Want to know how to measure you fiscal responsibility? The key is to calculate your FS-FR score.
So far, we've got the Financial Samurai Debt And Investment Ratio (FS-DAIR). It provides a logical framework for deciding how much to invest and how much debt to pay down every time you have some disposable income. The acronym smartly “dares” people to take action with their finances.
I now announce the Financial Samurai Fiscal Responsibility Score (FS-FR). FS-FR measures each individual's fiscal responsibility level in a fun and easy way. It is also known as the Home-To-Car Ratio.
I expect some of you who have a low FS-FR Score will probably not be very happy with the concept and bash the crap out of it. But, that's part of the fun!
Financial concepts are usually quite dull and hard to comprehend. As a result, they are never followed. But if you come up with something simple like the 1/10th Rule For Car Buying, it might just catch on and save thousands of people from spending more than they should on a depreciating asset.
Before publishing this post, I researched the internet and found nothing similar to the FS-FR Score. Therefore, I'm pleased to report that once again, a new concept is born that may revolutionize our finances!
Measuring Fiscal Responsibility With The FS-FR Score
We all know that a car is a liability with a 99% probably of losing value over time. The only cars that appreciate over time are collectibles that are often left untouched for decades. The normal person can't afford a collectible car.
We all know that a house is an asset with at least a 50% probably of gaining value over time. That probability goes up the longer you own the property. The times when homeowners get in trouble are when they take on too much debt to buy a house, or have to sell during a down market.
Both a car and a home are part of the “American Dream.” If a home tends to appreciate in value and a car tends to depreciate in value, the logical conclusion is that one should have much more house up to a certain point and much less car if they want to build wealth over time.
Let me be clear that determining “fiscal responsibility” is quite a subjective effort. The FS-FR Score is only one way to determine whether you're destined to run on the hamster wheel forever, or not. The FS-FR Score will be skewed lower for younger people and people living in lower cost areas.
Baseline FS-FR Score Is Based On Homes And Cars
To build the baseline FS-FR framework, we need to take the average price of a home in America divided by the average car price in America to get a score. You can do the same for whichever country you live. If you wish, you can also take your total value of all properties divided by the total value of all automobiles, so long as you are consistent with comparing totals with totals.
$40,000 is the average price of a car in 2021 according to Kelley Blue Book. And $380,000 is the median home price in America according to the US Census report.
Baseline FS-FR Score: $380,000 (median home price) / $40,000 (average car price) = 9.5. In other words, the typical American has an FS-FR Score of around 9 – 10. The higher your FS-FR Score, the better because that means your car's value is a smaller percentage of your home's value. The other assumption is that the average person spends way too much on a car.
So what happens if you don't own a car, but own a home?
You automatically get a score of 21. If you have the ability to own a home, yet shun owning an automobile, you've got a wealth building mindset. You're resourceful because you take public transportation, car pool, and/or work from home.
So what happens if you own a car, but not a home?
If you are under 35 years old, then your status is uncertain. But if you are over 35, you move to the bottom tier for fiscal responsibility because the median age for first-time homebuyers is 31 according to HomeEconomics.com. I've provided a five year cushion beyond the median home buying age to help those who started out working later.
Of course, there are plenty of circumstances where one is fiscally responsible despite owning a car and not a home over the age of 35: folks who delay work due to graduate school, folks who have mobile jobs, and folks who don't want to be tied down to property. However, given the nature of inflation, rents, and real estate, if you don't at least own your primary residence, then you are falling behind every year if you ever do want to own a property.
Finally, what if you don't own a car or a home?
If you're under the age of 35, then your status for financial responsibility is also uncertain. Public transportation is getting even easier thanks to the likes of Uber, while real estate prices are out of control for the median income earner in cities like New York City and San Francisco.
If you're over age 35 and don't have a car or own property, you're in the middle of the pack with a FS-FR score of 10. The older you get without owning a home, the lower your score. But of course, it all depends on what you do with the money you aren't spending on a home. If you're wisely investing your money, then you're doing great.
