Are You Financially Healthy? 3 Ways to Check
, by Tom Quinn
Would you describe yourself or your family as being financially healthy? What exactly does that mean? I asked several friends and colleagues how they would define someone as being "financially healthy." While the responses varied (most notably by age or life-stage), they did have a common theme. Namely, having a steady stream of income to meet monthly expense obligations as well as having enough left over to set aside for savings or investing. Here are some of the responses I received:
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Making a lot of money
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Having a sizeable nest egg for retirement
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Having a stable job and my kids' college education paid for
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Owning my own home
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Paying all my bills and having some money left over to "splurge" on myself and my family
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Having all my student loans paid off
The Center for Financial Services Innovation (CFSI) published findings in 2015 from a research project it conducted called Understanding and Improving Consumer Financial Health in America exploring what it means to be financially healthy in America.
CFSI describes the following three elements as being key to good financial health:
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The ability to meet one's "day-to-day" financial obligations (housing, transportation, food, utilities, insurance, etc.)
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Being able to handle unplanned financial expenditures (a major car repair expense, temporary loss of employment, etc.)
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The capacity (savings, assets) to take advantage of financial growth opportunities (purchasing a home, investing, saving for retirement, etc.).
Some interesting findings shared include:
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Over 50% of American adults are struggling financially, meaning, they struggle (to varying degrees) in one or more of the core elements lists above
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36% of households indicate they run out of money before the end of the month
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28% of households have less than $1,000 in savings
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More than a quarter of households believe they have too much debt
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Having a high income does not ensure that one is financially healthy. It certainly helps, but people who plan for unexpected expenses and who have a planned savings habit are likely to be more financially healthy (holding income constant)
There is no "magic" solution to instantly becoming financially healthy. Meeting this objective requires planning, persistence, a supportive social and economic environment, and access to high-quality financial products and services.
As credit plays such an important part in the U.S. financial system, understanding how FICO® Scores affect your finances is a crucial part of your financial health:
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High FICO® Scores provide people with access to more credit options at more affordable rates
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High FICO® Scores help in getting mortgage-related financing as people try to build financial security through home value appreciation
Stay focused in your attempt to achieve financial health and continue your journey to financial literacy!
Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.