Financial Health: 5 Core Steps to Follow
Financial health describes the monetary affairs of the person including expenses, investments, income, credit rating, savings, debts, and overall financial planning. It is the reflection of one’s level of financial security. Good financial health is the key to good mental and physical health as good financial health improves the other areas of life. By maintaining good financial health, you can get closer to your goals by managing the financial stress and thus improving your wellness overall. Money cannot buy happiness, but it does not mean your finance cannot affect your life. The pandemic has affected the business and jobs that cause anxiety and stress in the people. It is time to open an arena where people can play slots for fun.
In general, to improve financial health and habits, here are the five crucial steps that everyone needs to follow:
Assess your net worth and personal budget
It is the first step to calculate your net worth when sorting your finances. Net worth is the difference between what you owe and what you own. Net worth is your current financial status, and it can fluctuate with time. You can calculate your net worth by making the list of your asset and debt and finally subtracting your asset from your debt. Assessing your net worth with time allows you to highlight your success and progress and identify the areas of improvement. Net worth assessment will be helpful only when it is done on regular basis (at least yearly).
Developing a personal budget has the same importance as net worth. A personal budget is a crucial financial tool created on a monthly or yearly basis. As a start, point to make a personal budget, note the net income, and create the list of monthly expenses. Determine the variable and fixed expenses and sum the total expenses & monthly income. Make adjustments to expenses if expenses are exceeding the total income.
A personal budget helps you:
Planning orientation
Track the expenses
Reduce the inequality between expenses and income
Save money for emergency
Make a better financial decision
Focus on long term future goals
Get out of debt
Once you have made the budget, subtract the expenses from the total income. If money is left over, it is a surplus for you to which you can save or invest. If the expenses exceed the income, you will have to adjust the budget by reducing your expenses or reducing your income. To see your current financial status, calculate both your net worth and personal budget on regular basis.
Identify and manage lifestyle inflation
Many people advance in their career with higher salaries, they spend more money to manage their high living standards. It is known as lifestyle inflation. They buy unattainable luxuries: fancy cars, beautiful apartments, and better clothing to maintain a wealthy appearance. They use technical gadgets, new model mobile phones, and expensive laptops. They take great care of their health and play various games that leave a positive effect on their health. One of the games is Play of book of Ra they used to play to refresh their minds.
Although their income affords their luxuries, it reduces the ability to save the money for later. One of the main reasons for lifestyle inflation is that people follow their peers and keep up with their lifestyles. To manage lifestyle inflation, you do not need to compare your lifestyle with your peers’ and limit the luxuries. It is good for financial health to save money for hard days.
Spend mindfully _ recognize needs vs wants
Besides having an unlimited amount of money, you must have a clear understanding of needs and wants for wise spending of money. Needs are that things that are required to survive such as food, healthcare, shelter, clothing, and transportation. While wants are that things that you would like to have but are not necessary for survival. Money comes and goes but it is challenging to spend it mindfully. When you understand the difference between needs and wants, your expenses are automatically down because you keep away from extravagant or unnecessary purchases.
In your budget, your needs should be prioritized instead of your wants. It will help you to spend money wisely and will sound financial health.
Save money
Saving money is another crucial step for better financial health. Saving is that money left over after consumer spending from income. You can save money in the form of cash or cash equivalents. If you start saving money very early, then you will have enough amount to reinvest. More will be the investment, more will be the earning, and it becomes easy to reach your long-term financial goals.
Your savings will help you to combat emergencies as emergencies are unexpected. It keeps you away from debt because emergency funds are not part of the budget. In case of a sudden loss of income, saving money is a cushion of comfort at this time. You can use your savings for vacations instead of getting into debt. Savings are comfort and it gives you financial freedom and peace of mind.
Create the financial goals for yourself and your family, and build & maintain emergency funds
If you do not have any goal or what you want to achieve, then there is no pathway to go on. You would have no idea what you want, so you would not achieve any financial goals. When you are doing a financial checkup, it is important to develop clear financial goals for your good financial health. These goals will help you to get what you want with ease.
Emergency funds are unexpected expenses that you put aside for emergency purposes. Emergency funds help you to pay for unexpected expenses such as an emergency visit to a doctor, car service, or house repair, and they compensate for weather loss income. Set aside money from your budget on regular basis for building emergency funds and do not spend money on luxuries. It is a necessity to have emergency funds as it is a shock absorber for jolts of life, and the coronavirus outbreak has proved that emergency funds are a blessing in crisis. Thus, emergency funds are the key component for good financial health as it gives you backup in crisis without taking out debt or using a credit card balance.
Conclusion
The five crucial steps are an excellent tool for gaining financial success. These steps are not the guarantee of sound financial health but allow developing sound footing and requiring proper analysis, expertise, and discipline. Identify the long-term and short-term goals that you want to achieve for financial success. You have to develop such habits that make better financial choices, and it leads to better financial health. To sum up, make a personal budget, spend money mindfully on your needs, stay away from luxuries, save money for an emergency, and set up clear financial goals for sound financial health.
