Am I Financially Normal?
The scariest question to ask yourself is “Do I have enough money?” I get this question from my clients often, and it is hard for me to answer because everyone has a different definition of normal. That’s because normal when it comes to money in America is being in debt.
At one point in life, you may be in debt, even if it is temporarily. However, you don’t need to stay in debt. Debt is something most of us have carrying around like extra weight. We don't need it, but we have gotten so used to it being there it just stuck. Now, we may have so much debt it is overwhelming to know where to begin.
The first step to establishing this "Do I have enough money?" question is figuring out how much money in the bank you have that is not yours. That's right. How much money do you owe someone else? If you have a mortgage, car payment, or student loans, you're in debt. It may not seem like it because you have money in the bank but asking yourself one question may put your finances into perspective:
"If all of my creditors came to my doorstep this morning would I have enough money to pay them?" If the answer is no, then you need to start developing an action plan.
One of the best tools that you can use to figure out your overall net worth is personal capital. Personal capital combines all of your accounts and gives you a real-time evaluation of your net worth. Net worth is your assets minus your debt. From there, you will know if you need to take action to change your current trajectory. Having enough is when you no longer have debt, and you are working towards a savings goal.
If you are in debt like so many others, what you need to do first is start an emergency fund. Why? If you can believe it, once you start paying off the debt it might get addicting. You may devote every penny to getting that debt down. You may even take on odd jobs or a side hustle to support your pursuit of being debt-free. Then the unthinkable happens. Your car breaks down. What are your choices?
Put it on a credit card - you have already paid every dime to your creditors.
Ehh...that's about it.
So, now you are back in the same situation of being stuck in debt, this where an emergency fund comes into play. An emergency fund is a separate account from your regular checking or savings that is to use only for emergencies, and I mean just for emergencies. It is a buffer so that you don't have to put it on a credit card and keep yourself out of debt.
An emergency should be able to cover 3-6 months of your family’s expenses. Most banks have hassle-free accounts that you can open without check writing privileges but have a debit card attached. This is a perfect account to store your emergency fund. You should have an emergency account whether you are in or out of debt. If you are in debt, it keeps you from a further hole. If you are out of debt, it keeps you from getting into it.
An excellent way to gauge if you should use the money is this:
is it unexpected?
is it urgent?
is it necessary?
An emergency happens every couple of months. So, instead of thinking that a crisis won't occur, you will be prepared for when it does. So, there you have it. Your work is cut out for you! Trust me, you do not have to be financially normal.