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Bank of America (Stock Quote: BAC) announced today they've raised $26 billion of the $34 billion the government told it to raise after the results of recent stress tests. That's the amount of capital, according to the government, that the bank needs to absorb future investment losses.

But what about you? Can your finances withstand unpredictable, money-draining stress?

Financial planners say you should stress test your own personal finances. And it takes considerably less fuss and public debate.

“What we are really talking about is living beyond means,” says Scot Stark, the president of Stark Capital Management in Freeland, Md. “It boils down to whether or not you are being irresponsible.”

Personal Stress Test Simplified
Running an effective stress test on yourself is not complex financial engineering. If what is going out outweighs what is coming in, you fail.

Failing a stress test, Stark points out, is not much of an option. It a long time to resuscitate a credit score or your emergency fund. Moreover, you’ll need to change all your habits and make sure the new ones stick. It's no easy lift.

The upshot: Catch yourself before you fail.

Toward this happy end, Stark has a secret. He sits down once a week to make certain his household expenses are not exceeding his income. Maybe that's asking too much of a financial planning civilian, he allows, but once a month is absolutely mandatory.

Personal Stress Test: What to Look For
Besides making certain that inflows and outflows are matching up, you should make certain that your mortgage payment does not exceed 28% of your gross income, and that you have a stash of rainy day money.

If you work on commission or otherwise have a salary that fluctuates, you want nine months of salary to draw on in an emergency. If you work on salary and stand to earn a severance if fired, you can probably get by with three months and still pass. Anything less, in either case, is the equivalent of getting a warning notice from the school dean. "Watch it, Frosh, you are headed for failure."

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Beyond that, telltale signs of am impending failure of a personal stress test are:

  • Not paying off your credit card every month;
  • Your credit rating declines significantly;
  • You are late on any mortgage, utility or car payments; or
  • You're getting any sort of late notices in the mail.

If you are starting to fall short in any of these categories, you need to recalibrate what you are earning or spending, or both.

And if your credit card is a stubborn part of the problem, “just cut it up,” said Stark.

When you're auditing, remember that this is your life. You're not adding up these figures for a school class. The cost of failure is steep.

“I don’t think the government can run a birthday party,” said Stark, no fan of the Treasury Department’s bank stress test. But when it comes to your own private version, it’s easy to do, wholly accurate and, in the final estimation, essential to your future well-being.

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