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3 Steps Personal Financial Stress Test

Have you stress tested your personal finances? Do it now in 3 simple steps.

by Holistic Leave a Comment | Filed Under: Financial Planning

What do we mean by the term ‘stress testing’?

Stress testing is about demonstrating how a particular process balances in a condition, when you try to push the same beyond its usual operations. We can also state the same about a stress test in other words. It implies a condition, where you push your system into the crash mode and find means to recover from that. Demonstrating stability and coping up with the extreme conditions will be ideally equivalent to passing the stress test.

How does one stress test his personal finances?

Financial crisis are not just limited to the corporate sector and the overall economy. In our personal life too, we come across many situations that affect our finances, such as a job loss, accidents, health problems, rise in children’s school fee, etc. In unstable conditions like these, passing through a stress test lets one find out how well he/she is, to face and manage the period of financial crisis.

The stress test is a very useful technique to determine how our financial portfolio (that includes investment, insurance, expenses and income) will get along during a dilemma.

The following useful tips might help you deal with your uncertain conditions and have some stability in your life.

1.Make a checklist of your financial position in detail

Your financial situation includes your total income (from all the sources), expenses, assets and liabilities. Expenses will cover details such as your monthly rent, household expenditures, children’s fees, holidays and vacations, etc. Also, include your financial and real asset details. Liability details will comprise of EMIs on personal, home, or car loan, etc.

2.Analyze questions pertaining to certain simulation scenarios

One has to do some kind of brainstorming sessions with him/her, or with the family members, or stakeholders. One may also seek the help of his financial planner. This is to find out the different limitations. Some of simulation questions are as follows:

a. What percentage do the different income sources have in the overall income portfolio? In addition, what effect does it make to your personal finance if one or two of the income sources stop?

b. What is the percentage that different expenditure areas carry in your total expense portfolio, and how does it affects your finances if there is a sudden rise in one or two of the areas?

c. What is the situation of liquidity, in your assets portfolio, in case of emergency? An example of this could be a mishap and a celebration in your family, simultaneously. How does one manage his finances in such scenarios of sudden expenditures?

d. The last question is about how volatile isyour investment portfolio. What percentage of the different assets does one carry in the same? How will the portfolio affect, in case of stock market fluctuations, or government policy modifications?

3.Look for the best answer possible to simulation queries

It is completely fine if one has sufficient amount of liquidity, appropriate asset allocation in investments, proper sources of income, and adequate insurances to rely upon. With all or any of these, one might not feel the pinch in any of the critical conditions and one can very easily pass the test. The situation becomes a cause of one’s concern if he/she does not have a comfortable answer to any of these.

What will happen in a case, where one cannot pass his/her own stress test?

Of course, one cannot go out to raise more capital. There are certain techniques for ratio analysis that help one determine the liquidity position of your assets, and many other things like the maximum debt one should take.

However, finally you are supposed to bring your finances into place and work out the situation. One can do this by,

  • reducing overall spending,
  • paying off big amount loans,
  • doing a goal-based investment,
  • following a well-defined approach for asset allocation,
  • diversifying investments, or
  • Setting up a credit line for emergency use.

Bottomline

You can definitely not wait for an unfavorable condition to occur, in order to perform a stress test. A volunteer stress test will help you in figuring out how much one will have, for how much time it will last, and where to seek help from if circumstances go beyond one’s control in hitting your family finances.

Therefore, it is always a good option to do a stress test for your own personal finance in order to manage the uncertainties with confidence. This will also prevent you from repeating the same mistake that others did, and rather take different approach learning from the same.

If you have any comments or questions, write them in the comment box below.

Or are you interested in creating a Comprehensive Financial Plan for your financial goals?

Skip the queue by registering for your 30 Minute FREE Financial Plan Consultation. Click the ‘‘BOOK YOUR SLOT NOW!’’ button below. 

