I came across this financial health check on an Australian government web-site, and I must admit that the test itself is sound and you should try it NOW at this link before reading on …
dum di dum di dum [waiting music]
Finished already? It’s a quick one …
… did you see how it provided useful links to basic Making Money 101 reading material for any question where you may not have selected the ‘best’ answer? Nice, huh?
But, if you’re an avid follower of Personal Finance books and blogs, the answers may have seemed a little obvious … and, you may have even disagreed with a couple.
Let’s see:
As you know by now, my purpose for sharing this type of basic PF ‘wisdom’ on this site is to show you exactly why so-called conventional wisdom fails because it is almost always designed to deliver a conventional result … but, we aren’t satisfied with merely achieving conventional results, are we?!
So, here is the test – reproduced, with the most obvious answer bolded (I haven’t checked the test results to see if they agree … these just seem the most obvious answers to me) – but, I didn’t say it was the ‘right’ answer 🙂
I have added my comments underneath each question:
1 Do you save any of your money?
a) Yes. I try to put some aside for bills.
b) Yes. I keep a bit back from each pay because I am saving for something I want.
c) Of course I save, to pay for bills, to buy things I want, for a rainy day and for my retirement.
d) It would be nice to have enough left to save.
For me, the answer was None of The Above: since I have transitioned (almost) from Making Money 201 to Making Money 301, it is calculating the correct amount of ‘safe monthly withdrawal’ from my ‘nest egg’ that determines that I have enough for bills, to buy things, and for a ‘rainy day’, as I am already retired. Unfortunately, if you don’t do this calculation well (in my case, 7 years, but for most people 10 to 20 years) before your expected retirement, your nest egg simply won’t be enough to support your intended lifestyle.
2 Do you keep track of your money?
a) No, I have a life.
b) My bank statements help me do this.
c) I have a rough idea of where my money goes and where it comes from.
d) I have a budget plan.
I have a confession to make: I have NEVER kept track of my money. This is a fault but, contrary to conventional financial wisdom, actually not wealth threatening unless, one of the potential disasters (that will point out in a future) post does occur. So, while conventional wisdom says to have a detailed budget plan that you should stick to, I have found that when I was ‘poor’ and when I was ‘rich’ a “rough idea of where my money goes and where it comes from” is sufficient.
3 How much do you pay towards your credit card accounts each month?
a) As much as I can.
b) I can’t always make the payments and sometimes use one credit card to pay off another.
c) The minimum amount.
d) I only borrow money for something I really need and when I am sure I can keep up the payments.
The answer here, for me and for everybody, should be None of the Above: if you cannot pay your credit card balance off IN FULL each and every month, don’t use it. That was our policy through financial ‘thick and thin’ and it should work for you. As for borrowing to buy ‘stuff’ … don’t! I remember that we took ‘advantage’ of an interest-free purchase once …. it was a pain in the rear-end to keep up with the payments (they want you to, so that they can kick in the ‘fine print’ excessive interest payments) and we didn’t do it again … neither should you.
4 What would you do with a windfall?
a) Pay off my bills and put some money towards my loans.
b) Buy something I really need.
c) Save it.
d) Spend it.
The answer here is both All of the Above and None of the Above and deserves its own post; but, for now: Reserve whatever your accountant says that you need to pay any taxes on the windfall; then take 5% to 10% of what’s left and spend it like a crazy gorilla (go ahead … don’t be a miser); then if you owe money (on consumer loans), pay those down until there’s either no loan left or no windfall left (there are exceptions); then put aside 50% of the balance for investments; then pay cash for something that you really need (do you REALLY need that car? If so, go ahead and buy it!); then invest whatever is left. Notice that this only makes sense if you do it in this exact order 🙂
5 If you were in the market for a new car and loan what would you do?
a) Shop around for the best deal for both the car and the loan.
b) Take advice from a friend or family member.
c) Find a car I like and get the finance wherever I can.
None of the above: In ANY stage of my financial life I’d pay cash for less car than I want. Period.
6 Will you have enough money when you retire?
a) I am far too young to worry about this.
b) I have superannuation and I am pretty sure I’ll have enough when I retire.
c) I have made sure that I’ve got a plan and I know I’ll have enough when I retire.
Of course the answer is c) and we have the plan all laid out for you (the exact, same planning process that I followed) on http://7m7y.com … find it, read it, do it!
7 Would you be protected if your house burnt down?
a) I don’t know if I’m insured or not.
b) I am fully insured.
c) I have some insurance but I am not quite sure what is covered or the level of that cover.
Of course, your answer must be b), but, when you have enough money, why pay somebody else to carry the risk for you? So, while I was on my journey I carried a sh*t-load of insurance, including millions of dollars in life/trauma cover. Now, I carry a $20k deductible on my contents cover; full house/building insurance (a $1 mill. house fire would hurt at little); no personal life/trauma insurance – we do carry health insurance because with a young family we don’t know what will come up and it saves us carrying large chunks of cash … but, we could just as easily ‘self-insure’ this, too.
8 If you received a large bill for car repairs how would you pay for it?
a) Withdraw the money from my savings or take out a loan and work out the best way of paying it back.
b) With my credit card and pay it back sometime.
c) From a special account I keep for emergencies.
For me, the answer is always b) – plonk it on my credit card then pay the bill in full when it comes up … we always have enough cash on hand (not as an emergency fund) because it’s hard to be always fully-invested (in the current market, having cash on hand IS an investment!). My thinking for you, though, differs from the conventional answer that is bolded: I think the correct answer is a) and have already posted on this.
9 What would you do if you received a phone call offering you a chance to make big money with a new investment opportunity?
a) Take up the offer, no one becomes rich without taking risks.
b) Consider it carefully and seek qualified advice.
c) Ignore it. It is unlikely that anyone would make such a good offer unless there is a catch.
I think that most people would say b) but I think that the people who created this questionnaire agree with me that c) is the correct answer: by the time you see, read, hear, are told about, given a hot tip on, read in the tea-leaves, had a vision about ANY investment, it’s already too late for YOU to make money on it! Sorry, that’s just the way it works …
10 If you lost your partner are you sure your family would be OK financially?
a) My partner is too young for me to worry about this.
b) They will be OK as I have ensured that our finances are in order.
OR
c) I am reasonably sure they will be OK as I have some insurance.
For most people the answer is a combination of b) and c) … from the way the question is written, b) is the ‘obvious’ answer, though. The only correct answer is b), though, as insurance becomes less and less important as you build up your own financial reserves … until you reach that point, insurance is really PART of making sure that your ‘finances are in order’ anyway.
Did you find it as interesting as I did that in many cases the ‘correct’ answer wasn’t even one of the options provided?
If you also noticed this – while you were doing the ‘test’ for yourself, and before I pointed it out – then you have a real chance to be an ‘unconventional financial success’, too 🙂
