Are You Financially Fit?

Today’s financial climate has brought on a new way of thinking about money. The past few years have manifested strong desires to rid ourselves of debt, build our wealth, and start living a financially prosperous life.  But with the current economic climate, how do we get there? Our money editors at Cotton Candy want you to take on, overcome, and surpass anything that may be hampering your financial freedom. So be honest; are you financially fit? We’ve listed a few calibrators that may help you gauge what steps you may need to get control of your financial future.

Could you survive financially without income for at least six months?
An emergency fund has become more than a convenience; in 2013 it’s a must.  Cash reserves are necessary in case of job loss, lessened work hours, or a decreasing amount of clients. And what takes time to build will take time to replenish. The National Foundation for Credit Counseling (NFCC) says 40 percent of adults in 2012 were saving less than the prior year, and 39 percent didn’t have any savings not related to retirement. Now is the time to generate a rainy-day fund, a fundamental part of your financial health. Add up what you need for monthly living expenses such as food, mortgage, car maintenance, utilities or even a major medical expense or home repair. All of these expenses happen whether you are generating income or not, so it’s best to be ready if the day comes you need your emergency fund.

Are you saving less than 10 percent of your pay?
Those of us in our 20s and 30s have a major asset when it comes to saving: time.  According to Center for Retirement Research at Boston College, someone who is 25 years old needs to save at least 7 percent of her income to retire by age 70. Want to retire at 65? Then you need to up the ante to save 15 percent of your income.

Is your mortgage payment more than one week’s salary?
Some financial planners use the one-week salary measurement as a loose guide to help people decide if they can afford their homes. One week’s salary would amount to a quarter of your income, and ideally this number would be at the top of your range. Of course the cost of a house is more than just the mortgage, including upkeep and maintenance. So another way to decide if you can afford your home is this; spend 35 percent of your income on your home or less each month.

Has your credit card balance has remained the same for the past year?
Credit card debt is an expense kind of debt that is not tax deductible, and unlike a mortgage, isn’t debt taken on for an asset that could appreciate or add to your wealth. If you are keeping the same balance, or even worse, increasing your balance each month, these are sure-fire signs you are living beyond your means.

Do you use one credit card to pay another credit card’s balance?
Of course it only makes sense to transfer a high balance on credit card to a lower or zero percent card. Why pay more money on your debt when you don’t have to? But if you are transferring one balance to another credit card and never make any progress on your debt, your personal debt limit might be too large for your income.

Do you pay an overdraft fee on your checking account every three to four months or more.
Overdraft fees here and there are not definite indicators that you are living over your means. Mistakes happen. But the repetitive occurrence of overdraft fees is a problem. Take charge of your checking account, and know what you have before you swipe.