Test Your Financial Fitness With These 4 Vital Signs

Illustrated by Mary Galloway.
By Cathie Ericson

These days, tracking your health stats has become as routine as jumping in the shower in the morning or brewing a cup of coffee before heading to work. You step on the digital scale, count calories via some flashy new app, and use pedometers to track the number of steps logged per day — all in an effort to make sure your health is on the up and up.

But what about your financial well-being? The reality is that many people are as eager to keep daily tabs on their money as they are to be poked and prodded by a doctor.

Related: 5 Simple Strategies for Taking Your Credit Score to New Heights

Nonetheless, just as you should routinely check your physical vital signs, you should also measure your fiscal health — by nailing down the four key money vital signs that make up your total financial picture.

We show you how to run those numbers, and even offer up a points scale for each money vital sign, to help you assess whether you’re in the healthy zone — or if you might need to get on a financial fitness regimen, stat!

Related: What’s Your (Retirement) Number?

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Illustrated by Mary Galloway.
Financial Fitness Vital Sign #1: Emergency Fund
Remember when you were blindsided by an overheated car engine and a trip to the ER — within a week of each other?

Not only did the emotional stress likely catch you off guard, the financial stress probably sent your budget into a tailspin, too.

People should have a minimum of one month’s worth of take-home pay in an emergency fund before they work toward any other financial goal, and eventually aim for somewhere between three and nine months' worth.

Are You In The Healthy Zone?
Unfortunately, 34% of Americans have no emergency savings, according to a 2015 survey by NeighborWorks America — essentially leaving a third of the country’s finances vulnerable when emergencies strike.

So how well prepared are you for a rainy day? Give yourself...

100 points if you have at least 6 months of take-home pay saved
90 points if you have 3 to 5 months
80 points if you have 1 to 3 months
70 points if you have less than a month

In general, the more inconsistent your income and the more dependents you have, the larger an emergency-fund cushion you should have, suggests Matt Shapiro, a CFP® with LearnVest Planning Services. If you’re self-employed, for example, you might want to shoot for nine months of take-home pay.

How To Get Healthier
Dennis Prout, a CFP® and founder of Prout Financial Design in Traverse City, Michigan, suggests looking for “money leaks” — areas of your budget where you inadvertently spend more than you need to — in order to free up emergency-fund money.

Do you pay for a subscription you barely use? Eat out one more day a week than you should? Those cost savings can be transferred to a high-interest savings account.

This move helps make saving a given — and a no-brainer.
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Illustrated by Mary Galloway.
Financial Fitness Vital Sign #2: Debt-To-Income Ratio
Your debt-to-income ratio (DTI) is a figure lenders use to gauge how well you manage your debt — and it’s math worth doing because it can affect your future financing.

To pin down your DTI, add up your minimum monthly debt payments and then divide the sum by your gross monthly income.

For example, if you pay $1,300 for your mortgage, $500 for your car, and owe a minimum of $200 on your credit card, then your monthly debt totals $2,000. If your gross monthly income is $4,200, your DTI is roughly 48%.

“In this case, nearly half of your income is ‘spoken for’ by outstanding debt,” Prout says. “I’ve seen people have to delay purchasing new homes or cars because their debt won’t allow it.”

Are You In The Healthy Zone?
As you may have deduced, the lower the DTI, the better — it’s an all-too-important consideration for lenders these days. According to a 2014 FICO survey, 60% of credit-risk managers named high DTIs as their top reason for concern over whether to approve a loan. So give yourself...

100 points if you have a DTI of 25% or less
90 points for 26%–36%
80 points for 37%–43%
70 points for more than 43%

How To Get Healthier
It’s straightforward: Lower your debt or boost your income.

That said, reducing your debt is likely what you can tackle most immediately, so start by taking inventory of your debt in order of interest rate. Then consider paying off your high-interest credit cards and personal loans first, before embarking on a more aggressive plan to pay off lower-interest car loans and student loans, says Shapiro.

