While personal finances may not be included on our ‘favorites’ list of things to focus on, nevertheless, we shouldn’t let our eyes glaze over at the mere mention of money management. Indeed, gaining a foothold over our finances can help us achieve financial health, which can pay off handsomely in multiple ways.
We may even balk at that old saying, “money makes the world go around,” even if it happens to be true. To ignore the role of money management in our adult lives is to do so at our own peril. From financial goal setting in early adulthood to end-of-life estate planning, financial health plays an intrinsic role in our overall sense of wellbeing.
What Is Financial Health?
Let’s begin with a definition of financial health. According to Investopedia, financial health is the term used to describe the state of one’s personal monetary affairs. The dimensions of financial health include your savings and investments, retirement planning, debt, and expenditures. Achieving financial health in these dimensions requires discipline and commitment—pretty much the complete opposite of flying by the seat of your pants.
Financial health is measured primarily through your net worth. Net worth is calculated by subtracting your debts and liabilities from your assets. Debts and liabilities include such things as credit card debt, mortgage, student loan debt, and car payments. Assets include investments, savings, home equity, and precious metals or other tangible valuables. Ideally, when you subtract the liabilities from assets you will have a positive net worth.
How to Improve Financial Health
We may be living in the 21st century thinking we are much more advanced and knowledgeable than our grandparents’ generation, but the truth is that the basic tenets that guide us toward financial health today are exactly the same as they have been for centuries. They include the following bits of wisdom:
- Create a budget. Whether you create a detailed Excel spreadsheet or you scribble your monthly debts and income down in a notebook makes no difference. Just create a realistic budget, and then stick to it.
- Pay off debt. High interest credit cards or loans should be first in line to be paid off. After that, start chipping away at reducing all other debts.
- Live within your means. This is much harder than it seems, but try to control spending. Question every purchase as to whether it is a want or a need.
- Save for retirement. The years pass quickly so don’t put off retirement planning. Make a monthly contribution to your retirement account from the earliest age possible.
- Have an emergency fund. Cars break down, appliances stop working, and kids need braces. Life throws lots of unexpected punches, so build up a 6-month emergency fund and sleep better at night.
Not everyone has a mind for numbers. For some folks, the mere sight of a bank statement triggers anxiety. Not to worry, as there are financial professionals, such as CPAs and financial advisors, who are there to guide you toward financial health. If you need a little help setting up a financial game plan and selecting investments, don’t hesitate to access their knowledge and expertise.
How Financial Health Impacts our Happy Factor
Chronic stress is very hard on our health, so it isn’t good to constantly stress over money issues. We lose sleep when we aren’t properly prepared for a financial setback—something that seems to usually happen quickly and without warning. A serious medical condition, a natural disaster, a severe recession, or a stock market collapse are all examples of unpredictable events that could seriously wreak havoc on our personal finances.
All this to say that financial health contributes in large part to our mental health. Having our financial ducks in a row, with a rainy day fund in place, debt paid off, a sound retirement strategy, and some sound investments, yields peace of mind and the ability to enjoy the fruits of our labor. We know money can’t buy happiness, but having that peace of mind sure goes a long way toward fueling a positive, happy mindset.
