Debt is so widespread in America that most people are reeling under the pressures of poor personal finances. According to statistics, 77% of US households deal with some form of debt, which has remained for years. Fortunately, you can get a grip on your personal finances by asking yourself a few questions and making changes based on the answers. They are crafted to draw your attention to the various factors that could impact your financial life. Here are a few to start asking yourself.
1. Do you save enough for retirement?
According to a report, less than half of Americans can say they have enough funds saved for future retirement. Working Americans below the age of thirty-five have saved approximately $13,000 for retirement. The 2021 report also showed that working individuals in their late teens to twenty-nine have pension savings below $10,000. Meanwhile, 25% of Americans between the ages of twenty-five and fifty-five have saved nothing for retirement. If you identify with any of these groups, it would be in your best interest to ask if you’re saving enough.
Generally, the statistics are not encouraging since retirement has many problems that require financial support, but there is room for improvement. The amount you contribute now to your retirement funds will determine how much you will rely on when you finally retire. The higher monthly sums you put into this fund will yield more financial results when the time comes. It’s not too late to calculate how much you will be worth when you retire and make contributions. For instance, if you are thirty years old and just started saving towards retirement, you will have thirty-six years left to do so. Therefore, if your monthly contribution remains at a constant of $500, you will need to multiply that by twelve months (one year). That gives you $6,000. Now, multiply this annual amount by thirty-six years; the total is what you will have when you retire.
2. How do you intend to clear your debt?
Financial experts say there are two types of debt; good, like a mortgage, and bad debt, like risky and unsecured borrowing. Bad debt is usually accrued through the indiscriminate use of credit cards. Unfortunately, many Americans have compounded so much credit card debt that they have a murky financial situation. Data indicates that the average person’s credit card debt is $5,313. The longer it takes to pay, the more interest is accrued.
If you believe in the myth of right hand itching, maybe you will have money come in to offset your debts. However, on a more practical note, it would be wise to devise a plan to start paying them off. Due to the complexities involved, it is recommended to seek sound financial advice to determine which debts to pay off first. In some situations, a financial advisor may ask you to declare bankruptcy. However, this only provides temporary relief from existing debts. The downside is that it will show on your credit report for up to ten years.
3. Will you move houses in the future?
This has got to do with future lifestyle changes regarding your home. Managing a large house in your older years can be financially tasking. And if you paid for your house outright and don’t have any mortgages to pay off, the best option for you may be to downsize when you have an empty nest.
Another scenario to consider is if you secured a two-bedroom house before starting a family. At some point, you may have to move into a bigger home when your family expands. Moving houses is often a priority for many households. It is capital-intensive and requires adequate planning and funds. Moreover, because of the increased chance of these life situations influencing your personal finances, it is important to have a strategy in place.
4. Do you exceed your monthly income?
Over 64% of the American population admits to living on one paycheck to the next. Even with that, people still exceed their monthly income by relying on credit cards. Subsequently, what happens is a cyclical debt pattern. Financial studies show that when you exceed your income every month, it creates a snowball effect. In other words, your borrowing increases gradually until it becomes an albatross around your neck. If you find yourself doing this, the first issue you must resolve is that you aren’t living within your means, and creating a practical budget based on your lifestyle is the first step in the right direction.
