PORTLAND, Maine (NEWS CENTER) - This week marks the Financial Planning Association's eleventh annual Financial Planning Week. Financial Planning Week promotes public financial literacy and highlights the value of financial planning in helping Americans make smart financial decisions to achieve their life goals.
In the spirit of Financial Planning week, Sarah J. Halpin CERTIFIED FINANCIAL PLANNER™ and Associate Vice President with the Danforth Group of Wells Fargo Advisors has put together a quiz that recaps information from past financial segments.
1. When Sarah says "Pay yourself first" she is referring to:
a. Spending your money on the items you want most
b. Saving your money before you spend
Answer is b - When you pay yourself first you are establishing saving as a priority. Most people spend money in the following order: bills, fun and saving. No surprise that there usually isn't anything left for saving. Make saving first and make it as painless as possible by setting up automatic deductions from your pay check to a retirement account or from your checking account to a savings account.
2. A guideline for your cash reserve amount is:
a. 3 - 6 months of your fixed living expense amount in a cash account
b. Having a line of credit or overdraft protection on your checking is sufficient
Answer is a. A study published by the National Bureau of Economic Research stated nearly half of Americans said that they definitely or probably couldn't come up with $2,000 in 30 days for an unexpected expense. Make sure you are preparing your household to cope with a financial emergency. Set up an automatic savings plan and build a cash cushion of 3-6 months fixed living expenses. Have a greater cash cushion if you are concerned about your sources of income or have large planned upcoming expenses.
3. Your credit worthiness is based on your FICO score. Which of the following is true?
a. Paying your mortgage late will cause your FICO score to increase.
b. The more types of loans (credit card, mortgage, auto) you have the lower your FICO score.
c. The most significant factor on your FICO score is your payment history and whether you have paid bills on time or before their due date..
Answer is c. An important part of staying credit ready is knowing your FICO® score, which is a numerical representation of a borrower's ability to repay a loan, with scores ranging from 300 to 850 points. Your score is calculated based on credit history compiled by credit bureaus with monthly updates. Information is kept on your file for up to seven years on your payment history, types of credit you use, new credit, amount owed and length of credit history.
The most significant impact on your score is whether you have paid bills on or before their due date. Other factors include: amounts that you owe, length of credit history, types of credit.
4. You just got a 15% raise. You should:
a. Buy a new car while you qualify for a low rate loan.
b. Celebrate in Vegas. You've earned it!
c. Commit to paying down high interest debt and then increasing your savings.
Answer is c. Commit to reducing debt and look for ways to save.
According to creditcards.com, roughly 1 in 6 American households make the minimum monthly payment on credit cards. The average annual credit card percentage rate is 14.4% and the average household owes over $10,000 in credit card debt. With these statistics, it's easy to see how over 40% of American families are actually spending more money than they earn because of debt levels that they are unlikely to ever pay off.
5. Your retirement savings have to last as long as you will. What are the chances that one member of a 65 year old married couple will live beyond age 92?
Answer is c. Unfortunately, many people severely underestimate how much money they will need for the rest of their lives. According to the Society of Actuaries, while a 65-year-old man has a life expectancy -- that is, a 50% chance -- of living past the age of 85, for a 65-year-old couple, the chances are 50% that one member will live beyond the age of 92. Some people will spend more time in retirement than they did working. So it's important to plan how to make your nest egg last a lifetime
6. When you switch jobs you should do the following with your 401k:
a. Rollover to an IRA or your new employer's 401k
b. Cash out and pay off credit card debt
Answer a. According to BrightScope, a 401(k) rating site, nearly half of employees cash out their 401k retirement savings when leaving one company for another and lose valuable retirement savings. In general, you should roll funds from your 401(k) directly to an Individual Retirement Account (IRA) or to your new employer's plan.
The information provided is general in nature and may not apply to your personal investment situation. Individuals should consult with their chosen financial professional before making any decisions. Investment products and services are offered through Wells Fargo Advisors, LLC member SIPC. Neither Wells Fargo Advisors nor its financial professionals are legal or tax advisors.