Most people don’t learn financial literacy in school.
Unfortunately, personal finance isn’t something you typically figure out until you’re bringing in a paycheck, paying bills, and making serious financial decisions.
Regardless, financial health is critical for success. In fact, you could argue that it’s just as important as physical health because money forms the foundation for your entire lifestyle.
If you’re financially healthy today, it’s much easier to create a solid financial future for yourself. But if you’re struggling with cash flow now, it’ll be that much harder to meet both your short-term and long-term financial needs. Here are some of our top tips for improving your financial health.
- Never settle
- Discover your value
- Ask for regular raises
- Stay out of debt
- Stick to a budget
- Watch your housing costs
- Build an emergency fund
- Max out your retirement accounts
- Invest
- Work side hustles
- Minimize taxes
- Set money aside for healthcare
What Is Financial Health?
There’s no one way to measure your financial health. Instead, it’s based on several metrics, including your income, debt payments, debt-to-income ratio, assets, and retirement savings.
That said, here are some of the core skills you need to maintain strong financial health.
Income
Financial health starts with income. When you’re raking in profits, everything else tends to fall into place. Of course, this requires getting a decent job or starting a business in an area where you’re highly skilled or proficient.
Discipline
Financial well-being also requires strong discipline — and an ability to reject impulse purchases and delay gratification.
If you spend all the money you bring in, you’ll quickly wind up destitute and possibly in debt. And this can lead to an awful situation, crushing your financial security.
Forward-thinking attitude
Another critical skill for financial health is a forward-thinking attitude. Preserving your financial health requires looking ahead into the future with savings and retirement accounts.
An ability to manage
When it comes to financial planning, you have to think like a manager.
You have to become a pro at keeping track of your living expenses and investments and maximizing your gains while reducing your risk. Most financially healthy people are well aware of their options and are unafraid to move money around and try different strategies.
For example, this could mean the difference between letting $10,000 rot away in a low-interest-bearing account and putting it into a high-yield savings account or investment account to produce better gains.
Balance
Financial health is ultimately about achieving balance. Folks who are financially sound typically spread their money across multiple investment vehicles.
How to Improve Financial Health
Now that you understand the skills required for financial health, here’s a breakdown of how to improve it.
1. Never settle
One trick to maintaining strong financial health is to think about your money like an athlete. Athletes never settle — most strive to be the best and then keep pushing themselves further.
It’s important to mirror this approach with your personal finances. There’s nothing worse than getting complacent about your income or your career. If your income isn’t going up year over year, you’re not pushing yourself hard enough. It’s that simple.
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2. Discover your value
Early-career professionals should reassess their career paths and determine where they offer the most value. Then, zero in on those skills and hone them to generate more money.
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3. Ask for regular raises
Once you have a clear understanding of your market value and skillset, don’t be afraid to ask for what you’re worth. Either the employer will give you what you’re entitled to, or you’ll move on and find a better company that pays more.
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4. Stay out of debt
Not all debt is bad. But when debt goes unpaid and starts generating high interest, it can become a major problem.
It’s critical to do whatever you can to stay out of debt. And if you’re in debt, you need to get out as quickly as you can.
It’s impossible to be truly financially healthy if you’re losing hundreds of dollars per month to high-interest payments. Take my word for it: Debt is the enemy of financial health.
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5. Stick to a budget
The idea of making a budget may not sound like fun. People often associate budgets with boring lifestyles. But this couldn’t be further from the truth.
Budgeting leads to financial freedom by maximizing what you bring in on payday. At the same time, it identifies where you’re wasting money. Having a budget could mean the difference between dropping $400 at the grocery store and making wiser choices that cut your bill in half.
Take a look at just about any financially healthy individual and you’ll most likely find they’re using a budget or a spending plan. Believe it or not, even millionaires use budgets!
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6. Watch your housing costs
People get into financial trouble or debt because they spend far more than they should on housing costs like rent or mortgage payments, utilities, communications, homeowners association (HOA) fees, and upkeep.
