Quiz: Are you financially healthy?

James Ryan Jonas

In this time of bear markets and economic downturns, you must check if you are financially healthy because, if not, you might end up as one of the casualties of the recession. You must not be complacent because if your financial health is in danger, you might end up with no cash to spare, drowning in debt, or worse, bankrupt.

CNNMoney.com has got this simple but good way of checking if your financial health is OK. It basically asks whether your liquidity status is excellent, your debt obligations are manageable, and if your retirement plan is sound.

Assess the following financial aspects and see if you are financially healthy.

1. Housing Payment

Relative to your total gross income every month, how much is your monthly housing payment? This would include payments for your monthly rent or amortization for your housing loan, property taxes, and insurance.

For your housing payments to be manageable, they should be no more than 28% of your monthly income.

I pay monthly amortization for the house which blogging bought and this eats up 30% of my gross monthly income so I’m a bit above the ideal rate.

2. Debt and Other Obligations

How much is your monthly debt payment, including your mortgage payment, car loan payment, credit card debt, and other liabilities? According to CNN Money, there is nothing wrong with using loans to buy a home, finance a car, or spend for luxuries but to stay out of trouble, total debt payments must not be more than 36% of your gross income.

Except for the housing loan payments, I don’t have any other debts right now. But this might change because just this week, my first credit card from BPI arrived.

3. Emergency Savings

How many months of expenses do you have in an emergency savings account?

You need to prepare for these “emergencies” because you don’t know when they will come and how much of your cash will be needed. Sample emergencies include being laid off at work, sudden sickness of a family member, or any unplanned event that would require cash outlay.

You should keep at least 3 months’ worth of living expenses in a bank account or a money market fund where you can withdraw it easily. If you have children or rely on one primary source of income, better keep at least 6 months’ worth of emergency savings.

I myself keep at least 4 months’ worth of emergency savings which I placed in a regular savings account and SDA or Special Deposit Account. So in terms of keeping an emergency savings account, I’m doing good.

4. Diversification

How much of your portfolio is invested in the stock market? According to CNNMoney, a quick way to find out how much percentage of your portfolio must be in stocks is to subtract your age from 120.

If this is the case, then does that mean someone who is 25 years old must have 95% of his portfolio in stocks?

Because of the recent recession, I took my money out of the stock market and now I only have 5% of it in stocks. That’s too conservative, according to the CNNMoney quiz.

5. Company Stock

How much of your portfolio is invested in your company’s stock? The idea is not to hold too much of one stock, especially if it’s your company’s stock. See, if ever your company fails, you might lose not just your job but your stock investment as well. So better keep your company’s stock to less than 10% of your portfolio.

The company I work for does not issue any stocks so obviously I don’t own any shares of it.

6. Life Insurance

The benefit from your life insurance must be enough to supposedly cover at least 5 years of salary. If you have several dependents or a lot of debt, this should even be more than 10 times. You might not need it, though, if you don’t have any dependents.

I have one life insurance whose death benefit is only equal to my one year’s salary.  Apparently not good. That means I might need to get additional insurance to increase the total benefit for my beneficiaries.

7. Retirement Savings

How much do you currently save each month? And how much do you currently have in retirement savings?

This checks whether you are on track to retiring comfortably. The ideal amount of retirement savings depends on a lot of factors including how much time you still have until retirement, how much you will need every month during your retirement, and morbid as it may seem, how long you expect to live.

Your retirement savings must be enough to cover the lifestyle you expect to lead during your retirement.

My Financial Health: A poor C+. My finances are supposedly in good shape but if I continue with this performance with no improvement in the future, this is not good. I should start working to improve some areas of my financial health!

How about you, what is your financial health?

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.