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Simple Steps for Improving Your Financial Health Today
April 28, 2022 by Spectrum Credit Union
There’s no question that being in poor financial health can directly affect your mental well-being. Given how stressful these past few years have been for many people — whether it be dealing with COVID, work instability, or general economic uncertainty — most of us don’t need anything else to worry about.
Being in good financial health means having your finances in order so that money isn’t a constant source of worry.
What Does it Mean to be Financially Healthy?
Being financially healthy means that you can approach everyday expenses and unexpected financial emergencies without worrying too much about where the money is going to come from or how it will affect your budget. In other words, you can live your life
without constantly thinking about how to pay for it. Some key indicators of your financial health include:
Your Credit Score
Having a good credit score means you will be able to borrow money if you need to. To get a good credit score you must have good financial behaviors like not borrowing too much and paying your debts on time.
Your Debt Level
Having a lower amount of debt gives you more flexibility in your budget. The higher your debt, the greater the percentage of your income that will be dedicated to paying off your debt, which unfortunately keeps you from saving.
Adequate savings, both short term and long term, are a sign of financial stability and good financial health. Having adequate short-term emergency savings means you can cover those unexpected expenses that occasionally pop up without derailing the rest of your budget.
Having a plan to retire can relieve a significant amount of financial stress. Even if you don’t plan to retire, simply being able to can provide a sense of security.
You would have to save a lot of money to be ready to cover all the possible unexpected expenses that you might have. Insurance provides financial protection for things like traffic accidents, medical bills, and home damage that might otherwise be financially devastating. Adequate insurance coverage is a key element of financial health.
How Can You Improve Your Financial Health?
Whether you are in bad financial shape or already on pretty solid footing there are some simple steps you can take to improve your financial health. Some of these fundamental steps you can take now are:
Reduce Your Debt
Lowering your debt can free up some of your monthly budget. Focus on higher priority debt like credit cards that have higher interest rates, or debts that have low balances that you could eliminate first. Paying off high interest debt first is usually a good strategy.
Build Your Credit
Monitor your credit score and be proactive about doing things to make it better. Carrying a lower debt balance relative to your limit, paying on time, and keeping your older accounts open are all easy ways to do that.
Open a separate savings account at your bank and set up a recurring transfer to that account each month or each pay period. The automation makes it easier and you’ll be pleasantly surprised to see your balance growing.
Optimize Retirement Contributions
Make sure you are contributing enough to your retirement plan at work to get the full company match. Beyond that, make sure your savings rate has you on track to meet your retirement goal.
Increase Your Income
Budgeting is easier if you can increase your income without increasing your lifestyle along with it. Whether it’s due to a side income from a money-making hobby or taking on more responsibilities at work, increasing your income can make hitting financial targets easier.
Achieving Financial Health
Achieving financial health can have benefits beyond monetary. It’s good for the rest of your life too.
Paying for things like childcare, unexpected car maintenance, or monthly utilities doesn’t have to be an emotional event, and one of the best methods you have to reduce your financial stress is to focus on increasing efficiency in your financial matters.