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The internet is full of quizzes promising to tell you which Game of Thrones character, dog breed, or type of cheese you are based on a few quick questions (and full access to your social media account). While these quizzes can be amusing (for you and the hackers collecting your data), a more fulfilling way to spend your spare time online is to give yourself a financial health checkup. These five simple questions can help you do just that.
1. What’s your net worth?
If you’re one of the 157 million Americans who have taken out credit cards, fast cash loans, mortgages, and other debts, it can be difficult to assess your overall financial position. However, knowing your net worth is the essential first step to setting yourself on a path to financial success. The best way to go about this is to remove all emotion from the process. Whether you’re in the red or the black, don’t stress about it. This is not a test to pass or fail. Instead, look at it as a vehicle to understand your true fiscal status and begin taking ownership of your finances.
2. What’s your debt-to-income ratio?
Now that you’ve figured out your net worth, it’s time to look at things from a slightly different angle. Add up your monthly debt repayments and divide the result by your total monthly income. This will give you your debt-to-income ratio. While you’re obviously aiming for this to be as low as possible, financial experts agree that anything around 30% or lower is pretty healthy. Once again, it’s important not to stress about the percentage you come up with. The important factor here is that you’re providing yourself with a clear view of where you’re at financially, compared to where you want to be.
3. Where is your money going?
Whether your answers to the first two questions were in the healthy zone or not, it’s still worth assessing exactly where your money is going each month. The goal here isn’t to be obsessive but to simply avoid being in the dark about your expenditures. Tracking your income and expenses will allow you to pick up on fraudulent transactions, unnecessary fees, late wages or invoice payments, and of course your own excessive spending habits. The best part is, there are plenty of apps that allow you to automate the process, connecting to your bank accounts and categorizing your credits and debits for you.
4. What are your financial goals?
Having vague dreams of being a millionaire will get you nowhere if you don’t have specific, achievable goals in mind. These goals are the beacons you aim for and the rewards you hold in your mind to keep you on track. To answer this question, take some time to come up with a set of goals that span the short, long, and ultra-long term. How much do you want to be saving month-to-month? Are you saving for travel, your first home, a private island? While we’ve been keeping your emotions out of the equation thus far, here is where you want to bring them back in full force. Allow your imagination to run free and connect emotionally to the goals you have in mind for the money you accrue. This will be the fuel you use to keep yourself motivated.
With these four questions answered, you will have a solid understanding of where you are financially and where you want to be. From here, it’s up to you to forge a path that will link you to the financial future you desire.
