What Is Financial Health?
Financial health is simply the ability to meet your financial obligations. Additionally, it describes how prepared you are to cover any unforeseen financial events.“Rather, financial health has both a present and future orientation and considers the totality of people’s financial lives: not only whether they are able to meet current needs but also whether they are spending, saving, borrowing, and planning in ways that will enable them to be resilient and thrive,” they add. “Treating household income as a measure of the financial health of a family is thus no more valid than treating gross revenue as a measure of corporate health or gross tax receipts as a measure of a state’s fiscal health.”
Nevertheless, it’s a rare occurrence.
Low credit scores and low savings are both signs of poor financial health, which can have a negative effect on your physical and mental health. These indicators are a danger to you and your dependents.
How Financial Health Works
According to financial expert and author Emily Guy Birken, every individual needs to view their own financial circumstances in a unique way.“If you work on one, it will surely benefit your overall health,” stated Guy Birkin. “If you quit smoking, you may gain weight, but it improves your overall health. If you pay off high-interest debt, your cash flow might decrease for a while, but your overall financial health improves.”
Several key metrics that are used to assess a consumer’s financial health were referred to by Guy Birken as vital signs.
One such metric is income. While it’s not necessary to have a high income, one should have fewer expenses than one earns. A high level of debt may be a warning sign as well. An extremely high DTI ratio may indicate poor financial health, while a low ratio indicates good financial health.
How to Assess Your Financial Health
There are several ways to evaluate your current financial health and determine what improvements can be made. But, again, one of the most useful is comparing your assets and debts. To determine this, consider categorizing the information as follows:- Debt-to-income ratio: Too much debt adversely affects your finances. An individual’s monthly debt obligation is compared with the person’s income using a formula called the debt-to-income ratio (DTI). Finding out what your DTI is can give you a better perspective. Generally, most lenders prefer DTI ratios below 43 percent. And some may even prefer rates below 36 percent.
- Credit score: Financial health also involves having a strong credit score. Your debt-to-credit ratio is affected by your debt payments, credit utilization, repayment history, credit mix, and credit history. The higher your FICO® Score, the higher your chances of getting approved for financing with lower interest rates and better terms. It ranges from 300 to 850. A property lease, a job application, or a utility bill may also require a credit check. It’s typically considered good credit to have a score above 700, while excellent credit has a score above 800.
- Emergency fund: Having enough money to cover unexpected expenses, such as job loss, car breakdown, or emergency medical care, is a key indicator of financial health. There is a general consensus that you should save between three and six months’ worth of living expenses in an emergency fund.
- Your retirement savings: Even though different theories exist regarding the amount of savings you should have by each age, there are some basic guidelines you should follow. Knowing if you are on track or if you have to catch up on your savings will tell you whether or not you are on track.
The Eight Indicators of Financial Health
No one metric can show your financial health, even if you use the metrics listed above. For a more comprehensive assessment, though, the Center for Financial Services Innovation (CFSI) has identified eight indicators to know how to analyze your financial health.In a nutshell, this indicator assesses if you have positive or negative cash flow. For those unaware, monthly cash flow shows how much money comes in and how much is spent in a household.
Let’s say that your family earns $7,000 monthly, and your monthly spending is $7,300. Clearly, this represents a negative cash flow for your family. In other words, you spend more than you earn each month. That suggests you may be going further into debt or consuming your savings every month.
Even better, some of your expenses were cut down to $6,900 per month. As a result, your household has a positive cash flow of $600 each month.
Because it gives you more flexibility, it’s a good indicator of financial health. Those extra dollars can be saved, used to pay off debt, or kept in an emergency fund.
A bill can be classified as either high priority or low priority. Typically, high-priority bills are more rigid and have more severe penalties for late payments, such as mortgage payments. On the other hand, low-priority bills are more flexible and forgiving.
Individuals’ ability to manage their cash flow and day-to-day financial commitments are primarily determined by their ability to keep up with their bill payments, both high and low priority.
Often, lenders, creditors, and companies give you a grace period (a few days) after the due date when you don’t have to pay late fees or interest. Every creditor has different definitions of ‘late’ payments. But it’s considered ‘late’ when it has been 30 days since the due date, and no payment has been made.
A collection agency can now be contacted, and the credit bureaus can receive a report if you miss a payment. However, before that happens, you may want to speak to your creditor if you can’t make a payment by the due date. Explain your financial situation and see if there is any possibility of moving the due date or making partial payments. You may be surprised that they will work with you since it’s in both parties’ interests.
