Liz Moyer of the Wall Street Journal believes you should keep your debt levels between 28 and 36 percent of your entire income. This is prudent advice considering that consumers continue to pile on debt, even though the economic crisis taught us – or should have – to always have enough in our reserves to cover the essentials.
As the Federal Reserve conducts stress tests for 31 major financial institutions, Moyer suggests households should perform stress tests of their own. Here are three of her personal finance guidelines:
– Debt-to-Income Ratio: Keep your debt including mortgages at 36 percent of your income and 28 percent excluding mortgages.
– Assets: Take a look at your liquidity and quality of assets and ask yourself: would they be able to handle a quick call by your creditors?
– Emergency Savings: Households should have at least three months worth of expenses – the greater your monthly expenses, the greater your emergency funds should be.
Although these sound tips are common sense, many consumers fail to adequately tackle their debt, maintain emergency savings and even accumulate assets.
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