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Financial health

What it is – and how to achieve it

Female employee using her phone to calculate her finances

Everyone knows what physical health is, but many people aren’t quite sure what makes up “financial health.” It refers to the state of a person’s financial affairs, including stable income, manageable debt, a strong credit score, sufficient savings (including an emergency fund), and appropriate insurance coverage. These are all common sense factors that contribute to present-day financial wellness, your ability to achieve future financial goals, and long-term financial confidence through retirement.

What are the indicators of financial health?

A doctor will look at measures like blood pressure or cholesterol as indicators of a person’s current physical health, and to gain insights about potential health issues that could arise later. Similarly, financial professionals look at indicators of a person’s financial health to get a clear snapshot of their current financial situation, and to gain insights into their financial future and ability to manage and grow wealth. Key indicators typically include:

  • Debt-Income Ratio

    This measures the percentage of your income that goes towards paying debts, an indicator of your debt management skills. According to the Consumer Financial Protection Bureau, you should consider having a debt-to-income ratio below 36% – and 43% is typically the highest a borrower can have and still get a qualified mortgage.

  • Credit Score

    This is a numerical representation of a person’s creditworthiness, based on their credit history –timely debt repayment, and other factors. It affects the ability to borrow money and the terms of borrowing, including interest rates. Scores typically range from 300 to 850, with higher scores indicating better credit health.

  • Savings and Emergency Funds

    The level of a person’s emergency fund is a crucial indicator of financial health and their ability to save money. It’s commonly recommended to have an emergency fund that covers three to six months' worth of living expenses – protection to handle financial surprises without resorting to high-interest debt.

  • Insurance Coverage

    This is an often overlooked aspect of financial health. Adequate coverage, including health, life, disability, and property insurance, provides protection against unforeseen events that could otherwise harm your financial well-being. For example, without disability insurance, an illness or injury could lead to significant debt.

While these are common indicators to look at, achieving and improving financial health requires a balanced approach, combining prudent spending, effective debt management, regular savings, strategic investments, and foresighted planning. And since every person’s situation and goals are different, each path to achieving personal financial health is unique. But we can help you get there with information, resources, and tools to help support your journey toward financial well-being.

Budgeting, investing, and money management

Planning for retirement

Creating stable long-term income

Building protection with insurance

Tools and resources to help build financial health

Frequently asked questions about financial health text

There are many ways to measure financial health, but three of the more common measures include:

  1. Low debt-to-income ratio: Having a debt-to-income ratio significantly lower than 36%, may indicate manageable debt relative to income.

  2. Robust emergency fund: An emergency fund that covers at least three to six months of living expenses can help provide a cushion against unforeseen financial shocks.

  3. Strong credit score: High credit scores (above 670) reflect a history of timely bill payment and responsible credit management.

Creating and maintaining good financial health can encompass many things, but four key factors include:

  1. Effective debt management: Keeping debt manageable (especially high-interest credit card debt) and ensuring timely payments.

  2. Savings and investments: Regularly saving a portion of one’s income and investing it wisely to build wealth over time.

  3. Budgeting and expense tracking: Maintaining a budget to track and control spending, ensuring that expenses do not exceed income.

  4. Insurance and risk management: Having adequate insurance coverage to help protect against unforeseen financial risks and emergencies that could impair one’s finances.

While every person and household has a unique set of financial circumstances and goals, there are a few things everyone should try to do to maintain and enhance their financial stability and well-being:

  • Create and stick to a budget that covers your expenses, savings, and investments.

  • Keep debt obligations manageable, avoid high-interest debt, and make timely payments.

  • Regularly save a portion of your income and consider investing in a diversified portfolio.

  • Build and maintain an emergency fund to cover unexpected expenses.

  • Have adequate insurance coverage to help mitigate risks to your income and assets.

  • Regularly review your financial situation and adjust your strategies to stay on track.

Annuity guarantees are backed by the strength and claims-paying ability of the issuing insurance company.

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.