Four key benchmarks and indicators of strong financial health

You know what it takes to achieve good physical health –– you maintain regular check-ups, develop healthy habits, and stay vigilant for potential issues. The same applies to your finances.

A structured budget, robust savings, manageable debt, and a good credit rating are all healthy signals of financial vitality. Each of them functions and fluctuates together amid life’s changes. With consistent assessments, these benchmarks foster healthy financial habits.

Here’s how to know if you practice financial wellness

Budget

Creating a budget is about finding a balance for you. How you know you’re constructing a solid budget is heavily based on how you track your spending every month, separating fixed expenses (e.g., rent), from variable expenses (e.g., groceries). It’s also helpful to estimate your monthly variable costs. To do this, add up your total yearly variable expenses and divide by 12.

Don’t know where to start? Our website has a wide range of resources [https://mnpdebt.ca/en/tools/downloadable-forms] including, a budget sample worksheet that can bolster building a budget foundation.

Savings

They’re not just about setting money aside but being proactive with your financial health, creating a cushion for life’s uncertainty and planning for the future.

Signs of knowing you have effective saving habits are centred by strategic planning –– you’ve reserved savings­­ for emergencies, major purchases, and retirement. It’s also about accessibility, in that you have set aside funds you can quickly access for emergencies. In addition, you have savings for long-term goals, such as retirement or larger purchases, for instance, vacations, home renovations and larger purchases.

It’s worth noting, most personal finance experts recommend having three to six months worth of regular expenses saved.

Debt

Debt can play a big role into securing good financial standings. It’s not so much a matter of having little of it, but whether it’s manageable. Strategies that say you’re cultivating manageable debt include knowing your debt-to-income ratio (DTI) and keeping less than 40 percent. To calculate DTI, take your monthly debt payments, divide by your total monthly income, and multiply by 100. DTI a key factor for financial institutions considering lending you money, and;

• You pay more than the minimum payment on your unsecured debt every month. This will keep interest costs down and chip away at your principal debt balance.
• Have a low balance on your credit cards and lines of credit, in other words you’re achieving this by using less than 75 percent of your available credit. (Nearing your limit or maxing out your available funds is a slippery slope to defaulting on payments.)
• Never missing a payment on debts –– missed payments can have an immediate and negative impact on your credit rating, potentially triggering increases to interest rates and minimum payments.

Understanding your debt is an important step in attaining stability. The best DTI is below 36 percent –– but note a ratio less than 40 percent is still within the normal range, meaning your debt is considered manageable.

Credit Rating

Credit scores provide valuable insights into your current financial status. Your credit rating is based on how effectively you manage debt. Markers for well-maintained ratings include annual or quarterly reviews. Regularly monitoring your credit report to catch errors and inaccuracies, preventing negative impacts to your score. Reports can be requested for free from TransUnion Canada and Equifax. Your financial institution may also offer free credit reports through their online banking platforms.

It may seem obvious, but safeguarding strengthens the prevention of fraud, keeping your password private and reviewing transactions on your monthly statements remains the best way to prevent fraudulent behaviour.

Get a free debt health assessment

If you are falling short of meeting these indicators, don’t feel defeated. Look at it as, a financial exercise. Working towards meeting two or three of the criteria, getting stronger each month until you hit all your goals.

Our free debt health scale tool can help evaluate where you stand. The MNP Debt Scale [https://mnpdebt.ca/en/tools/mnp-debt-scale] is quick, easy to use, and completely confidential. If the Debt Scale, confirms unhealthy financial wellness, we can aid you. Consult with one of our Licensed Insolvency Trustees for a Free Confidential Consultation to explore your options for improving your financial health –– because your financial health matters.