Personal finances can either make or break you. No matter how much money you’re making at this point, having an awareness of where you stand financially is essential. A high physician salary means little if you’re spending every penny. Such poor spending habits typically start after residency, when harmless small expenses eventually turn into uncontrollable overspending issues. Physicians are no strangers to checkups. A routine checkup of one’s financial health is as important as a physical health checkup. Just like tracking your progress at the gym, you want to ensure that you are staying financially fit. It’s worth noting that many symptoms of ailing finances go unnoticed because not everyone knows and understands them. We’ve highlighted six indicators to help you monitor your financial health. The more informed you are about the factors that affect your finances, the better you’ll be able to spot and address any problem. The Importance of Financial Health Checkups Financial health is basically the condition of your personal finances and financial affairs. It determines how financially secure you are in the present and when considering the future. Several factors determine your financial health, but they are all anchored to your financial decision, habits, and attitude. That means every little decision you make can significantly affect your financial health. And as much as you want your financial moves to be in your best interest, there might be instances when they won’t work as you intended. This is where financial health checkups come into play. By checking your financial health now and then, you can assess whether you’re making improvements in your finances. If not, you can make adjustments before they become more debilitating. A financial health checkup can keep you on track and give you peace of mind in the end. How To Keep Your Financial Health In Check Determining the condition of your financial health can be challenging. It doesn’t revolve around a single indicator, such as your income or debt. There are other factors that you have to take into account. Just like undergoing a physical exam, a financial checkup requires a comprehensive series of evaluations. But for your reference, here are six indicators that will help you keep your financial health in check: Check Your Credit Score One of the essential indicators of your financial health is your credit score. It is a three-digit number that determines your progress toward monetary goals. Your credit score will be typically lower if you default on credit payments, mortgage costs, premiums on loans, and others. A low credit score may indicate that your financial condition is unhealthy. There are different scoring systems for credit scores, but the FICO score is the most widely used. Basically, your FICO score can range from 300 to 850, and the higher the number is, the more you can unlock savings and benefits. It’s worth noting that a credit score isn’t enough to gauge your financial health, but it does reveal how well you’re using credit. Evaluate Your Net Worth Your net worth is a good indicator of your financial health as it provides a snapshot of your current financial situation. Essentially, your net worth is the total amount of your assets minus your liabilities. You have a positive net worth if what you own is greater than what you owe. But if it’s the other way around, you have a negative net worth. There is no specific target net worth. However, calculating it from time to time helps you keep your financial health in check. It can serve as a wake-up call if your finances are off-track, making you more mindful of your financial decisions and goals. Consider your net worth as a progress report that you want to see increasing over time. Determine Your Savings Rate Your savings rate is the portion of your income that you save monthly. It can be allocated for an investment and emergency, a major purchase, or other financial goals. The ideal rate for savings is at least 20% of your income. But the more you save, the better off you’ll be. Your savings amount tells you how much you could spend toward a certain financial goal. It also determines how long you could afford to get by if an unexpected financial emergency comes. Thus, a high saving rate gives you financial security and wonderful peace of mind. Identify Your Debt-To-Income (DTI) Ratio Another way to check your financial health is to identify your debt-to-income ratio. Typically, it’s the percentage of your income that goes toward paying your monthly debts. You can calculate it by adding your monthly debt repayments and dividing them by your gross income. A low DTI ratio shows a good balance between your debts and income, whereas a high one indicates that you may have too many debts for your income. Nonetheless, your debts are considered manageable if your DTI ratio is 30% or below. Bear in mind that keeping your debt at a manageable level is one of the starting points of good financial health. Assess Your Cash Flow Your personal cash flow is your income subtracted by your expenses over a certain period, usually a month. Much like in business, cash flow is the life force of your personal finances, and it can be positive or negative. Positive cash flow can cover all expenses while a negative one can get you into debt. By assessing your cash flow, you will know how much money is coming in, going out, and staying with you. It can help you understand whether you’re spending more or less than you make. In effect, you’ll be able to evaluate certain financial decisions. But note that cash flow is just one tool and doesn’t assess your overall financial health. Review Your Retirement Fund Retirement might be a distant concept, but it’s an inevitable subject. Your retirement fund is another indicator of how prepared you are for the future. Thus, as with any other aspect of personal finance, it’s important to review your retirement fund. Keep in mind that protecting your financial future is an essential component of your financial health. What Can You Do To Build Up Your Financial Health? It is not enough to know where you stand financially. You have to make ways to maintain or improve your financial health. It’s worthy to note that there is no one-size-fits-all formula when building up your financial health. It depends on your current financial standing, financial goals, and financial habits. Nevertheless, below are some of the steps you can do to build it up. Spend less than what you’re making. Create a flexible budget and stick to it. Boost and automate your savings plan. Prioritize paying down debts if you have any. Pay all your bills on time. Put more money in your retirement fund. Cultivate a healthy financial mindset. Final Thoughts Your financial health is as important as your physical health. It’s one of the keys to leading a happy and successful life. To be financially healthy doesn’t necessarily mean you have to be rich and earn a six-figure income. It’s a matter of confidently meeting your financial goals and financial uncertainties. But note that good financial health isn’t something you can achieve overnight. It may take some time, effort, and discipline. This post originally appeared on Dollars for Docs, a blog for healthcare professionals, brought to you by Your Money Geek. Dollars for Docs provides the medical community with the latest information in personal finance, careers, and lifestyle. Source
