Deciding whether or not you’re in a financially-sound position can be hard sometimes. The whole process can seem pretty relative, can’t it? While you may seem to be doing pretty well compared to your neighbors who are losing their home, your situation certainly pales in comparison to your cousins who just went on a cruise in the Caribbean. How do you evaluate your financial wellness on a stand-alone basis?
Comparing yourself to others will never allow you to make an objective observation about your situation. Instead, you need to find some real markers to measure your position against. The next time you’re trying to gauge your financial wellness, try evaluating your position based on these characteristics:
Savings Account – The first sign of a financially-sound position is a well-developed savings account. Now, you may choose to house your savings account in a traditional savings account, a money market account, or even a jar in the closet. Wherever your savings fund is, you should strive to have savings of at least three months’ expenses. Having that cushion will protect you from the brunt of any unexpected blows and give you time to react. Imagine how comforted you will be if you lose your job or have to replace your car to know that you have enough money put away to cover your expenses for a few months.
Debt vs. Assets – Another sign of a good financial position is a positive balance sheet. Before your eyes glaze over at my blatant use of an accounting term, let me tell you that a positive balance sheet simply means that you have more assets than you have debts. To check your status, simply add up all of your debts. Then, add up all of your assets, such as your home’s value, your savings and retirement accounts, and your cars). As long as your assets outnumber your debts, you’re in good shape.
Late Fees – The presence of late fees in your family’s expenses are always a sign of a problem in your finances. If you’re paying late fees because you can’t afford to make your payments when they’re due, then you’ve definitely got too much money going out and not enough coming in. In this case you’re going to need to tighten your belt and find a way to raise some more money. If you’re paying late fees because you aren’t organized and forget their due dates, then, you’re just wasting money. Seeing a recurring appearance of late fees in your household is always a sign of a problem.
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I think a lot of people don’t really know their numbers. Very useful article – thanks for sharing.