When you go to your doctor, they will always take your vital signs to get a better understanding of your physical health. Vital signs such as blood pressure, heart rate, and respiratory rate give the doctor a good indicator of your overall health. When it comes to finances, you can similarly measure your financial health with high precision. There are six financial health vital signs that are covered in this guide in-depth to help you get a comprehensive picture of your finances. Our mission at Harvest is to increase the net worth of our members by $1 trillion by 2030 and this guide covers the essentials of financial health to help get there.
This article covers exactly what financial health is and outlines six financial health vital signs you can use to measure and improve your financial health over time.
The first financial health vital sign is income. Income is the lifeblood of financial health that allows you to fulfill financial obligations, pay off debts, save money, etc. And regardless of how much you make, what you do with your income matters the most.
The second financial health vital sign is cash flow. Cash flow measures your inflows against your outflows to give you an idea of how you are spending your money. Optimizing for positive cash flow is one of the single best habits to develop to take care of the other financial health vital signs.
The third financial health vital sign are your assets. Assets are everything you own that is of monetary value. These represent 50% of your net worth equation and can appreciate or depreciate in value over time. Most importantly, they can also provide a financial cushion for you in more challenging times.
The fourth financial health vital sign is your debt. Debt can be either constructive or destructive to your financial situation depending on what is used for and how much total debt you have in relation to your income. We take a closer look at the good, the bad, and the ugly of debt as it relates to your financial health.
The fifth financial health vital sign is your credit score. Your credit score is your gateway to accessing constructive credit opportunities (such as a mortgage) at inexpensive rates. Having strong credit means you will pay a lot less interest whenever you borrow money which can save you tens of thousands of dollars over your lifetime.
The sixth financial health vital sign is your insurance coverage. Insurance serves as your protection in the event of unexpected expenses such as a medical procedure or a car accident. Insurance protects you against sudden shocks to all of your other financial vital signs allowing you to preserve your financial health.