When you hear the word health, you immediately associate it with your physical and mental health. But financial health is another critical element of wellness. While you don't need a doctor for it, it's something that impacts your life and future.
Financial health refers to your current monetary situation, involving aspects like debt, credit, investments, savings and income. The state of your finances affects both your physical and mental health, and that's because stress can quickly take over if you realize you don't have enough money for critical situations or, at worst, that you're in debt.
What does it mean to be financially healthy?
Financial health means economic security. In other words, it's about having enough cash to cover all your expected or unexpected expenses. You know you're financially healthy when you can afford your debt obligations and pay your bills while having substantial savings for emergencies. If this isn't how your financial status currently looks, it's time to make some changes. Here are some signs that point to financial wellness:
● Your income allows you to live comfortably;
● You have a high credit score that helps you qualify for any kind of financing at low rates;
● You don't have any debt, or if you do, you can repay it on time;
● You can save enough cash for both short-term goals and long-term goals;
● Your current financial situation doesn't impact your mental health negatively.
How can you improve your financial health?
If you find it hard to make ends meet, you may wonder whether changing your current situation is possible. While the seriousness of your financial status plays a role in how fast you can get back on track, know that you won't be stuck forever in this situation. It's indeed possible to improve your financial status if you take some steps.
Evaluate your current finances
Before establishing any financial goals, you should assess your current situation. This will help you figure out what you need to change and make a plan that will bring you closer to the desired results. You can start by calculating your net worth, which is the total of your assets minus your liabilities. Create a spreadsheet with your assets where you include everything from bank accounts and stocks to mutual funds and real estate. Your car and home shouldn't be on the list unless you want to sell them. Then, list your liabilities, such as your credit card debt.
Once you've done this, you can figure out the net worth by subtracting the liabilities from the assets. Hopefully, the result you get is positive. If that's not the case, you shouldn't despair - you can turn your finances around, and this information regarding your net worth can help you make lasting changes.
Establish financial goals
After evaluating your current situation, it's time to figure out where you want to get. You need to establish clear goals if you're going to improve your financial health. Suppose you have a negative net worth. In that case, your main goal should be to get out of debt or cut your expenses. If, on the contrary, you have a positive net worth, but it's not good enough to fulfill your goals, you should look for ways to improve it. For instance, you could start investing in assets like Ethereum. But make sure to check the Ethereum price first to increase your opportunity for profit and learn as much as possible about what it means to invest in this asset.
Similarly, establishing your own business can also be an efficient way to improve your finances. Whatever your goal is, make sure to write it down and use it as an inspiration to change your current situation.
Make a budget
If you want to recognize unhealthy financial patterns, you need to set a budget. This means planning how you will spend your cash each month by considering factors like your income and your regular expenses.
You may figure out that you spend way too much, and if that's the case, you should cut back on your costs and increase your savings instead. For instance, you can spend less on areas like entertainment or food. Remember that you're the one who tells your cash where to go. Therefore, make a plan, and stick to it – by learning to live within your budget, you'll achieve financial freedom.
Address income issues
If you find yourself in a challenging financial situation, consider whether you have cash flow issues. This could be something temporary, like the need to defer a purchase from time to time.
Or perhaps your debt payments overwhelm you so much that you can't cover daily expenses like utilities and groceries. If you have a temporary income issue, a solution would be to get a second job. However, your cash flow issues may be persistent, so you may need to take drastic measures to improve your finances. This could involve paying down your debt as quick as possible, getting qualified for a higher-paying job, and even moving somewhere with lower living expenses.
Start saving
It's true that curbing spending on items you don't need can be helpful. However, your financial situation won't improve much unless you find ways to save some cash that you allocate for future expenses. For instance, buying secondhand means that you will pay less for the items you need.
Or, you can buy in bulk or use coupons. Establishing a sinking fund can help you save for future expenses, like purchasing a car or a home or paying for your child's education. This type of fund differs from an emergency fund in that you use it for planned expenses rather than unforeseen ones. Consider what you need to save, create an efficient schedule for saving, and stick to it. This will help you stay on top of your financial goals, and you'll soon see your situation improving.
The bottom line
Your financial health is an essential aspect of your life that affects other areas of your health, too. Therefore, it's vital to take steps toward improving your current situation and make a plan to help you achieve financial security. This means creating a budget, cutting unnecessary expenses, establishing a fund, and more. Self-awareness is the key to real change. Once you take an honest look at where your money goes, you'll be able to make better decisions that align with your goals.
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