CHECKLIST: ARE YOUR PERSONAL FINANCES FAILING?
If you're new to the world of saving and budgeting, or think you might need a "tune up," see how your personal finances stack up against these key financial benchmarks:
Have you tracked your monthly expenses?
Knowing exactly where your money is going is an important step in creating a healthy financial plan. Even if you only do it for one month, record every single transaction and categorize them (groceries, gas, household goods, dining out, etc.) You might be surprised how it all adds up. Use your monthly spending records to decide on a budget and if you want to cut back on any particular category.
Do you have a monthly budget?
Some people cringe at the thought of using a budget because it feels restrictive, but in reality, following a budget is the best way to free up money for the things you truly value. Try a budget app or a simple excel sheet to set monthly amounts for each category of spending, starting with the necessities and fixed expenditures (like rent, health care, food). Then add in budgeted amounts for any "wants" (like eating out, hobbies, new clothes). Always leave a buffer to ensure you won't spend more than you make.
Do you have goals for your savings?
Having something to aim for helps you know if you're on track and keeps you motivated to follow through. You should have a long-term goal (retirement) as well as shorter-term goals that are time-bound (save for a downpayment on a house by 2018). Work backward from those goals to determine what smaller objectives you'll need to meet to make them happen.
Do you have an emergency fund?
An emergency fund is an amount you set aside in savings that could cover your expenses for at least three months. To do this, set aside about 10% of your income at the beginning of each month so it's no longer available to spend.
Do you use credit responsibly?
In other words, do you pay off your credit card bills in full every month so you're not charged interest? Do you stay on top of any student or car loans? Using credit wisely and maintaining a positive credit score is important if you ever want to qualify for a loan in the future (to buy a house, for example). Credit card spending should be done with caution and care.
If you answered "no" to any of the above questions, then make a mental note. You may need to do a bit more research on any topics you're unfamiliar with or seek professional advice if you have any problem areas. Money matters can seem boring or intimidating sometimes, but it's well worth getting yourself squared away. Check out the site Get Rich Slowly for more personal finance information or make an appointment with a financial advisor who can help you come up with a personalized plan.
- Michelle Chang