FS-FR Score REAL LIFE Examples
1) Mechanical Engineer, Age 36. Rents. Car: $40,000 used BMW 535i. FS-FR Score <5
2) Roofer, Age 52. Home: $780,000. Car: $250,000 consisting of five cars and two motorbikes. FS-FR Score = 3.1
3) Software Engineer, Age 39. Home: $720,000. Car: $25,000 Hyundai Sonata. FS-FR Score = 28.8
4) Entrepreneur, Age 37. Home $1,350,000. Car $20,000 Toyota Yaris. FS-FR Score = 67.5
5) CEO of Publicly Traded Company, Age 37. Home $10,000,000. Car $130,000 Tesla P85+. FS-FR Score = 77
6) Retiree, Age 69. Home $1,000,000. Car $3,000 1997 Toyota Avalon. FS-FR Score = 333
What's the missing ingredient here? Debt And Income, of course!
Perhaps the Mechanical Engineer who bought a $40,000 used BMW 535i is making a lot of money and just wants a lot of freedom. Actually, he makes $110,000 a year and rents because he bought a property and short-saled it in 2010.
His credit is ruined, and can't afford to buy for another three years. He is fiscally irresponsible because he decided to buy a $40,000 car after he stuck his old property back to the bank, and ultimately hurt taxpayers.
Take a look at the 69 year old Retiree with a FS-FR of 333. He's owned his same Toyota Avalon for 18 years, and bought his home 25 years ago. He has no mortgage, no debt, and a pension of roughly $70,000 a year.
The end game is reaching retiree status, in order to do whatever you want. The CEO of a publicly traded company is obviously much wealthier than the Retiree, but he's still working. Both are in fantastic positions.
The 39 year old Software Engineer makes roughly $200,000 a year, depending on bonus. He is an old client of mine who may receive a multi-million dollar windfall within three years if his company goes public. We decided to mobilize his capital and go neutral real estate by buying his own loft in San Francisco.
His net worth is diversified, he's frugal, and is the demographic of many of us who study hard, work hard, and are looking to accelerate our financial well-being. His only debt is his mortgage.
The other missing factors include savings and other investments. But if we start including multiple variables, things start getting complicated.
See: When Is The Best Time To Buy A Home? When You Can Afford It
Are You Fiscally Responsible?
On the one side, we have the YOLO crowd who spends freely. They don't care about saving for retirement as much as the average person.
On the other side, we have the Super Frugal crowd who saves a tremendous amount of money and never lets loose. Neither is ideal.
I'm more on the frugal side of the spectrum, but I'm doing my best to spend money on things I enjoy e.g., building a ridiculous master bathroom, tennis events, and travel.
I strongly believe we should all strive to have at least an FS-FR Score of 21 or higher. Once you get to 21+, you will develop this indomitable financial mindset that will help you achieve financial freedom sooner, rather than later.
Your FS-FR Score will probably fluctuate like the stock market over the course of your lifetime. But just like the stock market, the general direction is up and to the right.
Note: There are many ways to measure “fiscal responsibility.” It's a subjective measurement. The FS-FR Score is just one very easy way to see if you're heading in the right direction.
Loading ...Ways To Be More Fiscally Responsible
Manage Your Finances In One Place. One of the best ways to become more fiscally responsible is by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money.
Before Personal Capital, I had to log into eight different systems to track 30+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet.
Now, I can just log into Personal Capital to track my net worth and manage my money. I can also see how much I’m spending and saving every month through their cash flow tool. Their free Retirement Planner is the best on the web. Leverage the Internet to gain financial freedom!
Invest In Real Estate
If you can't buy a physical property just yet, that's fine. You can still be fiscally responsible by owning real estate through ETFs, funds, REITs, or real estate crowdfunding.
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.
Take a look at my two favorite real estate crowdfunding platforms.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and now manages over $3.3 billion for over 500,000 investors. For most people, investing in a diversified eREIT is the way to go. Fundrise invests in residential and industrial real estate in the Sunbelt, where valuations are lower.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Both platforms are Financial Samurai sponsors and Financial Samurai is an investor in Fundrise.
How To Measure Your Fiscal Responsibility is a FS original post. All rights reserved.
My primary residence value 290 but 2 cars book value -20.
“15% of your house” rule fits me better.
457 if just primary residence:
$3.2M primary residence house and:
My 1996 Corolla (<$1k)
Wife's 2005 Prius ($2k?)
Our 2005 Odyssey ($4k?)
Got 2 other investment properties – $3M more.
So more like almost 1000!
The interesting thing about FS-FR is that the more time you do nothing, the better your score gets.
