Many people think they are good with money and they are not. I was one of those people. As long as my bills were paid every month and I had money left over for coffee and eating out, I thought I was a boss! The truth was that I was on the brink of financial disaster. Truth be told, I still kind of am, but I am less so than I was before. It wasn’t until April 2016 when I started taking back control of my money. However, improving your financial health takes. Read on and make today your Day One.
1. You have less than $1000 in your savings account
How much is in your savings account? If it is less than $1000, you are not good with money. It doesn’t matter how much you are getting in your next paycheck. Not having savings indicates that you are not budgeting and are spending everything that you make. It means you are not working towards any financial goals. It means you are saying “YOLO” way too much.
Why is this important? If you drive a car, you know you are going to have a repair sometime soon. Christmas comes every year. I am not even going to mention retirement (yet.) If you love yourself, you will figure out a way to save $1000 asap. Maybe it’s a second job, doing some overtime, selling some stuff, walking dogs. Get creative. Having a mini-emergency fund is like water. Without it, your financial health is on the brink of destruction.
Mini-emergency fund? Yes. $1000 is something, but ideally, you would have three months of living expenses saved, but I believe that should be done after your debt is paid down. If you are thinking “but I have a credit card for emergencies,” read on to number two.
2. You have a negative net worth.
Most people have heard the term “net worth.” This is calculated by what you own minus what you owe. If your net worth is negative, you are not “good with money.” Mine was negative $30,000 not too long ago. When I realized I was $30K away from just zero, my eyes opened to how bad I actually was with money.
The only way to have a negative net worth is to be in debt. If you are “making payments,” “financing,” or “leasing” something, that is debt. It could be in the form of a car note, student loans, credit cards, collections, furniture payments, cell phones (yes I said it!) Just because you can make the payments every month, does not mean you are good with money.
“But most people are in debt and their lives aren’t ruined!” True, some people are going along their merry way making payments without problems. I ask though, what happens if you get fired or laid off? What if you unexpectedly have an emergency and can’t pay your credit card bill? What if you get scammed and your bank account is drained? You may think those things are rare, but I have been in all of those scenarios and I am only 27. If you have mommy and daddy to bail you out, good for you. For the rest of us, being in debt puts us in serious financial danger. Also, it shackles you to a job you may hate, an apartment you don’t like, or a relationship you want to get out of, because only in your current situation are you able to make the payments. Truth bombs.
So now you are panicking because you realized you have a negative net worth. What do you do now? I followed Dave Ramsey’s 7 Baby Steps. First I got my mini-emergency fund of $1000. Then I ordered my debts smallest to largest. I had been tracking my spending on Mint and used their budget tool to see how much extra I could pay on my smallest debt. I wanted to make progress faster, so I committed all of my side hustle income (house/pet sitting, retail job, consulting) to paying off debt.
Depending on how negative your net worth is, it could take some time to get to zero. However, you have to start at some point or the interest will turn your debt into an even bigger monster in the closet than it already is.
3. You have a low credit score
Unless your credit score is zero, your credit score is an indicator of your relationship with money. If it is above 700, it means that you are responsible with your finances, making payments on time, and not trying to hide from your past decisions.
There is a reason potential employers and landlords are checking your credit score. Whether you like it or not, your behavior with money reflects your behavior in general. If you are (like I was) trying to pretend that emergency room visit, eviction, Comcast bill, or credit card never happened, what kind of person does that make you? For me, it made me someone who was afraid to own up to her mistakes. Someone who was avoiding reality. That’s why my credit score was in the low 500s. The process it took to increase my credit score to 730 transformed into someone who accepts consequences for my actions and owns up to them. To learn more about how I raised my credit score, read my previous post: How I Increased My Credit Score by Over 150 points in 3 Months.
4. You have (almost) nothing saved for retirement
If we are lucky, we are all going to grow old and live long. At some point, we will be unable to work. Also, inflation is a thing and a $1 in the future will be worth way less than a dollar now. The only way to prepare for this is to start saving for retirement as soon as you can. If you are in debt and do not have savings, I suggest the Dave Ramsey method of waiting until you have your mini-emergency, eliminated your debt, and have 3 months of living expenses saved before you start contributing to your retirement fund. However, to each their own. The most important thing is to be aware that retirement savings are a priority and to be working towards contributing to a Roth or Traditional 401K or IRA. If you have no idea what those things mean and want me to talk more about them, submit a question for my Friday Q&A post and I will answer it to the best of my abilities.
So there it is, four signs you are not “good with money.” Deep breaths. If you think you need some help getting better with money, check out my Free Personal Finance Resources page. If you have a more specific question, submit a question for me to answer on my Friday Q&A post. I am not a financial advisor or anything (yet!), but I can share my experience and lead you towards the right direction.
As always, you can email me at firstname.lastname@example.org or tweet @maddymoneycash. I will always respond. Also, signup for my weekly newsletter, where once a week I will send you helpful tips, articles, and insights to help you live your best financial life. I also created a Facebook page, for the non-Twitter readers out there.