How's Your Financial Health?

Calculate Your APGAR Score

The term "APGAR Score" should already be familiar to people who've experienced the birth of a child and to people in the medical community. Immediately after birth, every baby is evaluated by a doctor to determine its medical condition. The evaluation consists of the following five signs: appearance, pulse, grimace, activity, and respiration. The APGAR score ranges from 0 to 10 and serves as an initial indication of the baby's overall health.

Anyone looking to gain control of their financial affairs must first get a sense of where they stand. We've developed a variation of the APGAR test to help people make an initial self-evaluation of their financial condition. The five financial attributes of our APGAR test are as follows:

Accumulated Wealth

Payment of Credit Card and Consumer Debt

Got Life and Disability Insurance

Automobile Habits

Residential Equity

Accumulated WealthIn this first step, you compare your net investments, your age, and your income. You first need to calculate the total fair market value of all of your investments assets, excluding your principal residence and your cars. Make sure to include non-retirement savings, retirement savings, and any other investments that you may own. You should then calculate the total of all of your debts, excluding any loans on your principal residence and your cars. Don't forget to include your student loans and your credit card debts.

You should then subtract your total debts (excluding loans on your principal residence and your cars) from your total assets (excluding your principal residence and your cars) and:

• Give yourself 2 points if your net assets divided by your annual household income exceeds {[(your age - 30) * .2] +1}. Married couples should use the average of their two ages.

• Give yourself 1 point if your net assets are greater than $0 but not enough to qualify you for 2 points.

• Give yourself 0 points if your net assets are less than $0.

Payment of Credit Card and Consumer Debt

In this step, you'll take a look at your credit card habits. Always maintaining a balance on your credit cards can really cause your financial position to erode significantly.

• Give yourself 2 points if you generally pay off your credit cards each month.

• Give yourself 1 point if you owe money on your credit cards, but will have them all paid off within 6 months.

• Give yourself 0 points if there is no way that you'll be out of credit card debt within 6 months.

Got Life and Disability Insurance

Life insurance and disability insurance are two key ingredients to a successful financial plan. Generally, a person will obtain life insurance and disability insurance either as part of their benefits package provided by their employer or on their own through an insurance salesperson or financial advisor.

• Give yourself 2 points if you have purchased life insurance or disability insurance on your own.

• Give yourself 1 point if you have life and/or disability insurance through the benefits package offered by your employer.

• Give yourself 0 points if you have no life or disability insurance at all.

Automobile HabitsBesides one's home, automobiles are generally a person's largest purchase. The car you drive is also perceived as a status symbol and can be an area where even the most frugal person would consider being extravagant. How long do you generally hold onto your cars for?

• Give yourself 2 points if you hold onto your cars for more than 5 years, are provided with a company car from your employer, or don't own a car and spend less than $300 per month on rentals and cabs.

• Give yourself 1 point if you generally hold onto your cars for less than 5 years, but more than 3 1/2 years or, if you don't own a car, you spend more than $300 per month but less than $500 per month on car rentals and taxis.

• Give yourself 0 points if you generally hold onto your cars for less than 3 1/2 years or, if you don't own a car, spend more than $500 per month on car rentals and taxis.

Residential EquityOwning a home is an essential component to most financial plans. Home ownership provides a hedge against inflation and a tax-free means of accumulating wealth. For this step, you'll need to know the fair market value of your home and the current balance of any mortgages and equity loans on that property.

If you own a home, you must calculate the value of your home's equity by subtracting the current balance of your mortgages and equity loans from the current fair market value of the home.

• Give yourself 2 points if the equity in your home divided by the home's fair market value exceeds {[(your age - 30) * 2.5%] +25%}.

• Give yourself 1 point if the home's value exceeds the current balance of the mortgage and equity loans but you don't have enough equity to qualify for 2 points.

• Give yourself 0 points if you do not own a home, or if the amount that is owed on your home exceeds its fair market value.

APGAR Score CardA: _____________

P: _____________

G: _____________

A: _____________

R: _____________

TOTAL: ______________

Interpreting Your ScoreIf your score is 8 or higher, you appear to be on the right track with your finances. Take a look at any attribute that didn't score a 2, and see if you should make any changes.

If your score is between 5 and 7, you have a pretty big job ahead of you. You should try to determine which of the financial attributes need work and put together a plan to make improvements in those areas.

If your score is 4 or less, you have lots of work to do. Take a deep breath, and make a commitment to get your finances on track. Keep in mind that the challenge you face may be daunting, but it is not insurmountable.

Andrew D. Schwartz, CPA is the founder of The MDTAXES Network, a national network of CPAs who specialize in providing tax services to healthcare professionals. A frequently-quoted tax advisor, his firm of has over 45 years of combined experience specializing in the tax issues affecting healthcare professionals. For more information call 800-471-0045 or e-mail, cpa@mdtaxes.com.