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By: AgFed Credit Union

Welcome to AgFed Credit Union's MoneyDig blog! 

Get confident about your personal finances with a number of articles, tips, advice and more.


How to Check Your Financial Vital Signs

 Dec 19, 2023
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Everyone wants to be financially secure. However, what that means can vary from person to person. For some, financial security is having a specific amount of money in their savings. Others want to break free from living paycheck to paycheck. The challenge is that life is constantly changing. Whether you’re in your 20s or 50s, new expenses and financial curveballs will emerge.

Regardless of your age, there are key financial figures that will impact your adult life. These numbers help you gauge where you stand and provide a roadmap to improving your overall financial well-being.


1. Credit Score

Your credit score is a three-digit number used to indicate your creditworthiness (how likely you are to repay a loan or other financial credit). Lenders, creditors, and even potential employers use this figure to assess your financial responsibility. A high credit score can open the door to better economic opportunities, while a low score can hinder your ability to borrow money.

Scores range from 350 to 850, with 850 being the best. Achieving a score over 720 will help make borrowing affordable as you secure lower interest rates and lock in more favorable terms.


How to Improve Your Credit Score:

  • Set reminders to ensure you never miss a bill or loan payment.
  • Keep credit card balances low – aim to spend less than 30% of your available credit limit.
  • Avoid opening too many new credit accounts in a short time.
  • Check your credit report for errors and dispute any discrepancies, if necessary.


2. Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes toward paying debts. Lenders use this metric to assess your ability to manage additional debt. Your DTI ratio is influential when applying for mortgages, auto loans, or personal loans. A lower DTI indicates that you have more disposable income, making it easier to take on new debts and maintain financial stability. A high DTI reveals your financial liabilities are already taking a significant toll on your current budget, and it could be challenging to sustain any additional debt.


How to Improve Your Debt-to-Income Ratio:

  • Work on paying off existing debts, starting with credit card balances.
  • Increase your monthly income through career advancement or side jobs.
  • Refrain from applying for new debt until your ratio improves.  


3. Cash Flow

Cash flow measures the movement of money into and out of your financial accounts. In other words, your income and expenses. It’s like the heartbeat of your financial life, showing whether you’re living within your means or running a deficit. Positive cash flow allows you to save, invest, and prepare for future expenses. Negative cash flow can lead to debt accumulation and financial stress.


How to Improve Your Cash Flow:

  • Create a budget to track your income and expenses.
  • Cut discretionary spending or find ways to boost your income.
  • Automate savings with payroll deductions or automatic transfers to invest in your future.


4. Net Worth

Net worth measures the difference between your assets (what you own) and your liabilities (what you owe). It provides a comprehensive view of your whole financial picture. A growing net worth signifies that you’re accumulating wealth and moving closer to achieving financial independence. This metric reflects your progress over time and is a quick means of gauging your overall financial well-being.


How to Improve Your Net Worth:

  • Create a financial plan to reduce outstanding debts.
  • Make regular contributions to your retirement accounts.
  • Work with a financial advisor to ensure your investments are earning positive returns and growing your assets.


5. Emergency Fund

An emergency fund is a separate account from your other savings and checking accounts, expressly set aside to cover any unexpected expenses or emergencies you encounter. It acts as a financial buffer during times of crisis. When life inevitably throws you a curveball, having an emergency fund ensures you can handle economic shocks without resorting to high-interest loans or credit cards or depleting your savings balance. You should try to set aside between three to six months of living expenses in your emergency fund. That might seem significant, but it will be a lifesaver should you encounter an unexpected job loss or another financial emergency.


How to Build Your Emergency Fund:

  • Open a separate account to house your emergency fund. You want to keep this money apart from your daily spending accounts.  
  • Allocate a portion of your income to automatically deposit into your emergency fund through payroll deductions or automatic transfers.
  • Only use this money for genuine emergencies, never for discretionary spending.


We’re Here to Help!

In your journey toward achieving financial security, monitoring your vital signs can provide a clear view of your overall well-being and serve as road signs, helping you navigate your way. By understanding and actively managing these money metrics, you’ll be better equipped to make informed decisions and achieve your goals.

If you’re interested in learning about how debt consolidation can help improve these key figures, or you want to open an emergency fund, we’re ready to help. Please give us a call today.

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