There's good debt and bad debt, and there are high credit scores and low ones.
There are also high-income households and low ones, and positive net worths and negative ones.
While those are some of the many ways people gauge their finances, how do you actually measure your financial health when there are so many metrics?
Of course, personal finance is deeply personal. It's in the name, after all.
There’s no single definitive way to measure the financial health of every individual.
Gross income doesn't do it. And while cash flow and net worth can be strong indicators, they don't tell the whole story either.
But those, and some other general signs can help you determine how economically well you are.
Signs You’re Financially Healthy
You may be wondering – “Am I financially healthy?” But it’s important to understand that the idea of financial health might mean different things to different people.
While there's definitely no one set number, be it monthly income or net worth, those in a healthy financial situation are generally people with a solid grasp on their current finances and their money plans for a stable financial future.
Here are 5 ways to tell you're in good financial health:
1. You Check In With Your Money
Heck, many of us balanced a checkbook with a paper register until just a few years ago. (And some people still do!)
It doesn’t actually matter which method you use to check in on your financial life.
What matters is you've got a working system to understand all your financial matters – i.e., cash flow, credit score, retirement contributions, emergency funds, savings and investment accounts, debt load, etc.
That way, you can budget for your living expenses, track your spending, debt repayments, and unexpected expenses, and monitor your savings and investments.
If you want your money to work for you, you have to know where it is and what it’s doing.
You need to ensure it's not only meeting your financial needs today but helping you build long-term savings and financial security.
2. You Focus on the Future
Another sign that you're financially healthy is the fact you focus on the future.
Huge credit card debt and massive consumerism can make it hard to look beyond today let alone handle a financial emergency.
But if you're creating short-term savings goals and long-term investment plans, you're heading in the right direction.
Consider writing a financial mission statement to help you visualize your financial goals and remind you why you’re looking to accomplish them.
Some signs to know you are future-focused include:
- Creating a financial plan and setting SMART and value-based goals
- Maintaining an emergency fund
- Setting up sinking funds for things like vacations or home repairs
- Learning more about investing
- Rebalancing your retirement account
While you might not be doing all of these things at once, any amount of future financial planning and goal setting is a step in the right direction.
3. You Commit to Learning
The people who are most comfortable with money all know one thing: you can’t know everything.
The good news is you don’t have to be a money expert to have a healthy financial future. Instead, commit to continued learning.
You’re already off to a good start since you're searching for financial health articles!
Or scheduling a meeting with a Certified Financial Planner to ensure you're on pace to achieve financial independence.
Not to toot our own horn, but even bookmarking this site or joining our community is a strong start!
4. You’ve Forgiven Yourself
No one is perfect. To truly reach the pinnacle of financial wellbeing, you need to move on from past money mistakes and overcome some of your financial fears.
Everyone has financial regrets, but there’s no room for these past financial matters in your present and future life.
Of course, mistakes-from late fees to lifestyle inflation-can provide learning opportunities. However, they can also weigh you down.
Addressing anxiety about money and forgiving yourself for missteps is another way to stay future-focused. And it might even be the most crucial way.
Forgiving yourself for financial shocks and money missteps is another way to stay future-focused–it might even be the most crucial way.
Signs Your Financial Health is Suffering
Everyone's learned a hard lesson with money at some point. Some of us are still learning. No judgment!
Additionally, it's important to recognize when you’re struggling financially and suffering from financial stress.
Sometimes, individuals know it right away. In fact, they might even be the first to say so. Other times, though, it's much harder to spot financial struggles.
These 4 important signs should help you get a clearer understanding either way:
1. You Don’t Think About Your Money at All
There are two problematic ways to spend money: faster than you earn it and just as fast as you make it.
The difference is slight, albeit important.
People who spend money the first way often rack up consumer debt quickly and have the credit card balances to show for it.
People who favor the second option might not be overwhelmed with debt, but they, too, don’t have savings or investment account balances reflective of their income.
The second they make it, they spend it. No emergency savings, no investing, just spending.
Both types of spending habits come with their problems and add financial stress; the second, though, isn’t talked about often and can often go unnoticed.
Many people’s financial challenges are related to their personal money story that makes up their beliefs, thoughts, and feelings about money. It also affects financial behaviors.
Your money story started forming in early childhood because it was passed down to you from parents and other influences in your young life.
Even if you’ve never had good financial role models, you’ll struggle to have a healthy financial future if you won’t make changes.
If you’re ready to get started, ask yourself this: What Are The Best Ways to Start Building an Emergency Fund?
2. All You Think About is Money
When debt is piling up, and bills weigh heavily on your mind, it makes sense to feel like you’re consumed with money–or a lack of it.
When thoughts of money wake you up at night or keep you from sleeping, that’s another critical indicator it’s time to start working on your financial health.
Creating a money plan is often the first step in improving your financial health.
If you’re ready to get started, ask yourself this: How Can I Pay Off My Credit Card Debt For Good?
3. You Only Live in the Present or the Past
When you’re struggling in your financial life, you’re probably suffering from a severe case of YOLO.
Whether you’re recreationally buying things or experiences and dropping cash on lattes or Louboutins, there’s a good chance you don’t know where your money is going.
You also probably haven’t given much thought to the future you and retirement savings.
Even if you have your current spending in check, if you find yourself reliving past mistakes, your financial wellness is still suffering.
Money is complicated, and it is never just about numbers. That means that for many people, complex emotional issues are needing to be addressed.
Take the first step today by realizing everyone has messed up with their finances before, and start achieving your financial goals.
If you’re ready to get started, ask yourself this: What Savings Goals Should I Focus On First?
4. You Don’t Ask Questions
Asking a question is the first step to truly learning. However, people are often very quiet about money.
Perhaps they were taught it's taboo or maybe they’ve been made to feel uncomfortable discussing money worries before. Whatever the reason, it is often hard to speak up about financial concerns.
The good news is this doesn’t apply to you! After all, you got here by clicking on a question on a financial literacy site.
Still, committing to learning about money can be an overwhelming task. Finding a platform that supports you and invites you to ask financial questions is a powerful way to dive in.
If you’re ready to get started:
What Does Financial Health Mean?
Financial journeys last a lifetime. Like our physical, mental, and emotional health, financial wellness can fluctuate.
Sometimes, it might change at a moment’s notice. Other times, it might change more gradually. The most important thing is that you ask yourself on a regular basis, “How is my financial health?”
By eliminating debt and building financial assets we can improve our financial position. Monitoring our cash flow and net worth can help us keep tabs on it.
Whether you’re in financial sickness living paycheck to paycheck or in good money health totally in tune with your financial self, knowing the signs of financial health is essential to help you stay the course on your journey.
Article written by Penny
Updated February 2021