep it open. It will show up as "good debt" on your credit history, and the longer you've had it, the better your score. (Note: You can cut up a credit card and still technically leave the account open.) Keep the account "active" by occasionally charging a small amount on it, like your Netflix (NFLX) subscription and immediately paying it off in full. Set up automatic payments to make sure you're never late.
If you have a spotty credit history, it's easier to get a secured credit card, department store card or gas credit card than a major credit card. If you make small charges to it each month and then pay them off immediately, you'll build up a positive credit history and boost your score.
If you're having trouble getting a card of your own, ask a friend or relative to add you as an authorized user to one of their credit card accounts. This is a big favor to ask, though, so make sure to use this privilege responsibly and only charge what you know you can pay off immediately. And don't be offended if the person says no.
Credit card companies are more flexible than you may think -- after all, they want to keep your business and collect your money. So it doesn't hurt to call up customer service and ask about ways you can negotiate your current arrangement. You may be able to get a settlement arrangement that lowers your interest rate or waives late charges so long as you make regular payments. You may also be able to get a certain late charge removed if you can demonstrate hardship and an otherwise decent payment history.
A high debt utilization ratio (using too much of your credit limits) can hurt your score, so if you're able to negotiate a credit limit raise, it could give you some extra points. That said, this is a risky move if a higher limit will only tempt you to spend more, so use it only if you really trust yourself.