Are you trying to get a new grasp on your life and your financial future? Well, it’s not just how much you make and how much you put into the bank – even if you have millions saved up you might find that you’re still off track if you happen to be going into unwise investments.
Your financial health boils down to a handful of ratios and different numbers – and if you get a grasp on those you’ll get a grasp on where you actually sit in the financial pool.
Your Financial Health: Look At Your Credit Score
Although a lot of people look at the large numbers – large numbers that cause most folk to close their eyes and try to drown out the noise – more people focus on their relative credit scores rather than their total finances and incomes. This goes double for people who happen to have low scores and are in the process of trying to raise them up.
Sure enough, your FICO score – which is a ration independently determined by three federal credit bureaus in the US, and which are primarily based on the track record you make in paying your bills on time – are about more things than just getting a loan approval.
Your score is more than your score – it’s a way you can look and see exactly how financially healthy you are. If you don’t know your credit score, it’s probably about time for you to take a look at it: if you have a high score it generally means you are financially healthy (because you make enough to pay off your credit debt), and if your score has improved over time, you can see how your finances has.
There’s a number of free services that give you a free credit report, but you won’t get your FICO from that – you can get estimates from certain websites, and if all else fails, you can pay one of the credit bureaus to give you the information. Remember that you have to get information from more than one source!
Your Financial Health: Retirement Savings
Despite what some people might tell you about your financial health, there is no single magical number for retirement. Most projections put a serious investment in percentages rather than clear numbers, but a lot of people decide to peg that percentage at just about 15%.
Now, if you look at the flat numbers, it’s going to look a little daunting. Take a look at an online calculator and you might get a number that seems astronomical for you – that’s why that percentage is better for you. Even if you look at that last number, you might get a good idea of what you need to shoot for. Maybe you decide you have to set aside $500 every month to meet those high projections, – but can only put aside a fifth of that. Having a goal is important!
Ultimately the big thing you need to do is get into the habit of making savings. Once you are happy to put aside about 10% or 15% or 20% of each paycheck, the rest will begin looking to fall into place – and while it will take a bit more work on your part, it won’t be as bad as starting from square one.
Your Financial Health: Emergency Savings
This is one of those other numbers that you absolutely have to know: how long would you be able to survive on just the money you’ve saved up? Maybe something big comes up and you can’t work for a few months – how long are you going to be able to survive without it?
The phrase of living from paycheck to paycheck is very real – and it’s a bad habit. The ideal number you want is a cushion which will last you about six months – and that’s if you’re living alone. If you have kids or a spouse you’ll want that number to be as high as a year.
It’s important to know what you’ll lose and what you can survive if you have withdraw money at a moment’s notice – and do not consider your retirement as a section of your emergency. Retirement funds generally have a heavy tax on retirement and a high rate of growth from interest, so taking out a huge chunk of cash can bite you in the long run.
Finally: Figure out Your Net worth
This one can sound daunting, but it isn’t as bad as it sounds. Take your assets in cost; subtract your liabilities. You have your net worth, and it’s a good number to have for your financial health. Look at it like your credit score by another name; a way to gauge just how well you’re doing, and if you’re doing better than you were a few years back.