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The Money Test: How To Avoid Your Own Fiscal Cliff

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BOSTON (CBS) – In the past couple of months, we’ve heard a lot about the government standing on the edge of a fiscal cliff.

But many families can be standing on the edge of their own fiscal cliff without even realizing it.

There are money questions everyone should ask so they can assess where they really stand.

Saving isn’t much fun, but it is a necessity. Ask yourself how long you could get by if you lost your current salary. The answer should be six months.

Brookline resident Matthew Zappala says it isn’t easy to put money aside. “I just spend too much money on things like food and clothing.”

Dana Levit of Paragon Financial Advisors in Newton said six months is a standard number when it comes to emergency funds. “Reason being, how long will it take you to get another job, that is what it is tied to.”

If you’re dreaming of golf and warm weather in your golden years, there is a savings bench mark for that too.

“Ten percent of your gross income, compounded over a lifetime should get you in a pretty good position for retirement,” said Levit. “If you’re one of those people that didn’t start saving until you are 30 or 40, that number goes up significantly.”

But saving is tough after paying for necessities, like putting a roof over your head.

Experts say rent or mortgage expenses should not exceed 25% of your income. Cambridge realtor Tim Schmidt of RE MAXX Destiny says that is a difficult goal in the Boston area.

“It is a tough market for sales and rentals right now, and there is nowhere for people to go,” added Schmidt.

Americans have gotten better with their credit cards, but there is a warning sign here too. Are balances getting smaller from year to year?

“The red flag for me is that means people are living pay check to pay check,” said Levit.

Another potential pothole are deals which let consumers make a big purchase with payments and interest being deferred.

It might sound like a great way to get a new TV, but if you don’t pay it off in time, the interest clock gets reset, back to the beginning.

Levit said the rates on these types of programs can be very high.

Experts also say these deals can cause us to spend more overall. That’s because it’s easy to forget about a payment that’s years away, and buy other things in the meantime.

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