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How To Check Your Financial Health

Most people are fortunate enough to be blessed financially. However, despite earning a steady income, they are unable to save enough to accomplish their long-term goals.

This happens due to the lack of financial health. Just like your physical health, financial health considers your current and future well-being to ensure healthy economic conditions. When assessing the financial health, the existing financial situation, along with savings, retirement planning and other future expenses are taken into account.

In order to safeguard your economic future, it is imperative to regularly examine your financial situation. This guide provides a detailed analysis that answers the question, ‘why is financial health important?’

It further provides a financial health checklist, as well as comprehensive ways to improve your economic wellbeing.

What do you mean by financial health?

Financial health refers to the state of an individual’s personal economic affairs. This assessment considers the stability in different domains, such as the individual’s savings, retirement planning, as well as the total money spent on necessary expenses.

Traditionally, a person with positive financial wellbeing would have a consistent flow of income, reduced fluctuations in expenses, as well as increasing cash balancing. The financial health is ultimately improved by assessing the current net worth, creating- and sticking to a budget, formulating an emergency fund, and becoming debt-free.

While financial health is mainly concerned with your monetary earnings, it also takes various other factors in regards. Essentially, it is an amalgamation of your material wealth, emotional health, and the philosophy of life and money.

Considering this, a healthy financial state is one that creates an equilibrium between these three elements. On the other hand, an unhealthy economical state is marked by an imbalance in material wealth, emotional wellbeing and life and money philosophy.

This is because the lack of emotional security results in arduous spending patterns, such as hoarding, greed and complete avoidance in spending. This means that your material wealth would keep accumulating, but there would not be any psychological satisfaction of earning.

Similarly, the lack of money and life philosophy can result in excessive spending, which can ultimately lead to an insecure financial future.  This suggests, even if you have material wealth, you would not be able to retain it for a long period of time.

Moreover, emotional security in the absence of material wealth and an effective life and money philosophy would result in delusional spending patterns.

Therefore, a balance in all three elements is crucial for a healthy financial state.

Why is financial health important?

A person’s finances are a major source of anxiety. When an individual does not feel secure about their financial future, they land themselves in a distressing state, which is marked by stress, along with issues with the physical and social well-being.

Substandard financial health can cause severe impediments in all areas of your life. If you are constantly worried about a lack of a steady income, the stress can trigger your physical health in a number of ways. Similarly, the same stress can also be detrimental to your social relationships, as it can lead to a reduction in attention directed towards your loved ones.

However, once you begin to improve your financial health, you would be less focused on earning money. Additionally, the stress concerning the financial future and any unanticipated expenses would also decrease.

Types of financial health

As stated earlier, a healthy economical state requires a balance between the following elements:

  • Material Wealth
  • Emotional Health
  • Life and Money Philosophy.

The next section provides an in-depth guide on how to improve your health in the three preceding areas.

How to improve material wealth

The most important factor that determines financial health is your material wealth. Material wealth refers to a steady flow of income that is generated every month. Without it, none of your financial objectives will be met.

In order to improve your material wealth, the following areas should be worked on:

  • Acquire a good monthly cash flow

Cash flow refers to the difference in the amount that you earn and the amount that you spend. To improve your financial health, it is pertinent to have a positive cash flow. A positive cash flow is achieved when the amount earned exceeds the amount spent.

In the unfortunate case that the monthly expenditure surpasses the income generated, a debt financial profile is created. This means that you are gradually building debt, which has adverse effects on your financial health.

If you wish to move your ‘debt financial profile’ to a ‘prosperity financial profile’, the spending and earning factors would need to be assessed.

However, if you do have a debt financial profile, it does not necessarily mean that you participate in a lot of irrelevant spending. Instead, it could mean that you are not earning enough.

Regardless of your situation, it is important to fix your cash flow to ensure a healthy financial state. You can try different budgeting strategies, or find additional sources of income to make sure that the money earned is more than the money spent. This way, the remaining amount can be placed in a savings fund or invested to ensure a steady flow of income. Once you improve your cash flow, additional steps can be taken to build sustainable wealth.

  • Maintain a good net worth

A person’s net worth is the overall value of all their assets and possessions, with the exception of their liabilities. In order to attain a healthy financial state, it is imperative to have a positive and growing net worth.

A negative network would mean that your liabilities exceed the value of your possessions and assets, which can ultimately cause an imbalance in emotional wellbeing.

To calculate your net worth, you would be required to list down all your assets and possessions. These would include both tangible and intangible assets.  The tangible assets would include:

  • Cash and cash equivalents
  • Investments
  • Real estate properties
  • Land
  • Vehicles
  • Equipment
  • Personal property

Your non-tangible assets may include:

  • Intellectual property, such as patents, trademarks, and copyrights.
  • Goodwill
  • Licensing
  • Customer lists

In addition to this, your liabilities would also need to be highlighted:

  • Vehicle loans
  • Mortgage
  • Home equity loans
  • Unsecured liabilities, such as credit cards payments, personal loans, and etcetera.