I don’t know about this. I may soon go from 33 to approximately 67 due to purchasing a condo for the in-laws. But my financial situation won’t be improving.
I scored a 25. 2004 Focus on its last legs, 2011 Chevy HHR. House valued at $ 150k, cars at about $6k. I am keepig the Focus going by telling my wife ‘just one more year,’ but as I drive it I can keep up the ruse.
[…] 1) Cars are guaranteed to depreciate, housing is not. Therefore, spend the least amount possible on a depreciating asset, and the most amount possible on a potentially appreciating asset. This is the principle of the Financial Samurai Fiscal Responsibility Ratio. […]
[…] innovation is coming up with new financial metrics like FS-DAIR for paying down debt or investing, FS-FR Score for measuring fiscal responsibility, the 1/10th rule for car buying in order to save you from […]
242, also drive a 17 year old Honda Civic. I think it still has 70k miles left in it (fingers crossed)!
285, but I drive a 17-yo Honda Civic (OMG, time flies!) and live in an expensive housing market.
Home value $115k
Cars’ values $16k
FS-FR score: 7= average American consumer
Household income $170k
Net worth $450k
Age 25
By all your other rules I’m doing great…
total properties value (6): 3.19M, total values of cars(5): 158k.
ratio: 20, need to purchase another property to get over the hump
That’s a lot of cars Jay! Where do you park them all and what are they? Easier to just sell one car.
2 sports car for track event (hobby), 1 family mini van. Couple of truck/SUV for business purposes.
Fun stuff to think about! I own a home and no car, so looks like that puts me at a 21. Fortunately I like to walk places and the public transit in my area isn’t too bad. Maybe some day down the road I might get my own car, but thus far I’ve done fine using public transportation and now Uber.
I am in 21-50 range. Looks like I got lots of work to do. Haha Thanks for the interesting post!
BSR
If you’re at 21+ you are good! I need to make this clear in the post.
Like some of the others have said, I think I get stuck in the lower housing market.
We live in a great 3000 sqft house in a gated neighborhood. We paid 285k, which is above average in FL.
Just last year I moved offices and commute about 45 mins, so instead of driving my 2005 gas guzzler truck to work I bought a Focus for the 40mpg.
The car itself will come close to paying for itself in the gas saved.
However paying 15k for the car puts me in 19 range and I honestly see myself as a scrooge type person for buying that cheap of a car.
I think if you dropped our house into a different area of the states and it was worth 5-600 then my number would rise.
-Cheers
19 is a good score! Almost there.
Thanks Sam! Been reading your site for a couple months now. Has really focused our spending and savings.
Great work friend!
do bicycles count as vehicles? I have a 25 year old car that is probably worth less than $1K, 2 vespas worth ~$2K each. but my custom road bike that i use for pleasure & not commuting is $8K
97.5 – 29 years old – 750,000 in property (400,000 primary and 350,000 rental). Own an 8,000 used 2002 Lexus paid for in cash.
I do not really know were I am on the scale. But personally I do feel what I am doing is and on the right path. I do not own a home and I do not own a vehicle. But I have a net worth of about 500k now which is all in Index funds, REITs, Bonds, some individual stocks, P2P Lending and some cash and zero debt of any kind. I am 30 years old and an American citizen but living and working abroad now. I was able to increase my net worth from about 130k to 500k in the past 3 years with the help of market gains and of course a extremely high savings rate. Right now I do not simply have the need to own a home or own a car due to my location and needs so I feel the best course of action for now is save and invest the extra cash flow. When life changes I will surely own a home one day and a reasonable priced car. Right now its all about plugging away and growing my stash :) If I can get at least a 6-7% rate of return on my investments per year for the next 3 years, and in addition to new money added over the three years I will hit the 1 million mark by 33-34. Of course who knows what will happen, but its always nice to have plug in some numbers. But the plan is stay the course always. Hopefully 20 years from now I’ll be chillin nice some where nice and retired.
It says I am just the average American consumer with a score of 17.
Looks like I still have some work to do.
Cheers!
Me too! :) a lot to work on!
I’m going to guess that this won’t catch on because it’s a consumption based metric with regional bias built in (FYI- I’m in the Southeast and I get a 21), and a bias towards real estate investing.
