Today, we are constantly made aware of how we need to take care of our mental and physical well-being. Most of us are aware this and do our best to keep up.
But what if I told you, that financial health is equally important, if not more and can lead to a better physical and mental state for most of us.
Financial health is nothing but the sense of security you derive from owning a well-managed portfolio of sound assets, and protection plans for various unfortunate life events. These will help you to achieve your life goals such as building your home, higher education for kids, your dream holiday and protect in case of medical emergencies, etc.
Financial health encompasses how you manage your savings, financial goals, investments, credit, and expenses. If your financial health is good, you will feel a sense of peace. On the other hand, if your financial health is imbalanced, it adds stress to your mind. Sound financial health also helps to improve other aspects of life. It happens when you don’t have to worry endlessly about how you are going to manage with your pay-check every month.
According to The U.S. Financial Health Pulse 2019 Trends Report, only 29% of the Americans feel that they are financially strong.
That means more than 70% of Americans, one of the most developed countries in the world, are devoid of peace of mind when it comes to their finances.
However, you must note that, achieving good financial health doesn’t come easy. Just like you cannot have a healthy and fit body, without making sacrifices and experiencing some pain at the gym.
You need to put in the efforts and take focussed steps to enjoy sound financial health and maintain it. So, when you realize that your financial situation is not in great, take steps immediately.
No matter what your monetary situation is, you can adopt the following financial health tips:
Take a realistic look and do the math:
This step is all about viewing your financial health objectively and doing the math. You can calculate your net worth and build a budget. Your net worth is nothing but the difference between your assets and liabilities and it is a metric that helps you to understand your financial position on a particular date. This figure could be fluctuating and must be tracked periodically to give a clearer picture. Analyzing the rise and fall in your net worth allows you to understand what has worked for you and what are the areas that need further work.
Similarly, budget analysis is another act that helps you to understand. Aiming at sound financial health and not having a budget at hand, is like shooting an arrow in the dark. A budget accounts for every kind of expenses that you incur be it your total monthly expenses like bills, mortgage insurance payment, credit card bills etc. When you compare your income to your expenses you will realize that there are so many unnecessary expenses that you can eliminate or control to get back on track.
Create an emergency fund:
I cannot emphasize more on this but taking concrete steps to build an emergency fund for up to twelve months of your expenses will give you an immense sense of security. Life is uncertain and sudden developments can hamper your financial health drastically. So if there is a loss of employment, relocation to a different country or an entrepreneurial venture that is underway, your immediate expenses are taken care off. The biggest sign of good financial health is to be prepared for eventualities and an emergency fund is an answer to that.
Learn about the 6 investment lessons 2020 taught us here
Try to add an additional source of income:
If you are in a day job, it is most likely that you will have to wait for the next performance appraisal cycle for a pay hike. However, in today’s fast evolving world, you must always try to add another source of income preferably passive income. You could do something by pursuing your passion or creating products that can help you earn alongside your present employment. An added source of income can add a great deal of stability to your finances and improve your financial health.
Pay off your debts:
How can your financial health be stable if you have huge debt burden? Whether it is credit card bills or mortgage payments, the lesser the loan, the better it is. Taking small steps to eliminate debt can go a long way in alleviating your stress and anxiety related to finances. You could consolidate your credit card or take small steps to pay off your debts. However, make sure that you have a plan to back your actions. Unloading piles of debt would not only improve your credit score but also relieve you of financial stress.
When it comes to improving your financial well-being, you have to think about the larger picture and build a discipline. Without sound financial habits, you can never make a considerable difference. Financial health is closely tied to your physical and mental health, so do not ignore it. The process of improving financial health is akin to that of caring for your physical health. Setting goals, disciplined spending habits, and proper guidance are the three pillars that boost your financial health.