Financial Fitness: 5 Questions That Will Put Your Financial Literacy to the Test

The world of finances can feel foreign when you first transition from your family home into the big, wide world. Suddenly, you have to learn about paying bills on time, calculating your taxes, and planning for retirement.

Even if you’ve become familiar with financial concepts over time, some areas may continue to stump you. The following financial questions will test just how much you know.

How Do You File a Tax Return?

When you first look over an online tax return form during the dreaded tax season, it’s only natural to feel overwhelmed. Many people are confused by their financial obligations, and it can be hard to figure out what information you’re supposed to offer the IRS.

However, filing a tax return can be surprisingly easy. All you have to do is be diligent about gathering and digitally storing all the appropriate financial information throughout the year, and then leave the hard part in the capable hands of a tax accountant.

How Much Money Should You Have In An Emergency Fund?

Ask the average person about their emergency fund, and they may describe a small nest egg with possibly a few hundred dollars to cover a car repair or an unexpected illness. Over half of Americans don’t have enough in their emergency fund to cover a $1,000 emergency.

If you are in a position to do so, try to save enough money to cover up to one year of your expenses. As a general rule, financial experts recommend having money set aside for at least six months of your current living costs.

How Do You Calculate Your Net Worth?

Many people have curiously browsed the internet looking for the net worth of a celebrity, billionaire, or well-known CEO. However, those same people often don’t know what they’re own net worth is or even how net worth is calculated.

The formula for calculating net worth is assets minus liabilities. So, if you have a $450,000 home, $10,000 car, and $5,000 boat, but debts on these assets of $365,000, your net worth is $100,000.

What Is The Safest Investment Option?

When you’ve got a significant sum of money sitting in a bank account doing nothing, you may be wondering how you can put it to work without incurring too much of the risk associated with investing.

While no investment is 100% safe, some are certainly safer than others. High-yield savings accounts allow you to make a small amount of money on your nest egg over time. However, there is the risk of losing purchasing power if your annual percentage yield is lower than inflation.

You may also like to consider gold as it tends to hold its long-term value. Another great option is US Treasury bonds since the United States Government has never defaulted on its debt.

What Is A Good Credit Score?

Credit scores are something the average person doesn’t give much thought to until they need to do something finance-related that ends up being scrutinized by lending institutions.

Credit scores typically range from 300 to 850, with scores of between 670 and 739 classed as “good” and upwards of that classed as “very good” and “excellent.” The higher your score, the more competitive your lending rates may be.

The average person generally doesn’t give financial information much thought. However, the more you understand the inner workings of your income and expenses, the easier you will find it to manage your own financial affairs.

Now might be an excellent time to learn more about filing tax returns, managing your credit score, and more.