Feeling financially secure is one of the most critical aspects of your overall psychological health and the health of your closest relationships. Yeah, I’m not telling you something you don’t already know… academically at least. You know being secure financially makes you easier to be around and less anxious, but are you financially secure?
When I first meet a client, I look for a few things right away to see if the person is in control of their finances. Here they are:
- You have a few thousand dollars put away for a rainy day. Not emergency savings for financial catastrophes like job loss, disability or divorce, but for typical life events, like brake jobs, summer camp, tax bills, new refrigerators, etc. You don’t have to charge life events like that, you can pay for them and be on your way.
- You don’t obsess about spending money on children’s activities, vacations, or fixing things around the house. You don’t fight with your partner about spending or savings. You don’t feel anxious when I introduce myself and tell you what I do for a living. You’re comfortable with the topic of finances if it comes up and you infrequently bring it up either with good friends or your partner.
- You know what you spend (approximately) each month to keep your household going. Your head is not in the sand about whether you spend less than you earn each month. If asked the question you would be within a few hundred dollars of the actual number.
If your partner takes care of the money and you are blissfully ignorant of the finances, you are in deep trouble. Even if one partner tends to take care of bill paying or keeping up with the check book, both partners MUST know the overall amount spent per month otherwise you cannot control it. One partner (the one that doesn’t know) could spend more than he/she should accidentally. Ignorance or discomfort with money issues is no excuse.
- You (and your partner) put money away monthly or a sizable amount annually for retirement – consistently. You should know how much is in your total retirement accounts, but even if you don’t, you should know that you are putting money away regularly, which means your household is in the habit of saving and you have some plan even if the plan is not updated or adequate. You can and should update it through your working life.
- You do not have revolving debt or you have revolving debt that is 20% or less than the total amount of debt available to you. You may have more than one card and that’s okay as it is good for your credit score to have, regularly use and pay-off credit cards, but you want to make sure you’re not over that 20% threshold.
For example, if your total revolving debt is $4000 and you have 3 credit cards each with a $5000 limit, you have $15,000 (3x$5000) of available credit. You have $4000 of debt and $4000/$15000 is 26% so you have too much revolving credit. You should pay down your credit to zero preferably, or to below 20% ($3000 in this example).
If none of these items describe you, you should get help sorting out your finances and relieving stress and anxiety. If some of the items describe you and some do not, try to focus on the ones that do not. If you don’t know how much you spend each month, figure it out. If you don’t know what you have in retirement, ask. If you need help click here.