Test Your Financial Fitness

I have been reading The Total Money Make Over by Dave Ramsey ISBN-13: 978-0-752-8908-1, and thought it would be interesting to set up a self test for your financial fitness. See where you score.

Do you have a $1,000.00 emergency fund? Is this money available for the small emergencies that come up, in other words is it in cash where you can get to it in a hurry? After you dip into this cash reserve do you replace it before spending money on any other luxury item?

If you can answer yes to all of these questions, give yourself 14 points. If you answered no to any of the above, you have totally failed the test and it might be wise to read The Total Money Make Over.

Do you have any debt other than your home? I mean any debt, what about your credit cards, is there a running balance? If you do not pay the entire balance each month, then you have debt. If you owe money on a car, then you have debt. If you have a second mortgage or a home equity loan balance, then you have debt. If you have a school loan, then you have debt. If you owe a friend money, then you have debt. We will give you a slight break here, if you have a mortgage on rental property you can pass to the next test question.

If you have any debt other than you home’s first mortgage then you have failed the test with a score of only 14. If you are debt free then give your self another 14 points.

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Do you have a fully funded emergency fund that covers three to six months of expenses? What would it take for you to live three to six months if you lost you income? This does not count the $1,000 emergency cash fund, this will usually range from $5,000 to $25,000.

Give yourself 5 points if you have at least three months of fully funded emergency fund.

Give yourself 3 points for each month over the minimum of three months that you could meet expenses if you lost your job. If you cannot afford to be without income for more than three months, then your score for this test is 28. Not too good and I would guess that most people will not even score this high. You need to take a hard look at your financial fitness.

However, if you have made it this far with a score of at least 33 and have not bought a home, this would be a good time to make the best investment you will ever make, just remember to keep the payments down to 25 to 30% of your monthly income.

Are you investing 15 percent of your income in retirement?

If you can answer yes and have no debt except for a house payment, a $1,000 emergency fund, three to six months worth of expenses in savings, then give your self another 14 points. You should expect 12% return on your investments in growth-stock mutual funds.

Are you saving for you children’s college through an Educational Savings Account (ESA) earning an average of 12%? And are you investing the maximum of $2,000 a year per child?

If your child is over the age of eight when you start this fund, you will have to set aside more to reach your goal.

If you have children and can answer yes to the above questions, then give yourself another 14 points.

If you have no children and are not saving for college, then you are OK but don’t give yourself any points.

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Have you paid off your home mortgage and any mortgages on rental property that you may own?

If you can answer this question, then give your self another 14 points.

Are you now debt free, investing, having fun and giving to others?

If this is true, then give yourself another 14 points. When your money is making more than your expenses, you are finically independent. You should have been doing all three from the start, having fun, investing and giving.

Where did you score, if you have children and passed all the test questions then you should have scored a 89 or better. Dave Ramsey covers much more in his book, and I would strongly recommend it for every couple. The steps are hard and take commitment, but the returns are well worth it.