As we start sharing more tips and tricks to improve your financial health and progress toward achieving Uncommon Freedom, it’s important to understand exactly what financial health is.
Financial health is the status and stability of someone’s finances and financial practices.
You can consider your financial health to be strong if…
- you have a steady flow of income
- experience minimal expense fluctuations
- get strong returns on investments
- maintain a cash balance that grows steadily
If you can’t check all those boxes, we’re here to help! You can take the following steps to improve your financial health:
Assess Your Current Net Worth
To assess your net worth, you need to take a look at what you own (these are called assets) vs. what you owe (these are called liabilities). This is an essential first step toward improving your financial health because it gives you a snapshot of your current financial situation as well as giving you something to compare to as you start improving. Best of all, it’s easy! Here’s what you need to do:
Figure Out What You Own
List all your assets, determine their values, and add it all up. Some examples of assets you might have are:
- Bank account balances, including checking and savings accounts
- Value of your investment accounts
- Any vehicles you own (cars, boats, etc.)
- Current market value of property you own
- Jewelry, art, and other valuable personal property
- Cash value of any insurance policies you hold
Figure Out What You Owe
List your liabilities (you can use this Total Debt Overview if you missed it the first time around) and add up what you owe for each one. Examples of common liabilities are:
- Car loans
- Credit cards
- Student loans
- Other financed purchases
Calculate Your Net Worth
Subtract your total liabilities from your total assets, and there you have it!
Total Assets – Total Liabilities = Net Worth
Create a Budget That Will Stick
Love it or hate it, creating a budget and sticking to it is the most important thing you can do for your financial health. Luckily, it doesn’t have to be super complicated. The most important thing is that you create a plan you can commit to. Something you don’t have the capacity to stick with won’t work for you in the long run.
In its simplest form, a budget tracks your money in and money out, usually on a monthly basis, and is the best way to determine what you can afford to spend, save, and invest.
Get started by downloading our simple budget worksheet!
Establish a Fund Specifically for Emergencies
Financial health is all about feeling stable and secure. An emergency fund is a pretty straightforward concept, but there are a few tips you can keep in mind to make it easier on yourself.
Make a Plan
Come up with a goal, but make it realistic for your current situation. While 3-6 months worth of expenses is ideal, one month is better than nothing. Achieving your goal will give you a sense of accomplishment that will help you stay dedicated to your plan and you’ll have that ideal emergency fund before you know it!
Make it a Habit
Start contributing to your emergency fund in small increments and work on making it a habit. Once that habit has been established you can increase your contribution amounts or frequency as long as it doesn’t stress your cash flow.
Automate Your Savings
In this world of technology, there are so many options to make life easier if you take advantage of tools you have at your disposal. Most banks have an auto-save feature that will allow you to work on your emergency fund without even thinking about it!
Don’t Put All Your Eggs in One Basket
Your emergency fund serves one purpose only: cash on hand that is easy to access in case of emergencies. These easy-access accounts typically don’t offer good interest rates (if any) so the funds in this account won’t be making you money. Savings beyond the minimum set aside for emergencies should be in higher yield accounts such as your retirement account.
Pay Down Your Debts
No one likes being in debt, so let’s get you out! This is a huge step on the journey to financial health. We recommend either the avalanche and snowball methods. Both options require you to be paying the minimum payment due on all accounts while selecting one line of credit to pay off aggressively.
This approach focuses on the line of credit with the highest interest rate first. Calculate how much you need to make the minimum payments, then determine how much more you can afford to put toward debt payoff. These extra funds will be used to pay more on the line of credit with the highest interest rate. Once that is paid off, you’ll move on to the debt with the next highest interest rate, and so on.
The Snowball Method is similar to the Avalanche Method in that you will always be making the minimum payment due on each line of credit. The difference here is that those extra funds you’ve allocated to debt payoff will go toward the smallest debt you have. This is an awesome option if you feel overwhelmed by debt and need the motivation you’ll get when you experience completely paying off a debt that has been hanging over your head.
Check back here regularly for more financial wellness overviews, worksheets and solutions!