By John Ingrisano
Director, Family Finance Conference Center
[The following is based on ideas in The Back to Basics Book of Money: A Couple’s Guide to Financial Peace, by John Ingrisano. For more information, click on the title above.]
Some people spend their lives on a financial treadmill. They work 40 hours a week, 50 weeks a year…yet they never seem to get ahead. Even many people earning six-figure incomes live from paycheck to paycheck.
It doesn’t have to be this way. The key is consciously to build up your net worth by taking specific steps.To get an idea of just how well you’re ma naging your money, complete the following self-quiz.
Print out this self-quiz: Then answer each question in terms of how it applies to you on a scale of 0 (for no or never) to 10 (for yes or always):
_____ Do I have financial objectives? You must know where you want to go before you can figure out the best way to get there. Give yourself 10 points if your objectives are in writing; zero if you just live from paycheck to paycheck, without any plan.
_______Do I know my net worth? This is the flip side of thefirst question: You must know where you are before you can figure out how to get where you want to go. Your net worth is the total of your assets minus your debts.
_______Do I actively manage my household spending? Give yourself an eight if you have a written budget; 10 if you actually follow it; zero if you just pay the bills and spend the money, without a clue where it all goes each month.
_______Do I save a portion of my income every month? Give yourself one point for each percent of your income you put aside each month in long-term savings.
_______Do I use cash for most purchases? Give yourself an automatic ten if you always use cash; zero if you write checks for everything (such as at the grocery store) or use debit cards as if they were cash. These are worse than credit cards; if you use credit cards often, give ourself a five.
_______Do I carry a debt load on my credit cards? If you insist on using credit cards, give yourself an eight if you ALWAYS pay off your credit card bills each month; ten if you do not use plastic at all.
_______Do I know how much money I need to save to retire comfortably? There is no simple, one-line answer. Go online and find a calculator or meet with a financial professional.
_______Do I take advantage of tax-advantaged accumulation vehicles? These include IRAs, 401(k) plans through work, annuities and the cash value element of life insurance. Give yourself one point for every percentage of your income you are saving each month.
_______Do I have adequate life insurance? Life insurance is the most cost effective way to protect your loved ones and make sure your objectives are met if you die prematurely. Owing life insurance is part of a smart financial strategy. Give yourself one point for how much life insurance you have based on your gross income. (Example: give yourself three points if you earn $50,000 and have $150,000 of coverage; even points if you have $350,000.)
_______Do I have a current will? Give yourself zero here if you have no will or if it hasn’t been revised within the last ten years. Give yourself ten points if it has been updated within the last 12 months; deduct one point for as many years as you have updated it.
How did you do? If you scored 80 or above, you are probably doing what it takes to get ahead. You also realize that, while some sacrifice is necessary, it really isn’t that difficult. If you scored between 60 and 79, you are fairly typical of most people. However, you may find that you’ll never get off the financial treadmill and get ahead. If you scored 59 or below, you may be living on borrowed time, seriously mortgaging your future by overspending today.
Recommendation: Address the areas where you rated the lowest. Then take steps to raise your score. When to start? Immediately! When your finances stabilize and your standard of living climbs (and it will, if you work to bring up your score), you’ll find that the effort was worth the pain … and the gain.
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