Four Ways to Tell if Your Finances Are in Order

Four Ways to Tell if Your Finances are in Order

Are you comfortably making all of your payments? Your first mortgage and second mortgage are both manageable. You are slowly paying off your home equity line of credit. Both car payments are about the same as what your neighbors pay, you are not late on any of your credit card bills, and your job is secure for now. Compared to the doom and gloom you hear on the news, your finances sound pretty good. So how do you know if your situation is all that sound? If your situation resembles the opening sentences, then you should definitely keep reading.

One of the problems that we all have is the “relativity syndrome,” which is nothing more than suffering from viewing our personal situation relative to those around us. In other words, as long as we are average or slightly above average then we must be doing okay. Since the average American is basically broke, do you really want to be average? Here are the four ways to tell if your finances are truly in order.


If your employer messes up your next paycheck and you do not receive it for another two weeks, will you still be able to pay your bills on time?

Most of our payment systems are electronic now. We know that computers, computer programmers, and the folks who key in your time card are all capable of messing up at some point. What if you forget to turn in your time sheet, or the one person in your whole company that can sign the time sheets calls out sick? The point is, things can happen, so where would you be financially if it happened to you?


Do you have fewer debts than you did a year ago?

This one is easy. Look at your credit card statements, your car loans, your mortgage, etc. Now compare them to last year at this time. Do you owe more or less? Do you have new loans, such as a car loan? Is your total amount of credit card debt more or less than it was one year ago? If it is a smaller amount then you are moving in the right direction. If you owe more then there may be a problem. I am sure there is a legitimate reason. That’s not the point. Legitimate reasons don’t improve your finances. Reducing your debt does.


Are you regularly contributing to a savings account of some type outside of your retirement?

You are contributing to a retirement account, right? That was one I was willing to assume. But do you regularly have some amount of money, even a small amount, going into an emergency fund, a short-term savings, a long-term savings or an investment account? You should have money going into your retirement account and at least one other account – something you can access before retirement.


Could you pay off all of your credit card debt and car loans over the next 12 months if you had to?

If you absolutely had to, could you earn enough money over the next 12 months to pay off everything but your mortgage? That means do you or could you make enough to pay for a place to live, your food, any other necessities (but no luxuries), and have enough left over to eliminate your non-mortgage debt?

Score Your Finances

If you answered “No” to at least two of the above questions, then congratulations, you are average. That means that you are either broke or heading in that direction. To be average in America today means that you are financially unfit. You need to take a look at your expenses and your spending habits and look for a way to put back one full paycheck worth of savings to get you through any tough situations or emergencies (such as a car that needs repairs). Anytime you have to tap your account for emergencies, you will need to replenish it as quickly as possible, which may mean no dining out, bringing your leftovers for lunch, etc.

Now would be a great time to step back and look at the big picture. Living paycheck to paycheck is no way to live at all. If you simply add new monthly payments or larger monthly payment every time you make more money, at the end of the day you are still broke. You are just renting a nice, yet temporary, lifestyle.

The idea of having lines of credit, multiple credit cards with balances, multiple car payments, and a mortgage that will last thirty years, has proven to be dysfunctional. Instead of renting a lifestyle one or two levels above your income, why not purchase a sustainable lifestyle which reflects where you are financially.

If you want to manage your debt better, then Check out these tips. And if you want to get back some money you have lost on previous purchases, then read this article with tips on how to make money on previous financial missteps. Just make sure you don’t get caught up in trying to find a quick-fix – because you will likely end up falling for a scam instead. Protect yourself with these tips.

In the article, We Earn Millions but Lose it to Debt, I explain how we have lots of money coming in over our lifetime, but we choose to let it slip away. Instead, we need to focus on managing our finances, saving for our goals, and eliminating our debt. Sure, you will lose some of the glamour for a few years until your debts are paid off and you start saving money to build wealth, but you will be less stressed, have a stronger family, and feel more fulfilled. Besides, would you rather lose some glamour temporarily or lose your house or relationships for good?

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Bill Pratt

Bill is an Assistant Professor of Business at Piedmont Virginia Community College. He speaks on topics related to personal finance on college campuses across the country and is the author of multiple books on personal finance. He left the financial industry to focus on helping people become personally and financially successful. He lives in Charlottesville, VA with his wife and their three pets.