Last week I went to the doctor for my annual physical. I am doing fine, but he had me undergo a stress test. As I was briskly walking on the treadmill, I started to think about the bank failures and financial stress tests. What exactly do they measure and how can you determine your own financial stability through one?
According to an article in accountingtoday.com, a bank’s stress test involves looking at its loans: determining which ones are likely to default and then figuring out if the reserves contain enough money for survival. The article went on to note that the stress test financial formula could change, depending on which regulating authority performed the test.
Since the economy is still uncertain, I wanted to perform a stress test on my own finances. Click here the complete test from the Dallas Morning News article by Pamela Yip. The critical financial stress test for your financial situation includes:
•If you lost your job, how long would it take you to replace your income through a job search? To find out, divide your current gross annual salary by $10,000 to determine how many months it would take you to replace your current income. The formula is based on an estimate that for each $10,000 you make, it will take you one month to replace your salary.
•If you were laid off, would your emergency savings last as long as it would take to replace your income? And, if not, how much of a shortfall would there be?
To find out, divide your total emergency savings by your monthly expenses to determine how many months you can get by without income. Then subtract the number of months you're covered in savings from the number of months it would take you to replace 100 percent of your income to determine any potential income shortfall.
Click here for CNN ‘s online calculator to gauge the health of your finances. My results definitely made me think twice about my financial future. I am also thinking twice about having a second piece of pie after Thanksgiving dinner after my physical stress test.
Do you have tests or measures for your business or personal finances? What signs have you seen that the economy is improving or staying stagnant? Tell us about it.
No comments:
Post a Comment