Are you financially waterproof?

Are you financially waterproof?

by Ashley Tan 17 Feb 2020

As we get further along in life, financial wellness becomes something that we’re increasingly conscious of, especially as retirement nears. According to a recent report, only a sparse 19% of employees reported feeling confident that they were on track to reach their retirement goals. Feeling unsure of your financial situation is an unpleasant feeling that we generally wish to avoid, so if this is happening to you, then it’s time to take charge of what you’ve got in your piggy bank! 


It’s essential to understand that financial wellness includes factors beyond personal perceptions about your financial health. Authentic financial wellness consists of a combination of various factors, such as financial literacy, financial attitudes, objective financial status, and actual financial behaviours like budgeting, saving and paying off any credit card balances in full.


So, what are some ways to assess whether you are financially waterproof?


The first method includes tracking your net worth, which is done by subtracting your liabilities (everything that you owe to others) from your assets (everything that you own). By measuring your net worth, you will be able to gain a better understanding and awareness of your financial standing. You can consider using this spreadsheet to calculate your net worth.


Another way to assess your financial wellness is to calculate your debt-to-income ratio, which will reveal how much of your monthly income is allocated to paying any debt obligations. Debt payments could include monthly housing costs, minimum credit card payments, or loans like auto loans and personal loans. Generally speaking, the recommended debt-to-income ratio is below 36%. However, don’t spend too much time worrying about your financial situation if you’re just a little over this target – simply try re-adjusting and re-calibrating, and you’ll likely be able to hit this goal in time to come.


Lastly, determining your ratio of savings to income would also come in handy in your quest to gain a better understanding of your financial wellness. This is calculated by dividing your total savings against your total household income. While there isn’t a fixed goal that you should aim to meet, tracking how you manage your personal finances is a basic skill that you should learn and practice regularly. Taking note of not just what you budget, but how you budget, is key to ensuring that you’re on the right track as you approach retirement.


Some other quick questions that you can ask yourself include:

  1. Do you have cash in your pocket?           
  2. Do you balance your check book regularly?          
  3. Do you know the total amount of debt you have?
  4. Do you have a retirement account?     
  5. Do you know how much is in your retirement account?
  6. Do you know where your retirement is invested? 
  7. Are you happy with your job?                     
  8. Do you know what your net worth is?              
  9. Do you know what net worth means?                


If most of your answers to these questions are “yes”, then you’re in good shape and probably have a strong handle on your financial situation. However, if you’ve found yourself responding “no” on several occasions, then it’s time to re-evaluate and steer yourself back to the right course. 


While we may never feel like we’re entirely financially waterproof, finding some kind of security and stability is important. While lacking self-confidence and feeling too financially insecure are generally unfavourable, a dose of uncertainty may be healthy at times, as it can spur you on to improve your financial circumstance for the better. If you’re someone who frequently talks about the importance of financial wellness, then it’s time to put your money where your mouth is, and start taking steps to achieve financial health!