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What is Financial Health?

When was the last time you went to the doctor? People tend to get regular checkups to take care of their physical health, but few take the time to assess their financial health regularly. Sure, you might check your credit score from time to time, but a credit score is just one component of financial health. Checking your score – and even reviewing your credit report – isn’t the equivalent of a complete physical exam.

So what exactly is financial health? And how can you check up on yours? We’re sharing everything you need to know.

What Is Financial Health?

Financial health is a measure of your comprehensive financial situation at a given point in time. It measures your ability to meet your financial obligations and goals as well as the ability to weather unexpected financial hardships.

Financial health is different from financial literacy or financial wellness. Being financially literate means you have the skills or knowledge to make informed decisions with your money. For example, knowing how to save money, compare interest rates on loans, or take advantage of investment opportunities. You may not have much money right now, but if you have financial literacy, you have the capacity to maintain and improve your financial situation over time.

Financial health is also different from wealth. A person might have a high net worth because they received a large inheritance. But overspending and failing to invest their money wisely will wreak havoc on their financial plan over time.

PRO Index
You can measure your financial health with the PRO Index™

Why Your Financial Health Matters

Financially healthy people are insulated from a paycheck to paycheck mentality and don't to worry about money on a day to day basis. If they lose a job or face unexpected expenses, they have savings to cover their necessary bills. If they want to buy a home or a car, they don’t have too much trouble coming up with a down payment or getting approved for a loan.

Unfortunately, financial health is not all that common. The Financial Health Network’s U.S. Financial Health Pulse report found that as of August 2020, only one-third of people in America (33%) were financially healthy, as measured using several indicators:

·         Spending less than income

·         Paying bills on time

·         Sufficient liquid and long-term savings

·         Manageable debt

·         Strong credit score

·         Appropriate insurance

·         Financial planning

The other 67% of Americans were classified as “Financially Coping” or “Financially Vulnerable” because they struggled to spend, save, borrow and plan in ways that allow them to weather financial ups and downs and take advantage of opportunities. All of which leads to stress, which can eventually take a toll on your mental and physical health.

While any kind of stress can impact your health, financial stress can be especially damaging.

Financially Unhealthy People May Experience Poor Physical Health

Ongoing stress over money has been linked to a number of medical issues. A 2019 study found that people who have trouble paying their debts and living expenses experience a higher rate of sleep problems, which has been shown to increase the risk of weight gain and obesity, hypertension, diabetes, stroke, and heart disease.

Financially Unhealthy People May Delay Healthcare

Without financial health, you may have less money in your budget to pay for healthcare. According to Gallup’s 2019 Health and Healthcare poll, 33% of people put off treatment for a medical condition because of the costs they would have to pay.

Depending on the severity of the issue, this tactic may seem like a good way to cut corners, but it can actually lead to worse health problems and higher costs down the road. It can also lead to more stress.

Financially Unhealthy People May Have Poor Mental Health

Financial problems and mental health often go hand in hand. One study found that people with depression and anxiety were three times more likely to be in debt, and people who commit suicide were eight times more likely to be in debt. Another study published in Psychological Medicine found that people who struggle to pay their rent or mortgage experience the same stress level as someone going through a divorce or job loss.

Clearly, financial health isn’t just about accumulating assets. For some people, it’s a matter of life or death.

The Six Vital Signs of Financial Health

There are several dimensions to financial health, and for most people, getting there is a journey. Whether you’re a young adult taking this journey for the first time or an older adult in crisis mode (i.e., unemployed or deeply in debt), knowing the six vital signs of financial health can help you understand your starting point and identify ways to level up your financial future.

Financial Health Vital Sign #1: Income

There are high-income households and low-income households. However, high-income households aren’t necessarily more financially healthy than low-income households – even if they have more opportunities to get there.

Your ability to spend less than your income directly affects your ability to cover living expenses, pay your bills on time and build savings. If your income is too low to reliably make ends meet, you will have a harder time budgeting, saving and reaching your financial goals.  There are several ways you can increase or augment your income that we cover in more detail in future financial health articles. When it comes to income, what really matters is that you spend less than you earn, also known as having a positive cash flow.

