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Financial health leads to wealth

June 10, 2015

Here’s a great idea…

A new report just released from the Center for Household Financial Stability reveals a correlation between healthy financial decision-making and wealth accumulation.

In other words…

Researchers developed the “Financial Health Scorecard” that asked about financial decision-making behaviors such as saving, on-time payments, and debt load.  They concluded that “our financial health scorecard was very good at predicting how much wealth a group was likely to have.”  Consumers who make healthy financial decisions will increase their chances of building wealth.

Here’s how you can use this idea to have a better life …

Based on the survey questions, here are some healthy financial practices consumers may want to adopt:

  1. Save money. Aim to save at least 10-15% of your income or more. Save for emergencies, save for retirement, save for college.  Save for large and small expenses and avoid the cost of using credit.
  2. Make payments on time. By paying on-time you increase your credit score and save the cost of late fees.
  3. Don’t carry a balance on your credit card. Interest and fees add up. Pay off your balance or keep it low to minimize costs and build your credit score.
  4. Have an adequate emergency fund that is easily accessible. Aim for enough money to cover at least 2 to 6 months of expenses. Your emergency fund needs to be liquid. That means it needs to be in a form that’s easy for you to use if you need it.
  5. Monitor your debt load. Over-extending yourself on credit can leave you vulnerable. Home mortgage payments, including taxes and insurance, should be kept to about 30% of your income or less. Debt load excluding your home mortgage (total debt divided by total income) is best at 10% or less.

To find out more…

Read the full report at (https://www.stlouisfed.org/~/media/Files/PDFs/HFS/essays/HFS-Essay-2-2015-Education-and-Wealth.pdf).

The U of A Cooperative Extension Service provides research-based information to help Arkansans build financial security.  Visit the website at http://www.uaex.edu.

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