Family Finances: How Is Your Financial Status?

by Silicon Valley Blogger on 2009-10-0716

If you’re a regular here, you would be aware of my interest in fun interactive tools and web sites on the subject of personal finance and money management. I’ve already showcased quite a few interesting tools here.

But this time around, I thought to show you this CNN Money graphic that gauges your financial health. If you enter your age and income, it will let you know how your family finances are doing along several tracks, based on conventional financial principles and recommendations. After I answered the questions, I only got a grade of “B”. Well, let’s take a look at where I need some improvement — I’ll go through the various financial categories to discuss the results I got for each:

My Family Finances

Our Housing Payment: I’ve got to be careful here because my family spends too much on housing. So currently, we spend more than 28% of our gross income on housing related expenses and that’s a no-no. But we have a few good excuses for this: first, we live in an area where the cost of living and real estate costs are considered insane. Second, we have a 15 year fixed mortgage which will be paid off fairly soon. So the money we’re putting towards our home isn’t as bad as it seems since most of it is now going to principal. Third, we can try to do more to increase our income, which we believe we can do over time.

family finances
Click the image to try out the tool!

Our Debt Profile: Again, our debt picture looks cloudy on account of our mortgage, but only if you don’t see the big picture. However, our mortgage is the only real debt we carry and I’ve justified its existence. Good debt should be fine, right? Plus, this mortgage won’t be hanging around for too long.

Our Emergency Savings: We’ve got ample funds in high interest savings accounts and other safe, liquid investments, so we scored well here.

Our Asset Allocation: Apparently, we’re not aggressive enough. The “120 minus Your Age” rule was used to point out that we’ve been too conservative with our investment portfolio. According to this investment rule, we should have 80% of our portfolio in the stock market (120 – our average age). Eh, I’d say we should consider our risk profile here as well, and by taking that into account, we feel perfectly fine with our asset allocation at this time.

Our Company Stock: The tool suggests that we keep our company stock ownership to 10% at most. We’re way below that.

Our Life Insurance: The rule here is to have enough life insurance to replace at least 5 years of your salary (or up to 10 years if you’ve got dependents). If you have no dependents, life insurance is optional. We also scored well here.

Our Retirement Savings: The tool complained that we should beef up our retirement savings a bit more. A couple of things about this: perhaps we don’t plan to retire in the traditional sense — I see ourselves continuing to work on things (perhaps on income generating projects) that we enjoy, well into our golden years. The worst case scenario? Sell the house and move somewhere cheaper!

So how about you, care to try this out and tell us your score?

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 16 comments… read them below or add one }

John DeFlumeri Jr October 8, 2009 at 4:48 am

It is the best idea to lay everything out like that. Graph style, see the entire picture at once, overview the whole thing.

Lisa Chatham October 8, 2009 at 5:57 am

Be careful….my inlaws had the same idea of not putting much into retirement, and all into the house (same area as you). Now they are retirement age, can’t sell their house (your idea), have too much debt (just the house, but still way too much). It was a bad idea, and the mentality in your area has you all warped on reality.

Jesse October 8, 2009 at 10:38 am

I don’t even qualify to use the tool because I’m not 25, but I put my age in as 25 and scored a C+. I don’t have the proper retirement or stock diversification the app thinks I should have. Quite a cool little tool though, maybe by the time I am 25, I will have those things right.

dwippy October 8, 2009 at 10:51 am

I’m afraid to use the tool. LOL I think it’s a great tool for folks that aren’t afraid of it. I imagine I’d actually come out better than I think but I’d just as soon remain ignorant for the moment. Couldn’t sell the house if I tried and the husband won’t go back to college so I’m stuck with it.

