Am I financially healthy? Find out quickly today
How do you know if you’re financially healthy or on the correct path? Like anything else, the best first step is to have clear view of where you are today.
So here are 8 steps to get clear on where you’re finances are today.
Step 1: Write down all your bills…and I mean all your bills. Think both about your monthly and yearly bills. So don’t forget the cost of the gym, nails, hair, pets, car and renter’s insurance, donations, medicine, and shopping. Also think about memberships (Costco, AAA), software renewal, and subscriptions (Amazon Prime, Netflix). Use your bank or credit card statements to help jog your memory. It might also be helpful to have an “extras” category to account for birthdays, holidays, school expenses, home repair. The key here is to be brutally honest with yourself on where your money is going. It doesn’t do you any good to lie to yourself or ignore it. This information is just for you, so let it all out. This is also the first step in setting a budget.
Step 2: Add up all of your bills. Make a total of your monthly bills, and make sure to add in a monthly portion for any annual or quarterly bills. To account for annual or quarterly bills, just divide the bill amount by the time frame it covers.
Step 3: Don’t judge yourself. In many cases this list might be pretty long, and probably longer than you might have thought. But that’s ok, that’s the point of this exercise – to bring awareness to your spending, to bring attention to where your money is going.
Now that you know where your money is going it’s time to Prioritize Your Bills
Step 4: Prioritize yourself and family by knowing your “four walls”. What do I mean by “four walls”? Think of your four walls like the walls of your household or the basic needs of survival. These are things that are critical to the well-being of you and your family.These are the basic necessities of life: shelter (including utilities, and today probably internet), food, basic clothing, and transportation (bus, train, car payment, gas, insurance, and maintenance). We include transportation in our four walls since we often need some form of transportation to get to work to earn money, which is critical to the rest of the walls. This might also include medications or other health services you continually need. Even when times get tough, by maintaining your four walls you can keep yourself and your family stable and safe. These four walls are above all else. They are before creditors, before the IRS, before any other bill or want you might have. Once your four walls are at the top of the list start to list the rest of your bills in order of importance to you.
Step 5: List out all your income. Now that we have a clear view of your bills, list out all your income. Don’t forget to include any tax returns, bonuses, company reimbursements, stocks, and income from any side jobs.
Step 6: Surplus or Deficit? Compare your bills to your income. This will show you why things may be feeling financially tight, like you’re living month to month. Or it may explain why your credit card balance is growing. Or maybe it show’s you that you can really save more than you have been or pay off debt faster. At minimum make sure your four walls are covered and a priority in your spending.
Step 7: Take action. Now that you have a clearer view of your finances it’s time to take action. If you’re spending more than you make, you have 2 choices. You can either cut bills or make more money. When you think about scaling back, try to prioritize your bills first and see what your income buys you. To get financially healthy and to remove stress start trimming down those expenses, it will be worth it. But also look at how to make more money. Is this a side hustle, night or weekend job? Remember you might only need to take on extra work for a short period of time. A good practice here is to be clear on what this additional income affords you and make sure it goes to that.
Protect your financial health: Save for the unknown and unexpected
Unexpected expenses or emergencies are the fastest way to damage your financial health and to accumulate debt. You need to save for this. We all have experienced unforeseen expenses – so the fact that they happen is not a surprise. It’s the date, time, and cost that is unknown. But you can protect yourself and your family from these black swan events by saving for them – Step 8.
Step 8: Don’t forget to fund your emergency fund. At a minimum you want to have $1,000 in an emergency fund for anything that might come up like unexpected travel, a car maintenance issue, or an unexpected health bill. Ultimately you want to grow your emergency fund to be at least 6 months’ worth of your “four walls” bills, so that if you lose your job, you and your family can make ends meet while you find another one.
For more information on how to manage your money, pay down debt, and grow your wealth contact me at [email protected]
