Many Americans regularly check their weight, blood pressure, and cholesterol levels to ensure they’re in good physical health. They often use devices like smartwatches to track their physical activity and heart rate. However, few people stop to consider their financial health.
The concept of financial health lacks a simple measurement system. Although many understand their credit score or bank balance, they might not grasp their overall financial fitness. This poses a crucial question: How financially healthy are you?
In the past, I introduced the idea of a Money BMI, inspired by the Body Mass Index (BMI) used in healthcare. This financial measure aims to gauge financial fitness before minor issues escalate into major problems. In health, doctors monitor early warning signs rather than waiting for severe conditions like heart attacks. Our financial system should adopt a similar proactive approach.
Many discover their financial instability only after encountering crises such as job loss, divorce, market downturns, unforeseen medical expenses, or unexpectedly early retirements. Addressing such challenges becomes tougher once they arise. We should prioritize asking relevant questions rather than solely focusing on financial figures.
Consider these questions to evaluate your financial health:
- Do you have an emergency fund?
- Are you saving at least 15% of your income?
- Could your family cope financially if you faced unexpected circumstances?
- Do you have a current estate plan?
- Are you minimizing unnecessary taxes?
- Will your retirement savings provide sufficient income?
These inquiries offer a better understanding of financial well-being than financial statements alone. Envision a scenario where every American has a straightforward annual Financial Fitness Score, akin to stepping on a scale at a doctor’s office.
Our financial system should not introduce more government programs, complex regulations, or convoluted retirement plans. Instead, it should provide practical methods to identify financial risks before they escalate into emergencies.
Here’s a concise version of what I call your Money BMI Check:
- I have at least six months of emergency savings.
- I save at least 10% of my income toward retirement.
- I have minimal or no high-interest credit card debt.
- My investments align with my goals and risk tolerance.
- My insurance coverage is current.
- My beneficiaries, will, and estate documents have been updated within the last five years.
If you checked five or six boxes, your financial health is likely strong. With three or four checks, you’re progressing but still have improvements to make. If you marked two or fewer, your finances need immediate attention, similar to a doctor expressing concerns about physical health.
The positive aspect is that financial fitness is achievable for everyone, not just the wealthy. Like physical fitness, it improves through consistent habits rather than dramatic overhauls. Small savings increases, debt reduction, insurance reviews, updating estate documents, and automated financial decisions contribute to lasting financial security over time.
For years, America has focused on encouraging wealth-building, but little has been done to ensure people are on track. As great leaders say, “Expect what you inspect.” Why not implement a mandatory inspection system for your Money BMI?
It may be time to change that approach. Knowing your Money BMI won’t automatically make you wealthier, but it could be the necessary wake-up call to alter your financial future before it’s too late.
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