10 Money Questions You’re Afraid To Ask

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This week's guest post comes from the amazing Kit Warchol from CareerContessa.com and she's sharing her thoughts and advice on the 10 money questions so many women are afraid to ask  - Enjoy!

"We all wonder about money, but how often do we actually ask? I've researched the best financial advice out there to bring you some clarity."

Full disclosure: I'm no financial pro. I tend to binge shop Madewell sales. I love trying chic new restaurants outside my budget. I buy cat food only when I realize I've run out, wherever I can find it, for whatever price. Over the past couple years, though, I've had to learn to rein in spending and take charge of my money.

Several factors contributed to this process: taking a pay cut, ending a long-term relationship, realizing that my thirties were looming...but beyond that, I realized letting go of my anxiety and taking charge of my finances made me feel more empowered about life in general.

Thinking about money sucks (big time) so we're prone to avoid and deny all topics related to it. But adulthood is nothing if not ironic—it turns out the more you know about your finances, the less often you actually think about them. With that in mind, we asked several women to tell us which money-related questions scare them the most, then we actually set about answering them. Here's what we found.

1. How bad is it if I really don't pay off my credit card every month?

It’s not necessarily that bad. Next question.

Totally dad-joking you. Here's the real answer: you need a credit score to do most big life things (renting apartments, getting a car loan, etc) so it’s important not to take credit card balances lightly. And if you can pay off your limit every month, kudos to you.But like most things, there are exceptions to this rule:

- Allow for emergencies

Credit cards are useful in emergencies when you may not have the cash flow to cover, say, an unexpected car repair bill or an emergency flight home. If you can’t pay down your credit card every month, don’t beat yourself up, but don’t let yourself off the hook either. The sweet spot is keeping your total balance at 30% or less of your credit limit (for each card and for your lines of credit in general). On average, people with tip-top credit use around 7% of their total limit.

- The takeaway

An outstanding balance? Not a huge deal. Just make sure you pay your bill on time and plan a budget that allows you to pay off more than the minimum each month until you’ve got it under control. Credit cards don’t have to be scary if you’re willing to take a real look at your income, debt, and budget. Read some additional tips on letting go of debt fear over at The Financial Diet. 

2. What does a realistic budget actually look like?

This might be a horrible thing to admit, but until recently I didn’t have a budget. Period. I’d check my bank balance after paying bills or rent each month, since if it was too low, then skip drinks or dinners out until the next paycheck.

- 50/20/30 

Here’s what changed: I heard about the 50/20/30 system. 50% of your money goes to necessary expenses (rent, utilities, car payment), 20% to savings, and 30% to flexible spending. And that's it. The flex percentage includes groceries, gas, and drinks and bites out, which works great when you’re single and tend to spend more of your meals out than in.

- Give yourself an allowance

We joke about this at the CC offices, but I’ve put myself on a cash allowance. Each week, I withdraw my allotted flex spending from Wells Fargo and peel off the $20s as I go. It helps me visualize dwindling funds, and it's stopped me on several occasions from buying the $4 Icelandic yogurt at the corner mercado.

- Alternative methods 

If you're too Type A to feel comfortable dividing your money into only three categories, consider a more detailed budget, and breaks your expenses down into additional percentages. It's a great way to keep yourself on track in every area.

And one final suggestion: Mint. If you’re terrible about staying on top of your spending, the app does it for you. It even lets you set up text alerts when you sail too close to the sun (or a low checking balance).

3. How much debt is too much debt?

Again, it depends. Student loans are one thing, credit card debt is another. When it comes to credit, keep your usage to 30% or less. For your debt in general (including car loans, house loans, personal loans), the target number is 20% or less. Still not sure? Ask yourself these questions to gauge: Can you only make the minimum on your payments? Are you skipping certain bills to pay off others? Are your cards maxed out? Are you living paycheck to paycheck?

If you’re maxed out on one or several cards, come up with a dedicated plan to pay them down immediately. Focus on paying off the card with the highest interest first, then pick the remaining ones off one at a time. Use this credit payment calculator to help guide you (you can also set goals in Mint to pay down debts).

4. How much should I be actually spending on fun stuff like eating out and, you know, Sephora?

This largely depends on your lifestyle and your location. Many financial experts recommend allotting 9-10% for food costs (that’s eating in and out). You can also put aside 5% for “fun” money, which includes makeup splurges, happy hour, and meals on the town (they allow a separate 20% to groceries). Once you’ve determined a number, hold yourself to it. Try the cash allowance model (clearly I love it), or open a separate "fun money" checking account to use for things like movie tickets and fall fashion purchases.

