April Fools’ Day is a day that people either embrace (pranksters) or dread (butt of those pranks). It’s a day that we stay on our toes, ever alert, lest we fall victim to an Oreo stuffed with toothpaste or find our cubicle wrapped in aluminum foil.
As April Fools’ Day approaches, New Year’s resolutions have been left far behind, spring is in the air, and the last thing anyone wants to think about is finances. If you don’t stop and analyze the state of your finances and just assume that everything is fine, you might just be fooling yourself.
Review Your Financial Goals
Have things changed since you last looked at your finances? Perhaps your main goal was to put money aside to buy a car and you’ve accomplished that. What will you do now? Will you be buying a home sometime in the not-too-distant future? Are you on track with your retirement savings? By looking at where you want to be, you can make a concrete plan for how to get there.
Calculate All Your Debt
The hope is that you’ve paid down a considerable amount of your debt since the last time you checked things. In your debt calculations, be sure to include your mortgage and any student loan debt you have. Additionally, look at the current interest rates for every debt. Are you paying more on your high-interest debt? The sooner you pay off high-interest debt, the more money you’ll save. Now that you understand all that you owe, you can make a plan, or adjust your current plan, to pay it off. If you have high-interest credit cards that you’ve been working hard to pay on time and pay down, it’s a good time to call your credit card provider and ask about a lower rate.
Look at Your Income
You might make $60,000 a year, but consider how much you take home after taxes. This money is what you have to pay bills, buy necessities, and spend on entertainment. Is it enough; or, are you spending more than you’re taking home? Are you paying only the minimum due on your credit cards? If you answered “yes” to either of these two questions, it’s time to tighten your budget and/or get a side job to pay the bills.
Check Your Insurance Policies
It’s important to review your insurance coverage regularly. Do you have more assets than the last time you checked? Do you have fewer? Does your life insurance provide enough security for your family if it could no longer rely upon your paycheck? Do you have disability insurance in case something happens and you can no longer work? Your insurance, including home, auto, life, and medical, is an important piece of your financial health. Without adequate insurance, you may be one accident away from a financial catastrophe.
Look at Your Savings
If you have lots of debt that you’re trying to pay down, you may have the urge to put all your “extra” money toward paying it off; however, setting aside some savings is important. Otherwise, when an emergency pops up, such as an expensive home repair or an unexpected problem with your vehicle, you’ll have to put it on credit. This “one step forward, two steps back” approach will only keep you going in the wrong financial direction.
Assess Your Net Worth
Quite simply, your net worth is the total of your assets minus your total liabilities.
- Student loans
- Credit card debt
- Other loans
This calculation doesn’t include your income; it’s merely a measure of what you have after you’ve subtracted what you owe. This may be a negative number right now, but don’t be discouraged. The point of this exercise is to track your net worth over time to make sure you’re moving forward.
Re-evaluate Your Budget
Whether you have a lot of debt or not, budgeting your money will help you reach your financial goals. If you pay your bills each month including more than the monthly minimum on your credit cards and put money into savings, give yourself a high five and keep doing what you’re doing! If you’re not satisfied with your progress, look at your budget. Track spending for a month and look for areas that can be cut back. If you don’t want to do this with old-fashioned pencil and paper, download a budgeting app for your phone or tablet. Many are free or inexpensive, and some will connect with your bank account to do the tracking for you and highlight areas where you should consider cutting.
April Fools’ Day can be a fun day to fool others, but it can also be a reminder to stop fooling yourself about your finances. Look at your big financial picture to make sure you’re on track and implement changes that’ll get you where you want to be. It may not be fun but you’ll be rewarded with financial independence. As Ben Franklin once said, “The road to financial freedom is paved with cobblestones but is worth the pain in your backside.”