Your Financial Health

Many people are well aware of their health, and when feeling ill, are quick to seek appropriate help from the health care system. Taking care of your financial health can be just as important as physical health — knowing what vital signs to check when it comes to your finances can help you remain or become financially fit.

There are several areas to pay especially close attention to when you are striving for financial health. Below you will find tips for helping each stay as strong as you need them to be.

Cash Flow

Loosely defined, your household’s cash flow is the money being earned from wages, salaries, bonuses, tips, and other income streams, minus what is being spent on bills. If you are spending more money than is being earned, cash flow is negative; if you are making more than you are spending, your cash flow is positive. Tips for improving cash flow are as follows:

• Track and detail where every dollar is being spent, by every family member. If you do not have a formal budget, track your spending, down to the penny, for 30 to 60 days. Use bank and credit card statements and checkbook registers to help fill in any gaps.
• Label each expense as either fixed or variable, then either essential or nonessential (or, a need vs. a want). You may find that for certain expenses, like those that are fixed and essential, you may have a hard time scaling back how much is spent each month. However, for those expenses that are variable and for wants, you may choose to sacrifice the amount spent on each in order to improve your cash flow.

Savings

Saving or investing money tends to be easier when there is a goal in mind. Whether that means saving for a down payment on a new auto, funding a college education, or saving for retirement, knowing how much you’ll need and how much to save each month in order to achieve that goal can make saving or investing money each month easier.

Every financially healthy household should contain some elements of basic savings or investing. Ask yourself these questions—

• Are you saving or investing money on a regular basis?
• Are you on track to achieve your short, medium, and long –term financial goals?

If you answered “no” to either of these questions, it’s likely time to focus on saving money to protect your financial health. Start by finding any amount of money to begin to set aside, no matter the amount. Saving $10, $25 or $50 each month can start good savings habits. Don’t forget to take advantage of any employer-sponsored savings match, too. Be sure to contribute at least enough to get the full-company match, if they offer it.

Credit Health

Credit health is another important vital sign to assess when it comes to your finances. Do you pay all of your bills on time? Do you pay off your credit card bills each month in full? If you answered “yes”, great job – keep it up! Paying bills by their due dates is the single most important factor that influences your FICO® credit score. If money happens to be tight one month, avoid the temptation to make a payment after the due date when you get paid next. Send in at least the minimum amount due on time so as not to damage your credit score.

Some tips to maintain healthy credit include—

• Be sure to take advantage of the U.S. law that allows all consumers the ability to request a copy of their credit reports once every 12 months from the three major, credit reporting agencies – Equifax, Experian and TransUnion. Request yours at www.annualcreditreport.com. (If you’d like to see your credit score, as well, you’ll have to pay a nominal fee.)
• Review your report for accuracy, correcting any errors in writing and as soon as possible.
• Aim for a FICO® credit score of 720, higher if possible. You’ll likely need at least this score in order to be approved for loans, credit cards, and at the best rates possible.
• Keep balances on credit cards to no more than 50% of available credit; aiming for 30% or lower. Anything higher than that and you may give lenders the impression that you’re nearing your capacity to manage debt.

Financial Protection

The saying, “An ounce of prevention is worth a pound of cure” can certainly apply to one’s financial health. You’ve taken proactive steps to build a solid financial foundation; you certainly don’t want to have your hard work and efforts undermined by an unplanned event that you could have protected yourself and loved ones against. The following protective measures can help keep you in good financial stead.

• Build and maintain cash reserves. Having a rainy day fund of $1,000 or $1,500 and an emergency fund containing at least 3-6 months’ worth of all living expenses can help protect finances in the event of an unplanned event, small or large.
• Insurance coverage. Having proper life, health, home, auto, or disability insurance coverage can be the difference between protecting the assets you’ve taken care to establish over the years, or losing it all due to oversight. If you feel overwhelmed at the different options available, contact an insurance agent to help you sort through coverage details and premium expenses.
• Protect your financial records. Shred any unnecessary financial documents with a cross-cut shredder, or even sign-up for receiving statements electronically and help the environment! Keep any needed documents in a safe location.
• Help guard against identity theft by keeping personal identification numbers (PINs) separate from your bank and credit cards and monitor your financial accounts closely for signs of fraud.

Feeling as good and secure about your financial health is as important as maintaining proper physical health. Keeping cash flows positive, saving and investing for financial goals, keeping credit and debt levels manageable and taking steps to safeguard financial assets are keys to fiscal fitness.