As we approach the midpoint of the year, it’s the perfect time to check in on your financial health. To help you assess your financial health, we’ve compiled a list of key indicators to gauge your financial well-being. By reviewing these indicators, you can make informed decisions toward achieving your financial goals.
1. Do you stick to a budget?
A budget is an integral part of your financial plan. A budget can keep you from overspending and help you stay on track with saving. If you don’t have a budget yet, it’s not too late to create one. Alternatively, if you have a budget but it doesn’t seem to be working, you can change tactics.
There are several budgeting methods you can use, some of which include:
- The 50/30/20 budgeting rule: With the 50/30/20 budget, you allocate your income into three main categories according to percentages. 50% goes to “needs” (such as groceries, housing, and utilities), 30% goes to “wants” (such as entertainment, shopping, and takeout), and 20% goes to savings (towards an emergency fund, retirement, or long-term goals).
- Zero-based budgeting: The zero-based budgeting method (also known as the zero-sum budget) encourages you to give every cent a purpose. When you’re done allocating where your income goes, there shouldn’t be any money left without a plan for it.
- Cash envelope budgeting: The envelope system (also known as cash stuffing) allows you to physically portion out your monthly income in specific categories and sort them into envelopes. Similar to the zero-based budgeting method, you would make a plan for every penny.
2. How much do you spend?
The aim is to live below your means. If you spend less than you make, then you’re off to a good start.
Tracking expenses is a helpful way to determine if you’re living below your means. You can use a spreadsheet, write each expense down in a notebook, or use a budgeting app. After you have tracked your expenses for at least one month, you will have a realistic idea of how much you spend.
3. Are you saving?
Setting up direct deposit or automatic transfers into your savings from your checking account each payday are great ways to ensure that you are saving a set amount of money, rather than spending it.
4. Are you prepared for unexpected expenses?
Having an emergency fund for unexpected bills, emergencies, or major life events/changes is a necessary piece of your financial health. Ideally, you should have enough in your savings to cover 3-6 months of expenses.
5. Are you set to reach your financial goals?
In order to ensure you will reach your financial goals, it’s important to identify what your goals are. Write down your short-term and long-term savings goals, and be sure to make these goals measurable with deadlines. If you need a more sustainable approach to your finances, working with a financial advisor can make all the difference.
When you are financially secure, life feels more manageable. If your plan needs some tweaking, consult with your trusted financial advisor today to stay financially healthy.