3 Tips to Improve Your Financial Health: How You Can Start Today
Like our physical and mental health, it makes sense to maintain our financial health too. After all, some might argue that the three aspects are linked, since monetary worries can easily cause mental strain which can exhibit physical symptoms.
Defining financial health
Financial health describes the state of an individual’s financial situation.
Simply put, your financial health is the measure of your ability to meet expenses for your day-to-day living, long-term goals, and emergencies with limited or no financial distress.
You need to pay attention to many dimensions of your financial health, including your savings, retirement planning, and how much of your income is spent on fixed or non-discretionary expenses if you aim to live a life without financial worries.
Why you need to pay attention to your financial health
Financial stress has always been around and is on the rise, with 84% of Americans feeling financially stressed due to the effects of the COVID-19 pandemic, exacerbated by inflation rates being at a 13-year high of 5.4%.
Households are more stressed than ever and whether you’re conscious about it or not, your financial situation has a major impact on your overall health, with economic stress potentially leading to serious illness.
In a recent report on financial well-being, the four most important elements of financial health to consumers across the US are:
- Feeling in control of their finances
- Having the capacity to absorb a financial shock
- Being on track to meet financial goals
- Having the flexibility to make choices
As Suze Orman famously said, “A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.”
So how do you achieve your desired level of financial health?
By taking deliberate and consistent steps towards learning how to improve your financial situation.
How to improve your financial situation
Regardless of the current state of your financial health, it’s not too late to objectively assess your financial situation and make the crucial decisions and lifestyle changes necessary to turn it around for good.
You must, however, be ready to make the sacrifices required and resolve to stick to the process consistently. These actionable steps that build sustainability over time will help you improve your financial health.
Assess your financial health
Investigate your financial situation and have an overview of your current financial state.
- Know your net worth: A key metric for your financial health is your net worth. Calculate your net worth by subtracting all your debts from your assets, then set a goal to increase your net worth over a stipulated period of time.
- Beyond numbers: Financial health and satisfaction is relative for individuals. Ask yourself a few key questions to get a better grasp of how you are faring.
- Are you prepared for unexpected events?
- Do you feel in control of your financial life for the foreseeable future?
- Are you actively saving for retirement?
Knowing exactly where you stand will give you a strong foundation to build on. From there, you can begin your journey to prime financial fitness.
Plan and manage your finances
It’s time to roll up your sleeves and get to work.
- Start Budgeting: Sticking to a budget is essential to improving your financial health. Create a budget by listing your incomings and outgoings, while reducing your monthly expenses to free up more cash. Ruthlessly eliminate things that are not needed, like unused gym memberships and cable subscriptions.
- Set-up emergency fund: Emergencies are unexpected occurrences that may spring up on you when you least expect it. Plan and save up an emergency fund of about three months’ worth of expenses to help mitigate the financial stress when emergencies happen.
- Eliminate debt: As debts linger, the interest increases. Plan towards paying off your debts to reduce money lost to compounding interests.
Invest in yourself and your future
After taking steps to address your financial health, you’ll be ready to start investing in your future.
- Increase your income: Get a part-time or new job and upskill by taking courses in your field to get better paying jobs.
- Start investing: Start your wealth building journey by educating yourself on investing, exploring your options, and building your portfolio.
A good starting point for your investment journey is to learn all you need to know about online investing for beginners and explore these investment options to get the highest returns on your investment. Definitely better than leaving your money to rot in a low-yield savings account.
More important financial health tips
With the much bigger financial decisions being undertaken, you must understand that for your financial makeover to become a reality, it’s the little habits and lifestyle changes you make daily that will ensure its sustainability.
Here are a few habits and lifestyle changes that will increase your chances of successfully sticking to your financial plan.
- Automate your bill and debt payments: Avoid late fees and compounding interests by automating your payments to ensure they are made on time.
- Automate your savings and investing: Compounding interest is a double-edged sword. While automating bill payments to avoid it working against you, ensure you also automate your savings and investing to make compound interest work for you.
- Invest in financial literacy: Educate yourself on the subject of finance to learn and make more informed financial decisions.
- Curb lifestyle inflation: Resist the temptation to increase your expenses as your income grows.
- Identify and prioritize your needs: Know the difference between needs and wants, and prioritize your needs.
- Regularly review your spending: Keep track of your spending by logging and monitoring your expenses. Look out for trends and make financial decisions based on them.
Being able to keep your eyes on the big picture while also committing to the small steps daily will set you on the path to financial well-being.
Now that you know that financial health is the measure of your financial security and how it impacts your overall health, make the commitment to stay aware of your overall financial condition, manage your finances effectively, and make a financial plan that includes regular investing.
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