See Jane Get Rich October 8, 2009 at 5:11 pm

I used the financial tool and my score was B+. The tool gave me a red rating for my housing payment and life insurance bubble. I have to object to the red rating for my housing payment because I live in DC which has a high rental market and my rent is very low for this area. But, since I am a student and my income isn’t very high it is seen as too much. The second is life insurance. I do not have life insurance and I am not expecting to get life insurance in the near future. While this isn’t completely accurate I think it was a good tool. They really should have a bubble for health insurance along with life insurance. October 8, 2009 at 6:20 pm

I like tools like this one too. I scored a B+, but since the tool doesn’t provide a geographic distinction about where you live… I don’t see as much value in the grade. Based on what you stated above, I’m sure you are in a better financial position that I am…

That said, Early next year (2/2010), I’ll have my house paid off to! hurray!!! 🙂

Since I’m a first time poster to your site, I’d just like to say thanks for doing a great job. Almost always, I can count on reading some unique and interesting content on your site!

Silicon Valley Blogger October 8, 2009 at 10:35 pm

Thanks for your thoughts! You are right that we need to focus on making sure we’ve got enough for retirement. We’re definitely going to do that. I just meant that if push comes to shove, we do have a Plan B in place, which would mean moving to a lower cost area. We aren’t going to be complacent about things and think that our house will be our safety net, but it’s good to know we have options nonetheless. Also, our house will be paid off in a few years, so by the time we reach retirement age, it would be an asset we can tap if need be.

Thanks for your kind words! Hope you keep visiting us here!

Thanks also to everyone for their great comments!

Lisa Chatham October 9, 2009 at 7:07 am

@ Silicon Valley Blogger:
Thanks for your response. My in laws plan B was also to move to a cheaper area, but now they can’t because of the housing market. Having your house paid off will help, as they had taken equity out of theirs, which could be the difference. My family lived in your area, and moved out of state, for more affordable housing, and it’s amazing how much faster we have saved money because all of our money isn’t going to a house. We will be much more diversified for retirement. Good luck.

Bargain Babe October 9, 2009 at 3:22 pm

Super fun! I got a B+ with two red areas – housing payment and diversification. Hmmm, not sure how I can remedy the first but seems like diversification isn’t too difficult to change. I’m going to check again in a few months!

Lawrence October 10, 2009 at 7:08 pm

My financial status has definitely been better . My IRAs aren’t what they used to be and my real estate portfolio doesn’t look as good as it once did either but things are looking up. Just gotta stay positive and keep your eye on the prize.

Jason @ One Money Design October 11, 2009 at 10:39 am

Cool tool! Haven’t tried it yet, but will. The nice thing about such tools is that they can identify areas we need to pay more attention to and potentially address. Thanks for this article.

pound October 13, 2009 at 8:28 pm

Cool , I got B+ and i should think my financial status will be better after reading this article.

Steve October 14, 2009 at 12:33 pm

They should have called it “The Rule Of Thumb-olizer”. All it does is apply extremely general (and often debatable) rules of thumb to a bunch of different numbers. Pretty much every single one of the sub-quizzes should be a full blown calculator in its own right. Furthermore, there’s no such thing as too much/too little – it’s only checking one direction. For instance you can never spend too little on housing, save too much, or have too much life insurance coverage.

I did get an A+ though. Yay for me.

Sue October 14, 2009 at 1:21 pm

I agree with Steve. The rules are too general. I got a B+ and knocked for not having life insurance. I’m single, have no dependents, and more than enough in savings to cover “final” expenses. Life insurance would be a complete waste of money for me.

The note that accompanies that part of the tool says I “might not need it” if I don’t have dependents, but doesn’t really explain the purpose of life insurance. They could have provided a better results by adding one simple question about whether anyone else depends on my income.

Online Business Game October 17, 2009 at 6:06 am

In my opinion the first and most important in creating a well balanced financial status is measuring your expenses. If you know on what and how much you spend it’s quite easier to improve your financial status and increase your capital.

Cathy June 5, 2011 at 4:40 pm

Thanks for sharing the really cool tool. It will be interesting to see if my score raises after a couple more months of credit repair. Using a really great company and am already seeing a difference.

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