What does having a good financial position mean? Several factors will tell you if your financial position is ideal. But before you go into that, there’s another question that you should probably ask yourself.
Do you know enough about your finances to see if you are in a good position or not?
One survey revealed how 59% of their respondents said that they don’t know enough about their financial situation? That’s the first step to taking care of your financial health. You have to know the current condition of your finances. It’s how you will know how far you have to go in terms of what you need to improve. You can easily create a plan to take your finances to the next level – or at least, make sure that it will not compromise your future.
That way, you can finally be in a good financial position.
2 major reasons to aim for a good financial position
There are many reasons why you need to take care of your personal finances. But among all of them, there are two that appear to be the most important of all.
If you want to be financially successful, you have to know what your finances are capable of. Doing that would mean knowing the state of your personal finances. You cannot be a financial success if your current position is not good. So if you see that you are not in a good financial position, you have to do something to change that for the better.
Once you know for sure if your financial position is good or bad, you can work on creating plans that will help you reach your goals. You’ll know what is lacking. You’ll also understand what your strengths are. Specifically, the risks that you can take.
Besides, the financial habits needed to keep your personal finances in good shape will help you achieve financial success. Like saving more, prioritizing spending, and living below your means – these will help you get the extra money needed to turn yourself into a financial success. Whether that involves investing or setting up a passive income source.
Secure financial future
Once you are in a good financial situation, you can start working on having a secure financial future. You see, there’s a difference between financial success and financial security. When you’re successful, it usually means you are earning a lot and you have a lot of cash reserves. But if you are financially secure, you’re ready for anything. You can go through a crisis tomorrow and you will not be rattled because your finances are secure. You have multiple sources of income. Your debts are under control. You have enough emergency funds.
These are only some of the signs that you are financially secure. When you are both financially successful and secure, that’s a good indication that you are in a good financial position.
You have to understand that this is not just about having a lot of money. It’s more of having the peace of mind that it brings. When you are in a dire financial situation, it can really mess up your mind. It’ll bring you stress, anxiety, and depression. This is why it’s always best to take care of your finances. It can have a huge influence on the type of lifestyle that you and your family can lead.
Now that you know why your financial position is important, how will you know if you have a good one?
What does it mean to have a good financial position?
Even if you feel like you are in a good position, you have to confirm that. You have to know for sure by looking at your current financial situation.
So what does it really mean to have a good financial position?
Here are the signs that say your finances are good.
Stable source of income
This does not only mean it’s regularly coming in. It should also come from different sources. That means if you have a stable day job, don’t feel too complacent. If something happens to that job, what will you do?
You have to make sure that your finances have multiple sources of income. That way, if you lose one, you still have another. You will not be completely left without cashflow.
Income is greater than expenses
If your income is greater than your expenses, that’s another sign that you have a good financial position. This is actually something that’s within your control. It might require you to change your lifestyle – but you have the power to choose which of your expenses you have to cut back on.
But the bottom line is your total expenses should be below your income. The lower it is compared to your income, the better it will be for your finances. You’ll have more extra money to add to your savings or start investing.
On track with debt payments
Being in a good financial position also means you can afford to pay off your debts. Take note that having a good financial standing doesn’t mean you don’t use debt. You can use credit but you have to be careful with it. You have to make sure you can pay back what you borrowed.
This is actually something that a lot of people are struggling with right now. According to a report, 8 out of 10 credit cardholders are worried about their ability to meet the minimum payments of their debts. With all the unemployment and the business closures – people are struggling because their income has been compromised. Obviously, they will prioritize spending on their basic needs like food, shelter, etc. debt payments will not be a priority.
So if you don’t want to stress over your debts, make sure that you take care of your finances.
Sufficient savings and emergency funds
You also need to have enough savings – specifically in your emergency funds. This is a good indication that you have a good financial position. Your savings will not just secure your finances. It will also ensure that you will not rely on debt in case something unexpected happens.
Because the truth is, some people put their finances in danger because they were not prepared for an emergency. They were living from paycheck to paycheck. When the unexpected happened, they got buried under the huge debt they had to borrow out of desperation. Don’t let this happen to you. Make sure you have enough emergency funds.