JohnKwan/stock.adobe.comWhen we’re asked how much we make, what our expenses are and what savings we have for the future, most of us will probably be able to provide answers. They either won’t be exact, or we will say it depends on this month’s bonus, an unexpected health care bill or something of the like.
Diagnosing your financial health
Have you ever heard of debt anxiety? You will be surprised to know that a good number of Americans are suffering from this debt induced stress. From late payment of bills to missing student loan payments, welcome to the world of debts and more debts. According to the Journal of Accountancy debt is causing Americans significant stress and anxiety.
It does not take a rocket scientist to diagnose your own financial health but then you may actually end up seeking the help of a medical professional as a result of health issues in which the root caused is your financial problem. Just like with any other serious physical ailments, early diagnosis is crucial.
Answering the questions below will not only help you diagnose your financial health, but also improve your financial condition.
What is your income?
When trying to understand our financial situation, the first thing we must do is know exactly what our monthly household income is. How many people in the household are working? Does anybody in the family receive government benefits or a pension?
Also, for those who are working, are they receiving a set amount each month? Do they work on commissions, on tips or any other performance related bonuses? What happens to your wage or income if you get sick?
Once you determine your minimum level of income, you can then compare this to your expenses. Should your expenses exceed this, you will need to find ways to cut back or try to supplement your income. Here are some suggestions:
- Look for a side hustle or a part-time job.
- Be open to the possibility of a career change.
- Keep an eye on in-house job openings.
- Ask for a raise.
- Plan on getting that promotion or move up the ladder.
According to a Forbes article, employees who stay longer than two years in one company get paid 50% less. Unless you’re happy with your current job, with the unemployment rate currently at 4.1%, there is a good possibility that a better paying job is out there is waiting for you.
What are your expenses?
If you have ever said to yourself “oh, I have less money in my bank account than I thought” that is because you are not fully aware of all of your expenses. Keeping track of your expenses is crucial to your personal financial health. It can mean the difference between bankruptcy and or financial security.
The first thing you need to do is create a list of all your monthly expenses. You can use your previous bank statements to calculate average payments for all your bills and expenses. If possible, use a spreadsheet to make things easier for you.
Some bills like your rent or mortgage might stay the same all year, but other bills like your heating may go up in the winter. Therefore, calculating and setting aside an average amount each month means that come winter time you have enough money to pay for these expected higher bills. Other examples such as food and shopping around the holidays can also be factored in the same way.
Another thing you will need to do is look at your debts. If these take up more than 36% of your income, you are in what is known as debt-heavy.
If you are in such a situation, talk to those that you owe money to like credit card companies or hospitals. If you have medical bills and try to negotiate a lower and more affordable payment plan.
Most credit card companies are amenable to changing their terms, interest rates and term of payments but you need to call and talk to them and explain your situation.
It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy.
-George Lorimer
Do you have any savings?
We are all hit by unexpected expenses from time to time. Maybe the car blows a gasket, the washing machine breaks or we smash the screen on our phone. Likewise, what if our wage is much lower than we expect that month? If any of these situations were to happen to you would you be able to pay the bills and still get by?
The sad truth according to CNBC.com is that 57% of Americans have less than $1000 in their savings account and a staggering 39% have no savings at all. Making it almost impossible to deal with what might seem like minimal unexpected expenses.
Most financial experts suggest setting aside an amount between 3 and 6 months of your average monthly wage and keeping this in an emergency bank account.
They call this emergency fund or rainy-day fund.
Saving money can be a struggle for a lot of people. We try to save money, but those emergencies keep eating it up. I know some of you may be saying I can’t afford to do that, I hardly get by. Here are some tips:
- Save money daily.
- Minimize eating out and plan your meals.
- Lower your monthly cell phone bill.
- Review your cable and internet bills.
- Purchase items at a discount.
- Sell those unwanted items
- Your tax refunds.
You must do your best to set aside a small amount of money each month or even daily. Do your very best to make this a reality. The peace of mind of having a savings account will keep your financial health in check. The best way to do this is by paying yourself first every time you received your paycheck.
Do you have a budget?
The problem with most people’s finances is that they talk about it, but they never consolidate and organize their financial data in an easily manageable way so that they can know at any given time exactly where they stand.
– Bedda D’Angelo
Budgeting is such an important part of your financial well-being. Having a budget and sticking to it will mean that you can get by even in the worst situations, while at the same time preparing for a comfortable financial future. To get started with budgeting, the first thing you need to do is once again to make a summary of your income and expenses.
Setting a budget is also about goal setting and taking action to execute your plan and reach that goal. Sticking to your budget will help you work your way out of debt. If you happen to have some extra money, instead of spending it, add that to your savings account.
People tend to spend money when they make more money. It’s called lifestyle inflation. Avoid that trap. The key to successful money management and budgeting is spending less than what you make. Stay committed to your plan.
There are also many great apps or financial tools that can help you to make and stick to a budget, for example, Mint and You Need A Budget.
Creating a budget will reduce your stress level and will positively impact your finances.
Have your circumstances changed recently or will they soon?
Have you recently lost your job? Maybe you are due to get a promotion or a wage rise in the coming months. Perhaps you are even planning to get married or you are expecting a baby. All these changes and many more can have a huge impact on your income and expenditure.
For example, having a baby may entitle you to some social benefits, but will also add costs in food, clothes, and care. Make sure you have a checklist of all your expected and unexpected bills.
Taking the time to calculate these changes to your income or expenditure will make it easier for you to plan and avoid any potential hardships.
Be prepared! Implement strategies in case a financial storm hit your life. Responsible financial planning is about organizing your financial life for the future.
Do you have adequate insurance?
Just like our savings, insurance helps us to overcome those unexpected and sometimes huge expenses. Whether its health, home, life, disability or liability insurance, it is essential to have coverage. Not having a policy could mean the difference between life and death or having a home or not. According to a Gallup poll, almost 12% of Americans run that risk every day by not having health insurance.
If you do have insurance, the important question to ask is “do you have the right level of coverage”? With our changing age, earnings and family situation, our requirements change. Therefore, if you have not changed your policy for a couple of years, you may be paying too much for a coverage that you don’t need, or it may be too little or inadequate.
Today could be the best day to start reviewing all your insurance policies. Contact your life insurance agent and work with him. Maybe it’s time to change that life insurance policy. Perhaps that term-life insurance policy is ending soon, and you may want to renew it.
Talk to your Human Resources Manager and ask about your health insurance coverage at work or contact your health insurance provider. Call your car insurance agent and see if he can lower your car insurance premium. You will be surprised at how much money you can save from such a little effort.
Are you making plans for your retirement?
One of the best ways to diagnose your financial health is by seeing how well you are preparing for your retirement. Do you have a pension plan? If you don’t have a retirement plan, it’s never too early or too late to start. Even seemingly small contributions can make a huge difference to a better retirement.
If you have a retirement plan ask yourself “could I afford to contribute more”? By answering the questions in this post and setting a budget, you will be able to calculate if you can afford to contribute more.
Also, if you have a retirement plan already in place or you are planning to set one up, check with your employer to see up to what level they will match your contributions. Some companies may match contributions up to 5% or more. If you can afford, make sure to make the maximum contribution possible that your employer will match.
Diagnosing or assessing your financial health is the easy part. The hardest part is getting started with the treatment plan and sticking to it. It will take a lot of self-discipline, patience, and commitment. The healing process may be slow, but it is a great start towards achieving that financial wellness you always dreamed of. The rewards are amazing!
