Getting a better grip on your finances is becoming more and more challenging in today’s fast changing, volatile market. It is not enough if you simply want to make a good living because it is also important to save for the future, emergencies, investments, and also improving your general net worth. We talked about calculating and increasing your net worth in an earlier article.
Your financial health depends on how you manage your money and making sure that you’re spending it wisely. It also depends on how you plan for your future. Your financial activities, decisions, and goals affect your current financial health both now and in the future. Therefore, it’s a good idea to look at your finances and determine your financial health to make good decisions from here on.
By “looking into your financial health” you are analyzing your financial situations, making proper plans and deciding what is best for your future goals. Looking into your financial health also means making the appropriate changes in your lifestyle and getting into the habit of saving money. This article contains some expert advice that will guide you on how to improve your financial health so that you can become more financially stable.
Follow some simple financial rules of thumb
Here are a few rules of thumb simplified for you that are often advised by financial experts. These are time tested rules for investors or for anyone who wishes to improve their personal finances. These general rules apply to a wide range of audience and are intended to help individuals remember, learn and apply these rules for savings, investments, or retiring.
- Always have at least 10% of your total net income for retirement.
- Your life insurance should be at least five times your gross salary.
- Pay off your highest interest debts and credit card balances first.
- Your savings for emergencies should be at least three to six times your household expenses.
- The house you buy should not cost more than your 2.5 year’s salary.
- To determine how much net worth you need to retire comfortably, multiply your age with your annual household income and divide the whole thing by 10.
1. Budget your finances
You make money and spend money. When it comes to financial health, your understanding of money should go deeper than just money coming and going into your hands. You should know where most of your expenses are, what your net worth is, and what your net worth will be by the time you retire or when you are no longer able to work.
2. Determine your net worth
Your net worth is the difference between your assets and liabilities, or the difference between what you own and what you owe. You could easily calculate what your net worth is by making a list of things you own. Find out what their worth is and then figure out the amount of debt you have, both long and short term. The difference should tell you what your net worth is. This figure tells you where you stand financially which is also a good indicator of your financial health. You can evaluate your financial progress if you calculate your net worth yearly and see if your net worth is improving with time. You can also identify the areas in life that need improvement.
Here are some factors for improving your financial health and net worth:
- Reduce your expenses
- Make wise financial decisions
- Eliminate unnecessary expenses
- Set financial goals
- plan for future
- spend wisely
- Invest wisely
- save for the future
- save more for emergencies
3. Increase your savings for emergencies
No matter how small your savings are it is always important to have an emergency fund. According to many experts, having enough money saved for rainy days is one of the key elements of financial health today. Unemployment rate still being high, you can never be sure of your finances, and so, having three month’s salary worth of money saved for emergencies is a good idea.
4. Pay off your credit cards
Paying off your credit cards, especially those with high interest will put you on the right track of financial health. Remember, the interest charges do add up over time especially if you miss a payment or if you have been paying off only the minimum payments. You could pay off your balance quicker if you try to make payments more than your minimum payments. Try to not miss any payments and always pay your bills on time. Building a good credit score will help you get low-interest loans if you want to buy something bigger later on. This also includes paying your mortgages, car payments, or any other loans that you may have and try to get out of loans as quickly as possible.
It also costs us money to enjoy our municipal services or other facilities. For maintaining our standards of living, we need to pay high utility prices and taxes to our government. Your debts are something that could become out of control if you are not careful. If you let your credits grow out of your hands it could hurt your credibility and not to mention your credits score.
5. Put 10% towards your retirement
No matter how much you make or what your expenses are, to become financially healthy you must make a target of saving over 10% for your retirement. It is also a good idea to start saving and investing for your retirement sooner. Every bit of money you save will add up and help you at the time you retire.
We are often encouraged or tempted to spend more money than we make. However, saving money is actually a habit that you would want to have. Money is an essential part of financial health and therefore saving money is what you should try to do. Your aim should always be concentrated on how you can efficiently use your money. Saving money with a monthly fixed deposit is also an excellent idea because if you are not saving money in a fixed deposit, you would be losing money. A fixed deposit in addition to your life insurance and retirement plan would get the most returns out of your money safely
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Source: Balanced Life Team