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Jey S
Jey S
24. September, 2021.
I have been using Holistic Investment Planners for the last three years. Mr. Srinivasavaradhan answered all my questions and doubts very patiently during the first free consultation. I was able to clearly define my short-, medium- and long-term goals once I signed up for the comprehensive plan and got their investment plan suggestion to achieve my goals. They are very polite and highly professional whenever I contact them for any queries or make investments. They never pressurize you to invest on their recommended financial products. I would have been lost money by investing directly without their help since I do not have time and knowledge about different financial products. Risk planning is also done as part of financial planning. Truly, they are holistic planners when it comes to your financial planning. They help you to define your life goals, understand your financial resources and establish a plan to invest towards reaching those goals. They do review your plan as you progress to make sure that you are on correct path to achieve those goals. Kudos to the team and keep up the good work!!! I am happy that I found holistic investment planners for my financial planning and management.
aksaswadkar
aksaswadkar
24. September, 2021.
I was about to retire and really not understanding how to invest money to have financial freedom and fulfilling my goals. Was desperately searching on internet way out and fortunately came across Holistic Investment Planners. I read number of articles on their website and realized that this is the agency which I want and engaged their services for my retirement planning. It is an excellent experience to be associated with Holistic. Right from day one our interaction was fantastic and they gave me such a wonderful plan that I had never imagined. I am fortunate enough to be in the client list of Holistic. I have recommended Holistic to my friends as well.
Lionel Faber
Lionel Faber
16. September, 2021.
I've been availing their services for the past year. They are highly knowledgeable in the field and are very patient with all doubts and queries. Personalized financial planning is provided keeping your short term, medium term and long term goals in mind. They do not pressurize you to purchase schemes of their choice. They provide their input and suggestions and leave the decision up to you which shows their honesty and high principle.
Sridhar
Sridhar
8. September, 2021.
Financial planning brings peace in life. Holistic Investment have supported in arriving financial plan based on future goals. My investments are regular since then. They are professionals in their business, will recommend others.
Nitesh Agrawal
Nitesh Agrawal
6. September, 2021.
I have been using Holistic Investment Planners from last one year. The journey has been fantastic. Being a finance person myself I always thought we can look after and plan own finances also. However, due to lack of time and deciplain the things are not always as desired. After joining with Holistic Investment for the first time Icame to know the Financial goals and quantified them. Some dreams were unrealistic based on the earnings and savings so had a reality check. Also got the information and deciplain of investing on regular and more rewarding securities. I definetly suggest to use Holistic Investment Planners. They are professionals, available and hear youor full story before presenting plans. They are flexile in the sense if there are some urgent deviations required, they help to plan the same. For all professionals/individuals I would suggest using professional help of Holistic Investment Planners for best results in long term investment and financial goals achivements. Last advise will be to start early in your life. It really pays well to start in the beginning itself else the dreams needs to adjust :)
Swetha Vasanth
Swetha Vasanth
6. September, 2021.
This is my first year service with the Holistic Team and I would say that they are very much helpful in creating a financial plan and follow ups during the year. I would definitely suggest them if anyone who is willing to proceed with their savings professionally.
Joseph Mathias
Joseph Mathias
6. September, 2021.
I came to know about Holistic Investment Planners online while searching for different investment ideas. Once I contacted them the journey was very smooth. Mr. Ramalingam explained all the aspects of Financial planning in detail and it opened my mind. I realized how important it is to have a Financial planning. Mr. Rajan suggested all the requirements as per my goals and made a Investment plan keeping in mind of my goals. I started my Investment journey with them. I wish I had done it some years back then it would have been in a different level. Review meetings were held every six month to check the implementation of the plan and check the results as per the requirements and to check if any changes required. Overall it was a good experience with Holistic Investment team and would like to continue in the years to come.
Srinvas Kannan
Srinvas Kannan
30. July, 2021.
I came across Holistic investment planners almost 5-6 years back, but I did not have the trust since I had met a few of them who did not sound promising. Then I started investing through a financial advisor of my friend. After 4 years of investing the returns were very low. I was disappointed and started looking for financial advisors when I came across Holistic investment. I had a detailed discussion about my goals and the way they would approach achieving my goal before deciding to switch my investments to them. After a thorough analysis of my then existing portfolios, they suggested new ones and we zeroed-in on 6 schemes/funds where our investment would be split. I am glad I made the decision of switching over and taking Holistic planner's advise, my returns are handsome and I only wish I could have taken their help/advise 5 years back itself. Neverthless, I would like to recommend their services for investment and financial advise if someone is serious about their investments.
Shivaram Andiappan Selvaraj
Shivaram Andiappan Selvaraj
3. July, 2021.
I got a free first time consultation. I got my doubts resolved. They also gave additional advises for investment planning which was also useful.
Nellai B
Nellai B
26. June, 2021.
I have been associated with them for the past three years. They are very professional and polite in answering all our questions. I have complete trust in their suggestions. I strongly recommend for anyone. I am looking forward to have strong and successful association with them.
Google rating score: 4.4 of 5,
based on 61 reviews

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