Getting to financial peace of mind is a schizophrenic activity.
On the one hand, we’re told we ought to stay present … “live in the present.” And living in the present, especially if finances are tight, means every time we have a good intention about paying down our debt or setting money aside for retirement, something in our everyday life rears its head and distracts us.
On the other hand, there are moments when we can clearly hear a song blaring in our heads and it starts with, “Don’t stop thinking about tomorrow … ”
That contradiction dramatically increases the odds that we’ll live in constant anxiety about having financial peace of mind today … and financial security for our many tomorrows.
So, to give you an easy measure of whether you’re on your path towards control over your finances, I’ve selected seven questions for you to answer. Once you’ve done that, then decide if you should pat yourself on the back … or stop finding excuses and get serious about bringing your finances under control.
Here are those “financial peace of mind” questions:
- What dollar amount do you have in your “rainy day” emergency fund today, to cover a blown car transmission, an uninsured accident or whatever? $__________
- If something were to happen to your income source, how many months of expenses do you have saved in an easily accessible place? (That is, not as equity in your house or some other non-liquid assets.) _____ months
- What is the total amount of all your debt, excluding your mortgage? $__________
- If you made it a priority, how long would it take you to pay off your entire debt (excluding your mortgage)? _____ years _____ months
- What percentage of your annual take-home pay do you owe on your car(s)? _____ percent
- How much do you have in your retirement accounts (IRAs, SEPs, etc.)? $__________
- Are you putting 10-15 percent of your gross annual income into retirement savings? __ yes or __ no
My purpose here is not to give you formulas or targets. Instead, the purpose is to give you a clear snapshot — that you yourself can interpret — of how well you’re doing. It may also help you identify where you may have a “leak” in your plan to reach financial peace of mind.
Each of us has a very different personal definition of what total peace of mind looks like … and feels like. It may be colored by differing lifestyles, expectations and anxiety triggers, among other things. However, it does follow a certain basic framework.
That framework includes:
- Having ready cash for small emergencies
- Having accessible funds to handle larger unknowns
- Being debt-free … (first excluding, then including your mortgage debt)
- Being on track with a solid plan to fund your retirement
That’s what lets you sleep like a baby. That’s what’s called financial peace of mind.