You most likely have seen the TV show “Who Wants to be a Millionaire” and know that if you answer some big money questions, you wind up with a lot of cash, maybe even a million dollars! But this post today isn’t about those kinds of questions.
As much as we might hate to admit it, money questions and our answers to them are things that we all spend a lot of our time pondering and even worrying about. When you were young and not the “grown-up” in the room like your parents had to be, penny-pinching, saving money, debt, and taxes were just not on your radar. That’s not a bad thing. Youth has its rewards and one of them is (hopefully) to be worry free about such things as how the bills will get paid and how to avoid piling up big debt and interest charges.
Unfortunately, when you do become an adult (you are one now, right?), you need to become fiscally responsible and think about your long term financial stability. If that doesn’t sound like a whole lot of fun, it’s because it generally isn’t.
When you become the one who worries about the costs of day-to-day finances, you have to deal with some huge and important money questions and answers to them, and possibly a lot of sleepless nights. Multiply that worry by ten if there are a spouse and children involved. That’s why it’s important to ask yourself these mega-big money questions.
5 Big Money Questions
1. What’s a budget and why do I need one?
The answer to this question is pretty simple, so if you are asking it, you are most likely in financial trouble already. You don’t know what you spend and where you spend it and that’s a recipe for disaster. I learned to budget when I first went away to college and was forced to live pretty much on my own. Living off campus, working, and trying to get a degree, I avoided going into debt beyond my college tuition costs. It taught me a lot, sometimes the hard way, but it laid the groundwork for my finances ever since.
Most people live from paycheck to paycheck, at least at some point in life (like when you are starting out on your own for example), and when that takes place it is ultra-important to know the answer to “where does the money go?”!
The way to find that out is to make a budget and live within it.
Tracking your income and expenses gives you control and then allows you to adjust your finances to avoid debt and reach your goals. For everyone that’s a little different but this method is always the same. It helps you know where you are now and that’s essential to know before you can step forward in the “right” direction with a budget. If you can’t get some personal advice from a trusted friend or loved one (like a spouse or significant other) then try a free online resource like Mint. Staying up on top of your finances is much better that staying up at night worrying.
Even if you are on the lower end of the income scale, you should investigate all of the assistance and aid out there available through the government and/or your community. Accepting aid can help you get on track with your financial security, so don’t be ashamed to use it.
2. Why should I worry about debt? Doesn’t everyone have it?
Since an awful lot of people have car payments and mortgages, you may think that having debt is just a necessary evil in life and having that kind of debt isn’t really debt. Wrong! Anything that you can’t pay off in full at the end of a month is real debt and unless you paid for your home or car in cash, you have real debt!
I am pretty sure that for almost all of the past 50 years I have had a car payment and/or a mortgage payment due every month. In the beginning, that wasn’t easy to manage and a lot of hard decisions had to be made. Somehow, mostly through careful planning and actions, I managed to upgrade my car, my home, and provide for my family without crashing my finances into dust. But now that I’m smarter about my finances, my last car payment (ever) will be in July and I’m actively working to pay down my mortgage with extra principal payments each month.
In order to be successful, you must have a strategic plan to tackle your debt and pay it off. It may mean prioritizing your bills, making sure you avoid or minimize any interest charges, maintaining a good credit rating by always paying on time, avoiding late fees, and reducing principal of your outstanding debts. In some cases it might just be postponing other spending but whatever you do, recognize what your debts are and what ways you are focused on reducing and minimizing them. Long term focus is the key.
3. How do I cut my expenses and save money?
Wow, have you been paying any attention at all to Super Saving Tips? 😛 It does take a little effort to save money on things like groceries and clothes just to name two, but taking that effort actually works. Things like using coupons, loyalty cards, rewards, and understanding the sales promotions and cycles makes you a better shopper and will save you money. That’s why I write about such things. It was my method for success and it can be yours too.
I am proud to say that we have cut our expenses on just about everything consistently over the past five years with just one exception—healthcare. For us, cutting expenses has allowed us to maintain our health (which I seriously underestimated before the costs exploded on us) and still maintain a lifestyle which includes home ownership, a car, and things like vacations and yes, most importantly an occasional baseball game and watching cable TV! (Yeah I know, we can cut the cord and save yada, yada, yada, but I am so technically challenged and a bit lazy—sigh).
Along with those actions, you should be buying what you need and not just what you want (remember the old wants vs. needs thing?). It’s really not complicated, just planning and prioritizing your shopping habits and not doing things like eating out all the time, wasting money on take-out or delivery, and shopping for things at the least opportune time like buying a bathing suit in January at “preview prices” or other items at the height of peak demand! The bottom line here is that you have to do something yourself, the “saving money fairy” isn’t going to visit you late at night and deposit cash into your savings account!
4. Which is more important: saving for retirement or saving for my kid’s college tuition?
The short and sweet answer is both, but retirement is my recommendation here because if need be, your kids can always take out some kind of affordable student loan, apply for a grant or scholarship, get a part time job while going to school and/or consider community college to get started to reduce education-related expenses.
I literally have been saving for my retirement since I was 22 and had my first full-time job at Macys. If you don’t save for retirement, you may have to work well into your golden years (if you’re able!) when you should be focusing on your health and grandkids and relaxing. In addition, failing to save for retirement is risky because healthcare and other costs mount as you age. If you don’t plan for senior expenses, you run the risk of making your kids foot the bill for you in the future and that’s a bigger burden on them than even college debt can be.
Make sure you have a plan, understand what choices you have for your retirement savings, and you should start that when you first begin working, even before marriage or children enter the picture. If you didn’t start when you began working, the second best time to start is right now.
5. Should I Invest my money in the stock market?
It’s easy to be scared of investing in the stock market. Look at its volatility from just this year alone and you may say “not for me!”. But the thing is this: investing can and has paid off in the long term.
In short, it’s always better to select investment opportunities that help you avoid paying taxes and put your money into something that will earn more interest than a standard savings account.
There are many low-risk options for people who don’t want to chance the stock market, but still hope to make dividends. Investment opportunities are numerous, so it’s usually best to meet with an expert to identify the options that best suit your needs, or at least develop a personal investing strategy. A few of the possible selections are 401(k) retirement plans, futures, mutual funds, Roth IRAs, CDs and stocks and bonds. Some investment plans charge penalties if you take funds out before retirement, however, so make sure you still have plenty of savings available in an accessible format for emergencies.
FYI, I will be discussing “risk” and “risk tolerance” in an upcoming post so stay tuned.
There’s no escape from addressing the big money questions in your life. From time to time, those questions may change but in order for your finances to be successful and remain stable, you’ll need to be proactive and plan ahead.
Have you taken the time to ask and answer these questions? What are your answers and what other questions are you struggling with these days? Do you have a success story to share about your finances or are you still “stuck in the middle” of your question and answers?