With liquid savings, you can access the money whenever you want. That means they are not locked away in accounts like CDs or IRAs. Instead, your money is more accessible, like in a savings account. Overall, there are several types of liquid savings. And ultimately, what matters most is that you have adequate living expenses in liquid savings whenever you need them.
- Emergency fund. When faced with a financial emergency like losing your income, being hospitalized, or the like, it’s advisable to have between three and twelve months of living expenses saved. It is important to include the costs of housing, utilities, food, and transportation when calculating living expenses.
- Goal savings. It’s always a good idea to save for the things you want, need, or expect to need. Folks save up for various things, including holiday vacations, home improvements, and down payments for cars and houses.
Financially speaking, having the short and medium-term covered is beneficial. But achieving financial security and taking advantage of opportunities such as purchasing a home, investing in a child’s education, or retiring in a comfortable position require long-term savings.
Consider the replacement rate when making retirement plans to ensure you have the greatest purchasing power at retirement.
How much debt is too much?
In the case of renters, she adds that 30 percent includes rent and utilities, such as heat, water, and electricity. When you own your home, you should also include interest, homeowners insurance, property taxes, and utilities, as well as your mortgage.
“That means if you earn $75,000 a year before taxes, you should spend no more than $1,875 a month on your housing.”
The 30 percent rule dictates how much a family can reasonably spend on housing, says Leonhardt. But, there’s still enough left over for daily expenses such as food and transportation.
“If you’re looking to buy a home, some financial experts also recommend using the 28/36 rule to determine what you can afford,” she adds. If you want to buy a home within your budget, you must adhere to the 28/36 rule. In other words, your housing expenses, like mortgage payments, taxes, and insurance payments, shouldn’t surpass 28 percent of your gross monthly income. Likewise, the total amount of your debt, including credit cards, student loans, and car loan payments, shouldn’t exceed 36 percent of your gross monthly income.
“If you’re married or have a partner, keep in mind that this calculation includes the entire household, so you’ll need to include their salary and debts in the equation as well,” Leonhardt explains.
Most borrowers, and loans in general, tend to fall into either the prime or subprime category. A prime borrower is more likely to qualify for the best loan type, rate, and terms. The Consumer Financial Protection Bureau (CFPB) indicates prime credit ranges between 660 and 719. However, the numbers can vary a little depending on the lender.
The reason? Lenders value your ability to pay your monthly loan and credit card bills on time. As a result, you’re not likely to default on payments. For the lucky few, you may even be considered ‘super’ prime’ and have a high credit score from the 700s up to 850.
Compared with prime borrowers, subprime borrowers tend to carry higher balances and miss payments more often. Consequently, subprime borrowers usually receive unfavorable terms on loans, credit cards, and other financial products, which can lead to high costs in the long run. This makes it harder for these borrowers to improve their credit scores and reduce debt.
Several factors influence credit scores and can be improved within six to twelve months. To keep it in the prime range or improve it, it’s worth learning more about it.
- Health/Medical Insurance
- Auto Insurance
- Homeowners or Renters Insurance
- Life Insurance
- Disability Insurance
- Long-Term Care Insurance
- Identity Theft Protection Insurance
- Umbrella Coverage Insurance
Insuring yourself ensures that you are prepared for the unexpected. What’s more, it can protect you financially, such as draining your emergency savings for a medical emergency, while also giving you peace of mind.
This indicator aims to assess whether people have a financial future in mind. You’re going to have a hard time looking forward financially to the next year or ten years from now if you are scrimping over your last $20 until you get paid next.
Score Your Financial Health
Over time, financial health results when an individual’s daily financial systems can help them capitalize on opportunities. Of course, financial health depends on an individual’s behavior and attitude. However, financial institutions also play a vital role in a person’s financial health. How? By offering high-quality products and services that promote saving responsibly, borrowing responsibly, and spending wisely.With that in mind, a financial health score has been developed to assist financial institutions, advisers, and individuals themselves to understand the condition of their financial health better.
Essentially, a financial health score is a multi-digit score indicating a person’s financial health, similar to a credit score. However, in contrast to a credit score, this could also include additional information about an individual’s financial life, such as how they save and spend their money.
