We’re still at the beginning of a new year and wondering where this year will lead and what lies ahead. One thing of primary concern for most of us is finances: will we have enough money to pay the bills, to save or to send our children to school? One of the best ways to find out what the financial future will be is to discover our current financial status and work from there.
You can start by visiting this site to answer a few questions and then review their advice on how to improve your financial health (if it needs improving).
4 Elements to Help Gauge Your Financial Health
Yes, there are plenty of tools to help you get a grip on where your finances stand. However, oftentimes these tools make it too easy – they give us our financial “status” quickly with a few clicks. Unfortunately, they don’t always teach us what the actual problems are and how we got into the situation we currently find ourselves.
The following 4 elements can be used as metrics to gauge your financial status and figure out how to improve (or maintain) where you are today.
- The degree of Debt
In simple terms, debt is how much money you owe. If your debt is very manageable and has decreased since last year, you’re on the right track. Keep doing what you’re doing to get your debt level down to zero so you can rest easier while also increasing your FICO® Score.
However, if your debt has increased or you’re simply maintaining your debt level without any end in sight, find out the different ways to help you pay down your debt over time. While figuring the best way to lower your debt, look back over your past activities and see why you might’ve gotten into so much debt to begin with… then you can start working on changing those actions.
- Net Worth
Take your assets and deduct your liabilities. Is the number positive or negative? Has the number changed over the past year? It’s pretty simple, really: if you spend less money than you make, your net worth increases. If you spend more money than you make, your net worth decreases. In the latter scenario, you’ve possibly added more debt or used some of your savings, with either of those behaviors lowering your net worth. Keep an eye, a close eye, on your spending and you can see your net worth increase year after year.
- Credit Reports
Have you checked your credit files recently? There’s a file, most commonly known as a credit report, with Experian, Equifax and TransUnion – the three major credit reporting agencies. It’s important to check on (or all three) at least once a year for a few reasons:
- Check if someone might be using your identity to gain credit
- Review file information and make sure everything is correct
- Helps you to see how you’re paying debts and managing credit
Five factors make up your score and they’re all related to what activities are taking place within your credit files at the three reporting agencies. So if you want your FICO® Score to be in good standing, you need to ensure that your files, and all five factors, are also in good standing.
Do you have enough savings and investments to get you through a rough period? It’s always a good idea to have at least three to six months of liquid cash available in case emergencies arise. Checking the amount of savings you have also allows you to see how you’re managing your money. If you have a good amount of savings, it means you’re not overspending and are ready for unexpected financial predicaments. If you don’t have any savings, it’s time to start checking your spending and figuring out how to put some money aside each month… just in case.
Remember, just like you’re starting a new year, you can start a new way of managing your money – if you need to. If you’re doing fine and feel you have good to very good financial health, keep doing what you’re doing and make 2019 even better than last year!
You can always use the myFICO Budget Calculator to help you see how much you’re spending each month. You can also visit myFICO forums to see how others have analyzed their financial status and improved it over time.