A Check Engine Light for Your Finances

Anyone who’s driven a car knows the feeling. You’re driving along, hit a bump in the road, and your heart drops as you look down at your dash to see your car’s check engine light has come on out of nowhere.

It might be something simple, or it may be a cry for help from your car’s final days. It may mean a pricey repair, or just a minor fix, but it’s usually not good.

At least it’s automatic. You might not be monitoring everything you should on your car, but at least it tells you when something needs attention.

Wouldn’t it be nice if our financial lives had a check engine light? Something to tell us to pull over, open the hood, and at least take a look? That does sound nice. And because I’m a nice guy, I have just the list.

These are the financial warning signs I would say warrant an inspection and potentially a corrective action:

You need your next paycheck to pay your upcoming bills. If you’re living paycheck to paycheck and you’re not below the poverty line ($13,590 annually per person in the U.S.), you need to save more money. It’s as simple as that. Start small, but start now. Aim to have one month’s worth of bills in your savings account. Once you reach that goal, aim for three months or more.

You have credit card debt. Being in a tight spot or dealing with an unexpected life event is nothing to feel bad about. Sometimes credit cards are a necessary evil to make ends meet. But if you go into credit card debt, getting out of it should be your absolute number one priority once it’s feasible. You will never build wealth paying 20% in interest to Visa or MasterCard.

You don’t know if or how much you are contributing to retirement. One of the best personal finance hacks is to make the process of saving automated and hidden. If your job offers a 401(k), make sure you take advantage of it. If you don’t have access to a 401(k), open an IRA at any reputable broker.

You have no idea what you spend your money on. You don’t need to track every penny, but you should have a decent idea of all the categories you spend on each month. Even a simple list with all your monthly bills is sufficient. Put your monthly income at the top and subtract each of your regular expenses. The number left over at the bottom should be positive.

You haven’t reviewed your credit card statement in awhile. Free trials turn into monthly subscriptions and they are often low enough that we don’t notice them sneak their way into our monthly credit card bills. This also helps to monitor for fraud or accidental charges. Here are 9 cybersecurity tips for keeping your financial accounts secure.

You worry about your finances. If you’re worried about money, you aren’t wealthy. If you’re worried about student loans being due again, or making rent, or buying groceries next month, you need to adjust something.

You use money to impress other people. If you see a beautiful landscape on vacation and your first thought is how great it will look on social media, you have put an unhealthy layer between yourself and experiencing life. If you look at expensive items through the lens of how much other people will admire you for having them, there’s an unhealthy link. Someone will always be richer than you and no one cares what you own. Don’t chase the dragon.

You don’t shop around. Everything from finding the best deal on lunch meat to getting the best price on a new car deserves a second look. Don’t just buy new items either. Check Facebook Marketplace or Ebay before buying something new (especially lunch meat).

You buy things to replace things that are still useful. Maximizing the life of existing items you own is an indicator of good financial health. Buying new items just to replace last year’s model is a warning sign. It means ads and marketing and consumer culture are infecting you. You don’t need a new iPhone just because one comes out every year. You don’t need a new car just because yours has a dent in it.

You’re ignoring the check engine light in your car. Car repairs can be serious business. In a very meta way, ignoring the check engine light on your car is symptomatic of ignoring the check engine light on your personal finances. Swing by your local Autozone. They will tell you why the check engine light is on for free.

If some or all of these hit a nerve, it might be time to make some adjustments. Even if you’re poor, you have choices.

More reading:

Money Milestones for Each Decade of Your Life

Consider this a compass, not a map. (6 min read)

Your Guide to the Markets in 2022

The past few years have been pretty wild. But don’t take my word for it. Don’t even take your memory for it. Here’s the data. (4 min read)