How Much Do You Really Know About Your Finances?

by Travis Pizel · 9 comments

checklistHow well do you know your own finances? If you want your financial machine to run as efficiently as possible, there are some critical pieces of information you absolutely must know. Without that knowledge you run the risk of overspending, your investments can’t possibly be working for you as hard as they should be, and you won’t even know how to improve the situation because of lack of information.

So, how much do you really know about your finances?

Your Take Home Pay – Could you write down how much you earn per year, month, and paycheck without looking? Do you at least know how you could find that information if you had to sit down and build a budget from scratch?

Monthly Bills – Do you know how much your monthly bills add up to? Remember that some bills may be variable while others are billed less than once a month so calculating all the details isn’t as easy as at first glance. Can you name all of them, their amounts, and when they’re due?

Checking Account Balance – Do you know the current balance of your checking account? If you were going to make a purchase, would you know if you have enough money in the bank to pay for it? When was the last time you reconciled your checking account?

Credit Card Balance – What is the total balance of all your lines of credit? If you have consumer debt, you should not only know how much you have but you should also have an executable plan to pay the balance off.

Mortgage Interest Rate – Mortgage rates have been low for years but not anymore. Do you know the interest rate of your mortgage? If you know your current rate and frequently check the current rates, you may find an opportunity to refinance even if the rates are higher than they have been in the last few years. The key is to look at your whole financial picture and make an informed decision.

Investment Balance – If you’re saving for the future and we all should be, you should know the value of your investment portfolio. The contribution rate as well as the performance of those investments should also be periodically analyzed to ensure that they are on track to meet a person’s long term financial goals.

Before you set off on a mission to answer all these questions, gathering the information outlined above for the sake of knowing it doesn’t do you any good. But if you do know all this information, it’s indicative of someone who doesn’t just let their finances run on auto-pilot. People who can answer all these questions are likely actively engaged with their financial health and have taken the following actions to give themselves the best chance to be financially successful:

  • Budgeting: If you know your income and your monthly bills, you likely have a monthly budget and have reviewed it recently. Having a budget and sticking to it provides a solid foundation for sound finances.
  • Track Spending: If you know how much money is in your checking account and know how much of your monthly income your bills consume, you probably track your spending. There’s a saying, “You can’t fix what you don’t track.” Tracking allows you to easily identify things you might want to change about your spending habits.
  • Always Looking To Improve: Knowing your credit card balance and your mortgage interest rate indicates that you’re mindful of your debt. It’s also a good first step in looking for ways to get rid of it. At the very least you’ll get ideas to pay less interest.
  • Planning for The Future: Paying attention to your investments suggests you have an eye towards the future. We all want to retire someday, but to do so there has to be adequate money tucked away. Just remember that time in the market is key to financial success so practice staying the course instead of always trying to tinker.

So how did you do? How much do you know about your finances? Do you have anything else to add to the list?

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{ read the comments below or add one }

  • Ron says:

    One area that you didn’t seem to mention are short and medium term savings goals. For example, my VoIP provider bills annually, so I need to save monthly for that, and keep track of it. Ditto satellite radio and the pest control company. The kids are in parochial school, wife’s taking a class at the local JuCo, Christmas Club, property taxes, kids are going to need a car, job loss and rainy day funds, etc, etc ad nauseum.

    We used to have a plethora of savings accounts, but now just two savings accounts (one with essentially 0% interest at the same bank with our checking and CC accounts) and another at CapitalOne 360 that has most of the cash.

    On any given day, the sum of those two accounts *must* equal the sum of a NINETEEN COLUMN spreadsheet tracking all the different things that we’re saving for. I “look forward” that spreadsheet too, since I know how much we save, and when most expenses are due.

    • David @ says:

      One time expenses often trip up people. And it looks like you have a sophisticated spreadsheet working for you there Ron. Good job developing it to suit your needs.

  • Ron says:

    “Your Take Home Pay”
    “Monthly Bills”
    “Checking Account Balance”
    “Investment Balance”

    No, but… spreadsheets, which I keep up-to-date. One of them is my checking account balance (no surprise there!), but it always *looks forward* to the bills and deposits that will be made in the remainder of the current month, *and* the next month. (Forecasted bill amounts — including food, fuel, restaurant and “other” — are based on known previous bills, and I manually level my electric and LPG bills. Food, fuel, etc, go on the CC — tracked on a different tab of the same spreadsheet — which I pay a couple of times a month.)

    The CC tab is linked to the cells in the checking account tab where I’ve budgeted for food, fuel, restaurant and “other”. Thus, every time that we buy groceries, fuel, etc on CC, the remaining balance for that budget item is updated, and thus we can’t *unknowingly* overspend.

    • Travis says:

      Sounds like you’re definitely actively engaged with your finances, Ron. I have no doubt your finances are in great shape!

      • Ron says:

        “I have no doubt your finances are in great shape!”

        Only because we hit a metaphorical rock bottom. For most of our lives, we just coasted through, spending what we wanted to when we wanted to while occasionally heaping wads of cash at the CC balance. It was only in Feb-2012 that we even pretended to get serious.

        One *big* help in formulating a usable budget was to stop using cash and CC on “day to day” stuff, and stick *solely* to a debit card. Not only did it let us track the checking account balance, but also developed a spending history.

        I then downloaded 3 months of checking account history and categorized all of it. That gave us the *real* monthly budget from which I could develop a “within our means” budget that we could reasonable live with.

        • David @ says:

          Good to hear that you are getting serious about improving your finances. As long as you keep up the “fire in your gut” to continually improve your financial situation, then you’ll be in great shape.

  • Mr. Groovy says:

    Hey Travis – Very important stuff! You suggested knowing user names and passwords in your other article about whether a significant other could take over finances. I’d like to add here that we could not effectively track our finances without the use of a password generator. They’re fantastic at coming up with complicated user names and passwords. However, we rely on them even more for storage. Without having a good place to keep credentials, we’d end up locking ourselves out of our accounts (and yes, it has happened).

    • Travis says:

      I might have to look up a password generator…I have to change my passwords every 90 days at work, and sometimes it’s a struggle to come up with something. 🙂 Thanks for stopping by, Mr. Groovy!

    • David @ says:

      Good reminder. I’ve been thinking of buying one for years but then I keep wanting to cheap out. I think it’s finally time to get one that works across all my devices!

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