We all know what physical health is but have you thought about your financial health? In simple terms, it’s the state and stability of an individual’s personal finances and financial affairs.
You’re probably thinking, “I’m earning a steady income, paying my debts, and setting aside some savings in my bank account.” But, to avoid unexpected surprises in the future, it pays to be sure that you’re in the pink of health, financially.
So, rather than second-guessing, why not get a financial check-up? Just like how important it is to go for a medical check-up every year, the same can be done to ensure our finances are healthy. The lack of financial knowledge and planning can be a contributing factor to an uncertain future so it’s important that we start as early as possible.
Strong financial health is, needless to say, vital in supporting many of our important life goals including a worry-free retirement. Here are 5 indicators that suggest your financial health is in good shape!
1. You Have Enough Savings To Feel Financially Secure
From a young age, we have been exposed to the concept of savings be it through stories, piggy banks, or rules set by our parents. (You want that gadget? You can save your allowance for it). Even as adults, the importance of saving can’t be stressed enough.
Having sufficient savings includes having an emergency fund that gives you a financial safety net and provides you with more options for decisions that can greatly impact your quality of life. Setting aside an emergency fund can really come in handy; it allows you to tide through unexpected circumstances like a sudden loss of income or unemployment, medical emergencies, vehicle breakdowns, and more.
There are many calculator tools available online these days that compute how much you should save each month to reach your savings goal. But, as a general rule of thumb, you are recommended to save approximately three to six months’ worth of salary for your emergency fund.
2. You’ve Passed Your Credit Score Check With Flying Colours
We don’t really hear about our credit scores until we make a large purchase like a house and apply for a loan from a financial institution. A credit score is a 3-digit number that is an analysis of a person’s creditworthiness.
It is computed based on a few factors: number of open accounts, total levels of debt, repayment history, and more. Your credit score serves as a reference for financial institutions when they’re evaluating the probability of you repaying your loans in a timely manner. Whether you can get a loan or not depends on your credit score — the higher your credit score, the higher your chances of loan approval.
You can check your credit score with any established institutions that provide credit checking services. They’ll not only give you your score but also provide comprehensive reports on your commitments and financial behavior.
3. You’re Well Protected In Case Of Uncertainties
The rising medical costs can easily wipe out your savings especially if you don’t have medical insurance. The average gross medical inflation was 15.3% in 2018, 16.1% in 2019, and 14% in 2020.
Similar to how an emergency fund works, life, critical illness, and medical insurance will give you added peace of mind and lessen the financial impact should the unexpected happen. While the emergency fund is utilized for various purposes, insurance is designed to protect your finances against unexpected events so that you (and your dependents) can maintain your current lifestyle and work towards achieving your life goals.
Life and critical illness insurance, on the other hand, provides your beneficiaries or you with a lump sum payout if you, as the insured person, are diagnosed with a serious medical illness, suffer from a total and permanent disability (TPD), or pass away.
4. You’re In Debt — Good Debt, That Is
You may be asking, “Is there such a thing called good debt?” Well, yes! The word debt has such a negative connotation to most of us run away from it as soon as we hear it. But, if you think about it, most of us have debts to pay anyway. Some debts can even help you increase your net worth or quality of life in a meaningful way – which makes this kind of debt good.
For example, debts incurred for things like getting an education, setting up a business, and buying a residential property are justifiable as long as you’re able to manage the repayments.
Take buying a property, for example. You can flip the property for gains or rent it out to generate passive income to increase your net worth. Additionally, good debts also help pull up your credit score and open opportunities for higher credit lines as it indicates to banks and lenders that you are a responsible paymaster.
5. You’re Actively Planning For The Golden Years
Oftentimes, it’s easy to put off planning for retirement until the last minute as there are other immediate needs that we usually dedicate our savings too — and many of us would count on our EPF savings to be there for us when we retire. Two out of three EPF members aged 54 have less than $50,000 in retirement savings, while 50% of members above the age of 55 exhaust their savings in five years.
Yet, our life expectancy at birth has increased to 74.9 years in 2020. As we’re on our way to becoming an aged nation, we need to be active in planning for our retirement so we will have enough funds to live out our golden years without financial worries.
If you’ve already started stashing away savings in more than just your EPF accounts or have charted out your retirement game plan, then you’re a step closer to achieving good financial health.