Thursday, 2 October 2014

How to Measure Your Fiscal Health

I have been a bit busy of late, sorry for not blogging. I have found that even with plugging in overnight twice a week it is not charging Wanda up enough, it tops up the batteries but not quite good enough. Every now and again, every few months I need to plug in for an extended period of time. 

With that being said, I will be going out to a campsite this weekend for the last camping trip of the season. This will let Wanda get properly charged up and me to write up a storm. It should be good for both me and Wanda. 

Camping in a campsite gives me a strange sense of normalcy, I have power, water, sewer and can park and belong there; I am not trespassing or on someone’s good graces. 

Here are a few thoughts that a recent conversation with a friend had sparked in me. 

There are a few ways to measure how you are doing, when paying down your bills. I know of three methods: Credit Score, Debt Ratio and my own method.

1) Credit Score

The one way which is used by various lenders to help determine how much of a risk that you are is your credit score. This is a three-digit number that some credit guru’s put together with help with some arbitrary formula; the higher the number, the better. This is usually available on your credit report. 

2) Debt Ratio

Then there is the Debt Ratio. This is found by first getting that credit report and doing some math of your own. First you add up all of the available credit you have, for example, all of your credit limits, the maximum amount that you can borrow on each of these various credit sources.

Next add up all of your current balances, that is how much have you actually borrowed to date on each and every one of these various credit sources available to you. 

To find your debt ratio, just divide total current balances into the total available credit. This will give you a decimal number, this number will let you know how much of your credit you have leveraged, the lower the better when applying for more loans. Generally they like to see something near .5 or half. This will vary depending on lender.

3) How Many Weeks Before I Am Screwed?

Then there is my personal method of calculating fiscal health. I call it the “How Many Weeks Before I Am Screwed.” It is simple, I imagine that right now, today, through no fault of my own I am now jobless. It could happen for any one of a thousand reasons: company downsizing, job made obsolete, etc. 

Just imagine for whatever reason you are now jobless. Imagine your last paycheque in hand and whatever financial resources you have. Without getting another job or another source of income, how many weeks would it be before your fiscal machinery grinds to a halt? 

How many weeks would it be before you start defaulting on payments with no way to make good on them? That is why I call it “How Many Weeks Before I Am Screwed?” Currently I am at about 8 to 10, better than I was a year ago, but not where I would like to be. 

As for you, just give your own life this little test and see how fiscally sound you really are. Perhaps you are not as better off than me than you think. Maybe you have nicer toys, and a greater cashflow, but this little test will equalize it all out.

I haven’t looked up my credit score or calculated my Debt Ratio, as I know that it started out at pretty much 1.0  which means maxed out. By next year I plan to be below 0.5 as I then drive it down further. I also plan to then save up a storm for the next phase of my life. 

For me, right now, I see no need to check these numbers as I have a plan and am working that plan. I am not looking to get more debt right now, I am looking to pay the debt that I have off. 

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