Can You Answer These 8 Personal Finance Questions?

Understanding your personal financial situation is essential. How well you know your money impacts every aspect of your life.

Even if you live comfortably, you might not know everything you should about your financial situation. Ask yourself the following eight questions to determine your understanding of your circumstances.

1. How Much Do I Have in Savings and Investments?

You should know the amounts you have set aside in the following accounts and how to access them in an emergency:

• Savings

• Emergency fund

• 401(k), 403(b), other company retirement plan

• Individual Retirement Account (IRA)

• Stocks

• Bonds

• Mutual funds

• Annuities

Consider using online banking and/or your financial institution’s app to help track your accounts.

2. How Much Debt Do I Have?

Your debt load includes the following:

• Mortgage

• Car loan

• Credit cards

• Medical debt

• Student loans

Review your monthly statements to understand how much debt you are carrying. Read your credit report every few months to ensure your debts are accurately recorded.

3. What Is My Net Worth?

Your net worth is the value of your assets minus your liabilities.

Your assets include the value of your:

• Cash

• Checking account

• Savings accounts

• Investments

• Car

• Home

• Jewelry

• Art

• Anything else with established resale value

Your liabilities include the amount of your debts:

• Mortgage

• Car loan

• Personal loan

• Credit card balances

• School loans

Track your net worth over time. Ideally, this number will go up. If your net worth decreases, you should implement a plan to reduce your spending, increase your savings, and pay down your debt.

4. What Is My Credit Score?

Focus on building a strong credit history and working to improve your credit score:

• Responsible credit use generally provides access to loans when needed.

• A higher credit score typically leads to lower interest rates and more favorable loan terms.

• Reduced interest rates lower the total cost of borrowing money.

You can access your credit reports and credit scores from Experian, TransUnion, and Equifax through AnnualCreditReport.com. Or, your financial institution might offer free credit scores and credit monitoring as a perk.

Because your credit scores change monthly, you do not need to know every one or every time they change. Focus on your current range (poor, fair, good, or excellent) and how your score has been trending over time.

5. Where Are My Retirement Funds?

You should be able to answer the following questions about your retirement savings:

• Do I have a retirement account through a company plan, such as a 401(k) or 403(b)?

• How much is taken from each paycheck and deposited into my retirement account?

• Does my employer match retirement plan contributions?

• Do I have retirement accounts with previous employers?

If you are unsure of the status of your retirement funds, start tracking down your accounts. Decide whether you are happy with your progress or want to make changes, and act accordingly.

6. How Much Money Would I Need to Manage for Three Months Without Income?

You should have at least three to six months' worth of living expenses in your emergency fund. These savings help maintain financial stability in case of unexpected events such as the following:

• Car repairs

• Home repairs

• Appliance repair or replacement

• Surprise medical bills

• Job loss

Understanding the cost of monthly essentials, including shelter, food, and utilities, helps clarify whether you are financially prepared for a setback. Review your three most recent monthly bank and credit card statements and total your expenses to set a baseline for your savings target.

7. What Are My Tax Deductions?

You should know whether you will receive a tax refund each year. If you are unsure, check with your employer to determine which deductions are made from your paycheck. If you are self-employed, consider working with an accountant to ensure you pay your quarterly taxes or set aside enough to cover the bill when it is due.

8. What Will Happen to My Assets When I Die?

Since the unexpected can happen at any time, you should be prepared:

• If you do not have a will, you have little to no say in what happens to your assets after you pass away.

• Your assets will be distributed according to the laws of the state where they are located.

• People you dislike could receive your assets.

Creating a will is in your best interest because it directs where your assets should go after you pass away. You should regularly review and update your will, especially after major life changes such as the following:

• Buying or selling property 

• Starting or selling a business

• Moving to a new state

• Marriage

• Birth or adoption of a child

• Divorce

• Major health changes

• Death of a beneficiary or executor

*This information is for educational purposes only.

How many of these personal finance questions were you able to answer? Let me know in the comments!