What is Your Financial Health

December 27, 2017
What is the state of your personal finances? Maybe you have a general sense of how well you are doing based on the amount of money that you have in the bank or whether you are able to pay all your bills each month without borrowing money.
What is Your Financial Health

Here are some questions and hypothetical financial situations that could help you get a better understanding of your “financial health.”

  1. Could you come up with extra money immediately if needed? Unexpected expenses often arise. Rather than trying to avoid them, you should instead plan what to do when these unwelcome surprises come up. If your finances are in good condition, you will be able to handle the occasional unforeseen expense without having to borrow money.
  2. Do you have a plan to pay off loans? The good news is that you can still be financially healthy if you have to borrow money occasionally. The fact is that most people cannot cover unforeseen repairs or surprise bills with the money that they have in the bank. Instead, they have to use a credit card or, better yet, get an online personal loan to cover these extra costs. Online loans are a better option because you can pay them off in installments. This means that if you have some money to put away every month, you can use it to pay off the loan in a timely manner. If you have enough money to pay off the occasional loan in a timely manner, you are still financially healthy even if you have to borrow from time to time.
  3. Can you pay all your bills with your current income? In the average month, when you do not have any extra expenses, you should be able to cover all your bills and day-to-day costs with your earned income. If you can do this, then you are certainly on the right track to financial health. If you cannot, then do not worry. You can correct this financial malaise by either finding more income (changing jobs or asking for a pay raise) or by cutting costs.
  4. How much do you save each month? The “each month” portion of this question is important because you should be saving money consistently. Let’s look at an example: If you save $100 one month, but $0 per month for the rest of the year, you will end up with $100 extra in the bank. However, if you save a more manageable amount - say $20 per month - you will have $240 in the bank at year’s end. This is a simple example, but it does show that if you can save consistently, even if you only save a little bit each month, you will do better than if you save a larger amount occasionally.
  5. What are your future job prospects? The income that you make now certainly matters, but so do your future income prospects. If you earn more, you will be able to further increase your financial health. The key to this is to decide if you can earn a promotion or learn skills at your current job that will help you earn more in the future. If you do not think you can grow in terms of skills and income at your current job, perhaps you could look at getting more education or changing professions.