How to Complete Your Financial Health Assessment

According to a 2017 MarketWatch report, about 49% of Americans are “concerned, anxious or fearful about their current financial wellbeing”. For a budget coach like me, that’s alarming! The reality is that everyone can have peace in their finances. It all boils down to how well you manage the money you make. If you’re not sure where you stand in your finances, or know you want to do better, I’m walking you through how to complete your financial health assessment. Once your finances are assessed, you can move forward the best way possible..

What is Financial Health?

#1 Understanding Overall Financial Know-How

Let’s first start with what financial health actually means to you. Your financial health is comprised of a few aspects, starting with your understanding of finances overall. Are you familiar with basic financial concepts like budgeting, credit management, and general investing? Having a basic understanding of the main pillars of finance is a great start to being financially healthy. 

#2 Feeling Secure in Your Financial Situation

Another aspect of financial health is how secure you feel in your financial situation. If you are living paycheck to paycheck, have out of control debt, or feel behind for your age, then your financial health is not at its highest.

When you have money left over after each pay period, you’re debt free or on track to become debt free, and are statistically where you should be at your age, you have a sense of security in your financial situation. This is a good indicator of a strong financial health score.

#3 Living Below or Within Your Means

Lastly, the ability to live below or within your means is a strong indicator of your financial health. People who are financially stable are able to keep their spending to a reasonable amount. They are not going into debt and/or spending money they don’t need.

They know what they need to survive and they are able to stay within those limits. Or, they save for the things they want, so their situation isn’t put in jeopardy.

How to Assess Your Financial Health

#1 – Calculate Your Net Worth

The first step to assessing your financial health is to calculate your net worth. Your net worth is the total amount of your assets less the total amount of your debts. If your debts are greater in value than your assets, you can (and likely do) have a negative net worth.

When you know your net worth, you have a good understanding of your financial situation at a high-level. You are able to use this information to move forward accordingly. If your net worth is negative, you should know the next steps are to reduce your debts. If your net worth is positive, you should know the next steps are to build more wealth. Read 6 Ways to Boost Your Net Worth for a few pointers!

#2 – Review Your Budget

The next step to complete your financial health assessment is to review your budget. If you don’t have a budget, then you need to create one! When looking at your budget, you’ll want to keep an eye out for a few key things.

You’ll want to make sure that your income doesn’t exceed your spending. If your bills are too high for the money you make, you absolutely need to bring in more income. Next, you’ll want to make sure you have savings happening on a regular basis. The amount saved doesn’t have to be astronomical, but it does have to be affordable for your situation.

Finally, your budget should also include a reasonable amount allocated for discretionary spending. Discretionary spending basically means you budget for fun, going out to eat or any other recreational type spending you enjoy. Life is too short to deprive yourself, but you do need to make sure your priorities are covered. Having a reasonable amount allocated to fun spending keeps your budget moving nicely.

#3 – Review Your Assets

Moving forward with your financial health assessment consists of reviewing your assets and debts. You already have a high-level understanding of your net worth, but now it’s time to get into the weeds! At all times, you should be able to know or quickly find out the amount of each of your assets. I would suggest keeping track of your asset balances on a monthly basis. Here are a few asset statements you can leverage to get a detailed accounting of your assets:

  • Retirement plan statements (pension, IRA, 401k, 403b)
  • Savings account statements (general savings accounts, savings apps)
  • Investment account statements
  • Property statements (value of your properties)
#4 – Review Your Debts

Similar to getting detailed with your assets, you’ll want to get detailed with your debts. Make a list of all the debts you currently owe. As you pay down your debt, track your balances month over month. The goal is to be completely debt-free. This won’t happen overnight, but when you know where you stand, you can start making the right choices to improve your situation!

#5 – Answer the Following Questions

To wrap up your financial health assessment, ask yourself the following questions. Give each question some thought and physically write out your responses. I’d suggest referring back to these questions every six months to a year. Over time, you should see the answers to these questions get better and better:

  • Are you financially stressed out? 
  • Do you live paycheck to paycheck?
  • How much do you have saved for emergencies?
  • What are your financial goals?
  • What are you doing to reach those goals?
Unhappy with the results?

If you are unhappy with the results of your financial health assessment, you need to do something about it! Time will keep going, whether you do the right things for your situation or not. Here are a few ways you can start improving your financial health instantly.

#1 – Start by increasing income/decreasing expenses

You will instantly feel better about your situation if you bring in more money or cut back your expenses. I’d recommend starting with cutting back your discretionary spending. When that is at a minimal amount, think about other expenses that can be reduced. At the end of the day, you can only cut back so much. Be realistic with yourself when it’s time to start making more money.

#2 – Create a detailed plan to reach your goals

Another thing you can do to feel better about your financial health is to start setting goals and create a plan to reach those goals. Leveraging the SMART strategy can help you set goals that can be measured and achieved. Read The Best Way to Set Your Money Goals for more information on setting SMART financial goals.

#3 – Seek help when needed

Rounding out the list of things you can do to instantly improve your financial health is to seek help from a professional. A finance or budgeting coach can help you create a game plan for your money, so you can start seeing results. Most of us weren’t taught how to manage our money, so we need the advice and guidance from someone who knows how to manage money the right way.

Schedule a free consultation with me today and let’s talk about what we can do to improve your financial health!

Related: 5 Money Resolutions to Make Right Now

Your financial health is directly tied to your personal wellbeing. To live a life free of stress and worry from finances, you need to be financially healthy. Have you completed a financial health assessment? If so, what were your results? Drop a comment below to share!

The CGS Team



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