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Annual physicals and periodic screening tests are a commonly recommended practice. Periodic financial check-ups are equally as important as a routine physical exam. Financial planning is the process of meeting your life goals through the proper management of your finances ("What You Should Know," undated). A review of one's finances can help "diagnose" problems before they get worse and can help assess uncovered risk exposures.
A financial check-up contributes to evaluating progress toward goals, to identifies future action steps, and provides motivation to change behavior. This article describes the concept of financial wellness and 12 key components. Details about how to use these indicators provide implications for Family and Consumer Sciences professionals who provide financial education and counseling.
WHAT IS FINANCIAL WELLNESS?
There is no single definition of financial wellness, just as there is not 100% agreement on many areas of personal finance. Areas of personal finance where professionals disagree include factors to consider in a life insurance needs analysis (Kitt et al., 1998) and the recommended amount of stock in a retirement portfolio (Greninger et al., 1998). Nevertheless, there are some commonly used indicators that suggest people are managing their finances wisely. These indicators include effective credit management, low debt-to-- income ratios, adequate insurance coverage, positive cash flow, increasing net worth, and simply having a financial plan (Garman et al., 1999; Johnson, 2001). Financial wellness can also be deduced from the absence of major problems such as bankruptcy, lack of emergency reserves, or uninsured losses, or by comparisons of one's personal financial situation with other people or national economic statistics (Powe, 2000; Wilcox, 2001).
12 KEY COMPONENTS OF FINANCIAL WELLNESS
The following is a description of 12 key components of a periodic financial check-up:
1. Financial Goals
Financial goals provide a framework for planning and a benchmark for measuring financial progress. Financial educators often use the acronym SMART to describe goals that are Specific, Measurable, Achievable or Attainable, Relevant or Realistic, and Time-bound with a timeline and a completion date attached. (Investing For Your Future, 2002; Moeller, 2001). Examples are saving $5,000 in two years and paying off a $3,000 balance on a high interest rate credit card within a year.
Setting specific, written financial goals and calculating the savings required provide a "reality...