- 0–29 (Financial Ruin)—How to get out
- 30–49 (Financially ill)
- 50–59 (Financially Vulnerable)
- 60–69 (Financially Coping)
- 70–79 (Financially Average)
- 80–89 (Financial Healthy)
- 90–100 (Financially Sound)
Calculating Your Financial Health Score
If you want to discover your financial score, you’ll need to answer the following eight questions using a sliding scale. These will align with the indicators that were previously discussed.- Much less than your income (100).
- A little less than your income (75).
- Equal to your income (50).
- A little more than your income (25).
- Spending was much more than your income (0).
- All bills on time (100).
- Nearly all bills are on time (75).
- Most bills are on time (50).
- Some bills are on time (25).
- Very few bills on time.
- 6 months or more (100).
- 3-5 months (75).
- 1-2 months (50).
- 1-3 weeks (25).
- Less than one week.
- Very confident (100).
- Moderately confident (75).
- Somewhat confident (50).
- Slightly confident (25).
- Not confident at all (0).
- Debt-free (100).
- Have a manageable amount of debt (85).
- Some debt that isn’t manageable (40).
- The amount of debt is far greater than what can be handled (0).
- Excellent (100).
- Very good (80).
- Good (60).
- Fair. (40).
- Poor (20).
- I don’t know (0).
- Very confident (100).
- Moderately confident (75).
- Somewhat confident (50).
- Slightly confident. (25).
- Not at all confident (15).
- I, or in my household, no one has insurance (0).
- Agree strongly (100).
- Agree somewhat (75).
- Neither agree nor disagree (35).
- Disagree somewhat. (15).
- Disagree strongly (0).
How to Improve Your Financial Health Score
Most people require time and effort to achieve financial health. Often, many of us neglect our financial health until there’s a crisis. As an example, you’re unemployed or earn low wages. Or you may have a good-paying job without a retirement plan or want to save for your children’s college fund.Using the financial well-being assessment above, you can find out where you stand financially. Below are sections that offer helpful recommendations to help improve your financial health. Try the one based closest to your Score and move on to the next as your financial health gains strength.
“Of course, most of us do not intend to be in financial ruin,” he adds. There is, however, a definite sequence of actions that have led one to this destructive path. There is a silver lining when we identify what has led to the ruin and find solutions.
Here’s the formula that Miller has developed for “ruin.”
“Confusion is simply a symptom of not having a plan and not keeping correct statistics,” Miller states. “As applied to finances, the key is knowing exactly what the Optimum Financial Condition is and then aligning all your efforts and keeping in your discipline to achieve it.”
- “I don’t know how to get out of debt.”—(confusion)
- “I’ll take some of my reserves and retirement and use it to pay the debt.”—(destructive action)
- “I’ll invest my remaining reserves in highly aggressive investments to make it up.”—(continued destructive actions)
- Create a list of all the things about your finances that confuse you.
- Contact your financial adviser if you need clarification on any of these points. Visit the National Foundation for Credit Counseling website or dial (800) 338-2227 for information about free or low-cost counselors in your area.
- Start with simple and basic actions that will lead to optimal results.
1. Assess the damage
- How much debt do you have?
- Is it time for you to find a new job?
- How much will you have to pay each month for new ongoing costs?
- In addition to alimony and IRS liens, does the recent disaster have any other long-term financial repercussions?
2. Stay calm as you adjust to your new reality
For any significant loss or disaster, shock and denial are valid stages of grief. At the same time, acceptance of the new reality is a critical step toward recovery. Your best option is to de-stress with your favorite low-cost hobby, talk to a close friend or partner, express your feelings in an online journal or pen-and-paper version, or vent to a close friend.
You will be drained of energy if you constantly look back and dwell on what could have been.
3. Outline your goals
Decide what your primary objectives are before you begin the recovery process. For example, do you want to replenish depleted emergency reserves? How can you return to earning the same amount of income you had before? Can you pay down your medical bills?
Whatever they are, you will be more successful if you outline your goals beforehand.
- Specific. The goal must be clearly defined.
- Measurable. You need to be able to measure the goal, such as with dollar amounts, credit scores, etc.
- Attainable. You should set goals that are challenging but achievable.
- Realistic. Do not set a goal that is too far away.
- Timely. Without a deadline, goals are just wishes.
After determining your goal, you’re ready to create a comprehensive plan. Following a series of steps that lead to complete financial wellness is what your plan should entail.
- First, learn the basics of personal finance.
