If you want to manage your money well, asking yourself some key personal finance questions is part of the answer.
Taking stock of your finances can be a real task. So maybe it isn't too surprising that only around 27% of Americans have a financial plan.
However, once you start pondering over the questions we suggest in this article, you can reassess your financial future.
Let's take a look at why you need to manage your money regularly and the financial questions to ask yourself!
Why do you need to ask yourself personal finance questions?
When it comes to your money, the more you know, the better. While the idea of managing your income may make your head spin, the truth of the matter is that you need to do this if you want to have a sound financial future.
Here are some of the specific reasons why:
Understand your finances
Having an in-depth knowledge of your personal finances means that you can make better-informed decisions. When a big cost comes up — such as a vacation or car repair — you will instantly know whether you have the budget to cover it.
Create financial security
When you start to plan for the future, your finances will slot into place. That can make a major difference to the way that you manage your money now.
When you have asked yourself personal finance questions, you can begin to take measures to save money too.
Reassess your budget
As a golden rule, you should continually reassess your budget and see whether it’s working for you. Your personal circumstances will change.
You may get a raise at work, have more outgoings, or inherit money from a family member. When these things happen, you should be ready to adapt your approach to your finances.
8 important financial questions to ask yourself
Ready to get started? Asking yourself the following financial questions will spark interesting conversations and get you thinking.
Let’s dive into our top eight now:
1. Where would you like to be financially in five years?
This is one of the most crucial personal finance questions: do you have a five-year financial plan? Setting long-term budgeting goals helps you to keep your eyes on the prize.
You may find that this activity allows you to curb impulse spending and helps you to have a vision of your financial future.
Define your goals and make a plan
First things first, figure out what your goal is. For example, you may want to be debt-free or have $10,000 in savings. When you have that in your sights, work things backward.
What are the steps you should take to reach that goal? Try breaking them down into manageable chunks that you can approach on a monthly basis. You can then use a budget calendar to help you when you are trying to stick to these targets.
2. How would you cope if you lost your job?
Are you living paycheck to paycheck? 40% of Americans have been fired at some point in their working life, so it pays off to plan ahead. While the worst may never happen, it’s smart to have a financial plan in place — as a safety net.
Think about expenses and save up cash
The first thing you should do is consider your expenses. What needs to be covered if you lose your income? It includes your rent or mortgage, utilities, groceries, and healthcare.
When you have that down, create a budget that would suffice for three to four months. Work out how much cash you need for that period and start setting it aside in an emergency fund just in case.
3. What would you do in an emergency?
You might not lose your job but life is full of unexpected events that can catch you by surprise. Your car may break down, you might have an accident, or your home may suddenly have woodworm in your home. When these instances arise, it’s crucial that you have the funds to deal with them as soon as you can.
Start an emergency fund
The easiest way to deal with this personal finance question is to create an “emergency fund”. Consider what the most costly events may be. You might want to price them up so that you have an idea of how much money you would need to spend.
For instance, consider how much it would cost to fix your car if it broke down. Run the numbers and see whether you have that kind of money in the bank. Next, you can start saving for that fund month by month.
4. Have you created a workable budget for yourself?
Next up, it’s one of the most important personal finance questions. Do you have a budget in place?
If you’re “winging it” with your money, you’re making a mistake. Taking stock of your income and your outgoing expenses is the right place to start.
There are plenty of budgeting options for you. There's the 70-20-10 budget or the 30-30-30-10 budget, for example. Additionally, you may want to use a spreadsheet or app to track your personal finances on a daily or weekly basis.
5. What is the interest rate on your debt?
Whether it’s credit cards, your mortgage, or another type of loan, you should be clued up on the interest rate of all of your debts.
You may not remember what you signed at the time you took out the debt, so now is the perfect moment to review it.
Make sure you have the best interest rate
Take a look at your debt agreements, such as the terms of your credit card or your mortgage contract. That way, you can figure out what the interest rate is and whether it is fixed or variable over time.
Once you have this information, you can start looking at competitors. It may be worth refinancing or transferring the debt to a different provider so that you have a lower overall interest rate.
Keep in mind that you want to ensure refinancing or transferring your debt will actually save you money over the long term.
6. Do you have a debt repayment plan in place?
When you have a load of debt, you may find things overwhelming. It doesn’t matter how you got into this position.
What matters the most is how you work toward getting yourself out of it. One of the most vital financial questions to ask yourself is whether you have a plan.
Leverage a debt repayment approach
To pay off your debt most effectively, consider the debt snowball method or the avalanche method to accelerate your debt payoff.
With the snowball method, you focus on paying off debts with the smallest balance first. With the avalanche method, you focus on paying off debts with the highest interest rates first.
Both approaches are equally as effective, the key is consistency and sticking to the process.
Consider debt consolidation if it makes sense for you
Reviewing your debts and approaching them with a solid plan is the way to go here. So you may want to look at consolidating your debts to make them easier to manage and if it will save you money in the long run.
7. How can you realistically increase your income?
Looking for some spare cash? One of the most often-asked personal finance questions is about boosting your income. If you are lacking the funds that you need right now, it’s worth taking a look at the ways you can realistically improve your situation.
Consider various options
Start looking at your options now. Can you work toward a promotion at work? Is it worth starting a side hustle or selling things online?
In each case, you should consider whether you have the time, energy, and resources to pursue the path that you have chosen.
8. How can you make improvements to your credit rating?
Are you in control of your credit rating? One in eight Americans doesn’t know their credit score, according to recent research. If that sounds familiar, you need to switch things up. Learning how to improve your credit rating is a smart financial move.
Find out your credit rating and improve your score
To get started, you should check your credit rating. There are plenty of systems you can use to do this. Pick one that suits you and take things from there.
Next, look at ways you can boost your credit score. For instance, not making too many requests for new credit, paying off debt quickly, and using 30% or less of your credit limit.
Considering personal finance questions can help you thrive with money!
Have you asked yourself the above personal finance questions recently? Now that you’re well-versed on what you should be thinking about, it’s time for a quick financial review. While looking at your budget can be intimidating, it becomes less so when it’s a habit.
Take the time to ask yourself the above questions and figure out workable answers that suit your lifestyle. When you do that, you will feel like a weight has been lifted from you, and your finances will benefit, too!