Are You Financially Healthy? Do You Measure Up? Part One

Are you financially healthy? How do you know? This is a two part article. We are continuing our theme of Financial Health. Every person is in some degree of Financial Health. We cannot hit a target we do not see. We cannot achieve financial health if we cannot describe it. The following attributues of financial health are reflected generally in the life of a financially healthy person.

span style="font-weight: bold;">Attribute # 1: The Ability to live without dependence on consumer debt. Nearly one hundred percent of American households carry some consumer debt. We all have credit cards (well, nearly all), and we frequently carry some debt over from one month to the next. We frequently buy our automobiles with some type of payment plan that is a type of consumer debt. You would define consumer debt as the process of borrowing money for anything that is worth less after the purchase then before the purchase. A young couple starting out will have some requirement to depend on the availability of consumer debt resources to perhaps pay for an appliance that breaks or a significant car repair. Anyone past the mid twenties that must utilize consumer debt to get to the end of the month is not financially healthy and the dependence on access to consumer debt is a roadmap to a life of financial struggle.

Attribute # 2: The Ability to own a home mortgage free at least by retirement. We are a mobile society, and therefore the methodology we follow to acquire our home previous to retirement may be different than that observed by our grandparents. However, the optimum state of financial health demands that the person has the ability to live without a house payment, or in the alternative, have a store of capital that allows the earnings to pay for a rental payment on housing during retirement. The good news is that any person that desires to own their own home can normally accomplish their desire during their earning years.

Attribute # 3:The Ability to retire securely, evidenced by a dependence on corporate and government pension supplements for no more than thirty percent of the household income. During a persons working years, normally forty years, a person must accumulate a privately owned pension that allows this person to depend on Social Security for no more than 30-35% of their retirement income necessities. Social Security will continue to be in the news. It is the issue that no politician truly desires to address because it would make them the bearer of very bad news. Will social security go bankrupt? Of course not. Will it ever be able to keep up with the expectations of a growing retirement population? No. Simply put, it cannot possibly be expanded to include the same benefits for every person that every person desires. Actuarially, Social Security was designed when the average mortality rate was in the late sixties. Sure, some lived longer, but the average was less then seventy years of age. When the advances in health and medical treatment extend the average mortality rate to the late seventies, and early eighties, the system cannot keep up without significantly raising the taxes on the current workers to pay the bills for the retired workers. It will be there for you. Just don't count on it for more than $3 out of $10 you need every month.

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Attribute # 4:The Ability to legitimately reduce the Federal Tax on earned income to ten percent or less. There are two tax rates in this country. There is the tax rate for the workers, and there is the tax rate for the problem solvers. Legitimate tax reduction works for you and benefits the country. The target is an effective rate of 10% of your gross income. You may not hit 10%, but this is the target. Everyone should pay some taxes to pay for the benefits we all enjoy like protection, roads, services, etc. If you want to pay more, you may certainly volunteer to do so, but most people can feel just as patriotic paying half the historic levels of their tax rates. As outlined in other sections of Catholic Finance, tax reduction is not only legitimate, it is patriotic!

Attribute # 5: The Ability to educate children and grandchildren for vocational pursuits. Children and grandchildren all need vocational preparation for life. In fact, the highest return on an investment dollar your family will ever experience will be the return that comes from preparing your children to enter the work force. A college graduate normally makes more than twice the life time earnings of a high school graduate, and four times the life time earnings of a high school drop out. The ideal is to have the funds available when the need is apparent. Even here, there are many options, and a few very wise methodologies available to business owners that are tax efficient for educating their children.

Attribute # 6: The Ability to pay cash for transportation and consumer purchase requirements. Daily life has daily expenditures. It is imperative that a financially healthy person be able to pay cash for items that must be consumed. To pay interest plus the acquisition price of consumer purchase items raises their use price, and acts to retard financial health.

How are you measuring up so far? Financial Health has six more attributes featured in the next article.

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