Give yourself a financial check-up

Not sure where your personal finances stand? There are plenty of tools to help you make sure you're on the right track.

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By Walter Updegrave, Money Magazine senior editor

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Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

NEW YORK (Money) -- Question: I recently saw a tool on a CNN show that allows you to give yourself a "personal stress test." Do you know where I can find it on the net? --Harlan, Madison, Wisconsin

Answer: I believe you're referring to our What's Your Financial Health? tool - or, if you prefer, our Do-it-Yourself Financial Stress Test - which was recently featured on the Your $$$$$ show that's hosted my colleague CNN chief business correspondent Ali Velshi.

The premise of the tool is simple. Just as the Obama administration has administered stress tests to the nation's largest banks to see whether they're capable of surviving if economy deteriorates further, the idea behind our financial health test is to give you a sense of how sound your finances are and how you might fare in difficult times.

You begin the test by giving your age and annual income. You'll then be asked to provide some figures relating to seven key areas of your personal finances, including the size of your housing payment, the level of your emergency savings fund, how much stock you own, the amount of life insurance you have and how much you're saving for retirement.

As you enter this info, you'll get immediate feedback telling you how you stack up in each area compared with relevant benchmarks. So, for example, if you earn $80,000 a year and you enter a monthly housing payment of $2,500 for the combination of your mortgage, taxes and property insurance, you'll get a message telling you to be careful because housing payments generally shouldn't exceed 28% of gross income.

When you've finished with all seven parts of the test - which takes only a few minutes - you'll receive an overall grade that ranges from A+ to F.

If you score an A or higher, that doesn't mean you can now forget about your finances or celebrate by treating yourself to a spending spree. Nor would I claim that getting a poor or even flunking grade means you're doomed to a life of penury.

The idea is to give you a general reading of where you stand today financially. Once you know that, you can focus on staying on track if you scored high. Or if you didn't fare so well overall - or did poorly in a couple of areas - you can concentrate on improving your financial prospects.

One way to do that is to avail yourself of some of the other tools and calculators you'll find on our site, as well as others. So, for example, if our test tells you you've borrowed too heavily, you might go to our Debt reduction planner to see about trimming your loan balances and cutting your interest payments.

If your stocks-bonds mix is out of kilter, our Asset Allocator tool can help you whip your portfolio into better shape. If you need some help choosing funds, you can check out our Fund Screener or our Money 70 list of recommended funds.

One area I suspect will be a problem for many people is retirement savings. For a quick estimate of how much you should be putting away for retirement, you can go to our What You Need To Save Calculator. Just enter your age, income and the amount you've already saved and the tool will tell you what percentage of salary you should be socking away to have a reasonable shot at a secure retirement.

You can get a more comprehensive analysis of your retirement prospects, though, by going to our Retirement Planner or T. Rowe Price's Retirement Income Calculator, both of which allow you to plug in more detailed information and, thus, get a more nuanced assessment.

And while we're on the subject of retirement and stress tests, you might as well also take a look at my most recent column in Money Magazine - Stress-Test Your Retirement - which talks about moves people who've retired or are nearing retirement should consider to improve their odds of having a satisfying retirement in today's difficult environment.

Bottom line: These are challenging times and, although some glimmers of hope may be appearing - job losses may be decelerating and Fed chairman Bernanke recently said he expects economic activity to turn up later this year - things could still get tougher before they get better.

If you give yourself the kind of stress test I described above and follow up with prudent steps to improve your finances, you'll be much more likely to weather this storm and find yourself better poised to take advantage of the recovery.

Want a Money Makeover? E-mail us at makeover@moneymail.com. To top of page

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