A Balanced Financial Life
Let us imagine that you were to hire a professional financial analyst to come to your home and look over your finances. What the person will say to you will vary depending on your situation, but in general you will hear at least the following:
- You should have a clear set of financial goals that you are working toward
- You should make more than you spend, not just on a monthly basis but across the year
- You should be carrying no credit card debt
- You should have a three to six month “safety net” – financial reserves that let you weather unexpected financial storms
- You should be saving for retirement. The earlier you start the better
- You should have a will
- You should have life insurance if other people (spouse, children) depend on your income
These are the fundamental elements of stable financial life. If you are going to “control your finances,” this is where you start. You may find that you are lacking one or more as well.
Why are these elements important? And why were you never told about them if they are? It is an odd thing, but for some reason there is very little “financial education” that occurs in this country. That is probably because, for most people, the education would be totally meaningless in high school. If you took a 17 year old high school senior and started talking about retirement, wills, life insurance and credit card debt in a high school class, it would all be totally meaningless. This sort of information has no relevance until you turn 23 or 24 (or even 33 or 34) and have been working for a while.
These elements are important because without them you live a life of financial randomness. You lack control, or even a basic understanding of where your money is going. If something goes wrong, you have no reserves to fall back on.