A Measurement of my Financial Health

I’m going to hold off on finishing my asset allocation series until after this weekend. I’ve discovered a new book that will greatly enhance my asset allocation knowledge. I’ve struggled recently to find time to work on my asset allocation as the bulls and blackhawks are  both in the playoffs. I haven’t had enough free time to sleep as much as I need to, but it’s well worth it. Also, I had my house warming party last weekend, which was majorly time consuming. For now I will share with all of you a CNN application that measures your financial health after answering a few questions.

Financial Health

After entering your age, income, housing costs, debt, emergency savings, diversification, company stock, life insurance and retirement savings you’re provided with an overall grade on your financial health.

• Housing Costs – $1500 – My housing costs are under control because they are under 28% of my gross income.
• Total Debt – $1900 – My total debt is under control because it is under 36% of my gross income.
• Emergency Savings – 5 months – I include my target stock in this calculation as I don’t have it pegged for anything in particular. This application recommends 3 months of savings and 6 months if you have kids with one income.
• Diversification – 90% in stocks – It is recommended that you keep 120 minus your age in stocks. This is definitely aggressive. I’ve also heard of 100 minus your age. For some people, this is too aggressive. I’m an aggressive investor though.
• Company Stock – I am invested 0% in my company’s stock. I have some stock options that I haven’t exercised. I also own one share that was purchased to gain an account bonus. This application recommends less than 10% of your portfolio to be invested in your company’s stock. It is very unsafe to have very much money in your company’s stock. You already rely on your entire paycheck from the company, don’t rely on your company for retirement investing as well.
• Life Insurance – $100,000 – I only carry what my company provides as one of my benefits. I failed the life insurance category because I don’t carry enough to replace 5 years of my salary. I disagree with this requirement. It is dependent on who your dependents are. If I die, nobody is depending on my income, which makes life insurance unimportant for me.
• Retirement Savings – $1000 a month, $16000 invested – I passed this step, but it doesn’t really give you strict guidelines for what is passing and what isn’t passing. A passing grade for retirement savings depend on numerous factors such as your age, income, how long you live, when you plan to retire, your planned annual distribution.

Final Thoughts

It never hurts to take a quick and dirty test of your financial health. I find this application to be very subjective. Everyone has different goals. Even though I was graded with an A, I don’t consider myself to have an A. I want to be retired early. I want to provide for my future kids. I want them to have the opportunities that I had. It all depends on what you want to achieve. Also, it’s important to never get complacent. Even because CNN gave me an A, that doesn’t mean I can stop saving and working hard to increase my income. You must never be satisfied if you want to meet your goals.

Random Thought

I’ve definitely lost a lot of respect for the Celtics. They battled so hard to win last year. This year they expect to get all of the calls. I’ve never seen such a big bunch of cry babies. Apparently Paul Pierce has never fouled anyone. He also gets fouled on every play. Is that why his nickname is the truth? Cause he’s always right? The only player on that team that I can root for from now on is Rondo. He plays with heart and energy. No matter what happens he picks himself up and heads back to play defense. Beyond that, this series has been amazing. Without KG, the Bulls are more talented, but the Celtics are more experienced. I hope it goes to a game 7, won by the Bulls of course.