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Suze Orman: 8 Ultimate Tests of Your Financial Strength — Will You Pass?

Laura Cavanaugh/UPI/Shutterstock / Laura Cavanaugh/UPI/Shutterstock
Laura Cavanaugh/UPI/Shutterstock / Laura Cavanaugh/UPI/Shutterstock

Financial guru Suze Orman is notorious for her expertise when it comes to all things money and finance. She’s one of America’s most influential personal finance experts. One key indicator that she emphasizes most is “financial strength.”

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A recent report from LendingTree indicated that about 49% of Americans are not prepared for a $1,000 emergency expense. This shows that many Americans seem to be lacking in financial strength. However, it’s never too late to put yourself on the right track.

In a previous blog post, Orman explained her “Financial Strength Test,” highlighting the eight most important questions to ask yourself.

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Orman’s 8 Tests of Financial Strength

Here are Orman’s eight questions you should ask yourself:

Do I pay all my credit card bills in full each month?: Ensuring that you pay all of your credit card bills in full by or before their due dates each month is crucial. If you don’t pay the full balance, the remaining balance gets carried over into the next month and interest will start to be added to your account. Thanks to the effects of compounding, your balance can grow quickly. In addition, late payments can also adversely affect your credit score.

Do I have an eight-month emergency savings fund separate from my checking or other bank accounts?: It’s often recommended to have 3-6 months of emergency savings in case of a layoff, emergency expense, or other unexpected financial responsibility. However, Orman advises that eight months of savings is best. This added cushion can help shield you from going into debt should you find yourself in a financial bind.

Do I have an expensive auto lease or loan payment?: Owning your car can be a more financially savvy decision than leasing, according to Orman. Be sure to pay off your auto loan as soon as you can to avoid additional accrued interest and an ongoing monthly payment.

Am I contributing at least 10% of my gross salary to a retirement plan?: Contributing a minimum of 10% of your gross income to retirement is of paramount importance. This can be an employer-sponsored 401(k) plan, pre-tax individual retirement account (IRA), or post-tax Roth IRA.

Do I have a long-term asset allocation plan for my retirement investments?: Investing for retirement strategically can make a difference when it comes to how much you have saved once you retire. It’s okay to make more aggressive, high-risk investments when you’re young. However, as you near retirement age, transitioning to more conservative investments with a track record of long-term growth is a smart move. Be sure to check your investments at least once a year to see if you need to do any rebalancing to stay on target with your investment goals.

Do I have term life insurance to provide protection to those who are dependent on my income?: Life insurance is always a good idea, regardless of age. A life insurance policy ensures that your family and/or dependents will be taken care of financially in the event of your passing.

Do I have a will, a trust, an advance directive (living will), and have I appointed someone to be my health care proxy?: Many people wait until closer to the end of their lives to make these important decisions. However, if you pass away sooner, not having these important documents prepared and signed in advance can lead to issues for your loved ones. Creating and managing your estate well in advance is a smart idea.

Have I checked all the beneficiaries of every investment account and insurance policy within the past year?: Setting and updating beneficiaries on all of your financial accounts ensures that your money and assets get passed onto your loved ones once you pass. If you neglect to set any beneficiaries on your accounts and you do pass, it can be a bureaucratic nightmare for your family to regain access to your assets. In addition, if you don’t update your beneficiaries periodically, your assets could get transferred to someone you’re no longer intending to leave your assets to.

If you answered yes to all of the questions above, you’re on the right track to financial success — at least according to Orman.

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This article originally appeared on Suze Orman: 8 Ultimate Tests of Your Financial Strength — Will You Pass?