Although every person has specific questions regarding their personal financial situation, there are several that are pretty universal when it comes to finances. Following are answers to these important financial questions. When should I start saving and investing? This is probably the most frequently asked question about personal finances. And it has a very simple answer — it is never too soon to start saving. The minute you begin making money is also the time when you should start saving for both short- and long-term goals by making them part of your budget. If your employer offers a retirement plan such as a 401(k), contribute as much as you can up to $19,500 in 2020. If you can’t manage to contribute that much, at least contribute enough to get matching funds if your employer offers them.
You should also save money for emergencies, such as medical bills, a job loss, or a major house repair. Most experts agree that you should have six months of income saved to cover unexpected expenses.
If you have additional cash, you should then develop an investment plan with an asset allocation strategy to help meet both short- and long-term goals.
It depends on the type of debt you are carrying. If you have debt that is paying for valuable things such as a home or a college education, this is the type of debt that can help further your progress in life. If you have high interest debt, such as credit cards, then you need to be more cautious.
You should know what your debt-to-income ratio is for this riskier type of debt. Excluding your mortgage, calculate how much debt you have compared to your income. Most experts agree that if it is 15% or less, it is an affordable amount of debt. If it is over 15%, you should act to reduce the amount of higher risk debt you are carrying.
How much house can I afford?
Whether you rent or own your home, it is most likely your largest monthly expense. The general rule of thumb is your housing costs should not exceed 30% of your pretax income. For example, if you make $75,000 per year, you are making $6,250 per month prior to taxes. Using the 30% rule, you should not spend more than $1,875 a month on
It really depends on your goals, but to reach a comfortable retirement takes a lot of money. You can only cut expenses so much to save for retirement and other goals. At some point, you will most likely need to make more money. This may mean you need to change jobs or embark on a new career. It may be as simple as asking for a raise.
If your company does not schedule an annual review in conjunction with a raise, then you should ask. Be prepared to justify why you deserve to earn more money. If the answer is no, you’ll know that looking for another job is a priority.
What if something happens to me?
Preparing for the unexpected is imperative to your financial health. Ask yourself some important questions:
- How would I pay the bills if I lost my job?
- How would I pay the bills if I could no longer work?
- How will I replace things if they are stolen or there is a fire?
The first place to start is to develop an emergency fund. You will want to have cash on hand so that your credit cards become your last source for paying unexpected expenses. You should also look at developing an insurance plan to help cover bigger emergencies. This may include life insurance, renter’s insurance, or disability insurance.
To protect your loved ones, you should also have a healthcare proxy, a living will, and updated beneficiaries on all of your financial accounts.