what is financial health?

AMANDA CHRISTENSEN

On Friday's during the month of April we're posting all about financial fitness. The Consumer Financial Protection Bureau (CFPB), combined with a review of research and consultation with leading experts, found that financial well-being includes the following four elements:

1. Having control over day-to-day, month-to-month finances.
2. Having the capacity to absorb a financial shock.
3. Being on track to meet your financial goals.
4. Having the financial freedom to make the choices that allow you to enjoy life.

Another way to think about it: Financial well-being is the feeling of having financial security and financial freedom of choice, in the present and when considering the future.
So what does financial health look like at each age?

“Although actual timing will always vary from person to person, the next seven slides share common, suggested financial milestones to achieve at each decade of life.  Milestones achieved at an earlier age (e.g., a good credit score and an adequate emergency fund) should continue during subsequent years.”
​Barbara O’Neill, Personal Finance Expert, Rutgers University.

​Here are some suggested financial milestones for each decade:

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• Age 10: Learn to add and subtract, sell a service or good for money (i.e. lemonade, car washing, cookies, babysitting, cleaning, etc.), save up for something you really want, use some money to buy a gift for someone or donate to charity.
• Age 10-20: Work at a job for money, have checking/savings accounts, establish a Roth IRA, decide the type of lifestyle you’d like to live, what salary you’ll need for that lifestyle, and what career/job you’ll need for the desired salary/lifestyle, build credit with a credit card with a low borrowing limit-use it regularly but pay it off monthly.
• Age 20: Learn to invest, learn to budget, track income and expenses, regularly contribute to a Roth IRA, build credit, make on-time debt payments, stay below 30% of your allotted credit amount on credit cards, save for emergencies, $1,000 emergency fund, 3 months expenses in a separate savings account, obtain adequate insurance.
• Age 30: Financial independence from parents (Ex: Independent living arrangements and no “subsidies” to pay expenses such as insurance premiums and cell phone bills), student loan debt completely repaid or close to repayment, a year’s worth of salary (1x) saved for retirement, a good credit history established with a credit score in the low- to mid-700s or higher, regular saving/investing and at least three to six months of income set aside for emergencies, educational credentials earned or near completion (Ex: Certifications and graduate/professional degrees), have current estate planning documents and life insurance to protect dependents or co-signers, if applicable.
• Age 40: Three times annual salary (3x) saved for retirement; saving at least 15% of gross income, college savings established for children, if applicable, increased investing expertise and diversification of investment portfolio assets (Ex: More than one type of asset class –stocks, bonds, cash, real estate),  increased human capital (Ex: Job skills and knowledge to remain employable and earn promotions/raises).
• Age 50: Six times annual salary (6x) saved for retirement; making catch-up retirement savings plan contributions, increased knowledge about the specifics of Social Security, Medicare, and employer retirement benefits, increased knowledge of aging parents’ finances and communication about care giving-related issues, use of financial advisers, as needed, as net worth increases and finances become more complex.
• Age 60: Eight times annual salary (8x) saved for retirement, paid off mortgage, home equity loan, and credit card debt prior to retirement, catch-up retirement strategies used, if needed (Ex: Downsizing, moving, working longer, and selling assets), learning new skills and/or making other preparations to transition to a “second act” job or volunteer role.

                                                           (Barbara O’Neill, Personal Finance Expert, Rutgers University)
​What does financial health mean to you? After reviewing the info above, write, draw, or cut out pictures depicting what financial health means to you at your current state of life.
​QUESTIONS TO ASK: Am I on track with the suggested financial milestones at each decade? What would it take to get on track with my current decade? How would I feel differently if I was financially healthy? If I woke up tomorrow and my financial health was adequate, what would be the evidence that something had changed?
Share what you create with someone close to you, a spouse if applicable.