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Financial health simply measures your ability to handle financial stressors and reach your long-term goals. The areas of financial health typically considered are:
Savings and debt paydown: Are you able to cover your needs, your wants and still have enough to build savings and pay down debt over time? The 50/30/20 budget is a good measure.
Debt-to-income ratio: This comparison of your monthly debt payments to your monthly gross income gives you a good idea of how manageable your debt load is. It's also a common measure used by creditors in making approval decisions.
Credit score: Even if you don't plan to apply for more credit, a good or excellent score can play a role in things like apartment applications, insurance costs, utility deposits and more.
Emergency fund: Having enough in the bank to weather financial shocks protects you from debt spirals and the credit score damage that comes from missing bill payments.
Insurance: This protects assets — such as vehicles, personal possessions and your home — and it also protects dependents in case you're unable to work.
Financial planning: Staying financially healthy means saving toward retirement, working on estate planning and more.
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How to improve your financial health
For most people, attaining financial health is a journey — one that lasts a lifetime. Very few people are lucky enough to have instant security from generational wealth or a massive lottery jackpot. Instead, the progression tends to look like this:
Building foundations. This can describe when you're getting started in the workplace, but it might apply later, too, because life doesn't always go to plan. Strengthening foundations includes creating an emergency fund, building your credit score and balancing expenses and debt load. And it's never too early — or late — to start planning for retirement, so that your savings have time to take advantage of the magic of compound interest.
Stacking up wins. As you gain momentum, continue to grow your financial stability. This could mean things like paying down debt balances, using insurance coverage to protect your assets and knowing what your needs will be in retirement. Staying on top of managing your credit score will help push it higher, which gives you more financial choice.
Doing great. You're on top of your savings plan and have a healthy debt-to-income ratio. A longer track record of managing your credit score helps, too; credit scores tend to peak in later work decades. Having a handle on financial planning and a solid approach to insurance positions you to build and protect your assets.
The three sections below provide further helpful guidance at each stage.
A smart view of your financial health
Get a quick read on how you’re set up to meet expenses and money goals.
Building foundations
These guides can help you handle basics, like choosing a bank, getting some savings going and learning how to manage money:
Banking 101: The traditional banking system has some benefits that alternatives don’t, such as fraud protection, free check cashing and access to lower-cost loans.
Emergency Fund: What It Is and How to Build One: Research shows that even a few hundred dollars in reserve can mean budget shocks don’t derail your life.
How to Build a Budget: A plan for maximizing your money doesn’t have to be complex.
What You Need to Know About Building Credit: Building your score can save you money and let you borrow at better rates.
A Simple ‘Recipe’ for Managing Your Credit Score: Know a few key ways to build your score.
Typically, income is lower when you're just starting out. But setbacks can hit anyone, at any time. If you're having trouble keeping up with your bills and don’t have a financial cushion, explore these resources that may help you in a crisis and lay the groundwork for greater financial security:
How to Pay Bills When You Can’t Pay Your Bills: If you can't cover everything, check out these sources of help and strategies to minimize the fallout.
6 Ways to Get Free Money From the Government: Programs include help with utility costs, child care, college — even help with a down payment on a house.
What Is a Payday Loan? These high-cost, short-term loans are risky, but there are alternatives.
Beware of Predatory Lenders: Know the warning signs of a toxic loan.
Stacking up wins
You may be thriving in some areas but not yet on top of others. Here are ways to address possible financial pain points and shore up your security.
Managing debt
Tools and Tips to Pay Off Debt: Learn strategies to speed up debt payoff.
Understanding Debt Relief: Struggling with debt? Learn options for help, plus their pros and cons.
Building your credit score
How to Build Credit: Adding more points to your score saves you money and unlocks access to things you want.
How to Rebuild Your Credit: If you’ve made some missteps, you can recover — these strategies will help.
Working toward financial goals
How to Manage Your Money: These strategies help you make sure each dollar does the most for you.
Intro to Retirement Planning: Start where you are and with what you have. Every bit helps.
Beginner Guide to Investing: What to know about goals, timelines and the amount of risk that makes sense for you.
College Savings Strategies: Explore the many ways you can set aside money over time.
Saving for and buying a home
Buying a Home With Bad Credit: It is possible — here’s what to know.
First-Time Home Buyer Guide: Those new to the housing market have some key help.
How to Save for a Down Payment: You might not need as much as you think.
Down Payment Assistance: Getting Help Buying a House: These programs can help, even if you’re not new to the housing market.
Doing great
Those who are financially healthy are successfully managing all aspects of their financial life. They have good to excellent credit, a handle on debt, an emergency savings fund and are on the right track for retirement. The goal for you, if you fall in this category, is staying the course and reaching your financial goals.
Here are some resources to maximize your efforts and ensure you’re getting the most out of the optimal position you’re in.
Maintaining financial health
How to Achieve Perfect Credit: An excellent score unlocks the best terms, but some people like to aim for 850.
Investing Your Savings For Short- and Long-Term Goals: Knowing the timeline you’re on helps you make the best choices.
What Is Asset Allocation?Learn about balancing where you put your money to best reflect your age, goals and risk tolerance.
Choosing a Financial Advisor: Find a professional to help you meet your goals.
Saving and investing for retirement
How to Save More for Retirement: It’s all about how you account for savings in your budget.
IRAs vs. 401(k): How to Choose: How to weigh what account is best for you.
How to Invest in Stocks: Get started with an online brokerage account — it’s easier than you might think.
Best Investments for Any Age or Income: Fine-tune your approach, depending on your circ*mstances.
Choosing the Best Index Funds: It all starts with deciding a goal for your money.
