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11 August 2020 | 6 min read

5 Financial Questions To Ask Yourself For Better Financial Future

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Financial independence is never natural to achieve, but these financial questions will help you understand your money habits better. Before committing to someone, we always consider our feelings, don’t we? Similarly, money is a lifetime commitment, and we need to understand how we feel about it. Don’t feel awkward asking yourself, ‘What is my relationship with money?’ or ‘Do I love to save for the future or am I all about enjoying that hard-earned money because I believe in the concept of YOLO {You only live once}?. You should be candid and answer questions like ‘Would I rather be drowned in debt and live it up or compromise for the future and save it up?’

Whatever you choose, these financial questions will help you gain a better perspective on your money habits . – both in terms of budgeting and savings. We all love spending money, and while we understand that saving might not be as easy, it will get us better returns, especially in the future. It’s not that we don’t like to see more money in the bank (Well, of course), but it is equally important to strike a balance between saving for the future and living the life you want. And while we agree that spending can be much more carefree, it is better to balance the two camps now, rather than play catch-up with interest charged on your credit card debt.

But don’t fret, we have you sorted with five critical financial questions that you should ask ourselves so you can bank that cash, pay off that debt, and live life like a millionaire (well, that’s the dream). Read on.

When Should I Start Investment?

When to start investment

It is probably the most popular question after you hit your 20s and definitely in your 30s. Everyone knows they ‘should’ invest, but sorting through piles of investing advice often leads to inaction and confusion rather than confidence and implementation. Here’s the short and concrete answer: Start now! ‘Okay, but where?’, you ask. ‘Well, in a retirement account.’ Investing through a retirement account is a good option as it will help you save tax and future security.

Investing in a non-retirement account isn’t bad, but it can ideally follow after you’ve maxed out your retirement savings accounts. Many other investment channels might make more sense to you, evaluate them as soon as possible. Deciding what to invest in doesn’t have to be complicated. If you aren’t sure where to start an investment, choose a target-date fund slated for the year you plan to retire. For example, if you’re 35 today and want to retire at 67, choose a target date 2050 fund. That means the mutual fund will adjust overtime to make sure your investments are appropriate for your age. Simple! To know where you stand today, start your investment journey here .

How Much Debt Is Too Much?

Debt questions

Having debt is not a bad thing, especially if you pay it off quickly. We know that, more often than not, debt can overwhelm a lot of people. Liability is usually defined as the money you owe someone – it can be a friend or a bank. Now, if you have taken a loan to buy something of value like an education or home, it can help you get ahead. These are good debt as a vast majority of people would not be able to afford the same, based just on savings.

That being said, debts that carry a high-interest rate, {typically over 8 percent} and when they were not used for any big purchases {like home or education} they can become problematic. You don’t need to be told that any amount of credit card debt is too much, and it is bad debt. Paying it off should be on top of your priority list, as it is one of the main pillars of financial independence.

How Much Money Can I Afford To House?

Buying home

Whether you’re renting or buying, housing is probably your single most significant monthly expense. It’s the biggest chunk of the average Indian’s budget, accounting for about 37 percent of take-home pay. Many people spend way more than that. Technically speaking, your house’s cost should be limited to 30 percent of your pretax income, the standard measure of housing affordability.

It is a good guideline as it will give you a more significant share to save and spend on other things like vacations, saving for retirement, and emergency funds. If you are keen on getting a home loan , we have you sorted with a guide here.

  What Is My Earning Potential?

Check your earning potential

There will be many points in life that will make you wonder if you’re minimizing your expenses since that is the ideal way to save money and make yourself richer. However, reducing your costs will only get you so far. At some point, it will become vital for you to make more money so that you can achieve all of your financial goals. To introspect time and again, you should ask yourself, ‘How happy am I with my current income’ whether you are an employee or an entrepreneur. You might be one of those who get paid well and are very satisfied with his/her income. But there is always a chance to do better.

Sometimes that can mean a change of job or careers. And this might require some effort because you will have to work on your personal and professional skills. Schedule a conversation with your HR department or boss in a timely fashion so that you can review your progress and present a case. Don’t be afraid to ask for a raise in your income, especially if it has been more than a year since you received one. The worst they can do is say no – if that happens, make sure you ask for specific goals to achieve to get the raise. That way, the next time you ask, you’ll have a more durable case to prove your worth. If you’re a business owner, review your progress in a way where you find more channels of income to multiply.

What Would Happen In The Case Of An Emergency?

Emergency Fund

It’s not fun to think about what would happen if your house caught fire, lost your job overnight, or got sick unexpectedly. 2020 has hit us with a worldwide pandemic, and yes, this is one of those bad phases you would want to prepare for an emergency and save up for, especially if you have not done it so far. Either way, it’s an essential part of setting yourself up for financial success. While we cannot control everything that happens to us, it is necessary to plan for everything, as far as possible. Fortunately, there are some simple steps that you can take to prepare yourself for any emergency. Start an FD here .

And the first step to achieve this is by starting an emergency fund. Even a small emergency fund of a few thousand can stop you from getting a credit card debt if you have any additional expenses for the month. Ideally, you should have at least six months of living expenses set aside in high-interest savings account if you want to have a proper emergency fund. Additionally, it is also essential to get some health insurance in place, not just for yourself but also for your family. It would help if you also had insurance for your home and vehicles. Check your insurance terms and try to make sure they cover all these types of unforeseen circumstances so they can protect you if your apartment catches fire or somebody steals your laptop.

It is also a good idea to have a personalized session with a financial advisor to ensure your future reliable plan. In the meantime, answering these five questions will go a long way toward making sure you’ve got your bases covered.

by Megha Panjabi
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