Shopping online has changed how we spend our money. It has also changed the pace at which we spend our money. From all the online only deals to exclusive memberships like Amazon Prime, consumers are faced with so many options to spend their money. Before you spend another dollar, do yourself a favor and start prioritizing your finances. 

Step 1: Establish your net worth

  1. List all your assets, create an estimation of the value, and then add them together for a total.
  2. Assess all of your liabilities and add up the outstanding balances.
  3. Now subtract liabilities from assets to determine your personal net worth.

Step 2: Calculate your debt-to-income (DTI) number or ratio, you can find more information on this  by visiting Wells Fargo’s site.

  1. Add up your monthly bills which may include:
  2. Rent or house payment
  3. Alimony or child support payments
  4. Student, auto, and other monthly loan payments
  5. Credit card monthly payments – minimum payment
  6. Any other debts

Note: Expenses like groceries, utilities, gas, and your taxes generally are not included.

  1. Divide the total by your gross monthly income, your income before taxes.
  2. The result is your DTI, which will be in the form of a percentage. The lower the DTI; the less risky you are to lenders.

Step 3: Assess your living situation

Step 4: Find out where all your money is going and then have the hard discussion with your family and decide if you are spending more than you should.

When you look at your financial situation, try not to get bogged down in details or beat yourself up too much try and keep your eye on the prize (look at the big picture). Something that seems so simple but is actually pretty complex and important is categorizing your debt as good or bad. Most people here the word “debt” and just assume it is all bad but that’s just not true. Bad debt is any high-interest debt such as:

  • Credit card debt
  • Car loans
  • Consumer loans that charge high interest rates and are not tax-deductible

Next is your good debt, debt that is taken on as an investment for your future. 

Once you know where you stand with your finances you need to make sure your investment strategy is aligned with your situation. Trying to save more than you can afford will only add to the chaos. Your financial health is just like your actual health you always want to work towards improving your health score. According to Investopia, there are many dimensions to financial health, including the amount of savings you have, how much you’re putting away for retirement and how much of your income you are spending on fixed or non-discretionary expenses.

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