13 Things You Should Know About Your Finances
You have a unique relationship with your money. You earn it, you spend it, you save it, and you use it to accomplish big things in your life.
It’s part of your everyday life. But do you really know your money?
See how well you can tackle these 13 important questions about your finances.
1. What’s your credit score?
Your credit score helps determine what kind of financing you’re eligible to receive, how much you’ll pay for car insurance, whether you can rent that apartment, and more.
Knowing your score gives you an informational advantage in all of those areas. And it offers the opportunity to improve your score — and your financial health — over time.
Get your free credit score through your credit card issuer or through a reputable service like Credit Karma.
2. How much debt do you have?
Identify all the loans, lines of credit, and personal debts you have. Then add them all up.
Consider your mortgage, car loans, student loans, credit card balances, medical debt, personal loans, home equity loans and lines of credit, outstanding bills, payday loans, bad credit loans, retirement plan loan, funds you’ve borrowed from a friend, and any other amounts you owe.
3. What’s your net worth?
Your net worth is simply the amount of equity you have to your name. That is, it’s the sum of all your assets, minus the debts that you owe.
To calculate yours, total your account balances — savings, checking, investing, retirement, college savings, etc. Then add in the value of major property you own — typically houses, cars, and other vehicles. Those are your assets.
Now compute your liabilities. That’s simply the total amount of debt you have.
Subtract your liabilities from your assets to determine what your net worth currently is. You may want to tackle this activity for just yourself or for your household.
4. What’s your take-home pay?
The salary you earn and the amount you actually pocket can be significantly different amounts. Knowing your gross earnings — the money you earn before deductions — is important. But understanding how much you get to keep is essential in building a budget that works.
The best place to discover your take-home pay (or net pay) is your paystubs. There you should see a breakdown of each deduction — taxes, retirement plan contributions, insurance payments, etc. — and the amount of your true take-home pay.
If you’re given a paper check each pay period, note the amount as your take-home pay. Or look at your bank account if you’re set up for direct deposit.
5. Where are you spending your money?
Creating a realistic budget requires two key pieces of information — what you’re earning and what you’re spending. And most people vastly underestimate the money they spend each month.
You have plenty of regular expenses — rent, food, utilities, credit card payments, etc. But remember that you also have less frequent costs like insurance premiums, medical bills, holiday gift spending, and vacations.
If you use plastic frequently, review several months of your card transactions to estimate your typical spending. Or use a specialized app that tracks your expenses for you.
6. How long will your emergency fund last?
An emergency fund offers a cash cushion when you face unanticipated costs like a surprise bill or a job loss. Most financial experts recommend saving anywhere from three to twelve months’ worth of expenses. But what does a month of expenses actually look like for you?
Look over your existing budget, and see how it would change if you ran into a financial crisis. Maybe you’d boost your income with extra hours. Maybe you’d slash your costs by eliminating your cable subscription, postponing your vacation, and limiting your grocery costs.
From there, you can see how much you’d actually be spending each month — and see how far your existing savings would take you.
7. How much are you really saving for retirement?
Knowing the answer to this question involves looking at three separate numbers:
First, how much do you currently have in your retirement plan through your job and any retirement accounts (like a traditional IRA or Roth IRA)? Second, how much money are you contributing to these accounts and to your 401(k) each year?
Finally, how much money is your employer contributing? Many businesses match employee contributions up to a certain amount, and that money is yours to invest and enjoy in retirement!
8. How much do you need to save for retirement?
Your target savings amount is unique to your financial needs and your retirement goals. In general, financial experts recommend saving 15% of your gross (or pre-tax) earnings.
Even if retirement is years away, you can estimate a future budget right now. Will you still be paying a mortgage or rent? Do you plan to relocate to a less expensive area? Will you travel frequently or take up expensive hobbies? The more you plan to spend, the more you’ll need to save.
Consider using a retirement calculator or working with a financial advisor to estimate your need and track your progress.
9. What’s your risk tolerance?
Before you choose investments for retirement or a traditional portfolio, you need to know your own comfort level. What amount of risk are you willing to take on in seeking a return from the market?
If you’re looking at a longer time horizon — saving years for college or decades for retirement — you might take a more aggressive approach to investing. After all, you’d likely have time to recover from any dips in the market and recoup your losses. If you’re seeking short-term returns only, you may want a more conservative approach with your assets.
Talk with a financial advisor or walk through an online questionnaire to help you assess your own tolerance for risk.
10. Do you have the insurance you need?
At least once a year, do an assessment of your existing insurance policies to see if they still fit your family’s needs.
Do you have and need coverage for your home, car, health, life, short-term disability, and long-term disability? Are you a good candidate for long-term care insurance?
And do you have enough protection in place? You may need to adjust your policies — or buy new ones — as life changes or your family grows.
11. Where are your financial records?
Keeping your important financial papers organized can save you plenty of headaches. You might need to deal with a tax audit, apply for a mortgage, or have someone else handle your finances if you’re sick.
Set up a simple filing system for your paper documents that makes storing and locating paperwork a snap. And don’t forget about digital documents too. Organize your records clearly in subfolders, and back up your files frequently.
12. What are your financial goals?
Money is a powerful tool that helps you accomplish your goals. So, understanding those goals is key in ensuring you’re making the best choices for your finances. If possible, write down your goals, reference them regularly, and update them as needed.
Consider your long-term goals first — retirement, buying a home, college savings, starting a business, and whatever else you hope to accomplish several years down the road.
Then list out your short-term goals — paying for summer camp, taking a weekend trip, getting a new job, and anything else you want your money to do for you within the next few years.
13. What don’t you know about your finances?
Your financial journey is ongoing. Life, the market, and the world of money are constantly changing. So, understanding what you still need to know can guide you to your next steps along that path.
For you, that might mean learning more about investing, figuring out where your money is being spent each month, or talking with an advisor about the best way to save for the future.
What information do you still need to feel in control of your money? And what skills do you wish to develop when it comes to your finances?
You have big dreams for what you want to do with your life. And money is key in helping you accomplish some of those goals. When you understand your finances, you can harness the power of your money and use it to power a bright future.