Blogging for Change

Conduct a personal financial stress test

by Kim McGrigg on
5/15/2009
in Personal Finance

The results of a stress test on the nation’s 19 biggest banks were released last week. The assessment was designed to determine how well the institutions would fare if the economy deteriorated further.

Because it pays to be prepared, I think it is a good idea for consumers to conduct their own financial stress test. Here are a few things you might want to consider when assessing your personal financial strength.

Is your current budget manageable? Seek help if you are only making minimum payments or are borrowing money to pay for items you used to buy with cash. After all, you can’t successfully prepare for the future until you get control of the present.

Do you expect the unexpected? Be prepared for periodic expenses such as auto repair bills and holiday expenses. While you may be able to “absorb” periodic expenses during good economic times, they could result in financial disaster in times of trouble.

How much do you have in your emergency saving account? Experts recommend keeping three to six months’ worth of living expenses in an accessible account. Do not assume that you can fall back on credit cards if an emergency strikes—many creditors are closing accounts or lowering limits.

Is your insurance adequate? Some financial emergencies are not caused by the economy, but rather by major life events, such as a car accident or medical condition. While the results of such events can be devastating, maintaining adequate insurance is one good way to protect yourself from financial ruin.

How organized are your finances? Consider taking steps to streamline your financial situation. For example, think about how many creditors would you have to contact if you fell behind on payments. While it can help your credit score to have a good credit mix, having an unmanageable number of active accounts is stressful and confusing.

How adaptable are you? If you were to face your worst-case financial scenario, what would/could you do to survive? Could you sell your car? Would you be willing to take on additional temporary work if necessary?

In addition to helping you survive in the short-term, having a financial contingency plan could keep you from jeopardizing your future. Borrowing money from your retirement plan is not a good idea. It exposes you to potential penalties and jeopardizes the rate of growth.

 

Kim McGrigg is the former Manager of Community and Media Relations for MMI.

Recommended Articles

Man sitting in front of pile of bills, trying to understand his options.
Professional Budget Advice
Make the most of every dollar and start building toward your dreams! Budget counseling is FREE and available 24/7.
Learn More
Learn more
  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.