For anyone burdened with debt, fighting lifestyle creep, or overwhelmed by the current state of inflation, it’s all too easy to feel as if your finances are out of your control. Even if you aren’t drowning in debt (thank goodness), the ever-looming prospect of a recession means you are still stuck living with uncertainty.
One way to ease some of your money tension is to know the basics of your financial situation. It may seem obvious, but ask yourself—when was the last time you checked your 401(k) fees? Do you know your credit card interest rate? Do you have a plan to pay off your debt?
When we live in states of anxiety or uncertainty, we make worse financial decisions. In order to improve your relationship with money, it’s important to take stock of what information you have—and what information you should have—about your personal finances. Here are some questions you should be able to answer if you want to feel like you’re on top of your money.
Do you know where your money is going?
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In other words: Are you tracking your spending habits? Being oblivious to where your money is going is a major red flag for your finances.
To be a more conscientious spender, start by looking at your bank statements for at least the last 90 days. After looking over your spending, you’ll likely discover areas where you can cut back, as well as areas you didn’t even realize you were overspending (for example, overlooked and unnecessary subscriptions you don’t actually use).
How much debt do you have, and how long will it take to pay off?
If you don’t have a good idea of your total debt and how long it will take to pay off, that means you don’t have a plan to pay it off. And you should. Your plan should detail how long (in months and years) it will take you to pay off your debt, and when you plan to increase your payments. If you’re married or in a long-term relationship, you need to know how much debt your partner has, because it affects you, too. Some debt (like student loans) will take you a while to pay off. It’s important to start taking steps now to get your repayment plan in order.
How much money is in your savings account?
This may seem like an easy thing to answer, but when was the last time you looked at your savings account balance? Knowing how much you have stashed away will clue you into your spending habits and allow you to make a plan (yes, another one) for building up your cash cushion.
If you already have more than a few months’ worth of expenses stashed away, you may consider moving some of it into an IRA or a brokerage account or putting it toward some other goal. If you’re part of a couple that shares finances but you let your partner handle everything, this is doubly important. You need to know how much you have. It’s the first step to financial freedom.
What’s your credit card balance? And what are the interest rates on your credit cards?
Chances are you don’t use cash for many day-to-day expenses. It’s easier to swipe a plastic card or transfer funds via an app than it is to hand out bills. And that means it can be easy to thoughtlessly overspend.
It’s important to keep a handle on your credit card balance each month. You can usually get transaction and balance information texted to you, or make a habit of checking your bank’s app every day. To maximize your credit score, try not to go over 30 percent of your limit, and pay it off throughout the month.
If you can’t pay off your credit card bill every month—hey, life happens—you need to know how much interest you’ll be charged. This will help you prioritize which debt to pay off first (the highest APR), which card to use in an emergency (the lowest APR), and it could encourage you to look for a card with a better rate overall.
What are your 401(k) fees?
This isn’t one you necessarily have to memorize, but you should look at the fees when you’re signing up for a 401(k) and setting your contribution rate. Even a seemingly small difference in fees (say, 0.25 percent compared to one percent) can make a big difference over the course of 30 years. Not only because the fee eats an ever-larger chunk of your savings, but because those losses compound.
What should your fees be? Anywhere between half a percent and, on the high-end, maybe three-quarters of one percent. And “all in” means not only the fee charged by your plan provider (say Vanguard or Fidelity), but by the mutual funds that you invest in.
So check out your fees, which most companies provide on their websites. And if your employer doesn’t provide enough low-fee options, consider opening an IRA instead.
How much money do you want to make?
Money isn’t everything, and countless factors outside of our control influence how much we make. Working more simply to make more money is no way to live. That said, it’s worth setting goals and having something to aspire to. In your financial life, having a number in mind for what you’d like to be making can help you make career decisions and, ultimately, make a better life for yourself.
Ask yourself: What are you working toward? If it’s financial independence, well, you need to make a certain amount of money to be able to save enough to retire early or strike out on your own. If it’s for your family, they have needs and wants that all likely cost money. Only you know what that figure or range is. It should be flexible, and you shouldn’t beat yourself up if you don’t achieve it by X date (again, you can’t control everything).
It’s easy to let uncertainty about your finances spiral into fear-based decision-making. It can help to zoom out and focus what you do know about your financial situation, so you have the confidence to keep making smarter financial decisions down the line.
This post was originally published in March 2018 and was updated on Aug. 8, 2023 to include additional information and updated links.