Assess Your Current Location
So where are you on the financial roadmap? Knowing where you are and how
you’re progressing toward your goals of building assets or paying down debt
helps you focus on your financial resources and obligations. Consider each of
the following three levels and find out which one best describes your financial
situation.
Level 1: Shaky
Are you always feeling off-balance in your financial life? You’re at the Shaky
level if one or more of these statements apply to you:
- Your employment or retirement income sources don’t provide regular
and sustainable income.
- You’re unable to save any part of your income.
- You need to use credit to provide for regular living expenses (food, rent
or house payment, and so on).
- You have significant debt payments.
- Your net worth is decreasing year to year.
If you’re Shaky, it’s difficult to weather any financial environment, let alone
an uncertain one. Shaky individuals need to either increase their income or
decrease their expenses, fast. Sometimes, you may need to take an extreme
action to increase your financial stability, such as selling your home to produce
a more manageable housing expense; selling a nice but too-expensive
car; getting a second job; or going back to work if you’ve taken time off. Pay
particular attention to Strategy #4 and Strategy #11.
Level 2: Stable
Stable individuals feel comfortable about today but may not be prepared for
any changes in the future. If you’re a Stable individual, many of these statements
describe you:
- You have regular and sustainable income.
- You’re able to break even or even save a little every month.
- You have auto and homeowner’s (or renter’s) insurance but no other
significant insurance.
- You don’t have significant amounts of consumer debt.
- You don’t know how much money you need for retirement.
- Your net worth is level or slowly increasing.
If you’re a Stable individual, you may be setting yourself up for some tough
times if things get turbulent. Because you’re not struggling to get from paycheck
to paycheck, you feel okay about your current location on the financial
map, but a single devastating event can send you off course. It’s time to move
to the next level, where your net worth is increasing noticeably every year (or
if you’re retired, continuing to increase or at least stay at a level that’ll meet
your needs). For now, make sure you read the strategies in Part I of this book.
Level 3: Secure
If you’re a Secure individual, you not only live within your means today but
also plan for the future. The following statements describe you:
- You have a cash account with at least three months of expenses to use
in case of financial emergency.
- You know your most significant financial risks and have plans to deal
with the unexpected.
- You save for major purchases, such as automobiles and college education,
to reduce or eliminate borrowing for them.
- You have a growing retirement portfolio (or if retired, you have a plan
to invest and spend down your portfolio). You know how much money
you’ll need for a comfortable retirement.
- Your net worth is increasing regularly toward your ultimate goals.
Secure individuals have the best ability to weather the ups and downs of
an uncertain economy. But even Secure individuals have some areas where
they could improve their planning for volatile times. If you’re in the Secure
category, make sure you read through Parts II and III, and read the strategies
from Parts IV through VI that most apply to you now.
