Ways to Save Money

Do You Know These 4 Crucial Facts About Your Money? If Not, You’re Making a Big Mistake

January 19, 2016
by Dana Sitar
Contributor

Here’s a smart way to work toward the financial goals you’ve set for this year.

If you want to make progress on goals like paying down debt, saving for special occasions or making extra money, start by getting a clear picture of what’s going on with your money.

You may think you’re making good progress saving money.

But when you look at the full picture and see how quickly your funds actually would be drained if your income stopped, you might learn you’re not really on track to reach your financial goals.

To help you get the full, clear picture, Holly Johnson at The Simple Dollar lists seven things you should know about your money.

Here are the top four things you should know:

1. Your Net Worth

“We all like to think we know where our money is and how well we’re doing (or not), but seeing it in plain black and white tells a much more accurate picture,” J. Money of Budgets Are Sexy told The Simple Dollar.

If your finances are fairly simple, you can determine your net worth with a pen and paper.

List your assets — savings, retirement accounts and the major things you own.

Then your liabilities — money you owe on loans, debt or mortgage.

Assets – liabilities = your net worth.

If your finances more complicated — if you have several investment funds or other assets — find your net worth using a free calculator like this one from Personal Capital.

2. Where Your Money Goes

Do you really know how much you spend on groceries, entertainment, utilities and other expenses each month?

If you don’t carefully keep track of your expenses, a few major money drainers could cost you your savings — and, subsequently, goals like travel, a new home or a new job.

Try this family’s free budget template to get your expenses in order.

3. How Long Your Emergency Fund Could Last

Once you know how much you have and how much you spend, you can figure out how long you can last if you’re hit with a financial emergency.

“Everyone should know that their income is not guaranteed,” Well Kept Wallet financial expert Deacon Hayes told The Simple Dollar.

4. Your After-Tax Income

Do you know exactly how much you’re bringing home each paycheck?

If you calculate your budget based on your before-tax salary or wages, you’re leaving a big gap.

Unfortunately, that’s how many of us do it.

Why?

Frankly, when you’re budgeting in your head, it’s just easier to use before-tax income than to figure out how much to plan for after taxes.

If you’re paid a salary, check your next pay stub (or bank statement). Note how much money you actually bring in.

If you’re paid hourly, work fluctuating hours or rely on cash tips, use this bartender’s smart system for balancing your budget.

For more tips and to read the full list of things you should know about your money, head over to The Simple Dollar.

Your Turn: Do you know these things about your money? What tips do you have for reaching your financial goals?

Dana Sitar (@danasitar) is a staff writer at The Penny Hoarder. She’s written for Huffington Post, Entrepreneur.com, Writer’s Digest and more.

by Dana Sitar
Contributor for The Penny Hoarder

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