FTC: This post is not sponsored and I am not a financial advisor. All thoughts and opinions are my own.
Finances can be extremely difficult to talk about and figure out, but there are some basic things that can make it a lot easier to navigate. Once you’ve got these 7 important things to know about your money under control, you’ll see that you’re capable of figuring out much more complex money conversations. Budgeting, savings, 401Ks, IRAs it can be a lot fo figure out and overwhelming to take part in. Don’t even get me started on the economics of the stock market.
But before we get ahead of ourselves, let’s dive into these 7 important things to know about your money, so you can get all your things in order. Enough rambling… here we go.
7 Important Things To Know About Your Money
1. Your Net Worth:
It’s hard to remember if I’ve mentioned the importance in knowing your net worth before, but it is a crucial if not a pivotal piece of information that will impact many of your financial decisions moving forward. And seeing as most people do not know their net worth, it is my honor and duty to inform you of what it is, how often you should check it and why you need to know it.
So what is a net worth: Your net worth is the measure of wealth of an entity, person or corporation. it is calculated by what you own (your assets) minus anything you owe (your liabilities). Your assets include your cash in the bank, your home, your car, and any stocks/bonds/ retirement funds you may have. You want to have a positive net worth therefore paying off debts help move your net worth in the right direction.
Why do you need to know your net worth: Knowing your net worth gives you a clear view on your financial situation. It is a snapshot of just how far you’ve come and how far you have to go towards achieving your financial goals (more on that to follow). The financial picture of yourself that you gain with your net worth helps put several things into perspective. This allows for you to better manage your money, understand whatever debts you may have accumulated, and builds awareness on what steps need to be taken to achieve your financial goals.
There are several apps and websites that can help you calculate your net worth, but you can also go the old school route and use good old fashioned pen and paper.
2. Total Amount Of Debt
We just came off of our net worth high, so it’s only right we talk about a bit of a low. Debt is a major liability that takes away from having a positive net worth. Before purchasing my first home (I Paid Off My Student Loans And Bought My First Home) I had a positive net wroth for about 5 minutes. It felt good… it was a good five minutes for sure. But once I signed the papers at my closing, I formally jumped back into the debt circle with a full fledged mortgage.
The more I pay down that mortgage and keep my credit cards low/ at a zero balance, the better shape/health my net worth will have. Now why am I telling you all of this, because I know the full amount of debt I currently have. Just about every moment of the day I know exactly how much I owe to my lending bank. This helps me stay focused, and chip away at those debts with purposeful intent.
You don’t want to just stop at knowing the total amount of your debt, you also want to know your interest rates, your payment schedule, and what your payment options are. For example do you get penalized with a fee for paying off your particular debt early? Can you refinance for a better interest rate without extending the life of your loan? How long will it take you to re-pay this debt at this particular payment plan? With all this wealth of knowledge at your fingertips, it will be a shame to leave it up to the lending company to control how your money gets repaid back to them. Grab debt by the horns my dears… trust me.
3. Your Financial Goals
I know this sounds like a huge “duh” moment but the fact of the matter is… you need to not only have a fleeting idea of what you want to do with your money, you want to have goals and a plan for those goals.
My current two financial goals are to stock up my emergency savings account to cover my expenses for a year. My second financial goal, is to pay off 10,000 dollars minimum towards the principal of my mortgage. When I was paying off my student loans I focused all of my attention on saving enough to pay off huge chunks of the principal to really make a dent in the balance. My intention is to do the same thing in the same manner for my mortgage.
In knowing what my specific financial goals are, and having a loose plan I am able to direct my money into the right areas and avoid impulse buying. By reminding myself of the plan at hand, and keeping my financial goals at the forefront I am able to really focus in. Do I stumble… uh hell yeah… but the goal at least keeps me honest with myself more often than not.
4. How Much Money You Are Saving
I know in this list of the 7 important things to know about your money I’ve said that everything is crucial, and I’ll probably say that for the rest of the items on the list as well… but you need to know how much money you are saving and you need to know now ! A lot of times people think they’re saving more than they actually are (wait til we get to #5’s revelation about spending) when in reality in comparison to what they are bringing in, what they are spending on necessities and non essentials they aren’t saving quite enough.
As a safe starting number you want to try and save 10% of what you bring home after taxes. What you do with the other 90% really is your choice… though I’d imagine bills make it hard to really choose on your own. But starting out with 10% will get you used to saving or working with less “play money” Take a look at how much money you’ve put away and think about if you can put a little more away in order to reach your financial goals.
5. How Much Money You Are Spending
The year before I moved out of my parent’s house I started tracking every single dollar I spent publicly on Instagram. This way I stayed honest and also tried to spend less so I wouldn’t look bad online. I had no idea just how much money I was spending and when I started to write it down it was a complete shock to me.
By calculating how much money I was spending on am monthly basis I could see where my money was going, and see where I could make some essential cut backs to avoid over spending and save more money It was obvious my trips to Wendys and Pizza Hut had to go…. or at least be dropped down drastically.
6. What Is your Take Home Pay
While you’ve calculated how much money you are spending, and how much money you are saving you might as well add one more column to your sheet of paper (or your app… depending on how you’re doing this). You need to know how much money you are bringing home after taxes so you can see just how far your money can stretch before you have to make other arrangements.
When I realized how much (or how little I should say) money I was bringing in and I knew that was the time to get my ass up and start side hustling. If I wanted to achieve my financial goals by a certain time, that I had increase my monthly income. Because despite what people will tell you… you’re not going to become a millionaire or save thousands of dollars by cutting out Starbucks.
7. Your Credit Score
Oh yes my friends… I saved the best for last. I’ve been talking about the importance in knowing your credit score for quite some time and I am here to talk about it again. Many people say credit scores are just random arbitrary numbers and they don’t really mean anything anymore. Ehh… that could not be more wrong. (How To Get An 840 Credit Score)
Not only should you know your credit score, you should also know what items are listed on your credit report. You may find things that don’t have anything to do with you, or things you thought you had removed. Credit reports can be very tricky and it is important to stay on top of them, especially if you are going to be making major purchases in the near future.
Because you don’t want to be surprised or scrambling last minute to get things sorted out, I recommend checking in on your credit score at least once a month, and your credit report once a quarter. I believe you get one free credit report a year, and many sites/ apps and banks will provide credit reports free of charge.
If you found this post helpful don’t be afraid to share with your friends, family and nosey neighbors. And if you’re looking for more money talk and financial literacy preparation join the tribe here and start off with the 8 week challenge to save 1,000 bucks!
Until next time,
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Hey there! I’m Melissa, co-founder of Trials n Tresses, natural hair and beauty lover, binge tv watcher and lover of life. When I am not creating content for TNT, I’m busy teaching the future of society.