Photo: Robert Trachtenberg
Questions 1-5: Yes or No?
1. Do you have an eight-month emergency fund?
2. Do you have all four essential documents in place: a will, living revocable trust, durable power of attorney for healthcare, and financial power of attorney?
3. If your employer offers a matching contribution to a retirement plan, do you contribute enough to qualify for the maximum match? Or if you don't have matching contributions through work, are you contributing to your IRA?
4. In the past 12 months, have you paid every bill on time (and if you're in debt, are those payments high enough to help reduce your debt)?
5. In the past 12 months, have you used annualcreditreport.com to obtain free credit reports from the three major credit bureaus, and confirmed that the information is correct and clear of any suspicious activity?
Suze says: Any answer marked no should be transferred to the top of your financial to-do list. I promise that the minute you can earn a perfect 5 out of 5 in this section, you will get an immediate payoff: the calm and satisfaction of knowing you are in control of your financial life.
Questions 6-12: What's Your Money Mentality?
6. When it comes to planning for retirement, where do you stand?
A: I know saving is important for my future, but I haven't started yet.
The longer you wait to start saving for retirement, the harder it will be to have any shot at meeting your goals. Your financial immaturity now means you're not taking advantage of one of the best investment tools: time, and the power of compounding over many years.
B: I'm saving as much as possible, but I don't know if I'm on track.
Good for you! I'm impressed you're saving as much as possible. Now do yourself a big favor and get a handle on whether you're on track to meet your goals. The free online Retirement Income Calculator at T. Rowe Price is a great resource (www.troweprice.com/ric/ricweb/public/ric.do).
C: I've crunched the numbers to understand how much I will need to retire comfortably, and I know what I need to be saving today to have a good shot at meeting that goal.
Congratulations. Your retirement strategy rates an A+ in my book.
7. Someone begs you to cosign a loan. You say yes:
A: If it's someone you really love and trust.
This is the equivalent of needing financial potty training! When you cosign a loan, you become legally responsible for repaying that debt—no matter what. This isn't about love or friendship. This is about protecting your bank account and your FICO credit score.
B: If you have enough extra savings to treat the loan as a gift, if it came to that.
This is the only scenario that truly makes the grade as far as I am concerned. You understand that the only money you can ever afford to lend is money you can afford to lose.
C: If the borrower agrees to make automated payments and send you an electronic confirmation at least seven days before each due date.
Trying to build in a safeguard shows that you understand the risk you are taking. But safeguards won't mean much if the person you cosign with is suddenly injured or unemployed. Remember, it's your money and FICO credit score on the line.