What is your state of affairs? Money affairs, that is. Have you assessed your financial health recently to know the state of your finances, and whether you can handle things if an emergency occurs in your life or your loved ones?
Understanding your financial health doesn’t have to be complicated. Just like going for a physical checkup, you can check your financial well-being to see if you’re on track or need to make adjustments. Pro-tip: after you read this, go to this post on: Top Tips for Achieving Financial Health: Budgeting, Saving, and Reducing Debt.
Here are four easy ways to assess your financial health:
- Know Your Net Worth
Net worth is the big-picture snapshot of your finances. Add up everything you own (savings, home equity, investments) and subtract everything you owe (loans, credit card debt). A positive net worth is a good sign, and watching it grow over time means you’re heading in the right direction. A negative doesn’t mean the end of world, just that you have some work to do, and an extra dose of discipline needed to do it with, to get out of the red and into the green. - Check Your Savings
Healthy savings give you a financial cushion. Add up your monthly living expenses that you need to run your household. Do you have 3–6 months’ worth of living expenses set aside in an emergency fund? This safety net can help you handle unexpected situations like car repairs, an air conditioner that decided to stop working in the middle of summer, or job loss without resorting to debt. - Debt-to-Income Ratio
Ask yourself the necessary question of how much of your income goes toward debt payments? To calculate this, bite the bullet and add up monthly debt payments (loans, credit cards) and divide by your gross monthly income. Ideally, you want this number to be below 30%. - Track Your Spending
It is extremely important to know where your money is going. Many people have no idea what the total amount of money they spend each month is, between the cute pair of shoes to the Starbucks in the mornings, you might be shocked at how your money is bleeding away. Compare your spending habits with your income so you have full visibility into what is coming in and what is going out.
Take Action! If one or more of these areas needs improvement, don’t panic. Take the first step of assessing your financial health with these 4 easy steps, then click here to get help with the small steps to get you back in control of your finances and on the path to financial freedom!
(Don’t forget to share this information with someone who might need it.)
Be well!
Juliet
