Many people want to be smart with their money. But saying and doing are two entirely different things. If you want an accurate picture of how you balance finances, you need to ask yourself a few questions and take a long honest look at your personal finances. Here are seven ways to tell if you're smart with money.
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1. You Earn More than You Spend
For an entire month keep accurate track of your spending and make sure you live by a budget. At the end of the month, look at your income and look at your monthly expenses. If you're spending more than you're bringing home, you need to revamp your budget and get smart with money. But if you're spending less than you earn, you're on the right track and chances are you're good with money.
2. Your Savings Account Grows Each Month
Just because you have disposable income doesn't mean you're increasing your savings account each month. Many people have enough to save, but they take their disposable income and go shopping or spend too much on entertainment. But if your savings account is consistently going up because you're making a diligent effort to pay yourself first, you're doing better than a lot of people. A consistent savings plan is one of the only ways to reach financial goals, such as buying a house or saving for retirement.
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3. You Pay Cash and Have Little Debt
Some people rely on credit cards in order to get what they want, when they want it. But if you recognize the danger of debt, and you use mostly cash for purchases, you're less likely to get into credit card trouble. And since you're not buying things you can't afford, you'll probably have more money than your peers and fewer financial troubles.
4. You Don't Care about the Joneses
Some people are so focused on what other people have that they start buying things they cannot afford. Keeping up with the Joneses is a dangerous cycle that's hard to break. You might work extra hard just to make it look as if you're doing better than you actually are. However, if you're only concerned with your own money, you're less likely to make irresponsible choices with your finances.
5. You Compare Interest Rates
A person who's smart with money doesn't get any type of loan. Whether you're buying a home or car, or getting a credit card, you know the importance of comparing interest rates. Interest refers to how much you actually pay when getting a loan. A financially savvy person also takes steps to guarantee they'll qualify for the best interest rate, such as paying their bills on time each month.
6. You Have Adequate Insurance
Some people don't understand the importance of having adequate insurance. But a person who's smart with money doesn't take any chances and prepares for the worst. Therefore, you have health insurance, renter's insurance, auto insurance and life insurance. It might not be the best insurance plan, but you know something is better than nothing.
7. You Compare Prices
Being a frugal shopper is one of the biggest signs that you're smart with your money. We all have to buy things from household goods to clothes. But this doesn't mean we have to go broke or spend money unnecessarily. As a smart consumer, you shop around and compare prices, you wait for sales or deals, and you're not afraid to put off a purchase if it's out of the budget.
Some people downplay the importance of being smart with money, but there are benefits, such as the ability to grow your savings account. Plus, being smart with money can result in fewer financial worries. What are other ways to tell if you're smart with money?
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Kim: I like to understand what others have, but like my own style at the same time.
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