There’s the old saying that “you don’t know what you don’t know.” For example, we certainly don’t know what we don’t know about astrophysics except that we don’t know very much. Of course, it’s not terribly important to know a lot about astrophysics unless you’re an astronomer or physicist. But when it comes to personal finance, it’s important to learn what you don’t know as this could have a very important effect on your life. As an example of this, if you have a mortgage do know your interest rate? The website Bankrate recently surveyed 1000 customers and found that 35% weren’t completely sure. And if you don’t know your interest rate, how would you know when or if to refinance? There’s a mortgage company where we live advertising 30-year, fixed-rate mortgages at a little above 4%. If your mortgage interest rate is 5% or higher you could save several hundred dollars a month by refinancing. But do you know your mortgage interest rate?
Here are eight other questions about personal finance. The more of them you can answer correctly the smarter the financial moves you can make.
#1: How are your possessions valued by your homeowner’s or renter’s insurance?
There are two ways that insurance companies generally value possessions – either replacement value or cash value. If your policy covers your possessions at cash value it will cost you less but you will be reimbursed only for the item’s depreciated value. You might have paid $1000 for that dining room table and chair set when you purchased it 10 years ago but today the insurance company might value it at just $100. In comparison, if your policy included replacement value you would get whatever it costs you to replace it. As you can see it’s important to know how your policy values possessions and whether or not you might want to make a change.
#2: What are your the terms of your mortgage?
Is your mortgage fixed rate or variable rate? If it’s a variable-rate mortgage do you know when your interest rate will change? Will it change after three years or five years? When it changes do you know what it will be? If you have a variable-rate mortgage that’s likely to take a jump in the next year or two and you plan to stay in the house longer than this, you might want to refinance.
#3: What’s the interest rate are on your credit card(s)
The interest rate on a credit card isn’t important if you pay off your balance every month. If you don’t, it’s important to know the interest rate. Most credit cards have the highest interest rate you’ll pay on any debt. Your cards may also come with very high fees should you be late or miss a payment. If you do carry a balance on a credit card with an interest rate of 19% or higher it might be time to do some comparison shopping and try to find one with a lower interest rate. Or better yet, you might be able to move that debt to one of those 0% interest balance transfer cards.
#4: If you have an emergency fund when would it run out?
We hope you do have an emergency fund because that’s the best way to keep from piling on more debt in the event you lose your job or have some type of emergency. If you do have an emergency fund do you know when it would run out? Do you have enough socked away to cover three months of living expenses? It would be even better if you had enough to cover six months. But the critical thing is to know how much you have saved and how long it would last.
#5: What’s your credit score?
Your credit score is that little, three digit number that ranges from a low of 300 to a high of 850. As you might guess, the higher your score the better. Knowing your score is especially critical if you’re about to apply for a mortgage or buy a car. While you may not know your score you can bet that your lender does. If you have a very good score of 750 or higher you’ll not only get the loan you need it will have a very favorable interest rate. Conversely, if you have a low credit score you might not get approved for the loan or if you are it will have a high interest rate. For that matter, if you have a low credit score you’re probably paying more for your homeowner’s and auto insurance. If you don’t know your credit score you can get it free on sites such as CreditKarma.com and CreditSesame.com. Neither of these will be your true FICO score but will be close enough that you will know how potential lenders view you.
#6: What’s the reward rate on your credit cards?
If you use a credit card sensibly and pay off your balance every month do you know your rewards rates? If you don’t know this, you can’t know whether the amount of rewards you earn will offset the fees you pay to have the card. The rewards rate for most cards is one point or cent for every dollar you spend. This means if you have a card with an annual fee of $50 would need to charge $5000 just to break even.
#7: How much are bank fees costing you?
If you’re paying anything at all for your checking account you might want to make a change. The overwhelming majority of checking accounts are free these days. Banks usually charge fees for things like an overdraft, using an out-of-network ATM or maintenance. You can probably avoid having to pay any maintenance fees by having your paycheck direct deposited into your checking account or by making sure you keep a minimum amount in the account. You can avoid overdraft fees by instructing your bank to decline any debit card transaction that would overdraw your account. And finally, if your bank doesn’t have branches near where you work or your home and if it doesn’t reimburse you for using out-of-network ATMs, you might want to find another bank. These fees are just a silly way to spend your hard earned money.
#8: Are you being paid fairly?
Do you know how your salary stacks up in the job market? It’s important to know this. If you’re job hunting and know what other people at your skill level are being paid you will know what salary to request . It can also tell you when it’s time to ask for a raise at your current job. The answer to how your salary stacks up against other people with the same skill level might really surprise you.
The bottom line
If you don’t know the answers to some of these questions you at least now know what you don’t know. You should then get busy and learn the answers, as this would definitely profit you. In fact, in some cases it could even put several hundred dollars a month more in your pocket. And wouldn’t that be nice?
National Debt Relief helps people nationwide resolve $10k or more in unsecured debt. Our debt coaches negotiate with creditors on your behalf so that you pay a fraction of what you owe and can become debt free in as little as 24-48 months.
