How well did you manage your finances in 2016? The stock market closed at record highs and interest rates were down at record lows. That’s good stuff, right? But, if you’re being honest, that was out of your control so you can’t really take credit for that!
What about the things that you did have control over? Did you follow the fundamental principles of sound financial management? Are you setting yourself up to achieve your financial goals throughout the market’s ups and downs? The question is, were you net worthy?
There’s only one way to know! Take the 2016 Be Net Worthy Financial Quiz to answer the burning question – were you net worthy in 2016?
2016 Be Net Worthy Financial Assessment Quiz
For each question, simply select the answer that most accurately reflects what you did in 2016. Once you get to the end, add up all of the points and see how you did. Good luck!
1. Did you track your net worth and investment portfolio performance on a regular basis?
- (0 points) – Not this year. So much money coming in and out, credit card statements and utility bills, there’s no way to know. Also, my portfolio is scattered across so many accounts, I haven’t had time to pull it all together. Maybe next year I can get my arms around it!
- ( 1 point) – I checked it once at the end of the year. I think I captured all of the big stuff!
- (2 points) – I checked my net worth on a regular basis and I checked in on my portfolio performance a few times during the year.
If you are interested in achieving financial independence, then tracking your net worth is one of the most important things to do (The importance of calculating your net worth). You also need to track your investment portfolio’s performance to make sure you stay on track.
If you’re having trouble getting organized, then simply use one of the new FREE online services, like Personal Capital. It is easy to use and handles everything for you. There really are no good excuses for not staying on top of both of these metrics. It’s what I use and I love it!
2. Have you set a target date for achieving financial independence?
- (0 points) – Nope. I know I’ll get there eventually, though. At least I hope so!
- (1 point) – Yes, but it’s a little arbitrary and I don’t really know if I can actually achieve it.
- (2 points) – Yes. It’s realistic and is aligned with other key life and financial milestones like paying off my mortgage, the kids leaving for college or moving to a new location.
Having a target date for achieving financial independence makes planning easier. That way you can establish income and savings goals that will get you there. If your goal is based on a number (e.g. $2 million) and not a date, then how do you know if you are saving enough?
3. Do you have a savings plan in place for big ticket items like buying a house or paying for a wedding?
- (0 points) – Nope. I have no idea when I’ll have a big expense come up. I like to take life as it comes – Carpe Diem!
- (1 point) – Yes, I’m putting money away for future big expenses, but I’m not sure what I’ll use it for or when.
- (2 points) – Yes. I’m setting aside a specific amount of money for specific future expenses and I know how long it will take me to have the amount that I need saved-up and ready to go.
For unexpected expenses, you have an emergency fund…that’s not what we’re talking about here. For infrequent, but big expenses, you need a savings plan. This includes things like a down payment on a house, a new car or a wedding.
These expenses should not catch you by surprise. Even when your car finally dies and needs to be replaced, you can usually see that coming years in advance.
4. Have you figured out the savings rate you need to achieve financial independence by your target date? Did you hit your savings rate goal?
- (0 points) – I’m not sure how much I need to save each year to reach my goals. In fact, I’m not even sure how much I’m currently saving, it’s so hard to figure out!
- (1 point) – I know how much I should be saving, and I think I’m on track.
- (2 points) – I know how much I should be saving, I’m on track for the year, and I’m actually slightly ahead of plan!
Setting the appropriate savings rate and hitting it each year are the most important things that you can do (Are you saving enough?) to reach your financial goals. By increasing your savings rate, you are not only increasing your investment portfolio, but you are decreasing your annual expenses. Both are critical in achieving financial independence.
5. Did you take advantage of every legal opportunity to save on your taxes?
- (0 points) – I’m not sure. I have my brother-in-law handle my taxes.
- (1 point) – I’m putting money in my 401k or IRA, but that’s about it.
- (2 points) – Yes, I’m familiar with the common tax avoidance strategies. I prioritize saving in tax-deferred accounts and maximize my tax deductions (e.g. home office, business expenses, donations…) whenever possible.
If there’s one thing that can kill your chances of achieving your financial goals, it’s your tax strategy, or actually the lack thereof. You need a tax strategy (The brutal effect of taxes on your savings)! And, if you itemize your taxes, hopefully, you knew to get your final non-cash charitable donations done before year end (The biggest tax break you’re not taking).
6. Was the bulk of your portfolio invested in low-cost index funds?
- (0 points) – No, my commission-compensated broker has specific stocks and load funds that he recommends.
