Asking questions about your money

So you are at a point in your life where are wondering whether what you have done with your money till now has been right or not. That is, have you walked on the right path when it comes to money matter?

Either way, what everyone really wants to know is whether they are actually going to have the cash that they need in any situation. The situation may be planned expenses of financial goals of children’s education, house purchase, retirement savings; or unplanned expenses that require them to dip into their emergency funds.

So how do you ensure that you can manage your money well? Here are some questions to consider asking yourself.

  • If you were to die today, how much money will your family be left with?
  • How much of this money will come from your savings/investments and how much of it will come from life insurance payout?
  • And will that money (above) be sufficient for your family to take care of their day-to-day expenses, future financial goals, pay-off all loans, etc.?
  • On a related note, don’t be underinsured. Never. Being over-insured is still pardonable and acceptable.
  • Do you really know all the financial goals that you need to be saving for? If not, then figure out them using this free excel.
  • Do you know how much you need to invest every month for each of those chosen goals?
  • Do you know how much can you actually invest for each of those goals?
  • What if you do not have sufficient surplus to invest fully for all the goals? Do you have a plan to tackle the shortfall? If not today, then maybe after a few years by increased investments later on?
  • Is the health of your family adequately insured? Do you know how much is adequate in this regard? And please don’t be confused about health vs life insurance. Both are necessary.
  • If you lose your job tomorrow, how many months can you manage your household expenses (including EMIs), without dipping into your long term investments and retirement savings?
  • Do you have any sort of budget set up? If not, then you may give it a shot. Having a set budget allow you to stay ahead of everything you need to try and pay on a monthly basis. It’s not easy when you start. But making a budget and sticking to it is going to be the simplest way to make sure that you do things the right way when it comes to your personal finances. Learning how to set a budget well is definitely a science, but it takes a lot of practice in order to get into the routine of it. The fact is, you need to be able to look at what you make on a regular basis and figure out exactly what it is that you want – and need – to do in order to live within that budget.
  • Do you even know how big a retirement corpus do you need when you retire?
  • Do you know how much you need to invest regularly for your retirement?
  • Are you doing it?
  • If not, then do you understand that when it comes to retirement, you are on your own? You have just one shot and your children cannot be your retirement plan?
  • You might be a DIY investor but do it only if you know what you are getting into. Else, get yourself professional investment advice. And please, it might be dull and boring but don’t underestimate the power of automating your investments. It can work wonders when you remove yourself from active decision-making in investment plans.
  • If you are targeting early retirement, then are saving more than what the normal planning-to-retire-at-60 people do? If not, how do you plan to retire earlier than others?
  • Are there any big expenses (like property downpayment) coming in the next few years (< 5 years). If yes, are you saving money for that separately or you are planning to withdraw money from other long term investments like retirement savings, savings for kids’ education, etc.?
  • Do you understand the impact of doing that (withdrawing money from retirement savings)?
  • If you need some money in the next 5 years and you have that money invested in stock markets, then you are treading on thin ice. It can backfire big time. Adhere to a simple rule that you will not invest any money in equity markets that you need in the next 5 years.
  • Do you understand that borrowing should always be done as a last resort? And that having a good credit score helps but for others, there are all sorts of options for loans guaranteed approval direct lenders. At least in mature economies for now but this trend is bound to grow here as well. There are companies that exist to offer such short term loan options to those who need it to sort out their finances.
  • Talking of borrowings and loans, it’s very important to not live past your means. One of the biggest mistakes that people make is that they live past their means. We want people to think that we’re doing just fine – so we may overspend and try to keep up with everything that is going on around us. This puts us into debt and can cause other issues, as well. So don’t do that. Borrow only for necessary and emergencies, not for regular expenses. Don’t spend to show off.
  • Don’t think that insurance and investments are the same things. They are different things and should be kept separately. Also, don’t buy traditional insurance plans like endowment or moneyback policies. Keep your life simple by buying plain vanilla term insurance plans.
  • Don’t take a large home loan just for the sake of tax saving. Don’t stretch yourself too much when purchasing a house. Try to keep your loan EMIs limited to 40% of your monthly income. Why? Because there are other expenses and because your life is not just about loan repayment. You also need to save for other financial goals. If you have loans, then that doesn’t mean that you cannot invest. Having loans is no excuse for not investing. Try to invest along with your loans.
  • Credit cards make your life easy. But only if you use it to an extent that you can clear off the outstanding every month comfortably. So don’t think of credit card as a source of secondary funding for your expenses. It’s just a mode of payment. Don’t borrow via credit cards unnecessarily. It costs a lot more than what you might think.

Of course this is not a comprehensive list of points to ponder over. And in fact there are a lot of different ways to get into a pattern of managing your money, with thousands of suggestions all over the internet. But nevertheless, it will help you think on the intended lines. When it comes to money, most people are worried about earning more, saving taxes, getting rich overnight. But its necessary to ponder over some of the fundamental points like those discussed above.

Asking these questions could be the very thing that you need to move ahead and could actually get to a point where your finances are under your total control. And that is the end goal that you want to reach when it comes to your money, isn’t it?

Leave a Reply

Discover more from Stable Investor

Subscribe now to keep reading and get access to the full archive.

Continue reading