5 Signs That Indicate Your Financial Health
Financial health refers to the state of an individual’s monetary affairs. It points to a person’s financial stability and freedom. In other words, being financially healthy means that you can keep up with both basic financial demands and unexpected expenses without compromising future needs.
Having good financial health can save you from a lot of stress during emergencies and will afford you some leeway to spend on the fun stuff. You might think that financial health is reserved for those who have more in life, but this isn’t necessarily true. The truth is, being rich is not the same as being financially healthy. You might be surprised to find out that you are well on your way to being financially fit, even if you don’t consider yourself to be financially abundant.
Test yourself with these 5 signs that indicate your financial health to see how well you’re doing:
1) You Follow a Budget
Financial health is a result of good money habits practiced over a significant period of time. And like what many experts will tell you, financial fitness starts with following a budget. Keeping track of how much money you earn and where it all goes is tried and true advice that will dictate your success with personal finances.
Tracking your income, expenses, savings, and investment is sound practice that will go a long way when it comes to managing your finances. Moreover, having a budget keeps you aware and accountable about how you allocate your hard-earned money.
Finally, sticking to a budget and learning to spend less than what you earn helps you put more money toward other financial goals that keep your finances in a healthy state.
2) You Have a Healthy Debt Level
Debt is part of nearly every individual’s financial journey, and having debt is not a definite indicator of poor financial health. You may have had to take out a fast loan from a digital bank like Maya to finance an urgent and important expense like schooling, a health emergency, or a critical home repair, and these are all acceptable reasons for incurring debt. Life is filled with unexpected events that often translate to expenses that need immediate attention, and taking out a loan or using credit provides borrowers with a financial lifeline during these times.
That said, debt and good financial health do not need to be mutually exclusive. The key is to keep debt to a manageable level, or to maintain a good debt-to-income ratio. This means that you can comfortably pay your debt with your total monthly income minus expenses, and that you can make more than the minimum payment per month so that you pay your debt off faster and pay less interest.
3) You Have Emergency Funds
What separates financially healthy individuals from everyone else is that they have funds set aside for financial emergencies, and we’re not just talking about having savings or money in the bank. These emergency funds are distinct from liquid savings that are intended for short- or long-term goals.
Emergency funds are designed to help you bounce back from financial hardships, whether that’s an unplanned relocation, a job loss, or other significant life changes that come with major financial consequences. A good indicator of financial health is having an emergency fund that can cover these emergencies, ideally saving you from having to borrow money. An emergency fund is a cushion to help tide you over during difficult situations, and a good amount to set aside for this would be the equivalent of three to six months’ worth of expenses.
Having an emergency fund keeps you financially fit since it ensures resilience during unforeseen circumstances. It also keeps you from incurring debt or relying on credit, which might hurt your financial future.
4) You Do Your Research
Being inquisitive and practicing critical thinking comes with being financially healthy. As a financially fit individual, you don’t take anything at face value. You look into better ways to spend, save, and invest your money, while always practicing due diligence.
If you’re financially fit, you may have already put your money in a high-yield savings account after comparing interest rates and checking the bank’s reputation, or you may have invested in the stock market, making sure to review the company’s history and performance. When applying for a loan or a credit card, you look for the best interest rates and terms, and you consider rewards programs that are relevant to your needs and situation.
Finally, a good indicator of financial health is that you practice self-control, avoid impulse spending, and make it a point to search for better deals and discounts without compromising quality or being unreasonably stingy.
5) You Plan Ahead
Financial fitness shouldn’t come at the price of enjoying life. Buying a new gadget, taking a well-deserved trip, or treating yourself once in a while are all valid wants that you can still fulfill without jeopardizing your financial stability. The secret is to plan your spending and set goals for saving money to fund these little luxuries.
Additionally, financial fitness means balancing present finances while considering future needs. As a financially fit person, you should already be allotting a percentage of your monthly income toward retirement.
You might think that retirement is still a ways off, but it’s never too early to save for your future. Having a retirement plan will save you from the worry of how to survive life after work, and if you start early, you can look forward to an early retirement—or a comfortable one, at least.
At first, it may seem like a special challenge to maintain your financial health. But once you get there, you benefit from less financial stress and more freedom to choose where to spend your money now and in the future.
