Financial health is a relative term used to explain the condition of one’s financial affairs. There are several different measurements of financial health, which include how much income you’re saving, how much you’re spending on discretionary or fixed expenses, and the level of savings you currently have. In addition, financial health can also be measured by the extent of debt you have and whether or not you’ve taken steps to improve your financial situation. As with any other aspect of your life, financial health should be treated as a top priority.
One of the best ways to take control of your finances and improve your financial situation is through developing a sound financial plan. Developing a financial plan doesn’t necessarily have to be done alone. If you’re suffering from financial problems, it can be helpful to seek help from a financial planner or a financial advisor. Regardless of who provides your financial advice, always ensure that you’re working with people who are experienced in developing sound financial plans. Never work with anyone who isn’t an expert in financial planning.
The first step involved in developing a financial plan is creating a budget. By creating a realistic budget that includes all your income and expenses, you’ll be in a better position to determine which types of expenses are essential and which can be eliminated or reduced. In addition, working toward a goal will motivate you to make wise financial decisions that will help you achieve your overall goals. For example, if you don’t want to spend more money than you make, but you know you have significant savings, working toward that savings goal by reducing your non-essential expenses will allow you to free up some extra cash that you can use to reduce your debt and create a more affordable lifestyle.
To have a realistic budget that covers all your financial needs and future financial goals, it is important to know where your current financial situation currently stands. Take stock of where you currently stand financially and the gaps that exist between where you currently are financially and where you would like to be. Also note any changes that have occurred within your personal finances. Are you saving more money than you were ten years ago? Do you spend more on your entertainment expenses than you did ten years ago?
Once you have a realistic picture of your current financial situation, take steps to address any financial gaps that may be present. First, make a list of all your expenses, including everything from rent and utilities to groceries and even gasoline for your vehicle. Be sure to include the cost of everything that isn’t included on your standard household budget. If necessary, set aside a portion of every paycheck or every time you get paid, to set aside the difference between what you need and what you already have. Doing this now will help you avoid the need to apply for additional funding at some point down the road.
If you are experiencing some trouble paying your monthly bills, then there may be some opportunities for debt consolidation. Debt consolidation typically involves obtaining one loan to cover a number of loans that you may have had in the past, usually with a higher interest rate than your current loan, but one payment that you can make each month instead of several different payments to various creditors. While this does have the effect of reducing your debt, remember that the lower interest rate you have to pay back is for the combined amount of all your debts. You’re not getting a better deal by having to pay one lower payment per month than you would by paying off all your debts.
If you don’t have sufficient savings to manage your debt, then take control of your financial situation and start saving money. You will find that once you build a solid savings foundation, you will have more financial security and fewer financial worries. One way to do this is to begin investing some of your income into a retirement plan or mutual fund account. By saving money, you will have money available to you when emergencies arise. Also, having a savings account is tax-deferred, which means that it never needs to be paid tax until you withdraw it, which is an important financial planning consideration as you reach retirement age.
When you are facing a bad financial situation, take control of your finances. It is imperative that you get your personal finances under control before you find yourself in a serious financial crisis. If you don’t have a financial backup, then you may find yourself in a worse situation than you were in previously. If you have good credit, you can use that to build a good savings foundation while paying off your debt and saving for a “rainy day,” but if you don’t, then your best option is to take the necessary steps to prepare for a bad financial situation.