Table Of Contents
- 1 Improving Your Financial Health
- 2 What Is Financial Health?
- 3 Below Are 10 Financial Wellness Tips
- 3.0.1 Pay Off Your Credit Card Debt
- 3.0.2 Grow Your Emergency Fund
- 3.0.3 Pay 10% of Your Income Into a Retirement Fund
- 3.0.4 Pay off or re-finance your mortgage before retiring
- 3.0.5 Track your spending
- 3.0.6 Envision your future
- 3.0.7 Improve you credit score
- 3.0.8 Live below your means
- 3.0.9 Pay attention to what you throw away
- 3.0.10 Move your money around
Improving Your Financial Health
Like many people out there in the workforce we often think about the daunting task of money management and our financial health. It can be a seriously complicated topic as many people are not happy talking about money let alone in a position to give advice.
While it may seem like everyman and his dog has an opinion on how to look after your finances and the Internet is crammed full of finance gurus and bulletproof strategies there are some basics that hold true. Now we are not the most financially minded individuals so we spoke to some actual experts and curated their responses in a non-financial jargon way.
We wanted to know how we could grow our savings, reduce our spending and master our financial future. To be able to do this we first had to tackle the basic question what is financial health?
What Is Financial Health?
Financial health is the industry term used to describe the state of financial affairs to any individual or organisation. There are many complexities involved in financial health that tends to make it unnecessarily confusing. Some of these are things like how much money are you saving? What is the interest on the amount being saved and is there compound interest involved. If this is already above your head you are not alone in fact many people find this stuff belongs in business class not yoga class. But the state of your financial affairs has the ability to improve more than your bank balance.
Financial health can improve your entire health.
Our Financial Health Tips
Below are our simple steps to financial health and money freedom. These are small incremental gains and the idea is that you use a few at a time and the compound effect kicks in and starts to make some serious impact on your bank balance.
These are not the smartest ways to invest as that would be a comprehensive and super boring article! This is more like a financial wellness checklist for the rest of us not financial types.
Below Are 10 Financial Wellness Tips
Pay Off Your Credit Card Debt
The first step to good financial health is paying off your debts, especially the ones that are paid with interest i.e. credit cards.
First take stock of your debt situation. You will have to take charge of some financial planning here – it is difficult even for a modest household to budget for debt repayment. Your aim is to repay this debt as fast as possible, so you must make a list of all your monthly household expenses: utilities, services, leisure and eliminate wasteful or unnecessary expenses. Use the extra cash to pay off your debt.
With each credit card take note of outstanding balances and the interest charged on the balance. Pay off the higher interest rate cards first. Switch any outstanding balance on a high interest card to a lower interest credit card. It is now your mission in life to pay off the high interest credit cards.
After you have paid off your credit cards negotiate a lower rate of interest. If the company refuses switch to a card provider with lower rates.
Find out what is the minimum payment due on each of your credit cards and pay it without fail.
To permanently reduce debt you need to review your spending history. You probably don’t need so many credit cards – chop up the high interest card first!
Grow Your Emergency Fund
An emergency fund is money put aside for an ’emergency’. It could be for unforeseen expenses like when an appliance breaks down or the car needs repairs. It could be for more serious unforeseen emergencies like family ill health or losing your job. Regardless of what the money will be used for, everybody should use an emergency fund to give you breathing room in times of crisis.
The trick is to start low at about $25 a week, in ten weeks you will have saved $250. If you think you can afford more put away more. You should aim for a figure that is slightly challenging but not unachievable to get you into the habit and to enjoy the achievement. From there you can increase the amount.
If $100 a month is currently unaffordable then you need to find ways to free up some cash. It might be painful but it is worth it. Trim some monthly bills – bye bye netflix or premium cable!; use public transport, get on your bike, carpool; re-negotiate or switch home and auto insurance; trim shopping bills – make a shopping list and stick to it – don’t go to the supermarket hungry!; use a thermostat and trim your heating/cooling usage; request a rate reduction on your credit cards; don’t splurge so much, cut back on nights out or clothes shopping. Trust me, you will be congratulating yourself further down the road.
Pay 10% of Your Income Into a Retirement Fund
Retirement planning may not be your top priority if you are still running around kicking a football/dressing-up with your mates instead of your kids but that fact is everybody should pay at least 10% of their income into a retirement fund, no matter how much or how little you earn. Even small amounts add up over time, and the sooner you start, the more wealth you will build. And you should consider this an investment, not just saving.
You should invest a couple of grand, or as much as $5,000 a year into a tax-deferred retirement account. A tax deferred investment accumulates tax-free until you take receipt of the gains. In this case an IRA, individual retirement account, can earn a 6% rate of return, and the tax is not payable until you take the money back. So you get the benefit of tax free growth on your investment and withdrawal is made when you are earning less taxable income and your tax is lower than the rate during employment.
And it is never to late to invest in a tax-deferred individual retirement account. With an aggressive investment plan a period of 10-15 years can yield high returns.
Pay off or re-finance your mortgage before retiring
Before you enter into a mortgage agreement you should ensure that the terms of your mortgage should not stretch beyond the number of years you will work. If it does you should re-finance your mortgage or plan to pay it off before you retire.
