Just like you address your physical health regularly, you need to check up on your financial health. Doing so lets you know how you’re doing and if you need to make any changes. There are a few key factors to address when you check on your financial health.
Your Savings
Having adequate savings allows you to prepare for any emergencies. If something goes wrong, you can dip into your savings to cover the cost of the emergency, and then you don’t disrupt your regular budget in any way. In your savings, you also want to have enough put away to cover your expenses for a few months if you lose your job or are put in a difficult financial situation. To build your savings, you should aim to put away 20% of your paycheck each month. Over time, this should give you a large chunk of savings.
Credit Score
Your credit score is a record of your ability to pay back loans and debts. When you pay these back on time and in full, it improves your credit score. Having a good credit score will prepare you for future situations. For example, when you’re applying for a mortgage loan, your credit score plays a role in whether or not you get the loan and what your loan looks like. Those with good credit can avoid high-interest rates and additional fees. You can improve your credit by paying your loans and bills on time, eliminating debt, and avoiding taking on more credit.
Your Net Worth
Your net worth is how much money you actually have or how much you’re worth. To calculate your net worth, you subtract your debts from your assets. Your assets can include many things. Start with the amount of money you own in your checking and savings accounts. Next, you calculate the worth of other assets you have including your home, car(s), and other property of value. The total amount of all these is your total amount of assets. To calculate your debt, you look at all the money you owe. This includes your credit card debts, student loans, mortgage loans, and anything else you are paying off. You can improve your net worth by increasing your assets and decreasing your debts.
Good financial health means you can adequately take care of yourself and your family without it being a financial burden to you. Take a look at all these factors and see if you need to make any changes.
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