Recently, I came across a headline stating that how to get your credit score above 800. Now this was something shocking to me as the first thought that came into the mind was who actually cares it is true that a true good credit score is important to obtain the best rates. When you need to buy a home or a car and you need to borrow some money. But credit score is not everything and is not that much important. It is not so much important that people need to be obsessed with it. As soon as your credit score crosses the line of 750 you pretty much qualify for the best rates.
Now if you want to work. And put in extra efforts to take it higher. It will not get to any poor financial books that you already don’t have. In fact in an effort to make your credit score better you may actually Put your financial situations in a grave situation. Hence Yokel score It is correct to say that you credit score is just a measure of your financial Wellness. To be precise a part of your financial Wellness
Imagine a woman who is drowning in depth and is finding it difficult to actually make a minimum payments and she’s not even able to pay her bills without using her cards. Now if I say that her credit score is extremely good because she was paying on time. And also followed all the Norms that a person needs to get a good credit score. In such a situation if you suggest that woman to enter a counseling session about credit. Then she might not listen.
Credit counseling would be a bad thing for her credit score and she is obsessed to get more credit. Now in this situation nothing can be done as for that woman. Her credit score is more important than addressing thousands of rupees. She was losing interest. Every year In such a situation you can do nothing, but watch a person do great disaster.
Take another example of a person who has no depth and has a fully funded emergency fund. Now if I say that he is on the track to retire but has a bad credit score.
This doesn’t mean that he is financially unstable.
If we compare both the examples given above. Based on only credit score then you would get a completely wrong picture. Think of it as a thin person who is actually super healthy, but has a high blood pressure and different health issues. Hence, the number on a scale doesn’t actually indicate your health. Similarly your credit score simply measures your ability to pay back what you borrowed? It doesn’t tell you about financial situation of person. So keep this thing in mind that if you are planning to borrow money, then credit score is something you should be considerate off. But if you have no plans to borrow money, then you need not worry about it so much.
What you should focus on instead.
If we look into it that why people are so obsessed with their credit scores, then this is something that you can measure and it gives you a good time seeing that something that you can measure is growing.
But this can make you crazy. And hence. There aren’t many better ways to track your financial Wellness. These better ways will help you gain Financial Independence and Make you less stressful. So the different methods by which you can track Financial Wellness are given below. Net worth
Some people think that measuring their total depth is how you can measure your financial well-being, but that can be a little too depressing. So the best way to track a financial Wellness is by dragging your network. Net worth not only gives you a good idea about your financial well-being but also helps In motivating you How to find a net worth your network simply includes all your assets be it any savings retirement account home or car and it – has all your liabilities which maybe credit cards student loans car loans Etc. If your career has just begun then chances are that you might gain a negative net worth but that’s completely okay because you are at the start of your life. The main idea is that it should grow each month as long as this is growing each month. You are good to go.
Take for example Kanye West and Mark Zuckerberg. Kanye. West asked him for a loan and it was a big media coverage and people were pointing and laughing. That a person so huge and popular has to ask for a loan given that he lives a lifestyle very extravagant.
In this case, he was rich I said twice but also he was rich liability wise. Hence this resulted into a negative net worth. So net worth is your measure of a financial Wellness, but your goal should be to increase the number day by day month over month for this you need to put an extra efforts and plan accordingly.
Now if you cannot Increase your net worth whilst paying for your bills at the same time. There are chances that you will have a decent credit score.
So keep in mind that having a high income and a lot of money in the bank. Doesn’t ensure you a good credit score.
So our main focus your main concentration should be on keeping more of the income you make and paying back more of what you owe. This will ultimately help you Achieve Financial Freedom. And this is all we are looking for aren’t we?Net worth is a really common way these days and it helps you find out where you stand financially.
You can use the given net worth calculator to do the same.
Second what you can do is you can calculate your depth to income ratio.
After figuring out your net worth you will have to take a closer look at your income. Keep in mind your net worth is not your income. For this we will have to calculate the depth to income ratio. And with this is calculated by taking the total amount you pay in depth payments and dividing it by your monthly gross income. So let’s understand this by an example. Let’s say your monthly gross income is 70,000. And you have the following payments to be done. Mortage 18,000 Car 3000 Student loan 2000 Credit card 1500
So by adding your total depth payments sum up to 24,500.
Now this you have to divide by a gross income of 70,000. This gives your dip three to income ratio of 35 percent. Now it is recommended by most people that your debt to income ratio should be about thirty percent or lower.
In this article, we would recommend that you keep this ratio low and try to keep it around 20%
This ratio is important for many reasons first. It will give you a good sensing of your financial situation and tell you whether or not you are in depth or whether you are in a situation where you can pay depth in your near future. And if you are approaching the ratio of 40 to 50 percent, then it is a time to start worrying. Secondly, your debt to income ratio is a primary factor in determining your credit score. But as we told credit score is not everything, but it is also important if you are considering borrowing some time. If you have a high ratio, then many lenders will refuse to work with you. This is clearly understood giving the fact that you are not able to pay off your own depths so they might be skeptical about Lenny you money. Putting what you can do is you can evaluate your housing situation.
Three housing situation
It is nowadays A prevalent thinking that a big house and expensive house is what everyone needs.
But there is a slight change expensive house is something that everyone wants. But we should live life according to our needs. Hence people fail to understand this today and get into buying more and more expensive houses, which they cannot afford.
Hence, it becomes important to find ourselves the houses which we can afford. This is a very essential step in evaluating a Financial Health.
No, ask for the experts. You should not be spending more than 30 40 percent of your budget on your housing payment that can be either rent or Mortage. But this is a variable number and it totally depends upon your own situation about how much you can spend and how much you should spend.
Take for instance. If you live in a locality where you pay a lot of money in housing payment, but on the other hand on the contrary, you mean need you may not need a card to walk to work. On the contrary if you live somewhere outside the city in a place where your Work is too far away from your home. Then you will have some extra cost like gas and parking Etc. So in both these situations your overall expense might sum up the same. So it totally depends on your local realities. So Thinking of a definite percentage of how much you should be spending. Doesn’t benefit so much.
So instead we suggest that you find cheaper option and cut on the expenses as much as you can. But if you like it where you live and you don’t want to relocate then you can consider getting a roommate. And if you are ready to move, then you can find a place or way to get something comparable for less money. Also a very important factor is the space. That is how much space you actually need. Say for example, if you are just starting your career and you are a single person then would you need a for bhk apartment in a new development? No, so all you need is you need to think smart?
Last but not the least. The most important point is you should know where your money is going, hence. You should create a budget many people don’t actually have a budget and they can’t they have the hard time placing where they spend their money.
So you should be intimately aware of every penny you spare from where it is coming in from to wear this going to now this might sound a little time intensive, but this is what you have to do to become financially free. Once you start making a budget you actually realize where you are wasting money where you need to invest more money and where you can save money.
You can use a plenty of budgeting methods. Which will help you? Keep a track and record.koThe most important point is that the investment strategy should be aligned with your situation. You should always keep your risk tolerance in mind and the funds in mind which align with your values and goals. If done as said in this article, then you are definitely able to keep a measure of your Financial Health. And look And lead a better life where you are on the path of gaining Financial Freedom