Financial Health Vital Sign #2: Cash Flow

Cash flow is closely tied to all the other financial health vital signs. In essence, it is a measure of how well you make financial decisions or what you actually do with your money. For example, if you put all your income towards expendable goods that are not necessary for day-to-day living, then your cash flow vital signs will not be very strong. If you spend more than you make in income each month, you will likely face a lot of debt, and compound multiple problems with your financial health.

As mentioned before, the most important thing you can do to improve your cash flow is to always optimize for positive cash flow each month by spending less than you are taking in.

Financial Health Vital Sign #3: Assets

Assets are things you own that are worth money. Assets typically fall into three main categories.


Having cash in an emergency fund can help you cope with unexpected expenses like car repairs or a drop in income from losing a job.

There’s no one-size-fits-all rule for how much cash you should have in an emergency fund, but most personal finance experts recommend having enough money in a bank account (typically a savings account) to cover three to six months of expenses.


Long-term assets like stocks, bonds and mutual funds help you build wealth because you generally earn investment returns in the form of interest, dividends and capital gains. They also allow you to save for retirement, providing financial security when you may not be able (or want) to work.

You may not have a lot of assets in this category right now, but it’s something you can work on building over time. Most experts recommend saving 15% of income for retirement. If your employer matches contributions to a 401(k) or 403(b) retirement account, those matching contributions count toward this goal.

Other assets

Other assets may include a home, car, boat, jewelry and other property that tends to hold or even increase in value.

Homeownership can build wealth, provide long-term stability and is often more affordable than renting. A vehicle ensures you can reliably get to and from your job. Other assets can be sold to cover unexpected expenses or provide additional income in retirement.

Financial Health Vital Sign #4: Debt

Having too much debt can rot away at other factors of financial stability. If your debts are greater than your assets or you have a high debt-to-income ratio (DTI ratio), financial health will be more difficult to obtain.

The types of debt you carry factor into the overall picture of your financial health. Asset-building debt, like a mortgage, is generally better than consumption-related debt, like credit cards.

Most financial experts recommend keeping your total monthly debt payments below 36% of your monthly income. That includes “good” debt like a mortgage payment, as well as other debt like student loans, car loans and credit cards.

Financial Health Vital Sign #5: Credit Score

Your credit score is an indicator of your ability to access low-cost credit when needed and pay it back. A higher credit score usually means you’ll pay lower interest rates on everything from your mortgage to your car loan and credit cards.

One of the most commonly used credit scores is the FICO Score. It ranges from 300 to 850. In general, a credit score of 700 or above is considered good. If your credit score is in this range, you likely won’t have trouble getting credit when needed, and you’ll receive better than average rates from lenders when you take out a loan.

Financial Health Vital Sign #6: Insurance

Having the right insurance allows you to be resilient in the face of unexpected life events. Homeowners or renters’ insurance and car insurance protect your housing and transportation. Disability and life insurance protect your income, and health insurance ensures you can get necessary healthcare to prevent or recover from illness or injury.

Without proper coverage, a natural disaster, job loss or medical emergency can eliminate any emergency fund you’ve built up, drain your long-term savings and even lead to bankruptcy.

Bottom Line

Now that you know the six vital signs of financial health, you can set goals based on this information, taking it one step at a time. If you don’t make enough income to cover your living expenses, set a goal to negotiate for a raise at work or start a side hustle. If you don’t have an emergency fund, start setting aside a percentage of your paycheck each month. If your debt is high, make a plan to start paying off high-interest credit card debt.

Don’t get discouraged by a lack of progress at first. You may not be able to get from being on financial life support to financial well-being in one month or even one year, but small improvements will add up over time. Before you know it, your financial health will positively impact other areas of your life.

About the Author

Janet Berry-Johnson is a freelance writer and CPA with a background in accounting and income tax planning and preparation. As a regular contributor to Business Insider, Money Crashers, and several other online publications, she helps make complicated tax and personal finance information accessible to readers.

Harvest helps increase the net worth of the 99% through artificial intelligence and financial automation. To date, Harvest has refunded over $2M in bank fees and interest charges to its members with the ultimate goal of increasing the net worth of everyday Americans by $1 trillion by 2030. Our platform starts with providing immediate relief through bank fee and interest charge refunds, orients a member's financial health with our proprietary PRO Index, and keeps track of net worth over time aided by our suite of financial tools. Check out our 8-step guide on "How to Build Wealth from Nothing" to get started on increasing your net worth.

Disclaimer: Harvest is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.