Credit Sesame recommends taking a financial selfie during self-improvement September.
People take photographic selfies for many reasons. Usually, they show us at our best. Over time, they can provide a form of visual diary. Where you were, what you were doing, who you were with and how you looked.
The social media app Be Real is a photo sharing app with a twist. People everywhere take and share a pic during a random 2-minute timeframe every day. Be Real is similar to Snapchat, but without the ability to edit or do-over (unless you want everyone to know how many re-takes you took). The idea is to break down social media’s preoccupation with perfection. The app uses the front and back cameras simultaneously so friends see where you are, what you’re doing and what you look like, with everyone posting at the same time. Sad or happy, glamorous or grungy, 5-star restaurant or Walmart parking lot. The snaps show your good days and bad days. Your smart and not-so-smart fashion choices. You with your BFFs and with people you’d rather forget. Over time, this series tells the story of you.
How about taking your first financial selfie?
A financial selfie might be revealing in a similar way. It gives you a snapshot of how things look today. A series of financial selfies can help you track your financial progress over time.
Self-improvement September might be a good time to take your first financial selfie. The events of recent years and months have left a mark on consumer finances:
- The pandemic shutdowns caused an economic slowdown (which had started to recover)
- The shutdowns prompted many people to reevaluate their careers (how they work and what they do for a living)
- The highest inflation in 40 years caused prices to rise across the board (wreaking havoc on household budgets)
- The economy, meanwhile, is staggering a bit (but not yet officially in a recession)
How have your finances been affected?
A financial selfie takes a snapshot of how things are now, and gives you a baseline against which to measure progress or deterioration in your future financial situation. Here are six aspects to focus on for your first of many financial selfies.
1. Your spending habits
Selfies can mark the changes in your life. Your first picture after graduating college or having a baby. How does that new outfit look on you, or has that makeover helped at all?
The pandemic and inflation have changed household spending pretty radically. The Consumer Price Index is up by 13% since the start of 2021. So, your financial selfie should include a critical look at your spending habits. What exactly have you done with your income over the last month? What did you buy? What did you save? How much income just disappeared and you don’t even know where?
There’s a good chance that your essential expenses and your income have changed in the past year or two. Your spending habits have to change, to0.
2. Your household budget
Lots of people make resolutions about good behavior. Selfies sometimes catch us not living up to that good behavior. You at the restaurant where you blew your diet. You with the slightly-more-than-tipsy look on your face.
Take a look at how your spending for the month stacks up against your household budget. If you don’t have a budget to include in your financial selfie, now’s the time to add one.
It may take a couple of months of financial selfies to bring your spending in line with your available income. If some prices are higher than expected, you should adjust your budget. If it’s simply a matter of too much spending on things you didn’t budget for, the financial selfie can be a reminder to do better next month.
3. Your credit utilization
You may have one of those friends who is always posting selfies of them partying. Here they are at a bachelor party. Next they’re at Bonnaroo. Now they’re at some dance club. How DO they do it?
Excessive spending without the income to support it may mean living on credit. Earlier this year, a Credit Sesame survey found that consumers were using up larger percentages of their credit limits. This is consistent with a subsequent report from the New York Federal Reserve that showed consumer debt had reached a record high level. Using debt to make ends meet is the financial equivalent of your partying friend who burns the candle at both ends. It can’t last.
Inflation took the country by surprise, so that explains a lot of extra borrowing. However, now’s the time to take a financial selfie and see if your credit utilization is under 30% and to check that you pay your credit card and loan payments on time. If not, you need to take steps to ensure your next financial selfie shows a better picture.
4. Your financial goals
People may be inspired to take a selfie when they’re proud of a new purchase. Here’s Joe on his new boat. Check out Dave and his new car. See how happy Chrissie looks in her new home. You probably have some goals like that of your own – major purchases that are expensive, but potentially life changing.
If you’ve been saving for a big buy, now may be a good time for a financial selfie showing how far you have to go before you can afford to buy. Inflation has driven the cost of most items higher, so you may have to reset your savings plans.
That doesn’t mean you must abandon those goals. Just plan to budget harder, spend less, save more and wait a little longer. Your next financial seflie should see you closer to your target.
5. Your banking products
If you look back at a selfie from just a couple years ago, you may be surprised by how much much has changed. You might be reminded that you used to be in much better shape. Or wonder why you ever liked that shirt you were wearing.
The sharp rise in interest rates this year has caused big changes in banking products. So, your financial selfie could include a look at your bank. When interest rates change rapidly, not all banks adjust at the same speed.
If you have a savings account, see if your bank has raised the interest rate as much as other banks have. If your credit card rate has gone up that shouldn’t surprise you. but it’s worth checking if there are now other credit cards offering cheaper rates.
6. Your retirement savings
Why do people take selfies instead of just living in the moment? In most cases it’s about preserving a memory to look back on on future.
Saving for retirement is similar. If you preserve funds early and often, your dreams of a comfortable retirement are safe. However, inflation means you need to save more than ever to have sufficient funds at retirement. High inflation doesn’t just affect today’s prices. It also drives up future costs. That means you may have to reset your goal of how much money you need to retire.
If you set retirement savings goals before inflation struck, it’s time to take a financial selfie to see if those goals are still realistic. Financial turmoil over the past few years caused some people to hold off on retirement savings. Don’t wait too long to get back on track. The longer you wait, the harder it is to catch up.
What does your financial selfie reveal?
Remember, candid selfies aren’t always flattering. For better or worse though, they are a reality check. If you don’t like the way this one looks, you know what to do to be prepared for a better one next time.
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.
