Do you understand your financial IQ? Often referred to as FIQ, this metric subjectively measures your comfort with finance, especially in your own life. Many people focus on their intelligence quotient (IQ) and emotional intelligence (EQ) but rarely consider their financial IQ.

What Constitutes a High Financial IQ?

Achieving a high financial IQ involves several key practices. If you regularly budget and plan for the long term, understand debt consolidation, maintain a robust emergency fund, prioritize monthly bills effectively, and have a clear sense of your financial limits, you’re on the right path. The essence of a high financial IQ is living within your means, staying solvent annually, and saving for the future. Let’s break down these main components.

Set Long-Term Goals

Many diligent budgeters overlook the long-term perspective. They track their daily income and expenses but neglect planning for retirement or saving for major life events like vacations or home purchases. Committing your long-term financial goals to paper is a critical first step. Define your retirement timeline, desired savings, and potential home purchases.

Consolidate Loans

The most common kinds of debt consolidations relate to credit card and education debt. For working adults who have multiple student loans, for instance, consolidating into a single monthly payment can be an effective and fast way to accomplish several key goals. That’s because student loan consolidations not only give you access to better terms and rates but also help you bring monthly payments down. Consolidating is a smart way to simplify your entire financial picture and set things right.

Build an Emergency Fund

Call it an emergency, rainy day, or job-changing fund, this set-aside is a specific sum of cash that acts to help you get through tough times. In many cases, people put somewhere between three months and six months’ salary into the account and don’t touch it unless a real emergency arises. To keep yourself on track, it’s wise to put in writing the exact circumstances that will allow you to dip into the account. Common reasons include natural disasters that force you out of your house, job losses, unexpected medical bills, and more.

Prioritize All Your Bills

Prioritizing is the most important skill used in budgeting. It’s one thing to list all your recurring expenses and their exact or estimated amounts. However, it’s quite another to tag each one with a specific date. Going through this exercise is a great way to get control of things like grocery spending, eating out, and entertainment costs. Activities like those can be assigned specific dates and amounts in a budget, which makes you less apt to overspend.