Top 4 Things Everyone Should Know About Their Finances
November 22, 2009 – 2:10 amI listen to one hour of the Dave Ramsey show each day I workout, and it drives me crazy how many people that call in who are overwhelmed and yet don’t even know the most common values. I do know what it feels like to be in debt and behind on bills, but I still find it hard to believe that people don’t even know how much they earn.
Below is a list of the four key things everyone should know at all times:
- Monthly (or annual) income. Ideally you should know both your gross and net income, but in a pinch your net income (i.e your take-home pay) is the most valuable of these two choices.
- Total Debt Outstanding
- Average Fixed expenses (rent or mortgage, minimum debt payments, insurance, utilities, etc).
- Expected savings or spending overage.
If you think about it, this is essentially a very basic budget.
Gross Income
-Taxes
=Net Income
-Debt Payments
-fixed payments
-savings (hopefully)
=0
Budgeting doesn’t have to be complicated, although I am an advocate of keeping a detailed budget if you truly want to make quick progress towards your financial goals. I’ll be expanding on the topic of budgeting in future posts, including how my wife and I budget and some of the benefits to keeping a detailed budget.
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5 Responses to “Top 4 Things Everyone Should Know About Their Finances”
Nice tips. I will follow these.
By IM on Jan 11, 2010
Thank you for this. Nice little reminder to keep finances on track.
By Sabra Duffiney on Jan 12, 2010
Most people do not know how to handle their finances, thats the problem.
By Stocks on Wall Street on Jan 13, 2010
Interesting post! Lot’s of people do need help budgeting better!
By New Zealand on Jan 19, 2010
To be more specific, this amount should be documented in the budget. To know it by heart is overkill. The only numbers you should know by heart, is how much are you saving and how much you owe. If you owe more than in your savings you need to do something. Outside of that, as long as you don’t purchase things impulsively, you should be OK as long as you have a budget. If you purchase things impulsively or on credit, I would have to agree, you need to know these four numbers!
Why do I need to know this information? Because I want to charge something or take out a loan. STOP BORROWING MONEY! I have one loan, my mortgage. I also charge money from time to time. Recently I charged a new garage door ($2000) to my credit card. But guess what? The credit card is charging me 0% interest on new charges and I also have $4,000 in the bank. I am earning interest on my money, not much but something, and I am paying for the door with money I have in the bank. I lose my job – I can pay it off at 0% interest – free money. Otherwise – don’t borrow a dime! It is not worth it! If you don’t borrow, you don’t need to know all these numbers, you just need to be able to figure them out before you buy anything that requires a loan.
By The Realist on Jan 31, 2010