4 more money questions to ask yourself

Wondering if you’re on track to meeting your retirement goals? Without regular check-ins, you might think you’re on solid financial footing. But your future depends on more than the money you’re putting away today. Healthy finances depend on clearly set goals, rainy day reserves and strategies designed to manage your spending and grow your money.

Part one of this series covered defining your goals, monitoring your net worth and preparing for the unexpected. Here are four more questions to ask yourself as you work toward spending responsibly, saving strategically and reaching your longer-term retirement goals.

Use them as groundwork for working with a trusted financial advisor or for routine health checks of your finances between sessions. These questions won’t cover all aspects of your finances, but they’re a great start to better understanding where you are, where you’re headed tomorrow and the best path forward.

In this guide

1. How do my investments align with my goals?

Most people will need to invest some of their savings if they want to reach their financial goals. That’s because investing, while riskier than saving, does a better job of keeping up with inflation than letting your money sit in a bank account.

Everyone’s investment strategy is unique to their goals and comfort with risk. However, it’s helpful to regularly check in on your investments to make sure you’re on track to retire comfortably. One relatively quick way to do this is to calculate your net-worth-to-total-assets ratio.

You can calculate this ratio by adding up the value of your investments (not including your home equity) and dividing that by your net worth. Generally, you want this ratio to be at least 50%, especially as you get older. Younger people who are just starting out their careers shouldn’t worry too much if the ratio is lower, since you have more time to contribute to retirement accounts and build a portfolio. Many will have a ratio of around 20%.

Say I have $600,000 in stocks, an IRA, a 401(k) and an Alex Katz vintage print. If my net worth is $1 million, then my net-assets-to-net-worth ratio is 60%.

Of course this number doesn’t tell you everything you need to know about your investments. If you’re curious about building your portfolio and don’t have the time to do extensive research yourself, consider working with a professional, like a trusted financial advisor or investment broker that is a fiduciary — meaning they legally must work in your best interests and disclose conflicts of interest. Navigating the markets is a full-time job, and those without training can lose money when they try to do it themselves.

Dig deeper: Set it and forget it: How to automate your investing with a robo-advisor

2. Do I have enough insurance?

One key feature of financial wellness is proper insurance coverage that covers you and your belongings in the event of an accident or damage at home, on the road, to your health — even to your family pet. Insurance is designed to protect you and your loved ones against risk, which is the bread and butter of financial planning.

How much insurance you need depends on your lifestyle, your needs and how much risk you’re actually willing to take on. These are some of the most common types of insurance for protecting your family, belongings and quality of life before an emergency.

Homeowners insurance

If you have a mortgage, you’re required to buy homeowners insurance. But even if you own your home outright, it’s a good idea to make sure you have adequate coverage so that you don’t lose your most valuable asset. After all, home equity is one of the biggest sources of wealth for most Americans. If you damage or lose your home, it could take you decades to recover financially without insurance.

Homeowners insurance protects you from specific types of damages — such as vandalism, fire and smoke, water damage and falling objects, depending on your policy. It also typically covers your personal belongings and provides liability protection if someone is injured on your property. However, it may not cover damage from natural disasters. If you live in an area or state that’s prone to flooding — like Florida, for example — you may need additional insurance coverage.

When shopping for home insurance, determine the coverage you’ll need, including any add-ons for your unique circumstances, and get at least three quotes to compare against your budget.

Dig deeper: Age-smart ways to save on your home insurance (that work for all homeowners)

Renters insurance

Even if you don’t own your home, it’s worth it to invest in renters insurance that can cover you, your valuables and your living expenses against damage, theft and other loss. And it’s likely cheaper than you think: The average policy costs under $25 a month, according to Nationwide.

Renters policies may also protect you from lawsuits if someone is injured while at your home or if you damage someone else’s personal property. And if you have to spend the night somewhere else, renters insurance might cover that too — depending on your policy. Like home insurance, this typically doesn’t cover natural disasters.

Flood insurance

If you live in a flood zone, you need flood insurance. In fact, even if you don’t live in a flood zone, it might be worth exploring— unless you live on the upper floor of an apartment building. Weather has been unpredictable recently, and even an inch of flood can set you back thousands of dollars.

The National Flood Insurance Program (NFIP) offers flood insurance that you can purchase through an insurance agent. If you don’t already have an insurance agent that you like to work with, find an agent through the NFIP.

Car insurance

Most states require car insurance for all drivers on the road. So if you own a car, you probably already have an auto insurance policy. Even if you live in a state that doesn’t require insurance, car accidents are common, it’s worth making sure you’re protected against the high costs that come with an emergency. This insurance typically covers repairs and medical expenses related to an accident, while also protecting your car against theft and vandalism.

Life insurance

Life insurance can be useful if someone else depends on you financially — or you want to leave your heirs an extra chunk of money after you die. So if you’re the sole breadwinner in your family or you have children, you should strongly consider investing in a life insurance policy.

Think about how long you’ll need coverage. For example, if you have young children, you might consider at least a 20-year policy that can replace your income should you become unable to work.

Some companies offer life insurance as an employee benefit, though you’re likely to find stronger coverage if you look for an outside option.

Disability insurance

Like life insurance, disability insurance may be worth the investment if one or more people are financially dependent on you. It’s also worth investing in disability insurance if your job requires a lot of physical labor.

This type of insurance allows you to continue to receive a portion of your income if you’re injured or ill. Some states may require your employer to offer this for free, though these policies may not cover your full salary when you need it, making it crucial to purchase additional disability insurance to provide financial stability when your loved ones need it most.

