Are You Financially on Track? Key Questions to Reflect on Your Financial Journey
From time to time, I get this question from friends. Most of my clients already know the answer.
The most important part of answering the question, “Am I on track?” or “How am I doing?” is to reflect on your goals and values. Where are you trying to go? What is the true reason you are working to make good financial decisions?
Many people default to a number. “How much should I have in my retirement account by my age?” It can be a helpful data point, but it’s not the entire story. Here are a few things to think about to see if you are on track:
Do You Feel Informed? Do you understand your options for short-term savings versus mid-term savings versus retirement savings? Do you understand the “financial news” you encounter each day? My opinion is that most of the “financial news” we see is NOT helpful information. It’s most often financial pornography. It’s exciting, it’s provocative, but it does NOT have much to do with the real-world choices you need to make.
Do You Know Where Your Money Goes? Do you track and understand how much you make and how much you spend? When you have this information, you have the option to evaluate your ACTUAL choices and compare them to your INTENDED choices. Some folks call this budgeting, but I prefer to think of it as monitoring your spending. Information is power; it can make a huge difference.
Do You Understand Good vs. Bad Credit? Debt can be helpful in building long-term wealth, but it can also put you into a financial death spiral.
- Bad debt is borrowing money for things you don’t need, things that will decline in value, and things that will create more overhead for you. When you live beyond your means, you will accumulate bad debt.
- Good debt is borrowing money to invest in a valuable asset. Debt like a home mortgage or a student loan is good debt. You borrow money to secure that asset, and over time, the asset is worth more than the money you borrowed and the interest you paid.
Are You Saving Money? If you put some of your money aside each month, you are making progress. The old rule is “pay yourself first.” The best way to do that is through your work retirement plan. The money comes out of your paycheck automatically. The next best option is a monthly automated savings program that takes money out of your checkbook and puts it into a savings or investment account. The automatic part is the magic. You make one good choice to set up the automatic instructions, and over time the process rewards you by piling up money without you needing to think about it.
A great idea is to have a cash emergency fund at the bank. This money is ready to cover you if you have an unexpected problem like:
- You get laid off at work and it takes a few weeks to find the next job.
- You get sick and can’t work for longer than your sick pay will cover.
- You have major car repairs.
- You have major medical expenses.
- You have major home maintenance expenses.
My recommendation is to have at least 3 months of basic monthly bills set aside. If your career is more volatile or you are more concerned about unexpected expenses, you could save as much as 12 months of bills. This pool of money is insulation between your long-term financial goals and short-term bumps in the road.
Do You See Money as a Tool to Help Serve Your Values? When you think about money as a way to support larger priorities, many of your choices can be clearer. Sometimes, less total money but lower debt and more flexibility in your schedule make for a life that is closer to your values. There are many ways that your financial plans can help you be strategic about how you use money to serve you and your family.
I have given you plenty to think about. If you would like to talk through some of these points, maybe a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™professional and Behavioral Financial Advisor in West Saint Paul, Minnesota, could help. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients, and I am thrilled to work this way all the time.
And yes, I’m still taking on a few great families to be part of my financial planning practice in West Saint Paul, Minnesota, and, thanks to Zoom, across the country.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.