By Rebekah Hall
U of A System Division of Agriculture 

At the start of the new year, many people make resolutions related to physical health and fitness, but this can also be a great time to conduct a financial check-up. By calculating net worth, debt-to-income ratio and credit scores, one can better determine fiscal health and set savings goals for the year ahead.  

Laura Hendrix, interim associate department head of Family and Consumer Sciences for the University of Arkansas System Division of Agriculture, said performing a yearly financial check-up can reveal financial stability.   

“A financial checkup can serve as a benchmark for financial improvement,” Hendrix said. “Increasing net worth, lowering debt, and improving credit scores are all actionable goals that can lead to a more solid financial foundation.”  

Indicators of financial health  

Hendrix suggested starting by calculating net worth, which is the total of all assets minus the total of all liabilities. For example, if the current market value of one’s home is $180,000, that would be listed in the asset column. If $100,000 is still owed on the home mortgage loan, then that $100,00 would be listed in the liabilities column.  

“Net worth should be positive and increasing each year,” Hendrix said.  

To help calculate net worth, use the Cooperative Extension Service’s My Assets, Liabilities and Net Worth form.  

Similarly, determining one’s debt-to-income ratio can help illustrate the state of your fiscal health. Divide monthly debt payments – excluding mortgage – by monthly net salary, or one’s take-home pay after taxes and other withholding have been taken out. Debt payments may include credit card payments, car payments, student loan payments and other monthly consumer debt.  

“A lower ratio is better than a higher ratio,” Hendrix said. “Less than 10 percent is best. More than 20 percent could be a sign of trouble.”  

Lastly, one’s credit score can be an important indicator of financial health, as it affects the ability to obtain a credit card, a job, a home loan or an apartment lease. Information about credit practices — such as a track record of paying bills on time, the number of credit accounts and amount of debt — is used to determine a credit score. Points are awarded for items on a credit report that indicate an individual is likely to repay debt.  

“Some consumers may have a lower score because they haven’t used credit,” Hendrix said. “This is often the case for young adults who are just starting their financially independent lives.”  

Scores usually range from 300-850, and Hendrix said most people score in the 600s and 700s. Scores above 700 may qualify for more credit and lower interest rates, while scores under 600 could entail high interest rates or low credit limits.  

“Some consumers don’t like to use credit and prefer to pay as they go,” Hendrix said. “This is perfectly acceptable. The benefit of a higher credit score is that consumers can save money in interest because they qualify for lower interest loans.”  

To learn more, check out extension’s Credit Reports and Credit Scores information sheet.  

Setting – and sticking to – financial goals  

“Resolutions are easy to make, but often difficult to keep,” Hendrix said.  

Making a positive change in any area of life requires commitment, motivation and action. With financial resolutions, putting these ideas into practice can involve borrowing a strategy from psychology. The Transtheoretical Model of Change describes five major stages of change, ranging from being unaware that change is needed to enjoying the benefits of change.  

“Start by identifying where you are,” Hendrix said. “Is there a money management practice that you might need to change? Examine your expenses and income to identify potential goals. What stage of change are you in?”  

Next, gather information about the subject you hope to change. What do experts recommend? For example, if interested in saving a certain amount of money this year, look into different savings accounts options that accrue interest over time.  

The third phase is making a commitment. “Write a statement committing to the change,” Hendrix said. “The language of this statement is important. It should start with ‘I will…’ and it can become a mantra that you repeat over the course of the year.”  

The next phase focuses on “finding your motivation,” Hendrix said. “What inspires you? Why do you want to make this change? Discover a reason to be passionate about changing your behavior.”  

Lastly, “transition from negative to positive behaviors,” Hendrix said. “Identify the negative behavior and think of a positive counterpoint. For example, ‘I’ll enjoy a secure retirement by saving now and cutting back on unnecessary expenses.’”  

To learn more about personal finance, visit uaex.uada.edu/life-skills-wellness/personal-finance/default.aspx. The Cooperative Extension Service has the latest research-based recommendations on money management to help improve your financial stability.   

To learn about extension programs in Arkansas, contact your local Cooperative Extension Service agent or visit www.uaex.uada.edu. Follow us on Twitter and Instagram at @AR_Extension. To learn more about Division of Agriculture research, visit the Arkansas Agricultural Experiment Station website: https://aaes.uada.edu. Follow on Twitter at @ArkAgResearch. To learn more about the Division of Agriculture, visit https://uada.edu/. Follow us on Twitter at @AgInArk. 

About the Division of Agriculture 

The University of Arkansas System Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, the Division of Agriculture conducts research and extension work within the nation’s historic land grant education system.  

The Division of Agriculture is one of 20 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on five system campuses.   

The University of Arkansas System Division of Agriculture offers all its Extension and Research programs to all eligible persons without regard to race, color, sex, gender identity, sexual orientation, national origin, religion, age, disability, marital or veteran status, genetic information, or any other legally protected status, and is an Affirmative Action/Equal Opportunity Employer.