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Six Tips for Assessing Your Financial Wellness

Whether you eat clean, practice yoga, or get regular medical checkups, taking care of your physical health requires proactive action. The same is true for your financial health – it doesn’t just happen on its own. Financial wellness takes hard work, money management, and financial planning.

Financial wellness means having an understanding of how to make the best use of your money to maintain a comfortable life. In general, you should consider yourself financially healthy if you can keep up with your bills and debt, have money set aside for emergencies, and have enough extra cash to plan for future expenses, such as college and retirement.
Having a plan as part of your financial wellness strategy can alleviate both physical and financial stress. And just as your physical health needs change over time, so do your financial needs. Monitoring financial wellness is an ongoing activity.
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Items to review in your financial wellness checklist

To help you get started, here are some of the elements you should consider to help you maintain good financial health.

  1. Maintain a Household Budget. Without a household budget, you can’t properly plan your monthly spending or savings. There are many ways to approach a household budget, but perhaps the easiest way is the 50/30/20 rule: 50 percent of your income for needs (rent, food, clothing, and so on), 30 percent of your income for wants (such as travel, entertainment, dining out), and 20 percent of your income for savings and to pay down debt.

  2. Monitor Your Credit Score. Your credit score is the metric used to show your creditworthiness. A credit score ranges between 300 and 850 and is based on a number of factors such as your credit history (as reported to Equifax, Experian, and TransUnion) and whether you pay your bills on time. Maintaining a good credit score (670 or higher) matters, because having good credit helps you to qualify for new credit card accounts or a car or home loan. Most banks and credit unions, including 1st United, provide credit scores.

  3. Watch Your DTI Ratio. One metric that reflects your financial health is your debt-to-income ratio (DTI). Your DTI ratio is the amount of monthly debt payments you owe – such as student loans, car loans, and credit card debt – divided by your gross monthly income. Debt has become a way of life for too many Americans; if your debt gets out of hand, it makes it harder to borrow money or build savings for the future. If you want to buy a house, for example, most lenders want to see a specific DTI before offering a mortgage.

  4. Keep an Emergency Fund. An emergency can be anything from a flat tire to a global pandemic. Most experts recommend having 3-6 months of living expenses set aside for emergencies. However, you want to strike a balance between having emergency cash available and investing your money for growth, while still being able to access it if you need it.

  5. Save for Retirement. Americans don’t save enough for retirement. Research shows that 37% of retirees say they have no retirement savings. Retirement planning is a critical part of your financial wellness checklist. You should start planning as early as you can, ideally starting with your first paycheck, and reassess your retirement plan periodically.

  6. Assess Your Insurance Needs. Consider what types of insurance you may need to promote peace of mind. There are different types of insurance that may suit your financial plans, such as life insurance or long-term care insurance.

Have the right monetary tools

You’ll need the right checking and savings account. Your checking account is your cash repository to access money for living expenses and to pay bills. For example, many people have their paychecks automatically deposited to their checking account. You also can transfer money from checking to savings for emergency expenses and start accumulating cash for retirement and long-term financial planning. As you accumulate cash, you can start putting it to work in other financial products, such as individual retirement accounts (IRA), certificates of deposit (CDs), and investment accounts.

Need help?

As you are assessing your financial wellness, you may have questions. Feel free to reach out and let us know how we can support you on your path to financial success.

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