6-step test to financial wellness

Title: 6-step test to financial wellness
Short description: Being good with money is an important skill to have when looking to achieve a happy and balanced life. Here, we outline a simple financial health checklist.
Topics: mlc:Topics/news-and-updates
Time to read/watch: 4 min
Effective date: 2024-10-24 00:00
Feature Image: /content/dam/mlc/insights/images/Articles/2024/6-step-test-to-financial-wellness/the-6-step-test-to-financial-wellness.jpg
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Financial health checklist

Being good with money is an important skill to have when looking to achieve a happy and balanced life.

The economy goes up and down, unexpected things happen, and our goals change, so it's smart to keep an eye on your finances.

Here, we outline a simple financial health checklist.

Step 1: Check your credit score

Your credit score is like a report card for your money habits. It tells banks and others if you're good at making repayments. A good score means you can get loans with lower interest rates. You can get your credit report for free from big credit companies such as Equifax and Credit Savvy. Look through it to make sure there aren't any mistakes. If you find any, get them fixed quickly. Late payments and high debts can hurt your score. Knowing your score and trying to improve it can help you build financial stability.

Step 2: Make a budget using the 50/30/20 rule

Making a budget helps you know where your money is going. The 50/30/20 rule is a simple way to divide your money:

50% for things you need like rent, groceries, and bills.
30% for things you want but don't need, like eating out or entertainment.
20% for saving and paying off debts.

This helps you spend your money wisely and save for the future, whilst still enjoying the present.

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Step 3: Get insured

Life insurance, TPD (total and permanent disability) insurance, and income protection insurance, can help you and your family if something happens to you. Figure out how much insurance you need based on things like your debt level and what your family will need in the future. There are different types of life insurance, so choose one that fits your family's needs.

Step 4: Save for emergencies

Life can be unpredictable, so it's good to have money saved up for emergencies. Aim to save enough to cover your living expenses for three to six months. This money can help you if you lose your job or have unexpected expenses.

Step 5: Track your net worth

Knowing your net worth is important for understanding your overall financial health. Add up what you own (things like savings and property) and subtract what you owe (such as debts). Your net worth should grow over time as you pay down debts and save more.

Step 6: Make a will

Making a will ensures that your assets go to the right people when you pass away. It also saves your family time and money. Talk to a lawyer to make sure your will covers everything you own and that instructions for your beneficiaries are clear.

Improving financial health: key takeaways

Taking care of your money is a big step towards living well. By following these six steps, you can build a strong financial foundation, prepare for the unexpected, and plan for a better future. Keep at it, and you'll see your finances improve over time.

The information in this article is current as at October 2024 and may be subject to change.

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Take our 2-minute check to see how your super compares to other Australians.

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Important information and disclaimer

The information in this article is factual in nature only and does not and is not intended to imply any recommendation or opinion about a financial product. You should obtain appropriate advice before making any decisions based on the information in this article.