How well do you know your own finances? If you want your financial machine to run as efficiently as possible, there are some critical pieces of information you absolutely must know. Without that knowledge you run the risk of overspending, your investments can’t possibly be working for you as hard as they should be, and you won’t even know how to improve the situation because of lack of information.
So, how much do you really know about your finances?
Your Take Home Pay – Could you write down how much you earn per year, month, and paycheck without looking? Do you at least know how you could find that information if you had to sit down and build a budget from scratch?
Monthly Bills – Do you know how much your monthly bills add up to? Remember that some bills may be variable while others are billed less than once a month so calculating all the details isn’t as easy as at first glance. Can you name all of them, their amounts, and when they’re due?
Checking Account Balance – Do you know the current balance of your checking account? If you were going to make a purchase, would you know if you have enough money in the bank to pay for it? When was the last time you reconciled your checking account?
Credit Card Balance – What is the total balance of all your lines of credit? If you have consumer debt, you should not only know how much you have but you should also have an executable plan to pay the balance off.
Mortgage Interest Rate – Mortgage rates have been low for years but not anymore. Do you know the interest rate of your mortgage? If you know your current rate and frequently check the current rates, you may find an opportunity to refinance even if the rates are higher than they have been in the last few years. The key is to look at your whole financial picture and make an informed decision.
Investment Balance – If you’re saving for the future and we all should be, you should know the value of your investment portfolio. The contribution rate as well as the performance of those investments should also be periodically analyzed to ensure that they are on track to meet a person’s long term financial goals.
Before you set off on a mission to answer all these questions, gathering the information outlined above for the sake of knowing it doesn’t do you any good. But if you do know all this information, it’s indicative of someone who doesn’t just let their finances run on auto-pilot. People who can answer all these questions are likely actively engaged with their financial health and have taken the following actions to give themselves the best chance to be financially successful:
- Budgeting: If you know your income and your monthly bills, you likely have a monthly budget and have reviewed it recently. Having a budget and sticking to it provides a solid foundation for sound finances.
- Track Spending: If you know how much money is in your checking account and know how much of your monthly income your bills consume, you probably track your spending. There’s a saying, “You can’t fix what you don’t track.” Tracking allows you to easily identify things you might want to change about your spending habits.
- Always Looking To Improve: Knowing your credit card balance and your mortgage interest rate indicates that you’re mindful of your debt. It’s also a good first step in looking for ways to get rid of it. At the very least you’ll get ideas to pay less interest.
- Planning for The Future: Paying attention to your investments suggests you have an eye towards the future. We all want to retire someday, but to do so there has to be adequate money tucked away. Just remember that time in the market is key to financial success so practice staying the course instead of always trying to tinker.
So how did you do? How much do you know about your finances? Do you have anything else to add to the list?
Editor’s Note: I’ve begun tracking my assets through Personal Capital. I’m only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it’s much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it’s free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.