Financial Health Assessment: goals, importance, advantages and more

The Main Objectives of Financial Health Assessment

Financial health refers to the state of an individual’s monetary affairs. The dimensions of financial health include the amount of savings, the amount of income a person spends on non-discretionary and fixed expenses, and the amount of money they are saving for retirement. Regardless of their wealth, all individuals share a common aspiration for financial health. The signs of strong financial health include rare changes in expenses, strong returns on investments, a steady flow of income, and growth in cash balance. In order to improve financial health, individuals must assess their current net worth, build emergency funds, create a budget, and pay their debts. By completing a financial health assessment, individuals get to see the snapshot of the current financial health and develop a clear plan to reach their goals.

The Main Objectives of Financial Health Assessment

The primary objective of financial health assessment is to determine how finances are doing or what measures must be taken to achieve financial goals. A financial health assessment ensures an individual can create good money habits, have a robust financial plan, and a clear investment management plan to reach their financial goals. Another objective of financial health assessment is to identify the opportunities for financial growth and ways to improve the sources of income. By working through the process of financial assessment, individuals can organize their finances according to the available income and target goals. A routine financial health assessment is key to all investors and entrepreneurs as it informs them about their current assets and debts, helping them devise new strategies and investment decisions.

financial health assessment

Importance of Financial Health Assessment

To Determine Creditworthiness

When applying for a loan or making big large purchases, it is important to know the loan eligibility and amount of savings. A financial health assessment determines the creditworthiness by looking at the credit score depending on the individual’s purchasing power or borrowing limit. It also evaluates investor’s current debts and how they have been dealing with them. If they are not up to date with their monthly payments, it ensures that the investor has a new repayment plan to tackle their debt. With this information, individuals can use financial health assessments to check their debts and determine their creditworthiness.

To Plan for Emergency

Planning for an emergency is a crucial step that every individual should take. The future is unpredictable, and emergencies such as job loss, medical situations, and death might occur. Financial health assessment provides a practical plan that covers unforeseen uncertainties. The financial health assessment plan determines the available income and what to set aside for emergencies. As a result, individuals are saved from the last-minute rush looking for money to address personal or business emergencies.

To Budget the Surplus

A good budget is the foundation of financial well-being. It is highly beneficial to reserve a portion of personal income as surplus in hibernation mode. Budgeting the surplus can only be achieved through financial health analysis to determine the amount of income allocated in different expenses and possible surplus. The surplus amount identified during financial health assessment can be used to invest or for any unplanned emergencies. A financial health assessment is the most appropriate way to review the current personal budget and identify the surplus income depending on the goals and financial changes.

To Save for Retirement

Retirement planning is an important factor that can be made effective by financial health assessment. The rising cost of living and healthcare cost has made it necessary to plan for retirement or invest in schemes that will make life comfortable after retiring. When a financial health assessment is conducted, financial advisors can identify the right amount to save for retirement according to the client’s income, age, and retirement goals. Therefore, financial health assessment ensures individuals contribute the right amount towards retirement plans and whether they can increase it with time.

To Plan for the Future

Completing a financial health assessment indicates the current financial position and the changes that need to be implemented to achieve certain goals in the future. For instance, when purchasing a property with a goal of benefiting from its appreciation in the future, it is important to conduct a financial health assessment to ensure the set goals are achieved. Financial health check allows financial advisors to calculate the borrowing capacity, appreciation, rate and project the possible revenue outcome. Therefore, achieving future financial and personal goals depends on decisions made from a financial health assessment.

Advantages of Financial Health Assessment

Financial health assessment allows individuals to review and redefine financial goals. Losing track of financial goals set at the beginning of the year is a challenge facing many individuals. A financial health check offers the opportunity to review both long-term and short-term goals to determine how effective they are. It also allows individuals to find out what worked and what did not work in order to implement new goals.

Another advantage of financial health assessment is to ensure taxes are in order. Investors and business owners are mainly affected by high taxes and failure to stay up-to-date with tax filing. A financial health assessment determines whether an individual is paying the right amount of tax on their assets and properties.

Financial health assessment enables individuals to effectively budget for their income or revenue from investments. Investors are usually busy keeping their business running and managing their assets and may hardly recognize how cash is utilized. Through financial health check, individuals can pinpoint areas they spend too much or less and make responsible financial decisions.

Components of Financial Health Assessment

Components of Financial Health Assessment

Financial health assessment covers four main pillars: Sending, savings, borrowing, and planning. Financial advisors consider these four aspects when conducting a financial health analysis. Individuals should work on improving the health of the above to attain financial stability.


In order to spend wisely, it is important to budget the income. Putting together a clear budget helps improve individual spending habits. A budget indicates how an individual spends their money after receiving weekly or monthly income. It also details the current financial situation and keeps the current financial situation, allowing a person to manage their spending and achieve financial goals.


