When it comes to personal finance, you don’t need to know everything, but there are some important questions that you should be able to answer if you want to stay on top of your spending and guarantee your future financial freedom.
Can you answer all of these?
1. What are my financial goals?
Save money, have enough money to live comfortably, retire… These are everyone’s financial goals, right? It’s true that they’re good goals if you’re taking the broad-brush-stroke approach, but it’s important to have smaller, more tangible goals along the way that will give you a sense of accomplishment and motivate you to continue on your financial journey.
Your smaller goals can’t be vague — they have to be clear and concise so that you know exactly what you have to do to achieve them. For example, your goal might be: ‘I want to save 10% of my income each month’ or ‘I want to increase my net worth by 5% over the next five years.’ (More on net worth in a sec.)
2. How much debt do I have?
Debt doesn’t have to be the albatross around your neck. If you know how much you owe and what the interest on the debt is, you can make a plan to reduce it and ultimately get rid of it.
Make a list of every loan and how much you need to repay each month. If you want to speed up your repayments, allocate extra money to the accounts you want to pay off quicker — maybe the account you owe the most on, or the one with the highest interest rate. From there, you just have to stick to your plan. It’s not impossible — you can do it!
Read about the snowball debt-reduction method here, and the avalanche method here. Both are very effective at reducing and eliminating debt.
3. What is my net worth?
‘Net worth’ sounds like a fancy term, but it’s actually just everything you own (your assets), minus everything you owe (your liabilities). An increasing net worth indicates that your assets are growing faster than your debts. That’s what you want!
Net worth is a useful snapshot of your entire financial situation, which is why it’s worth checking every now and then. There’s no need to whip out your calculator, just open 22seven and you’ll see that your net worth right there. Make sure all your accounts are linked to your profile so that the number is accurate. Ta daa!
4. Will I be able to retire?
It might be hard to think of retirement now, especially if you’re young and you’ve just started working, but saving for the future is absolutely key to future financial happiness.
Money isn’t a guessing game. You might need the help of a financial advisor, but it is possible to calculate exactly how much you’ll need at the age of 65 if you want to maintain a certain lifestyle. Not saving enough each month? You have the power to make that change now, before it’s too late!
Read this Slice about all things retirement.
5. What will happen if the paw paw hits the fan?
Here’s another hard one to think about: What if something happens and you can no longer work and earn an income? As depressing as it is, you need to plan for the worst. If you can’t answer this question, we suggest you start by looking at various insurance products that can give you peace of mind. Some examples are disability cover, dread disease cover and income protection cover.
Here are some Slice articles to help:
• Why estate planning is important
• What is severe illness cover?
• What is gap cover?
• Approved vs Unapproved life insurance
Give yourself a pat on the back if you’ve managed to answer most of these questions. Are there some you haven’t managed to answer? Open 22seven, get a pen and paper, and start thinking about them. Remember, if you get stuck, you can always get help from a financial advisor. Good luck!
