My experience with money – going from mountains of debt to debt freedom – over the last decade has taught me one sure financial principle that simply repeats itself over and over in my life.
Personal finance is all about self-evaluation. The more consistent your self-evaluation, the better your grasp of your financial situation will become.
In other words, if you want to succeed at money, you need to be constantly looking at your own life, your own goals, and your own choices until that kind of reflection becomes second nature.
What if that type of reflection doesn’t come easy, though? I’ve found that when I’m struggling with money issues, the best way to start is with a question. I’ll ask myself a pointed question about my personal finance situation and make myself answer the question truthfully.
Usually, answering the question requires some research. Usually, it also requires some reflection about my goals and what I really value in life. By the time I can put together a reasonable answer to the question, I usually have new insight into my situation.
Need some examples? Here are ten great personal finance questions to ask yourself. The process you have to go through to answer these questions fully and honestly will almost always point you toward better personal finance choices and behaviors in your life.
What was the last money mistake I made and why did I make it?
Often, this is a spending mistake – you spent money in some way that you really shouldn’t have done. Other mistakes pop up as well, depending on when you ask this question.
It’s the second part that can be tricky. Why did you make that mistake? What about that situation caused you to use money in a nonsensical fashion? Was it the people? The place? The emotional state you were in? What can you do to keep that from happening again?
Am I on a realistic savings pace for what I want to do when I’m near retirement age?
This means heading to a good retirement calculator like this one from Bankrate and seeing what your pace looks like. Use some realistic numbers, like a 3% inflation rate and a 7% return on your investments.
Are you actually on pace to retire when you want to? What if you add a few years onto your working years? If you’re still not there, then this should be a wake-up call.
If I have children, what am I doing to make sure I can help them with schooling in the way I would like to?
First, you need to decide how you intend to help your children during their college years. Are you going to offer financial support in any way? Are you willing to pay for some of the educational expenses? All of them?
If you’re going to help, are you saving for that right now? Let’s say you intend to help with $10,000 of their college expenses. How much do you have to save per year to make that happen? Are you actually saving that much?
If I have any dependents or have any living former dependents or others I care about, do I have a will (or other estate plan) or life insurance and an information document in place for them?
For single people, this isn’t much of an issue. Their only estate concerns are usually funeral expenses.
For people in committed relationships and particularly people with children, this is a major concern. What becomes of those people who are reliant on you if you were to suddenly pass away? A term life insurance policy is vital in these situations.
Do I have enough of an emergency fund?
I recommend that everyone have at least $1,000 in their savings account for emergencies. If you don’t have that, achieving that should be your highest priority.
There are countless reasons for having an emergency fund, from car issues to… well, let’s look at a couple of examples in depth.
What would happen to me if I were to lose my job tomorrow and couldn’t become employed again quickly, and how can I improve that plan?
Do you have a plan for becoming re-employed? Do you keep your resume and skill set up to date so that you’re an attractive hire?
Those questions are on top of the big one about how you’ll financially survive after a job loss. What will you do for income? A healthy emergency fund makes this all a lot easier.
What would happen to me if my spouse passed away suddenly or became unable to produce income or care for him/herself, and what can I do to improve that plan?
This is another scenario that becomes much easier with a healthy emergency fund in hand.
Still, you need to ask yourself if your family could survive on just your salary for an extended period of time. Is that something that is workable? If not, what can you do to make it work if necessary?
What big expenses do I know are coming in the next year, such as property taxes or insurance payments?
Rather than panicking when those giant bills arrive, a much better approach is to start saving for them now.
Let’s say you have a $4,000 property tax bill coming in eight months. Why not divide that bill into eight $500 chunks and save $500 each month so you can easily pay the bill? If you start now, it becomes much easier.
What big expenses do I know are coming in the next five to ten years, such as a down payment or a new car?
This is similar to the previous question, but it forces you to look a little bit further down the road at things that are a bit less set in stone. You have to pay your property taxes by a certain date, for example, but you don’t have to have a down payment by a certain date.
Still, setting an approximate date and figuring out how much you would have to save each month to make it there can make actually achieving that goal much easier, even if the road there isn’t quite as direct.
What can I realistically do to improve my income level?
Can you put yourself in a better position at work? Can you find a better-paying job elsewhere? Can you get a different part-time job, or perhaps start a side business?
Maybe you can even do something as simple as clicking on picture elements while you watch television to earn a few dollars.
It is always a good time to think about these questions. Where do they lead you?