How to Diagnose Your Financial Health

Dear New Frugal You,

I'm concerned about our financial well-being. It's not like we're getting collection calls or falling behind in the mortgage, but we're not getting ahead, either. Somehow I feel like our finances aren't really healthy.

-Concerned Connie

Dear Connie,

Funny how right before we get sick we notice a scratchy throat. Or we just feel a little "off." I'm not a medical expert, but it does seem that the same thing can happen with our finances. We get a feeling that things are not quite right right before the roof caves in on us. So let's see if we can create a simple health diagnosis for our finances.

Diagnostic test No. 1: Are the balances on your credit card accounts rising? If so, your finances are getting a little sicker each month. Just like a real fever, once it gets to a certain level you can't ignore it. You have to bring it down.

A telltale sign is the amount that you pay in credit card minimums. If it's approaching 10% of your take-home pay your fever is getting to the critical stage.

Doctor's advice: Find a way to pay enough each month to reduce your balance. Break the growing credit card balance fever now before it becomes critical. Look for expenses that can be cut. Or even find part-time work to pay down the balance.

Diagnostic test No. 2: Do you owe more on your car than it's worth? And is each loan longer than the one before?

That's just like gaining a little weight year after year. After a few years you find that you're really out of shape.

The same thing applies to car loans. When you include part of your existing car loan into the trade for a new car, you're gradually gaining financial weight. You're putting more and more loan into a car that can't handle the excess baggage. Sooner or later that car will get old, but you'll still have the loan that must be repaid.

Doctor's advice: Find a way to prepay some principal and commit to keeping the car until the loan is paid off. Do NOT let a salesperson talk you into rolling a portion of your current loan into a trade for a new vehicle. The extra weight could cause a financial heart attack.

Diagnostic test No. 3: Are you saving for retirement or a rainy day? Are you able to put away a little out of each paycheck?

When begin an exercise program, it's often hard to notice immediate benefits. In fact, it can seem like a chore that we force ourselves to do. Saving money can feel like that. We don't want to do it. That's because it can hurt to save.

Yet, just as the person who doesn't exercise will pay the price later in life, a lack of savings will be harmful to your finances in the future.

Doctor's advice: Make saving part of each paycheck a priority. Sign up for a 401(k) or other plan that deducts money from your check before even you see it. Or pay yourself first and write a check to a savings account before you pay any other bills. You may struggle meeting expenses at first, but soon you'll find that you adjust your spending to meet your income.

Diagnostic test No. 4: Is your job secure? Or could your income disappear?

Often our bodies give us a warning when something is wrong. A little pain or discomfort could be the first sign of a more serious health problem. The same is true of our workplaces. Are your company's sales growing or shrinking? Is new technology making your job (or even your whole profession) obsolete? Are there rumors of layoffs? Those could be warning signs of something more serious to come.

Doctor's advice: Get the warning signs checked out. If the tests come back positive take action now. Don't wait until the diagnosis is terminal. Now is the time to get additional training or learn new skills. Prepare for job changes now while you still have a job.

Your financial health is a lot like your physical health. There are things that you can do to prevent disease and increase the probabilities of a long and healthy financial life. It's up to you to heed the symptoms and follow your doctor's advice..

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