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Dear Dayana: I have no idea what my financial picture looks like, other than I'm in the bottom half of the income curve. I'm really worried that I'm doing the wrong things with the little that I have.

I have been reading The Motley Fool articles, and after a year of trying to figure things out, I opened a Roth IRA this year through a Vanguard index fund with $1,500 and then sent another $200 in. (Yeah!) I want to start investing more for retirement, though. I'm already 33 years old!

I have a freelance, unsteady career. So, even though I would prefer Drips and dollar-cost averaging through automatic electronic withdrawals, they wouldn't really be a great idea for me.

(For background: I have no credit card debt, and my college loans are nearly paid off. I live in L.A., have no dependents, and would like to have a family someday. And the big thing is that I'm a single female homeowner carrying a 15-year fixed-rate mortgage with $186,000 left to pay off, at 5.125%. Conservatively speaking, it has equity of about $200,000. Until this year, I've had a housemate paying some rent. Now, the payments plus my health insurance premiums pretty much absorb all my after-tax paychecks. Last year, I opened a HELOC [home equity line of credit] with a $212,000 limit because the equity on my house was something silly, like, $300 to $450 thousand dollars. I thought, just in case I get hit by a bus or getcancer and I can't sell my house very fast, I'd have access to the equity. And if I didn't need it, I could leave it alone. I have a lump sum savings of $19,000 in a practically non-interest bearing bank account (less than 1%).)

I guess my question is: Am I doing it wrong? And if not, what is the next growth step? Signed, In the Dark

Dear Ms. Dark,

Let's review:

You own a home;

Have no credit card debt;

Have no student loan debt.

(You don't mention if you have a car payment.)

You have a nice chunk of change in your emergency savings account (you might want to look online at places like MBNA (NYSE: KRB  ) , ING (NYSE: ING  ) or Emigrant Bank, which typically offer much better interest rates than your current bricks-and-mortar bank).

You've lined up a line of credit should you find yourself unable to work. (Disability insurance is also a must for young singles and can serve the same purpose without forcing you to dip into your home equity).

You've begun investing for retirement via a Roth IRA (good choice for someone your age) and have a low-cost index fund in there (again, bravo).

Even on your irregular salary, you've managed to sock away even more for the long term.

So . you're messing with me, right? I know plenty of people who would gladly trade financial lives with you. So let out a deep breath of relief and spend a moment basking in your financial accomplishments thus far.

OK, enough basking. Now let's make the most of what you've got.

While you may feel you're in the dark about your finances, you've simply got the dimmer switch turned low. All financial plans start with a snapshot of your current situation. So start with the narrative we've outlined above, shine a bright light on the details, and begin to account for your assets (what you own, like equity in your home and your savings) and your liabilities (what you owe, such as the rest of your student loans).

Financial planning software such as Intuit's (Nasdaq: INTU  ) Quicken and Microsoft's (Nasdaq: MSFT  ) Money help you organize it all. The Motley Fool's Money Advisor service also has a detailed planning tool online. There's a free trial going on now (which includes access to online seminars and unbiased financial advice via the phone). I won't lie. There's drudgery involved at the outset. But the illumination such careful accounting provides will be worth it.

Once you look at the black-and-white truth of your personal balance sheet under unflattering florescent lighting, I think you'll be pleased. Even at age 33 you are well ahead of the curve. The average American's naked finances look more like this:

  • Three-fourths of workers age 55 to 64 have less than $56,000 saved for retirement.
  • Twenty percent of credit cards are maxed out.
  • Forty-two percent of workers cash out their 401(k)s rather than transfer (or "roll over") the assets to an IRA or a new employer's retirement plan.
  • One-third of "millennials" (those born after 1979) do not contribute a single dollar to their work-sponsored retirement savings plan.
  • Last year, the average household paid $1,000 in interest on the money it borrowed.
  • One out of every 73 U.S. households files for bankruptcy.

Your money habits more closely resemble The Millionaire Next Door than The Deadbeat Down the Street. According to the book The Millionaire Next Door, these financially secure souls:

  • Work hard for each paycheck and make everyday decisions to keep their credit cards securely in their wallets.
  • On average, invest 20% of their income every year.
  • Didn't wait around for a long-lost rich relative to leave them a fortune. Less than half ever received a penny of inheritance.
  • A full 80% are college grads, and 38% have advanced degrees.

Wealth (or even solid finances) don't tend to happen overnight. So don't beat yourself up about not being in the ideal financial situation now. You've already taken the most important step: You've started.

Big changes happen when you pull one of two levers -- the income or the outgoing lever. Either you can choose to find a way to make more money (whether that's through work, part-time employment, or taking in a roommate again) or you can cut back on your current expenses (which is hard to do when you're living bare bones -- but a more drastic measure, such as moving to a cheaper locale, is one such option, though a dramatic one). Another option for the latter would be to refinance your home (although rates are beginning to creep up again) and extend your mortgage payments over 30 years instead of 15. There are pros and cons to this, but if you don't see your cash flow situation improving anytime soon, it may be a good way to manage your home debt load.

So, first, make sure that your biggest financial items are really working as hard as they can for you. Those would be your home (think about the refinance option to lower payments or taking in a roommate again) and your cash cushion (it's a large amount right now that could be freed up somewhat for investing if you had disability insurance in place). Once you do that, concentrate on making any money you free up work doubly hard for your future. Add to your retirement investments. Keep an eye on fees. Reinvest dividends, and if you feel like venturing beyond index mutual funds, start researching individual companies.

On a limited salary and with some drive, you've already come a long way. Once you see your current snapshot on paper and begin playing with possible scenarios, it'll be no time before you're positively glowing about your future.

Intuit and Microsoft areMotley Fool Inside Valueselections.For more about Philip Durell's newsletter,click here. If you sign up, you'll get a free copy ofStocks 2006, our top analysts' picks for the next year.

Dayana Yochimowns none of the companies mentioned in this article. You can shine a spotlight on her holdings inher personal profile. The Fool'sdisclosure policyglows in the dark.


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