The Most Important Financial Question You’ll Ever Ask
There are a lot of things to lose sleep over each night. But, perhaps, nothing more than the stress of money. In fact, for years, financial concerns were a common stressor for Americans — one survey reported that an astounding 72 percent of Americans reported feeling stressed about money at least once a month.
More concerning? That survey was long before a virus turned our lives upside down. As a result, according to Fidelity, most Americans have become even more concerned about their finances. In particular, they even more stressed about:
- 49% paying down student loan debt
- 46% have enough saved to retire as planned
- 45% paying down other debt other than student loans
- 43% ability to pay for their children’s college education
- 43% finding money to save for other goals
- 40% ability to pay monthly bills
No wonder that 50% of Americans believe that their financial situation is getting worse. And, is also shouldn’t be surprising that most people aren’t optimistic about the future.
Obviously, you don’t have control over external factors like a global pandemic and how that impacted the economy. However, you do have the ability to take the reigns of your personal finances — no matter what your goals are. When you do, you’ll worry less about money,
Best of all? It all starts by asking and answering a question.
The most important financial question you’ll ever ask.
What is this magical question? Well, you’ve already asked it. You just don’t know it yet.
I know what you’re thinking. That sounds vague. I also wouldn’t fault you for calling this a cop-out. But, it’s actually called a “virtual question.”
Despite its name, this isn’t a question that you would ask a financial expert over Zoom. It’s actually “a question that lives outside of our conscious awareness,” explains Jake Eagle, a licensed mental health counselor and best-selling author. “But it affects almost all of our behaviors.”
Our virtual questions shape our experiences and paint the backdrop of our lives, coloring everything,” adds Eagle. “Changing your virtual questions changes your life.”
There are several reasons for this. By asking virtual questions that “serve you,” you’ll have a greater sense of purpose. Moreover, it will make you feel more productive and stimulate a response “that is forward-looking, hopeful, and relaxed.”
But what makes a good virtual question? According to Eagle, here are some guidelines:
- Avoid questions that can be answered with a simple “yes” or “no.” “They usually set up a win/lose situation, which makes us anxious because we worry that we may lose,” says Eagle.
- Don’t ask “what if” questions. They usually “pull you away from the present and into the future.”
- Steer clear of “why” questions. “They can’t truly be answered, or the answer changes from day to day,” Eagle states.
Helpful virtual questions often presuppose a positive outcome,” clarifies Eagle. “They’re usually questions about what you can do, not about getting other people to do something or to change.” And, while generally focused on the present, they can also lean “slightly into the future.”
Overall, virtual questions keep you honest and thoughtful. Both of which are needed when it comes to finances.
The 10 important virtual financial questions you need to answer.
A great example of a virtual question would be, “How can I make the best use of this situation?” During COVID-19, maybe that was having more quality time with your family. Perhaps it was spending less on going out or pivoting your business.
Let’s take a closer look at not spending as much money on dining out or travel. Those funds could be placed into a savings account. Or, you could put this money towards paying off debt.
Another example would be, “What do I need to do to feel proud of myself?” Let’s say that you saved $100 per month for a down payment on a new car. I think that you would certainly pay yourself on the back — especially every time you drive your new whip.
The thing is, virtual questions don’t always have to be that vague. In fact, they can be more specific, such as focusing on your financial health. And, here just 10 examples of important financial questions that you need to answer.
1. What does a realistic budget look like?
Regardless of your income and financial goals, a budget is 100% necessary. Without it, you’re more likely to overspend. Consequently, you won’t have enough money to pay down debt or put into a savings or retirement.
What’s more, having a budget is an easy way to track your spending. That might not seem all that important. But, when you see that you’re making progress, you’ll be more motivated to follow through.
A simple method when starting out is to follow the 50/20/30 rule where:
- 50% of your money goes to essentials like rent and utilities
- 20% should be dedicated to savings
- 30% is used for flexible spendings, such as groceries and entertainment
2. What is my plan to pay my debt?
Most of us have debt. But, you’ll never be able to free yourself of this burden without developing a plan. A budget can help since it lets you know how much money you can put into paying down your debt.
A popular strategy to utilize is the snowball method. Popularized by Dave Ramsey, this is where you pay off your smallest debt first. After that, move on to the second smallest.
“Focusing on paying down the account with the smallest balance tends to have the most powerful effect on people’s sense of progress — and therefore their motivation to continue paying down their debts,” writes researcher Remi Trudel for HBR.
3. Do I have enough of an emergency fund?
While this can vary depending on where you live and work, most people don’t have a sufficient emergency fund. Experts recommend that we have at least three to six months of living expenses in a secure safety net.
4. What retirement accounts do I have, and am I contributing?
Don’t put off your retirement planning. Start contributing as soon as possible, whether through your employer or a solo 401 (k) or IRA, if you’re self-employed. Again, your budget can help you figure out how much you’re able to contribute each month.
5. How can I keep my future self happy?
Yes. You can still be financially healthy and be able to enjoy yourself. For example, if you need $2,000 for a vacation, then you could set aside $500 for 4 months.
6. What can I do if I lost my primary income stream?
Even before COVID-19, this should have been something that we considered. But, it’s not exactly the most pleasant of topics. So, it’s understandable why you didn’t approach this.
Think of ways to have multiple sources of income before this happens. Whether if that’s launching a side hustle or earning a passive income, you can use these funds to bulk-up your savings. And, if you do, unfortunately, lose your primary source of income, at least you have something else to fall back on for the time being.
7. Do I have the proper insurance to take care of my family and me?
Make sure that you have sufficient insurance to take care of medical expenses. You might also want to double-check that your money is safe by keeping it an FDIC-insured financial institution. And, consider life insurance so that your benefices will be taken care of.
8. If I children, how can I help fund their education?
After you’ve tackled your own financial concerns, think of ways of helping your kids. You may open college savings account for them. Or, you could suggest that they stay in state for lower tuition fees.
9. What major expenses can I expect within the next, and can I lower them?
I’m talking about those pricey and recurring expenses like mortgage payments and taxes. Start saving for them now so that you’re not sweating it when the bill arrives. Moreover, find ways to reduce these expenses like refinancing your mortgage, negotiating better rates, or taking advantage of tax deductions.
10. How can I improve my financial literacy?
Finally, never stop improving your financial literacy. You can do so by reading financial blogs and books, listening to podcasts, or working with a financial expert. By doing so, you’ll become knowledgeable enough to answer any financial question that may pop-up in your mind.