4 Ways to Measure Your Financial Health

The idea of being financially healthy has a different meaning for everyone. For some, it means having an emergency fund to cover at least three months' worth of expenses if you lose your current job or have a medical emergency that leads to a loss of income.

Others might see financial health as having enough money saved up so you can invest and make more money over time. So the first step in improving your situation is figuring out where you stand.

Let's find out by looking at your financial standing in 4 key areas: credits, net worth, savings, and debt-to-income ratio.

Credit Score

Your credit score is a reflection of your overall creditworthiness. This number is crucial because it's what lenders look at when considering you for a loan or line of credit.

A good credit score means you're likely to be approved and could receive a lower interest rate. Conversely, a bad credit score means you could be denied the loan or line of credit and receive a higher-than-average interest rate.

The national average Credit Score is 700, but yours may differ depending on your age range—and it's essential to learn what yours is! Check out this link to see where you fall on the credit score scale.

Below are various ranges of credit scores. Remember, the higher your score, the better.

  • 300-530 Good
  • 530-645 Great
  • 645-850 Excellent

Many factors go into a credit score. It's not a perfect gauge of your financial health, but it demonstrates how well you're using credit so you can take out a loan down the road.

Net Worth

Your Net Worth is the total of all assets you own minus any liabilities or debts. Assets are anything that has monetary value, such as cash in checking accounts and savings accounts, investments, real estate, retirement funds like IRA and 401k, and even cars or other valuable possessions. 

Liabilities or debts are amounts of money you owe to others, such as credit card balances, student loans, car payments, and mortgages. A good rule of thumb is to always keep your liabilities as small as possible, so you have more assets that generate value over time.

Net worth is the amount by which your assets exceed liabilities. It's important to know where you stand on this list because it speaks volumes about how well (or not) you're doing with managing money!

If someone has a low net worth and little savings-they likely don't have much of an emergency fund. This person is also more susceptible to taking on high-interest debt to make ends meet.
On the other hand, if someone has a high net worth and significant savings-they likely have been investing money wisely and have a cushion in case of tough times. 


Below is your net worth calculation:

Net Worth = Assets - Debts


Positive net worth means you have more assets than liabilities, and your overall financial health is good! Negative net worth means the opposite and likely indicates you have some debt repayment work to do.


Use this Net Worth Calculator to get a rough estimate of your net worth. It's vital to track it over time so you can see progress (or lack thereof!) in your financial journey.

Savings Rate


Your savings rate is how much of your income you're able to save. It's calculated by dividing the amount saved for a given period (e.g., monthly, annually) by that same period's total earnings and then multiplying that number by 100—that gives you an easy-to-read percentage value!


The ideal savings rate differs for everyone, but aim to have at least 20% of your income saved, so you're able to cover unexpected expenses and retirement. You can use a Savings Calculator to determine how long it'll take you to save up for different goals based on your current savings rate.


Saving money might seem complicated, especially if you feel like you don't have a lot of extra cash flow. But even if you can only save $50 per month, that's still $600 saved in one year! And over time, those small amounts will add up to something impressive.

Debt-to-Income Ratio


Your Debt-to-Income Ratio is the total amount of monthly debt divided by your gross annual income. This number will indicate how much you have left over after paying off debts each month, like housing or food expenses. A lower ratio—or one that's close to zero—indicates you're doing well, while a high ratio means you might be struggling to keep up with your payments.


The debt-to-income ratio is something lenders look at when considering you for a loan or line of credit. A high number could mean you won't be approved or that the interest rate will be very high if you are approved. Therefore, it's essential to keep this number low by making extra payments on your debts.


Here are some debt-to-income ratio ranges:

  • 5%-35% = Excellent
  • 35% or more = Poor (depends on the type of loan you're taking out)


Lenders typically want your debt-to-income ratio to be 35% or lower because they want to make sure you're consistently financially responsible for paying off your debt each month.


Your lender determines your debt-to-income ratio. There isn't one set rule, but generally, they'll be more lenient than if you were looking for a mortgage.


The calculation is simple:

Debt-to-Income Ratio = Monthly Debt / Gross Annual Income


Use this Debt-to-Income Calculator to get an estimate of your current debt-to-income ratio.

What's the Takeaway?


Now that you know your credit score, net worth, and debt-to-income ratio, it's time to take a look at what this means for you. Even if your numbers aren't as great as you'd like them to be, don't worry! You can take steps to improve each of these categories over time.


Chances are, you could use some improvement in at least one of the four key areas we covered. But don't worry—you're not alone! You can also take steps to improve each of these categories. And it's always a good idea to monitor your progress over time, so you can see how far you've come and make adjustments as needed.


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