The more I learn about myself and my finances, the more I understand that I’ve lived far too close to the edge of uncertainty. Quite frankly, there were times in my past that I actually went over the cliff but was able to hang on just enough to pull back up. I’ve gained a lot of perspective from this risky living, and I’m focused on moving back from the edge. The view might be pretty, but I can still see everything quite nicely from where I am now.
How does someone know if they’re living on the edge?
1. Are you living paycheck to paycheck?
That’s the first sign and it’s the most glaring reason you need to develop a budget. Paycheck to paycheck living ain’t fun. It’s gut wrenching and frustrating. You can’t do anything until that next payday and if you need milk, or shoes for the kids, or a new tire, you have to wait. I hated living paycheck to paycheck.
What to do?
Get your finances on a budget. You don’t have to do anything fancy like YNAB (though it is the BEST budgeting software out there in my opinion). You can draw up a spending plan with a pencil and a notepad. The point is to know how much is coming in and where it’s going for the first month, then decide where you want it to go the next. YNAB will easily help you do that but don’t neglect budgeting if you don’t have their software yet.
2. Is the straw about to fall?
You’ve heard of the camel that carried more and more and more until he was at his limit. Then a straw fell on his load and that little bit of added weight broke the camel’s back. Does that describe your checking account? Would one more monthly bill crush you?
What to do?
Either you’re going to have to sell something to pay off a bill or learn how to make extra money. There are only two inputs into your financial equation – income and expenses. The name of the game is increasing your income while decreasing your expenses.
3. Would anyone’s untimely death throw you into a financial tailspin?
Every person in your family, yes even the infants, needs life insurance. Anyone who says otherwise is either ignorant or has never experienced the loss of a child. Losing anyone you love is devastating, but when you add to it the necessary grieving process, that usually means time off from work. Would you want to go back to work the day after your child passed away? If not, get a cheap insurance policy on them.
The need for life insurance is doubly important for parents, even the non-income producing ones (for the same reasons you need insurance on a child). But if you’re the breadwinner, you need at least 15 times your salary to sufficiently care for your family should you die.
What to do?
Get a life insurance checkup. You can protect a family of four for less than $40 a month with New York Life Insurance. If you don’t want to go with them, check out other options like NetQuote or insureme.com and find another company, but don’t put it off. Widows and widowers will back me up on this one.
4. What does your savings account look like?
Face it, your savings account needs a comma (two would be nice). There are all sorts of ways to squirrel away some cash if you can get a little creative. Try reading my 17 Sneaky Savings Strategies for some ideas. No matter how you do it, you have to start saving money.
What to do?
Check into ING Direct or any of the other banks in my list of online banking options and get an account started. Then fund it regularly with consistent amounts automatically deposited from your checking account.
5. What does your credit look like?
Your credit score and report are becoming increasingly important for anything from renting an apartment to getting a job to financing a vehicle. Protect your credit reputation (that’s what it really is) by making on time payments, keeping your creditors informed about your financial situation, and not getting in over your head.
What to do?
Go to annualcreditreport.com and get your free copy. You’re entitled by law for one free credit report from each of the three bureaus per year. If you see anything that’s wrong, contest it. Don’t let your credit be damaged because of any inaccurate information. Remember, you can insist that inaccurate information be removed, but you can’t remove information that’s correct. If there seems to be some bad, yet accurate, information, try to add something positive to your credit report.
In tomorrow’s post, I’ll examine things that push you to the edge.
Photo by old not bold