After retirement your income generally falls but your cost of living will not. Health care expenses are likely to rise. Freeing yourself from the burden of a monthly mortgage payment gives you more flexibility to deal with any rising costs and leaves you free to enjoy your retirement.
Low interest rates means it is a good time to refinance your mortgage if you plan on living in your current home for several more years.
For example, if you are 50 you can get a 15 year mortgage with a fixed-rate. Interest rates on a 15 year mortgage are around 4% or less, so more of your monthly payments go to the principal and you can build equity faster. There are also other affordable home refinancing programs.
Track your spending
Knowing how and where you spend your money is the most basic building block of financial success. However, we are told over 20% of people have no idea how much they spend on food, entertainment or housing – most probably because they don’t want to know, for fear of finding out they need to curtail their spending in areas they don’t want to.
Just like a diet program were you need to write down everything you consume you need to write down everything you buy for a month. Track online spending, monthly bills, debit and credit card spending; and keep receipts. Tally it all up using categories like groceries, restaurants, gas, clothes, medical bills, hobbies, home maintenance. And then read it and weep. Literally! And then compose yourself and cut back in the relevant areas.
When you know exactly where you are spending your money, and recover from the shock, you will find it much easier to budget and save, and you will be more cautious of your spending in the future.
There are great apps like Wally, HomeBudget, and PocketGuard that can help you track your spending and budget.
Envision your future
Everyone at some stage in their lives has had someone; a friend, parent, teacher, guidance counsellor, boss, colleague, job interviewer! ask the question, “Where do you see yourself in five years time?” Well, here we go again!
To imagine where you want to be in say, I don’t know, ‘five years time!’ is an important part of achieving any ambition and also serves as motivation. And it is no different when it comes to your financial future.
There are practical steps you will take but this imagining is integral to how you behave. First you plant the seed in your brain and then the more you envision this financial future the more the idea grows in your mind until it will be at the fore front of your every action, or transaction!
Now daydreaming about winning the lottery is not what we are talking about here. But daydreaming more realistically about where you would like do be in five years time and what you would like to be doing in five years time, whatever it may be, is beneficial. Providing you make the connection that achieving these dreams is mostly dependant on your financial future. If you realise that you will plan for and manage your financial health.
Improve you credit score
A credit score is a three digit number used by financial institutions to evaluate how worthy you are of a loan and the likelihood that you will pay back those debts. When you apply for a credit card, mortgage, student loan, car loan or other line of credit lenders use a three digit credit score to help them decide if they will approve you for that loan or even a credit card, or extending the limit on a credit card. A credit score is on a scale of 300 to 850, where 700 and higher is considered good.
Here’s how to improve your credit score; pay attention, it’s important!: keep your credit card in balance; make your payments on time; keep healthy lines of credit – more is better and older is better, providing they are successfully managed; don’t go bankrupt, lose accounts to collection agencies, foreclose or lien; don’t repeatedly apply for credit.
Your credit score effects your annual percentage rate – the rate of interest you have to pay on loans and debt. So a better credit score will save you money.
Live below your means
Living below your means simply means ‘saving’. Just because you can afford something does not mean you should buy it. Just because you have a good salary does not mean you should spend it all. If you do get that raise, or get an increase in your income, try to continue the same standard of living and use the opportunity to pay off debts, save or invest in your retirement fund. You won’t have to cut expenses or lower your existing budget so it should be easily achievable as you are not making any sacrifices.
Saving or investing for the future is about not wasting money and yes, sometimes, about being frugal. Cook meals more often instead of always eating out; pay attention to your energy consumption; buy a second-hand car instead of a new car, new cars depreciate immediately; utilise public transportation or your bicycle more often. Look after the cents and the dollars will look after themselves.
Pay attention to what you throw away
We all consume and buy products that we don’t really need or want and buy inferior quality products that soon become garbage. Our houses are filled with junk we no longer need (or didn’t need in the first place). Our tech is constantly outdated and upgraded. The society we now live in is a disposable society where everything is produced with convenience in mind and where everything has literally become ‘throw away’. We need to be aware of this and we need to change it.
Look in your wardrobe and see how much clothes you own vs. how much clothes you actually use. How many devices and screens do we really need? You need to embrace the inner e-bay seller in you, become the modern minimalist, do it for the environment – surely that is a grand cause to champion why you experience the personal financial benefits of purging and unnecessary spending.
We need to buy less products, and the products we do buy need to be of better quality and value.
Move your money around
A great way to improve your financial standing is the ‘cut and move’ strategy. You should constantly be redirecting your money from one part of your financial life to another more profitable area.
The same way you should be changing service providers, and house and auto insurance to avail of the best deals and savings, you should do the same with your bank and credit card accounts, investments and funds. Take the time to figure out how to cut spending across your budget. You can use online apps and price comparison sites to find the cheapest alternative for everything from energy to cell phone service.
Any savings you generate can then be applied to any outstanding debt, to pay off credit cards, or moved as savings to emergency funds or retirement funds.
Apart from the obvious benefits of savings this strategy also educates you on where your money is, what you are spending it on, how much you are paying for things. And that awareness of your personal finances will benefit your spending and saving behaviour because you will be paying close attention.