Do you think you are doing your financial planning and money management right? Most of us feel we are doing everything we can to improve our financial condition, but most of us are doing the wrong thing. This is a self-financial test that will help you reach a conclusion whether you know much the principles of money management. Go through these questions below and figure out the answers.
Your monthly net income (after tax) is $2500. Your home and car loans are $800 and $250 per month respectively. In average, you pay the credit card loan of $150 per month. Do you know your debt payment-to-income ratio?
Rule of thumb: Do not spend > 20% of your net income on consumer credit payments.
The lower the debt payment to income ratio, the safer. It is advisable to keep this index below 15% if possible.
Using this example, if you want to bring down the number to 15%, you should then spend less with your credit card. $ 125 will be your cap in order stay right or below 15%.
Your net income is $4500 per month. Your monthly expenses (including home and car loan) is $ 3000. How much should you have in your bank as an emergency fund?
Rule of thumb: You should save MINIMUM 3 x monthly expenses as emergency fund
How much would you earn if you deposited $10000 at 7% for 24 months?
Rule of thumb: Check how your bank calculates the interest. Most of the time, they are based on annual interest rate (NOT Monthly)
Rule of thumb: The best investment strategy is a well-diversified one.
Switching portfolio during the rise of stocks is often considered a bad move, as good times do not last forever.
You are now 25-year-old and deposit $100 per month in a unit trust fund with an average return of 10% per year, you will have $640000 at the age of 65.
Your brother is around 40-year-old and he wants to start saving like you do. How much does he need to deposit in order to have the same amount at 65?
Rule of thumb: Start saving as early as possible. The younger you are, the better.
This simply evidences the power of compounding.
b. liabilities = assets + equity
c. assets = liabilities + equity
d. revenues – expenses = income
Answer: C. assets = liabilities + equity