It also biases towards leverage which is a slippery slope for most people. For example, I own two properties with a book value of 130K which means I could reasonably leverage myself to 600K of property ownership, but why would I? I would have to devote a lot of time to finding cashflow positive rental properties that achieve higher ROI than stocks/mutual funds. Certainly not impossible (I have my eye on a few right now), but I will use real money to buy them, not leveraged money.
I can’t buy that this is a good way to measure fiscal responsibility. If we lived in a world where our only choices were buying houses and buying cars then this might work. We don’t live in that world. Fiscally responsible people generally buy BOTH less house and less car than they can afford. A perfect example: someone I work with (who makes the same money I do) is buying a $1 million house, and drives a brands new bmw. I live in a $500,000 house and drive a camry. Based on this method we’re equally responsible with our finances. Yet somehow I can invest 4-5k a month and have a large reserve fund,and my coworker is living paycheck to paycheck.
I agree that this is a good way to measure the ratio between these two purchases (you shouldn’t drive a Bentley and live in a one bedroom apartment), but it’s not a realistic way to measure your fiscal responsibility.
How do you know your co-worker is living paycheck to paycheck though? I believe there is much more wealth out there than people know.
One thing I’ve consistetly noticed is that those of us who live more frugally try to make ourselves feel better by saying others who don’t are living more irresponsibly. But who are we to say that they aren’t living exactly in the comfortable way they want? In other words, we begin to judge them, which is an unavoidable human condition it seems.
Your coworker has a FS-FR Score of about 20. Not bad.
Your score is also about a 20. Not bad.
Why can’t we be happy with ourselves and your coworker as well?
I know because he says he is and he I s always stressing about money. I’m not unhappy or mad at anyone else for having a nicer house than I do. I’m just saying this ratio doesn’t do anything to define fiscal responsibility. I could have a great score on your test and still be living WAY beyond my means because I live in a house that is too expensive for my income. I could also have a terrible score because I want to live in less expensive house, drive a quality car, and save a large percent of my income. Being house poor would give you a great score here, but not be fiscally responsible.
First, I must say that I enjoy your blog and like your penchant for financial metrics. However, honestly not sure I like this formula. It penalizes you for having more car than you need, but makes you look like the most financially astute on the planet if you have more house than you need. I personally think both are signs of financial immaturity.
I like formulas like Net Worth/Lifetime SS Earnings. There are many ways to drive this ratio higher, most of which show financial intelligence. The thing that I like about it is that it doesn’t show any favor to one investment method, savings strategy, etc. over another.
Sam, I love your blog and especially posts like this with fun comparative metrics.
Please allow me to critique how you’ve interpreted the “average American” consumer statistic… 30+k was the average price paid for a new car in 2014. So a score derived off that figure is not really representing Americans, but rather, Americans who bought new wheels in 2014. C’mon dude. What percentage of American consumers (drivers even) bought a new car in 2014? Probably not a representative percentage.
If you take the average or median home price, then you are comparing the same rolling average with the same rolling average for cars. Hence, it is consistent.
When I calculate the ratio should I measure the value of my residence today vs the value of my car today? or is it to measure the value of my home at purchase vs the value of my car at puchase?
My point is that the average price paid for a NEW car might have been 30+K in 2014, but that is totally different than the average value of cars owned in the US in 2014. The average car on the road is 11+ years old. The average American consumer is NOT rolling a new 30K+ car.
Even for cars bought in 2014, I’d like to see used cars aggregated into the average (not asking you to – I looked for a minute just now and it wasnt popping out in a google search)
If you want the ratio to capture purchase price of real-estate vs auto, thats cool, but your examples seem to use market value.
Additionally, if I’m rocking a 50k Jaguar I bought in 2009 BUT STILL PAYING FOR, the ratio for me would look decent cuz that jag is probably down to <20K in value. am I more responsible than I was on the day of purchase? maybe, but probably not.
If you use current market value for both items, then your FS-FR Score will appreciate over time.
If you want to be more conservative and punish yourself for buying a $50,000 Jaguar, then keep the denominator fixed and assign a conservative market value to your properties.
You can do whatever you want. The FS-FR Score is a gut check.
Fair point Sam. I can manipulate and interpret the metric in a way that accounts for my situation and serves me. Point sent and received.
This witch hunt I find myself on is more about your “baseline” stating the average American has a ratio in which the denominator is 31.2K. Ignoring the point that 31.2K is only the value of an average new car at point of purchase, that “average” excludes American consumers who:
A: don’t own a car
or B: buy used cars
Americans buy more used cars than new cars!
