When it comes to personal finance, many of us would prefer to stick our heads in the sand than be aware and anxious regarding the state of our finances.
However, like most “ignorance is bliss” viewpoints, we usually end up hurting our future selves. In the case of personal finances, this means never achieving financial independence. If you want financial freedom (who wouldn’t?), and to feel more fulfilled by your financial choices in the interim, face these five common finance questions people are usually afraid to ask head on.
Will I Live My Life In Debt?
It’s scary to vocalize this question; to put it into the universe. The thought of living a life controlled by debt is a depressing one. So even if a debtor’s actions suggest they’ll live the rest of their life in the red, it’s more comforting in the day to day to suppress the thought.
If you have any amount of debt, but especially large debt, you owe it to yourself to ask this question. Asking forces action. Staring head-on at a significant amount of debt causes stressful, overwhelmed feelings. You need to feel these emotions to get on a track toward financial wellness. Keep track all the time and be mindful of your debt. Take charge and aim to clear yourself from debt as much as possible.
How Much Should I Have in My Emergency Fund?
Did you know that only 39 percent of Americans have enough savings to cover a $1,000 emergency? What happens when a serious car or home repair is needed, a medical emergency occurs, or you lose your job? If you haven’t built much—or any—of an emergency fund to-date, the last thing you probably want to know is how much you “should” have. But if you don’t have a goal to strive toward, how will you build an adequate emergency fund?
Start small with a goal of $500, allocating whatever you can afford from each paycheck. Once you have $500, set a goal for another $500. Eventually, you’ll want to build up an emergency fund that covers six months of living expenses. Emergency fund pro tip: anytime you get a surge of income during the year that you didn’t expect—like a tax refund or money earned from a side job — throw it in your emergency fund to accelerate your efforts.
How Do I Budget?
Humility is a common precursor to success. Nobody knows everything. Acting like you have all the answers or that you don’t need to learn something will corrode your self-development. So, how do you set a budget? Well, if you want it to stick, you should keep your budget simple. When you’re just starting out, overcomplicating things will probably result in you quitting before a habit is formed.
When you create your budget, aim to save 20 percent of your income. Budgeting for fixed costs like rent, insurance, utilities, etc. should be easy. The hard part is discretionary spending; things like food, entertainment, and travel can all vary monthly. While entertainment and travel aren’t necessities, food is. But the way we spend on food is completely discretionary (think meal prep versus Chipotle five times a week versus fancy dinners every weekend).
What do the experts recommend? Typically, food-spending guidelines are anywhere from 9–14 percent. Use an app like Mint or Clarity Money to track your historical (food) spending to see where you stand. Then go from there. Find ways to make it easy for you to manage your budget.
Which Debt Experts Should I Follow?
The internet is a glorious thing for knowledge on any topic imaginable, and personal finance is no exception. From savvy blogs and personal twitter accounts to financial thought leaders who share their advice via a variety of mediums, proactively soak up every ounce of knowledge available. To get started, check out thought leaders like Suzie Orman and Andrew Housser, finance blogs PennyHoarder and NerdWallet, and Twitter accounts @EARN and @LearnVest.
What If I Haven’t Started Saving for Retirement?
Much like the ‘living life in debt’ question, facing what you (don’t) have saved for retirement is the first step to building a retirement fund. With cost of living skyrocketing in many cities across the U.S. and the future of social security looking grim, an adequate retirement fund will be crucial to not working till death. Much like building an emergency fund, a little bit goes a long way.
Develop annual retirement savings goals and break them down into monthly sprints. Keep your goal ambitious yet manageable to ensure you can accomplish it. If you stay consistent, you’ll have built a nest egg that wouldn’t have been there before had you not asked this difficult yet straightforward question.
Now that you’ve cleared your conscience by asking these questions aloud, you’re well on your way to financial prosperity. Enjoy the journey and never stop learning!