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How Do You Assess Your Financial Health?


When was the last time you visited the doctor? When you went, you were likely getting some form of check-up. This is how we take care of ourselves. Now, another question: When was the last time you evaluated your financial situation? In many circumstances, our financial standing may help or hinder us, so knowing where we are financially is crucial. This week, let's take a quick look at the six critical steps to analyzing financial health.


1. Net Worth

Net worth is a crucial measure to consider while evaluating your health. Our net worth represents all the financial decisions we've made throughout our lives. Consider it your financial report card. The key is to track the evolution of your net worth over time. Spending less than you earn increases your net worth. If you consume more than you make, your net worth decreases. The performance of your investments might also be reflected in your net worth. Start tracking your net worth today if you aren't already. It's simple to accomplish with a spreadsheet or one of the numerous free internet tools available.


It all boils down to assets and debts when calculating your net worth. A simple net worth estimate involves totaling your assets and deducting your obligations, often known as liabilities. Everything you own is considered an asset, including the amount of money in your bank or savings account, real estate equity, savings and investment plans, and objects having an actual market worth (car, jewelry, clothes, art, etc.). All outstanding obligations, including the remaining sum on your house, automobile, business or personal loan, credit card debt, school loans, back taxes, and everything else you still owe, are included in your liabilities.


Use the following calculation to determine your net worth:


TOTAL NET WORTH = ASSETS - LIABILITIES (DEBTS)


2. Evaluating Your Debt Level

The second stage is to examine your debt and ask two fundamental questions. First, has your overall debt increased or decreased in the last year? Second, have you borrowed money in the recent year? Sometimes, even if individuals have borrowed more money over the year and later repaid it, they may have been able to lower their overall debt. The key to getting out of debt for good is avoiding additional debt.


It is critical to go beyond the numbers in this case. If this is the case, try to figure out why you ran into extra debt. Similarly, assess your financial situation to see whether you can pay down your debt faster than in the past. Also, consider whether the interest rates on your debt can be reduced, maybe through things like refinancing or transferring.


3. Credit Score and Report

Your credit score and report are a third crucial, yet frequently disregarded, aspect of your financial wellness. This section is critical for several reasons. First, revealing your open accounts may alert you to identity theft. Any accounts identified that you did not open should be looked into immediately. Second, sometimes creditors report inaccurate information. These inaccuracies can be detected by monitoring your credit report regularly. Third, it keeps you focused on making timely debt payments and managing your credit correctly. Knowing what your current credit score is and learning how to raise it is of vital importance.


4. Your Savings Fund

There are two significant components of savings to consider. First, examine if your financial reserves can cover all short-term expenses and unexpected situations. This type of savings often referred to as an emergency fund, is exactly what it sounds like: a means to address unforeseen financial setbacks like a sudden job loss, an uninsured medical cost, or an unanticipated house repair. It is typically recommended to have three to six months of living expenses saved up for these sorts of situations. If you work for yourself or your income tends to fluctuate, you should keep an even greater cash reserve on hand.


Second, assess whether you are receiving the best possible interest rates. When it comes to earning money from your savings, it may appear that putting your money in a standard savings account with a low-interest rate and easy access is your best bet. That might be true in some situations. However, because traditional savings accounts often pay little interest, many seek more effective options. Check out our post, 4 Ways to Earn More Money Than With A Savings Account, to uncover additional options.


5. Your Retirement Savings

If you want to retire eventually, your retirement funds are a crucial indicator of your financial health. Everyone should assess their progress toward retirement objectives at least once a year. As lifespans and healthcare costs rise, having enough financial resources later in life becomes increasingly important.


A 2020 TD Ameritrade survey found that nearly two-thirds of those in their 40's have less than $100,000 in retirement savings. Furthermore, 28% of people in their 60's own less than $50,000. Considering that you'll need around 80% of your yearly salary in retirement to match your lifestyle, it's simple to understand why so many individuals outlast their resources.


The earlier you begin saving for retirement, the better. However, there is always time to catch up on your retirement funds. If you are over 50, the IRS will often permit you to make catch-up contributions to assist in closing the gap.


6. Financial Stress Level

Finally, your financial stress level is essential to your financial wellness. If your financial situation keeps you up at night or harms your physical and emotional health, you may need to make some adjustments.


This is where the actual worth of financial advice is typically discovered. A qualified financial advisor can assist you in developing a long-term financial strategy and strategic goal-setting. Furthermore, an advisor may assist you in relieving stress by saving you time, energy, and unnecessary anxiety.


Lower Your Financial Stree Levels Today

Ready to get your financial health on the right track? Start today! At Fourth Avenue Financial, our mission is to help you develop, implement, and monitor a strategy designed to address your individual situation. So, if you are ready to start working towards a secure financial future, we are here to help. Contact us at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online: https://calendly.com/fourthavenuefinancial/introductory-zoom.

Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.


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