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How Financially Healthy Are You?

There are considerations when it comes to assessing your financial health, such as your credit rating and your retirement portfolio, but answering the following five questions will get you going.

  1. Are you spending more than you earn?
    This question may sound like a no-brainer, but figuring this out is a critical first step toward financial health.

  2. Is your net worth growing?
    Subtracting your debts from your total assets reveals your net worth and gives you a good overall gauge of the direction in which your financial health is headed.

  3. How do your numbers add up?
    Several experts recommend looking at a few crucial numbers, such as your debt-to-income ratio and your personal savings rate.

    Generally, the lower your debt-to-income ratio is, the better off you are — and the more options you have for more favorable loans.

    • Debt-to-income ratio = Total monthly recurring debt/gross monthly income

      Divide your total recurring debt (all your monthly debt obligations) by your gross monthly income (amount before taxes) to calculate your debt-to-income ratio:

      • Total monthly recurring debt — Add up your debt obligations. These vary from individual to individual, but can include mortgage (principal, interest, taxes, and insurance) and home equity loan payments, car loans, student loans, minimum monthly payments on any credit card debt, and any other loans that you might have.

      • Gross monthly income — Use your total annual income, before accounting for taxes or any deductions, and divide it by 12.

    • Personal savings rate = Net savings or debt/Net income

      This one can be a little trickier to calculate. Total all savings and debt, and divide this total by the sum of all after-tax income and your employer retirement savings.

      The fraction of income that you don’t consume is an alternate definition for personal savings.

      Net savings (or debt) — Include non-retirement savings and your retirement savings for the year. When you tally your retirement savings, include all personal retirement contributions and all employer retirement contributions.

      Do not factor in capital gains or losses, simply the retirement contributions. This number could end up being negative, if you had net losses for the time period, instead of net savings.

  4. Have you made a budget and stuck to it?
    Don’t faint! Budgets can help you cut expenses, reduce debt, and increase savings. Creating a budget forces you to categorize your expenses into necessary and discretionary (optional). It also lets you know exactly how much you have to spend each month.

  5. Do you have an emergency fund? An emergency fund is a financial safety net — money set aside to meet obligations in the event of unfavorable, unexpected circumstances, such as natural disaster, unemployment, or illness. Having an emergency fund means that you might not have to ask for a loan or use your credit card to handle the emergency.

    For some, their emergency fund has been exhausted more than once, and they could have a tough time reestablishing yet another one. If that’s the case, some experts recommend starting with a “junior emergency fund” of $500 to $800 and building from there.
"How to track your spending." Wells Fargo: Financial Education: Basic Finances, 1999 – 2017.
"How to calculate your expenses." Wells Fargo: Financial Education: Basic Finances. 1999 – 2017.
"How to calculate your debt-to-income ratio." Wells Fargo: Personal: Borrowing and Credit: Smarter Credit™ Center: Credit 101, 1999 – 2017.
"Putting it all together in a budget." Wells Fargo: Financial Education: Basic Finances, 1999 – 2017.
"Saving for an emergency." Wells Fargo: Financial Education: Basic Finances, 1999 – 2017.

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