SexyBack – AKA Financially SexyBack
A year ago this week, Budgets Are Sexy and Life Hacker shared my post Are You Financially Sexy? and to this day it remains my most viewed post. I figured that after a year it was about time to bring sexy back, financially sexy that is.
My son is in the middle of state testing in New York and there are a number of people who are up in arms about state tests and many parents have opted their kids out of the testing. I can understand why teachers may not love the testing; however, I don’t understand why parents have an issue. Tests, for better or worse, give us a measurement and assessment of abilities or progress to date. Without a form of measurement, how do you know if you are progressing or not?
The same truth holds for our finances, without measuring our stats, how do we know if we’re financially sexy or at least making progress? As I pointed out when I first wrote about financial sexiness, I think a huge issue many of us have with knowing if we are financially sexy or not is that we don’t know the measurements, or we’re using the wrong measurements to assess our progress. Financial sexiness is not about salaries and stuff, it’s about stats and behaviors.
I Measure My Clients
As a financial planner, when I first meet with clients, I take measurements to determine their financial health, and almost all of my clients; even the financially sexy ones are concerned with how I will assess them. The lack of a benchmark stresses my clients out almost more than their actual numbers.
For me, I don’t care what they look like when we first meet, I only care about what I need to put in place to get them where they want and need to be. We are not all financially sexy, but financial sexiness is possible for everyone; however, if you don’t know what it looks like then it’s impossible to put a plan together to achieve it.
I view my clients as financially sexy when they have these measurements: 750-35-15-35-6
750 = Credit score of at least 750 or higher.
If you are not sure what your credit score is, there are plenty of free sites like Credit Karma or Credit Sesame and you also get one full report for free each year from Annual Credit Report.com. If you need to start working on your credit, you can check out my podcast on Credit where we discuss many of the myths and best practices for building your credit score.
35 = Debt to Income of 35%.
To find your debt to income percentage, you need to take your total monthly debt payments and divide it by your monthly income. The lower you can keep this number, the more flexibility you have in life. No one wants to work hard only to see the majority of your income go to debt payments.
15 = A savings rate of at least 15%.
Truthfully, I would love to see this number closer to 20% and I currently have clients working toward the 30% number, but if you can at least put aside 15% of your gross income every month you not only build your wealth but also control your expenses.
35 = Credit card utilization of 35% or less.
Whatever your credit limit is, you should make sure that at any given time, you have no more than 35% of that limit as a balance on the card. For example, if you have a credit limit of $1,000 then you should have no more than $350 on balance on the card. One of my client’s needed to improve her credit score and when we got her utilization to this level, her score improved more than 60 points!
6 = An emergency fund with at least 6 months of expenses saved in it.
Again, I would probably like to see this number closer to 8 months, but 6 months is a good starting point. When you have a healthy cushion in your savings account, you are less likely to get into credit or debt troubles as you can cover life’s emergencies with cash.
If you’re not financially sexy now, don’t fret about it. Consider this post a financial destination for you to reach and now you just have to put the plan and roadmap together for how to get there. There is no set time for you to achieve financial sexiness so go at your own pace and celebrate your successes along the way.
Gif Source: Giphy
Are you financially sexy? If not, do you have a plan in place for how to get financially sexy?