Once the list is created, quantify the value of your assets, as well as your liabilities. As soon as this is done, apply the following formula:

Tangible Net Worth = Total Assets – Total Liabilities – Intangible Assets)

This will determine your total net worth.

  • Minimise your debt

To get back on track, it is pertinent to become debt-free as soon as possible. Debt can ruin your financial health by cutting your positive cash flow and decreasing your net worth.

Additionally, if you have a lot of consumer debt, which is all the debt without your mortgage, other aspects of your life would be affected. This would ultimately affect your wealth, emotional wellbeing, as well as social relationships.

If you are experiencing debt, you can employ the following approaches to become debt-free:

  • Debt snowball method
  • Debt avalanche method
  • Zero-based budgeting

 

  • Build an emergency fund

To find a balance in your material wealth, it is crucial to consider your financial future. For this purpose, an emergency fund is ideal. An emergency fund refers to an aggregated amount that is saved with the intention to use in cases of an unexpected event. This fund can protect you in the event that you experience a loss of income or any other economic crisis.

Ideally, the fund is created with the intention to cover the cost of living for at least six months to a year. To create an emergency fund, you are required to allocate a certain per cent of your overall income to your savings account and restrict yourself from using it- until it becomes absolutely necessary.

An emergency fund can balance out your material wealth with emotional security. If you feel confident about your financial future, even in the cases of an unexpected event, the anxiety concerning the finances would decrease. Therefore, the next step in improving your material wealth is creating a robust fund to get through all emergency situations.

  • Acquire investments

Prime financial health is rarely achieved with one source of income. Economically fit individuals tend to have multiple sources from which they generate monthly revenue.

The income may come from the individual’s various investments. If you can afford it, it is essential to create an investment strategy that provides you with a healthy flow of income in the years to come.

If you have numerous sources of income, the earned money would be more than the money spent, thus resulting in a positive cash flow. Additionally, investments can also increase your net worth and place you on the right path to attaining financial health.

There is a plethora of investment opportunities that you can benefit from. If you do not want to go for a traditional option, try investing in Exchange Traded Funds or (ETFs). Moreover, you can also place your money in:

  • Index Funds
  • Bonds
  • Stocks
  • Shares
  • Real Estate
  • Mutual Funds

With that said, before placing your money at risk, make sure to comprehensively research your options to pick the right investment opportunity. If you end up losing money with your investment, the financial health would suffer.

  • Have savings

Another factor that is crucial for economic wellbeing is having savings. Most of the time, people save with the intention to make a purchase or to go on a vacation.

While there is nothing wrong with the aforementioned, it is important to save with the intention to invest, rather than the objective to spend.

If you save to spend, all of the collected money would not play much of a role in securing your financial future. However, if you are saving to invest, the money can double itself over time, and subsequently, increase your cash flow.

In order to save effectively, take the following tips into account:

  • Identify the investment costs and set a goal for savings.
  • Transfer a set amount to your savings fund every week. Set up automated payments to make sure that the money is added every month.
  • Create a budget to facilitate an effective savings strategy.
  • Develop an investment plan.

 

  • Create a retirement fund

Another aspect that you need to take into consideration is the retirement fund. No matter what age you are, starting this fund as soon as possible is beneficial.

Having a hefty retirement fund can reduce financial anxiety concerning old age. When you get older, it becomes relatively difficult to generate a steady flow of income, as you would be unable or unwilling to work.

Oftentimes, the pension fails to cover the monthly expenses during old age. This is because the lifestyle that you become accustomed to is not covered by the pension. Considering this, it is important to devise a strategy that enables you to benefit from a healthy flow of income during the later years of life.

Creating a retirement fund can fulfil this purpose. To do this, take the following steps:

  • Eliminate all debts
  • Make all your mortgage payments
  • Estimate the retirement budget
  • List down the sources that can help increase the retirement income. This can include your investments, pensions, savings, or the money generated from the ownership of property.
  • Create multiple income streams

As stated earlier, having multiple sources of income is essential for your financial health.  This is because your economic wellbeing is not only concerned with the existing finances, rather, it also takes the stability and reproductivity of the income into account.

With multiple income streams, you can not only generate more income, but you can also add security to your earnings.

This is because if one income stream does not provide adequate returns, you can count on the other source. Similarly, you would also be able to develop, increase and create more profitable streams of income, which can essentially increase your financial wealth.

How to improve emotional wellbeing

Emotions are a significant aspect of your finances. Unless you learn to manage your emotions, the financial decisions you take would not be healthy in the long run.