Saving is a crucial component of financial health. Savings should aim at a minimum of 10 percent of personal monthly income to improve financial fitness. The funds in a savings account are considered untouchable and are not used for impulse buys and bills. Having savings funds helps in addressing emergency issues that may affect the financial health of an individual.


Healthy debt payments should not exceed 15 percent of personal income. Higher debt payments every month or week affect the financial health of an individual. While credit scores can raise credit scores, for making on-time payments, they also have a negative impact on financial health. When conducting a financial health assessment, financial advisors should consider the debt burden of the client to adopt a debt-reducing strategy and improve financial health.


Planning involves asking questions on what an individual wants to achieve within a certain period of time. Individuals should take time to figure out their short-term and long-term goals. Financial health assessment incorporates the current and future plans; thus, it is worth creating a plan that covers long-term goals rather than focusing on short-term goals only.

How Arrowroot Family Office Can Help You in Financial Health Assessment

At Arrowroot Family Office, financial advisors provide clients with financial health assessment which helps them analyze their financial situation. The financial advisors also offer the right steps for improvement to help clients achieve financial goals. The process of financial assessment at Arrowroot Family Office involves the following steps.

    • Financial advisors set up a meeting with clients where they can communicate their financial goals. They will also share their income and sources of revenue to determine how much amount should be allocated to different expenses.
    • The second step involves analyzing the client’s financial situation by looking at their income, expenses, investments, assets, and any other pertinent information essential in the financial health assessment. The financial advisors at Arrowroot Family Office analyze the client’s income statement to determine the financial position and performance by looking at profits, expenses, and revenue. If the assessment is for a company, the income statement provides information on the company’s financial health by analyzing how much revenue is growing over a year, the gross profit margin, and interest repayments. Arrowroot Family Office advisors also analyze the client’s assets to get an idea of their balance sheet condition.
    • After analyzing the information, the financial advisors communicate the client’s position and identify areas of weakness that need improvement. They help clients understand their fiscal health and how to turn insights from the financial data into actions that benefit them or their business.
    • The last step is where the advisors will provide solutions to improve financial health, specifically what areas need improvement and which ones are effective. Some of the solutions offered by the financial advisors at Arrowroot Family Office include making a monthly budget, paying off debt, automating savings, tax planning, building emergency funds, and periodically checking your credit.

Through these steps, Arrowroot can help individuals and companies conduct financial health assessment to determine how their finances are doing and what can be done to achieve their financial goals.

Frequently Asked Questions

What is financial health?

Financial health refers to the state of one’s monetary affairs. Financial health takes into account factors that affect personal financial situation such as credit score, retirement fund, net worth, savings, and debt.

Why is financial health assessment important?

A routine check to personal financial status is essential because it informs you about current assets and debts and helps in creating the most appropriate strategies to correct any financial situation. Financial health assessment is also important because it helps in retirement planning, determining creditworthiness, and budgeting for surplus.

How do you maintain good financial health?

Individuals can maintain good financial health by spending less, sticking to the planned budget, paying off credit cards, having a savings plan, reviewing insurance plans, and planning for taxes.

What causes poor financial health in a company or an individual?

Poor financial health is caused by high debt levels, low savings, bad financial decisions, low savings, lack of contingency plans, and limited money management skills.

How can companies or individuals measure their financial health?

The basic measures of financial health in a company include solvency, liquidity, operating efficiency, and profitability. An individual’s financial health can be determined in several ways. Personal savings and overall net worth determine individual financial health.

What is debt snowball in financial health assessment?

Debt snowball refers to the strategy that individuals can use to pay down debts by starting with the smallest debts and moving on to the bigger ones. The debtor pays as much money as possible to the smallest debt while paying minimum payments to the larger debts. This strategy is effective in improving the financial health of an individual.

What is ratio analysis, and why is it important in financial health assessment?

Ratio analysis is a strategy used by financial advisors to analyze a company’s liquidity, profitability, and operational efficiency by comparing the financial statement. Ratio analysis is important in analyzing the financial position of a company to ensure proper utilization of funds and budgeting to achieve maximum savings and financial goals.

Who conducts financial health assessment?

In companies, financial managers oversee the financial health of the company. They also create financial reports and develop strategies to achieve the short and long-term goals of a company. However, individuals and companies can also hire professional CPAs and financial advisors to conduct a financial health assessment.

Who needs financial health assessment?

Every earning individual needs a financial health assessment to get an idea of how they should budget their income to achieve their goals. Companies need financial health check to analyze whether the entity is solvent, stable, and profitable enough for monetary investment.

How do you assess the financial health of a company?

Financial health analysis in a company involves four steps:
  • Analyzing the balance sheet and income statement.
  • Analyzing the cash flow statement.
  • The process of financial ratio analysis.
  • Identification of weak areas and possible solutions.