Are You Living in the Financial Danger Zone?

Last Updated Jun 2, 2011 2:41 PM EDT

It feels like 2008 all over again. The recent market drop has rekindled many of our fears and anxiety we thought we left behind. I've had several discussions lately with budding entrepreneurs who want to use the other 8 hours to create, but have become distracted by the market and the economy. How nervous should they be? More importantly, how nervous should you be? In about five minutes, you can easily answer that question...

For each of the six areas, place a check-mark in either the Danger Zone or the Safe Zone box:

1. JOB

o Danger Zone

Your job is in . . . Housing, Finance, Auto, Retail, Hospitality, Services, Manufacturing, Airlines, or you are a Low Wage Worker or a New Hire.

o Safe Zone

Any other job.

The is one of the most important areas because losing your source of income can quickly derail your finances. Unemployment is high and there may be more layoffs, especially in the Danger Zone industries.

2. HOUSEHOLD INCOME (IF YOU ARE MARRIED)

o Danger Zone

You and your spouse work.

o Safe Zone

You or your spouse work.

It may sound like I've got this backwards, but think of it like this: If there are two people struggling to make the mortgage and pay the bills and one loses their job, there's nobody there to help. But when only one spouse works, the other spouse can jump in or lend them a hand by getting a job -- even if it's just temporary.

3. SAVINGS

o Danger Zone

0-5 months of living expenses in cash/investments.

o Safe Zone

6+ months of living expenses in cash/investments.

The more cash you have set aside, the stronger your safety net if you lose your job, get sick, or have unexpected expenses.

4. EXPENSES

o Danger Zone

Your monthly expenses are high and can't be reduced (e.g., mortgage, car payment).

o Safe Zone

Your monthly expenses are low and can be reduced (e.g., entertainment, dining out, shopping).

If you're scraping by each month and most of your expenses are fixed (meaning you can't reduce them if you wanted to), you're in the Danger Zone. On the other hand, if you have money left over every month or if your expenses are variable (meaning you can reduce them if you need to) you're in the Safe Zone.

5. DEBT/LOANS

o Danger Zone

You have a large amount of debt and/or your interest rates are variable.

o Safe Zone

You have a small amount of debt and/or you interest rates are fixed.

If you have a lot of debt with a variable rate, you're in the Danger Zone. But if you have little debt or have it locked in for a low, long-term rate, you're in a much safer position.

6. SUPPORT NETWORK

o Danger Zone

You have no family/friends nearby who can provide support.

o Safe Zone

You have nearby family/friends who can provide support (e.g., childcare, housing).

If you have people who can help you if your car breaks down, if you need someone to watch your kids after school, or if you need a place to stay while you get back on your feet, you're in the Safe Zone. If you don't have this kind of support network you are much more vulnerable.

How to Score and Think About this Quiz

Two important points: First, just because you are in the Danger Zone on one or more of the questions doesn't mean you are going to be out on the street. It just means that you have some serious potential problems that you need to recognize and address. Use your fear to motivate you, not paralyze you. Determine what you need to do to move into the Safe Zone and take action. There are plenty of free books and blogs such as those right here at CBS MoneyWatch as well as Get Rich Slowly, The Financial Samurai, The Simple Dollar, Bargaineering, and Man Vs. Debt with tips and advice.

Second, if most of your check-marks are in the Safe Zone, congratulations. Feel good about your situation but don't be too smug. As we've seen, things can change quickly. "Safe" today can be a problem tomorrow. Spend some time building an even stronger foundation. Continue to create. Focus less on the headlines and more on how you can come out of this mess better and stronger.

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    Robert Pagliarini is obsessed with inspiring others to create and empowering them to live life to the fullest by radically changing the way they invest their time and energy. He is the founder of Richer Life, a community of passionate people who want to learn and achieve more in life and at work. He is a Certified Financial Planner and the president of Pacifica Wealth Advisors, a boutique wealth management firm serving sudden wealth recipients and affluent individuals. He has appeared as a financial expert on 20/20, Good Morning America, Dr. Phil, Dr. Drew's Lifechangers and many others.