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Trying to determine whether your finances are in good shape can be challenging. I have gathered a series of questions you can use to check your financial progress.
Do you have an investment plan?
Financial goals are not achieved by accident. You should set both long- and short-term goals. Define an action plan, including an asset allocation model, then, set simple ways to measure your progress.
Do you know your net worth?
Prepare a balance sheet -- this is an easy measure of your financial progress.
Total your assets, (things you own), then subtract your liabilities (amounts you owe). The difference between the two will equal your “financial worth”.
Ideally, your net worth should grow faster than the rate of inflation.
Are you saving monthly?
Are you saving something from every paycheck? This is one of the best habits you can develop.
Start with a small amount, then, try to increase that amount periodically.
Do you have a household budget?
Almost no one enjoys the process, but wasted expenditures are a major stumbling block to accomplishing financial goals. A good budget allows you to control your money.
Is personal debt a burden?
If you spend a more than you make, over time you will eventually find yourself over-burdened.
You have too much debt if you are not saving monthly, if you are not comfortable with the amount of your payments, or if your total debt exceeds 35 percent of your income on a monthly basis.
Do you own a home?
While home ownership is not for everyone, there are significant financial and tax reasons to do so. So you purchase with a down payment of 10% or 20% of the home’s cost, what’s cool is, you retain all price appreciation on the home over time. Further, part of each mortgage payment builds equity.
Are you prepared for a financial catastrophe?
Make sure you have funds adequate to cover three to six months of living expenses, and have insurance in place to cover death or a disability.
Finally, execute a power of attorney. This is so someone can step in and take over your finances in the event of your total incapacity.
Are you taking advantage of all fringe benefits offered at work?
Group health, short or long-term disability and 401k savings are just a few.
Make sure you are signed up for all that is free, and creates “zero” income tax impact to you.
Are you earning as much as you can?
The reality is that your income is what drives many of your other financial decisions. Exploring new options if you haven’t done that in a while, may be appropriate.
What about additional education? Would getting more education help secure you a promotion or qualify for another higher-paying job?
Is your estate planning documentation up to date?
This might be worth a look if it hasn’t been done in the past five years. If there have been changes in family structure, attention may be required sooner.
You should review your portfolio at least annually to measure your performance, and measure total returns and benchmarks.
The bottom line is that you can’t spend more than you earn.