Have you ever felt like you couldn't get traction with your finances? My wife, Andi, and I seemed to have it all figured out financially. We had just purchased a nice, new SUV, built a brand new house, and were going out to dinner multiple nights a week. I bet if you asked anyone, they'd tell you we were doing great with money.
The truth is, we weren't doing great. Don't get me wrong- we weren't digging through couch cushions looking for change to pay the electric bill. But we weren't handling our finances in a smart way either. We had student loans and a car note that were only receiving minimum payments. We had a savings account with less than $1,000 in it. We somehow found a way to spend every dime of our paycheck just in time for a new one to roll in.
At some point, we all have to analyze our systems for how we handle our finances. You can't win with money without having a plan. Here are 3 questions to ask yourself when evaluating your financial status:
1. What's Working?
What are you doing that's working right now? Is there anything that you've avoided up to this point that you know are financial death traps?
For Andi and I, our biggest success was that we weren't building up credit card debt. Anytime there was a purchase that we needed to make, we saved up and paid cash for it (aside from that fancy SUV I mentioned earlier). Having this habit already in place made living a debt-free lifestyle a slightly smoother transition.
Find what's working for you right now. While your financial situation may feel hopeless, remember that there are a lot of things that you're doing right. Give yourself credit for these things, and keep doing them! Let them be the driving force that moves you forward.
2. What's Not Working?
Right out of college I had a friend that made really good money. Her income was easily twice as large as mine was. She always had the latest gadgets and toys, and everything she bought was the highest quality possible. Yet, she struggled to pay her rent on time and was constantly complaining about how she was broke. She was really knowledgeable in her field and an extremely hard worker. However, her work ethic couldn't keep up with her spending habits.
In order to achieve financial success, you need to identify and eliminate those bad habits. In our case, the thing that was hurting our budget the most was the amount of money we spent going out to eat. We didn't set a spending limit for ourselves, so there was no ceiling for how often we could go out with friends. It wasn't until the end of the month that we'd look back and say, "We spent how much on restaurants?!"
We needed to be intentional about setting boundaries and monetary limits for ourselves. Once that allocated amount was gone, no more restaurants.
3. Where Am I Going?
Imagine you're planning a trip across the country. With your destination in mind, you hop in the car and start driving. You have no supplies with you and no predetermined route. You simply start driving in the general direction and hope for the best.
Will you arrive at your destination? You might eventually stumble into the town you had set in your mind, but how many extra miles would you have driven to get there? How many hours and dollars could have been saved by simply planning out the trip and following that plan?
The same way you'd plan a vacation, be diligent about planning your financial future. What are your goals in the next 1, 5, and 10 years? What are you hoping retirement will look like? It's not going to magically happen on its own. You must have a plan!
For us, our next steps were to get out of debt and control our spending. We knew that if we were going to win with money and achieve our retirement dreams, we had to free up our monthly income. We could focus those debt payments toward investments that would pay off more in the long run.
Wherever you are financially, stop and evaluate your situation. Sit down with your spouse or a trusted friend and answer these questions honestly. Then, take action! Start taking steps toward those goals you set for your future. Don't put it off any longer. Start today! Every great journey starts with the same thing; a first step.