Definitions of financial health typically have three factors in common: (from Nerd Wallet.)
- 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?
The following behaviors can help from Nerd Wallet.
- Spend less than you earn. This is the foundation for financial health.
- Pay bills on time. You manage your cash flow and meet your regular financial obligations.
- Have a decent emergency fund. “Decent” = six months’ worth of living expenses set aside.
- Stay on track with savings, home first then retirement. How much you need will vary by age and circumstance.
- Have a sustainable debt load. Mortgage payments consume no more than 28% of your pretax income and that ALL debt payments less than 36%.
- Another benchmark is the 50/30/20 budget: Keep housing payments and other must-have expenses to 50% or less after-tax income, 30% for wants and 20% for debt repayment and savings.
- Avoid high-rate debts. Careful with student loans and credit card debt, they often leaves you paying for items long after you’ve used them up.
- Watch your credit score. Good credit is a safety net when you need it and bad credit never has a plus attached. Avoid bad debt period.
- Insure appropriately. Prepare for and Protect against financial burdens; 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.
- Life Insurance is dependent on your income or services — and consider disability insurance.
How do your finances compare? Usually only 10% of Americans hit these marks.
You can take the financial health quiz based on those questions in about 60 seconds and see how you score and what actions you should consider next.