Financial Questions: What to Ask Yourself About Your Finances

As a debt specialist, I am often asked for advice on how to avoid unmanageable debt. I’ve found these 5 questions that people can ask themselves about their finances are a good indicator of whether or not they have control of their finances. Money plays a huge role in our lives and being able to answer these questions about our finances helps us plan for the future as well as the present.

These questions are a good place to start as you consider your personal finances.

1. Do I know how much I make and owe each month?

Information from your pay stubs, credit card statements, or insurance bills can yield some interesting insights. Details like deductions and interest make a big difference when it comes to managing your money. Knowing when you get paid and exactly how much you owe at each point in the month can help you avoid a month-end cash crunch.

Tracking payroll deductions allows you to monitor retirement savings balances and year-to-date tax deductions. Also, understanding your credit card billing cycle helps you keep interest charges low and extra fees in check.

2. Do I have an emergency fund, and if not, do I have a way to get one?

The best way to prepare for any financial emergency is to have money set aside—just in case. The normal advice is to have 3 to 6 months of income saved for emergencies. Most people fall short of that amount, but it is a good place to aim for. If you have been putting off setting up an emergency fund, there’s no better time to start than right now. To make it easier, start small, so that you get used to putting a little aside each pay period. Over time, you will find you can increase that amount. It may take quite a while to get to your goal, but you will be glad you did when unexpected injury, illness or the loss of a job crops up. The one thing we can be sure of is that life will be full of unexpected turns.

When in a financial bind many people are tempted by payday or other high interest loans. These predatory loans are almost impossible to pay off and will leave you with a larger financial emergency than you started with. In an emergency, having some money set aside can make all the difference in the world.

3. What will happen if I die?

No one likes to think about dying, but questions about your finances and wishes are best answered during your life. How will your spouse be affected financially?  Preparing a will clarifies things like who will pay for your funeral, take care of your children, and inherit your possessions.

If you have dependents, life insurance is essential to protect their interests when you are no longer there to do so. Be sure that your beneficiary information is kept current. Also, it is best NOT to make your “estate” the beneficiary. Your family will receive the funds much more quickly and directly if they are specifically named. You should also know how much your policy is worth and how it will be administered, particularly in the case of minor children.

4. If I lose my job tomorrow, what will I do?

Drawing up a job loss plan helps you face employment-related uncertainty with greater peace of mind. Your plan should include an emergency savings account, limited debt, and an updated resume. It never hurts to take out your resume once a year, dust it off, and update it with information from the past year. That way it is always ready to go, and you don’t forget key points that might be beneficial to have on it.

Keeping your long-term debt as low as possible, paying off credit cards every month instead of accumulating a balance, and staying on top of current mortgage terms in case better terms become available, are all things to do before a job loss. That way, you know that your basic costs are under control.

Once the job is lost, the most important thing you can do is look at what lifestyle changes can be made immediately. Lifestyle is the hardest thing to change in a financial downturn. You likely want to continue your kids’ music lessons and sports, but, as a family, you can cut out some things immediately — the fancy coffees, eating out, etc. We all have things in our lives that are luxuries. It is important to identify what is a luxury and what is essential and pare back the luxuries while you look for work.  When that first new paycheque comes in, you can plan a family treat to celebrate. Just remember, that the longer you were unemployed, the longer it will take to get back to your former lifestyle.

5. Do I know the rates I pay and earn?

Paying the smallest amount of interest possible on debt and earning the most interest possible on savings and investments add up to greater cash gains for you. Make sure you are paying the lowest possible interest rate for auto loans, credit cards and other unsecured debt, as well as your mortgage. We would all prefer to be saving for our financial goals — that family vacation, the new car, the downpayment on a home — rather than paying interest and service charges. Check it out. You may be surprised at how much you pay in interest every month.

A Useful Exercise

I hope you tried answering these five questions. Understanding your money well enough to answer these five questions about your finances helps you reach your financial goals. Don’t worry if you don’t have all of the answers now—just take a little time to learn more about how your money can work for you. If you’ve answered these questions, and you feel swamped by your debt situation, give us a call for a confidential consultation. As Licensed Insolvency Trustees, we offer free counselling and advice. The sooner you ask for help, the more options you will have available.