Your Own Financial Stress Test

With the nation’s banks now having to submit to stress tests to determine their financial health, CNNand Money magazine decided to create a free online personal financial stress test. By working through a handful of mostly easy-to-answer questions, you can get a quick read on the strength of your household’s finances.

While I like the premise of this tool, I disagree with several of its assumptions. For example, it says we should keep the total monthly cost of our mortgage, homeowner’s insurance, and property taxes to no more than 28 percent of our gross monthly income. I recommend 25 percent. It states that there’s nothing wrong with financing a car. I believe that not having a car payment is one of the most important keys to living with financial freedom. It states that three month’s worth of living expenses is sufficient for an emergency fund. I believe that six months’ worth is a more appropriate target. And, when assessing whether we have enough life insurance, it doesn’t ask about dependents. Better to use a more comprehensive life insurance needs calculator.

Still, for all its shortcomings, the CNN/Money financial stress test raises some key questions that everyone should consider.

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