- Then, spend less than you earn if you can.
- Having a small emergency fund can help you weather unexpected expenses.
- If needed, look for a new job or income stream. For example, you could blog, sell merchandise online, or side hustle for extra income.
- Reduce your debt by paying it off. It might be easier for you to consolidate your debts with an unsecured loan.
For example, even if you go the DIY route, there are free blogs, podcasts, YouTube videos, and budgeting tools to assist you. What’s more, you could turn to family or friends. Perhaps you could borrow money from them and pay them back when you’re back on your feet.
Additionally, you could obtain free credit counseling advice from credit unions or non-profits. And, when you’re in financial ruin, don’t hesitate to seek help from government programs like the TANF Program or charities like the National Assistance League.
This can also impact your physical health. Headaches, heart disease, digestive problems, and weight gain can all develop due to financial stress.
The following tips will help you manage your money without feeling stressed, regardless of how much you make.
1. You need a budget
Your financial stress may stem from the fact that you haven’t developed a budget. But, remember that if you’re grumbling inwardly about the prospect of creating one.
2. Start an emergency fund
It might seem impossible to start an emergency fund when you already have financial difficulties. However, putting $1,000 in a low-risk money market account like a money market fund doesn’t take much. Within a short period of time, you’ll have $1,000 if you consistently put $100 into a savings account.
It’s important to make saving money automatic so that you don’t have to decide to do so consciously. While experts suggest having six months’ worth of expenses saved, start small. For instance, aim for $100 and keep working your way up.
3. Determine what is causing your financial stress
Personal Capital’s report indicates that Americans believe achieving financial well-being is difficult. 60 percent of respondents said they felt confident in their ability to achieve financial stability. Today, however, only 48 percent are financially healthy.
Think about what makes you feel most capable financially. Saving beyond paying bills? Ensuring your child has enough money for college?
You may also wish to consider spending your money in an unnecessary way. For example, are you spending too much on your car? Do you own a boat or ATV? Are you overspending?
Address your issues at their core so you can deal with them effectively.
4. Work with a financial adviser
Personal Capital says 76 percent of Americans believe receiving financial advice gives them a stronger sense of confidence in becoming financially literate. Would you agree that financial services companies should make achieving financial wellness more accessible and easier to understand, as 69 percent of Americans do?
You can create an investment and savings strategy with the help of a financial advise
r. Having a financial plan for the long term will really make you feel good.
5. Take advantage of credit counseling
If you can’t afford the way you live, you may be deeply in debt. Unfortunately, that situation is common among high earners. Get help reorganizing your debt and negotiating with creditors from a credit counseling service.
Don’t be afraid to seek help. Nearly everyone needs assistance on the road to financial success at some point.
If you find yourself in this category and have already used the recommendations above, it’s time to focus on paying off debt to build an emergency fund.
1. Paying off debt
Being buried under debt makes it difficult to meet your monthly expenses. And even harder to save for the future. In short, credit cards and consumer loans can undermine your financial health.
Paying down high-interest debt can be challenging, but these two strategies could help you get out of debt faster.
2. The Snowball Method
Starting small, the snowball method keeps growing as it gains momentum. No matter how much the loan is or its interest rate, the borrower pays the minimum. They’ll then pay off their smallest debt with the surplus cash they have in their budget.
As soon as the smallest debt is paid, they roll the amount of that payment into the next smallest debt. This method increases monthly payments toward larger loans as smaller ones are repaid.
The strategy exploits early wins by taking care of small balances first and progressing to large or intimidating balances as time goes on.
3. The Avalanche Method
Instead of taking account of balances, the avalanche method considers the interest rates on the loans. Budgeters evaluate loans based on their interest rates but ignore the total amount of each loan.
Similar to the snowball method, they will make minimum payments on each loan every month. The difference with this strategy is that they will use their budget surplus to pay off the highest interest rate bill.
Budgeters will turn their attention to the balance with the next highest interest rate once the loan with the highest interest rate has been paid down.
When debt is not properly addressed, it can be devastating. Nevertheless, if a person decides to use a payment method, they are in charge.
4. Keep your spending in check
It is easy to overspend whenever it is so easy to use a credit card or your smartphone to make a purchase.
A few lattes or trips to the convenience store might not seem expensive at the point of sale, but they can rapidly add up. The convenience of ordering through Amazon Prime allows you to spend $20 here and $40 there directly from your living room.
