7 Easy-to-Follow Tips to Evaluate Your Financial Health

Would you consider yourself financially healthy? Perhaps you follow a strict budget or track your spending diligently. Those habits are helpful, but financial wellness can still feel vague to those who are still new to saving and building their financial freedom. 

At its core, financial health is a measure of stability and resilience. It encompasses your ability to cover everyday expenses, survive emergencies, service debts, and pursue long-term goals. If you need a more concrete idea of what it entails, here are some clear and practical steps you can take to assess your current financial situation: 

1) Review Your Emergency Savings

Among the crucial factors contributing to financial wellness is your capacity to address urgent financial situations. This is typically determined by whether you have emergency savings on hand. This fund acts as a safety net for you, ideally covering three to six months’ worth of essential expenses, such as housing, utilities, food, and transportation. Having these reserves will ensure that you can handle unexpected events like job loss or urgent repairs without falling back on credit cards or loans. Ultimately, this will reinforce your financial health by providing stability and preventing financial setbacks from disrupting long-term goals.

To evaluate your emergency savings, calculate your basic monthly expenses and compare the total to what you have set aside. If your savings fall short, develop a plan to build them up gradually to reach the required amount. You may also consider keeping your emergency fund in a dedicated savings bank account to protect it from being used for unintended purposes. 

Sign up for a bank account like that of Maya, which offers a competitive interest rate of up to 15% p.a. This way, your emergency savings will continue to grow even when you’re done funding it. 

2) Understand Your Net Worth

A fundamental measure of financial wellness is your net worth, which equals what you own minus what you owe. To determine this, start by listing all assets, including cash, investments, property, and valuable possessions. Then subtract liabilities such as loans, credit card balances, and mortgage debt. The result of this calculation gives you a snapshot of your overall financial position.

Tracking your net worth regularly, either quarterly or annually, reveals whether you are progressing financially. A rising net worth indicates that savings and investments are outpacing new debt. If, on the other hand, this number declines, you can identify what is dragging you down—for example, too much spending or insufficient saving. Having clarity about your net worth will help you pinpoint what you need to work on to maintain or improve your financial health. 

3) Know How Much You Owe

Beyond knowing what you own, understanding your debt is just as critical. Review all your debts, including credit cards, personal loans, and car loans. For each, record the outstanding balance, interest rate, and monthly payment. This debt profile will help you assess your financial obligations and the cost of servicing them.

Your monthly debt payments affect the money available for saving or discretionary spending. Moreover, high interest rates can erode financial health over time, even with small balances. Identify which debts are most costly in order to prioritize the right repayment strategies. Upon being able to reduce your debt, you’ll be able to free up your cash flow and strengthen your overall financial position.

4) Look at Your Monthly Cash Flow

Cash flow refers to the money moving into and out of your accounts each month. You can calculate this by simply subtracting your total expenses from your income. If this results in a positive number, it means you’re in control of your cash flow. Conversely, a negative number indicates that spending exceeds income and that debt is likely high.

Review your bank and credit card statements to see where changes are needed. Are you spending more than you earn? Are you saving regularly? If income and expenses do not support your goals, consider adjusting your spending or redirecting money into savings. Alternatively, you can look into increasing your earnings so you can better sustain your needs and maintain your financial health.

5) Check Your Credit Score and History

Your credit score is a numerical representation of your creditworthiness, reflecting how responsibly you manage debt. It affects your ability to access loans and negotiate better interest rates, which can influence your capacity to address urgent financial needs or to fund important goals. To evaluate your credit health, request a copy of your credit report and check your credit score through a reputable credit reporting agency or financial institution.

Check your report for errors like incorrect balances or unfamiliar accounts and file a dispute if necessary. A healthy credit score and improvements made over time will signal that you are managing your credit responsibly. If issues appear, consider strategies such as paying down high-interest balances or setting up reminders for timely payments.

6) Evaluate Your Progress toward Financial Goals

Financial health is not just about numbers and scores; it’s about purpose. Revisit your financial goals and assess how much you have saved toward them and how much still remains.

If your progress is slower than expected, make it a point to identify obstacles. In relation to these, adjust your budget or extend your timelines to better suit your financial situation and your capacity to allocate to these goals. You might also set smaller milestones so you slowly make progress without losing motivation. 

7) Assess Your Retirement Preparedness

Retirement may seem distant, but planning early for this major life change is critical. Regularly check your retirement savings accounts to determine how much you are currently contributing and whether your projected savings will provide sufficient income in the future.

Likewise, consider tools like retirement calculators to estimate future needs. If you are behind, consider increasing your contributions or exploring additional savings options. 

Financial health is something we must all aspire to. A strong financial position not only ensures that your needs are met, but also provides assurance and peace of mind when things don’t go to plan. As you work your way there, consider financial wellness as something that will give you the capacity and confidence to enjoy the present while building a secure and comfortable future.