The term “financially healthy” is pretty subjective. For one person, it might mean having enough cash flow to pay bills and save for retirement; for another, it could mean having a six-figure net worth.
No matter what financial health means to you personally, I’ve observed a few common characteristics that nearly all financially healthy individuals share.
Would you like to know what they are?
Let’s dive in!
You Have Money, And It’s Growing
I think we can all agree that a financially unhealthy lifestyle is one where you’re living paycheck-to-paycheck and barely keeping your head above water.
So, this might sound a little trite, but the most obvious indicator of financial health is that you have some money.
To be clear, you don’t have to have millions of dollars to be financially healthy. Rather, between savings, investments, and other assets, if you’re living a financially healthy lifestyle, you should have a reasonable amount of money to your name. Beyond that, the money you have should be growing at a steady rate.
For someone in their mid-twenties, that might mean $10,000 in savings and a budding Roth IRA. For someone in their mid-sixties, it might mean a million plus in retirement and a paid-for house.
While I can’t sit here and put a specific dollar amount on what financial health means, I can tell you that in order to be financially healthy, you need to have some money to your name.
You’re Living On A Budget
If you’ve spent more than about 5 seconds on this blog, you had to know that budgeting would be one of the first things on this list. Did you just roll your eyes at me? I knew it!
Seriously though, I’m a firm believer that living on a budget is essential if you want to live a financially healthy lifestyle.
Is it an absolute requirement? I guess not. I’m sure there are rich people out there that don’t live on a budget.
However, if you want to give yourself the best chance of financial success, living on a budget (and sticking to it) is the best course of action.
You Aren’t Stressed About Finances
One of the primary indicators that you are in good financial shape is that you aren’t worried about the condition of your financial situation.
This means no sleepless nights, anxiety, or fear of being unable to pay your bills. If you have a healthy amount of savings and an emergency fund, then a minor setback won’t derail your entire financial situation.
While we’re all prone to financial worries now and again, one of the critical signs that you’re living a financially healthy lifestyle is that you aren’t spending much of your time worried about finances.
And not just because you don’t care, but because you’ve taken the time to prepare and you’re making progress toward your financial goals.
You’re Prepared For Emergencies
Along those same lines, but a bit more concrete, is that you have an emergency fund.
In other words, you have a pool of funds you can fall back on in case of financial emergencies, such as job loss, medical expenses, or other unexpected bills.
Ideally, your emergency fund should cover at least three to six months of living expenses, but depending on your situation, you might opt for a little more than that.
Regardless of the size of your emergency fund, part of living a financially healthy lifestyle is saving enough to protect yourself from a challenging financial situation.
You Have A Stable Income
A steady and consistent income stream is one of the most essential components of a financially healthy lifestyle. As Dave Ramsey likes to say, “Your income is your most powerful wealth-building tool.”
Plain and simple, if you want to live a financially healthy lifestyle, you need to make enough income to cover your living expenses and invest for your future.
You’re Properly Insured
Another key indicator of financial health is having proper insurance coverage.
This means having the right types and amounts of car, home, business, life, and disability insurance. If you don’t have enough insurance or adequate coverage, you could be at risk of significant financial losses.
I realize that insurance might not be the most fun thing to pay for; however, if you need to use it, you will be thrilled you took the time to protect yourself and your family.
You’re Investing For Your Future
In addition to having an emergency fund, another major sign of a financially healthy lifestyle is that you are investing for your future.
For example, you might be putting money away in retirement accounts such as a 401k or IRA, or maybe even investing in stocks, real estate, and other financial vehicles if you have the knowledge and resources.
If you want to build a secure financial future, investing is how you get there. And the sooner you start, the more wealth-building potential you will have.
You Have Financial Goals, And You’re On-track To Achieve Them
One of the key aspects of financial health is setting and working towards a set of financial goals. From short-term goals like saving for a yearly vacation to long-term goals like investing to become a millionaire in the next 20 years, it’s essential to follow a roadmap to reach your desired destination.
If you have goals and are actively working towards them, then chances are you’re living a financially healthy lifestyle.
You Know Your Financial Numbers
Another important characteristic of financial health is that you have an intimate knowledge of your financial numbers. And I’m not just talking about your annual income and expenses–although those are 2 of the most important numbers you should know.
I’m talking about everything from your tax burden to your insurance coverage, your savings and investing rate, and the amount of debt you owe. The more you understand where your money is going each month, the more likely you will be to make intelligent financial decisions.
Beyond that, knowing your numbers can also give you a great sense of control and confidence in how you manage your money.
You’re On The Same Page With Your Spouse
Things can get a little tense when it comes to money and marriage. In fact, money is widely cited as one of the top causes of marital disputes.
With that in mind, one of the most important things you can do if you want to live a financially healthy lifestyle is to get on the same page with your spouse. That means budgeting together, setting goals together, and even holding one another accountable.
The more you work as a team, the easier, less stressful, and healthier your marital finances will feel.
You Have A Comfortable Amount Of Financial Margin
I’ve come to realize that financial margin is one of the most significant indicators of financial health. In other words, the buffer that you have between your income and expenses is a great way to measure how healthy your finances are.
I don’t think it’s any secret that living paycheck-to-paycheck can be a pretty stressful and unhealthy situation.
Therefore, if you want to improve your financial health, one of the most important things you can do is increase your monthly margin. Whether that means earning a little extra money with a side hustle, reducing your expenses, or a combination of both (my personal favorite), the more financial margin you can achieve, the healthier your finances will be.
Your Income Is Growing
I don’t know anyone who doesn’t like the idea of earning more money. Sure, money can’t buy happiness, but it can take quite a bit of financial pressure off your life.
When you’re financially healthy, your income should grow yearly- at least a little bit. This means finding ways to earn more money through raises, promotions, bonuses, side hustles, or even a new job.
If you can’t seem to get past the same salary level each year, then it might be time to dig a little deeper and ask yourself why that is.
Are you just going through the motions at your job?
Have you maxed out your earning potential at your current job? If so, is it time to start looking for new employment?
Is it time to start a side hustle that could help boost your income?
Questions like these can help you assess your income growth and how it might impact your overall financial health.
Bottom Line
Being financially healthy isn’t an overnight process, but it’s achievable with a sensible plan, dedication, and a bit of hard work.
By regularly assessing each of these areas in your life, you can improve your financial health and set yourself on a more secure path for the future.