Diagnosing Fiscal Fitness

Trying to be your own financial advisor can sometimes feel like trying to perform surgery on yourself. But, you can certainly try to diagnose your own fiscal fitness. Here are a few items to keep in mind when looking at the health of your finances:

• Emergency Fund – Usually recommended to have 3 to 6 months of nondiscretionary expenses available in very liquid holdings.
• Debt Coverage – A good measure of mortgage debt is 28% of gross income
• Savings Rates – The largest part of retirement planning is the actual savings element. Typical healthy savings rates are in the neighborhood of 10-12%.
• Net-Worth Growth – Calculated by subtracting your liabilities from your overall assets, it also helps to look at how your net worth trends over a period of time. Is there growth in your net worth?
• Asset Location – While much is often spoken of asset allocation in controlling risk tolerance, asset location is more telling of controlling exposure to the opportunity of difference financial vehicles (e.g., cash-value life insurance vs. term, liquidity of one investment vs. another, or tax-efficiency of one investment vs. another, etc.)
While these are some great elements to examine with regard to your current financial condition, making the right adjustments is key. Because of the plethora of decisions to be made in your financial life, self-diagnosis will probably only take you so far.