You probably get regular checkups from your dentist and doctor. Even cars and pianos require regular tune-ups. Most individuals fail to do the same for their financial health. While there are experts that can analyze your finances, most of us are entirely capable of measuring our own financial health. However, we either don't think about it or choose to avoid it.
Determining the financial health of a company requires looking at several things. The same is true for your personal finances. Follow these steps and give yourself a financial check-up:
1. Determine your net worth. Your net worth is the number you're left with after subtracting your debt from your assets.
2. Determine your cash flow. Consider how much money you're spending each month compared to the amount you're receiving.
3. What is your savings rate? Divide your monthly savings by your income. Include any contributions to your retirement accounts, too. Most financial experts recommend a 15% savings rate. Obviously, a greater number will result in more savings.
4. Do you have the necessary insurance? Different situations require different types of insurance. Asking yourself a few questions will help determine the types of insurance you need. If you ask yourself all the "what if" questions, you'll have the necessary answers.
5. How much is in your emergency fund? Could you weather the loss of a job, a major car repair, or any of life's other unpleasant surprises?
6. How much do you expect to have at retirement? There are plenty of calculators that will enable you to extrapolate the value of your nest egg well into the future.
7. Are you prepared for major expenses in the future? If you know your car is nearing the end of its lifespan or major educational expenses are coming, are you in the position to handle them?
Your answers to these questions will reveal the health of your financial situation. Pay close attention to your financial health. Putting a priority on your finances will result in choices that enhance your financial well-being.
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