How To Measure Fiscal Responsibility: Calculate Your FS-FR Score

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.

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. 

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 has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go. 

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.

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