If the current state of the world caused you to re-evaluate your financial health and urge you to take your money seriously, this blog is for you.
Getting your finances in order is more important now than ever.
It doesn’t matter where you’re now.
I will share with you today 5 fundamentals to improve your financial health no matter how much or how little money you have.
Let’s go over them,
1- Determine Where You Are Financially
In a dialogue in “Alice in Wonderland”:
Alice: would you tell me please which way I ought to go from here
Cat: that depends a good deal on where you want to go to
Alice: I don’t much care where.
Cat: then it does not matter which way you go
What a piece of advice about clarity.
First thing first, you have to have clarity,
You need to be clear about where you are now, in order to know where you want to be.
Many people think that to achieve something in their life they have to set goal, this is correct, but in order to reach your goal you have to know where are you now, so in our case, you need to know where are you standing financially. Most people do not know.
Simply, understand your income, what you own, what you owe, what are your assets, and what are your liabilities, the difference is your net worth.
2- Make a Budget
Money doesn’t just drift into your savings account, and debt doesn’t get paid off on its own.
You have to be purposeful and have a plan.
You have to tell your money where to go.
You need to make a budget,
if you’re serious about wanting to take control of your money instead of having money take control of you, then you have to learn to live within a budget.
And despite what you may have been told,
a budget doesn’t limit your freedom, it gives you freedom!
If you want to seriously improve your financial health,
Make a list of your sources of income.
Income: List your monthly income, salary,
Expenses: Record your expenses using information from your spending tracker.
Do the calculation and compare your income to your expenses.
- If you have more income than expenses, now it is time to start saving or increase the amount you are saving.
- If you have more expense than income, carefully review your expenses.
- Make adjustment when you can, especially in the wants area of your expenses.
- At minimum, get your expenses in line with your income and if possible, start saving.
3- Spend Less than You Earn
There will always be temptations coming at you from every direction along the way.
Everybody wants a piece of your paycheck, am I right?
But you get to dig in your heels and say, “Nope. I choose to live wisely and within my means.”
This is the time when you really need to think through and identify your needs and wants.
A true need is something you must have for survival such as:
Food, electricity, Gaz, water, clothes, shelter.
A Want is something that is not essential to survival, but you would like to have such as:
Designer clothing, cosmetics, and brand shoes and bags
The confusion can arise when we are not sure if something is a need or want.
We live in world where pressure to spend money is constant.
We are surrounded by ads all the time.
They have one objective, to get your money.
So that’s why it worth paying attention to the difference. Nothing wrong to buy some wants but you have to save first.
4- Plan For Your Future
Nothing will make you feel more financially healthy than a stockpile of cash sitting in the bank, waiting for a rainy day.
It’s called your emergency fund, and it’s your safety net when emergencies happen.
Too many people reach for their credit card when their car breaks down, but all that does is turn a car problem into a money problem.
When you have money in the bank just for emergencies, you can simply get the car fixed. No stress. No drama.
And your financial health won’t take the hit, your emergency fund is there to protect it.
It can be difficult at times to build this up, but if you make it a priority, it will happen, and then you’ll have so much peace of mind!
And once you’ve got that, invest 15% of your income into retirement.
5- Adopt The Giving Mentality
This is a very important concept you have to understand from an early age.
There is a universal law, the more you give the more you receive.
There are always people less off than you, and you can help them.
It is an indication that you feel abundant about your money, and you are ready to receive more.
This is something you should not skip.
Even if you are still on a very low income, you can put aside 2.5% for giving.
Doing this reinforces the belief that you have plenty of money to go around.
The act of giving changes your relationship with money and with the people around you.
Living generously with an open hand keeps money in the proper perspective for you, and it blesses everyone involved.
Generosity is a sign of someone who is truly financially healthy.