What is the best way to measure your financial health? Some conventional and often useful metrics used in personal finance include ratio analysis, such as Debt to Income Ratio, simply stated as total monthly debt payments divided by monthly income, or an overall "temperature check,"such as Personal Net Worth, which is what remains if all of your assets are sold at their fair market values and all debts are paid. The problem with using conventional measures of financial health, however, is that, well, they are conventional!
"The shortcut is the longest distance between two points." ~ Unknown Author
Certainly, there is no one-size-fits-all measure of financial health. In a fast-paced world, we want quick and simple lists of "things to do" for financial success. We want the "do it yourself" solutions but we get these solutions from sources other than ourselves. After all, we're in too much of a hurry to keep up with all that financial jargon and record-keeping, right?
We want to find the quickest path from Point A to Point B. Therein lies the core of most of our financial problems: We want to buy our stuff now and pay for it later, we want to climb the corporate ladder, make more money, buy a bigger home and we absolutely must get rich as quick as possible so we can retire young.
"Happiness is when what you think, what you say, and what you do are in harmony." ~ Mahatma Gandhi
Could it be that the conventional path to financial health is paradoxically leading to sickness in all other areas of our lives? In keeping with our desire for shortcuts, the short-cut answer is, yes...
So, if we are not to use conventional measures, how should one go about measuring financial health? Assuming you wish to use money as a tool for a life plan -- rather than use your life as a tool for a money plan -- the greatest measure of financial health is one of productivity. Just as corporations have a bottom line, you should first decide what it is you should call your bottom line. Is it more time with family? Is it a greater sense of accomplishment, meaning or purpose?
Once you decide what your personal bottom line is -- or what it is that you are trying to produce -- you may then align your pursuits accordingly to work towards greater personal productivity, which may be described as the degree to which your personal finances are supporting the kind of pursuits that lead to health in all of the other areas of your life -- those areas beyond finance.
Here is a "quick test" of this kind of financial health: Make a list of your life priorities. Next, determine if your life pursuits are aligned with these priorities. For a simple example, let's say you list spending time with my family as the number one priority, yet you list career as your greatest pursuit -- the one that consumes most of your time and energy. Your personal productivity, in this case, may be low and you may need to make some adjustments or re-alignments and take steps toward greater productivity -- toward your highest priorities -- not away from them!
"Man acts as though he were the shaper and master of language, while in fact language remains the master of man." ~ Martin Heidegger
Before defining financial health for yourself, please keep in mind that, in matters of personal finance, personal comes before finance.