Have you ever found yourself overspending on something you didn’t really need? Perhaps you took out a larger loan than you could afford, or you bought more house than you needed. Financial blind spots can make it easy to do things that you know aren’t in your best interest but that you can’t seem to stop yourself from doing anyway. Here are some common ways people go wrong financially and how to spot them before they become problems for you.
Track your net worth
A great way to identify your financial blind spots is by tracking your net worth. Net worth is the difference between what you own (your assets) and what you owe (your liabilities). Tracking your net worth on a monthly basis will help you see trends or changes in your financial health. By tracking your net worth, you are able to spot any debt accumulation, savings growth, or depletion, as well as areas where there may be mismanagement of money.
Know your credit score
Your credit score is a number that shows how good of a borrower you are. It’s often used by lenders when deciding whether or not you’ll be approved for a loan or which interest rate they’ll offer you. There are many different types of credit scores, but the most commonly known one is your FICO score. The FICO score ranges from 300 to 850, with 800 being perfect and anything lower than 700 being considered bad.
Understand your debt
It is important to understand your debt and what options are available to you. You should know if you have a student loan, auto loan, mortgage, or credit card debt. You should also be aware of what the interest rates are on these debts. Student loans typically have the highest interest rates, while credit cards typically have the lowest interest rates. It is also important to know how much you owe on each account and how much you can afford to pay each month.
Review your insurance coverage
It’s not enough to have the insurance coverage you need. You also need to know what your options are and how they will affect your policy. The other option is to review the extent of your current coverage and make sure that it provides all of the protection you may need in a situation like this.
It’s a good idea for anyone with insurance policies for their home, life, or vehicle(s) to regularly review their policies and ensure that they still have all of the appropriate levels of protection they originally selected when they purchased their policies.
Have an emergency fund.
It’s important to have an emergency fund in place so that you’re prepared for any financial disaster that may come your way. Having a safety net will help you feel safe and lessen the impact of expenses you didn’t expect. Setting up an emergency fund is as simple as opening a savings account, transferring some money, and setting up a standing order from your paycheck.
Invest for retirement
Retirement is one of the most important things you can save for, but it can be difficult to know what you need and how much to save. If you don’t have a financial advisor, here are some steps that could help you get started
Review your financial goals
I want you to take a few minutes and think about your financial goals. What do you want? A house? Retirement savings? A new car? Do you have any debts or other liabilities that need paying off? Have you budgeted for all of this, and more importantly, are you living within your means? If not, then there is likely a blind spot in your finances.