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8 Personal Finance Questions You MUST Be Able To Answer Today

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Can you answer these 8 personal finance questions? They're essential for getting out of debt and gaining control of your money.There is an old adage that says “what gets measured, get’s managed”.

One of the most common problems people experience with their finances is simply a lack of measurement – they don’t understand where their money goes or what they spend it on.

A key step in gaining control of your personal finances is therefore getting to know your finances like the back of your hand.

When you do this you’re better able to control what happens to your money, and as a result take control of your financial future.

Today we’re going to talk about eight personal finance questions that I have personally found to be worth their weight in gold over the last few years of becoming debt free and starting to save for the future.

I have found that the more easily I can answer these questions – and the more accurately I can answer them off the top of my head – the more successful I am at managing my money and taking steps towards a strong financial future.

Fortunately there are a growing range of financial tools that help you to monitor and measure your finances.

Rather than having to troll through months of old bank statements, carefully itemizing everything and then calculating income and outgoings many of these tools will do it “automagically”.

If you’re serious about your finances I recommend you take a look at a tool like Personal Capital which does all the hard lifting for you. All you need to do is log into your free account from time to time to keep your financial knowledge up to date. You can find out more here.

Right, so with that said – what are the questions YOU should be able to answer right now?

What Is Your Net Monthly Income?

This is possibly the easiest question of all to answer: how much do you earn?

Most of us receive payslips, and are more likely to check our bank balance on payday, so most people know roughly how much they earn. But knowing exactly – now that’s a skill.

There are two reasons why you should know exactly how much your earn (to the dollar).

The first of these is that it makes budgeting easier and the second is that you can instantly spot any errors.

After all, it’s not unheard of for employers or the tax man to make a mistake. And this can impact your income without you even realizing it.

A perfect example of this is a friend of mine, who had their tax code changed without their knowledge. For the best part of a year they overpaid significantly on tax, earning less than they should have done.

As a result they struggled more than they could have done financially.

Eventually they spotted the mistake and were refunded the overpaid tax, but if your employer suddenly started docking you an extra $50 or $100 a month would you really notice?

What Are Your Monthly Outgoings?

When you boil it all down, financial success is pretty simple. Spend less than you earn and save the rest for a rainy day.

Of course this also means that as well as your income, you’ll also need to know how much you spend.

The secret really is in getting this figure as low as possible, and the only way to do that is to dig into your financials and look for potential savings.

As a result you should be able to answer not only how much you spend each month, but also be able to break this number down into categories.

For example how much do you spend on grocery shopping, or car insurance, or utility bills? Furthermore, are these numbers as low as they will go, or can you cut further to make faster financial progress.

Again, it’s only by knowing these figures that you can track your progress and make sure your finances are heading in the right direction.

What Irregular Expenses Will Be Arising In The Next 3-6 Months?

Budgeting for regular expenses like your rent or mortgage can be relatively simple. You can simply factor the same costs into your budget each month and they’ll come out like clockwork.

However not all costs come out on a nice, neat monthly basis. Consider, for example, Christmas, birthdays or vacations.

All of these have the potential to derail your budget and send your finances into turmoil.

As a result, the smart budgeter keeps an eye on the future so that irregular expenses can be properly planned for.

Consider getting yourself a calendar or diary so you can record these events well in advance and start saving money in plenty of time.

How Much Money Do You Have In Your Checking Account Right Now?

We get paid, then we spend money. Over the course of a year the balance in your bank account will go through consistent peaks and troughs – but where are you right now?

Having a good idea of the exact balance in your account makes it much easier to budget or make big financial decisions.

You should also consider it a “badge of honour” – if you know exactly how much is in your account right now then you’re clearly paying plenty of attention to your finances – and this is only likely to have a positive effect.

What Is Your Total Net Worth?

Possibly the most important metric of your financial success is your net worth – quite simply the value of all your assets (your house, car, savings etc.) minus your liabilities (mortgage, credit cards etc.).

If you’re doing things right then this value should be going up consistently.

While calculating your net worth every month may prove too much for many people, doing so quarterly can be a great way to measure the impact of your frugal lifestyle and as a useful “reality check” that your financial plans are having the right impact.

How Much Debt Do You Have?

This is possibly the most “uncomfortable” question of all – especially if you’re currently carrying a fair amount of consumer debt.

But it’s also an essential one.

If you’re just starting down the road to financial freedom one of the most critical jobs is paying off all your consumer (non-mortgage) debt. The sooner you can achieve this, the sooner you can begin to build real wealth.

Figuring out and then tracking exactly how much debt you have may be a sobering experience to begin with, but it also brings rewards.

Not only does it help to motivate you to pay it all off as quickly as possible but by watching those numbers going down all the time you’ll know that your efforts are paying off.

It’s also handy for preventing yourself from piling on any more debt – seeing those numbers heading in the wrong direction can be a very scary prospect indeed!

What Is Your Financial “End Game”?

What’s your financial goal (specifically)? We’re not talking about simply wanting to be “better” with money – we’re talking concrete goals. Things like being debt free, mortgage free, having a net worth of a million dollars or whatever works for you.

The better you know these goals, the more likely you are to achieve them.

Why? Well firstly you’re able to better set a plan in action to achieve them, and secondly you’ll remain motivated with a very clearly defined “end point”.

So what are your financial goals? If you haven’t worked them out then why not take some time today to set specific, measurable goals that you want to achieve with your finances?

What Actions Must You Take To Achieve This Goal?

We’re almost there folks! By now you know exactly where you stand financially and you’ve set your goals. The only remaining question (which I actually think is one of the most important) is what you must do to achieve those financial goals?

Personal finance is a marathon, not a sprint.

True wealth is built over the long term – no matter how boring that may sound or how impatient you may be feeling right now.

That means repeating the same proven actions time and again, day-in and day-out.

Over time, these actions – like spending less, saving money and building up your investments – will lead you to your goals.

Have you sat down recently a created a budget? Do you know how much money you can stash away for the future? Do you have plans for paying off your debt, or investing in your future?

Could you, if pressed, jot down on a single piece of paper the actions you must take in the next 3, 6 or 12 months to help you achieve your goals? If so, then well done.

If not, it might be worth grabbing a pen, notebook and a calculator (or using a tool like Personal Capital) to figure out just what steps you need to take in order to hit those goals. Then take action – and watch your future looking ever brighter by the day.

So how did you score? How many of these questions could you answer right now? Any suggestions for additional financial knowledge you have found useful? Please leave your thoughts in the comments section below?

Can you answer these 8 personal finance questions? They're essential for getting out of debt and gaining control of your money.

Richard

Sun-worshipper and obsessive frugality blogger. For loads more money-saving advice come and join us on Facebook.

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