Financial_health_623

Are You Financially Healthy? Rate Yourself Using These 9 Qualifications

A recent study published in Mayo Clinic Proceedings quantified how many Americans have a healthy lifestyle. Can you guess what number it came up with? Less than three percent!

In order to qualify, a person had to meet four criteria: Moderate to vigorous exercise for at least 150 minutes per week, a diet score in the top 40 percent on the Healthy Eating Index, body fat of under 20 percent for men and 30 percent for women, and not smoking.

It made me wonder what percentage has a financially healthy lifestyle. Of course, that would require some criteria that define “financially healthy.” I gave it some thought and came up with the nine qualifications below.

Go through the list and see if you can say “yes” to each one. Some questions will be easier to answer than others. For the more subjective ones, just do you best and go with your initial response.

1 – Do you understand and follow what your faith teaches about money? I make no secret about the fact that I’m a Christian. If you are as well, do you know what the Bible teaches about money and do you consciously strive to use money in a way that’s in synch with that teaching? I know I have some Jewish readers as well, and perhaps people of other faiths. Do you know what your faith teaches on this topic and are you following that teaching?

2 – Do you use a plan to proactively manage money? Yes, I’m talking about a budget. Not a general sense in your head as to how much you can spend on this or that. An actual written plan, either on paper or a computer, that shows your income allocated across the various categories of giving, saving, investing, and spending on everything from groceries to clothing to vacations and all the rest. Along with a method of tracking the actual inflow and outgo of money in your life, and regular reviews of how your actual use of money is lining up with your plan.

3 – Do you give generously? For most, I’d define this as giving at least 10 percent of your gross income. For some people, this may feel legalistic. But 10 percent is where God started his Old Testament followers, so it seems like a good starting point for us as well. I realize that some people reading this are in significant financial difficulty. If that’s you, feel free to define “generously” differently.

4 – Do you have adequate savings? Having three months’ worth of essential living expenses in a separate savings account would get you a “yes” here. Having six months’ worth gives you the right to use an exclamation point.

5 – If you have a mortgage, is it “reasonable?” In other words, does it cost no more than 25 percent of your monthly gross income to cover the combination of your mortgage, property taxes, and homeowner’s insurance? All the better if it takes less than 20 percent. Housing is most people’s largest expense, and I’ve found that 20-25 percent is the max most people can spend in this category while still living generously, saving and investing adequately, and living with financial margin.

6 – Are you debt-free (the only exception is a reasonable mortgage)? That means no vehicle debt, no student loan debt, no credit card balances carried over from month to month—no debt other than reasonable housing debt.

7 – Are you investing knowledgeably for your later years? That means you’ve run some numbers to determine how much you may need to have saved by the time you’re ready to retire, and how much you should invest each month right now to get there. It also means you’re making those investments (for most, that means investing at least 10 percent of monthly gross income), and are using a trustworthy process for choosing specific investments in an informed way.

8 – Are you adequately covered by insurance? If you’re married, and especially if you have kids, you need life insurance. You also need adequate homeowner’s or renter’s insurance, vehicle insurance, health insurance, and possibly disability insurance (although, depending on how long you’ve been paying into Social Security, you may qualify for disability coverage that way).

9 – If you’re married, is there financial transparency in your relationship? That means both spouses have a good sense as to what’s going on financially in the household, or at least have easy access to all of the financial information.

I realize that answering these questions may be discouraging. That isn’t my intent. Instead, I hope this process helps you identify areas to work on. I’d also like to create a dialogue around this topic. Which questions do you disagree with? What other ones would you add?

