The Four Pillars of Financial Health
Many financial experts agree that financial health includes four key components: spend, save, borrow, and plan. Unsatisfied with your financial health? Here are some valuable tips to strengthen each component.
Spend
To spend wisely, you need a budget. With a little time, you can put together a clear and workable plan to improve your spending habits. There are tools and apps you can access to automate the budgeting process for you. Whatever method you choose for capturing your budget, it’s vital to monitor your spending habits on an ongoing basis. Technology can also help here, as there’s no shortage of tools for tracking where your money goes.
Save
Everyone needs to be saving each month, but the realities of life sometimes make that difficult. In general, you should aim to save a minimum of 10% of your monthly income. If that’s not possible, any amount saved helps improve your financial fitness.
Once you start saving, those funds should be considered untouchable. They are not for meeting monthly bills or impulse buys. Instead, they should be used to begin building an emergency fund and savings for long-term goals. Having these funds readily available will keep you from putting too many expenses on credit cards.
Borrow
Healthy debt payments should be no more than 15% of your income (not including mortgage and transportation loans). Remember, higher debt payments can indicate that your debt load is no longer sustainable, and therefore, unhealthy. While credit cards can have perks like rewards or raising your credit score for on-time payments, they can also be dangerous. If you have more credit card debt than you should, paying down debt fast should be a priority.
Plan
Where do you see yourself financially in five years, and where would you like to be? Those questions are part of planning your healthy financial future. Take some time to figure out what you want your life to look like in the future. Do you need more in your retirement fund? Do you want to be able to buy a house or maybe an income property? Will you need to help a child with college tuition costs? These questions can bring focus to your goals and help you understand what you need to do (or change) to get there.
By focusing on long-term goals, rather than just monthly spending, you can start to re-prioritize your budget in ways that make sense for your goals. And don’t be afraid to seek out a financial counselor or planner. They can help you better prepare for the future and put you on track to meet all of your long-term financial ambitions.
Remember, no matter what your financial situation, improvements are possible. Take time to analyze your financial health, set a plan, and then actively work towards your goals. Financial fitness may be a long journey, but it is doable with the right mindset and tools.