Are you Financially Fit?
Before we determine our financial fitness level, we first must understand what financial health actually means. When it comes to our bodies, we have a pretty good idea of what it means to be healthy - eating well and being physically active. But when it comes to our finances, there really isn't any education as to what you should be doing or what financial health and wellness really is.
Financial health, like physical health, is unique to each person based on their lifestyle and goals. But there are some base level metrics to strive for when it comes to financial fitness.
Because we are talking about finances, of course numbers will be involved.
You should have 3-6 months worth of monthly expenses saved up in a highly liquid, easily accessible, emergency savings fund. For example, if your monthly expenses are ~$5,000 per month, you should have between $15,000 and $30,000 saved up in cash, just incase something comes up. Emergencies happen, it shouldn't be an emergency as to how you pay for them. And you never should rely on your credit card.
You should save at least 15% of your total income each month. This can come in the form of retirement, and/ or other savings funds. If this feels impossible, make sure to pay yourself first when you receive your paycheck, don't wait for what's left over.
Aspire to have a 750 credit score. If lower, you could be only eligible for more expensive loans/ mortgages.
35% credit utilization. Credit utilization is your credit card bill at any given time, as a percentage of your credit limit. For example: if your current credit card balance is $350 and you have a credit limit of $1,000, your credit utilization is 35%.
35% debt to income ratio. Your debt to income ratio is your recurring monthly expenses as a percentage of your monthly income. For example: if you make $7,000/ month and you spend $3,000/ month your debt to income ration is 42.9%
You should have a minimum of 2 investment accounts, this can include your retirement account. Example: an outside brokerage account. Investment is key for building wealth.
what are your numbers?
Congratulations if your numbers look like this, but don't worry if they don't match the above, everything, including your finances, can be fixed with education, focus, and mindfulness.