This quick personal financial self-assessment is a vital benchmark. It’s not scientific, but it will show you where you are strong and where you might need to improve. Everyone can benefit by taking a few minutes out of their busy schedule to check their financial health.
Sometimes people ask me to suggest a quick approach to assess their money-handling fundamentals. Normally, they continue: "We just don't seem to be at peace with our personal finances. Indeed, after repaying a large credit card debt, and becoming debt free, we feel burdened." Puzzled, I ask, "Do you mean you seem to follow a pattern of acquiring, repaying, re-acquiring debt...probably over an extended period? And though your income is more, your finances now are worse than they were, say, five years ago?" Instantly, they reply, "That's it!"
Over the years, to help understand attitudes, behaviors, choices (ABCs) impacting of money handling, I developed a 100-questions questionnaire that I use as I counsel couples. However, at the first meeting, I work with this 10-question self assessment checklist to benchmark where folks are with their ideas about money management. This list is not scientific; I developed it after years dealing with couples of different races, cultures, financial states, and it has proved reliable.
|Quick Personal Financial Self Assessment Checklist||Never or Rarely = 1||Sometimes = 2||Often = 3|
|1. Do you work with goals, plans, and budgets?|
|2. Before spending, do you follow a specific procedure to decide the need to spend, and the affordability?|
|3. Before spending, do you ensure your primary spending driver (the influence tospend) is not to save money through using available coupons, discounts, deals, or sales?|
|4. Do you use maximum one credit card only?|
|5. Do you pay your credit card balance fully?|
|6. Do you borrow for vacations? Using a credit card and not paying the full balance monthly is borrowing.|
|7. Do you avoid borrowing for items other than a mortgage?|
|8. Does someone hold you accountable for handling your finances?|
|9. Do you have a procedure in place to pay cash for major household assets purchases and replacements?|
|10. Do you compare spending against plans and budgets?|
Normally, you have several credit cards, different accounts to get cash back; you fall in debt, repay, get a breather, and then drift deeper in debt. Sales, deals, financing arrangements, and the merchants and money parts of the money triangle entice you, though at first you don't recognize it. You, friends, colleagues might see you as good with finances; however, you have not realized that merchants succeeded in getting you to spend based on financial incentives (financial engineering). You do not decide to spend based on lifestyle-based goals, plans, and budgets. Knowingly or unknowingly, you are spending to 'save.'
If you approach this exercise with an open mind, don't worry; you will realize the need for the attitude change from financial engineering to lifestyle management. As well, you will see the need to develop and apply consistently, a spending decision procedure, and to get an accountability partner. Otherwise, you will be stuck in the debt cycle. Change will take time; but by God's grace, you can break the debt pattern.
You know money management is lifestyle management. You have one, or at most, two credit cards which you pay fully each month. You follow a specific spending decision procedure, you work with a budget, and merchants do not attract you with sales and deals. Typically, you have two challenges: Consistency, and you lack a process to pay for emergencies, plan to buy the next car, and buy major assets for cash from a capital fund.
Like the previous category, you know money management is lifestyle management, you have a capital fund, an accountability partner, and you do not get caught by merchants' seductive advertising. You have one credit card; however, like each of us, you mess up sometimes, but you stay debt free apart from a declining mortgage.