The term “financially sound” suggests that you live comfortably and have no money problems. Unfortunately, this is a state of existence that few people in America enjoy, but it’s nice to dream about.
Just for kicks, we thought we’d compile a list of what you need to accomplish to be included in this elite group. Take a moment to see if you qualify. (Don’t worry—there’s no credit check required.)
Qualifier #1: You Are Debt-Free
What does it mean to be debt-free? The very sound of the words is music to every consumer’s ears. You have no credit card debt, the car is paid off, and you own your house free and clear. It doesn’t get any better than that. Life is so good that you don’t even need a personal loan or cash advance to impulse-buy your favorite items on Amazon or eBay.
Many consider mortgage debt to be “good debt,” so some may consider themselves debt-free even though they don’t own their home outright quite yet.
Qualifier #2: You Pay Your Bills on Time
Have you ever taken the cable or phone bill off autopay to buy a few extra days? It’s okay. You’re not alone. The same can be said for paying monthly credit card bills or car payments a few days late. Everyone does that, except of course for those rare individuals who classify as financially sound. Are you on the right path to get there?
Qualifier #3: Your Partner’s Income Is Not Necessary
Let’s say you checked the boxes on the first two qualifiers. The third is a bit more difficult. Can you pay all your monthly expenses without your spouse’s or partner’s income? If you’re single, do you need a roommate to make ends meet? Being financially sound means being able to sustain yourself without the help of anyone else. Can you make that claim?
Qualifier #4: Your Emergency Fund Is Substantial
Every budget article you’ve ever read tells you to establish an emergency fund. Will yours actually cover a real emergency? Running out of cat food doesn’t count (unless you’re the cat). We’re talking about real-life stuff—an emergency medical procedure, a car accident, flooding in your basement. Financially sound individuals have the funds to cover these problems when they arise.
Qualifier #5: Your Money Is Making Money
This is the ultimate accomplishment. If you fulfill all the previous requirements and have an investment fund that grows your net worth every year, you are truly financially sound. This doesn’t even require double-digit growth. As long as your portfolio is going up in value and not down—and outperforming inflation rates—you’re doing okay. You don’t even need a financial advisor; there are apps that can help you get started and help manage your investments.
How to Become More Financially Sound
You’re probably thinking that we’ll tell you to pay off all debt first. Nope. Start at the bottom of the list and open an investment account. Use an app like Acorns or Robinhood and start with like $10 if you want to. Follow that up with a savings account to use as your emergency fund, then get into paying off debt. The rest will fall into place from there.
Kevin is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their eight wonderful grandchildren and two cats.
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