ARE YOU FINANCIALLY FIT?

By Tajinder Rehal

When it comes to money, are you secure or stressed out? Take our quiz to learn your spending personality.

1. In planning for your future, you started socking away money for your retirement savings account:

a. Back in high school, when you got your first job.

b. When your best friend opened her retirement fund.

c. You haven't -- you're too young to think about retirement.

Instant insight: "It's never too soon to start planning for retirement," says Lauren Gadkowski, a certified financial planner in Boston. "The average American doesn't start doing this until age 42, which is too late." If your company has a 401(k) plan and matches contributions, you have a great start. Aim to save at least 10 percent of your paycheck and try to diversify your savings -- open a Roth IRA (rothira.com) and establish an emergency savings fund in a non-ATM-accessible account. Studies show that the earlier you begin saving, the better financial shape you will be in when you're ready to leave the workforce ... The numbers prove it's never too early!

2. Your car suddenly needs major repair work. You pay for it with:

a. Cash.

b. Your emergency credit card, which you'll pay off in a few months.

c. Whichever card can cover the bill without maxing out.

Instant insight: Ideally, you should have an emergency cushion of three to six months' salary set aside to cover unexpected expenses or job loss. Gadkowski recommends keeping the funds in a money-market account where it's easily accessible and earning some interest. Again, you'll want to keep the funds in an account that's not ATM-accessible so you won't be tempted to take them out when it isn't a true emergency.

3. You're in the habit of paying your bills on time:

a. Always.

b. Almost all the time.

c. Rarely.

Instant insight: If you pay your bills as soon as you get them, you're in good shape since that allows plenty of time for your payment to be processed and recorded. You can also set up automatic bill payments through your bank, so you don't have to think about writing a check and getting it in the mail on time.

Paying bills on time helps establish your credit score, which largely determines the interest rate you'll pay on future loans, such as for a mortgage. "A late payment drops your credit score dramatically and stays on your credit record for seven years," Gadkowski warns. "However, you can boost your credit score by paying on time for at least six months in a row."

4. You keep your financial records and statements:

a. In a highly organized filing system.

b. In a pile with other opened mail.

c. On your kitchen counter, unopened and under a stack of magazines and junk mail.

Instant insight: Being organized will help you know where your money is, where it's being saved and spent, and helps get your bills paid on time. Filing everything in an organized manner, such as in a tickler with bills arranged in the order they are due, is best. If your statements are in a pile on your kitchen counter or under a stack of magazines, take a couple of hours to get organized. "You only need to keep most financial statements until your yearly taxes are filed," Gadkowski adds. "However, keep your tax returns [and related supporting documents, such as receipts and W-2s] for at least five years, in case you get audited."

5. You track your weekly spending:

a. On a spreadsheet, with every purchase, payment and bank transaction tracked to the penny.

b. With a running tally in your head.

c. By watching your checking account. If a check clears, you're within budget!

Instant insight: "Having a budget and sticking to it can help keep you from overspending and going into credit-card debt ..." says Lynnette Khalfani, author of "Zero DeUf: The Ultimate Guide to Financial Freedom" (Advantage World Press, 2004). Take the extra step and write the numbers down in a budget-tracking notebook or keep records using financial software programs such as Quicken. "Seeing things in black and white gives you a realistic sense of your financial condition," Khalfani says.

6. When your credit-card bill arrives each month, you pay: a. The balance in full.

b. The minimum, plus whatever additional you can afford that month.

c. The minimum, so you have more money leftover from your paycheck.

Instant insight: The less you pay, the more your creditors make off of you in the form of interest, Gadkowski points out. If you can't make the minimum payment, send in something. "Paying something is always better than paying nothing when it comes to your credit rating," she says.

Scoring

Northern California-based freelance writer Tajinder Rehal always tries to pay off her credit-card bill in full each month.

Source: Shape. Powered by Yellowbrix.

BACK