How’s Your Financial Report Card

288/365: WinnersOne thing I miss about being a kid is report card time. I liked getting that feedback four times a year.

There was never going to be a varsity letter in my clumsy high school career, so academics was my competitive sport. As adults sometimes it’s hard to know how we are doing without a regular progress report. So I’d like to give you one you can use for your money, to measure your progress on the “Five Fundamentals of Financial Fitness.” Answer the questions below, give yourself the appropriate points for each answer, and check out your score at the end.

Try the quiz now, and then try it again in a few months to see how your progress is.

1. How much are you saving?

Add up the amount you saved in 2012 — your savings account, your 401(k), IRAs — everything except the money you put away that doesn’t stay long but finds its way back to your checking account. Don’t include employer contributions. Now take that number and divide by your gross annual income (combined if there are two of you working). Note on the lower points for 21 percent+: while saving is good, hoarding is not, and saving well beyond 20 percent of your income could possibly be a sign of that.

0 percent: 0 points

1-5 percent: 1 point

6-9 percent: 2 points

10 percent: 3 points

11-20 percent: 4 points

21 percent+: 3 points

2. How much liquidity do you have?

Liquidity is a measure of funds you can access readily, without concern of market valuation. A typical W-2 type employee should have 10 percent of his annual income someplace he can access it easily, and another 20 percent in reserves. Those who are self-employed or in a shaky job position should have more.

Add up how much you have in liquid funds like savings accounts, money markets, or CDs, plus the interest earning (non-stock) portion of any Roth IRAs. Then divide by your combined gross annual income.

0 percent: 0 points

1-5 percent: 1 point

6-9 percent: 2 points

10-20 percent: 3 points

20-50 percent: 4 points

50 percent+: 3 points

3. Are you taking full advantage of your retirement accounts?

For 2013, you are allowed to contribute up to $17,500 to your 401(k) or 403(b), plus a catch-up of $5,500 for those 50 and over. IRA contribution limits (for those eligible) are $5,000 plus an additional $1,000 for age 50 and over. For a couple under 50 for instance, a 401(k) and IRA each, the max is $45,000 per year. Add up your contributions to your retirement accounts and divide by the total eligible amount. Don’t include your employer match.

0 percent: 0 points

1-10 percent: 1 point

11-30 percent: 2 points

31-50 percent: 3 points

51 percent +: 4 points

4. Do you have the right size house?

Most Americans will find a house value of 2 to 2½ times their gross annual income to be comfortable financially. Mortgage should be between 50 percent and 80 percent of the value. In some areas with extremely high real estate values like some parts of New York City and New Jersey, you may need to go as high as 3 to 3½ times but will need to cut back in other areas.

Divide the value of your house by your annual income.

0-49 percent : 2 points

50-99 percent: 3 points

100-250 percent: 4 points

250 percent-350 percent: 1 point

350 percent+: 0 points

5. Is your consumer debt under control?

Over-utilizing consumer debt — meaning non-equity debt like credit card debt, furniture loans, excessive car and student loans, and the like — means borrowing from your Honor Roll (Grade 4 1980)future to fund your today. When that debt piles up. it can be dangerous to your financial security.

Add up the amount of interest you paid on these non-mortgage and non-business debts in 2012 and divide by your gross annual income.

0 percent: 4 points

1-2 percent: 3 points

3-4 percent: 2 points

5-9 percent: 1 point

10 percent +: 0 points


How much do you give to charity?

Charitable giving is not only good for the charity, but it’s good for you. You may think that cutting out donations from your budget will ease your financial stress, but studies show that giving actually improves your state of mind. Aside from the tax deduction, giving to charity is the antidote to materialism, and that in itself reduces anxiety about money.

Add up your total donations to charity in 2012, whether tax deductible or not. In this exercise money given to friends or others in need do count. Divide by your gross annual income.

0 percent: 0 points

1-2 percent: 1 points

3-5 percent: 2 points

6-10 percent: 3 points

11 percent +: 4 points

Add up all your points.

19-24 points: You made the high honor roll. You have mastered the essentials of money management.

13-18 points: Honor roll material. There is room for improvement but you’re doing well.

8-12 points: You’ve got some good skills and can grow into more.

0-7 points: Many fall here due to economic circumstances; many when they’re just starting out or raising a young family. Sometimes folks fall into this category because of financial habits that need work. If you find yourself here, take heart my unscientific observations are that most people fall into the 0-12 point category. Don’t be discouraged but work on small changes as you can. Those small steps over a long period of time yield big results.

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Part 2A & B of Form ADV: Firm Brochure