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Vital Signs for Financial Health

Remember the last time you went to the doctor? Actually, do you remember almost every time you went to the doctor? There were some things that were pretty much guaranteed to take place. First, there was a fairly long time in the waiting room. But, after a while, you got into an examining room. There you had some dates. One was with a thermometer. Another with a stethoscope. Then one with a blood pressure arm cuff. The doctor calls this “checking your vitals.” In other words, your vital signs are rudimentary roadmaps that show your overall health. Starting points, if you will.

Your financial health has vital signs as well, and they are starting points to a savings and investment strategy. Get these right, and tweak your plans to fit your individual situation. Voila! On your way to success. Money Examiners found out that financial vital signs aren’t too different from physical health vital signs.

Your credit score is the thermometer, (in reverse): A high FICO (that stands for Fair Isaac & Company, but it is really your current credit score), the healthier your numbers say you are on a snapshot basis. If your FICO is low, then you are financially unwell. But, you don’t need to stay sick. Take necessary steps (one credit card paid to zero each month. Responsible care for your other credit etc.) to lift that score and lower your fever. Your temperature improves with time, so long as you don’t misbehave. There’s no need for an inheritance from dear Uncle Louie (R.I.P.) to make improvements on your score. Patience and prudence, Padawan. Before long the thermometer will read 98.6 degrees.

Let's just have a look at your vital signs.
Let’s just have a look at your vital signs.

Your retirement savings is your heartbeat. Your friends at Money Examiners believe you’re living to a grand old age. Financially, the sure way to that goal is a healthy heart. You have read this and that from other publications about retirement savings, but let’s clear up the confusion. There is no one right dollar amount to allocate as savings for retirement. That’s why most experts rely on a percentage of your net income. Some of those experts say 15% is the correct number. But, don’t panic! Just become comfortable with saving regularly for the long term. If 5% or 6% what you can handle this month, start there. Fifteen percent is just a target, and eventually, you’ll get there. What’s a good way of maximizing your retirement savings? Don’t forget that your company may have matching funds. With the match, you might save in excess of 20 percent.

Your emergency savings is your blood pressure, running in reverse. The blood pressure check is the best, and fastest, way to reveal a crisis that is hidden from even the most-observant medical professional’s eye. Speaking of hidden crises, how long would your emergency savings last if you had to live off of it? Honestly, no matter your answer, there’s no need for embarrassment. According to one study conducted in 2017, the median answer given was “16 days.” Financial advisors tell us a couple without kids at home should stash six months of income in savings accounts NOT designated for retirement. What about families raising a family? Actually, a family of four needs one year’s income put away. Is your blood pressure out of whack? Yes, that’s what we thought.

Financial health involves a planning pyramid, not unlike the nutrition pyramid we have seen. Right around 50% of the family income goes toward the fixed expenses, such as mortgage/rent and utility bills. Twenty percent is toward financial goals like savings and retirement. That leaves 30 percent for day-to-day expenses like groceries and gas. So, what did we learn at the financial clinic? Pretty much that everyone’s health could use a tune-up. That’s okay. Money Examiners will be here to help along the way.