When it comes to financial health, your emotions play a significant role. However, in this situation, your emotions are not concerned with how you spend your money. Instead, your emotional wellbeing refers to the way you feel about your life, finances, future and yourself.

To improve the emotional aspects of your financial health, you can take the ensuing initiatives:

  • Enjoy the work you are doing

One of the most major components for maintaining emotional wellbeing to ensure financial health is enjoying the tasks you are doing to generate an income. Pursuing a career that aligns with your interest, or performing a job that brings you joy, would encourage you to deal with job-related stress easily.

Additionally, when you enjoy the work you do, the performance in professional life will become better. As a result, advancing in career would become more of a possibility. This would ultimately increase your salary, which can facilitate the growth and balance of material wealth.

To find out what you are passionate about, you can take career-specific personality tests. An aptitude test can help you determine which field is right for your personality type. For instance, if you are someone who enjoys creativity, your results may indicate proficiencies in writing, creative arts or marketing.

Enjoying your work doesn’t necessarily mean being obsessed with it. Instead, it is essential to have a balanced relationship with your job. When you are satisfied with the work you are doing, you would be able to handle the complexities of the task in an effective manner. Additionally, there would be intrinsic motivation to refine your skills and abilities, which can essentially help with advancement in the chosen career.

  • Find a balance between work and play

In addition to having enthusiasm about the work you do; your emotional wellbeing also depends on the balance between work and entertainment.

While it is important to treat yourself from time to time, spending your time and money on entertainment can be detrimental in the long run. This is because your wealth would be compromised, thus resulting in financial guilt.

Financial guilt occurs when you feel accountable for personal financial turmoil. This guilt provokes anxiety, and consequently, impacts your emotional wellbeing.

Conversely, if you prioritise your work over any sort of entertainment, you would not be able to release the tension that coincides with the job. This would ultimately accumulate anxious feelings, which can become apparent in other areas of your life.

Essentially, experiencing stress can result in several health impediments. These issues may hinder your ability to work effectively, which can further elevate negative emotions.

Taking that into account, it is extremely important to find a balance between your work life and personal life. While you are working, perform to the best of your ability, however, once you leave the work premises, be sure to leave all the stress behind.

This practice can help you stabilise your emotions and help you perform well in all areas of your personal and professional life.

  • Learn financial wisdom

Learning financial wisdom refers to educating yourself on the different strategies of earning, managing and saving money.

This improves your emotional wellbeing for a number of reasons. Firstly, the more knowledge you have, the better you can implement it in different areas of your life. Next, being enlightened about your own personal spending habits can enable you to formulate personalised strategies that can help fix your adverse financial patterns. This would reduce the financial guilt that stems from over or unnecessary spending.

Essentially, to become financially enlightened, take the following things into consideration:

  • Track your expenses to gain an insight into where your money goes.
  • Create a personalised budget to effectively manage your money.
  • Conduct research on the various types of investment opportunities available.
  • Come up with different ways to increase your monthly income.
  • Set short-term and long-term financial goals
  • Make every effort to remain debt-free
  • Read financial blogs, magazine articles and research papers to remain updated about the current economic situation.

Financial wisdom can help you resolve most of your money-related problems. Continuously educating oneself tends to reduce stress, and assists the individual in staying prepared about the future, and avoiding financial turmoil.

How to improve money and life philosophy?

Life and money philosophy enables you to learn and implement different ways to improve your finances. This subdivision of financial health focuses on understanding the importance of remaining financially healthy, while also abiding by your own values and principles.

To find improvements in your money and life philosophy, take the following things into consideration:

  • Work for your own self-interest.
  • Find effective and smart ways to earn money.
  • Learn to manage your money.
  • Come up with different strategies to save money.
  • Save with the intention to invest.
  • Find various opportunities to earn and learn.

Improvement in life and money philosophy empowers you to be confident and effective in your financial decisions. It motivates you to find discipline in your spending and saving patterns, so you can enjoy long-term financial security.

Conclusion- How financially healthy are you? 

Financial health determines how stress-free you are about your finances. A healthy state of your economics requires you to find a balance between your material wealth, emotional wellbeing and life and money philosophy.

To find this balance, you would need to educate yourself on the different ways to take care of your money. Once you become well-versed in money management, you can take the right approaches to handle your material wealth. To improve your material health, it is essential to get a positive monthly cash flow, increase your net worth, eliminate all debts, create savings, an emergency fund, and discover multiple sources of income.

Similarly, working on your emotional wellbeing is also critical in becoming financially healthy. To do this, you must perform the job you love, find a balance between work and entertainment and become financially enlightened.

Considering the aforementioned guide, you can assess if you are currently financially healthy. However, if you need to revive your economic well-being, take help from the preceding tips!

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