Establishing a “hold” period on all purchases is an excellent way to keep spending under control. For example, it might be a good idea to wait 24 hours before making an online purchase rather than clicking “buy now.” That way, the rush of dopamine that comes along with instant gratification is eliminated, and logic and reason have a chance to take over.
A 30-day waiting period may be appropriate for large purchases, such as a new couch, designer clothing, or flat-screen TV. However, it may turn out that you don’t actually need it after all during that time.
5. Keep adding an emergency fund
Again, unexpected bills may require people to dip into retirement savings or rack up credit card debt without an emergency fund. As such, it’s essential to have at least three to six months’ worth of living expenses in the bank to keep your finances in good shape. So, keep adding to the emergency fund you’ve established until you reach that goal.
Your cash reserve could help you deal with a financial setback, such as a lost income, an emergency room visit, or an unexpectedly expensive car repair.
The best place to keep your emergency savings is an account where you earn a higher interest rate than a typical savings account, which is still accessible to withdraw funds quickly. Savings accounts with high yields, online savings accounts, money market accounts, or checking and savings accounts are all good options.
You may find more helpful resources in this group than in others. But, here are a few for addressing possible financial challenges.
1. Managing your debt
- Setting up regular automatic payments: In addition to damaging your credit, paying late can lead to penalties. You can use autopay to avoid these penalties.
- Cutting your expenses or increasing your income if you want to pay off debt faster.
- Not taking on more debt than you can handle: Consider future expenses, like buying a house next year or paying a deductible to have a baby, when planning your overall financial strategy.
- Negotiating a lower interest rate on credit cards: If you ask, you may get a lower rate. If you have debt that you want to move to a card with no interest for a while, consider a balance transfer credit card. Make sure you read the terms carefully. Why? The promotion period may end unexpectedly.
- Refinancing: With interest rates so low right now, you could save a lot of money. Consider consolidating debt so that you have only one payment to make. Again, read between the lines to ensure that there aren’t any hidden fees.
If you don’t have an established credit history, you have two options. The first is to obtain a secured credit card or co-signed card. The second is trying a credit-builder loan, secured loan, or co-signed loan.
Of course, paying off your balance helps. After all, if you have a lot of debt, especially credit card debt, your score may suffer.
3. Saving for and buying a home
- Know how much you need for the down payment: The down payment, which is a percentage of the home’s price, is the upfront cash you have to pay. The amount of the down payment depends on the type and lender of the mortgage.
- Use money-saving hacks: Examples include setting automatic savings transfers, using cash reward credit cards, and stashing away spare change through apps like Acorns and Digits. You may also want to refinance your debt, such as student loans.
- Ask for help: Look for state programs offering down payment assistance, tax credits, and closing cost assistance to first-time homebuyers. Often, such programs are run by Housing Finance Agencies or through grants from the U.S. Department of Housing and Urban Development (HUD). You can also ask for monetary gifts from friends and family instead of presents.
- Place your money in the right account: Don’t keep your savings in your bank. You’re losing money there. Instead, consider alternatives like high-yield savings accounts, CDs, money markets, Neo Banks, or Treasury Inflated Protected Securities.
- Don’t withdraw from your retirement savings: You may withdraw up to $10,000 from a 401(k) or an IRA without penalty for the purpose of purchasing a home as a first-time buyer. Taxes will be due on withdrawals unless it’s a Roth IRA.
Saving enough money to retire is the most common long-term financial goal. To make sure you’re really saving enough, you need to figure out how much you’ll need for retirement. Often, That amount is determined by adding 10 percent or 15 percent of your salary to a tax-advantaged retirement account, like a 401(k), 403(b), or traditional IRA.
To determine your specific retirement needs, revisit your budget. By doing so, you can estimate your desired annual living expenses when you retire. Next, subtract the retirement income from your 401(k), Social Security, etc. Finally, calculate how many retirement assets you will need for the date you want to retire.
We’ve previously shared numerous tips on how to reduce spending and increase your savings. But, at this point, you should be focusing on earning more money.
How so?
You don’t have to quit your job or even side hustle. Instead, you could improve your current job skills via workplace training or getting a new certificate. This makes you more valuable, meaning that you can ask for a raise or promotion.
Another suggestion if you want to monetize your current position is to work overtime if you have the availability. Or volunteer to take on additional responsibilities.
If the above isn’t an option, you could look for a higher-paying job.
