If you can answer yes to 7 of these 12 questions you can feel calm ... "you have good financial health". If, on the other hand, if you have more negative answers or you don't know the answers, then you have problems with your financial health.
If an emergency struck, would you have $1,000-$3,000 to pay for it?
How much of your monthly income goes toward debt?
How much credit card debt do you have?
Do you have a written budget?
Have you created financial goals for the future?
Do you spend less than you earn?
How often do you miss mortgage payments?
How often do you pay bills late?
Do you have health,life, and homeowner's insurance to protect against a wipe out of your savings?
Do you have your financial records accessible?
Do you know when traditional 401(k) contributions are deducted from your salary?
How much are you saving for retirement?
The concept of financial health also acknowledges the forces beyond our control. Just as physical health is a combination of behavior, genes and access to good medical care, financial health is a result of personal decisions and abilities, the economy and access to good, unbiased financial services and advice.
“There is an element of personal responsibility, but it’s more than that,”
Definitions of financial health typically have three factors in common:
You can manage your day-to-day financial life
You can absorb a financial shock
You’re on track to meet your financial goals
How do you get there? These eight behaviors can help:
You spend less than you earn.
This is the foundation for financial health. You can’t get out of debt or save for the future if your expenses eat up all your available income.
You pay bills on time.
You manage your cash flow and meet your regular financial obligations. Missing payments costs you money in late fees, hurts your credit and causes stress.
You have a decent emergency fund.
“Decent” varies according to your circumstances. The Center for Financial Services Innovation, which developed ways financial institutions can measure consumer financial health, would like to see everyone have six months’ worth of living expenses set aside. But as little as $250 can be enough to save a low-income family from a serious financial setback, according to a study by the Urban Institute, a policy research group. What’s more important than the amount is developing a habit of saving regularly so you continually replenish your coffers.
You’re on track with retirement savings.
How much you need will vary by age and circumstance, but you’ve done the calculations and are setting aside money regularly to get there.
Your debt load is sustainable.
A benchmark is the 50/30/20 budget: Keep housing payments and other must-have expenses : transportation, food, utilities, child care, insurance and minimum loan payments — to 50% or less of your after-tax income. That will leave you 30% for wants and 20% for debt repayment and savings. An even simpler gauge is whether your debt keeps you up at night.
You don’t routinely carry credit card or other high-rate debt.
Mortgages pay for homes that can increase in value, and student loans provide an education that can help increase your income. That’s why they’re often described as “good” debt, when used in moderation. There’s typically nothing good about credit card debt, which often leaves you paying for items long after you’ve used them up.
You have good credit scores.
Some people treat credit scores as a proxy for financial health. They really measure only how well you repay debt. But good credit is a safety net when you need it. It’s also a money-saver even if you’re not planning to borrow; bad credit can increase your insurance premiums, prevent you from getting an apartment and force you to pay larger deposits for utilities.
You’re appropriately insured.
You want to be protected against financial shocks that could wipe you out, including medical bills, lawsuits, natural disasters or the death of a family member. Health insurance is a must, and so is homeowners or renters insurance. If you have a vehicle, you need auto insurance with liability limits at least equal to your net worth. If anyone is dependent on your income or services — we’re looking at you, too, stay-at-home parents — you likely need life and disability insurance.
Start TODAY to improve your finances. We are here to help you enjoy full financial health. Ask us how?
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