“Along the way, you should also make an agreement with yourself and your spouse not to spend beyond certain limits,” suggests Prout. “For instance, maybe your rule is to wait 72 hours before making any purchase over $100.”

Related: Can’t Get a Mortgage? Debt-to-Income Ratio, Explained
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Illustrated by Mary Galloway.
Financial Fitness Vital Sign #3: Credit Score
Similar to a DTI, your credit score is another way lenders measure how likely you are to repay your loan — and a lower score usually means higher interest rates on everything, from your mortgage to your credit cards.

And considering Credit.com estimates that the typical person pays more than $279,000 in interest over a lifetime, wouldn’t you prefer to keep as much of that in your pocket as possible?

Are You In The Healthy Zone?
Your FICO Score — the most commonly used credit score — ranges from 300 to 850. Although standards for what constitutes a good or bad score can vary by lender, give yourself...

100 points for a credit score higher than 750
90 points for a score between 720 and 749
80 points for a score between 620 and 719
70 points if you have less than 620

How To Get Healthier
MyFICO.com breaks down what constitutes your credit score, but focusing on the two biggest factors can help move the needle north the furthest.

The first is your payment history, which makes up 35% of your score. So make all of your payments on time, says Shapiro. If mere forgetfulness is the culprit, put any bills that are the same each month, such as your rent or car loan, on autopay.

For bills that may vary, like credit cards, put at least the minimum on autopay. You can always pay more later, but this will help ensure you make on-time payments and avoid late fees.

The next big factor? Your credit-utilization rate, which makes up 30% of your score. It’s determined by dividing all of your available credit limits by the actual amount of credit you owe.

The rule of thumb is to pay down your balances enough so that you keep your rate below 30% — of course, “the lower the number, the better your score,” Shapiro adds.
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Illustrated by Mary Galloway.
Financial Fitness Vital Sign #4: Retirement Savings
In their 2015 Retirement Confidence survey, the Employee Benefit Research Institute found that 64% of workers feel behind on their retirement savings.

Stats like this probably leave you wondering whether your own retirement will be more “early-bird special” than “dinner at the steakhouse” — but you won’t know for sure until you crunch the numbers.

Are You In The Healthy Zone?
To determine if you’re on track, Shapiro recommends looking at your replacement ratio, or the percentage of your annual income you’re able to replace in retirement.

Plug your numbers into a calculator like this one; assume that you’ll retire at age 67 and will live until age 90, which means you’ll need 23 years of retirement income. Plug 85% into the “income required at retirement” field.

The calculation shows how much you should be saving each month to meet those parameters. How does that compare with your current contributions? Give yourself...

100 points if you’re on track to replace 85% or more of your current income
90 points for 65%–84%
80 points for 40%–64%
70 points for less than 40%

How To Get Healthier
If these calculations stress you out, remember, you’re trying to reach your figure with the help of compound growth.

So start contributing as much as you can — even if it’s just 2%–3% of your income. "Even that small amount can go a long way — especially if you begin to contribute to a 401(k) in your early to mid-20s,” Prout says.

By your 30s, Shapiro suggests trying to save at least 10% of your income, and in your 40s and 50s, shoot for at least 15%. As you get older and your children become financially independent, you may even be able to save upwards of half of your income.
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Illustrated by Mary Galloway.
And The Results Are In...
Now add up your points and divide by 4. What’s your final score?

If you scored in the 90s, congratulations, you overachiever! You’re in excellent financial health.

In the 80s? You’re still a solid B student. Take a moment to look at where you can bolster your weak spots, but be proud of the progress you’ve made.

Stuck in the 70s? Don’t fret. Start with the small steps we’ve outlined above to chip away at your debt and boost your savings — and keep monitoring those money vital stats so you’ll always have a finger on your financial pulse.

“Think of it this way: Many people who work out don’t always enjoy doing it, but it’s good for one’s health,” Prout says. “The same goes for saving. Once you get accustomed to it, it’ll become easier and more beneficial for you in the long run.”

Related: Are You Financially Healthy? The 3 Numbers You Should Know