People tend to avoid thinking about their finances until a problem arises. While it is true that many people end up in overwhelming debt or bankruptcy through unforeseen financial hardships, we must admit that most of us could be better prepared for such events. The biggest problem we face is simply not knowing enough about our financial standing and the failure to set financial goals for ourselves. To get on a path to financial stability we must first evaluate where we are.
Getting To Know Your Finances
We must first ask ourselves a series of questions to better determine where we stand financially. One of the most overlooked, but most important, aspects of financial health is how much you have in savings. Do you have enough to cover at least three months worth of expenses if you lost your job or couldn’t work? If you answered “no” then you should prioritize saving enough money to meet this goal before moving on to other areas of financial need.
Another important aspect of your financial life is how you pay your debt accounts. Are you using one credit source to pay for another? Have you had to borrow money to pay other debt accounts? If you answered “yes” to either of these questions, you need to evaluate your income and expenses. It is never a good idea to borrow from one source to pay another; you will only end up in a cycle of borrow-pay that will keep you in debt for years. Find another way out by negotiating with creditors to obtain a payment plan that fits your budget.
It is important that you also determine how much you are able to pay on your debts each month versus how much actually have been paying. Have you only been paying the minimum payment on your accounts? If the answer is “yes” then you need to work on developing a budget to allocate more money towards your debt payments. By paying on the minimum payment, you will end up paying hundreds to thousands more than you borrowed in interest payments over the span of several years. Getting out of debt at this pace will saturate a good portion of your life.