A household financial stress test

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SALT LAKE CITY -- To help us with our Tough Times Survival Bank, KSL asked a professor of personal and family finance what a household financial stress test might look like. He offered four key questions you can ask yourself.

1. Could you survive on 15 percent to 20 percent less?

Dr. Craig Israelsen, of BYU's School of Family Life says to pass the financial stress test, you should be able to survive a 15 percent to 20 percent loss of income and still be able to cover necessities.

2. Are debt payments no more than 30 percent of take-home pay?

"Some people might have 40 percent, but if we're talking safe limits, we'd want to consider 30 percent of take-home pay," Isrealsen said.

3.Do you have a cash reserve?

The thorny issue here is how much of a reserve you have. "The classic answer is about three months of living expenses, and that may sound really depressing to a lot of people. So, a safer approach is to start where we are, and if we have very little, then let's set a goal to have one week of financial reserves," Israelsen said.

He says building those reserves comes from controlling expenditures. "A financial crisis is more easily solved for a household by controlling expenditures than increasing income," Israelsen said.

4.Do you worry about money too much?

According to Israelsen, "If every waking moment is spent thinking about our financial situation, that probably is an emotional failure of a stress test."

He says that holds whether your bank account is small or large. If you have suggestions for managing your way through this economy, please share them at the Tough Times Survival Bank.

E-mail: blindsay@ksl.com

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Bruce Lindsay


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