Are You Financially Sexy?
Are You Financially Sexy?
Financial Sexiness is More Complicated than Physical Sexiness
On Monday I wrote about financial information that couples should share with each other, especially if you are in a serious relationship. I think that sometimes people choose not to share this information, because they don’t think that it is appealing to someone else. It is easy for one person to determine physical sexiness, and in some cases models for physical sexiness are universally agreed upon like Brad Pitt, Scarlett Johannson, George Clooney or Sofia Vergara. I think it is more difficult to determine financial sexiness, and it is certainly not apparent just by looking at someone.I have to confess, when I was younger, I would have said that a financially sexy person was someone who had a salary of at least six figures, a million dollar home and a nice car. As I have witnessed, though, these things may make someone appealing on the outside, but it actually does not necessarily mean that they are financially sexy. In fact, from my experience, they are probably the opposite. So I have compiled a list of qualities that I think a financially sexy person has, and just as the Commodores tried to define physical sexiness in 1977 as 36-24-36, I like to say financial sexiness looks like 750-35-15-35.
Financial Sexiness Measurements
Credit Score of 750 or higher
I recently wrote about the importance of your credit score, and I believe that with a 750 or higher score, you will truly realize the most benefits from a financial perspective like lower interest rates, access to more credit and insurance benefits. If you don’t know your credit score, I always recommend Credit Karma. You will not only get your score for free, but you will get a great report card telling you where and how you can make improvements.
Saving 15% of Gross Income
When I present a financial plan to clients, the first and most important component to me is their savings behaviors, and the goal I like clients to achieve is 15% of their gross salary. After I present this, I typically get a deer in headlight expression from my clients. Primarily because savings was always an after thought. If they had money left over at the end of the month this became savings. So rather than think about savings last, I think a financially sexy person thinks about savings first and preferably at the 15% rate or higher.
Credit card utilization at 35%
At any given time, a financially sexy person should have not have more than 50% of their available credit on their credit card and a really sexy person has this around 35%. I know that it is tempting to get a $1,000 limit and spend $1,000, but if this is your limit, you should really only think about $350 on your card at any given moment. This will not only force you to spend less, but it will boost your credit utilization component that will make your credit score even sexier.
Healthy emergency fund
A financially sexy person has at least three months of living expenses saved in cash or a liquid account, but for me, I would love to see someone with six months of living expenses saved. This is a hard goal to attain when you are busy living your life, but surprise financial events happen all the time and the best way that we can weather those with minimal stress is a healthy emergency fund.
Debt to income of 35% or less
Your debt to income percentage represents the amount of debt that you owe in a monthly payment versus how much income you make. Banks are comfortable giving you a mortgage if your debt to income is 35% or less, but I like to see clients strive for a lower number to give them flexibility on what they want to do in life. If you build a debt life that is reliant on a high income to support it, then you will not have job flexibility should you want to make a change later in life. I have a client who has a high paying salary, but may want to do something more “meaningful” in the non-profit sector. The best way that he can remain nimble, is keeping his debt in check. Financial flexibility is definitely sexy.