Financial health, just like personal health, depends on consistently making good choices. There’s no magic pill to lose 50 pounds or to erase all of your debts.
Financial security is a deliberate choice and being realistic about your current situation is the beginning of being able to choose a path toward security and happiness.
This is the second column in a two-part series about making choices that lead to financial security. If you missed the first, find it online under “Money Savvy” at durangoherald.com/section/columnists. That column included a financial assessment based on 15 questions. The more you answered “yes,” the healthier your personal finances.
Budgeting
Do you have a written budget that guides your spending and is revised regularly?
Does your budget include accumulating money for purchases made on a less-than-monthly basis?
Having a budget and saving for future purchases helps eliminate “emergencies” and allows you to take day-to-day control of your spending. For example, enjoying the holidays is a lot easier when you’re accumulating money in advance.
Insurance
Do you have medical insurance, short-term disability insurance, long-term disability insurance and life insurance?
Insurance helps you replace what you can’t afford to replace. This includes your income, through short- and long-term disability coverage. Your income is your greatest wealth-building tool.
An emergency fund
Do you have an emergency fund equal to at least three months of living expenses?
The last thing you need in an emergency is debt. An emergency fund can see you through the unexpected. As little as $1,000 is a good start. Three to six months of living expenses is ideal.
Overspending: Don’t
Are you spending less than 35 percent of your take-home pay on housing?
Do you pay for purchases only with cash or a debit card?
Overspending limits your ability to harness your income as a wealth-building tool. Credit cards can lead to overspending by 10 percent to 40 percent.
The future: Have a plan
Are you investing 15 percent of your take-home pay for the purpose of achieving financial independence?
Are you saving for your children’s college fund at a rate that will allow them to attend a four-year institution without using student loans?
Are you paying on your mortgage at a rate that will allow you to pay it off in 15 years?
Planning for your future means implementing systems. Automatic savings and investing plans and 15-year mortgages create results without requiring monthly action.
Passion and dreams
Do you work at your job because it’s your passion?
Has it been more than three months since you worried about money?
Do you have a dream toward which you are moving deliberately? If you have a partner, is it a shared dream?
Dreams and a passion for work are antidotes to consumerism. Passionately pursuing your dream keeps you focused on what’s most important and prevents you from foolishly shopping for satisfaction.
The more you can say “yes” to these questions over time, the more you will reduce your financial stress and increase your financial security.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.