5. How do I get good health insurance as a freelancer?

You need it, but it’s horrifying right? Take a deep breath. Besides healthcare.gov’s resources for the self-employed, you can also use the Freelancer Union’s benefits system to help you determine your options. The key is to not miss the important deadlines. And if you have a doctor you love, that's great. Use them to help you narrow down your coverage based on what plans they accept.

6. How soon do I need to start saving for retirement?

As soon as you can. Cheap shot, I know. But the sooner you start saving, the more you accrue. Remember: interest. If your employer doesn't offer a 401k or similar model, consider allotting some of your monthly savings to a personal retirement fund. If your employer offers optional retirement plans, well, it's not optional. By the way, if they also offer to match, go for the max every time.

- When not to start

There’s always an exception: if you have high-interest debt (like those pesky credit cards from question 1), focus on paying them down first before getting sidetracked by thoughts on retirement. Same goes if you have no emergency savings.

7. How much money should I have in my "emergency fund" for a medical or life emergency?

Three to six months of post-tax income seems to be the consensus in financial circles. Six months is the ideal, but given that most of us don't have any emergency savings, you're ahead of the curve if you make it half that far. Read details here.

8. How can I actually save enough to take a fun trip once a year? 

By setting up a separate savings account (or by setting a specific goal in Mint) just for that trip. Each week, make a recurring transfer out of your fun money allotment into the account. Watch it add up. You should also consider areas where you can cut back to achieve your goal. If you skipped two lattes (average price with tip: $4) each week, you'd save $24 a month. That's $288 this year.

9. I already cut corners with my budget, it's still not enough. Now what?

Sounds like your expenses are just too high for your income. Sorry to be so blunt. You can cut back as much as you like, but at some point, you’ll need to increase your income, too. Is it time to ask for a raise at work or to look for a better-paying opportunity? Or you might want to consider taking on a side hustle.

- Other tips

  • If your rent is astronomical, it’s time to find an alternative option. Yes, you may like living alone or in that chic part of town, but there’s a time and place for that later.
  • Next, cancel any recurring payments that aren’t totally necessary. We know you love Spotify, but do you need it to be commercial free?
  • Take a look at your grocery bills. Even if you eat in all the time, if you’re buying items from those center aisles (organic gluten-free cookies for example), chances are you’re amping up your costs. If this intern can live in New York and spend $30 a week on groceries, so can you.
  • Last but not least, it never hurts to call. Call your bank, your credit companies, your internet service provider and ask for a reduction in your interest or your monthly bill. You’d be surprised how often they say yes.

10. I'm moving in with my significant other, how do we divide finances?

This is completely a personal decision and depends on your approach to money. Typically, you shouldn’t share accounts if you’re not legally tied to one another. And if one partner has much higher debt than the other, that’s also a no-no. But when it comes to rent and household expenses?

Splitting everything equally certainly seems like the ideal, but we all know how much more complicated relationships are. So don't hold yourself to standards based on what you think people should do. Come up with rules that you're both comfortable with.

- Why 50/50 isn't always fair

When I moved in with my ex, our salaries were dramatically different. He was a few years older with a stable corporate job, and I’d just graduated in the midst of the recession. Did I want to be making more money than I was? Absolutely, but it took me a while to get there.

When we picked an apartment, the subject of 50/50 rent splitting came up. If we did it this way, it meant staying in the range of my budget, not his. In Los Angeles, that was the difference between a nice place and, well, not so. He quickly offered to absorb the additional costs on a more expensive rental until my salary caught up. I balked at first, but ultimately said yes for two reasons:

  1. We agreed to always talk openly about money, and he never made me feel like I owed him
  2. someone incredibly wise (a.k.a. my mother) reminded me that there’s more to contribute to a relationship than money

I pulled 50% of the relationship weight, regardless of how much I signed over on my rent check. When I couldn’t afford a meal out, I cooked. When I couldn’t afford the dream vacation, I planned alternatives (we learned to love camping). It was about finding solutions and talking. And when the financial balance shifted, we played by the same rules.


Got some other questions? Ask away in the comments!

{This was originally posted on CareerContessa.com}

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