This post continues our Dream Series of blog posts.
You get the phone call……
“Hey, I’m lost. Can you help me find my way back?”
“OK, where are you?”
“I don’t know. I’m lost. That’s why I called in the first place! Can’t you just give me directions to get back?”
Have you been through this conversation before? Unless you were the lost person, it’s quite an amusing situation. You know the starting point is kind of important for giving the correct driving directions, and yet some people just want to skip over that part and get right to the destination.
And again we say, “Ummmmmmmm….”
Unfortunately, there are a higher number of people who have the same mentality when it comes to arriving at financial destinations. “Just give me the directions and we’ll go from there.” Unfortunately, it’s not that easy.
In our last post, we talked about setting financial goals, or dreams. Those are the destination. This time we are going to back things up and talk about where we are starting.
So do you know your financial starting point?
What’s your reputation? Credit reputation, that is. Also known as your credit report and score. Your credit reputation can affect access to loans, bank accounts, rentals, affordable insurance, employment, utilities and cell phones, and more. Is your report in good shape? Is it even accurate? You can pull your own credit reports for free at www.AnnualCreditReport.com. Just to bust two myths hurting many people out there – pulling your own report DOES NOT hurt your credit score and you DO NOT have to have debt and pay interest to have a credit reputation that helps you.
What is your net income? This isn’t the amount your employer gave you in your pre-hire interview. That’s the gross income that sounds bigger and is more likely to keep you happy. But then the government steps in for their income taxes, and there’s health care premiums, retirement contributions, HSA deposits, child support, garnishments, and whatever else coming out. All of that before you see even a penny of your paycheck. Know your NET income that you actually bring home as that is the amount you actually have to work with.
What are your expenses? One of the biggest challenges we see our clients face is that they simply don’t know where their money is going. Even when teaching classes with folks that ‘aren’t in need’ of financial counseling, very few of them know where their money is going. But they don’t have enough left over to achieve their goals. See that whole ‘starting point’ thing coming into play here? It’s going to take some tracking and monitoring for at least a month to get a good idea of where your money is going. But it’s so worth it and there are apps and things to help you with the process.
What debts do you already have? There isn’t necessarily a need to evaluate good and bad debt at this point. Just know exactly what you owe each month and total. What are the interest rates that each loan is costing you? That interest is extra money going out that could be used to accomplish your goals. Are there any debts that could be cleaned up fairly quickly, thereby improving your credit score and debt-to-income ratio? Are there any sleeper debts out there that you have ‘forgotten about’ but still show up on your credit report?
What is your current life situation? About to surprise your family with a vacation to Disney World and your wife is currently eight months pregnant? Probably not going to be a win for you. Neither pregnancy nor Disney World are inherently a bad thing, but I know my wife would NOT be happy about days of walking in the Florida heat and humidity through masses of people while eight months pregnant. What is happening in your life that is going to impact or be impacted by your dreams? Do they fit together? Or do you need to prioritize and reschedule some things? Again, not that any of those things are inherently bad. You may just need to take care of some things before you get to the others.
What other resources do you already have access to? Often times there are resources that could greatly help us achieve our dreams. We just aren’t aware of them. Want to go back to school? Does your employer offer a tuition reimbursement program? Many do. That’s free money for college. How about discount programs through your employer or other civic groups? Did you know a membership at our local zoo gets you discounts at zoos across the country? You just have to know to pull out your membership card when you get there. What do you already have at your fingertips?
Knowing where you are starting is an important piece of accomplishing your goals and dreams. It can help you get the correct directions, but may even identify a couple of extra goals that may need to come first in order to facilitate the big dreams. You won’t know until you first know where you are starting.
One free resource for you is the My Money Checkup. It’s a free, confidential, online money check up. It will take you as little as 10 minutes to go through and looks a little at how much you have, but also looks at your money attitudes. It then uses a stoplight model to identify areas of your finances where you are doing well and areas that may need a little more attention.
If you are one of those who likes to pull over and ask for directions, the counselors at the Center for Financial Resources can certainly explain where you are and point you in the right direction. You can either schedule an appointment online or call us at 605-330-2700. You don’t even have to ask for directions in person as we offer our services over the internet and phone as well. You just need to schedule an appointment.
written by Breck Miller
images courtesy freedigitalphotos.net