There are many reasons why you need to be careful of your financial health. This is the thing that will help you build a stable future for you and your family. Think of it as your life’s health. Just like your physical well-being, if your financial well-being is not okay, you won’t be able to maximize the opportunities that you will encounter in life. Regardless of your goals and what you want to happen in your life, a great financial standing will allow you to reach your targets. As you complete one target after the other, you are one step closer to your dream life.
Being financially healthy is not something that you only do once. You have to continually work hard to keep your finances healthy. You cannot exhibit good financial habits while you are young and then be irresponsible with it once you have gained the ideal financial health. You need to continue making the right financial choices all the days of your life. This is why you need to be careful of your lifestyle upgrades because it can compromise the health of your personal finances.
Apart from helping you live your dream life, a great financial condition will also keep you from going through the dreaded financial stress. This is when you are filled with constant worries and feelings of anxiety because you know that your finances are not in good shape. According to a study published on PWC.com, more than half of their respondents admitted that they feel a certain level of financial stress. 45% said that the level of stress increased in the past year. When you feel anxious or stressed about your money, that is an indication that you do not have a good financial health. You need to get serious when it comes to making your financial situation better.
5 mistakes that can ruin your financial well-being
The key to improving your financial health is to practice the right habits that will make it better. But sometimes, it is not always what you do – but what you stop doing. Given that thought, here are 5 mistakes that you may be doing that is costing you a healthy financial situation.
Failing to follow a budget plan. A budget is one of the most important tools that you can use to help you improve your finances. Sometimes, you cannot move forward if you do not know where you are. A budget plan will allow you to identify how much you are earning and more importantly, where each money goes. There are certain money drains that are wasting your finances. Unless you identify these, you might continue with these unnecessary expenses and that can slowly compromise your financial. It is also important to note that a budget is only as good as your ability to follow it. Even if you have just created a perfect budget, if you cannot implement it in your life, it will be for nothing. So make sure you do not just create a budget – you have to commit to following it no matter what.
Delaying your retirement savings. Another mistake that you may be doing is delaying your retirement savings. According to the data from CNBC.com, even if Millennials only have 5% deferrals, it can help them get $1 million saved by the time they retire at the age of 65. You see, it does not take much to save for retirement – as long as you start early. The longer you wait, the higher the amount that you need to contribute to reaching your ideal retirement fund target.
Forgetting about your emergency fund. The third mistake that can cost you a good financial health is a lack of emergency fund. This is one of the best ways to secure your finances. Sometimes, an emergency fund is just what you need to keep yourself from the burden of debt. There are people who make all the right choices about their finances but because of an unexpected situation, they end up being forced to borrow money to get out of a tight fix.
Borrowing a home loan that costs 30% of your income. The fourth mistake that can threaten your finances is getting a mortgage loan that takes30% or more of your income. This will make it difficult for you to meet your home loan payments. Either that or it can compromise the other saving goals that you have. Failing to pay your home loan is usually not an option because you will end up losing the property in the end.
Paying the minimum of your credit card balance. Finally, choosing to pay only the minimum of your credit card balance will keep your financial health in a “sickly” position. This will keep you in debt for a very long time and will cost you a lot of money in terms of interest rates. If you pay more than the minimum, you can save a lot of money in the long run and you can be free from credit card debt quite fast.
How to improve the condition of your personal finances
In case your financial health is currently in bad shape, there are ways for you to make it better. Here are tips that will help you make it better.
- Be aware of your current financial situation. Before you can make something better, it is important for you to know your current financial situation first. It is important for you to create a budget that will allow you to see both your income and expenses. You need to determine if your money is going to the right expenses that will help you improve your financial position.
- Set financial goals. This is the best way for you to map out the road towards financial improvement. According to the data published in GlobeNewsWire.com, retirement is the main financial goal of most respondents (35%). Budgeting and debt follow. Most of these were the financial goals of those earning $75,000 and more. But even if you earn a low-income, it is possible for you to start saving for retirement. Start low but be consistent about it. Soon you have amassed enough to help you improve your financial situation.
- Know your lifestyle needs. Another thing that you need to look into is your lifestyle needs. If you want to be wise with your financial decisions, you need to have a clear understanding of what your chosen lifestyle prefers. Not only that, you need to keep your expenses within what you need. This will keep you from getting a lifestyle upgrade unnecessarily. Some of the modest millionaires around us were able to amass a fortune because they maintained simple lives. As long as you can meet your lifestyle needs, that should be enough.
- Practice smart spending. Focusing on your spending is also one thing that will help you improve your financial health. There are some things that we spend too much money on but we do not have to. Think about your expenses because it says a lot about how you can maintain a healthy financial life.
- Make your money work for you. Finally, you need to invest your money. This is the best way for you to make your money work for you while you focus on something else. Do not let your cash sit idly in a savings account. Invest it and earn from the interest rate.
Here is a video that gives tips on how you can improve your finances now. It provides specific financial tasks that you need to do each day of the week – from Monday to Friday.
Common questions about financial health
Question: What does financial health mean?
Answer: This is basically the measurement of your financial situation. It tells you if you are in a good or bad financial position.
Question: What is considered a good financial health?
Answer: You can say that you have a good financial health if you have enough savings, you are on track with your financial goals, and you are in full control of your credit obligations. Not having debt is not exactly a sign so a healthy financial situation. If anything, it actually keeps you from a great financial situation. If you have enough extra cash to help you pay for extra expenses, that is also an indication of a good financial health.
Question: What can weaken your financial health?
Answer: While the presence of debt does not necessarily mean you are in a bad financial shape, it can compromise it especially when you are irresponsible about your borrowing. Be careful of the small financial decisions you make. Sometimes, these are the most destructive.
Question: Why is financial health important?
Answer: This is important because it will tell you if you need to improve your finances or not. It will help you identify the problem areas as you diagnose your financial position. It is one way for you to keep yourself on track when it comes to your financial goals.
Question: How can I evaluate my financial health?
Answer: There are three areas you need to look into. The first is your savings. If you are able to save consistently, that is a good sign. The second is your debt. If you have debt but you can manage it well and keep it below 30% of your credit limit, you are also in good financial shape. Finally, if all your financial goals are being addressed, that points you towards a healthier financial position.