Find Out If Your Finances Are In Good Shape
May 25, 2017
Adrienne H., Financial Expert
As many of us aim to be physically and emotionally healthy, we may lose sight on how important our financial health is to have a comfortable lifestyle. Good financial health is much more than just budgeting and saving — every financial decision you make has an impact on your financial health today and in the future. Determine if your finances are in good shape by asking yourself these five questions.
1. Are you making more than you spend each month?
Before you set financial goals for yourself, lay it all out on the table. Calculate how much you make per month, how much you spend on necessary expenses (housing, utilities, food, transportation, personal care, etc.), and how much you spend on entertainment.
Online money management systems, such as Mint, are great tools to help you understand exactly how much you earn versus how much you spend. If you find that you’re spending more than your income each month, it’s a good idea to reevaluate your finances. Make sure you can save for you future and any emergencies that are bound to happen rather than living paycheck to paycheck and racking up debt.
2. If you’re carrying debt, are you sure you’re getting the best interest rate you qualify for?
High-interest loans like credit cards can cause a lot of financial harm if you carry a balance month to month. Increase your net worth by eliminating your high-interest rate debt first. If you need to pay off high-interest debt, consider refinancing your loan to another financial institution as some companies charge nearly 30% APR for credit cards, while others may offer rates as low as 8% APR.
However, some debt is okay to carry for longer terms such as your mortgage, auto loan, and student loans. These types of loans often have lower interest rates and may even improve your credit score if you make timely and consistent loan payments, making you a more trustworthy borrower. As mentioned above, compare your rates with other financial institutions to make sure you’re getting the lowest rate on your loans.
3. Have you accounted for cost of living changes in your budget?
You may have created a budget a while ago to keep your financial health in good shape, however, it may need updating as we encounter inflation and lifestyle changes. Let’s say you move into a new home. Recognize that you may need to change your spending habits as a bigger home will likely require higher mortgage payments and utility bills to heat, cool, and provide more electricity for more square footage, or maybe the property taxes increased. Whatever it may be, understand that your personal and societal situation is continuously changing, and therefore your budget plans will change, too.
4. Would you be able to only live off of your savings if you didn’t have any income for at least three months?
An emergency fund is always an essential part of a financial health plan. While it may be easy to want to spend this money, emergencies are unavoidable when they happen and it’s important to be prepared. Keep at least three months’ worth of your living expenses in a high-yield savings account in case you become injured and unable to work, lose your job, or other life events that could affect your income. It’s a good idea to keep more than six months’ worth of your living expenses if others also rely on your income.
5. Do you know how much you need to save for a comfortable retirement?
It’s never too early to start saving for retirement. You may think you have plenty of time to start saving before you retire, but the truth is, the more you save now, the more you’ll have when you want to retire. Your savings will exponentially increase in an investment account such as a 401k or IRA, rather than a typical savings account. A retirement fund gives you the opportunity to easily reach your long-term goals while contributing less per month.
If you weren’t able to comfortably answer yes to all of the questions listed above, you may need further assistance for your financial health checkup. Financial advising is always available. Contact us or your financial institution today to figure out how you can improve your financial health.