The concept of financial health also acknowledges the forces beyond our control. Just as physical health is a combination of behavior, genes and access to good medical care, financial health is a result of personal decisions and abilities, the economy and access to good, unbiased financial services and advice.
“There is an element of personal responsibility, but it’s more than that,” Schneider says.
Definitions of financial health typically have three factors in common:
- You can manage your day-to-day financial life
- You can absorb a financial shock
- You’re on track to meet your financial goals
How do you get there? These eight behaviors can help:
Spend less than you earn. This is the foundation for financial health. You can’t get out of debt or save for the future if your expenses eat up all your available income.
Pay bills on time. You manage your cash flow and meet your regular financial obligations. Missing payments costs you money in late fees, hurts your credit and causes stress.
Have a decent emergency fund. “Decent” varies according to your circumstances. The Center for Financial Services Innovation, which developed ways financial institutions can measure consumer financial health, would like to see everyone have six months’ worth of living expenses set aside. But as little as $250 can be enough to save a low-income family from a serious financial setback, according to a study by the Urban Institute, a policy research group. What’s more important than the amount is developing a habit of saving regularly so you continually replenish your coffers.