Pet insurance

Anyone who’s owned a pet knows that bills for loved animals can skyrocket as your pet ages. If you don’t bat an eye at the idea of spending thousands of dollars on emergency surgery after your cat eats a roll of dental floss, then it may not be worth it. But otherwise, pet insurance can cut down on vet bills — and even fund the necessary care that could extend your furry (or feathery or scaled) companion’s life by years.

3. Have I planned my estate?

Estate planning involves planning for what happens to your assets after you die. If you’re in your twenties and don’t have a lot to your name, this may not be necessary. But if you’ve built some wealth and started a family, planning your estate ensures that your money goes where you want it to go when you’re gone.

At a minimum, work with an attorney that specializes in estate law to draw up a will. Your will covers the distribution of your bank accounts, mortgage, investments and other assets among your heirs, identifies a guardian for your surviving children and names an executor — the person who will handle your estate after you die.

While working with your attorney, ask them if there are any additional steps you need to take to plan your estate. For example, you may need to name a beneficiary on your life insurance policy or an IRA, or set up a trust to simplify the distribution of your wealth.

Dig deeper: What happens to your investment accounts after you die?

4. How is my career going?

Your employment status and prospects may seem like an obvious part of your financial health, but it’s worth taking a step back and reviewing your career regularly. If you’re currently unemployed, looking for a job or freelance work is a key step in getting your finances on track.

Evaluate your compensation

But even if you’ve been at your job for a while, it’s worth making sure you’re being compensated fairly. Make a habit of comparing your salary or wages to similar positions at other companies by talking to recruiters in your industry — but don’t rely on job postings alone. If you find you’re paid well below market rate, it might be time to ask for a pay raise or consider switching companies. You might also find that it’s easier to transition to a role with better pay and more responsibilities by moving to another company.

Switching jobs may come with significant benefits, but there are some downsides too. Recent employees are often more vulnerable to layoffs, and switching jobs too frequently can raise red flags to recruiters.

It’s also important to not leave your current job before you have a firm offer from another company — a 2024 Resume Builder survey found that 40% of companies have listed fake job postings in the past year.

Invest in new skills

Depending on your industry, you may find yourself hitting a ceiling unless you get another degree, certification or expertise in a particular skill set. If you haven’t changed roles in a few years, this might be the time to consider some additional training.

For example, my husband is a registered nurse. While there’s plenty of room for him to grow at his current job, he sometimes needs to get additional training to get to the next level of his career. One day, he’ll need to get a nurse practitioner’s degree if he wants to get ahead.

Dig deeper: Best jobs for seniors, retirees and mature workers: 10 second-act careers plus 13 side gigs

How to strengthen your finances

Even if our finances are in good shape, there’s often one or two areas that we can improve. If you want to get your finances into better shape, you might want to consider taking one of the following steps:

• Find new sources of revenue. When my cousin lost her job a few years ago, she and her husband decided to list their house on Airbnb. This helped them maintain their lifestyle and had the added bonus of funding several family vacations.

• Pay down your debt strategically. Use a debt payoff strategy like the snowball or avalanche method to get out of debt, up your net worth and reach your goals more quickly.

• Curate your flexible expenses. Make a habit of combing through your credit card and bank statements to look for unnecessary spending. Cancel any subscriptions you don’t use.

• Work with a professional. A credentialed financial advisor, accountant or attorney may be well worth the cost when you’re struggling to get your finances in order — especially if you and your spouse don’t always agree on how to manage your funds.

Dig deeper: Clever ways to save money: Earning, spending and boosting your bottom line

FAQs: Strengthening your finances for a strong financial future

See answers to common questions around retirement planning and more. And take a look at our growing library of personal finance guides that can help you save money, earn money and grow your wealth.

How much should I have saved for retirement?

It depends on how you want to live. If you want to keep your current standard of living, this formula for savings by age can give you a sense of whether you’re near or on-target:

How much of my income should I be saving?

A general rule of thumb is to put at least 10% to 15% of your income toward retirement or an emergency reserve. Many people will need to save more than this amount, however, depending on the size of your current emergency fund, your cost of living and how much you already have saved for retirement.

How can I get out of debt?

There are several different strategies you can use to get out of debt, depending on how much debt you have and the strength of your finances:

• DIY debt payment strategies like the snowball and avalanche methods strategically target different debt accounts to help you get out of debt more quickly than you would otherwise. You can use this for any amount of debt or type of debt.

• Debt consolidation involves taking out a personal debt consolidation loan or a 0% intro APR credit card to pay off your current debts, ideally at a lower rate. You need to have a good credit score of at least 670 to qualify in most cases, and your total debt ratio should be no more than 50%.

• Debt management involves working with a nonprofit credit counseling agency to negotiate new terms with your creditors to reduce your rates and give you a monthly payment that fits your budget. Typically people use debt management when they can’t use a DIY method and don’t qualify for debt consolidation.

• Debt relief programs like debt settlement involve hiring a company to negotiate down your debts to a lower, one-time payment. Because the pay structure can be difficult to understand, debt relief often ends up costing customers more than expected and may not be worth it.

Editorial disclaimer: Information on this page is for educational purposes and not investment advice or a recommendation to buy any specific asset or adopt any particular investment strategy. Independently research products and strategies before making any investment decision.

Sources

About the writer

Anna Serio-Ali is a trusted lending expert who specializes in consumer and business financing. A former certified commercial loan officer, Anna’s written and edited more than a thousand articles to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in Business Insider, CNBC, Nasdaq and ValueWalk, among other publications, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.

Article edited by Kelly Suzan Waggoner