As I recall, Oprah, in one of her less-svelte periods, talked about “owning her number.” As in, admitting publicly that she weighed 200 pounds. Owning Your Number is not being scared to really look at your starting point. It’s about getting past denial.
I consistently find the philosophical fundamentals of financial fitness and physical fitness are the same. One deals in dollars and one in calories or pounds, but the concepts are usually duel-applicable.
Today your goal is to start to Own Your Financial Number.
You don’t have to admit anything publicly here, but you need to know your financial numbers so you can tell if you are heading towards your goals or away from them. If you don’t already, you need to know:
1) Your Net Worth (Here’s how to calculate yours.)
2) Your Income
3) Your Savings Rate (Here’s how your rate of savings directly correlates to how long it will take you to retire.)
4) Your Expenses / Spending
…last, and hopefully least….
5) Your Debt
If you don’t already track money stuff, all that can actually be kind of a lot to pull together at once. Way too much for a Mini-Money Challenge. So let’s start with the one thing that traps more people than any other: Debt.
Your Mini-Money Challenge
Your challenge is to write down all your sources of debt, the amount of each and at what interest you are carrying this debt. Typical sources of debt are:
1) Mortgage (French for “Death Pledge,” which will probably not surprise any readers who are currently underwater on their home.)
2) Second Mortgage / Line of Credit
3) Car Loan
4) Student Loan
5) Credit Cards (Gas Cards, Retail Store Cards, Visa, Mastercard, etc.)
6) Personal Loans (Great Aunt Mabel? Mom and Dad?)
7) Anything else?
Just list out everything you owe. Ignore what you’ve read about the “good debt” of a mortgage or student loans. Sure, your PhD was a better investment than $2,500 sunglasses or a daily delivery pizza habit. But now that you have that debt, it’s something you have to pay off and what really matters is the interest rate.
The longer you carry debt, and the higher the rate of interest, the higher the real cost of whatever it is that debt has allowed you to buy. Or perhaps I should say borrow, ’cause until the debt is paid, you don’t really own that stuff anyway.
If this kind of stuff intimidates you, or if you feel you’ve made some less-that-sterling decisions in the past about spending and you are, frankly, scared to face your number, you need this challenge more than anyone. You just have to take a deep breath and get brave. Put on your Big Kid Pants and do it. That’s what this challenge is all about. Remember, knowing what you are dealing with is always less scary than guessing at what you might be dealing with.
Besides, if you don’t have a good idea of what your starting place is, it’ll be harder to brag about how much you paid off when you are totally debt free.
All this Mini-Money Challenge requires is a piece of paper and a pen and some courage. You don’t have to get fancy.
Later on in the month, these numbers will come up again, so keep them in a safe place.
Maxi-Money Bonus Challenge
Okay, maybe the debt-list thing is too easy. Maybe you are already debt free. If so, tackle the rest of the Own Your Financial Numbers List. Start putting your info together in a way that makes sense to you and that is simple for you to maintain.
For a long time I had a very hard time tracking all my financial info because I was trying to manage file-folder records when I live a laptop life. Recently I started using Mint.com, a website run by Intuit, the makers of QuickBooks accounting software. It used to be a chore to itemize spending (so I rarely did it) but now I actually find tracking our finances fun and empowering. (FYI, I’m not affiliated with Mint so I don’t earn a commission on this referral or anything. I just really do like the site this much.)
Once I set things up, Mint did the hard part of categorizing and averaging. I just set up budgets and enabled reminders and corrected a few mis-categorizations and it was done. Mint emails me or texts me if I go over in a spending category for the month. They will show me trends in various categories and automatically update accounts from all over, including bank accounts, retirement savings and credit card debt.
If you are looking for a tool to help you pull everything together so you can really see whats going on with our financial health, and if you have a very plugged-in, online-banking style of financial management anyway, I recommend checking out Mint.com.
That said, a spiral notebook or a simple Excel spreadsheet where you record all your various balances monthly works great too. It just depends on what your style is.
If you don’t need to do this challenge at all because you already know all this stuff, reward yourself by spending five minutes playing with the super fun investment calculators on Bankrate.com. Because really, if you have all this info at your fingertips already, then you are certainly the type of person who finds compound interest calculations awesomely fun.
You don’t have to disclose any numbers, but in the comments, let us know how you feel about your debt – in control? Nervous? Overwhelmed? Does your debt level affect your lifestyle? If you are in debt, do you have a plan to get out of debt, or do you not really worry about it?