11 money questions you need to be able to answer
Financial literacy is extremely valuable for any hard-working US citizen who wants to get the most out of their money and set themselves up for a comfortable future (including but not limited to a good retirement). Here are 11 money questions that every person should be able to answer.
1. What should I be prioritizing?
The best thing to do when trying to figure out what to prioritize financially is to consider the long-term result of the choice.
While you may have money sitting in a savings account that you want to keep building up, you could have debt you’re choosing not to pay down in another account.
An account with higher interest rates. Take stock, ask yourself what your end goals are and remember that you have a financial responsibility to your future self.
2. How good is my credit score?
Without a good credit score, you risk not being able to lease a car, take out a mortgage or rent an apartment.
Credit scores are calculated based on credit report information, including your payment history, credit mix, length of credit history, utilization rate and the amount of new credit you’ve taken on or applied for.
You may need to take out a credit card if you don’t have one to improve your credit.
You’ll definitely need to meet payment deadlines and never borrow too much.
3. Have I automated savings?
Automating your savings allows you to stay financially organized every month, even when one month is a bit hectic.
You can’t forget to transfer into a savings account if the payment is automated and calculated in advance.
When you’re making regular transfers from your earnings every month, it will build up over time.
And before you know it, you’ll have a nice lump sum to dip into if needed for an emergency situation. Or perhaps a once-in-a-lifetime vacation?
4. Do I have any debt to pay off?
Don’t punish yourself if the answer is yes. Many US adults have debt that they’re working to pay off, and debt can sometimes be helpful in the long run in terms of building a good credit score.
The important thing about managing your debt is that you’re fully aware of every agreement you enter into (and every policy contained within that agreement) and can plan effectively around the terms that apply to you.
5. What is the value of my assets?
An asset valuation will enable you to determine your assets' fair market or present value.
You're much better informed when you’re fully aware of how much money you have tied up in your personal assets.
While people are generally aware of which assets they own, they may not be mindful of their total value.
Personal asset examples include property, household furnishings, bonds, cash, jewelry and more.
6. Am I suffering from a noticeable wage gap?
This is a question for women in the workplace, but it’s also a question that male partners might want to consider on behalf of their loved one.
In 2019, it was concluded that women made 82 cents for every $1 earned by men. If this is the case in your workplace, you may be in a position to negotiate with your employer.
Even if you aren’t, it’s essential to be aware of discrepancies like this and how they might affect your long-term financial and retirement planning.
7. Is my employer contributing to my retirement?
This is an important question, as failing to contribute to an employer-sponsored 401(k) could mean giving up a large amount of financial support in your golden years.
Some employers will go so far as to match all your pension contributions, doubling the amount you’re saving for the future.
It’s also important to consider this question from the other direction, realizing if your employer isn’t contributing and taking steps to save alone (like opening an individual retirement account).
8. How much debt is too much?
You’ve probably heard before that some debts are considered “good debt” while others are considered “bad debt” — but what’s the difference?
Student loan debt is good debt, as interest rates tend to be lower on student loans and getting a degree can grant you access to a higher-paying job that makes the loan value worth it.
Credit card debt is usually bad debt. When it comes to credit, experts say you should try to aim to keep your usage to 30 per cent or less.
9. Should I review my expenses?
Yes. And regularly. While there’s every chance that all of your expenses are necessary and/or important to you, you may find the odd monthly subscription service you’ve completely forgotten about if you take the time to check.
Regularly assessing your finances and expenses helps you to reduce unnecessary spending and be fully aware of your outgoings.
When you’re aware of your outgoings, you’re less likely to overspend casually or take on more debt than you can afford.
10. Should I be investing?
If you’re interested in growing your wealth and improving your financial situation, investing is a great way to make it happen.
Finding the right investment opportunities takes time, research and effort, and it’s not for everyone.
But if it’s for you, it could make you a lot of money reasonably passively, supplementing your working earnings.
Do your research, determine your ideal level of investment risk and weigh up the pros and cons.
11. How much can I spend on the things I love?
While it’s important not to put yourself in a desperate financial situation because you’re spending too much money on your hobbies, it’s also vital that you enjoy your life and have some fun.
Try to earn to live rather than living to earn… but don’t overspend.
According to many financial experts, you are absolutely fine to buy that new outfit or invest in that gym membership as long as you’re not spending over approximately 30 per cent of your income on hobbies and luxuries.
Kate has written for leading publications and blue chip companies over the last 20 years.