Follow the 28 percent rule. This says 28 percent of your gross monthly income should go toward housing costs. If you’re spending more than that on your house, it can be much harder to allocate money to other areas of need.
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7. Build an emergency fund
Emergencies can be challenging to deal with if you’re unprepared. However, they tend to happen when you least expect them.
Protect yourself against emergencies by pumping money into an emergency fund. Try to build at least six months’ worth of emergency savings so you can float yourself if you get hit with unexpected expenses.
You can keep your emergency fund money in a money market account, a high-yield savings account, a traditional bank, or a credit union.
8. Max out your retirement accounts
When was the last time you put money into a retirement account?
If you don’t know the answer to this, you may need to rethink your strategy.
Most people go through their careers without a clear understanding of where it’s all headed at the end. It’s much better to build an exit plan using a 401(k) and individual retirement accounts (IRAs).
Focus on putting as much money into these accounts as you can. Or at least put as much into them as you’re able. This way, you’ll maximize the tax-friendly growth opportunities.
It’s also a good idea to track these accounts and make strategic investment decisions to increase your health over time.
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9. Invest
The key to achieving long-term financial success is to invest in stocks, bonds, mutual funds, and index funds.
You can achieve this by opening a taxable brokerage account or a tax-free retirement account. Both types are available through leading brokerage firms like Schwab and Fidelity.
It’s essential to invest while you’re young so you can maximize your time. Unfortunately, many investments take decades to pan out, and people often start far too late in life to make sizable gains.
If you start investing in your early thirties, you can potentially become a millionaire by retirement age. It just requires making sound investments, being very patient, and letting time do the trick.
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10. Work side hustles
Consider what you’re doing to bring in money beyond your 9-to-5 job.
If you’re not earning anything other than your paycheck, you’re in danger of being unprotected if you were to lose your job. Plus, you’re probably not making as much money as you could be.
Consider starting a side hustle to bring in extra cash in your spare time. For example, you might enjoy driving for DoorDash or renting your car on Turo to bring in money on the side.
The harder you work and the more money you make, the more financially healthy you can become.
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11. Minimize taxes
When you make more money, you have to preserve it. Otherwise, you could wind up giving away much more than you’d like to the IRS.
Now, we’re definitely not advising you to put all your money into offshore accounts or dodge taxes altogether. Instead, financial health requires being smart about deductions and tax credits. So consider talking to a tax advisor and looking for ways to reduce your tax liabilities.
12. Set money aside for healthcare
Healthcare costs can be excessive. If you have a high deductible healthcare plan, look into setting up a health savings account (HSA), so you can cover healthcare expenses when they arise — like doctor’s visits, medicine, and X-rays.
Not only does an HSA enable you to enjoy some tax benefits, but the account essentially converts into an IRA once you reach retirement age.
Frequently Asked Questions
Is retirement planning hard?
Planning for retirement can require a bit of research and ongoing management. However, it’s much harder to ignore retirement planning and face the consequences of your actions in your later years.
Planning for retirement may not seem like a top priority now. But if you don’t take it seriously, you risk paying the price down the road. Just a little bit of planning now can go a long way.
Why is a credit score important?
Your credit score and your credit report offer a snapshot of your reputation as a borrower. Credit is required whenever you apply for a mortgage, car loan, or personal loan.
Strong financial health requires maintaining a credit score of at least “good” or “excellent.” You can do this by minimizing credit card debt, paying off student loans, and making payments on time.
How can I reduce financial stress?
The best way to reduce financial stress is to stay on top of your finances. Review your accounts daily and make personal finance a regular part of your life.
Good financial health takes ongoing work. People tend to run into trouble when they avoid looking at accounts or ignore financial emergencies.
The Bottom Line
Maintaining good financial health and well-being should be a top priority for everyone. After all, it’s the key to increasing your net worth and achieving your long-term financial goals.
Make it a point to control your living expenses and practice financial wellness by saving and investing. Form a financial strategy and adjust it as time goes on. Over the years, your overall financial health and financial behaviors should improve.
Remember that your financial health is ultimately your responsibility. Nobody else can learn finance or manage these responsibilities for you.
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