Are you concerned about your financial health? If so, chances are you are not alone. There are many people who are concerned or even worried about their financial well-being. I recently read a brief article that addressed some of these concerns through five simple questions. They called this the “Five Finger Checkup” and it allows for you to achieve many financial goals that you may have set for yourself. Let us look at the five questions and how you might address them. What I have done here is take the basics of that article and expand on the answers to the questions.
1. Are you saving enough? Only you can answer this question and it comes with a whole set of factors that can contribute to your answer. I personally recommend saving 10% of your pre-tax salary if possible in a tax-advantaged account such as an Individual Retirement Account or a work sponsored 401(k) plan. But if you are not able to save the full 10% and your employer offers a 401(k) match save up to the point where they will not match the savings. The reason for that is a simple one, it is free money. And look at your budget to see where you may cut back on expenses to save as well. Is it really necessary to stop by Starbucks every day on your way to work? I guess the answer to that is a resounding no it is not and that is money that could go towards debt reduction or your savings.
2. Are your goals prioritized? Two of the first priorities most people will have to save for retirement and debt reduction. Now everyone needs to be saving something towards their retirement early in their working career. The reason is money saved early will be worth more than more money saved at a later date. The power of compounding interest is really amazing if you were to stop and look at it sometime. I know I have written many posts on the power and importance of investing at an early age. And debt reduction is second or could be first on your priority list. As you approach retirement, you do want to be as debt free as possible. When you are young, it is wise not to live beyond your means and live off of credit cards. Debt is a necessary evil in some instances such as education or a primary residence. But consumer debt is never good and should be avoided if at all possible. By setting priorities, you are easily able to achieve your goals if you have written them down and refer to them on a regular basis. For someone, it may be to pay off their credit cards by a certain date. For others, it could be to save an extra 2% in their 401(k) or fully fund a ROTH IRA by the end of the tax year.
3. Are you ready for surprises such as the loss of your job or a medical emergency? The creation of an emergency fund will lessen the impacts of either of these situations on someone. Ideally, you will have saved three to six months of expenses in an emergency fund. This should be sufficient to get someone through the loss of a job or minor medical situations. Of course, it is important to maintain proper insurance on such things as your car, residence or your health. By doing so, your emergency fund will last longer, and you will have properly shared the risk with the insurance company. If you are without an emergency fund and insurance things can get extremely difficult for you and you may be dependent on family and friends in such times.
4. Do you have the proper paperwork in place in the event of illness or death? In order to be financially responsible, it is advised that you have the proper documents in place in the event you become seriously ill or in the worst case you die. Not only is this wise estate planning it will save your loved ones a lot of headaches in the event something were to happen to you. A will can save your family the expense of probate in many instances and help to avoid fighting over your assets. A power of attorney will allow someone to make decisions on your behalf in the event you are unable to do so. Again, reducing legal expenses that can be avoided with proper planning and foresight.
5. Are you helping others? This is the last for a reason as if you are unable to care and provide for yourself chances are you are not really in a position to assist others. But regardless it is important to give back to your community and those less fortunate than yourself. If you cannot afford to give monetary gifts to charity, then consider donating your time instead. The key here is to give back to your community in some fashion. It helps others and will make you feel better about yourself in the long run.
Again, these are five simple and basic questions that if answered will enable you to live a better life as far as your financial matters are concerned. While they may not be the entire solution to your situation by keeping them in mind, it will assist you on your way to financial freedom.
If you have any questions or have any areas that you need further clarification on feel free to contact me. I look forward to your comments and welcome all interaction.
