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Now, on to this week’s test.

Are you financially fit?

It’s budgeting time. Let’s see if you know some basic budgeting principals to keep your monthly expenses reasonable.

Which of the following is not considered a government backed loan?

Answer: B

“30%”

30% is the maximum amount you should pay toward housing/shelter. Exceeding 30% of your income for shelter means you are cost burdened when it comes to shelter. Remember that this 30% doesn’t just include your rent or mortgage payments, but all the cost related to shelter including utilities, HOA, taxes, maintenance, or any other housing related costs.

Maximum percentage of income for housing/shelter

Answer: C

“The 20/4/10 Rule”

Cars are one of the largest wealth zapping assets. A responsible car payment goes a long way toward allowing your wealth to grow unimpeded by large monthly payments on a new vehicle. The 20/4/10 Rule states that you should be able to afford a 20% down payment on the vehicle, which will be paid off in 4 years, taking up no more than 10% of your income. This conservative figure helps guards against: going underwater on your loan (owing more on the loan than the car is worth), paying a ton in interest, while also keeping your monthly payment manageable relative to your income.

Keep in mind that there may be situations where you will need to exceed this rule. Examples include larger families that require a vehicle with a larger capacity and high crash test ratings.

Home Maintenance Budget

Answer: B

“1-2% per year”

The proper amount to budget toward home maintenance is 1-2% per year. Ideally, you would be at or close to 2%. In practice, for a 400,000 home this would be approximately $8,000 locked away for home maintenance. Keep maintenance in mind when you are looking at a new home, will you be able to stash away $8,000 extra each year to cover home expenses?