Better Financial Management Using Four Simple Questions

I don’t like to spend time on my finances – but when I don’t, I get a vague feeling of anxiety:  Like what’s going to come back to bite me in the ass?  I get the guilty feeling that I should do more, but there are so many other ways I prefer to spend my time. So, while I relegate such tasks to others whenever I can, I also know there is a certain amount of accountability I owe to myself to avoid spinning out into a giant black hole.    If you’re a financial genius just skip this post, but if not, I found a place to start that might work for you.   While watching the morning news, I caught a segment called “How to Avoid Getting Ripped Off.” Author Bob Sullivan was interviewed, and while I don’t give a hoot about some of the stuff he said like, Americans stink at math – (is it even true? And if it is, how is that information helpful to me?)  he had four awesome questions that I believe everyone  should be able to answer :

1)      What is your retirement account balance?

2)      What is the interest rate on your credit cards?

3)      How much money did you spend last month? (and I would add, for the last three months?)

4)      How much money do you need to survive for three months?

I loved these questions as the foundation for managing my financial life.  Knowing the answers can result in better financial decision making:  like if I’ve been spending about $6,000 a month for the last three months on average – how much of that is fluff – versus what I need to survive? If I got a roommate and quit eating out, could I reduce the survival number to $4,000?  Then, if I lost my job I know I better have about $12,000 in savings to keep me afloat while I look for a new one!  Should I be buying on credit above my means if I am paying 17% interest on my credit card, and only earning 2% on my investments?    As you can see, applying the answers to some simple questions can help me plan a whole lot better.

In short, remember there are two variables:  how much you are bringing in and how much you are paying out.  If you spend more than you make, you may be headed for trouble – or you’d better land a higher paying job or an inheritance! To stay out of trouble: know what you’ve been spending, create a budget, and manage to it the best way you can, start to prepare (save)for the future including possible issues like job loss.  Know who is charging you what and make changes where you need to.  Pretty simple to follow – and it makes me feel a whole lot better.   Thanks Bob!  

Watch the interview: http://today.msnbc.msn.com/id/26184891/vp/34619370#34619370 or visit Bob’s blog http://redtape.msnbc.com/

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Date: Thursday, 14. January 2010 3:42
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