How do You Get a Healthy Look at Your Financial Situation?
December 28, 2018 | By Daniel Dewitt
It’s hard to be impartial about money. So much of our social standing and sense of self-worth comes from our paycheck and savings account that we tend to view our financial situation through rose-tinted lens, and worse, spend like we’re better off than we really are.
For others of us getting a handle on (or even trying to improve) our current financial situation seems far too complicated, and we leave it a half-muddled idea in the back of our heads.
Both of these views of your financial situation are unhealthy, and as the saying goes, “The first step to fixing a problem is admitting you have one.” Wouldn’t it be nice to have a clear, healthy look at your financial situation and know exactly where you stand?
By acting on the simple steps below you can gain a better understanding, take control, and move to improve your financial situation.
Track How Your Income Impacts Your Financial Situation
This may seem simple: just check your paycheck each month to get an idea of your current financial situation, right?
For some people it is that easy, but for others tracking heir income can be deceptively complex. If you work part-time or on commission, for example, your income can vary wildly from month to month, making it difficult to predict how much you’ll earn from one month to the next and what your financial situation will be in the future.
How can this be accounted for? We suggest gathering together your pay stubs from as far back as you can and create a graph that tracks what your income looked like each month.
If your income does tend to be uneven, this will help you see patterns: maybe you work at a restaurant that has more customers in the winter than in summer or fall.
Knowing information like that will help you predict what your approximate income will be in the future and what your financial situation will look like.
Track How Your Expenses Impact Your Financial Situation
Now that you know how much you make and what your current financial situation is, it’s time to find out how much you spend.
The best way to track your expenses and monitor the outflow of money from your financials situation is either to manually input your receipts into a spreadsheet or use software or apps that automatically log debit and credit card purchases and sorts them into various categories.
We highly recommend the latter, as it cuts down on how much effort you need to invest in tracking your spending, as well as reducing your margin for error.
Regardless of what method, app or software you choose, once the numbers are inputted you can begin to see specific spending patterns emerging, similar to tracking your income. Is most of your money going towards food? Clothes?
Do you spend more during certain times of the year? You can’t get a clear perspective of your current financial situation without knowing where your money is going, and why.
Track How Debt Impacts Your Financial Situation
For how overwhelmingly common and endemic to our current society as it is, far too few people actually understand how debt impacts their financial situation.
Not only do they not know how much debt they have, but they don’t understand how interest rates work to slowly but progressively erode their financial situation.
Northwestern Mutual's 2018 Planning & Progress Study explains most Americans’ financial situation like this: “Average personal debt (exclusive of home mortgages and among those with some debt) climbed higher this year, exceeding $38,000 compared to just over $37,000 in 2017… Americans may be underplaying the implications of debt on financial health. In fact, the majority (56%) said that debt has “low” or “no impact” on their ability to achieve financial security.”
To truly understand how debt is impacting your current financial situation and not be part of the above 56%, you’ll need first scour through your bank account to uncover how much total debt you have currently (includes car loans, title loans, personal loans, mortgage, and credit cards in this tally).
After that’s done, draw up a chart showing the interest rate for each type of debt, and how much it’ll cost you and your financial situation if it goes unpaid for the next five years. You may be surprised how punishing even a modest interest rate of 3-5% can be when applied every month for five years to your financial situation.
Identify the Wants and Needs of Your Financial Situation
Another tricky aspect of understanding your financial situation is being able to delineate your needs from your wants to really understand where you and your financials situation stand.
We’ve written about this before, but for many people it’s hard for them to understand the difference between wants and needs when it comes to their everyday life and financial situation. Eating out every week, for example?
That’s often something people categorize as a need, but is really more of a want.
Because people tend to categorize their wants as needs, it can often lead to a warped view of their financial situation where they assume that they have more financial obligations than they actually do and that their financial situation is much direr than it actually is.
You won’t have a truly objective view of your financial situation until you’re able to tease wants and needs apart in your mind. Once you do, you’ll be able to make better, and more informed, decisions about your financial situation moving forward.
Your Financial Situation Moving Forward
See, that wasn’t so bad, right? With just a little work and determination, it’s easy to get a clearer view of your financial situation. Armed with it, you can start creating a budget to ensure it never becomes unmanageable or uncertain again, and begin to act towards reaching some more long-term financial goals like retirement, investing, or wiping out your debt.
Unfortunately, budgets can’t account for everything. If or when you find yourself hit with an unexpected emergency, one option for getting out a bad financial situation is with a title loan.
Title loans leverage your vehicle’s value to secure a fast cash loan. Title loans are a handy way of keeping your financial situation stable during times of uncertainty, and the cash you need is no further than a simple online search for a title loan near me.