Five ways to check your financial health

Whether you want to set up a savings goal or work out a personal business plan – there are five ways to check your financial health. 

Assessing your finances may seem overwhelming, but you can perform a quick financial health check by focusing on five things:

1.Cash flow and budgeting
2.Personal insurance
3.Savings rate
4.Debt management
5.Retirement fund

How cash flow and budgeting can help your financial-health
There’s a common misconception that only people who lack discipline need a budget. In fact a budget is a simple and effective tool for most households – whether your annual income is $60,000 or $600,000. By being more mindful of where your money is going, you’ll be able to spend it on the things you need (or want) the most, and you’ll have a better idea of how you’re set up for major purchases in the future.

How personal insurance can help your financial-health
We never know what’s in-store for our future, life can change in a matter of seconds, and unfortunately we can’t assume that issues with health or employment only affect other people. To protect your financial health, it is sensible to insure your income. For many people their income is their greatest asset, and everyone – especially those with debt or financial dependents – should consider life insurance in the same way as they might cover their home or vehicle. When thinking about insurance cover be sure to think about not what’s the cheapest policy out there but the policy that comes with the most benefits and hassle free.

How your savings rate can help your financial-health
The portion of your income that you save every month is your saving rate. If your monthly income is $5000 and you save $1200 of it, then you have a 25% savings rate. You can calculate this by either using your gross income or net income, but using your gross income may be a lot easier. A common recommendation is to save at least 20% of your income although if you can save more that’s even better. The one thing to remember is that you don’t want to ruin your quality of life in pursuit of the highest possible savings rate. We see this a lot of people who want an early retirement but then find themselves miserable in the process. Instead find a balance that allows you to enjoy life in the present.

How debt to income ratio can help your financial-health
Being in debt is sometimes necessary, but there are ways to manage your situation to ensure your finances are as healthy as possible using your debt to income ratio. To get your debt to income ratio (DTI) you simply take all your monthly debt payments and divide them by your gross income. This is a metric that lenders will use whenever you apply for a loan or line of credit. A rule of thumb is that your debt is manageable if your DTI ratio is 30% or under your retirement fund is a good indicator of how prepared you are for the future. There are two popular ways to measure your progress here.

How your retirement fund can help your financial-health
Your retirement fund is a good indicator of how prepared you are for the future. There are two popular ways to measure your progress here.The first is to use a retirement calculator. The second is to simply compare your current retirement savings to how much you should have saved at each age. Many experts recommend having one year’s salary saved for retirement by the time you’re 30 to 35. 

You don’t have to perform your financial health check alone. If you’d like help with any of the above, consider enlisting the services of a financial adviser and find out how they can help support your finance goals. 


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