Financial health is described as the state or condition of your personal finances. It has a vast measuring stick, looking at all aspects of your monetary affairs, including assets and debts. Assets can include bank accounts, home equity, retirement accounts, pensions, and insurance plans. Debts can include student loans, auto loans, home mortgages, and credit card debts. Being financially healthy means that you are secure and independent. Here are three things you need to pay close attention to in order to protect your financial health.
Your Savings Rate
Your savings rate is the percentage of your income that is left after paying all your expenses. Essentially, it is the amount of money you can save each month. Obviously, the more you can save, the healthier your financial situation will be and the sooner you can reach your goals. Many experts suggest saving 20% of your income. Broken down, consider maintaining a usable emergency savings fund that would cover 3-9 months of expenses. Save 10-15% of your income for retirement (this includes your company match.) And finally, plan out and save up for any major expenses that could be coming up in the next 10 years.
Your credit score is critical to your financial health. It is important to understand where you are so that you can get where you want to be. You will need a good credit score in order to receive loans or get good rates. Sometimes, you aren’t aware of the things that are hurting your credit score until you read the report. You can also check for discrepancies in your report that could indicate fraud. Unfamiliar accounts may be a sign your identity has been stolen. To stay safe, be sure to check your credit score every 1-6 months.
Debt is the enemy of financial security. Pay off your debt as quickly as possible, and then commit to creating a budget and faithfully living by it. There are two popular methods for paying off debt. The snowball method is where you pay as much as you can on the smallest debt and the minimum on the others. Once that debt is paid, you roll the amount you were paying onto the next smallest debt and so on. The Avalanche method is similar, except that you start with the debt with the highest interest rate.
You can improve your financial health. The more you are aware of your financial situation, the better you can address any problem. You deserve the liberating power of financial security!
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