Assess Your Financial Health with These Expert Ways

Financial health should never be taken for granted!

When you join a gym, intending to lose weight and gain muscle, you are continually tracking your progress.
Similarly, you take care of your physical health by a regular check-up every once or twice a year.
So, why not give your financial health the same importance?
It is vital to regularly assess your financial situation to have a vivid picture of where you stand money-wise, what money-managing habits can you adopt, and what practices do you need to let go of.
No one wants to go into a financial slump!
Without further ado, let’s see how can you assess your financial situation with these expert ways.
Following authentic ways, you can follow easily to determine your financial health without having to rely on anyone.

  • Net Worth
  • Debt Servicing Ratio
  • Emergency Funds Ratio
  • Savings Ratio
  • Invested Savings to Net Worth Ratio
  • Housing Situation
  • How Are You Spending- Needs Vs Wants

Calculate Your Net Worth, See What It Says About Your Financial Well-Being
Starting with your net worth is always a good idea.
Why do I say so?
It gives you a clear picture of your financial health, there and then.
Also, the math is quite easy. So there’s a plus!
Net worth is calculated by simple subtraction. Sound’s easy?
Take the value of all your assets and subtract the value of all your liabilities (debt) from it.
There, you have your net worth.
Let’s try to understand it with a simple example.
Let’s say you have $20,000 in your savings account and you owe $1000 on your credit card; your net worth would be $19,000.
Similarly, you can have a negative net worth if you owe $1000 on your credit card with $700 in your account.
Begin by making a list of all your assets against their value. Your assets may include your house, your car, your cash, and all your investments.
Similarly make a list of all your liabilities which may include mortgage, credit card debts, student loans, etc.
Your income is not a part of your net worth. So remember not to count it in your assets while making the calculations.
Net worth is one of the best direct personal financial health indicators.
Part of the reason to love this indicator is that it compares apples with apples and not with oranges. One simple value can tell you about your next move in your financial journey.
Everyone wants to build positive net worth; it’s obvious. But you may start with a negative net worth, for example, if you have a large student loan to pay off.
Don’t Panic.
More important than the net worth is the net worth trend, which should go up.
Your net worth is like a snapshot of your finances at a given point in time. To track your net worth and find a trend, compare your recent net worth picture with an older one and see how’s it going.
Points to Consider

  • Never compare yourself with someone else. Your comparison is only between your past and present financial situation.
  • A higher or sometimes even positive net worth indicates a healthy financial situation.
  • Negative net worth can change.
  • Keep tracking your net worth and work towards a positive trend.

Find Your Debt Servicing Ratio and See If Your Debt is Under Control
After you have taken a bird’s eye view of your finances, it’s time to take a closer picture.
For this purpose, we have another indicator, Debt servicing Ratio.
The debt servicing ratio is your debt to income ratio and is calculated by summing up all your debt amounts and dividing the value by your gross monthly income. It is one of the recommended measures for your financial health check
Let’s consider your gross monthly income to be $10,000
And the following are your monthly debts:

  • Mortgage: $1500
  • Car Loan: $350
  • Student Debt: $250
  • Credit Card: $200

Total debt: $2300
Your Debt service ratio is 2300/ 10,000 = 0.23
Now, is it a good debt-to-income ratio?
Most lenders recommend a TDS ratio of 36% or less to be suitable for loan approval. Studies have shown that borrowers with a high TDS ratio (43% and above) find it hard to make approved mortgage payments on time.
I would suggest you keep your TDS Ratio even lower, say 25% to be always on a safe side.
How to Bring Your TDS Down?

  • Increase the amount you pay monthly to your debt to bring the TDS ratio down quickly.
  • Avoid taking up more debt.
  • Keep a financial health check and regularly track your TDS to see how you are progressing.
  • Think of a side-hustle to add to your income.

Points to Consider:

  • A TDS ratio tells you if your debt is under control.
  • A higher (40-50%) TDS is an alarming ratio and needs considerable thought to bring it down.
  • Many mortgage lenders will decline to work with high TDS borrowers.
  • Work to keep your TDS Ratio around 20%

Estimate Your Emergency Funds Ratio and See If You Can Handle a Financial Mishap
I have always highlighted the need for and significance of setting up an emergency fund for yourself, and I will not stop here.
An emergency fund is like a cushion; you can fall on in times of financial turmoil.
Pretty sure, this COVID 19 has made us realize it’s value.
An emergency fund should be readily available and accessible to you. Once you have an emergency fund in place, you can calculate the emergency fund ratio to evaluate your financial wellness.
An emergency fund ratio, also known as personal finance ratio gives a measure of the ability of a person to meet his and his family’s expenses out of highly liquid assets such as checking or savings account.
It tells you how prepared you are to meet a setback in your financial journey.
The emergency fund ratio is calculated by dividing the total liquid assets a person holds by the total monthly expenses of the household.
If you have an emergency fund ratio of 3, it means you are good to go for the next three months in terms of expenses.
Among other financial health tips, financial planners vouch for emergency funds that can typically cover three to six months’ worth of costs in the form of highly liquid assets.
It generally varies depending on several factors, like your income, your expenses, your debts, etc. but aiming for at least three months is a worthy goal.

