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Harris-Courage & Grady, PLLC Nov. 11, 2016

Regular checkups are important in many areas of our lives. We take our cars in for regular maintenance and visit the doctor to make sure we’re healthy. Checkups can identify problems while they are still small and easy to fix.

Follow these steps to determine if your finances are in a healthy state.

  1. Calculate your cash flow. Cash flow is calculated by adding up your income and subtracting your spending. When you make or update your budget, you should also check to see what your cash flow is. When your income is greater than your expenses, then you have a positive cash flow. When your income is less than your expenses, you have a negative cash flow. If you have a negative cash flow, then you’re likely getting deeper in debt every month. In that case, it’s time to make some changes to how you earn and/or spend your money.

  2. Examine your savings. Recommended savings amounts vary, but experts agree that it is important to save something each month. If you’re not in a habit of saving, now is a great time to start. Set up a new account for savings, and start depositing.

  3. Check your insurance. Lack of insurance during a crisis puts a lot of people into bankruptcy. Everyone should have insurance, including life insurance, health insurance, disability insurance, homeowner’s or renter’s insurance, and automobile insurance.

  4. What’s in your emergency fund? Do you have enough savings to get you through a temporary lapse in employment, an unexpected illness, or another unexpected challenge? An emergency savings fund will keep you from having to go into debt when those challenges arise.

  5. What’s in your retirement account? Are you feeling comfortable with the amount you have saved? If not, it may be time to increase how much you are saving. Even a small increase can add up significantly over time. Once your money is in your retirement account, LEAVE IT THERE UNTIL YOU RETIRE! Retirement funds are protected during bankruptcy, so never use retirement funds to pay debts. In addition to losing your retirement money, you’ll pay tax penalties if you withdraw the money early.

  6. What major expenses are coming your way? If you know that your car or a major appliance is nearing the end of its life, you should be saving up to buy a replacement. Plan ahead so you won’t have to resort to debt when you need to make that big purchase.

Hopefully your answers to those exercises above leave you feeling good about your financial situation. If not, give our office a call. We’d love to help you develop a plan to deal with your debts and become financially healthy.