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. Or, if you have debt, working a plan to get out of debt gets you a passing score here as well.

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

  1. John August 13, 2019 at 5:03 PM #

    Matt, I enjoyed going through your checklist. The area I am constantly concerned about when I am helping couples is #9. It seems that often one person in the relationship handles the money and the other person does not follow closely enough to be confident in handling money issues if needed.

    • Matt Bell August 13, 2019 at 5:57 PM #

      I hear ya, John. I see that a lot, too. It’s natural for one spouse to take the lead, but it can be dangerous for the other to not be involved at all. I think the one who’s taking the lead should also take the lead in initiating conversations about money to make sure the other spouse is informed and equipped in case they need to take over at some point. A good first step is just making sure you’re using a system that’s easily accessible by both, like an online budget tool.

  2. Steveark August 13, 2019 at 2:03 PM #

    I agree with and have done those with the exception of having a written budget. That is necessary for people who can not naturally control their impulse spending but for frugal people it isn’t necessary. Most multi millionaires like us do not have to budget, we got here by controlling our spending and maximizing our income. To me budgets are like training wheels on a kid’s bicycle, they are a really good help for novices but hopefully you will outgrow them in time. Unfortunately naturally frugal people are a rare breed nowadays so I would agree most need budgeting if they are going to accumulate enough wealth to be financially independent.

    • Matt Bell August 13, 2019 at 5:52 PM #

      I’d say it’s hard to argue with a system that’s working for someone, and you’ve clearly found an approach to money that works. That said, I generally like to encourage everyone to use a budget, or as I prefer, a cash flow plan. I think of a household as a small business. Just because a real business becomes very successful doesn’t mean the people managing it should stop keeping records of income and outgo. So, again, I’m not disagreeing with your approach. But for most, no matter how much income they make, I think it’s a good idea to have a plan that enables you to be intentional about how the income is going to be used and to monitor how it’s actually being used.

  3. John August 13, 2019 at 1:22 PM #

    what a great, simple – DOABLE – overview!
    Bravo!

    • Matt Bell August 13, 2019 at 5:43 PM #

      Glad you liked it. Thanks, John!

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