When it comes to money, people seem to fall into two camps. There are those who love poring over their budget and know exactly what happens to every cent. The other group believes ignorance is bliss – or perhaps imagines that what they don’t know can’t hurt them.
However, that type of avoidance can be dangerous. Financial problems that are left unchecked can have life-altering consequences in the long run. The road from one missed payment to bankruptcy might not be as long as you think.
To ensure you stay on the path to financial freedom, ask yourself these questions today — and routinely.
1. Could I handle an unexpected $1,000 bill today?
If your car stops working, the roof starts leaking or your health starts failing, could you come up with the cash needed to address the problem?
There is a reason why having an emergency fund is considered a cornerstone of good personal finance. Without one, you might find yourself with limited options and racking up high-interest debt as a result.
If you answered no to this question, get started with “9 Tips for Starting an Emergency Fund Today.”
2. Have I planned enough for retirement?
It might be decades down the road, but the time to plan for retirement is now. While some people find the process complex or overwhelming, it really boils down to saving as much as you can as early as you can.
The best place to start is with your workplace retirement account. If you haven’t already, contact your human resources department to set up payroll deductions into a 401(k) account or similar fund, if available. It’s a relatively painless way to save, and your employer may even match a portion of your contributions. Self-employed? You still have plenty of options for retirement saving.
Either way, put into practice the “7 Key Habits of 401(k) and IRA Millionaires.”
3. Am I financially ahead of where I was 6 months ago?
If you don’t know the answer to this question, it means you probably aren’t tracking your net worth. That may sound like something that applies only to the wealthy, but it’s a calculation everyone can make.
To find your net worth, add up the value of all your major assets and account balances and subtract any debt or liabilities you owe. Hopefully, you end up with a positive number, but it could be negative if you did one of the “6 Things That Can Cripple Your Net Worth.”
Once you know your net worth, recalculate it regularly to see whether your financial situation is improving or in need of adjustment.
4. What’s the dumbest thing I’m spending money on?
Everyone spends money on things they don’t need. Maybe it’s the subscription you forgot to cancel or the Peloton bike collecting dust in the corner.
No need to beat yourself up over past mistakes — but make note of them, and vow to do better in the future. Cancel ongoing expenses for things you don’t use and think twice before making another impulse purchase. You may even be able to sell some of your clutter for cash.
Use the money you free up in your budget to boost your emergency fund, pay down debt or save for retirement. Or if you are in good shape financially, spend it on something you really want and will use.
5. Am I getting ripped off?
Inflation is real, but sometimes, companies seem to raise their rates exorbitantly. They figure that if you don’t notice, it’s simply more money in the bank for them.
Watch out for this price creep, which seems especially prevalent for insurance and telecommunications services. Some companies will lower your rates if you ask, but other times, you may need to shop around and switch to the competition.
6. Do I need help?
Financial problems can range from the extreme – such as a very real shopping addiction – to the relatively mundane, such as what percentage of your portfolio should be in stocks.
There is no shame in asking for help. An objective third party can provide new perspective and ideas that may not have occurred to you. If overspending is a problem, an organization like Debtors Anonymous may be able to help. Or if you’ve stopped spending but need help getting out of the hole you dug, a financial counselor could provide the assistance you need.
For ongoing investment guidance, look for a fee-only financial adviser.
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