Starting any new journey can feel very overwhelming, especially if you’re new to managing your personal finances and taking an honest look at your finances. But the truth is, financial health isn’t just for the elite — it’s for everyone. Whether you are trying to get out of debt, save for your future, or just want to feel like you are in control of your finances, understanding financial health is the start. This beginner’s guide to financial health is designed to give you foundational knowledge of financial health and how you can make positive, lasting changes.
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What is Financial Health?
Financial health is one aspect of your financial well-being, and it simply refers to the current state of your finances. It looks at the entire picture of your finances, not just the numbers. It isn’t just about your income and expenses, but also how you can meet financial obligations in the future. It doesn’t look at just your savings and debts; your overall satisfaction with your current financial situation is taken into account as well.
When you are financially healthy, you are managing your finances effectively, and you have a positive relationship with money. You have a safety net for emergencies and are meeting your financial goals. Most importantly, when you are financially healthy, you feel like you are in control of your financial future, rather than reacting to what life throws at you.
Being financially healthy is not about how much you make; it is about how you manage what you have.
Why is it important to be Financially Healthy?
Most people believe that budgeting is all about the numbers. This leaves them chasing what society, advertisers, and social media tell them they need. This inevitably leads to poor financial health, where you are stressed with the constant feeling of being behind, are carrying too much debt, and are missing out on life-changing opportunities.
But the reality is that a budget is about your freedom, security, and peace of mind. It does not matter what your income is in comparison to others. When you can cover your basic needs and your finances are in order, you can:
- Save for the things that matter to you, whether it is a new house, a family vacation, or early retirement
- Handle life & its surprises without panic
- Eliminate stress that mismanaged finances can take on your mental and physical well-being
- Make confident decisions about your life and your future
Pros & Cons of Becoming Financially Healthy
Let’s be honest, any choice to make in life is going to have benefits and drawbacks. To determine if taking steps to become financially healthy is right for you, check out these pros and cons.
Pros:
- Better Stress Management: When you are financially stable, your stress reduces, and your mental health improves. You also have an increased peace of mind from the knowledge that your bills are paid and you have money in the bank for emergencies.
- Improved Relationships: Most conflicts within relationships are caused by disagreements about finances. As your financial health improves from managing your money effectively, these sources of tension will reduce.
- Ability to Set & Reach Goals: It doesn’t matter if your goal is to own a home or travel the world, when you effectively manage your finances, you can build the life you want with more freedom and fewer limitations.
You don’t have to be perfect to be consistent.
Cons:
- Time & Effort: Learning how to effectively manage your personal finances will take time, especially if you are just starting out.
- Commitment to Lifestyle Changes: You may have to adjust or even cut back on habits and expenses that are not serving your financial goals for the long term.
- Discipline is Required: When you start budgeting and saving towards what you want most, you will have to say no to some things now, so that yes can be said later to bigger things.
- Delayed Gratification: As you start to direct your finances towards the life you want to live, you will need to hold off on short-term pleasures for long-term gains.
Steps You Can Take To Improve Your Financial Health
These steps are perfect whether you are beginning to budget or have been budgeting for a while and want to improve your financial health.
Step 1: Know where your Finances Currently Are
Whether you want to go all out and perform a financial audit or a quick financial snapshot, you need to understand your current financial situation before you can start.
Gather your financial information you have, such as your income, debts, monthly bills & subscriptions, as well as savings. Then track your spending for a month to see where your money actually goes.
Having an awareness of your current finances helps you understand what needs to change.
Step 2: Create A Budget That Works For You
When you’re beginning to budget, there is a tendency to make your budget more complicated than it needs to be. Don’t attempt to do everything that others are doing within their budget; it will end in failure.
The goal is simple: to give every dollar a job. Use a budgeting style that works for you and matches your lifestyle.
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Divide your expenses into categories that make sense to you! Be sure to include your needs, wants, savings, and debt payments. Be sure to review your budget periodically and adjust it as needed.
Step 3: Set SMART Financial Goals
Setting goals in your finances helps to give your budget a purpose. When the goals are realistic, you are more likely to stick to the plan and achieve the goal.
Whether you want to build an emergency fund, pay off debt, or save for a month-long vacation, be sure to break your goal into smaller, manageable milestones. Automate your finances where it is possible, and remember to celebrate your progress so you stay motivated.
Step 4: Build An Emergency Fund
One measure of financial health is whether you are prepared for what life has to unexpectedly offer. Simply put, when you are prepared for unexpected expenses, you are less stressed and much more satisfied with your overall financial picture.
Start small by cutting expenses to jumpstart a $500 emergency fund, and over time, increase it to cover 3-6 months of living expenses.
Step 5: Reduce Your Debt
Debt overall can decrease your financial health, as you continually stress about making the minimum payments on time. It does not matter whether you want to focus on high-interest debt first with the debt avalanche method or want to go for the smaller wins with the debt snowball method. What matters is that you pay off your debt and avoid taking on new debt.
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Step 6: Manage Money Consistently
Consistency is key to creating a life you want to live. Be sure to regularly set time aside to review your finances and adjust your budget as things change.
Also, don’t forget to continue to learn about personal finance. By staying informed through books, blogs, podcasts, and articles, you can keep learning strategies that benefit your overall financial health.
Step 7: Stay Accountable & Motivated
Improving your financial health is a long-term journey. To remain motivated, you need to remember your why and have support. Whether you decide to share your goals with a friend, family member, or a financial counselor or coach, having accountability will help keep you motivated on your journey.
Take Your First Steps Towards Financial Health Today:
No matter your age, deciding to become financially healthy is an incredibly empowering decision. It will take time and discipline, combined with a lot of trial, error, and learning. But the freedom and the peace of mind you achieve are worth it.
Remember, you don’t have to be perfect to be consistent. You just have to start. Any small step you can make now leads to big savings later.
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