A quick guide to good financial health
In many ways your financial health is just as important as your physical health. Here’s how to keep yours in top shape.
You can think of financial health as a combination of factors, such as your income-to-debt ratio, your savings account, your investment portfolio, and your credit worthiness.
If that sounds like it’s a lot to keep track of, you’re right. That’s why we’re putting together this helpful guide to ensure that you know how to stay on top of your finances. We’ll cover a few topics:
- Credit scores
- Financial planning
So let’s dive right in!
The most important part of financial health on a day-to-day basis is your budget. We all know the temptation of walking past a cute café and wanting to pop in for an $8 latte with a $5 donut. While that might be sweet in the moment, a month’s worth of such expenditures will leave your pockets barren.
We always suggest you use the 50/20/30 budget developed by Massachusetts Senator and presidential hopeful Elizabeth Warren. Here’s how it works:
- Dedicate 50% of your income to necessities like rent and groceries.
- 20% of your income should be put toward debt repayment and savings (more on those topics later on).
- And finally, 30% can be spent on whatever you like. You know, like that latte and donut you’re craving.
By sticking to this scheme, you’ll start to see some seriously prosperous changes start happening in your personal finances.
If you’re like most of us, there’s a good chance you try your best not to look at your total balance when you get that email about your statement being ready. You may even just click the link, pay the minimum due, and think, “Hey, that full balance is a problem for later-me.”
That’s probably not the healthiest move for your credit score. Your credit score is basically a measure of how trustworthy of a borrower you are, and having a lower score can make it really difficult to secure a loan or a mortgage.
If you want to start on the path to financial health, getting a sense of this measure is key; luckily, many sites offer a free credit score so you can get an idea of where you stand.
Either way, it’s important to start repaying credit card (and other) debt as consistently as possible.
Savings are pretty important. When you get that paycheck from work, it’s important to remember that at least a portion of it should be put toward saving for the future. Remember that 20% from earlier?
If you don’t have one already, it’s a good idea to open a savings account. Some options can actually be pretty exciting, like high-yield savings accounts that can help you grow your savings when you keep your money there for a period of time – or, you could go all-in with an investment account for maxed-out growth.
Whatever account you decide to set up, saving is important for a few reasons:
- You’ll need a pretty substantial savings to retire someday, and the sooner you start, the better.
- If you haven’t started a family yet then you’ll want savings before you start considering having kids.
- Emergency savings is necessary for everyone; you never know when a surprise event will require a huge chunk of change.
Debt hangs over most of us, whether it’s from student loans, a car payment, or credit card debt. Debt repayment is a huge hurtle to get over when you are trying to become more financially healthy. Here are a few quick tips to get you started:
- If your debts are crushing you, consider refinancing options.
- Prioritize debt repayment; flip the 20/30 above and spend 30% on debt repayment.
- Make scheduled payments, so you never have to worry about late fees.
Once you’re debt-free, you’ll feel like an entirely new person.
The final piece of financial health that you should consider is planning for the future. The way that you spend now should in part be based on how you plan on using money in the future.
Thinking of upgrading your car? Maybe buying a condo? Or getting married? All of these require pretty substantial amounts of money, so be sure that you are planning ahead for these. It might be a good idea to have a separate savings account for each goal, on top of your general and emergency savings.
As you venture on in your journey toward financial health, keep these key areas in mind. It will help you organize and stay ahead, so you can live your best life, free of money worries!
Photo by Sharon McCutcheon