Personal Finance Questions You Should Ask Yourself
Asking questions and learning more about any topic is a way to improve and upgrade your thinking. It applies to personal finance as well. When someone has good understanding about personal finance and other related fundamentals, it helps them to make better bottom-line decisions.
Here are some personal finance questions you need to ask yourself:-
1. Are your basics covered?
Many financial advisors strongly recommend covering ‘basics‘ before starting any investments. Basics mean having enough in your:
- Emergency Fund
- Term Insurance &
- Health Insurance
If your basics are in place, you will be ready for any emergency and still can keep your assets and investments safe for future financial goals.
2. Are you following healthy financial habits?
Your future depends a lot on your current financial habits. If you have a habit of spending money without thinking then next question you need to ask yourself is – What will happen during retirement if I stick to my current spending habits?
3. Do you know your ‘Financial Freedom Date’?
Imagine the day you will no longer have to stress about income and expenses. No debts, no EMIs, and leading a peaceful, comfortable life- Such a powerful motivating thought, right?
Achieving financial freedom could be a long journey for someone, whereas it could be an early achievement for a few others. This date could vary with the individual, their financial situation, dependents, income, etc. Yet asking this question to self can give you an entire picture of your current and future financial status.
4. How long are you planning to fund your child’s education?
For most parents, ‘child future goal’ is more important than their own retirement. While as a financial advisor, I always suggest- prioritize your retirement goal over child education. Start Saving and investing regularly for your retirement.
It is always better to decide if and how long, how much you’ll contribute to your child’s education.
5. Are you financially prepared in case of a job/income loss?
No one likes to even think about losing their job or income source. But it is better to stay prepared for such situations. That is why having an emergency fund is important, which can help you to continue your regular life and pay for essential expenses till you find another job/income source. The recommendation is to have at least six months and max. one year’s worth of living expenses in your emergency fund.
6. Have you started planning for your short-term goals?
Many people often neglect to plan for a few obvious short-term goals. For example- buying a car, a foreign trip. Planning adequately in advance for such expenses helps you avoid tapping into your emergency fund, taking debt, or adjusting your long-term financial goals.
7. How much percentage of your income should go towards home loan EMI?
Home loan EMIs or rent- one of the expenses which hold a significant percentage of your spending. The rule of thumb says- not to spend more than 30% of your gross monthly income on housing. And this 30% includes EMI/rent payments, utilities, insurance, and property taxes if you own a home. This way, you can reasonably spend and pay for other expenses.
Sometimes it gets hard for a few people to stick to the thumb rule. Budgeting and cutting down on unnecessary expenses can help in such scenarios.
8. Should you focus on debt repayment or investment, if you are under a debt burden?
Answer to this question changes with the individual and kind of debt he has… Generally, if one has high interest debt t like credit cards, then it makes sense to prioritize your debt pay off over investments. But if you have a loan with an interest rate of lower than 5% it could be manageable to start investing some savings instead of exclusively focusing on debt repayment.
Life’s uncertainty makes it impossible to prepare for everything that lies ahead. However, asking yourself some thoughtful questions can help you to do the assessment, break the regular path and challenge to change your investor mindset.
These questions can change your behavior and habits towards money and provide a different perspective on the same old things.
