Top 10 Personal Finance Questions That You Should Have an Answer For

When it comes to managing your personal finance plan, knowledge is essential. Financial literacy includes knowing how much debt you have, how to reduce that debt, and how to plan for retirement.

You’ll be able to make better financial decisions for yourself if you grasp these factors. While many people may think they understand financial concepts, this is unfortunately often not the case. Look at these ten questions about money and financial planning and see how well you know the answers to get an idea of how much more you could know.

1. If You Have Credit Card Debt, Should you be Paying That off First or Saving for Retirement?

While it may seem counterintuitive to save money for the future when you have a large amount of credit card debt with a high interest rate in your personal finance, it’s a good idea to put some of that money away now. The problem with retirement planning is that it requires a lot of time, and once that time has passed, you can’t get it back.

If your employer doesn’t provide retirement benefits, start putting aside a portion of your salary into an IRA account now, even if it’s just a small amount each month, and then use the rest to pay down debt as a part of your personal finance plan.

2. What Percentage of Your Income Should you Pay For Housing?

According to conventional wisdom, renting or owning a home shouldn’t consume over 30% of your income in personal finance. If you own the property, your monthly expenses will include not only the mortgage payment, but also the cost of utilities, repairs, and taxes.

For an accurate picture of what you can afford, take an inventory of all of your monthly bills and compare them to your total monthly income. As housing markets vary from region to region, this isn’t always possible. In areas where property values are higher, you may not adhere to the 30% rule. However, this is the benchmark you should aim for.

3. What are Some Reliable Ways to Pay Off Debt?

While unexpected expenses may force you to go over your monthly budget, staying within your means and paying your bills monthly is the best strategy for staying out of debt and managing your personal finance. It’s easier to pay down debt when your expenses are less than your income.

Credit cards are one of the largest sources of debt, tacking on high interest rates that make each purchase cost more than it otherwise would have if it had been paid for in cash. If you have multiple accounts, pay off the smaller accounts first.

When they are eliminated, take the payments you are applying to the smaller accounts and begin applying them to larger accounts, creating a snowball effect.

Pay Off Smaller Debts First

Smaller debts are easier to pay off first, so you can see the benefits of your debt reduction efforts sooner. If you make a list of all of your debt and your monthly income, make sure that you can make the minimum monthly payments on each, and then apply any extra to the lowest loan first.

As you work your way from the smallest debt to the highest, you’ll be able to pay off more on the larger accounts faster and your personal finance plan will be far healthier.

4. Do you Have a Plan for Unexpected Unemployment?

Unemployment’s wild swings over the past few years are a sad sign of the times. Many businesses were forced to close because of the pandemic, and many people were forced to give up their jobs in order to care for their children.

Would you be able to get by for a few months if you were to lose your job unexpectedly? If you find yourself unemployed, it’s important to have an emergency fund in place in your personal finance to help you pay your bills.

Facing a Financial Difficulty

If you’re facing financial difficulty, you’ll need to sit down and make a list of all of your monthly expenses in order to determine which items are absolutely necessary and which ones you can do without. Housing, utilities, food, medical care, and transportation are all considered necessities.

As soon as you lose your job, you must begin searching for a new one, but having an emergency fund will give you some time to do so.

5. Will you Have Enough for Retirement?

Even if you have enough money in your savings account to cover six months’ worth of expenses in your personal finance plan, you are never truly finished saving or putting money in your savings account, especially in your retirement plan. Depending on your financial situation, you may not have enough money in your savings account to cover all of your unexpected expenses and repairs.

personal finance

Saving for a stress-relieving event like a vacation or other getaway is also an important consideration that can improve your physical and mental health. It is recommended that you have six months’ worth of living expenses saved up.

In addition, you should have enough to pay off any outstanding debt or cover an unexpected medical bill or loan. You should regularly contribute to an IRA plan or employer backed retirement plan and start early.

6. What are Your Financial Goals?

Do you have enough money coming in each month to cover your current expenses and have a little extra set aside for unplanned events? The cost of living in your area, your job’s long-term stability and upward mobility, your local job market, your personal finance plan and your healthcare costs should all be considered when setting aside an emergency fund for three to six months.

