You might be in tune with your physical health, but what about your financial health? If it’s been a while since you’ve done a financial checkup, now is a good time to check in with yourself to see where you stand and where you can improve.
How to find out if you are financially healthy, ask yourself these five questions.
1. Are You Making Payments for Fixed Monthly Expenses, Such as Rent and Utilities, on Time?
Skipping payments or making payments late can greatly affect your financial health for the worse.
“Making payments on time is crucial to building or maintaining strong credit, and avoiding racking up extra fees in interest or penalizations,” said Lisa Fischer, chief lending and growth officer at Mission Lane. “Unfortunately, missed fixed monthly payments can also be reported to credit bureaus and negatively impact your credit score.”
Fischer recommends prioritizing these payments to avoid costly late fees and potential credit score harm.
“While it may seem difficult to eat into your available cash if money is already tight, skipping them could result in more financial harm in the long run,” she said.
What To Do If You Haven’t Been Making Payments on Time
If your answer is “no,” it’s time to make some adjustments.
“The most important thing you can do if making payments has become a struggle is to make a financial plan and set goals for yourself,” Fischer said. “Write everything down, whether that is through a budgeting app or a simple spreadsheet or notebook. This can help you hold yourself accountable for how you spend and save your money as you work to make payments. You’ll be able to visualize where your money needs to go, and where you may have some wiggle room (or lack thereof).”
If you’re truly unable to make payments, you do still have options.
“There are options you can look into that provide safe access to cash in advance of your paycheck that you can pay back later,” Fischer said. “However, it’s important to do research, as many options have very high interest rates and difficult repayment terms. It’s also possible to try and negotiate with cable or utility companies, either for a lower rate or an adjusted payment timeline.”
2. Are You Accumulating More Credit Card Debt Than You Can Pay Off on Time?
Pay close attention to your credit card bills, especially if you’ve only been making minimum payments.
“Mounting credit card debt can become a massive roadblock to financial stability,” Fischer said. “An accumulation of credit card debt is a more urgent concern now than ever as inflation is driving product prices up, and causing many individuals to burn through their savings more quickly than anticipated. This may leave individuals with even less left each month to pay off existing debt, and in turn, this debt will continue to increase as interest is added each month.”
What To Do If You’ve Accumulated Credit Card Debt
If you answered “yes” to the previous question, take action now to reduce debt before it snowballs out of control.
“If you have multiple sources of debt, you should try to tackle the debt with the highest interest rate first,” Fischer said. “This is the most ‘expensive’ debt, and paying this off first allows you to save more money for future payments. However, everyone’s financial situation is different, so it’s best to consult with a professional who can help you determine the best plan. Once you pay off your debt, it’s also important to keep up the responsible credit card usage habits you built, and to continue to keep track of your goals and finances.”
3. Are You Prioritizing Spending on Essentials, Such as Food and Healthcare, Rather Than Entertainment and Other Nonessentials?
Take a look at exactly where your money is going and what categories you are spending the most on. Ideally, you will be spending more on needs than wants. If you follow the 50/30/20 rule, for example, 50% of your income should be dedicated to essentials, such as housing, transportation and groceries; 30% can go toward wants or discretionary spending; and 20% should be dedicated to savings.
What To Do If Your Spending Priorities Are Out of Whack
If your answer was “no” to the previous question, you would benefit from creating a budget (or revising an existing one).
“If you have the tendency to overspend on things that you want but don’t necessarily need, I recommend creating a budget tracker that distinguishes between wants and needs,” Fischer said. “When creating a budget, estimate how much your monthly bills for necessities will be to determine the amount you have left for nonessential purchases. Setting savings targets for yourself and sticking to your budget as closely as possible will help you avoid overspending on nonessential purchases amid today’s record-high inflation, and in the future.”
Also, look for ways to cut costs on nonessential items.
“You may be paying for subscriptions that you aren’t actually using, and canceling them could free up some extra cash for more worthwhile nonessential expenses,” Fischer said.
4. Are You Able To Save a Portion of Your Monthly Income for Emergency Funds?
“Ideally, all individuals should aim to save a portion of money each month to dedicate toward an emergency fund,” Fischer said. “As we head into increasingly uncertain economic times, emergency savings can keep individuals afloat who face job insecurity or other financial concerns. Additionally, even if you’re in perfect health, you never know when an unexpected injury or medical expense may arise. It’s crucial to set aside emergency savings when at all possible for these rainy days in life.”
What To Do If You Haven’t Been Saving for Emergencies
Ideally, you should be working to build up a cash reserve with three to six months worth of living expenses. If you don’t have that — and you aren’t currently working toward this — make sure to make this savings goal a priority.
“One option to save for emergencies is to set aside a set amount of money each month — automated, if possible — to deposit into a savings account with a favorable interest rate,” Fischer said. “That way, your money will grow over time without you even having to touch it. While it may seem daunting to explore savings areas outside of your comfort zone, researching and connecting with an advisor to discuss options for how to financially prepare for emergencies can yield significant rewards.”
“And, if emergencies do come up that you feel like you can’t pay for, remember that you have options,” she continued. “For example, some local governments and nonprofits can provide relief and assistance to those who qualify.”
5. Do You Have Long-Term Savings?
“In addition to having savings for an emergency fund, individuals should ask themselves if they have sufficient long-term savings,” Fischer said. “Whenever you can, it’s advantageous to set aside money for retirement, education or other longer-term goals. In general, the more you focus on your financial health in your early years, the more comfortably you can live in your later years.”
What To Do If You Don’t Have Long-Term Savings
Once you have sufficient emergency savings, you should start funneling money away each month for your long-term financial goals like retirement. One of the best ways to increase your ability to save is to increase your income.
“There are so many quick and easy resources dedicated to helping individuals earn more income,” Fischer said. “Mission Lane recently launched an app that helps the growing gig worker population discover new jobs and aggregate their earnings data across all jobs into one convenient dashboard. Resources like automated income tracking and work discovery apps can help you track how much money you have coming in and out, and help you in the search to find better-paying positions. These resources can help answer your questions on the exact amount of money you’re bringing in, and where you can turn to earn a higher income.”
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