Financial Fitness for GenX (and Y and Z)

Financial Fitness is a tricky subject to tackle since no one really wants to lift up their pecuniary skirt and reveal their "Asset-backed Securities". :-)

Jen and I continually wonder if we are doing "enough" financially. In fact, we just had this conversation over a wonderful dinner at Enzio's last night (date night without the kiddos and half price bottles of wine!!). It always seems like we are doing the "right things" so in general we think that we are doing ok...but at the end of the day you are always left looking around saying..."What are they doing?". The odd part of today's society is that you can't tell shinola from appearances. There are always those couples you look at and say..."wow, they have their financial house in order" but you just never know. Once you get to know some of these people you start to find out that the old axiom of "you can't judge a book by it's cover" is absolutely true....many of them are in debt and don't appear to care.

I ran across this simple article this week which kind of provides a basic set of benchmarks against which you can assess your financial health. Now this does not tackle the specific subjects of retirement or college saving accounts but those are subjects for another day. This is more geared towards snapshotting you current profile...and to me was very helpful even though they are very generic. The examples listed are not mine...they are from the article...but I have included our approximate score just in case other gen-Xers want to compare and discuss:

1. Liquidity Ratio (I am only using checking+savings here)
Formula: Liquid Assets / Monthly Expenses --> Article: $68,070/$6,892 = 9.9
Target: 3-6 months (our score ~9)

2. Housing Payment Ratio
Formula: Monthly Housing Costs / Monthly Gross Income --> Article: $825 / $7585 = 10.88%
Target: Less than 28% (our score ~22%)

3. Solvency Ratio
Formula: Total Assets / Total Debt --> Article: $265,570 / $146,654 = 1.81
Target: Greater than 1.0 (our score ~2.2 including 401K and home)

4. Savings Ratio
Formula: Savings per Year / Annual Gross Income --> Article: $18,000 / $91,000 = 19.78%
Target: 8-25% depending on age (our score ~22% including 401K contributions)

5. Debt to Income Ratio
Formula: Annual Debt Payment / Annual Gross Income --> Article: $9900 / $91,000 = 10.88%
Target: Less than or equal to 30% (our score ~20% - mortgage and loans)

So at the end of the day, I guess we are falling within the guidelines...which supposedly means that we are doing "OK". The real test will be when I plot these 5 metrics through time. If they are all heading in the right direction that would materially mean that we are continuously improving our financial health. We will see how this works out ;-)

Good luck to all the gen-X,Y and Zers out there...it seems that the things are getting more difficult with every generation.