You should maximize your efforts at this point and ensure that you’re making the most of what you have.
- Open an IRA: To help build your nest egg, consider an individual retirement account (IRA). If you are not eligible to participate in a workplace retirement plan, a traditional IRA may be right for you. A Roth IRA may be right for you, depending on your income.
- Catch up contributions: You can begin making catch-up contributions to IRAs and 401(k)s as soon as you reach age 50. You can boost your retirement savings through catch-up contributions if, on the whole, you haven’t been saving as much as you’d like.
- Stash away extra money: Instead of spending it, save it. Increase your savings percentage whenever you are given a raise. At least half of the new money should be invested in your retirement account.
- Consider delaying Social Security benefits: The amount of future Social Security benefits you receive will increase for each year you delay receiving payment before you reach 70
- Buy an annuity: Have you maxed out your other retirement contributions? Purchase an annuity. This is a guaranteed retirement lifetime income stream.
- A stock is a share of ownership in a publicly-traded company.
- A bond is almost like a loan; by purchasing a bond, you make your principal available to a specific entity (usually a company or the government). In return, you are earning interest.
- Investing in mutual funds and exchange-traded funds (ETFs) is also an option.
- Investing in real estate can provide you with tangible assets.
- The reduction of stress and anxiety
- A life with more options
- Increasing the stability for you and your family
- Investing for your future retirement
- Becoming more generous by increasing your ability to give
1. Have a “perfect” credit score
One way to go about this is by aiming to achieve a “perfect” credit score. You will qualify for the most favorable terms if you have an 800 or higher credit score.
- Always pay your bills on time
- Don’t let your credit balances exceed 10 percent of your credit limit
- Hold a variety of credit accounts, including installment loans and credit cards
- Verify your credit reports to look for errors that may affect your scores
Several factors, such as your age, occupation, family history, etc., determine the type of insurance you should have. Knowing what’s available can be confusing, but it helps you make sound financial decisions if you know what’s available.
To begin protecting your family and finances from risk, you may want to speak with your insurance company. Consult your insurance agent about any changes you might need to make to your current policy. Discover the differences between standard coverage and supplemental coverage, and decide if increasing your coverage makes sense for your circumstances.
3. Develop an estate-planning document and a will
Estate planning documents, such as a will, are essential. These include powers of attorney, financial powers of attorney, and living wills.
Your loved ones will have the direction they need during a difficult time if you let them know how you intend to handle your financial assets before you die. Even if you are just writing a simple will, you should have an estate plan in place as soon as possible.
Frequently Asked Questions About Financial Health Score
What is a budget, and why do I need one?Budgets are a way of understanding what you spend versus what you make.
As for budgets, yes, you should make one. But, keep in mind that they come in all shapes and sizes. Tracking your spending and providing rigid allowances are definitely important. Still, you can also go lax: automating savings is technically a budget if you automate a certain amount of your earnings each month. A golden rule is the 50/20/30.
To assess borrower risk, creditors use a credit score. Typically, scores from FICO are used. Your credit score is determined by how much debt you have, how many credit cards you own, and whether you pay your bills on time.
When you buy a car, get a mortgage, get a loan, or open a new credit line, your credit score is reviewed by the people who can grant you those grown-up things. (Your credit score ranges from 300 to 850). A landlord, as an example, may be less likely to rent to you if you have a low credit score.
Don’t neglect your credit score and shield it from careless debts. In addition to your credit report, you can check your credit score every year to ensure it reflects your actual debts and credit cards. Whenever you want, you can check your Score for free online.
There is no one answer to this question because everyone’s situation is different. If you want to determine whether your debt is good or bad, then you need to ask yourself some general, personal questions regarding your situation.
For instance, if going to college or paying for certification will enrich you financially, this is considered “good” debt.
There is no universal number that applies to everyone. Instead, it depends on how much your life costs.
Typically, you should have three to six months’ worth of living expenses on hand for emergencies. As a result, you can maintain your lifestyle if you suddenly lose your job or fall upon hard times without getting into debt.
You don’t have to spend hours crunching numbers to figure out how much money you’ll need for retirement.
- Using the 25x rule, you can determine your retirement savings target. To estimate your annual spending, multiply your monthly spending level by 12. Next, multiply your annual spending by 25.
- You are allowed to withdraw up to 4 percent of your retirement savings each year under the 4 percent rule.
