NFCU-Family Finance

A Personal Finance Quiz

1. Do you save money every month?	Yes No
2. Do you have a budget and keep track of or review how much money you spend each month?	Yes No
3. Do you pay bills on time every month?	Yes No
4. Are you making more than the minimum monthly payment on your credit cards?	Yes No
5. Are your monthly credit card and loan (including car and mortgage or rent) payments no more than 40% to 45% of your pay after taxes?	Yes No
6. Is your credit rating satisfactory?	Yes No
7. Do you have an emergency fund?	Yes No
8. Do you have enough life insurance?	Yes No
9. Do you have an up-to-date will?	Yes No
10. Is your net worth improving?	Yes No

Answers
1. The primary rule of smart money management is to pay yourself first. You do that by putting away something every month-even before you pay the bills. (An automatic deduction from your checking account to a savings account is a great way to start.) For now that may be $50 a month. As you begin to make more money or pay down your debt, think about raising your savings to $100 or more. This brings us to the second rule of sound financial management: Set priorities for your financial goals. Ultimately, you want to save 10% or more of your take-home pay (especially if you're a late starter) to meet your long-term financial goals, such as buying a home, helping your children pay for college or saving for your retirement.

2. The first step in getting your spending under control is to develop a budget. Budgets are the only practical way to track how you use your money. Creating one generally requires three steps:

Identify how your money is spent today.

Evaluate your spending and set goals that take into account your short- and long-term financial objectives.

Track your ongoing spending to make sure you stay within your guidelines.

Once you determine where you are spending too much, develop strategies to address this problem and identify where you should be funneling more money (such as your savings or paying down debt). If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, keep a careful record of where you spend your petty cash. Because cash is so difficult to track, try to limit your out-of-pocket transactions to no more than 5% of your total spending. When projecting the amount of money you can live on, don't include dollars that you can't be sure you'll receive, such as tax returns. As your annual income climbs from raises, promotions and smart savings, don't start spending for luxuries until you're sure that you're staying ahead of inflation. In fact, many savvy money managers try to maintain their preraise spending level and put all of their extra pay in a savings or investment account.

3. Paying your bills late can ruin your credit rating, and a poor rating can prevent you from landing a job, renting an apartment or even getting a decent rate on auto insurance. That's because landlords, employers and insurance companies believe that people who pay their bills on time are more likely to be responsible in other aspects of their lives.

4. By making only the minimum payments on your credit cards each month, you could wind up paying off the balances for 20 years-even if you stop using the cards. That's because interest will continue to accrue on the unpaid balances.

5. Financial planners suggest keeping total debt and housing payments to no more than 40% to 45% of your income. If your debt exceeds this amount, you need a debt-reduction plan. First, determine the maximum amount you can pay each month. Pay down the debt with the highest interest rate first, while paying the minimum monthly amount on all other revolving bills. When the highest debt is wiped out, start paying down the debt with the next highest rate.

6. If you don't know your credit rating, order a copy of your credit report from one of the three major credit bureaus: Experian (1-888-397-3742), Equifax (1-800-997-2493) and Trans Union (1-800-888-4213). Reports generally cost about $8, but they're free if you've been turned down for credit, employment or housing in the past 60 days. Check for any inaccuracies; the bureaus are required to investigate and correct them. When you review your report, look for any open lines of credit that you no longer need, such as credit cards you no longer use. Too much "potential debt" can prevent you from getting a loan. That's because when lenders review your report, they not only take into account how much you owe, but also how much debt you are able to rack up. Too much and they're not likely to lend you any more.

7. If you don't have a rainy-day fund, build a cash cushion that you can tap quickly in case of an emergency. Without this cushion, a broken furnace or other calamity will wreck your budget, and you may be forced to overextend your credit cards. Once you've settled on a target figure, make regular deposits into a dedicated emergency account, but don't stop funding other important goals like retirement. Certificates and money market accounts are good places to keep your fund. (To find the best current rates, turn to page 5.)

8. The American Council of Life Insurers says that the value of your insurance policy for typical family breadwinners should be five to seven times your annual earnings. But this formula can vary and is very much a personal matter. The more expenses and dependents you have, the more insurance you'll need. If you have significant retirement savings, a pension or other assets (like an education savings fund for your kids), you can get by with less. But at a minimum, you should leave your family with enough to cover big-ticket items like your mortgage and your children's college tuition. Once you've assessed your life insurance, make sure your home and auto coverage is also adequate.

9. If you are an adult and have any assets, you need a will. Without one you will die intestate, and upon your death the distribution of your property will be made according to the law of the state you lived in. (For more on wills, trusts and other important estate-planning tools, see page 12.)

10. Sizing up your net worth means looking at two important financial indicators: your assets (all the things you own-such as your savings, your furniture, your home) and your liabilities (debts you owe). Calculate your net worth by subtracting your liabilities from your assets. For many young people, your net worth might be a negative figure. The key to building up your net worth is to curb your spending as you build your assets-especially your savings and investments-over time.

Scoring

Give yourself a point for every "yes" answer.

8 or more points: Congratulations. You have the discipline to be rated a responsible money manager.

5 to 7 points: You're getting there, but you must pay more attention to the critical areas of your financial life. Even small infractions such as paying bills late can make life difficult for you and your family.

Less than 5 points: You really need to hunker down and start focusing on your finances. Reading Home Port will help-so will using the financial tools on the Navy Federal Credit Union Web site: www.navyfcu.org.