Leading a financially healthy life can be a difficult task. It may seem overwhelming at times and changing habits is never easy, but it is possible! We’ve broken down creating a healthy financial life into some simple steps that anyone can follow.
Step One: Be financially literate.
Before you can become financially healthy in the long term, it’s important to educate yourself. Financial literacy is the solid ground you need to get started. It’s what will allow you to develop skills and make informed decisions about the financial resources you have on hand.
Step 1.5: Understand your history and the emotional underpinnings of your decision making process.
Everyone has good and bad financial habits, and it’s extremely important to understand your own. What do you do well? What do you not do so well? Do you impulse buy to cope with stress or are you a strict saver? These are just a couple of things to look at when understanding your own history of spending habits and decision making.
Step Two: Know your current financial situation.
What does your current situation look like? Do you budget? Do you have a savings account or loans? What does your monthly income look like and what outstanding debts do you have? Making a list of all of your assets and debts, as well as how you handle them, is an important step. In order to better yourself, you have to know where you currently are.
Step 2.5: Take stock of your assets, skills, and opportunities.
Taking a look at your financial inflow and outflow isn’t the only thing that counts when it comes to your financial health. Take a look at things you already have. Do you have any assets that add to your current situation? Perhaps you own things such as collectables or paintings that are equitable, but the world isn’t only about what you own. What skills do you have that can be turned into extra cash, and what opportunities are around you that you can take to better yourself?
Step Three: Prepare a monthly budget.
If you don’t have a monthly budget, you should make yourself one! It’ll help you to keep track of where your money goes. You’ll be able to see where you’re spending what and how you can improve your situation by changing your habits. There are many methods out there to help with budgeting money, so you can find one that works for you!
Step Four: Cut unnecessary expenses.
This is often a very difficult step for people. They believe it means having nothing extra which is not the case. You can budget in the extra things you like to have. If you go out once a month, add it into your budget, but is it necessary to eat out once a week? Or have the newest phone? Take a good look at your budget and get rid of, or change, the things that are costing you unnecessary money.
Step Five: Pay your loans gradually starting with high interest loans.
One of the biggest financial heath killers is debt. Whether it be credit cards or student debt, it’s important to pay it off. Take it a little bit at a time, but make sure you make an extra effort to pay off all your loans, starting with the ones that have the highest interest rates. It’s important to smash your debt. That’s one less monthly payment to worry about and more money for you to save.
Step Six: Keep an emergency fund.
Part of good financial health is being able to cover unexpected bills. Aside from your normal savings account, you should have a separate fund for emergencies. A car repair, unexpected hospital visit, or hike in your electric bill can completely throw off your budget, but having an emergency fund will give you an extra cushion in case of those situations.
Step Seven: Invest any discretionary money.
Once your debt has been paid off and you’re in a stable position, it’s time to put your money to work for you! At this point, you can start safely investing in things such as your children’s education funds, retirement plans, and real estate.