It’s easy to see when your house needs cleaning: clothes are on the floor; dirty dishes are stacked in the sink. But it may be a little harder to know when to “tidy up” your finances. Here are a few signs:
1. You’re living paycheck to paycheck
If you barely make ends meet at the end of the month, it’s time to buy yourself some wiggle room for unexpected events. Start by cutting back on at least one major expense and putting that money into an emergency fund. The goal of an emergency fund is to be able to cover a three-month period of unemployment, at a minimum. Consider downsizing to a smaller home or apartment, going from a two-car household to one, or commuting by bus or bike. Getting a side gig is another way to boost your emergency funding.
2. You’re not saving for retirement
According to Northwestern Mutual’s 2018 study, 21% of Americans have not saved for their retirement. If you’re one of those people, it’s time to start. Your goal should be to save 15% or more of your monthly income for your retirement. If you’re not used to saving, going from 0 to 15% might be hard. So, start small and simply set aside $50 each month. Increase that amount when you get a raise or get a better handle on your expenses.
3. You’re carrying credit card debt
There is good debt—mortgages for homes and loans for education—but there is also bad debt. Credit card debt is the worst kind of debt you can have, and the longer you carry it, the more money you end up losing in interest. If you’re up to your chin in credit card debt, maybe it’s time to create a budget and move to a cash-only system until your debt is under control.
4. You don’t have a budget in place.
Do you follow a budget? Many Americans don’t, even though it’s probably the most effective way to manage money. Without a budget in place, you’ll have a hard time seeing where your money is going, where you’re overspending, and where you can make changes.
If any of these signs apply to you, it’s time to clean up and learn how to manage your money. You’ll be thankful in the long run.