Financial stability is more critical than ever, especially with current living costs, inflation, and economic uncertainties. While managing personal finances is essential to reaching this goal, measuring your progress can help you identify ways to improve your financial health.
Financial health refers to your economic well-being in relation to physical, mental, and social aspects. Handling money sustainably is a tell-tale sign of sound financial health, indicating your capability to meet short- and long-term goals. However, understanding your performance can be challenging without the proper metrics to track.
Are You Financially Healthy? 6 Figures to Look At
Measuring financial health involves analyzing specific figures to evaluate your progress in your financial journey and identify improvement points. Let’s discuss them below.
1. Net worth
The first step to evaluating financial health is determining your net worth, which is the value of your assets minus liabilities. Understanding how to measure your net worth provides insight into how much you currently have versus what you owe, which is instrumental to strengthening your financial strategies.
Let’s say your total asset value is ₱100,000. If your liabilities amount to ₱30,000, then your net worth is ₱70,000. This figure increases as you pay off debts and your assets’ values improve. A high net worth makes you more attractive to financial institutions and encourages them to offer better terms, investment products, and services.
Income is your earnings from employment, investments, and other streams—resources you need for expenses, savings, and investments while also allowing you to pay off debts. Ideally, your income grows by around 4% annually to ensure long-term sustainability. Otherwise, it would undermine your efforts to save and improve your financial health.
Having multiple income sources besides your usual nine-to-five is ideal for sound financial health. For instance, you could leverage investments like treasury bonds and stocks to diversify income and cushion your savings even with low income or unemployment.
3. Debt-to-income ratio
The debt-to-income ratio refers to how your liabilities compare to your monthly income. Experts agree that a ratio of lower than 35% indicates good financial health, while a higher figure implies limited funds to save or spend.
Calculate your debt-to-income ratio by combining recurring liabilities’ values, including mortgages, credit bills, and car payments. Then, divide the sum by your gross monthly income and convert it into percent value. If your ratio exceeds the recommended value, consider getting a sideline to increase income and pay off liabilities faster.
4. Credit score
Your credit score determines your creditworthiness for financial institutions to consider you a suitable client. The Credit Information Corporation (CIC) rates and records credit scores in the Philippines.
Lenders typically use credit scores to determine whether to qualify clients for specific products and services. They may also provide attractive terms for your high score, like lower interests and higher credit limits, giving you better opportunities to improve your financial health. Minimizing hard inquiries and paying your obligations responsibly can significantly increase your score.
The size of your savings reflects your financial health, as it determines your readiness for the future. Thinking about tomorrow is critical to reaching your goals, or else you might become stuck living paycheck to paycheck, undermining your progress.
Adequate savings keep you secure in the long run—even saving ₱50 every day amounts to roughly ₱18,000 a year. It also enables you to build an emergency fund to safeguard your savings during hospital visits, unemployment, and other unforeseen circumstances. In turn, you don’t have to worry about not having money for unexpected expenses—a sign of poor financial health.
6. Retirement fund
Building a retirement fund improves long-term financial health. You want to spend your later years doing what you love without dipping into your savings for essential expenses like hospital visits and medications.
While setting aside cash for retirement is a good practice, you could leverage government retirement plans, like the Social Security System’s (SSS) retirement benefits or the Government Service Insurance System’s (GSIS) Retirement Programs. Maximize your contributions while working to make the most of annuities and pension payouts, and enjoy excellent financial health even during retirement.
Building a Better Future
Building wealth and striving for financial stability can be challenging without an idea of how effective your strategies are. By tracking the metrics above, you can determine your progress and performance to achieve long-term financial health. Then, you can maximize your money and enjoy the life you deserve.
Do you need assistance in reaching your goals? We can help you out. Asialink provides online loans with low interest to kickstart your journey toward a better future for you and your loved ones.