Would you pass Suze Orman’s financial strength test?

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The popular finance guru has all the bases covered in this finance quiz.

Key points

  • Does your emergency fund need a boost? And do you pay off your credit card balance every month?
  • Are you saving enough for retirement? Do you have the willpower to save your loved ones from further grief if you succeed?
  • Suze Orman’s Financial Strength Test covers everything from your credit card habits to planning for retirement.

Last month, Suze Orman included a financial strength test at the bottom of various posts on her site. It covers everything from how you use your credit card to preparing for old age and death. The popular financial author, presenter and podcaster originally published the test in 2017, but it still holds true today.

How are you? Are you a financial heavyweight? Can you answer yes to all the questions below?

1. Do you pay all your credit card bills in full each month?

Credit cards can be powerful financial tools. You earn rewards on your spend, get perks like insurance or fraud protection, and you’re even eligible for sign-up bonuses. However, you will negate many of these benefits if you keep a balance. Only charge what you can afford to pay at the end of the month.

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If you can’t pay your credit card bills in full, you could end up paying interest on your purchases. While some cards have interest-free promotional periods, others charge APRs of 16% or more. Having a balance can also increase your credit utilization rate, which in turn can hurt your credit score.

2. Do you have an eight month emergency savings fund?

An emergency fund is a cushion against unforeseen events such as a medical crisis or job loss. If you have a well-stocked emergency fund — ideally in an accessible savings account separate from your checking or other accounts — you can weather any financial storm. Orman raised his emergency fund recommendation due to heightened recession risks. She is currently suggesting that her fans set aside 12 months of living expenses.

3. Did you pay for the car you are driving with cash or a loan for up to three years?

The cost of buying a car is higher than ever. Unfortunately, one of the ways consumers cope with rising costs is to take out longer loans and spread the costs over a longer period. The problem? They pay more interest and run the risk of their car being worth less than it should be.

When it comes to paying for a new car, says Orman: “Your goal should always be to spend as little money as possible on a car that meets your needs, to finance it for as short a period of time as possible, then continue driving it for many more years after the car has been paid for.” She also says you should never lease a car – to her, you’re investing money in an asset that you won’t own in the end.

4. Do you put at least 10% of your gross salary aside for your retirement?

Orman says the average American is way behind on their retirement savings. She would like us all to set retirement goals and start saving through a workplace retirement plan, an IRA, or a regular taxable account. Orman suggests dedicating 10% of your salary to your old age if you’re in your twenties. If you’re in your 30s, she thinks that number should be 15%. If you’re older, Orman wants you to push your savings rate up to 20%.

5. Do you have a long-term asset allocation plan for your retirement investments?

Asset allocation is the combination of stocks, bonds and cash you hold. Orman points out that you need to decide what percentage you want to keep and check back periodically to make sure you’re on the right track. Orman is a fan of long-term investing, but she also stresses that you can’t leave everything completely on autopilot. If you aim to hold 70% stocks and 30% bonds, this balance could be thrown off balance if the stock market rises dramatically. Also, as you age, you may want to modify this ratio to reduce short-term risk.

6. Do you have term life insurance to protect your dependents?

Orman says you need life insurance if there’s someone relying on your income. They can be children, spouses, siblings or parents. Life insurance means those you care for and care for won’t have financial hardship if you die. Orman also suggests a term life insurance policy — a policy in place for a fixed term, which can often be more affordable.

7. Have you taken steps to manage your affairs in the event that you die or become incapacitated?

Orman says there are certain documents we all need to minimize bureaucracy and hassle for our loved ones in case something happens. These are:

  • A desire. A will specifies what will happen to your property after your death.
  • A confidence. A living revocable trust is a way to continue to control your assets during your lifetime, while allowing your heirs to avoid probate.
  • A living will. This document defines your end-of-life preferences. You can express your wishes for things like resuscitation, organ donation, special treatments, and prevent your loved ones from having to make these decisions on your behalf.
  • A power of attorney for health care and other matters. A power of attorney means that you authorize someone to act on your behalf in certain situations. A financial power of attorney covers money matters, while a medical power of attorney covers your health.

The thought of serious illness or death is unsettling at best. But Orman points out that estate planning can save the people you care about a lot of heartache.

8. Have you verified all beneficiaries of each investment account and insurance policy over the past year?

Unfortunately, making a will does not necessarily mean that the beneficiary you name will receive everything as you intended. Let’s say an ex-spouse is listed as a beneficiary on your IRA or insurance policy. Specific policies override anything written in your will, so if you don’t update every document, your ex might be entitled to the money. Check them once a year to make sure your assets are going where you want them.

How did you do?

If you didn’t answer yes to all of the questions above, don’t panic. We can’t all be financial superheroes. What’s important is to make a plan and figure out how you can progress in some of these areas. For example, if you’re not saving as much as you’d like for retirement, maybe you can increase your contribution by 1% once in a while, then 1% more in a few months. Don’t go crazy. It’s always fun to pass the tests, but in this case what matters is finding sustainable ways to build a strong financial foundation.

About Joan Dow

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