I couldn’t resist any longer. My wife and I are a healthy 30 with about 600K in home and combined 20K between 2 cars (market value, no Jags). We live in Seattle.
I’ll leave it at that Sam. Keep up the great work.
I would generalize this ratio to (appreciating assets and investments) vs. (depreciating assets). That might better capture some of these situations where people don’t really need or want a typical amount of house or car.
Bingo. This is a great way to look at FS-FR.
I’like admit. I scanned this. But I am perplexed by a host of problems. I bought my car in 2007. My wife has had two cars since 2011. We bought our current house in 2011. It has appreciated at least 35% since then. Like, where do I even start?
Maybe something like this would be better (home note + appraised vehicle value at time of home purchase)/net household income. That still seems kinda flimsy though.
One time this banker contacted me to build out an alternative to credit score. He wanted to use both qualitative and quantitative variables to deduce a score. I modeled the whole thing in excel before I programmed it. He had this multi page pdf. It turned out his math and assumptions were all whack. But, I still felt like he was onto something good.
You have a good knack for reducing complicated subjects into simple quantification. Perhaps you could build out a few tools for people to calculate things like FS dair as a resources section. It could be a big value add for your site. You could even throw in run of the mill stuff like amortization calculators. Refi affiliate ads would be great on a page like that.
My goal is to make people think about their consumption and assets. I certainly don’t want people to have to build a multi-page model to come to a conclusion.
Although the FS-FR Score is simplistic, it serves a purpose. A gut check to determine the ratio of likely appreciating assets to a certainly depreciating asset over time.
Getting ready to buy a 500,000.00 dollar house. Currently have two free cars worth 3000 total. Will be taking the bus mostly after moving. I prefer appreciating assets to depreciating.
Well done Drew. You sir, have a bright financial future ahead of you!
This is too simplistic. I live here in the SF Bay Area and will likely be a lifelong renter. But I am not one of those renters who treats savings and investments as afterthoughts. My net worth is 14X my annual spending and 7X my gross income. As long as my rent as a % of my income remains modest (currently at 25% of my gross…higher than I’d like, but not horrible) and as long as my investments grow faster than the rate of my rent increases, I should be fine.
I agree here. This formula does not work for people in high price areas like San Francisco either. My score comes to 218 and I am embarrassed! I have a house and couple of investment condos in the bay area. Total value 2.4M/11k (two low end cars). We do not live like monks though. Cars are just not our thing and instead we spend money on expensive vacations. In terms of the financial situation me and the above poster are probably in the same range, but his/her score is too low and mine is too high. As other people mentioned, this needs to be based on net worth/car value or something similar!
Your answer reminds me of when someone replies in an interview “My greatest weakness is that I work too hard and am so detail oriented.”
If you were truly embarrassed about your score and your financial situation, I don’t think you’d point out your 200+ Score and $2.7 million in property.
You’ve basically backhanded Mysticaltiger in the face for agreeing with him, yet he can’t afford property!
O boy… You took this conversation way off! :) I am definitely not embarrassed with my financial situation, but I was definitely embarrassed by the score. And that was based on what you mentioned for people with score above 200 which is that they probably live like monks. And that is definitely not the case for us and many who may have a score of 200 plus. We just don’t care about the cars we drive or the clothes we wear (Target/Ross anyone?). But we easily spend 15k-20k on vacations…
As far as Mysticaltyger is concerned we are probably in the same financial situation and here is the math. If we deduct the mortgages on my properties my networth would be around 1.5M. Mysticaltyger said his net worth was 7X his gross income. Assuming he is in his late 30’s working in IT in bay area he would be somewhere around 200k X 7 = 1.4M. But because he does not own a property his score is on the lower side. So despite both of us being in similar financial situation we are on the opposite spectrum of scores!
I know you are not embarrassed by your property, hence the mention :)
Yes, with a Score of 200+, it’s time to live it up a little, consistent with my chart.
I would rather be in your situation with property than your hypothetical financial description of Mysticaltiger, who says he cannot afford property. B/c as time goes on, it is likely your financial system with outperform his situation.
Let’s hear from MT himself on his NW and future.
And don’t worry, learning how to make backhanded compliments is a skill that only a few possess.