The importance of good financial health is often underestimated and money management tends to improvise.
The good news is that a few changes in financial habits could mean big personal financial benefits.
Money management is no easy task and requires an analytical look at financial habits, spending preferences, and cash flow. Good money management will positively impact financial health.
Some basic tasks like creating a monthly budget that includes a savings plan and an emergency fund can make a big difference in personal finances.
How to improve your financial health easily
Being financially healthy can be interpreted differently by different people.
The United Nations (UN) defines financial health as the way in which a person can manage their current financial obligations and feel secure about their financial future.
So making sure your finances are in shape is just as important as taking care of your physical and mental state.
Here are some financial tools and tips that you could use to improve your financial health and maintain it over time.
1. Know your net worth
Net worth is the difference between your assets and your debts, that is, between what you own and what you owe.
Net worth represents your financial position at any given time. Keeping track of it helps to assess your progress and identify areas that need attention.
Finally, this is the main indicator of wealth that you have. Unlike income, your assets are what you build with the subtraction of your income minus your expenses.
2. Create a monthly budget
Building a monthly budget will help you have a guide to spend the money that comes in or spend it wisely. That is, spend according to your priorities and based on your financial goals.
Many people assume that a budget is something complex; the reality is that it can be as simple as taking a spreadsheet and entering your recurring expenses and income.
It is preferable to know where your money is going, and stop making assumptions about your current financial reality.
To improve your financial health, you will need to be clear about managing your money.
3. Make a plan to pay off your debts
Credit cards and consumer loans can affect your financial health because they have the highest interest rates.
It is important that you draw up a debt payment plan that prioritizes this type of loan and repays it before any other.
Without a doubt, the best way to save money in these times of high inflation rates is to make payments to the principal of your debts.
Do you wonder why? This is because you hardly have any investment option that exceeds the rates of consumer loans.
4. Check if you have excessive expenses
If you’re spending more than you’re taking in or have too little left to save money, you may want to take a close look at your spending and see where you can make adjustments.
You are probably overspending. So it is important that you are clear about the expenses that you must eliminate, that are affecting your pocket in the long term and that do not contribute to the construction of your wealth.
5. Make your retirement plan
Although your retirement will surely be a long way off, it is time to start saving for your retirement.
It is often estimated that a good contribution to a retirement fund is 10% of income, but you can start with around 5%.
The goal of this point is to start thinking long term. If you really want to learn how to be a millionaire, you’ll have to give up instant gratification and set yourself goals over time.
6. Make a plan to manage inflation
Inflation destroys your savings. So you can’t keep money in your house hoping that everything will improve, you should look for investment options that guarantee you at least a good rate of return.
If you do not have options to invest your money, seek to pay off your debts. The worst thing you can do with surplus capital is save it and let it be eaten up by inflation.
Unless it’s an emergency fund, make sure you put your capital to work for you.
7. Create an emergency fund
A liquid emergency fund is a savings to be used in case of unforeseen events such as the loss of your job, health emergencies or any other unforeseen expense.
A healthy emergency fund is estimated to be equal to three to six months of your monthly income. So start preparing in such a way that you have financial peace of mind in the event of an emergency.
If you want to be in good financial health, start building your emergency fund and eliminate unnecessary risks that could lead to financial problems.
8. Purchase health and life insurance
Do you have life insurance that can cover your dependents in case something happens to you?
If you still do not have one, keep it in mind in your next income and expense budget. This could become that smart expense that could make you a millionaire.
Insurance, beyond being profitable options for your money, They offer you the possibility of eliminating risks in your life.
The more controlled you have the possible negative scenarios in your life, you will be able to have greater decision-making capacity when they do or do not occur.
9. Review your investment portfolio
Periodically spend time reviewing your investment portfolio. As you advance in age and your risk profile changes, your investment portfolio must also change.
Although this is not something you should do every day, if you can set aside one day a month to review how your investments are, what changes you should make, what new investments you will make or which you will liquidate.
Remember that to achieve financial freedom, you must have extra sources of income that are invested and generate income for you.
10. Access financial education
Financial education has a direct impact on your financial health, as it teaches you about how money works and how to manage your personal finances.
It is impossible to improve your financial health if you do not spend time educating yourself and understanding how the game of money works.
At this point you have two options:
- You make all the mistakes and learn the long way, which can cost you time and money; either,
- You learn from the mistakes of others, access their knowledge, strategies and tricks to master finances and save yourself in the long run.
Take care of your financial health and ensure a full future
As you can see, there are multiple strategies that can help you maintain good financial health, but it is also necessary to develop habits that will help you make the best financial decisions.
These habits, such as sticking to your budget limits, reducing your consumer credits, maintaining an emergency fund, making investments, and educating yourself financially, will be a guarantee to improve and maintain your financial health over time.
Continue reading: The 8 forms of wealth you need to be a millionaire