10 Personal Financial Questions Everyone Should Be Able to Answer

As we move through life, we get bogged down with day to day activities and might find that small pieces of our financial puzzle get neglected. These neglected areas can have a negative impact on our ability to meet our goals. If you can positively answer the ten questions below, you are certainly putting your best financial foot forward.

1. Do you know where your money goes every month? Folks that understand their income and expenses have a better opportunity to make sound spending and saving decisions. I’ve heard many times from new clients that they are happy with their income but don’t know where their money goes every month. Creating a picture of income and expenses gives one clarity and opens the door to real financial growth.

2. What’s on your credit report? Knowing the contents of your credit report can help protect your financial backside! With the growth and ease of electronic communications today (email and internet) more and more people are at risk of financial fraud. Vigilant behavior is one the best offenses to defend against financial fraud. Another benefit of understanding your credit report is the ability to position yourself as a viable candidate for a loan if needed. Today, this is more important than ever with mortgage lenders ratcheting up lending standards. Mortgage rates are low and real estate prices are ripe for the picking, but a great credit score is needed to get the lowest mortgage rate.

3. Do you know where your important financial documents are and what they say? Your financial documents are vital to your success, but it’s not the documents themselves that are important. It’s what the documents state that is important. If you don’t know where they are, you probably don’t know enough about the information they contain. The exploration and discovery of your important financial docs will help illustrate your financial health. Once you find them, dust them off and read what they say.

4. Are your Estate Planning Documents up to date? Obviously, this question goes hand and glove with question #3. Estate Planning techniques and tax laws are constantly changing, so older legal documents may not serve the original purpose. The fiduciary appointments (executors, personal representatives, guardians, trustees…etc.) inside these documents may no longer be the appropriate choice. It’s important to review estate planning documents every 3-5 years or upon a major life event such as birth, marriage, death, or divorce.

5. Do you know how much you pay in taxes? While the exact answer to this question is not the purpose, the overall goal is to understand that taxes are usually the single largest recurring expenses for most folks. Understanding the magnitude of taxes on your overall financial health is vital, so maximizing tax efficiencies should be an integral part of holistic planning.

6. Are you living within your means and savings at least 10% of your income? This question is similar to question #1 but goes a step further. Knowing where your money goes is important, but doing the right thing with your money is crucial. Spending less than you earn and saving 10% of your income is pinnacle to spur financial growth.

7. Are you balanced financially between today and tomorrow? Are you eating rice and beans today so that you can eat filet tomorrow? Are you savings everything for retirement, or are you spending your earnings as quickly as it hits your pockets? A financial lifestyle based on a lop-sided view will lead to financial dysfunction. So, while saving all your nuts and berries for tomorrow may seem like a great idea, the reality is the mental dysfunction of hoarding may lead to less enjoyment of the nuts and berries later. Creating balances between today and tomorrow will help to balance life’s ups and downs, as well as establish a healthy approach to growing wealth.

8. Do you have an investment plan in place? Are you just throwing money at the market? Do you rebalance your portfolio at least annually? Is your portfolio properly allocated based on your personal risk profile? An investment plan will address the above questions and deliver guidance during turbulent market environments. A financial plan without an investment plan is like a ship without a rudder.

9. Do you have the proper amount of liquidity? Liquidity is the keystone of the financial foundation. Liquidity is the cash that delivers stability during an economic hardship (job loss, unemployment, or natural disaster) enabling one to withstand the hardship without irreparable financial damage. The old adage of 3-6 months of living expense may or may not be enough. Every situation is different and should be assessed individually.

10. Do you know what your insurance deductibles are? If a rock broke the windshield on your car, would you know if you are covered? If a tree fell on your roof, do you understand how the insurance company will determine the amount of your payout? Insurance deductibles are a great place to start when looking to understand your coverages. Is your insurance deductible right for you? Is it too high….Is it too low? Remember, lower deductibles increase premiums!

These ten questions are broad questions that point to the importance of a total financial plan (holistic planning). While there are other questions that may be important, this list is a good start to give yourself a quick check-up while searching for any missing financial puzzle pieces.

About the author

Troy Von Haefen, CFP®
Troy Von Haefen, CFP®

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