How to measure your personal financial health

Anyone with a fitness goal has heard it all before: Are you getting enough sleep? Staying hydrated? Eating your veggies?  Hitting those daily benchmarks is one way to stay on top of and contribute to your physical health. But when it comes to your financial stability, how can you contribute to and measure your financial health?

Like your physical heath isn’t determined by one single factor, your financial health isn’t measured solely by your income, assets, expenses or spending. Understanding either type of health requires assessing several aspects of your lifestyle.

Financial health is a gauge that looks holistically at your financial situation to measure how prepared you are to meet different financial needs — from buying groceries week-to-week to paying for an unexpected expense, like a medical emergency that isn’t covered by health insurance. The more stable and secure your monetary position is, the more financially healthy you likely are.

Your financial health can change over time and is personal to you and your lifestyle. Before you can really measure your financial health, it’s best to think about your behaviors, goals, and financial future. If you dream of retiring early and living near the ocean, the way you save money now and build your retirement fund could look drastically different than someone who plans to continue working beyond the average age of retirement. Or, if you are self-employed, you may need to place more emphasis on certain aspects of finances in order to have enough money than somebody who works in a tenured position.

Periodically checking up on your financial vitals is an important step to ensure good financial health, because it provides a chance to see where you’re strong and which areas could use a little more focus. Keep in mind that your level of financial health will fluctuate — and life events like buying a home, getting married, or moving to a new city can all impact what it looks like. Here are a few components of financial health you may want to track, and some rough guidelines you can use to see how yours measures up now.

Your credit score is a number between 300 and 850 (if you are using the FICO scoring system, which is the most common) that indicates to lenders how responsible you’ve been with repaying debt in the past, and how likely you are to continue doing so in the future. The higher your credit score, the more likely you are to be approved for a loan and get qualified for a lower interest rate.

Excellent credit scores begin at 800, scores between 740-799 are considered very good, and a score in the 670-739 range is good.

To build and maintain a strong credit score , you’ll want to diligently pay all your bills on time, aim to keep your credit utilization ratio (the ratio of your outstanding credit card balance to the total limit) below 30%, and establish a long credit history.

As well as monitoring your credit score, you should also check your credit report at least once a year. Credit reports include information about your credit history, like the dates that accounts were opened, loan amounts, current balances, and payment history, including late payments or defaults. Regularly checking your report will allow you to spot any incorrect or missing information (which could cause your credit score to be out of sync with your behavior). Plus, you’ll be able to see what lenders can see about you when you apply for a loan. You can check your credit report for free from all three of the three nationwide credit reporting services, Equifax, Experian, and TransUnion, by visiting annualcreditreport.com .

Your debt-to-income ratio measures how much of your gross monthly income (your pay before taxes) goes toward paying off debt. Mortgage, credit card, student loan, auto, or other monthly payments are included in your debt.

To calculate your DTI ratio, add up all your monthly debt payments and divide that number by your gross monthly income — or try a DTI ratio calculator .

Lenders like banks or credit providers will look at your DTI when considering whether to extend you a loan or not. Ideally, your DTI ratio is lower rather than higher, as that means you are putting less money toward repaying loans monthly.

In general, the highest DTI ratio a borrower can have in order to qualify for a mortgage loan is 43%, but lenders prefer to see DTI ratios below 36%.

To lower your DTI ratio, you’ll need to either increase your monthly income, or reduce your monthly debt repayments, by paying off a car loan or lowering your total credit card debt, for instance.

Your net worth provides a quick snapchat of your financial health by looking at the total value of all your assets (what you own), minus your liabilities (what you owe).

Assets include cash (checking, savings, online banking accounts, etc.), retirement accounts, investments, real estate, collectibles (things like jewelry, art, or antiques), and other items you own. Liabilities are debts, like mortgages, auto loans, student debt, credit card debt, etc. To calculate your net worth, add up all of your assets and subtract your liabilities.

When assessing your net worth, the most important question is: Is it negative or positive? For example, someone might have $120,000 in savings, investments, and assets, but owe $150,000 due to student debt and a mortgage. In this case, your overall net worth is in the red by $30,000.

Nobody is immune to the possibility of a random accident, job loss, or health scare. So a strong emergency savings fund is a key pillar to your overall financial health. By having your emergency cash accessible, like in an Online Savings Account, and not tied up in investments or physical assets, you’re better prepared to handle any unexpected expenses that may come your way.

You’ve probably heard that an ideal emergency fund should hold between three to six months’ worth of living expenses. For many people, that is a lofty goal and may seem out of reach. When assessing your savings , don’t panic if your emergency fund isn’t as robust as those benchmarks suggest. Instead, set an attainable goal — maybe two weeks’ worth of living expenses, a month of rent, or a dollar amount like $1,000 to begin. Then, using automated features, like our Online Savings Account’s recurring transfers and our Surprise Savings booster , you can optimize your savings strategy and get closer to your goal — without even having to think about it.

Once you’ve reached your goal, add to it. Then, continue doing so until you feel confident that, should you lose your income stream, you could cover your expenses for a several months.

Retirement may feel far, far away — but that doesn’t mean it doesn’t impact your financial health today. Saving for retirement should begin soon as possible, since the earlier you begin, the more time your money has to grow.

Depending on the lifestyle you aim to live during retirement, experts recommend saving about 15% of your pretax income annually in a retirement-specific account, like a 401(k) or Individual Retirement Account (or IRA). If 15% is unmanageable right now, that’s okay. Start with a percentage you can handle (and try to take full advantage of an employer match if you have the option), then add another 1% each year until you’ve reached 15%.

Another way to take a temperature check on your retirement savings is to think about it by age . A rule of thumb is to aim to have socked away one times your income by age 30, two times your income by 35, three times by 40, and so on following the same pattern.

Remember it’s never too late (or too early) to begin saving for retirement. But just like eating well and exercising in your youth can have health benefits as you age, saving and investing for retirement in advance will typically pay off down the line.

Your level of financial health is an ever-fluctuating measure — so don’t be discouraged if you see areas that could use a little improvement. By staying on top of your money, practicing smart and thoughtful habits, and looking holistically at your personal finances, you can whip your financial health into shape. (No resistance bands required!)