Playing With CNN’S Financial Health Tool

Through 7 Million in 7 Years, I found this fun tool at CNN Money.  Their Money & Main St. section has a new feature that “measures” your financial health.  I did a quick run-through myself and although it needs some adjustments, it may be of some help to those who need guidance with the allocation of their finances.  It also may be fun just to jump on over and try it out for fun.

Let me begin by saying that this is by no means a comprehensive tool, or an acceptable financial workup.  To me, it is more like a game than a real picture of financial health.  It does however, give a decent idea of what areas of your financial life you need to work on.

You start the tool giving two simple numbers, your age and your annual income.  Then a cute little bundle of orbs appear with different aspects of your financial life.

First comes housing:

Simply enter your monthly housing payment (including all associated costs) and the corresponding orb will turn red (which is bad) or stay blue.  If your monthly housing costs are less than 28% of your income, the tool considers your housing costs “under control”.  What this aspect of the tool does not take into consideration is whether you have a dual income in the household.  I would like to see this modification made for those of us who are married and have two breadwinners.

Then Monthly Debt Payments:

These figures include all debt.  Mortgage, car, loans and credit card payments all should be included.  According to this tool, your monthly debt payments should not exceed 36% of your gross income.

Emergency Savings

Three months for an individual, six months for a household with children are recommended by the tool for your emergency savings.

Diversification

Enter the % of your portfolio that is invested in the stock market.  This tool tells you to subtract your age from 120 to obtain the correct percentage. I disagree here.  If you are 30, I do not believe for one second that 90% of your portfolio should be tied up in stocks.  If you ask me, even at a young age, your portfolio should NEVER have more than 80% invested in stocks.  I am not sure if ETF’s and Index funds are included here, if they are (and count as stock market investing) that is acceptable.

Company Stock

If you are self employed, this section is moot.  If you own a business, just place a 0 here.  You may have 60% of your funds invested in your own business, but that does not count as company stock as far as I’m concerned.

Keep your investment in company stock light.  Less than 10% is recommended, I say keep it at 5% or less, unless you have the utmost confidence in your company…even then, go light.

Life Insurance

If you are holding a $200,000 policy, but are only 25 and do not own a home or have a family, drop it.  It is completely unnecessary.  If you do own a home and have a family, get life insurance, plain and simple.  A policy that covers 5 years of your salary is recommended.  More if you are in debt or have young children.

Retirement Savings

Last but not least, time to review your retirement savings.  Enter how much you are saving each month, and how much you currently have in your retirement accounts (cumulatively).  After trying it out with a few different ages and incomes, this section of the tool seems to be slightly shy of where I would like to be at retirement.  Obviously, age and monthly contribution amount can change a retirement account by tens of thousands of dollars or more, but this tool may be accounting for greater returns on investments than I am banking on in the future.

I got a C+ after using all of my information accurately in CNN’s financial health tool.  I actually grade myself at about a B, but as I stated, the other income was not accounted for in my case.  Try it out for yourself and let us here know what you think of it’s accuracy and entertainment level.  It may just open up your eyes to something that is missing in your financial life.

Tagged as: 401k, debt, Emergency fund, investments, Retirement