Give Your Finances A Health Checkup
Print View - Published: Thu, 5 May 2011 at 1:44 PM
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How's your financial health? If the budget gives you the shakes, or money worries increase stress in your life, an annual checkup to assess your financial situation and start putting your family finances in order may be a good start.
To take responsibility for your own financial health, experts advise "know your numbers", something like when doctors tell us to check our blood pressure, cholesterol, blood sugar and body mass index, and compare that with the values considered to be healthy for us.
It is also important to check some vital statistics to realize what areas may need attention:
- Do you spend more than you earn?
- Do you spend no more than 25% of your net income each month to make loan payments including car accounts, credit cards and so on, except the payment of your rent or mortgage?
- Do you have a savings fund with at least 3 times what you earn monthly for emergencies?
If your answer is YES to all of the above questions, then your finances are in excellent condition! Conversely, if you answered no to any of these questions, or if you do not know exactly, then I suggest you take some money management exercises.
1: Identify your income
Many people believe that your only income is your salary, but we also must take into account everything that comes from monthly rentals of apartments, business, any actions that earn us dividends and interest, and even a pension. In short, everything that puts money in your pocket is an entry, write it down!
2: Make a list of your debts
Write outstanding accounts and credit with a corresponding monthly payment. Do not forget to include your car loan, your credit cards, all loans (except your mortgage) Add them up.
If you want to know if you're up to your neck in debt, take the total amount of monthly payments and divide it by your monthly income, if the result is greater than 0.25 (25%) it is time to find ways to reduce these commitments.
3: Keep track of all your expenses
Now list your fixed expenses, such as mortgage payment or rental of housing, utilities, and other loan payments, it also includes how much you spend in groceries, fuel, services. The fixed costs are usually the same (or close) every month.
Use a small notebook where they record every penny you spend a day. This exercise will open your eyes!
You'll be surprised how much you spend on soft drinks, gum, snacks, meals away from home, Starbucks coffee, and other impulse buys.
4: Calculate your periodic expenses
The recurring costs that you pay once or twice a year can unbalance your budget if you do not contemplate them in advance. Think about a year and make a list of what you need to purchase per month.
Remember to write gifts, school clothes, fees, subscriptions, tickets, holidays, celebrations such as baptisms, birthdays, graduations, babyshowers, etc.
Most unexpected expenses are not surprises, but without planning for them you may not be ready for them. This category also refers to car repairs, home repairs, visits to the doctor, especially if you have children, and any other emergency.
Add all these costs to have an annual total divided by 12, the result is what you need to save each month to cover these regular costs which are not included in the monthly expenses.
5: Compare your income with your expenses
If you spend less than you earn, you have money saved for a rainy day and future goals.
If you realize that you spend more than you earn, you have two options:
- Reduce your expenses
- Increase your income
6: Compare your expenses with your savings
In general, people do not have enough savings, and many families are on the verge of bankruptcy. How is your savings account compared to the cost of the exercises 5 and 6?
Typically, what you want to strive for is to have at-least enough in your savings to cover your expenses for a minimum of 3 months in a catastrophy.
You may not want to do all this, it's often frustrating, but if you take time out at least once a month you can determine the level of your financial condition and then work to improve it. Remember, every small change you make can have a long-lasting and major impact on your overall financial health.
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