Most people are at least a little stressed out about money. That’s understandable: Savings are low, expenses are high, we’re taking on increasing amounts of debt. Some days it seems like we’ll just never make enough money to retire or take that holiday we’ve been dreaming of. Here’s what you need to know.
One way to ease some of your money tension is to know the basics of your financial situation. It may seem obvious, but ask yourself – when was the last time you checked your superannuation fees? Do you know your credit card interest rate?
So how much do you really know about your finances? If you’re like most people, probably not a lot. Here are some questions you should be able to answer.
How much debt do you have?
A 2015 study found that the average person “estimated that they owed about 40 per cent less than what their lenders said they owed on credit cards.” That’s not good. If you’re going to pay off your debt, step 0 is knowing how much you have.
A bonus question: How long will it take you to pay off your debt? If you don’t have a good idea, that means you don’t have a plan to pay it off. And you should. Your plan should detail how long (in months and years) it will take you to pay off your debt, and when you plan to increase payments. If you’re married or in a long-term relationship, you need to know how much debt your partner has, because it affects you, too.
Some debt (like student loans) will take you a while to pay off, and that’s OK. But a flexible plan will make it more manageable.
How much money is in your savings account?
This may seem like an easy thing to answer, but when was the last time you looked at your savings account balance? Knowing how much you have stashed away will clue you into your spending habits, and allow you to make a plan (yes, another one) for building up your cash cushion.
If you have more than a few months’ expenses worth stashed away, you may consider moving some of it into a brokerage account or toward some other goal. And again, if you’re part of a couple that shares finances but you let your partner handle everything, this is doubly important. You need to know how much you have. It’s the first step to financial freedom.
What’s your credit card balance? And what are the interest rates on your credit cards?
Chances are you don’t use bills for many day-to-day expenses anymore. It’s easier to swipe or wave a plastic card or transfer funds via an app than it is to hand out cash. And that means it can be easy to overspend.
But it’s important to keep a handle on your credit card balance each month. You can usually get transaction and balance information texted to you, or make a habit of checking your bank’s app every day. To improve your credit history, try not to go over 30 per cent of your limit, and pay it off throughout the month.
If you can’t pay off your credit card bill every month – hey, life happens – you need to know how much interest you’ll be charged. This will help you prioritise which debt to pay first (the highest APR), which card to use in an emergency (the lowest APR) and it could encourage you to look for a card with a better rate overall.
What are your super fees?
This isn’t one you necessarily have to memorise, but you should look at the fees attached to your superannuation fund. Most of us just stick with whatever our employer gives us, but you may want to shop around for a fund with more attractive fees and/or investment options. Remember, even a seemingly small difference in fees (say, 0.25 per cent compared to one per cent) can make a big difference over the course of 30 years. Not only because the fee eats an ever-larger chunk of your savings, but because those losses compound.
The ASIC MoneySmart site has plenty of advice here.
How much money do you want to make?
I want to be clear that money isn’t everything, and that there are countless factors outside of our control that influence how much we make. Working more simply to make more money is no way to live. That said, I include this question because I believe in setting goals and having something to aspire to and work toward in different areas of life. In your financial life, having a number in mind can help you make career decisions and make a better life for yourself.
Ask yourself: What are you working toward? If it’s financial independence, well, you need to make a certain amount of money to be able to save enough to retire early or strike out on your own. If it’s for your family, they have needs and wants that all likely cost money. Only you know what that figure or range is. It should be flexible, and you shouldn’t beat yourself up if you don’t achieve it by X date (again, you can’t control everything).
Not everything is or should be about money, of course. But since 99% of us need to work for a living, there’s nothing wrong with setting goals to make sure we’re getting the most out of it.
If you can’t answer these questions, take some time this weekend or on your next Personal Inventory Day to figure them out.