Financial planning can be complicated and frustrating. Just thinking about it is enough to make some people throw in the towel and head to the mall. If numbers make your head spin, here are four simple questions to help put your finances in perspective.
1. Are you ready for an emergency?
What would happen if you got hit with a large, unexpected expense? You should be able to pay ongoing expenses and deal with unexpected events like trips to your auto mechanic. If an unplanned expense would amount to a catastrophe it's time to take a closer look at your lifestyle. You need to take steps to avert disaster before it arrives.
2. How many paycheques can you do without?
What would happen if your next paycheque didn't come? Would you be evicted from your home or apartment? Could you keep the lights on? How long could you afford groceries? If you can't live for at least a few months without income, you've got a problem that needs serious attention.
Create an emergency fund. You should have three to six months' worth of income in the bank in case your paycheques come to a halt. A good resource to read is 'Build Yourself An Emergency Fund'.
3. How's your credit?
Credit is another way to check your financial health. Do you qualify for a loan or another line of credit? If so, you've got at least some protection against financial ruin.
If you've owe a lot on your cards or would be refused another line of credit chances are your earnings are out of balance with your debts. You need to cut your expenses or earn more income. For more information read 'The Importance of Your Credit Rating' or 'Understanding Credit Card Interest'.
4. What about your savings?
If you can address emergency expenses, live half a year without another paycheque and still tap some credit, it's time to consider savings and investments.
Is anything left from your paycheque after the bills are paid? Do you have a savings account? If your employer offers a 401(k) plan, do you contribute at least enough to receive the company match? If the answer to any of these questions is "no", rethink your situation. The ability to stay out of debt depends as much on saving as it does on keeping your spending low. What is your credit to debt ratio?
If you don't have answers to these questions take immediate action. Set up a household budget. A budget, even as a one-time exercise, is essential in evaluating your finances.
Protect your credit. Living on borrowed money is never good, but being able to borrow will make all the difference when times get tough.
Finally, save your money. Contribute to your 401(k) plan and build an emergency fund. Increase your savings whenever you can. Before long, your finances will be back in order.
About the Author:
For your information there is much more on the topic of debt to credit ratio. Click on the link to visit http://www.everlife.com/reducing-debts.php.
No comments:
Post a Comment