Eight Signs of Financial Health

Financial health can look very different across the broad spectrum of human experience. Whether you are single, in a partnership, fresh out of college or in retirement, living in a major city, or enjoying a less-urban lifestyle, you can achieve financial well-being that fits and aligns with your goals. Despite the wide variety of expressions of financial health across our diverse population, some markers remain common to all:

1. You have a good idea of how much money is incoming and outgoing each month. You’ve arranged your lifestyle to have a comfortable cushion (extra cash flow) to accommodate any negative surprises. In this light, you also plan for significant expenses and save accordingly.
2. You pay yourself first. It’s a terrific habit to direct funds toward emergency cash savings and retirement savings within a few days of receiving your pay. Individuals who “save first” rather than “save whatever’s left over” tend to do better over the long term.
3. You have at least three months of expenses saved in a high-yield savings account. This can be hard to do if you are also working on paying off credit cards and/or student loans. Working with a planner can help you determine how to optimize your budget to build emergency savings, reduce high-interest consumer debt, direct funds toward retirement account(s), and prioritize home ownership. Retirees living off social security, pensions, and investments may want to manage more conservatively and keep even more cash on hand. High achievers, or individuals who aspire for Olympic Gold, can set a six-month target as a minimum.
4. You save 10% (or more) of your income towards retirement. Early in their careers, recent graduates may move toward this target incrementally. In your twenties, see if you can bump up steadily to 10% with each bonus, promotion, and pay raise. Late-career workers may want to accelerate retirement savings far beyond 10%. In 2024, employer 401(k)s allow workers over age 50 to save up to $30,500, excluding matching funds from your employer. Working with a planner to optimize how you’re directing retirement savings can make sense.
5. You know your net worth (assets less liabilities), and your net worth tracks to this formula: age multiplied by income divided by ten*.
6. You enjoy your work, the income is sufficient, and work does not negatively impact your health. Remaining in a negative work environment long-term is a bad investment of time and energy; engaging in financial well-being exercises (and practices) can help you “right-size” your work and life.
7. You are adequately insured: health insurance and a health-savings account (if eligible), life insurance (especially if people are dependent on your income), home/property insurance, disability insurance, and long-term care insurance are types of coverage you can assess to protect yourself and the people you love.
8. You are managing your finances in a way that will allow you to shift your line of work and possibly live off less money doing something you enjoy and in which you find meaning and purpose. Ideally, through retirement, you engage in some activity that generates income and is stimulating and rewarding.

Identifying what financial health means for you at every age/stage of life can be challenging yet fulfilling. Creating a plan to achieve and maintain financial health and working with a partner who can help you monitor and take action within that plan helps deliver peace of mind, which is essential to well-being. The goal is to do the work, which frees up your time and capacity to think about things that are more important than money.

*Formula from The Millionaire Next Door, highly recommended reading.