5 Financial Health Tips

Just like our physical health, there are everyday factors and habits that we can do to maintain a healthy financial lifestyle. If you have an emergency savings account, earn enough to cover your monthly expenses, or have manageable debt or debt-free, then consider yourself financially fit! To continue working on your financial health, check out these tips.

1. Monthly Budget

Put your financials in perspective with the help of a budget sheet. To create a budget sheet, first, you’ll need to record everything you spend your income on over the course of a month. This includes housing, transportation, food costs, and more. Then, add up all of your expenses and subtract this from your monthly net income. This is the income that you have after taxes and benefits are taken out.

After you’ve laid out your budget, take a look at whether you’re living within your means. If you have a negative number after you’ve subtracted your expenses from your income, then you need to go back and look for ways to cut back. If you’re living within your means, start thinking about your future needs and where you can save more.

A monthly budget is a great tool to find out where you can cut expenses and restrict overspending habits. Once you can visualize your spending habits, you can work to optimize your expenditure and savings.

2. Paying Off Debt

It’s hard to avoid debt these days, so make sure you’re staying ahead of it. Too much debt can quickly consume your finances, causing unnecessary stress in your life. Get a handle on your debt with one of the following strategies:

Snowball method. Start slowly chipping away at your debt and grow toward paying the ones with large balances. Paying off a mountain of debt can be scary, so start by doing bit by bit. With the snowball method, you pay the minimum on all your loans except one. This loan is usually the one with the smallest balance left. For this loan, you will pay a surplus. This will knock out the smaller balanced loans first, building up momentum for the bigger, intimidating loans.

Avalanche method. The idea is similar to the snowball method, but instead, you will focus on interest rates. Instead of paying a surplus on the smallest loan balance, you will pay a surplus on the highest interest loan. Once the balance is paid down, then you can move to the next highest interest loan.

For example, Financial Frank has three loans with varying balances and interest rates. See below.

Mortgage - $110k with a 5% interest rate

Student Loans - $25k with a 6% interest rate

Car Loan - $45k with a 7% interest rate

In this example, Frank will work to pay down their car loan first, then their student loans, then their mortgage. What makes this the “avalanche” method is whenever you pay off the first loan, that surplus will be added to the minimum payment to the next highest-interest loan.

Debt can be crushing, but as long as you’re having honest conversations about your situation and properly strategizing, then you can manage it.

3. Be Honest

The only way the first two tips work is if you’re honest about your financial situation. It can be hard to realize where you’re at with your monthly budget or how much you’ve taken on in debt, but accepting your situation is the first step to a healthy financial life. Having an open dialogue, especially with close loved ones, opens the conversation to solutions that you hadn’t thought of before and creates a path to put your best foot forward. Questions like, “Are you living within your means?” help focus the conversation and force you to be honest, especially if you have an active budget sheet in front of you. Numbers don’t lie.

The important thing to remember is to not be ashamed. Everyone makes mistakes. Conversing and de-stigmatizing money topics will reduce your stress and give you the confidence to take control of your finances.

4. Build Emergency Savings

The best indicator you’re living a healthy financial lifestyle? Having the necessary funds to cover unexpected expenses. Life happens. There are times when unpredictable situations occur in your home, at your job, or anywhere and can make a financial impact. For example, you can be laid off from your job or something in your home could break, like a pipe bursting. These circumstances can automatically lead to stress. When you have an emergency savings account, the unforeseen become a little bit more manageable and reduces stress.

An emergency savings account is a separate account that is dedicated to the unpredictable and unexpected things that occur in life. The best way to contribute to this savings account is by automating it. Set it up so that a percentage of your income deposits automatically into this account, so you have the funds to cover any emergency.

5. Pay Bills On Time

Another way to flex your financially fit muscles is by paying your bills on time. Not only does this show your fiscal responsibility and save you from scary collection letters, but it also helps build your credit! When your credit score is healthy, then you can get better interest rates on loans for houses, vehicles, and more. According to FICO, approximately 35% of your credit score is based on your payment history. So if you’re paying your bills diligently every month, you’ll improve your score in no time, as well as have the peace of mind knowing you aren’t building unnecessary debt by falling behind in payments.

There’s a lot that you can do to build your financial wellness. Practicing any of these tips will put you on the right path to fiscal responsibility and stress-free money.