Points to Consider:

  • An emergency fund is your safety net in financial crises.
  • Three or above is an excellent financial ratio that you should aim for.
  • Anything below 2 is problematic, and you quickly need to fund your emergency reserve.

Determine Your Savings Ratio and See If You Are Saving Enough
Equally essential is Savings.
A saving ratio is a part of your income you are saving and one of the best measures to assess your financial situation. It may include your and your employer’s contribution to your retirement plan as well as other liquid savings you have parked.
The saving ratio is calculated by dividing your Annual Savings by your Annual gross income.
The higher the number, the better you are saving.
For early retirement, you should aim for as high as 50%. If you are newly employed and struggling in financial terms, it might be challenging or even impossible to start with a decent saving ratio.
But it’s okay. Work towards improving it over time. Remember, the trends should only go up.
Points to Consider:

  • The Saving ratio indicates how healthy you are money-wise.
  • Start saving as soon as you can, and as little as you can.
  • Always aim for a higher savings ratio, the higher, the better.

Determine Your Invested Savings to Net Worth Ratio to See If You Are Investing Well
Invested Savings to Net Worth Ratio is like a litmus test to see where you are standing with your investments.
Investments assets usually have very low liquidity, i.e. it takes time to turn them into cash, such as stocks, unit trust, and assets in the form of a property while others can be in the form of retirement assets like EPF.
In simple words, it is the percentage of your wealth that you have allocated to investments. You should have at least 50% of your net worth invested in some form of investment assets.
The percentage should only get higher when you are getting closer to your retirement age so that you can retire peacefully.
But it is not always likely for everyone to follow the financial health tips laid by experts.
How much can you invest in liquid assets like stocks and mutual funds and how much can you afford to invest in illiquid assets demands mainly on your financial situation.
Checking your investment-to-net worth ratio at least once a year will help you make necessary adjustments to keep your net-worth in good shape.
Points to Consider:

  • Invested Savings to Net worth ratio compares your invested assets to your net worth.
  • Assets like your house should not be included in it since this asset is already assigned for a purpose.
  • The ratio should increase as you grow older for a financially secure retirement.

Assess Your Housing Situation to See If You Can Afford It
Housing is one of the essential and unavoidable expenditures.
But are you aware of how much of your monthly income is dedicated to your housing situation?
Most expert financial advisors suggest that not more than 30% to 40% of your income should go to your housing finance, including rent or mortgage. It also covers other essential expenses, such as food, transportation, health care, and personal savings.
If you are spending more than this, you need to reevaluate your budget and bring it down within these limits to afford a healthy lifestyle accompanied with substantial savings and investments for a secure future.
The key is to keep asking yourself, “Is my financial health check result good?”, if not, plan to make necessary adjustments right away. You can always rely on the expert suggestions of Financial Advisors. They are real life savers when nothing is working out for you.

Points to Consider:

  • Your housing situation should be such that it presents a comfortable living affair at present with a promise of a financially blooming future.
  • Always make adjustments in your budget to keep the housing expenses below 40% of your net income.
  • Turn to the expertise of financial advisors when matters get complex.

How Are You Spending- Needs Vs Wants
Last but not least is to ponder over the balance between your wants and needs.
Which scale is going up? Or is it in balance?
Ideally, your needs should always outweigh your wants. The balance is also acceptable.
But if you are okay with the scale of your wants going up, it’s time you rethink your temptations and readjust your budget.
If you want to do financially well, you need to create a very profound connection with your money. Be conscious of where every dollar is coming from, and where is it going. It may sound crazy but trust me; financial stability is not something you achieve overnight and without putting in all your efforts.
Points to Consider:

  • Don’t spend more than you have assigned for a month.
  • Prioritize your needs over wants.
  • Polish your money-spending habits.

Cutting a Long Story Short
The best thing you can buy from your money is financial freedom.
Remember when Bill Gates said, “If you are born poor, it’s not your fault, but if you die poor, it’s your fault.”
It is vital to work for a financially stable life but what is even more important is to keep a check on your financial health along the way. These are like vaccinations, making your financial immunity stronger. You can also take help from financial health assessment tools, to begin with.
We wish you a happy journey to financial success!



Jun Sing Tan

I help young adults and working professionals achieve their financial goals with a full suite of risk management and wealth accumulation solutions. I firmly believe that financial education should be easy and achievable for all. I am committed to service and hope to be your one stop financial solution.


Jun Sing Tan

November 18, 2020