Wednesday, April 7, 2010

The BFS Way to Diagnose Your Financial Health

There seems to be all sorts of ways to measure your financial health, but here’s the list of points I'd keep an eye on:

1)  Am I spending significantly less than I earn? If I’m not, I’d take a look at my spending, make a budget, and cut the unnecessary expenses. If that didn’t fix it, I’d look into getting a better-paying job or at other income sources.

2)  Do I have a solid emergency fund? If I have at least 3 months of expenses (preferably 6 months or more), I’d move on. Otherwise, I’d start funneling cash into an emergency account. Even starting with $50 a month is better than no backup fund at all.

3)  Am I saving enough for retirement? I’d take a look at a few retirement suggestions and figure out if I’m on track. If I’m not, I’d look into my options. Do I have a 401k, IRA, or a Roth IRA? Would one of these work for me?

4)  What kind of debt do I have? If I do have some, I’d make a little list and see what I could eliminate. I’d start paying off high interest debt like credit cards before attacking car loans and mortgages.

5)  Are my investments diversified? If all of my retirement savings is tied to one stock (like my company), I’d DIVERSIFY. I don’t want my entire future to rest on the back of one company.

6)  Am I insured correctly? If I have health insurance, car insurance, short-term disability, long-term disability, and life insurance, I can move on. If I’m missing any of those, I’d look into my options. I don’t want to be at the mercy of anyone if I get into a car accident and can’t work. I also don’t want to die and leave my spouse with a financial mountain to climb while he’s grieving (he better be grieving…)

7)  Do I have estate planning in place?  If not, I need to set it up for the same reasons I need life insurance.

8)  Am I happy? If I’m not happy with my fiscal life, I need to figure out why and make some changes. For example, I didn’t think we had a good enough plan a few years ago. We came up with a system that made my husband and me happy.

I'll be posting further about each one of these points in the coming weeks to flesh out the ideas.

How’s your financial health? Do you think I missed anything important?


  1. I could stand to work on spending signficantly less than I take home, but I'm doing pretty good on the other points. One question I would add is "Do I have estate planning in place?"

  2. Jackie, I actually haven't looked into the subject yet since we don't have kids and both our names are on everything...willing to do a guest post? LOL, if not...when do you think estate planning should start?

  3. BFS, I will honestly tell you that I am remiss on insurance. We have health insurance, but no disability or life insurance as of yet. I am working on it, but do you know that you can't get life insurance while pregnant? What a strange requirement!

  4. 1) Yup. Worked on this about a year ago, cutting more than $300/month of expenses and vowed to be more on top of it.
    2) Nope. Working on it though. My goal is 6 months or roughly $30K. It will take some time, but I'm not going anywhere.
    3) Yup, I think. Saving 7%, 3% company match and a defined contribution pension where the company puts in 3.25% and that rises to 4% next month when I turn 35. So all combined, roughly 13% of pay.
    4) Just a mortgage, 1 car loan and a student loan. All will be gone in 15 years or so. That will include the new house I get next year.
    5) Yup. I am fairly aggressive, so mostly stocks, 90-10, among small, mid, large and international companies.
    6) Yup. I've got good health insurance through work. I've got about $1.8M in life insurance (I'm the sole income source, so have to make sure wife and child are supported). I also have a group disability policy which would cover my household expenses. I am talking with someone about an individual DI policy as a back-up.
    7) Yup here too. I wouldn't mind hitting the lottery, but I also am comfortable where I am now and also comfortable with the plans for the future.

    My wife and I also have a will set-up for my daughter in case something happened to both of us.

    Overall, I'd give myself a B. Not great, but getting there.

  5. Julie, I think it depends on the company. I used to work for MetLife and sold two women life insurance policies while they were pregnant. You might not get the very best health rating, but you can still get a policy. Once you have the baby and everything returns to normal you can go through the underwriting process again to get a lower rate.

  6. Julie, we're remiss on insurance too. I have all the insurances that I listed since I signed up for the disability insurances and extra life insurance in December 2009, but we have to wait for the open enrollment period this summer to get my husband signed up. I'm just crossing my fingers until then...

    Until December 2009, I only had health insurance and the $36,000 in life insurance that my company gave me for free. Hubby has health insurance and a $10,000 life insurance policy that teacher's get in Texas.

    Needless to say, our financial health check is a work in progess too.

  7. MikeS, You are truly making progress on the two things that you answered no to (emergency fund and debt). That's awesome. Plus you have the most important point're happy. :-)

  8. Maybe I'll take you up on the guest post someday, meanwhile though I think estate planning (of at least a minimal sort) should start when you have assets.

  9. Jackie, I've added estate planning to the list. :-)

  10. My wife and I got a will once we bought our first place. I had a group benefit for legal service, so it didn't cost us anything. We figured if we spelled everything out it would make life easier on our families should something happen to both of us. It was a simple will and also power of attorney for each other.

  11. MikeS, we're going to look into what's involved and how much it would cost us since neither of our jobs offers any kind of legal services. If one of us dies, we each have access to everything anyway, but I didn't think about the idea that we may both go at once...

  12. BFS, around here a basic will and powers of attorney would probably cost around $300. Up until we bought our house, we didn't have wills or much life insurance.

    After we bought our condo though, we didn't like the idea of our families potentially fighting over our estates. We both had a couple hundred thousand of coverage at that point. So if we both went in say the same car accident, there was somewhere around $500K or $600K that had to be divided up. We met the lawyer once for about an hour and then again to actually sign the official documents.

    It was just one less thing to worry about.