I’ve been reading Dave Ramsey’s The Total Money Make Over ISBN-13: 978-0-752-8908-1, and thought it would be interesting to set up a self-assessment of your financial standing. Watch where you score.
Do you have an emergency fund of $1,000.00? Is this money available for small emergencies that arise, ie is it cash that can be accessed quickly? After you dip into this cash reserve, do you replace it before you spend 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 questions, you have totally failed the test and it might be worth reading The Total Money Make Over.
Do you have any other debt besides your house? I mean any debt, what about your credit cards, is there a current balance? If you don’t pay the balance in full each month, then you have a debt. If you owe money on a car, then you have a debt. If you have a second mortgage or a home equity loan, then you have debt. If you have a school loan, then you have debt. If you owe money to a friend, then you have a debt. We’ll give you a little break here, if you have a mortgage on a rental property you can skip to the next quiz question.
If you have any debt other than the first mortgage on your home, then you’ve failed the test with a score of just 14. If you’re debt free, give yourself another 14 points.
Do you have a fully funded emergency fund that covers three to six months of expenses? What would it take you to live three to six months if you lost your income? This does not count the $1,000 emergency cash fund, which will generally range from $5,000 to $25,000.
Award yourself 5 points if you have at least three months of fully funded emergency fund.
Give yourself 3 points for each month for the three-month minimum that could cover expenses if you lose your job. If you can’t afford to go without income for more than three months, then your score for this test is 28. It’s not very good and I’d guess most people won’t even score that high. You need to take a close look at your financial standing.
However, if you’ve come this far with a score of at least 33 and haven’t bought a home, now would be a great time to make the best investment you’ve ever made, just remember to keep payments to 25-30% of your income. monthly.
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 savings in savings, then give yourself another 14 points. You should expect a 12% return on your investments in growth stock mutual funds.
Are you saving for your children’s college through an Education 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 this fund begins, you will need to set aside more to reach your goal.
If you have children and can answer yes to the questions above, give yourself another 14 points.
If you don’t have kids and aren’t saving for college, then that’s fine, but don’t give yourself any points.
Have you paid off the mortgage on your home and any mortgage on rental property you may own?
If you can answer this question, give yourself another 14 points.
Are you now debt free, investing, having fun and giving to others?
If this is true, give yourself another 14 points. When your money goes further than your expenses, you are ultimately independent. You should have been doing all three from the start, having fun, investing, and giving.
Where did you get your score? If you have children and you passed all the questions on the test, you should have scored 89 or higher. Dave Ramsey covers a lot more in his book, and I highly recommend it to all couples. The steps are hard and require commitment, but the benefits are well worth it.