Eight Questions About Personal Finance Everyone Should Be Able to Answer

It’s probably not much of a revelation to say that understanding your personal financial situation is important. But how well do you know your money?

Even if you’re able to comfortably manage your money on a month-to-month basis, there may be crucial gaps in your knowledge. Ask yourself the following eight questions. If you know all of the answers, you’ve got a pretty good handle on personal finance. And if you don’t know any of the answers, well, now’s a great time to get some answers.

1. How much do I have in savings?

You probably monitor your checking account a little more closely than you monitor your savings account, but it’s important that you keep an eye on both. If you haven’t already, see if your bank or financial institution offers online banking or a smartphone app to help you track your accounts easily.

You should also know the status of any other savings vehicles (retirement funds, 401(k), certificates of deposit, etc.) and how to access those funds in an emergency. In essence, you should know what kind of funds you can access should the unexpected happen.

2. How much debt do I have?

Your debt includes credit cards, car loans, student loans, mortgages, and medical debts. If you’ve got automatic payments on any of your fixed bills, you may not be looking at your monthly statements, so you might not know exactly how much debt you're carrying at the moment.

Review statements every time they come in and verify your balances so you can keep a running total. Also, be sure to pull your credit report periodically in order to make sure all your debts are accounted for.

3. What’s my net worth?

Your assets are the accumulated value of your cash (checking, savings, investments), your home, your automobile, and anything else you own with value (think jewelry and other items with established re-sale value). Your liabilities are your debts, including the remaining balances on any loans. When you subtract your liabilities from your assets you get your net worth.

Obviously a negative net worth is a problem, but net worth is best used as a figure that you track over time. Ideally your net worth increases year over year, but if it’s going in the opposite direction that may indicate that changes need to be made.

4. What’s my credit score?

Here’s the thing about good credit scores: you don’t need them until you do, and by the time you need them it’s too late to do much about improving them. That’s why you should always be working on building a strong credit history and part of that is having an idea where you stand presently.

Fortunately, today it’s easier than ever to find out your score, thanks to sites like Credit Karma and the fact that many credit card companies and financial institutions have begun offering free scores and credit monitoring as a program perk.

Keep in mind that you have many scores and they're all changing month by month, so the idea isn't that you need to know every score, every time they change. More than anything, you just want to know your current range (poor, fair, good, excellent) and how that score has been trending over time.

5. Where are my retirement funds?

Just like our credit, the state of our retirement funds is something we tend to avoid thinking about until it’s much too late. Do you have a retirement account at work? How much is in that account? How much is taken out of each paycheck and how much of those funds does your employer match? Do you have old accounts at previous jobs that you never transferred?

If you're unclear about the status of your retirement funds, now's the time to track everything down and make sure you're happy with your progress to this point. 

6. How much money would I need to manage 3 months without income?

Most experts agree that you should strive to have between 3-6 months’ worth of living expenses saved up in case of an emergency. Tackling the low end of that scale, do you know how much money you and your family would need to manage three months without income?

It’s an important question, because it illustrates the cost of monthly essentials (shelter, food, utilities, etc.), and makes it very clear whether or not you’re financially prepared for an unexpected setback. To make it easy, just take your three most recent monthly bank/credit card statements and total up the expenses. That spending baseline should be your savings target. 

7. What are my tax deductions?

A lot of people assume they’re due for a tax refund every April and are caught completely off guard when they find out they actually owe money to the IRS. When it comes to your taxes, you should really avoid making assumptions.

If you aren’t sure, verify with your employer which deductions are being made from your paycheck. And if you’re self-employed, it’s not a bad idea to work with a certified public accountant to make sure you’re either paying your taxes throughout the year, or you’re saving enough to cover your tax bill when it comes due.

8. What will happen to my assets when I die?

It’s a grim thought, but sadly tragedy can strike at any time, so it’s in your best interests to be prepared. If you don’t have a will, you won’t have much say in what happens to your assets, as those will be distributed according to the laws of the state where those assets are located.

If you do want a say in what happens to your assets, however, it’s definitely in your best interests to speak with a qualified attorney and create a will (which should be reviewed and updated regularly). Speak with family members and loved ones for guidance or to simply keep them in the loop on your decisions. If you want your wishes carried out, you really need to take the time and complete the necessary documentation.

If you need assistance tackling financial questions surrounding spending, saving, repaying debt, building strong credit, and more, be sure to connect with one of our trained financial counselors. We're here to help you meet your toughest financial challenges. 

Article updated October 2020