- (2 points) – You bet. The vast majority of my portfolio is invested in index funds and my portfolio is rationally allocated across asset classes to meet my financial objectives and timeline.
There’s no middle ground on this one. You are either familiar with modern portfolio theory, efficient markets, and the corresponding research or you are not. If you are not, then get on board! (How to start investing in index funds)
7. Did you establish and/or maintain an adequate emergency fund?
- (0 points) – How can I start an emergency fund when I can’t even keep up with the credit card bills?
- (1 point) – I have 3 months of expenses in the bank.
- (2 points) – I have 12+ months of expenses locked and loaded.
Difficult to forecast expenses can really throw your financial plan down the garbage disposal! These are things like expensive car or home repairs, unexpected trips, or even a layoff. If you think you don’t need an emergency fund, read A layoff, an emergency fund, and a Martin guitar.
Let me know if that changes your mind. And just to be clear, an emergency fund does not need to be cash, mine is a $100,000 HELOC (Why HELOCs are awesome). Also, if you think that you have insurance to cover unexpected expenses, then you need to understand that insurance is not an emergency fund.
8. Did you review your insurance coverage to make sure you are covered in the event of a financial disaster?
- (0 points) – That’s never going to happen to me, I’m very careful.
- (1 point) – I set the basics up a few years ago – medical, home, auto and life insurance. Disability insurance? Who needs it!
- (2 points) – Yes. I review my insurance coverage every year and after any major life event like a marriage, divorce or home purchase.
Did you know that medical expenses are the leading cause of bankruptcy in the United States? Make sure you have medical insurance. If you own a home and are in an area prone to earthquakes or floods, make sure your homeowner’s insurance covers you in those circumstances, as many do not.
And, finally, you may want to consider disability insurance if you are the sole breadwinner for your family. It provides income in the event that you become disabled and can no longer work.
Talk to a knowledgeable insurance agent to make sure you are covered for major financial disasters. Many of these events will ruin you beyond recovery if you are not properly covered.
9. What did you do to increase your financial savvy in 2016?
- (0 points) – Nothing – who has the time?
- (1 point) – I pay attention to the financial news when I come across it and I read a personal finance magazine or blog from time to time.
- (2 points) – I make an effort to keep up with the latest financial and economic news and educate myself through books, magazines, and/or personal finance blogs or other online resources regularly.
Personal finance is a long game and things change over time. Interest rates fluctuate, tax laws change and new investments become available. Making sure you stay on top of the latest trends along with educating yourself on the basics will go a long way in ensuring you reach your financial goals.
BONUS – In 2016, interest rates were at historic lows. What did you do?
- (0 points) – Wait, what?
- (1 point) – I saw that rates were down, but I am going to pull the trigger in 2017.
- (2 points) – I took advantage of the historically low interest rates to either: buy a home, refinance an existing mortgage or refinance my student loans. I have locked-in low rates for years!
2016 saw the lowest interest rates in decades and they are unlikely to be that low again anytime soon. Did you miss the boat? It’s not too late. While rates have started to climb, they are still at historic lows.
If you have not bought a house or refinanced your mortgage, read A Mortgage Refinance Just Saved Me Thousands. Or, if you are still paying high interest rates on your student loans, read How to Refinance Your Student Loans. It’s not too late to lock in these super-low rates!
Anxious to see if you are net worthy? Add up the points for each of your answers to see how you did and check your totals below.
If you received:
- Between 0 and 5 points: You’ve got some work to do! Look at the 1 and 2 point answers to each of the questions to give yourself ideas on where to start.
- Between 5 and 10 points: You are doing OK. There are still opportunity areas, but you are on the right track. Keep up the good work and strive to improve in 2017.
- Between 10 and 15 points: Well done! You have a strong foundation and are well on your way to achieving your financial goals.
- Between 15 and 20 points: Wahoo! Dare I say, you may be net worthy? Maintain your excellent financial discipline and habits and keep honing your financial savvy. 2017 will be a financial cake-walk for you!
So how did you do? Did you perform as well in 2016 as you thought? Maybe there are a few areas for improvement, or maybe you are right on track! Either way, I hope you enjoyed the quiz and that it helps you to focus on being net worthy!
How did you like the quiz? What was your score? Did it get you thinking about any areas to improve in 2017?
(Also, please stop by and let us know which personal finance blogs you would recommend to a friend. We are building the first ever list of Be Net Worthy recommended personal finance blogs. Don’t miss out, I’ll be publishing the complete list soon!)