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The nation’s 19 biggest banks recently underwent “stress tests” ordered by the government to see how they would hold up if the economy deteriorated further.
Consumers should put themselves through a similar stress test to determine if their personal finances could withstand a job loss, a serious illness or any other unexpected event that would challenge their finances.
To determine your financial stress test score, do the math for each factor and then find out how you score.
Experts advise having savings equal to three to six months of expenses, but that’s only a guideline. With today’s economic uncertainty, it’s wise to have more.
Bank of Me
Consumers with a high debt-to-income ratio and no emergency savings should make only the minimum payments on their credit cards and save the rest of the money, Mark said.
“They need to bill themselves every month, and that bill needs to be to the Bank of Me,” he said.
“It’s more critical to have that fallback position,” Mark said, because there’s no guarantee the credit line you have today is going be there tomorrow.
“I would much rather my cushion be cash in the bank rather than a credit line that I don’t know whether it will be there a month later,” Mark said.
Consumers who score low on the stress test, should not be discouraged.
“A low score on the test doesn’t mean that they’re destined for failure,” Mark said. “It just means that their capacity to handle adversity is diminished. Their focus needs to be bolstering their financial strength so they can weather a storm.”