American Business Collections Monthly Blog
by Danielle Pergament
Regardless of your age or income, there are steps you can take to ensure you live comfortably - and without fear of debt. If you can answer each of the questions below, then you're on your way to financial security.
1. Are you making progress?
How much do you earn, how much do you owe, and how much do you own? Examine these numbers once a year to figure out if you're headed in the right direction. What you earn and what you own-mutual funds and your home's value, for example - should go up, and what you owe should go down.
2. What's your credit score?
This is a barometer of how responsible you are. A good score is 720; a great one is 760. If yours is below 660, you need t improve it. Pay your bills on time for at least six months, don't get any new cards, and use only 10 to 30 percent of your credit lines. The longer your relationship with a credit card company, the better - Never close a credit line six months before you want to buy a house or a car.
3. What are your interest rates?
Know the rates you're paying on credit cards and mortgages and what you're earning in interest, especially if those reates adjust periodically.
4. Are you saving?
To be prepared for both retirement and a rainy day, you need to save 10 percent of your pretax income from the time you first earn a salary. If you start late say around 35, you need to set aside at least 15 percent. In other words; Learn how to live on less than you earn.
5. What's your emergency plan?
In the event that something happens to your main source of income, you need a financial cushion of three to six months of living expenses.
6. What is your retirement goal?
Fidelity recently came up with a scale that says you need to have saved eight times your income by the time you retire. Fidelity.com also has a calculator that tells you how much you should have at every year.
7. Are you risking too much?
As you get older more of your assets should be invested in bonds, which are lower risk. A good rule of thumb; The percentage of your portfolio that's in stocks should be roughly 100 minus your age. If you can remember to rebalance your accounts yourself, great. But if not, you should have money in a fund that readjusts automatically over time.
8. Are you protected?
If you have dependents, you need life insurance, and if you own a home, you need a homeowner's policy. Once you have assets, you should have a will as well.
9. Do you have a dream?
Studies show that if you have a tangible goal min mind, you're more likely to save for it. I have a photo of a house I want in Long Island - It's my dream beach house, and I may never own it, but I know exactly what I'm saving for ; )