Your Financial Health

Understand where you are in your journey so you know what steps to take next.
By NerdWallet 
Updated
Edited by Kathy Hinson

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Financial health simply measures your ability to handle financial stressors and reach your long-term goals. The areas of financial health typically considered are:

  • Savings and debt paydown: Are you able to cover your needs, your wants and still have enough to build savings and pay down debt over time? The 50/30/20 budget is a good measure.

  • Debt-to-income ratio: This comparison of your monthly debt payments to your monthly gross income gives you a good idea of how manageable your debt load is. It's also a common measure used by creditors in making approval decisions.

  • Credit score: Even if you don't plan to apply for more credit, a good or excellent score can play a role in things like apartment applications, insurance costs, utility deposits and more.

  • Emergency fund: Having enough in the bank to weather financial shocks protects you from debt spirals and the credit score damage that comes from missing bill payments.

  • Insurance: This protects assets — such as vehicles, personal possessions and your home — and it also protects dependents in case you're unable to work.

  • Financial planning: Staying financially healthy means saving toward retirement, working on estate planning and more.

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How to improve your financial health

For most people, attaining financial health is a journey — one that lasts a lifetime. Very few people are lucky enough to have instant security from generational wealth or a massive lottery jackpot. Instead, the progression tends to look like this:

Building foundations. This can describe when you're getting started in the workplace, but it might apply later, too, because life doesn't always go to plan. Strengthening foundations includes creating an emergency fund, building your credit score and balancing expenses and debt load. And it's never too early — or late — to start planning for retirement, so that your savings have time to take advantage of the magic of compound interest.

Stacking up wins. As you gain momentum, continue to grow your financial stability. This could mean things like paying down debt balances, using insurance coverage to protect your assets and knowing what your needs will be in retirement. Staying on top of managing your credit score will help push it higher, which gives you more financial choice.

Doing great. You're on top of your savings plan and have a healthy debt-to-income ratio. A longer track record of managing your credit score helps, too; credit scores tend to peak in later work decades. Having a handle on financial planning and a solid approach to insurance positions you to build and protect your assets.

The three sections below provide further helpful guidance at each stage.

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Building foundations

These guides can help you handle basics, like choosing a bank, getting some savings going and learning how to manage money:

Typically, income is lower when you're just starting out. But setbacks can hit anyone, at any time. If you're having trouble keeping up with your bills and don’t have a financial cushion, explore these resources that may help you in a crisis and lay the groundwork for greater financial security:

Stacking up wins

You may be thriving in some areas but not yet on top of others. Here are ways to address possible financial pain points and shore up your security.

Managing debt

Building your credit score

Working toward financial goals

Saving for and buying a home

Doing great

Those who are financially healthy are successfully managing all aspects of their financial life. They have good to excellent credit, a handle on debt, an emergency savings fund and are on the right track for retirement. The goal for you, if you fall in this category, is staying the course and reaching your financial goals.

Here are some resources to maximize your efforts and ensure you’re getting the most out of the optimal position you’re in.

Maintaining financial health

Saving and investing for retirement

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