Reprinted by permission of the Post Crescent, originally posted April 16, 2006


Alan Prahl column: Knowing right answers will usually save you money

April is Financial Literacy Month. FISC Consumer Credit Counseling is challenging consumers in Wisconsin to test their financial knowledge with this simple true or false quiz.

In a time of negative personal savings rates and unprecedented levels of consumer debt in this country, it's critical for consumers to take a moment to assess their personal financial condition and overall financial knowledge so they are able to live financially healthy lives. The following short quiz poses a few key questions to help consumers measure where they stand financially.

All questions are true or false:

  • You have too much debt if you are only able to make the minimum monthly payment on your credit cards.

    True: About 48 percent of all Americans only pay their minimum payment each month. When making big purchases with a credit card, you should not do so unless you have a plan in mind to pay off the purchase in three to six months. And if you are unable to pay your credit card balances in full, you should always pay more than the minimum required payment so that you are paying down your principal balance as well as the interest.
     

  • When my paycheck arrives, I should pay my rent and other bills first and then see what is left over that I can then put into savings.

    False: Pay yourself first every payday. With America's low savings rate, treat your savings as another monthly bill. Recognizing the need to save as an unalterable commitment like the rent or the phone bill will ensure that you build both your emergency fund and retirement nest egg.
     

  • Spending more than 20 percent of your take-home pay on credit card bills is a sign that you're in financial trouble.

    True: If paying for credit card purchases is eating up 20 percent of your disposable income, then it is likely that you are over-extended on your credit cards. You need to rein in your spending and develop a plan to pay off your balances.
     

  • Any time you have a choice between paying two roughly equal debts, you should pay the one with the lower interest rate first.

    False: The longer you take to pay it off and the higher the interest rate, the more that loan actually ends up costing. You can save money by paying off the debts with the higher interest rates first.
     

  • It is important to have an emergency saving plan to cover living expenses for three to six months to protect myself from an unanticipated event, such as losing my job or a medical emergency.

    True: Think of this as an emergency savings plan that gives you a safety net should some kind of unforeseen event occur. This way, when an emergency does arise, you can pay for unexpected expenses without worrying about it and without using credit cards as your emergency fund.
     

  • Forty percent of Americans say that they live beyond their means.

    True: People are often surprised to learn that so many Americans overspend. Many people can escape the overspending habit by understanding why and where their spending traps occur and how to avoid them.

    It's OK to seek financial help. You don't have to solve your financial problems alone. There is help available.

    Alan Prahl is with FISC, the Financial Information Service Center Inc. For more information, go to www.fisc-cccs.org. Prahl can be reached at pcbusiness@postcrescent.com.