How to Grade your Financial Health

Debbie Loper |

When you visit your doctor, you go through several tests to determine your health. You step on scales to measure your weight, have the doctor listen to your heart rate, and find out your cholesterol, body mass index, and a variety of other important indicators of your health. Most Americans know these measures of their physical health, but do you know how to grade your financial health? NerdWallet has a survey you can take to judge your financial health, but may not help you gain great insight on your finances. If you want to know how you stack up financially in terms of health, consider the following factors.


Two-Income House Living on One Income

Many couples view marriage or cohabitation as a financial safety net as much as an expression of love and devotion. After all, if you could live on two incomes instead of just one, you would choose to do so, right? Pew Research published data in 2015 showing that dual-income homes were on the rise in the US, increasing dramatically in the 1990s. Only 25% of US households were dual-income in 1960, but as of 2012, 60% of households had two incomes. One great way to grade the health of your finances is to look at how you and your partner spend your money. If you are living off just one of your incomes and devoting the rest to retirement funds or college funds, you are in a very good position.


Net Worth Exceeds Income, and is Growing

Income is not a solid indicator of financial health. Just because you earn a lot of money does not mean you are saving or investing most of that money. If your net worth in the moment exceeds your income, you are in good standing. If you look at your financial health and find that not only does your net worth exceed your income, but it is also growing, you are right where you want to be.


You Know What's in Your Investment Portfolio

When was the last time you looked at your investment portfolios? Did you simply write a check to your financial advisor to invest and then walk away from the table? Those who look at their investments on a regular basis to familiarize themselves with the activity of their money, are often in great shape. If you know how your advisor is spending your money, odds are you also know whether your investments are meeting your savings objectives and how much growth, risk, and preservation are involved in the yearly activities of your money.


Your Tax Refunds are Minimal or Nonexistent

Although most people enjoy the surprise of a refund, that money would have been better off in your hands earning interest in an investment rather than sitting in a government account all year. When you complete form 1040 at tax time, you ideally want to find yourself close to zero on refunds or taxes due.


Less than 1/3 of Income goes to Debt

Your debt-to-income ratio (DTI) should be as low as possible. Ideally, you want this figure to be less than 1/3 of your income going to pay down debts. The DTI is figured by taking minimum monthly debt and mortgage payments divided by gross monthly income. This helps lenders determine how successful you are at managing your debts.


You Are Done with Car Payments

If you own nice vehicles and have managed to pay them off, that looks great for your finances. The ability to climb free and clear away from auto financing payments is a great indicator of your financial health.


If you find that you are not on track, or if you just need to adjust your strategy, call us at Hughes Warren Inc.