This is a neat little tool produced by CNNMoney to check your ‘financial health’ … it asks a few simple questions and gives you a diagnosis, highlighting problem areas in the red ‘bubbles’ (the blue ones are all OK).
The one shown here has been done for somebody who certainly seems to have some financial problems, having scored only a C+; this person is:
1. Paying too much for housing
2. Not diversified enough
3. Has too much of their stock portfolio in company stock
4. Has no life insurance
The problem is, this person is me š
CNNMoney thinks that a multimillionaire scores a C+ on their finances, but somebody who can’t rub two sticks together scores an A+ as long as they:
– Are diversified,
– Have life insurance,
– Pay too much for their house
[AJC: CNNMoney recommends no more than 38% of your gross income; we would say no more than 25% of net income]
… and, so on.
A common-wisdom tool with a common-wisdom result for a common-wisdom (work for 40 years, retire on minimum wage at 65) outcome. At least you won’t be broke.
BTW: Why did I [almost] fail?
a) We are renting a house ($35k a year) while renovations on our new one are underway, and we have not yet sold our US home, so land taxes ($30k a year) still have to be paid; both temporary costs
b) We fail diversification because it doesn’t ask about real-estate and we have too much in cash at the moment; the way I look at it, we pass on the ’emergency fund’ bit because we have at least 20 years living expenses on hand right now š
c) We failed on company stock because we had a few mill. in bonus shares [AJC: now worth two-tenths-of-f**k-all as they say in Aus] and are waiting for some semblance of a ‘rebound’ before we sell … could be a loooonnnngggg wait
d) Life insurance? see b) š
Try the tool and let me know what you think ….
Perhaps by “CNNMONEY standards” the rubbing of two sticks together not to mention millions isn’t as practicle as the other things you mentioned in your blog. I haven seen too many tools such as the one you used that were designed for anyone but the struggling. If you make a high score you probably don’t need to tty the tool anyway. š
I didn’t really do all that great according to the program either Adrian. The trouble with tools like these are pretty obvious. What if you have a lot of your money in real estate and are earning tremendous passive income from it? Then it scores you low because you don’t have enough in the stock market, or “company stock” or something else. If you’re already retired and living comfortably off of your number, it still nails your score. It’s just way too cookie cutter and aimed at folks who are on a 35 year savings and retirement plan while working for someone else.
Definitely not a tool we need for our goals here! š
C+ for me too Adrian. I have debt, company stock and oddly enough, retirement savings under control. Funny thing is, they didn’t bother to tell me how much I’ll have to retire on, and by when.
They certainly aren’t referring to my self defined number and date.
They are probably are using the “80% of final salary at 65” baloney as a benchmark.
I’m paying too much for housing, am too aggressively positioned in the stock market, don’t have enough emergency savings and am under insured.
About the only thing I agree with them on is that I have debt under control and need more life insurance.
I’m sure the tool will make some feel warm and fuzzy (maybe wrongly so), but that’s about all the benefit I see in this tool.
They gave me a B+, dinging me for not enough insurance (I’m single) and too much company stock (they should have seen the percentage a couple years ago when it was 6x the current price).
They should call it the Money & Wall St. section because as you said it follows only the mainstream ‘wisdom’ dished out to the masses for the last 30+ years by the financial industry.
Then again, with my high score, what does that say about me?
@ Jim – that you should be writing this blog, instead of me? And, why not!? š
Like others, I didn’t do too well (B+):
1. not enough life insurance. By design we have enough to pay off the mortgage on our home – we don’t really need any more;
2. not sufficiently diversified. I suspect that this is because real estate is our biggest asset class and the tool focuses on stocks;
3. query whether there was double counting of the mortgage payments on our home as both housing expenses and debt servicing costs?
I’m not sure which demographic the tool is useful for. It certainly did not suit my circumstances and I doubt very much if it would be appropriate for either young people just starting out or who have just purchased a first home with a relatively big mortgage or people who are at or near retirement. Possible it is designed for the “traditional financial planner” and the “life insurance sales person” demographics?
Quite frankly, I’d be more than a little bit concerned if I had scored any better.
All in all, I’d give this tool a “D”.
@ traineeinvestor – “Quite frankly, Iād be more than a little bit concerned if I had scored any better.” Nice! š
I rec’d an A. š So, that means… What? My Red Bubble came from not having enough retirement. I know that silly! Yes, I plan on boosting that up but have yet to do so. I actually did fine on having my debt payments under control. LOL. Don’t they know I have $80K of debt I am paying off with my DH?
This took is not a perfect indication of financial health by a few means. But I still enjoy getting the high grade. Means I may be doing some minutely right. But not on the path to millionaire wealth? :/
When I read this post the first thing I thought of is the BMI (Body Mass Index). It takes into account just your height and weight to give you a number…the problem is that anyone with anykind of muscle in comparison to their height is deemed obese.
AJC, I think you have too much muscle!
I got an A, though after seeing what the rest of you get I’m not sure if that’s something to feel toasty warm about. I guess that’s what you get for being a cookie-cut wage-slave. Not for much longer though š
Haha, I got a “B” making less than 10K a year, with absolutely nothing to my name and no $ in any type of stock/investment š
So how do you guys feel about the amount of your 401k should be 120 minus your age. I found that interesting. I am 28 years old, so I should invest 92% of my 401k in the stock market! Interesting…
@ Bluefoot – Great question! I think you should invest “92% of your 401k” in whatever will get you to your Number/Date: stocks only compound circa 8.5% – 11.5% (depending on whether you include/exclude fees/inflation/etc.) š
They gave me a A. They said I should have more life insurance though…
That’s why I don’t take financial advice from EVERYMAN or a Writer…or pretty much any “financial advisors.” As someone once said, it’s (1) watered down for the masses and (2) if they could do it, they’d do it and not try to tell others how to do it (making money) until they’ve done it (if they felt so inclined). There’s something to be said AGAINST advise that works for big health insurance companies – excuse me, but don’t they have lots of statistic-smart folks called actuaries creating their odds before they create the rates a specific body should pay? And doesn’t the house always win in Vegas? So, are you going to bet against the house? What are your odds of winning?
@ Di – I’ll lay you 3 to 2 that you’re right š
I got a B+ – Company Stock and Life Insurance. Are these rules for us or the masses?
Hi AJC,
I got a B+ as well. Good in all areas but dinged for not having enough of my net worth (only 15%) in stocks and not enough life insurance. I’m sitting mostly in cold, hard, cash waiting for a better opportunity to surface. I’ve learned that a fool and his money are soon parted so am not too eager to wave around a wad of cash looking for something.
However if something comes up that is compelling I will go all in faster than Doyle Brunson with 2-10 offsuit!
As for insurance, we have enough cash in the bank with no children that there is no point in getting insurance- I just have what the company provides (1X my salary)- while I’m working at this gig.
-Mike
@ Mike – Dinged? Dang! š