Thursday, April 24, 2014

A personal finance spectrum

There was a lunchtime presentation at my work the other day on "Financial Wellness", and one of the things I took from it is that it's really hard to give a presentation like that that's pitched to what your audience needs.  Because there's a good chance the audience will include a range of people in vastly different financial situations, some of whose needs, in terms of advice and education, basically don't overlap at all.

So that got me thinking about what I would do if I wanted to give such a presentation, and I figured I would have to be ready with at least three different presentations, then start off with an (anonymous) poll and deliver the one that was pitched to the majority of the audience.

So here's what the poll might be like.  So as to avoid anything too value-laden, I figured the scale should be something that's not strongly suggestive of a ranking.  Though I might not have succeeded.  This is certainly reminiscent of the old Terrorism Threat Level and the forest fire risk scales.  Not entirely value-neutral.  But actually I kind of like that the red end is suggestive of danger.

  • Spending consistently exceeds income. Large and growing debt.
  • Spending is sometimes more and never less than income, so debt is either growing or flat.
  • Spending sometimes exceeds income and debt expands, but when income ends up higher at least part of it goes to reduce the debt.
  • Spending equals income, because it expands to absorb whatever comes in. Financial decisions are based on immediate cash flow and there is no expectation of increasing net worth.
  • Spending roughly equals income, but when income is higher much of the difference is kept.
  • Income slightly exceeds spending. Able to save, but mostly saves up for things rather than accumulating very much.
  • Income consistently exceeds spending. Saves a small amount (e.g. enough 401k to get matching, plus a little in savings).
  • Saves 10-15% of net income. Probably on track to retire at Full Retirement Age. Spending is correlated with income, but the coefficient is below 1.
  • Saves 10-15% of net income, but spending is not strongly correlated with income, so additional income or reduced expenses will have a significant impact on the bottom line.
  • Saves 40% or more of net income. On track to be financially independent before Full Retirement Age.
  • Saves 60% or more of net income. On track to either retire soon or end up quite wealthy.

This particular spectrum is very focused on income/expense balance.  I figure that correlates with factors like spending habits, debt use and payment habits, approach to high-impact financial decisions (like how much to spend on housing and transportation), and level of confidence in managing finances and investing, but I'm sure you could put those other factors on the same scale and plenty of people would find they're best described by a range of different hues.

And now... the poll!  Just for fun.  Fully anonymous (I think. I certainly have no idea how I would track clicks back to people. At most an IP might be logged in a database on the server of the free poll creation web site I googled up, where nobody would know or care what it was about).

Where do you fall on the spectrum? free polls 

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