Featured Columns

Written by Keith Schwanz
From his column It’s Your Money


The winter of 2015 may be remembered by our daughter’s family for the illness that settled over the house for most of a month. The five members of the household took turns at being sick. I suppose that says something about how the family has learned to share and wait in line, but I am sure they would love to find other ways to demonstrate how they get along.

One of the first actions when someone reported not feeling well involved placing a thermometer beneath the tongue. Indication of a fever confirmed the body was fighting against an unwanted invader. Our grandson has Type 1 diabetes, so blood glucose and ketone readings were also out of balance. Healthcare personnel have more elaborate diagnostic tools, but these simple steps provided enough for Dr. Mom to begin treating the illness.

Researchers at the Federal Reserve Bank of St. Louis conduct the Survey of Consumer Finances (SCF) every three years. They have discovered five questions that, when answered, serve as a simple indication of financial health. Answering “yes” to three questions and “no” to two questions strongly suggests financial stability for the 38,385 families who participated in the studies between 1992 and 2013. Let’s look at those questions.

Did you save money last year?

Yes. Those with financial stability in the SCF survey spent less than they earned. They had margin in their personal finances and saved some of their current income for use later in retirement, for a down payment for a house, or for another large expenditure. Even if a person can save only a small amount at the present time, the balance of the account will steadily increase over time, and the habit will prove beneficial in the long run.

Did you miss payments on any obligations in the past year?

No. This is a matter of managing well the monthly cash flow. Monthly payments may be easier to get a handle on than annual, semi-annual, or quarterly payments. For example, as clergy, my wife and I make quarterly income tax payments. We must plan for the estimated tax payment throughout the quarter, not just a week or two before it is due.

Did you have a balance on your credit card after the last payment was due?

No. If a person answers “yes” to this question, then the first step must be to bring the balance to zero. This will likely require an adjustment of spending patterns to make the elimination of credit card debt a priority.

There are two often-mentioned methods of getting rid of consumer debt. The first is to make a list of all debt with the highest interest rate account at the top. This usually results in the lowest total payments made (principal and interest). The second is to sort the list with the lowest account balance at the top. This may be the better plan for the person for whom feelings are a primary factor in making decisions. For such individuals, this approach provides reinforcement by helping them to feel like progress is being made more quickly. With either of these approaches, pay at least twice the monthly payment for the account at the top of the list until it is paid off. Then add what you had been paying on account one to your payment for account two, and so on until all consumer debt is eradicated. Once completed, maintain zero balances in all accounts by paying the full amount each month.

Including all of your assets, was more than ten percent of the value in liquid assets?

Yes. A liquid asset is cash or something that can quickly be converted to cash. A bank savings account, a money market fund, or a mutual fund or stock that can be sold would be considered liquid assets. A house, for example, is an illiquid asset since it may take months from deciding to put it on the market to when the sale closes. To calculate the percentage of liquid assets, put everything you own in one of two columns: liquid and illiquid. Divide total liquid assets by the sum of the liquid and illiquid assets to calculate the percentage.

A ten percent threshold is the rule of thumb—a general, approximate figure. If you want to be more precise about your financial stability given your particular situation, add up all financial obligations for a year. This should include only what is absolutely essential for your family and should not include discretionary spending. Divide total liquid assets by the annual financial obligations to calculate the number of years your family could manage without income. The higher the number of years, the more prepared you are for unexpected financial situations.

Is your total debt service (principal and interest) less than 40 percent of your income?

Yes. To answer this question, add up all regular monthly payments for mortgage, auto, student, consumer, and other debt. Divide this sum by total monthly household income to calculate the percentage of income going toward debt reduction. The 40 percent used in the SCF is at the upper end; 20 percent or less of household income used for debt reduction seems more prudent to me.

Some elements of personal finance are quite complex: income tax laws, estate planning issues, life insurance policy features, etc. I sometimes have to rely on experts to help me navigate intricate financial issues, just as Dr. Mom relies on the advice of nurses and doctors. But these five questions on personal finance provide a simple way to take the pulse of your financial health. If yours is suffering, I encourage you to take steps to make it better.


Keith Schwanz has served as a pastor, church musician, and seminary educator. He now works as a writer, editor, and publisher.

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