We all hope to enjoy a smooth financial future. But how do you know if what you’re doing is working? While there’s no one-size-fits-all answer to this question, there are several signs that can indicate you’re moving in the right direction.
Below, you’ll find a seven-step financial health checkup designed to help you confirm whether you’re on track for a smooth financial future. Of course, you don’t need a perfect score in order to “pass.” Instead, use this health check as a way to look at your finances from fresh angles and make adjustments where needed.
1. You’re saving for retirement
A smooth financial future should include time to relax and enjoy your golden years. If you’re consistently saving for your retirement, you’re securing your financial well-being for the long term. For US citizens, that might mean contributing to retirement accounts like a 401(k) or an IRA. Australians might be adding voluntary contributions to their superannuation or getting help with accounting for SMSFs (Self-Managed Superannuation Funds). Wherever you are in the world, your comfort during retirement matters, and if you’re already planning for it, that’s an excellent sign that you’re in good financial health.
2. You have an emergency fund
Life is full of unexpected twists and turns. An emergency fund is your safety net for these unforeseen detours and disasters. The general recommendation is to have at least three to six months’ worth of living expenses stashed away in a dedicated savings account. Bonus points if your emergency fund is earning you interest in a high-yield savings account.
3. You have financial goals
Whether it’s buying a home, paying for your child’s education, or going on a dream vacation, specific, achievable financial goals are a powerful way to keep yourself motivated and focused. If you have defined goals that you’re working toward, it’s highly likely that you have all your other financial ducks in a row. Financial ducks? We’re going with it.
4. You have a budget – and you actually use it
Moving on to the financial topic everyone’s sick of – budgeting. You’ve heard it dozens of times before, but a well-structured budget is the cornerstone of sound financial planning. Of course, it can only be that cornerstone if you actually use it. Stick to it consistently, and your budget will help you manage your income and expenses, allowing you to save for the future and avoid unnecessary debt.
5. You regularly check in with your budget and financial goals
Life circumstances change, and so should these foundational aspects of your financial plan. If you regularly review and adjust your budget and financial goals, this is an excellent sign that you’re proactive about your financial health.
6. You’re in control of your debt situation
High-interest debt can be a huge stumbling block on the road to financial security. If you’re free from this kind of debt or are actively working to reduce it, you’re taking the right steps. A good sign you’re on the right track is if your debt-to-income ratio is steadily decreasing. If you’re also steering clear of high-interest credit card debt, that’s another sign of good financial health.
7. You’re investing wisely
While the above points are all crucial, investing is where your money can truly grow. If you’re investing your money wisely, diversifying your portfolio, and focusing on long-term goals, you’re putting your money to work for you, which is the right way to build wealth over time.
Everyone’s financial situation is unique, but by paying attention to these signs, you can assess your financial well-being and set a course for the financial future you desire.
