Are your finances in order and your debts under control? Do you spend too much? Do you know how much you should be saving or investing? If the answers to these questions are 'no', it's time you took a simple money health check to see if you are at low, medium or high risk of financial distress.
Kick start Money Week by answering the following questions:
Do you have any financial goals?
Depending on what stage of your life you are in, you will have different financial goals you are working towards. For instance, if you are below 25, you tend to either not have any goals, or wish to pay down your university loan. As you get older, your goals change - perhaps you want to buy a house or make investments. Ensure you have a clear idea of what your goals are and how you are working towards them. By doing so you are taking a key step to becoming financially healthier.
If you have some and are working towards all of them - you may be low risk
If you don't have any goals - you may be medium to high risk
If you have some but aren't working towards any - you may be medium to high risk
Are you currently employed?
If you are engaged in a full-time job, you are more likely to be able to pay off your debts and manage your credit commitment. Your income stream plays a significant role in determining your state of financial health, so ensure that you account for all money coming in and what these funds are allocated to. Any tax or income benefits should also be factored in.
If you have no full time job and no money coming in - you may be high risk
If you have a full time job - you may be low to medium risk
What are your spending habits?
You should be aware of what you spend on, how much you spend on each week/month and if that is less or more than your income streams. Spending more than you can afford is a key warning sign indicating you may be at high risk of financial distress. Additionally, if you find yourself increasingly dipping into your savings, it's another sign that you might be in trouble down the track.
If you spend more than you earn - you may be high risk
If you spend equivalent to or less than you earn - you may be low to medium risk
Do you have any debts?
Debts such as mortgages, loans, hire purchase agreements, credit card debts or fines all add to your financial burden as it means you have to make monthly repayments. However, if you are staying on top of these repayments, you should have no problems later on. But if you struggle to make the repayments and have missed a few, this may mean dipping further into your savings or worse, defaulting. A default can stay on your credit report for five years even if you pay it off in full after that.
If you pay your account off in full each month - you are low risk
If you pay the minimum amount on your account on time each month - you are medium risk
If you miss a few payments or don't pay at all - you are high risk
Do you manage your debts?
Debt accumulation is never a good thing, but if you have plans to reduce your debt, you are in a better position than those who don't plan to manage their debt. Try and make more than just the minimum repayment each month to avoid exorbitant interest rate charges.
If you intend to increase your repayments to eliminate your debt - you are low risk
If you don't intend to do anything to manage your debt - you are medium to high risk
If you don't intend to do anything to manage your debt and in fact want to borrow more - you are high risk.
Do you save?
Having savings in the bank is crucial in ensuring you're not living hand-to-mouth and that you have contingency funds for when you need it the most, or simply for that big holiday or house you are planning to buy. More importantly, having savings means you have less incentive to borrow, and hence reduces your chances of accumulating debt.
If you save regularly - you are low risk
If you save after you have made your repayments - you are low to medium risk
If you don't save - you are high risk
Other things you should also consider are: estate planning, superannuation, medical insurance, home/contents insurance and income protection. Estate planning and super in particular, are important as you enter the later stages of life, in order to retire comfortably, while asset protection means you have a backup plan in case you lose your job or are suddenly unable to work.
If you have been rated a low risk, congratulations! You are on the right track to achieving your goals if you continue to manage your finances prudently.
If you have been rated a medium risk, you will need to watch your expenses and debt levels more closely as well as create a budget.
If you have been rated a high risk, then watch out! You need to do take measures now to control your debt, reduce your spending, increase your savings and set firm financial goals.