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8 Responses to Are You Financially Healthy? Rate Yourself Using These 9 Qualifications

  1. Brenda April 26, 2016 at 4:40 PM #

    Hi Matt:
    As for #9, I would appreciate you writing a post on re-marriage and when one spouse comes into the marriage with a great deal of debt that the other spouse does not know about, and then cannot be transparent about it. That’s the situation I find myself in – and it’s a bad one. Fortunately I have kept all of my finances separate and we have not commingled any funds and all of the property I own is in my name. I have encouraged transparency by modeling that with him and I have asked for it all to no avail. I have asked for a timeframe that his debt will be paid off etc and all he comes back to me with is that his business (he is half owner of it) still owes him a lot of money and thus he can only pay minimums on his credit cards and we (me and my sons) get the leftovers.

    • Matt Bell April 26, 2016 at 8:46 PM #

      Brenda – I’m sorry for what you’re going through. I strongly encourage you to meet with a great Christian marriage counselor. It’ll be really helpful to have an unbiased third party who can ask you both questions, enable you to listen well to each other, and guide the conversation. A really good counselor will be invaluable.

      It would be great if your husband could get involved in a men’s group — one where he will learn about and be challenged to lead in love.

      And it’s essential that you dial up your prayers about your situation. If you haven’t seen it, watch the movie, “The War Room,” preferably with your husband. It’s a really inspiring movie about the power of prayer.

      I know it’s so much easier to say these things than to do these things. But these are the steps that I sense have the potential to make the greatest difference in your situation.

  2. Harold Penner April 26, 2016 at 3:46 PM #

    This is a great list of the items to measure for financial health.

    I would suggest adding item 10 – Is your estate plan in order? While having everything in place for our financial well being in the future is important it is also important to ensure we have up-to-date wills and power of attorney documents in place to ensure our financial affairs don’t become unravelled due to our incapacity or death leaving our family vulnerable. It also provides an opportunity for a final act of generosity to charities we have supported during our lifetimes.

    • Matt Bell April 26, 2016 at 4:53 PM #

      That’s a great catch, Harold. Every adult should really have a will, power of attorney documents, and a living will. Some may need a trust as well. And I like your point about making provision for charities in one’s estate plan.

  3. Nicole Suds April 26, 2016 at 2:07 PM #

    This is awesome, Matt! I think #2 is the best short summary of the use of a budget I’ve read – not just a list, but a tool you must actively USE to evaluate income and spending! Love the right to use an exclamation point, ha ha!

    One adjustment I would make, hoping that not all the people reading this blog are solidly within their middle age, is number 6. I would say: are you debt free (excluding a reasonable mortgage), OR do you have a solid, proactive plan to get there? The younger you are, the less progress you have made towards this goal, just by the nature of life, and that’s no reason for discouragement!! This is especially true for individuals or families who do not have a strong financial legacy from parents and grandparents. I think there is some margin for grace in this area – and some or all of the others – depending on age.

    • Matt Bell April 26, 2016 at 4:39 PM #

      Nicole – I thought something similar as I wrote that bullet point about debt — that if someone who has debt is making a serious effort to get out of it, they should get credit for that. I went back and forth, but opted to draw a harder line because of the health study. In that case, there was no provision for someone who was making progress toward a goal. They were either there or not.

      I think the ideal would be to put each of these dimensions on a scale, with total scores putting people in various places — very financially healthy, financially healthy, neither healthy nor unhealthy… etc.

      Anyway, I agree that ideally some provision would be made for people who were clearly committed to making positive changes. I liked your wording – “Or do you have a solid, proactive plan to get there?”

      • Nicole S April 26, 2016 at 4:44 PM #

        Excellent point! I wonder if the results would be similar to the 3% number.

        • Matt Bell April 26, 2016 at 9:06 PM #

          My guess is that, unfortunately, it WOULD be similar. I once commissioned a study in which 1,000 nationally representative adults were asked about three financial behaviors. 1) Do you have an emergency fund with at least 6 months’ worth of essential living expenses? 2) Do you use a written, detailed budget to guide your use of money? 3) If you use credit cards, do you pay the balance in full each month?

          The number that did all three was shockingly low. Less than 10 out of the 1,000 people.

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