Many people, particularly those who are young and healthy, fail to budget for potential healthcare costs on a monthly basis. Also, people assume that they have enough money to live comfortably and, therefore, will have enough money left over each month for expenses, but they don’t track how the small purchases add up.

If you earn $3,000 a month, your monthly expenses and housing should be only $1,000 each, and at least $1,000 of that should go into savings, resulting in a savings account with between $12,000 and $15,000 in it.

To avoid the problem of nickel and dime expenses adding up in personal finance, one should avoid paying for extras such as Starbucks every day, re-evaluate gym memberships, Netflix subscriptions, or other subscriptions that can add up over time, even if one is making a comfortable living and can meet his monthly expenses.

When you throw in an unexpected car repair or a slew of untracked purchases, you’re left with nothing in the bank at the end of the month. Even small expenses add up, so they should be carefully monitored, or even cut out entirely, in order to save more money or pay off debt.

7. Do you Have Plans to Fund Your Children’s Education?

The education of your children may not cost you much if you are fortunate enough to live in an area with excellent public schools or in a state that offers scholarships to state universities for students who achieve certain ACT or SAT scores.

However, if you live in an area where you must pay for private schools because public schools are under-funded and underperforming, or where there are few opportunities for university scholarships, you will need to include financial planning for your children’s education in your personal finance plan.

If you intend to pay for your children’s education in whole or in part, starting a 529 plan early is a smart move.

Personal Finance & Future Goals

You contribute a set amount of money to the account each month, at which point the recipient can begin withdrawing money from the investment account to pay for the intended experiences at a predetermined point in their lives.

While deciding on a secondary education, keep in mind whether your child will live at home during their college years and if they are eligible for financial aid such as scholarships or the G.I. Bill through service in the military. Your adult children should also have their own personal finance plan.

8. Do you Invest?

As your income and personal fiancé circumstances change, you may have to adjust your living expenses as well. This needs to be expected. Do you intend to pay off your student loans or credit card debt, for example? Refinance your car or house first? How about taking a once-in-a-lifetime vacation? Rent or purchase a home?

The longer it takes to save for a large life goal, the better it is to plan for it now. With savings, the longer you work on it, the better off you’ll be in the future. The best way to anticipate and plan for these changes is to diversify your money and invest.

You can invest in Roth IRA accounts, precious metals, stocks, even cryptocurrency if offered by your retirement group. These also should be started as soon as possible, as length of time matters in the long run for long term investing.

9. Do you Know the Steps to Improving Your Credit Score?

Pay all of your bills on time and pay off any loans you have as soon as possible to improve your credit score. It’s true that the credit score has come under fire lately as being an imperfect method of determining a person’s ability to pay back debt in the current era.

However, it still remains the overall determining factor of whether you are approved for a loan, the percentage rate you will get, and many other financial dealings affecting your personal finance plan.

Obtain A Free Credit Report

TransUnion, Equifax, and Experian, the three major credit bureaus, each offer a free annual credit report to their customers. This allows you to keep tabs on what is appearing on your credit report and makes it possible for you to correct any anomalies, such as accounts you do not recognize that might show your identity has been stolen.

Credit reports can reveal if there are any unpaid balances that were not previously known or forgotten about that must be paid off immediately. Mostly, you should not be using over 30% of your available credit, and you should keep your older accounts open for their maturation. Maintaining a good credit score is a long-term endeavor, just like saving for retirement.

10. Do you and Others in Your Household Agree on Finances?

In a relationship, financial decisions can make or break it if they aren’t worked out in advance. Do you and your spouse or partner plan to keep your personal finances separate or merge them? It’s a good idea to keep your savings and spending accounts separate if you have different spending and saving habits.

Will you split expenses down the middle, or will the one who makes more pay more while the other handles household chores? What about adult children who still live at home? Will they contribute to the house or by paying for food or utilities or not? When putting together a long-term financial strategy, these issues should be considered.