From taxes and credit to saving and money management, you can get lost in the complexity and abundance of financial issues. But by learning some simple fundamentals, you can take control of your finances and feel secure in your money management skills.
How well do you know the basics of personal finance?
Put your knowledge to the test with this 12-question quiz.
A. Under your mattressYou've saved $25,000 for a down payment on a house. You plan to buy within a year. Which of the following is the safest place to
D. Bank savings account
You want money you plan to use within the next three to five years to be safe and easily accessible. Lock it up in a savings or money market account. You won't earn much interest on it with rates so low, but you also won't lose any of it to the volatility of the stock market. You can find search for which accounts are offering the best rates on Bankrate.com.D. Bank savings account is correct.
A. Suck up to the bossWhat's the fastest and easiest way to boost your paycheck?
B. Get a second job
C. Adjust your tax withholding
If you typically get a tax refund each spring (and most of you do), file a new Form W-4 with your employer to increase the number of exemptions you claim - and lower the amount Uncle Sam takes from your paycheck. Try our easy-to-use tax withholding calculator to help you figure the right number for your situation.C. Adjust your tax withholding is correct.
A. Pay bills on time and keep credit-card balances lowWhat will help most toward building a good credit history - or repairing a bad one?
B. Limit applications for new credit and keep old accounts open
C. Sweet-talk the credit-card company phone rep
The simple act of paying bills on time and keeping your balances low accounts for 65% of your credit score. New credit and the length of your credit history make up 25% of your score. The remaining 10% factors in the types of credit you use. Sorry, sweet-talking will get you nowhere.A. Pay bills on time and keep credit-card balances low is correct.
A. Treasury bondsFor long-term goals, which investment has historically had the highest growth over extended periods of time?
B. Money market account
D. Residential real estate
Stocks fare best over long stretches of time. Take the 20-year period through 2012, for example. The average taxable U.S. money-market fund returned 2.8% annualized. Residential real estate, as measured by Standard & Poor's Case-Shiller index, did just slightly better with 3.0% annualized. Barclay's U.S. Treasury index earned 6.3% a year, on average. And the S&P 500 trumped them all, delivering 8.2% annualized.C. Stocks is correct.
A. Life insuranceBob is unemployed, single, childless, in good health and drives a clunker. Which insurance could he most likely do without?
B. Health insurance
C. Auto insurance
You only need life insurance if you have someone depending on you financially. Bob is unwed and childless, so he doesn't need it. However, he will need health insurance and auto insurance to protect himself against disaster.A. Life insurance is correct.
A. 401(k)Which of these accounts or products is protected by the federal government against loss?
B. 529 plan
C. Municipal bonds
D. Certificate of deposit
E. None of the above
A bank CD falls under federal protection if it's FDIC insured. That means up to $250,000 is protected in case a bank goes under, and you get up to $250,000 of insurance at each bank where you buy CDs. Municipal bonds, 529 plans, 401(k)s and other investments are not covered. You invest at your own risk.D. Certificate of deposit is correct.
Ashley, age 20, contributes $3,000 per year to an individual retirement account for ten years, then stops, letting her money sit in the account. Adam, age 30, contributes $3,000 each year to an IRA for 35 years. Who will have more money at age 65, assuming they get identical investment returns?
Ashley comes out ahead, thanks to the magic of compounding. Even though she stopped contributing after only ten years, her money will grow to about $694,000 by the time she retires, assuming an 8% annual return. Adam, who got a late start, but pitched in more money out of pocket, will amass about $558,000.A. Ashley is correct.
A. Your credit scoreWhat does NOT affect your auto insurance rates?
B. Your car make and model
C. Your car color
D. Your address
Insurers look at a variety of factors to calculate your risk, but the color of your car isn't one of them. Your financial habits, the type of car you drive and where you drive do matter.C. Your car color is correct.
A. At age 16When do children need to file a tax return?
B. At age 18
C. When they get their first job
D. When their income reaches certain levels
A child's age or job has nothing to do with it. Rather, the IRS cares about how much the child made and the source of the income. For example, children who have investment income of more than $950 or have wage income of more than $5,950 in 2012 need to file a return. Children who receive a paycheck and have taxes withheld may want to file even if they don't have to - they could reclaim most or all of their income taxes.D. When their income reaches certain levels is correct.
You can withdraw contributions you made to a Roth IRA at any time, for any purpose without paying any taxes or penalties, and without having to pay it back - ever.
Any money you put into your Roth IRA is yours for the taking - even if you aren't retired. The money your account earns, however, cannot be touched until you're 59½ and have had a Roth for at least five years. Otherwise, you'll owe taxes and a 10% early withdrawal penalty on earnings. An exception: Once the money's been in your account for five years, you can tap your earnings to buy your first home.A. True is the correct answer
A. CryYou lost your wallet. What should you do first?
B. Notify your bank and credit-card companies
C. Contact the credit bureaus
D. Call the Social Security office
Put your tears of frustration on hold. First, notify your credit-card companies and bank to monitor your accounts for fraudulent charges, just in case your wallet falls into the wrong hands. Second, contact the credit bureaus and put a fraud alert on your report. This will require lenders to make an effort to verify your identity before issuing new credit in your name. It also gives you a free copy of your credit report so you can review it for suspicious activity.B. Notify your bank and credit-card companies is correct.
Congratulations, you got a raise. What should you do with the extra money each month?
A. Upgrade your lifestyle: You've been pinching pennies for too long. It's time to reward yourself and live it up.
B. Maintain your lifestyle: Take this opportunity to pay off your high-interest debts and boost your savings. It's time to get ahead.
B. Maintain your lifestyle: Take this opportunity to pay off your high-interest debts and boost your savings. It's time to get a
Sure, it's tempting to spend the money, but using it to strengthen your financial footing is the smarter choice that'll pay off exponentially in the long run.
The average correct amount of answers is 8 out of 12. How did you score?
More from Kiplinger:
Quiz: How Financially Literate Are You?
For nine decades, the Kiplinger organization has led the way in personal finance and business forecasting. The Kiplinger Letter, launched in 1923, remains the longest continuously published newsletter in the United States. In 1947, Kiplinger created the nation's first personal finance magazine. Today, Kiplinger.com is the fastest growing Web site in personal finance. The Kiplinger editors remain dedicated to delivering sound, unbiased advice for your family and your business in clear, concise language.Read More »