April 12, 2018 by Space Coast Credit Union
Doctors tell us about the importance of physical fitness, and encourage us to eat better and exercise more. And, it’s also vital to work towards a state of financial fitness. Being financially healthy is much more than simply creating a budget and trying to stick to it, though, with each person defining financial fitness in unique ways.
Fortunately, at SCCU, we’re committed to offering you guidance and support all along your own personal journey to financial fitness. Here’s an overview of that journey.
Step One: Define Financial Health for Yourself
For some people, financial health means the ability to buy their desired house while still being able to meet all other financial obligations, including funding future retirement. For others, it means being able to travel as well as readily meet financial obligations. It’s important to define your goals as a foundation to financial health, as this provides clarity, shedding light on your own unique roadmap.
Step Two: Determine Your Baseline Health
When your goal is to become more physically fit, you’ll likely weigh yourself and perhaps measure your waistline. You may be monitoring your blood pressure, your cholesterol level, your heart rate and the like. With financial fitness, you’ll want to get a copy of your credit report, available to review for free at annualcreditreport.com
from each of the three nationwide credit reporting agencies, and also create a list of:
- Balances in your savings and checking accounts
- The balance in your retirement account and how much you’re investing monthly
- Balances in any other investment funds
- Non-liquid assets you own, such as a home, cars and so forth
- Current debt balances and required monthly payments
Add together all your assets, including liquid and non-liquid. Then add together all your liabilities, which could include outstanding balances on a mortgage loan, car loans, student loans, credit card debt and so forth. Subtract your total liabilities from your total assets to determine your net worth. Plan to do this annually so you can monitor the changes in your financial health. Note: If you’re just recently out of college with significant student loan debt and not many assets, don’t panic if you have a negative net worth. This can be normal for this stage of life.
Now, add together all your monthly consumer debt payments (mortgage, car, student loan, and credit cards, for example) and divide that by your gross monthly income. This will determine your debt-to-income ratio
. In general, this should be at 43 percent or less.
Step Three: Identify What Needs To Be Addressed
Perhaps you’ve recognized how you really need to be investing more into your retirement, but current cash flow doesn’t allow that. One solution could be to consolidate debt through a home equity line of credit loan and funnel freed-up cash flow to your retirement account. Or you may recognize how you need to build up your emergency savings account, so you’re reviewing your monthly expenditures to discover what could be eliminated or reduced to regularly deposit more funds to your savings account.
Step Four: Reach Out for Help, As Needed
As SCCU, we offer financial health resources to assist in whatever stage you’re in. Questions? You can contact the branch nearest you:
All Other Areas: 800-447-7228