2024 is almost upon us, and with all the celebrating, staying up late, and planning fun adventures for the coming year, you may also be participating in a time-honoured holiday tradition: New Year’s resolutions.

If one of your resolutions has to do with budgeting, paying off debt, or simply being more financially conscious, it may help to give yourself a financial health check. Here are 5 quick and easy questions to help you assess your financial well-being.

1. Are you saving for emergencies, retirement, and other life events?

Ask yourself:

• Is my emergency fund big enough?
• Am I saving adequately for retirement?
• How close am I to meeting my other savings goals?

One of the most important things you should be doing, if your financial health is strong, is saving. Even if you’re only able to set aside a little money each month toward each of your goals, the important thing is to have clear financial goals and be able to meet them within the timeframe you desire.

At the minimum, your savings plan should include:

• An emergency fund in case you lose your job, face unexpected medical costs, need home or car repairs, etc.
• Add a little more to your retirement nest egg by considering extra contributions to your super

You may also want to save up for:

• Your next holiday
• Replacing your car
• Celebrating an upcoming occasion, like a milestone birthday or other major life events

2. How much debt do you have? (And are you paying it off???)

Ask yourself:

• Do I have enough money to cover the essentials and still make regular payments on my debts?
• Is my debt shrinking or growing?

In our experience, the average Australian has more than $20,000 in personal debt, in addition to their home mortgage or investment property loans. That includes money owed on personal loans, credit cards, and instalment plans. While some amount of debt is unavoidable, assessing just how much debt you have can be a good indicator of your financial health.

If you’re able to cover the essentials (food, rent or housing costs, healthcare, etc.), and still make regular payments against your debt, even if those payments are small, your financial health is in good shape.

If, on the other hand, your debt keeps growing, especially at high-interest rates, it might be time to think about switching to a different credit card, changing your spending habits, or going without some non-essential things until your debts are paid off.

3. How does your spending compare to your income?

Ask yourself:

• What’s my debt-to-income ratio?
• Am I following the 50/30/20 rule?

Compare how much you make per month with how much you spend, and accrue in debt, each month. If you’re spending significantly more than you’re making, or making just barely enough to cover your debts, that may be a sign that your financial habits need to change.

Creating a budget can help you more accurately plan and track your spending month to month. A good rule of thumb is 50/30/20. Spend up to 50% of your income (after taxes) on essentials (like food, housing, healthcare, and caring for any dependents) and debt repayments. Then split the remainder, with 30% going into savings and/or extra loan repayments, and 20% left over for discretionary spending.

4. What’s your credit score?

Ask yourself:

• Has my credit score improved?
• If not, what can I do to improve it?

Another good indication of your financial health is your credit score. If you currently have a loan or credit card, you should be able to get a free copy of your credit report every three months (we recommend getting one at least once a year). Some agencies will include your credit score on this report. If not, you can usually get it online from a free credit score provider.

A credit score shows how much you’ve borrowed, how many loans and credit cards you’ve applied for, and whether or not your payments were on time. Most scores range between 0 and 1,000 or 1,200. A higher score means you’re a responsible borrower who can be trusted to pay on time.

5. Do you have insurance?

Ask yourself:

• Do I have life and health insurance?
• What other types of insurance do I need?

At a minimum, you should have health insurance, and if you own a home and/or car, homeowner’s and/or car insurance. If you have dependents, you’ll also want to have good life, income protection and disability insurance policies.

If you’re currently insured on all these points, and able to make your insurance payments without too much difficulty, you’re probably doing well financially. But it’s never a bad idea to review your insurance policies and see if you can save by switching to a different plan or bundling some of your current plans.

If you don’t have the insurances described above, you should consider how you would manage an unforeseen event, like an unexpected illness which requires you to take time off work. How will you and your loved ones manage financially if this occurs?

Here’s to a New Year of Great Financial Health!

With the recent rise in inflation and the economic uncertainty caused by a number of world events, having good financial health is more important than ever. If you’re interested in improving your financial well-being, we’re happy to set you up with one of our advisors. Just get in touch.