Part of the key to managing your money effectively is asking yourself some important personal finance questions. We’ll share some key questions to get you started on the right track.
By thinking about and answering these, you’ll be able to re-evaluate your financial future and start making any necessary changes right away!
Questions About Personal Finances
Creating a financial plan can be a tricky task. Therefore, it’s perhaps unsurprising that only around 5% of British people have a financial strategy. Don’t fret, we’ve put together some questions and some important steps to follow to help you along the way.
Right, let’s delve into the reasons behind regular money management and the financial questions you should be asking yourself!
Why is it important to ask yourself personal finance questions?
The more you know about your finances, the better equipped you’ll be to manage them effectively. While the thought of it all might make your head spin, the reality is that managing your money is essential for securing a stable financial future.
Here are a few key reasons why asking yourself personal finance questions is important:
Understand your financial situation: A clear grasp of your personal finances empowers you to make smarter choices. You’ll know straight away if you have the cash set aside for a significant expense, like a holiday or car repairs, when it pops up.
Build financial stability: Once you start planning for the future, your financial situation will start to take shape. This may well change how you manage your money now.
Empower yourself: By asking yourself these questions, you’ll be in the driving seat when it comes to making financial decisions for yourself.
Review your budget: It’s important to regularly review your spending plan to ensure it’s still on track. Your circumstances will inevitably change over time.
You might receive a pay rise at work, inherit money from a relative, or encounter unexpected expenses. By being prepared to adapt your financial strategy in response to these events, you’ll be better equipped to manage your money effectively.
Seven key financial questions you should ask yourself
Ready to get started? Here are some financial questions to get you thinking and spark some interesting discussions:
Now let’s delve into our top seven:
1. Where do you see yourself financially in five years?
Is there a five-year financial plan in place? This is one of the most crucial questions in personal finance. Setting long-term financial goals helps you stay focused.
By doing this exercise, you might find it easier to curb impulsive purchases and develop a clear vision for your financial future.
Set goals and create a plan
First things first, decide what your target is. Maybe you want to save £10,000 or become debt-free. Once you have that set in your sights, work backwards to create a plan to achieve it.
What steps should you take to achieve that?
Consider breaking them down into smaller, more manageable tasks that you can complete each month. To help you stick to these goals, you might find a financial calendar useful.
If you were made redundant, how would you cope?
Many people struggle to make ends meet, and with 110,000 of British having experienced redundancy at some point in their careers, it’s wise to be prepared. Even if the worst-case scenario doesn’t happen, having a financial plan in place as a safety net makes sense.
2. Review your outgoings and build a financial buffer
The first step is to consider your spending habits. If your income were to stop, what essential expenses would still need to be covered? This might include utilities, groceries, rent or a mortgage, and any medical outgoings.
Once you’ve got a good grasp of this, create a budget that would allow you to survive for three to four months. Work out how much money you’d need for that period and start saving it in an emergency fund as a safety net.
3. How would you cope with an unexpected event?
Even if you keep your job, life throws unexpected curveballs. Your car might break down, you could have an accident, or even find a woodworm munching away in your house! It’s vital to have some money readily available to deal with these emergencies when they arise.
Build an emergency fund
The answer to this personal finance question is simple – create an emergency fund. Consider the most expensive potential events that could happen. You might want to get quotes to get an idea of how much money you might need.
Think about how much it would cost to fix your car if it broke down, for example. Check your bank account to see if you have that amount readily available. This will help you determine how much you need to save in an emergency fund. Once you’ve got a target in mind, you can start contributing towards it each month.
4. Have you created a realistic budget?
This is another key aspect of personal finance. Do you already have a set budget in place?
If you’re just “winging it” with your finances, it’s time to take control. The best way to start is by taking stock of your income and outgoings.
Budgeting Options
There are several approaches you can take to budgeting. Popular options include the 50/30/20 and 30/30/30/10 methods. You can also track your spending daily or weekly using an app or spreadsheet.
Personal Finance Self-Assessment Questions
5. What are the interest rates on your debts?
It’s important to understand the interest rates on all your loans, including credit cards, mortgages, and any other borrowing.
This might be a good time to dig out the paperwork you signed, as you may not remember the specifics you agreed to when you took out the debt.
Check if you’re on the best interest rate available
Look over the terms of your credit card agreements and mortgage contracts, along with any other loan deals you have. This will help you identify the interest rate and whether it’s fixed or variable.
Once you’ve got this information, it’s time to consider your options. Refinancing or switching your debt to a new provider might be worth it to secure a lower overall interest rate.
The key thing is to make sure that transferring your debt or refinancing will save you money in the long run.
6. Have you got a debt repayment plan in place?
A mountain of debt can feel very overwhelming, no matter how you ended up there.
The crucial question is what you’re doing to get out of it. Have you got a strategy? This is one of the most important financial questions you should ask yourself.
Use a debt repayment method
The debt snowball method and the avalanche method are two ways to tackle your debt more quickly and effectively.
When using the snowball method, you prioritise paying off the debts with the smallest balances first. The avalanche method, on the other hand, focuses on tackling debts with the highest interest rates first.
Both approaches can be effective; the key is to be consistent and stick to the plan.
Consider debt consolidation if it makes sense for your situation. The best approach here is to review your debts and create a well-thought-out strategy to tackle them. So, to simplify managing your debts and potentially save money in the long term through consolidation, it might be worth exploring this option.
7. How can you realistically boost your income?
Increasing your income is a common question in personal finance. If you’re feeling a financial pinch, it’s worth considering ways to improve your situation.
Let’s explore some practical options. Take a moment to consider your choices. Could you push for a promotion at work? Perhaps selling goods online or starting a side hustle is worth exploring?
The key is to assess whether you have the time, resources, and energy required for your chosen path.
You can take control of your finances by getting to grips with personal finance!
Have you considered these personal finance questions lately? Now you’re armed with what you should be thinking about, it’s time to take stock of your finances. Facing your finances can be daunting at first, but it gets easier with practice.
Think carefully about the questions above and come up with practical answers that suit your lifestyle. Once you do, you’ll feel a weight lifted and your finances will be on the right track!
