A Financial Checkup & Quiz

What is your retirement plan? Do you want to work 40 hour weeks 50 weeks a year until you’re 68-72 years old? I don’t. I never bought into the societal offer of a massive student loan, a huge mortgage, fancy cars, Disneyland vacations, and a deck of credits of cards bringing me all of my worldly desires with the agreement I work my ass off for over 40 years…

So what is your plan? Do you know where you stand now and do you have the knowledge to get where you need to be?

A Quick Checkup:

First, let’s do a simple, basic financial check up. I think it’s important to take a realistic look at where you are and where you need to be…

taking notes
Sharpen your pencils… here we go!

Net Worth:

Calculating your net worth is easy, and a good first step of a financial check up. First, list all of your assets: that’s money in checking, savings, 401k, IRA, and any other savings & investments. Next list the market value of your home, cars, and notable items of value like jewelry, artwork, musical equipment, collectibles, etc. This will comprise your total assets.

Next list your liabilities: mortgages, car loans, student loans, home equity loans, credit card balances, back taxes, medical bills, etc. This will comprise your total liabilities.

Subtract liabilities from assets and you have a working number of your total net worth. But what does that number mean? Where should you be in terms of net worth at any given time?

Checkup:

Dr. Thomas Stanley, author of the “Millionaire Next Door” uses a very simple formula to get you in the ballpark in terms of where you should be in net worth: Take your age and multiply by your total pre-tax household income, then take the result and divide by 10. It’s not a perfect formula, but it will be close enough to give you a “scorecard”.

A 45 year old with total pre-tax household income of $70,000 would come up with 45 x 70,000 = 3,150,000 divided by 10 = $315,000 as their expected net worth. Those who are very careful savers/investors can be expected to be at twice that number or more. Careless spenders and those saddled with debt can be expected to be at half that number or less. Where do you stand? Any good or bad surprises?

This simple number will give you an idea of your debt load, your income level, and the strength of your current financial standing. Again, it’s a very simple gage…

A Quick Test:

Ok, we’ve done our quick check up, how about a quick test to see where we stand on financial knowledge? Here is a basic test of five questions that was administered to over 2,000 investors with a large majority of them flunking the test.

Let’s see how you do…

1. Roughly how much money do investment professionals suggest people save by the time they retire?

  • a. About 2-3 times the amount of your last full year income
  • b. About 4-5 times the amount of your last full year income
  • c. About 6-7 times the amount of your last full year income
  • d. About 8-9 times the amount of your last full year income
  • e. About 10-12 times the amount of your last full year income

75% of people taking the test got this question wrong, meaning they do not know how much money is needed going into retirement…

2. Over the past 35 years, how many of those years has the stock market had a positive annual return?

  • a. The annual return was positive fewer than 12 out of 35 years
  • b. The annual return was positive about 12 out of 35 years
  • c. The annual return was positive about 18 out of 35 years
  • d. The annual return was positive about 26 out of 35 years
  • e. The annual return was positive more than 26 out of 35 years

Only 8% got this one right, meaning an overwhelming majority of test takers do not understand risk versus reward in the stock market…

3. Approximately how much did the average monthly Social Security benefit pay in 2016?

  • a. About $500
  • b. About $900
  • c. About $1,300
  • d. About $1,700
  • e. About $2,100

Only 43% know this answer meaning over half of the test takers do not know how Social Security will factor into their retirement income…

4. What percentage of your savings do most financial experts suggest you withdraw annually in retirement?

  • a. 1-3%
  • b. 4-6%
  • c. 7-9%
  • d. 10-12%
  • e. 13-15%

58% of test takers got this one wrong, meaning most test takers do not know how to budget for retirement…

5. What do you think is the single biggest expense for most people in retirement?

  • a. Housing
  • b. Health care
  • c. Taxes
  • d. Food
  • e. Discretionary expenses

Only 17% got this one right, meaning 83% watch too much CNN…

The Answers:

  • 1 – e, you will want at least 10x your annual income
  • 2 – e, the market had positive returns in 30 of last 35 yrs
  • 3 – c, $1,300 is the average, you can check your’s here
  • 4 – b, 4 – 5% is considered a safe withdrawal rate
  • 5 – a, the answer is housing, not healthcare

The Results:

If your net worth is a negative number, if you’re half the amount of your expected net worth, or if you flunked the test do not despair. Keep reading and stayed tuned to this channel. Obviously there is a systemic lack of knowledge in our culture when it comes to financial IQ – my aim is to fix that and remove the veil of mystery surrounding investing & personal finance.

The Societal Offer:

Our culture mandates we spend more than we make (and certainly more than we save) with an empty promise of happiness attached to the end of some kind of rainbow that never appears – all it does is rain… This societal offer involves you working until you’re old, tired, and worn down. Few folks ever get a true shot at freedom because they live as slaves to lenders for their entire existence. Sadly, with consumer debt at staggering, record-high levels as our proof, “normal” in America now means “broke”…

It’s time to change normal. The steps to do that are simple and easily spelled out. It takes time & dedication, it takes knowledge & initiative, and it takes a totally different way of looking at the world & culture. It takes getting on the move.

If you are not investing because you “don’t trust the stock market” or “you don’t know how to invest” or “you are scared” or “you don’t trust yourself to do it” then stay tuned. Go back and read up on this blog from day one and then get ready to roll up your sleeves and get to work. We are going to get on the move.

Next – I Take On Game Of Thrones…

My next blog with be a throw down for the ages – Game of Thrones vs. Game of FIRE (Financially Independent Retiring Early). We’ll equate the time it has taken you to watch all 7 seasons of Game of Thrones to date, and I will give you some ideas on how to dedicate that same amount of time toward your financial freedom – the steps you can take, the books you can read, the knowledge pieces, and the ideas you can cultivate to experience true freedom through financial independence.

We’ll call it a season of Game of FIRE, and if you watch the entire season, it just might change your life. Literally.

Would you rather watch Game of Thrones or sit on a throne of financial freedom? Who will win the battle?

Stay tuned and let’s see if we can get some GoT fans riled up – that will be fun!

Take control and get on the move like A Man on the Move! Cheers!

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