The money quiz

9. My husband and I have a combined annual income of $150,000, or about $80,000 after taxes. Excluding our mortgage, a healthy level of debt for us would be:
a) $150,000
b) $30,000
c) $13,000

Answer: c. Here are some signs that your debt level is too high: You can't put money aside for regular savings; you can't qualify for new credit; your cards are maxed out; and you can make only the minimum payments every month. Your non-mortgage debt shouldn't exceed 20 per cent of your after-tax income. If it does, you need a plan to stop paying interest and start putting your money to work.

10. Not all debt is bad. My “good” debt includes:
a) my car loan and RRSP loan
b) my mortgage and my student loan
c) my home equity line of credit

Answer: b. A debt is good if it produces an income (loan for a rental property), will lead to higher earning power (student loan) or covers an appreciating asset (your home). Your car, however, is a depreciating asset, and depreciating assets are bad. Lifestyle debt (eating out, clothes -- anything disposable) falls in that category as well, especially if you charge it to a credit card (the interest drives up the final cost). A rule to live by: pay cash for consumables; use debt to grow your net worth.

How you score:
• 0 to 2 questions wrong: You're a whiz. You've got a solid grasp of financial planning. You save for your future, pay off your bills and know how to take care of your financial health. Congratulations. Go buy yourself something. We know you'll pay cash.

• 3 to 5 questions wrong: There are a few gaps in your knowledge worth touching up. Visit websites (advocis.ca, bankruptcy-canada.ca), talk with your banker and get the basics covered. You don't need to be licensed to sell stocks, but you need to know what's happening with your money.

• If you missed 6 or more questions: Yikes! Either you've got money to burn (must be nice!) or you need to sign up for Remedial Money 101. Make improving your financial knowledge a priority. Consider a course or attend seminars (financial institutions often sponsor them). No time? Trade in the tabloids for a book on personal finance. After a couple of months, you may not know who's the latest love for Tom Cruise or Brad Pitt, but you'll have a much better understanding of things closer to home -- namely the state of your personal balance sheet.