Do you know the state of your personal financial health? If not, then you need to find out. It will tell you what you need to know to improve your situation. It doesn’t matter what goes on around you. There’s nothing you can do about that anyway. You can’t control it. What you can do is focus on what you can control – your finances.
So ask yourself how well do you know your current financial position? Is it healthy?
According to a survey done, almost half of the respondents (49%) said their financial standing is either excellent or good. This might seem like a good statistic. But if you consider the fact that it was 56% a year ago, you’ll realize that it’s not an improvement. While those saying they have excellent or good personal financial health went down, there was an increase in the number of people who said it was fair. Considering the fact that we’re going through a pandemic and economic recession, this is actually as good as it gets.
But that doesn’t mean you should just leave it as is. You have to make sure that you will keep improving your personal finances.
How to improve your personal financial health
Fortunately, there are many ways for you to do this. Most of them will require you to change your lifestyle. But it’s okay. Why? Because the changes that you’ll make will strengthen your financial future.
So in case you don’t classify as someone who has a good personal financial health, these are the things that you should do.
Take a look at your net worth
Start by looking at your current net worth. How much have you accumulated over the years? It’s easy to start with the cash that you have in the bank. If you have a savings account, take note of how much you have.
If you own your home, that counts even if you’re still paying the mortgage. Even if you only made a couple of payments, that’s already equity that you own. It can be added to your net worth. The same is true for a car that you bought – but of course, you have to consider the depreciated value of the car.
You can also look at the insurance policies that you have paid for or even those you are still paying for. These are still assets that you can liquidate if there’s a need.
The rule is, the higher the net worth, the better it is for you. But this is only one of the health indicators of your personal finances.
Live below your means
If you want to have a better personal financial health, you need to start living below your means. Why? Because it will give you the extra money that will be useful in strengthening your finances. For instance, it can help you pay off your debts at a faster rate if you increase your monthly payments. The extra money can also be used to increase your emergency fund. You can also save it up so you can set up a passive income source. All of these will help improve the state of your personal finances.
While there are many possibilities for the extra money, the question remains – how can you live below your means? It requires more than just lowering household spending. It’s possible that you may have to alter your lifestyle. That way, you can get used to living below your means. If you can make this change permanent, it’ll be easier for you to maintain the improved personal financial health.
Prioritize your spending
Another thing that you can do to improve your personal finances is to learn how to prioritize your spending. For most people, this will immediately mean choosing to pay for needs over wants. But if you think about it, this is not that simple. For instance, buying food is considered a necessity. Dining out, although it’s basically the same thing, is not. That means buying a latte drink at Starbucks is considered a want. Not a need. But if drinking your favorite drink in the morning is what you really need to function productively throughout the day? Will you make yourself struggle unnecessarily for it?
As you can see prioritizing spending will really depend on the person. Prioritize what you will spend on but make sure you consider your own preferences first.
Save whenever you can
To improve your personal financial health, you should also get into the habit of saving money whenever you can. If you get a bonus or an unexpected cash gift, save some of it. You can still enjoy it. But always save a portion of it. Set a specific percentage like 25% or 50%. If you get a $500 extra cash, save $125 or $250. This is unexpected cash anyway. So you don’t really need to use it for anything. It’s best to put aside some of it for emergency situations. These can be extra savings that’ll improve your finances during hard times.
By doing this, you’ll also feel good about spending whatever is left of that money. You know that some of it was put in your savings so you should not feel guilty about spending it on unnecessary things.
Aim for security to maintain good personal financial health
Financial security is a good sign that you have good personal financial health. According to the Federal Reserve, there’s an improvement in the financial security of Americans. As of July 2020, 77% of survey respondents said that they are okay financially. This is probably because, by this time, a lot of people have gone back to work.
Whether you are one of the lucky ones or not, you have to remember the importance of financial security. If your goal is to improve the health of your personal finances, it’ll be part of what you’ll accomplish anyway. The habits you need to improve your financial health will also secure your finances. It’s like you’re hitting two birds with one stone.
So far, the tips mentioned above will help secure your finances. But beyond these, there are other things that you can do.
Boost your emergency funds
One is to make sure you have enough emergency funds. This will help you meet unexpected expenses. For instance, if your car breaks down or you have to rush someone to the ER, you don’t have to hesitate. You know you have the money to pay it off.
Diversify your income
Another thing that you can do to secure your finances is to diversify your income. Set up more than one source. The second job doesn’t have to be as demanding as the first one. But if it earns money, you don’t have to worry too much if you lose your job. You have another source of income to get you by. You don’t have to worry about feeding your family for a couple of months. This other source will allow you to focus on finding a new source of income.