When you think about your finances, it’s natural to focus on what you can afford right now. Are you able to cover your rent and bills for the month? Do you have debts to pay off? These are often the first things that come to mind—and especially now, when the COVID-19 pandemic has many people losing sleep over the longevity of their bank accounts.
But there are other aspects to your financial life that you can start thinking about—no matter your current circumstances. Keep reading to learn how to assess your financial health to feel more empowered in the future.
Your financial snapshot
No matter where you are in your career, the most important thing you can do is take a comprehensive, honest look at your finances. All that means is creating a spreadsheet that includes the following information:
- Total in your checking and savings accounts today;
- Your monthly salary;
- Average monthly expenses for the past 12 months;
- Monthly loan payments;
- Average monthly savings for the past 12 months; and
- Monthly contributions to any retirement or investment accounts you hold.
Don’t let this exercise scare you. It gets less intimidating the more frequently you do it (e.g. monthly, quarterly). Having this knowledge will help you figure out what options are available to you, what steps you can take to improve your finances, and how to meet your goals.
Take care of business
When you have a clear snapshot of your finances, you can immediately shape your priorities. And one of your top priorities will be how much is leaving your wallet—your monthly expenses and debt.
Repaying debt doesn’t have to be a huge stressor. To make it easier on yourself, make sure you are clear on what your monthly obligation is and at what interest rate you’re making your repayments. Treat these numbers as an essential expense: automatically exclude this amount from all your budgeting and planning so you are always prioritizing repayment.
After understanding your fixed or regularly occurring payments, you can go through your other expenses with a fine-tooth comb. This isn’t a punitive exercise—on the contrary, it’s a way to “free up” cash that you may not realize you’re spending (i.e. forgotten subscriptions or memberships) or that you may not want to regularly spend (i.e. your morning coffee, Uber rides).
Set new goals
Debt and expenses are just one part of your financial life—creating a robust savings account is another. But many people feel they don't have enough funds to contribute to a savings account.
Get started by setting clear goals, such as for an emergency or holiday, and figure out how much you can reasonably put aside each month towards that goal. Then treat that amount just as you would one of your essential expenses—exclude it from your budgeting and planning so you aren’t tempted to unnecessarily skip a month. Remember: saving is a practice, and every little bit counts!
Another financial tool people neglect—particularly when starting their first job—is retirement. It’s never too early (or too late) to open a retirement account. Any amount you are able to put away is an investment in your future.
With all these considerations, it can feel like all of what you make is tied up in debt, expenses, savings, retirement, and perhaps other financial investments. What about money that you can enjoy? You absolutely should enjoy the fruits of your labor and a smart way to do that is to create a budget for it. The budget you set should support your commitments and goals, as well as your pleasure.
Pro Tip: It’s better to set a smaller goal and contribute more when you can rather than having a larger goal that is difficult to consistently meet.
Just keep learning
As you progress in your career, your financial snapshot will evolve, as will your goals. There is no perfect way to approach your finances, but the most empowering thing you can do is to pay attention to your financial snapshot and educate yourself.
You don’t have to jump into a finance rabbit-hole (if you don’t want to), but use the resources that are at your fingertips. Learn from people you trust, and use the internet to research your financial questions, as well as interesting products you hear about.
And If you have any specific questions about your financial snapshot, make an appointment with a financial advisor at your bank. They can help you to understand your financial health and to make decisions that serve your goals.
Do you have any tips for strengthening your finances? Share them with us on Facebook.
Nisha Kumar Kulkarni is a writer and creative coach in New York City. She helps women living with chronic illness and mental health challenges to pursue their passion projects without compromising their health.