5 Ways to Tell Your Financial Strategy Needs an Adjustment
Knowing something's off is half the battle. Here are five clear signs that you're not managing your money as well as you could be, and the steps you can take to start making things right.
1. You Panic Every Time an Unexpected Expense Crops Up
Your car starts making horrible noises. Your roof starts to leak. You get sick and need a pricey medical procedure. These things would stress anyone out, but if they send you into a tailspin of "How am I ever going to pay for this?," it's a sign your finances aren't as healthy as they should be.
You should have a minimum of three to six months' income saved up in an emergency fund to cover unexpected expenses like these. If you don't, start finding ways to trim your budget or bring in some extra money (maybe by working a temporary second job) in order to get this fund to where it needs to be.
2. You Never Have Enough Left at the End of the Month
You start off each month with the best of intentions, but no matter how hard you try, you never seem to have enough money to get you through to the end of the month-or, what would be even better, to put aside extra money for savings or other goals.
You need to create a realistic working budget and dedicate yourself to sticking to it. The only way to make your money stretch as far as possible is to know exactly how much is coming in and going out each month. Sit down and start tracking how much you pay for things like groceries, rent/mortgage, utilities and medical bills. If your costs exceed your monthly income, find ways to cut back in certain areas.
Then, when the time comes to make a spur-of-the-moment decision -- like whether you should go see that movie this weekend or stay home and watch a DVR'd show -- you'll have a measurable way to tell if you can afford it or not.
Another alternative is the anti-budget. This strategy involves pulling your savings from the top first, and then spending the rest. Initially, "the rest" goes towards bills, such as your mortgage or rent, utilities, money set aside for groceries, and so forth. At the end of the week or month, if there's still anything leftover, you can treat yourself to a restaurant meal, movie, new shoes or any other discretionary purchase.
3. Your Credit Card Balances Never Go Down
You're regularly making the minimum payments on your credit card accounts, and sometimes you even make more than the minimum. But you never seem to make any progress. It feels like you have this cloud of debt over your head that's never going to go away.
Credit card debt is a huge drain on your finances, and if you ever want to have a secure financial future, you need to start getting proactive about paying it down. The debt snowball method is a popular strategy: determine which card has the smallest balance, and pay as much as you can each month towards that card. Once that card is paid down, move on to the next-smallest one on the list. If you need to slash your budget or take other measures to get this snowball rolling, do it.
And, of course, refrain from putting any new charges on your accounts from now on. Adding to a balance you're trying to pay down is an exercise in futility.
4. The Thought of Retirement Freaks You Out
Some people think of retirement and envision long, relaxing days playing golf, catching up on hobbies and traveling the world. You think of retirement and immediately start to panic because you have no idea how on earth you're going to cover your expenses when you're no longer working.
No matter your age, you still have time to save up enough for a comfortable retirement. You just need to get clear on how much you'll need and come up with a definite strategy for getting there. As a general rule-of-thumb, you should set aside between 15 to 18 percent of your income into retirement accounts like your 401k or IRA.
Don't leave your retirement up to chance or think it's far enough way that you can "worry about it later." The sooner you start saving up, the more secure it will be.
5. Money Is Only a Source of Stress for You
You feel guilty every time you make a purchase or look at your bank balance. Any time you talk with your partner about money, it turns into a fight. Each month feels like a losing battle with forces beyond your control, whether it's bills you can't pay or goals you can't afford to save up for.
It's time to take control of your finances. Money is not the root of all evil, as it can sometimes seem when you're in over your head. It's merely a tool we can use to design the life we want to live. Realize that the way you spend your money is a direct reflection of your priorities in life, and resolve to bring your spending in line with those priorities.
Once you take a long, hard look at your money habits, you will start to see areas where improvement could make a big difference in your overall financial state. You have the power to determine how your money works for you, so do everything in that power to make it work the way you want it to.
Paula Pant quit her 9-to-5 job, traveled to 32 countries, launched her own business and became a successful real estate investor. She's the founder of Afford Anything, an online movement against tired old financial advice that says you should skip lattes and chain yourself to a desk for 40 years. Afford Anything helps you crush limits, build wealth and maximize life.