The 20 questions you must master to
become Fiscally Fit
The answers and explanations for your
Money IQ score:
First Quiz Question:
Do you have a tax-deferred retirement account?
It’s a bit of a trick question – you have to know what a tax-deferred retirement account is!
They go by acronyms like: IRA/401k/457/403b
Or something else like:
- a ROTH,
- a “B” fund (if your employer has a custom system) or
- a SEP if you’re self-employed.
Just about EVERYONE in the United States is eligible for one of these accounts – unless you’re a minor with no earned income.
These accounts let you save and invest money now, while saving on current taxes, so you’ll have funds to live on after retirement.
- So, unless your answer is YES, you lose IQ points.
If you have a tax-deferred account, did you contribute the maximum allowable amount last year?
- Yes gets you maximum IQ points.
- Zero points if you don’t have an account or failed to contribute to it last year.
Because the government is deferring, or in some cases forgoing, current or future tax revenues on the portion of your income you put into retirement savings and the earnings, they limit how much you can put into your tax-deferred account in any one year.
So, the maximum is really the minimum – if you plan to enjoy a long retirement.
And compounding the earnings on your savings, over time, is what really increases the value of your retirement accounts.
So, skipping – even one year – can set your retirement plans back.
3. How much of your gross (pre-tax) income do you save each month or year?
- Zero points for zero savings.
- 10 points for over 10 percent.
Ten percent is really the minimum but, if you haven’t been saving much, increasing your rate gradually will help you get there.
4. How many months of living expenses do you keep in a cash-like account?
- Max points for over 3 months’ in what is often called an emergency fund.
If you’ve got less than 3 month’s expenses in a savings account, you need comprehensive disability insurance –
And the type job skills that can get you hired in any kind of job market.
5. What is your consumer debt to gross income ratio?
We’re talking mostly credit cards for purchases of stuff like:
The kind of stuff that depreciates as soon as you buy it.
You may or may not include your car – if you use it to get to a job to earn income, O.K. but, if it’s way more than you actually need to get to & from work, then yeah, it’s a consumer debt.
A CD:GI of less than 1 years’ earnings gets you top scores but, the lower the better.
You want this to be zero long before you retire so, the sooner you learn to save first then buy, the better off financially you’ll be.
6. What’s your net tax rate as a percentage of your gross income?
NT$/GI = NTR
OK, here we’re mainly looking to see if you know the answer!
And, you should know how your tax rate changes from year-to-year.
Even though, you don’t have that much control over how much you pay in taxes – unless you’re willing to move to a lower tax location.
Still, if you’re paying more than average, you should review your taxes to see if you’ve:
> missed some deductions or
> failed to use the tax-deferred savings options we talked about earlier.
Here’s a graph showing what the average taxes in 2014 were by income group:
Find your income group along the bottom and compare your 2014 or 2015 effective federal tax rate to the average.
7. What interest rate (on average) do you pay on your credit card debt?
Another question that’s mainly looking to see if you’re paying attention.
But, especially in the low-interest rate environment we have now, if you’re paying double-digit interest, you’re doing something wrong so:
- Zero points for 10% and higher.
8. When did you last check your credit report?
I should give extra points for using CreditKarma.com or a bank that gives you your score anytime you ask now.
But, it’s still important to actually look at your bureau report every few months to be sure no mistakes have snuck in.
If you’ve reviewed your report in the last 4 months, you score here.
The official, and free, report source is at: www.annualcreditreport.com
9. What percentage of your gross (pre-tax) income do you pay for housing?
Housing costs have escalated relative to incomes – even after the housing market price collapse of 2008.
This expense is one of the biggies – pay too much for a roof over your head now and you’ll be in danger of not having one when you’re elderly.
The standard recommendation is 30% or less of your gross income for rent or mortgage payments.
- You get some points as long as you know your number.
10. What percentage of your gross (pre-tax) income do you pay for other necessary living expenses?
- Communications, etc.
Any recurring, contractual obligations except debt repayment.
Again, while it’s important to keep these costs in line, the most important thing is knowing your ratio.
- Max points if they’re 20% or less but
- NO points if you don’t know your ratio.
11. Looking back to the last 3 or 4 times you had dinner with friends and relatives, did you eat out or cook at home?
What we’re really looking for here is your ability to maintain a social life without breaking the budget.
If you always meet friends at trendy bars and restaurants instead of in each other’s homes, you’re probably spending more than you need to.
12. How much disability insurance do you have?
Most middle-aged workers are more likely to suffer a period of job loss as a result of disability than they are to die. So, if you can only afford one, take the disability insurance over the life insurance!
But, if you can’t get a reasonably priced disability policy, protecting yourself with a (large) cash-like cushion is an option.
13. Do you know your Net Worth (in dollar terms)?
This is, hands-down, the most important personal finance number.
14. Do you know the total value of your retirement assets?
How are you ever going to retire, or know when you can retire, if you don’t know how much you’ve got saved?
If you’d like to calculate how much you need to have in your retirement accounts, send me an email with
Retirement Planner in the subject line to: [email protected]
And I’ll send you a link to my free, in-depth retirement savings report.
15. If you sold all your fixed assets, would you get more than you owe on them?
Really, we’re asking does your stuff own you or do you own your stuff?
16. How’s your current 5-year financial plan working out?
You know that old axiom:
Failing to plan is planning to fail?
But, making a plan and then never reviewing it doesn’t do a whole lot of good either.
17. How close are you to your #1 financial goal?
Of course, if you don’t have a plan, you probably don’t have any goals, just dreams and wishes.
18. Can you recite, from memory, your top 5 money and investing rules?
You’d be surprised how often knowing, and following your rules will save your financial bacon!
When your sibling asks for a loan?
Sorry, that’s against my rules!
When you really want the snazzy new whatever to replace your old but functional whatever?
It’s against the rules!
19. What type of spending and planning (budgeting) system do you use?
The more automated, the higher your score.
20. How happy are you with how your financial future looks?
The more on-track you are, the fewer bag-lady nightmares you have and the more Money IQ points.
And that’s it!
That’s a pretty simple quiz, isn’t it?
This is the same 20 Question Quiz that has helped us, and our followers, become money divas.
Just 20 questions and one number can show where you are financially.
How do you get your own, personal, private, Money IQ Score?
Look for it in your email if you took the quiz. If you haven’t taken it (or want a redo), go to: MoneyDivaIQ.com
Answer the questions and your individual score will arrive in your Inbox shortly thereafter.
If you got your score, and you’d like to improve it, you can participate in our 2 Week Money Makeover.
For 2 weeks, you commit to spending a few minutes each day – learning and organizing your financial life.
In just 2 weeks (if you follow the lessons), I guarantee your Money IQ score will improve!