Test your Money Management Skills

One should save 10 to 15 percent of gross pay because this range allows for a reasonable amount of savings while still leaving enough income for living expenses and other financial obligations. Saving a portion of one's gross pay is important for building an emergency fund, saving for retirement, and achieving financial goals. This range strikes a balance between saving enough to secure one's financial future and maintaining a comfortable standard of living in the present.

In most passbook savings accounts, interest rates are lower than money market rates. This means that the amount of interest earned on a passbook savings account is typically lower compared to the interest earned on a money market account. Passbook savings accounts are generally considered to be more conservative and have lower risk compared to money market accounts, which offer higher interest rates but may also involve higher risk. Therefore, individuals who prioritize safety and stability in their savings may opt for passbook savings accounts despite the lower interest rates.

It is recommended to keep six months' worth of take-home pay aside for emergency situations. This amount provides a substantial safety net in case of unexpected expenses, job loss, or other financial emergencies. Having this level of savings ensures that individuals have enough funds to cover their essential expenses and maintain their financial stability for a longer period of time.

Financial planners recommend holding emergency reserve assets of the value of 3 to 6 months of after-tax income. This is because having an emergency fund of this size provides a buffer in case of unexpected expenses or loss of income. It allows individuals to cover their basic needs and financial obligations without having to rely on credit cards or loans. This range is considered a reasonable amount to ensure financial stability and peace of mind in case of unforeseen circumstances.

The answer suggests that debts should be avoided as much as possible. This implies that it is generally not advisable to accumulate debt and it is better to avoid it whenever feasible. While it acknowledges that there may be situations where avoiding debt completely is not possible, the emphasis is on minimizing debt as much as one can.

One should save ten percent of their net (take home) income monthly. This is a common recommendation in personal finance to promote saving and financial stability. Saving a portion of income helps to build an emergency fund, invest for the future, and achieve financial goals. By saving ten percent, individuals can strike a balance between enjoying their income and securing their financial future.

The correct answer is "Up to 28 percent" because it is generally recommended that no more than 28 percent of one's gross earnings should be allocated towards paying the mortgage. This is a common guideline used by lenders to determine the maximum amount of debt a borrower can handle based on their income. Going beyond this threshold may put a strain on the borrower's finances and increase the risk of defaulting on the mortgage payments.

The answer suggests that paying credit card bills first is more important than keeping money for savings because it helps to avoid accruing interest. By prioritizing credit card bill payments, individuals can prevent the accumulation of debt and potential financial burdens in the future. This approach promotes responsible financial management and reduces the overall cost of borrowing.

One should save 20 percent of their income for big-ticket items because it allows for a substantial amount of money to be set aside for these expenses. Saving a higher percentage ensures that enough funds are available to cover the costs of travel, shopping, and entertainment without causing financial strain. This percentage also promotes responsible financial planning and allows for flexibility in budgeting for other essential expenses.

A checking account is considered the most liquid asset because it allows for easy and immediate access to funds. Unlike a certificate of deposit or a savings account, which may have restrictions or penalties for early withdrawal, a checking account allows account holders to write checks, use debit cards, and make electronic transfers to access their funds instantly. This level of accessibility and convenience makes a checking account the most liquid asset among the options provided.