The state of your finances is a key focus in many people’s minds. Healthy finances open up windows of opportunity, whereas unhealthy finances lead to stress and struggle. The good news is that financial health is not a fixed state. There are actions you can take to improve your finances and get to the healthy side, where you have more control over where your money goes.
Why you should prioritize financial health
Financial health is incredibly important, no matter the current state of your finances or life situation. Good financial health allows you to weather the storm when a sudden expense pops up. It helps you stay out of unmanageable debt and build a healthy credit score.
With healthy finances, you can stay out of the red, stop living paycheck to paycheck and start using your money for things that are truly important to you.
Poor financial health can be a tricky thing to get out of. If debt, low credit, lack of access to finance, and empty savings pots are your reality, it’s not the end of the world. There are some things you can do to prioritize your financial health and get back on your feet.
Review your previous year’s finances
The best way to start the new year off is to take a look at the previous one. This will give you a good jumping-off point to reconsider your current spending and see how it fits into your financial future.
Take a look at your spending in different areas over the past year or the past few months. Categorize it into different areas such as necessary expenses, unnecessary expenses, groceries, repair bills, debt, and so on.
This opens people’s eyes to areas of overspending they didn’t even realize. Perhaps your bills can be negotiated for next year or maybe you can cut back on unnecessary purchases. Whatever it is, this exercise can help you create a plan of action for next year.
Create a debt repayment plan
Debt is often what keeps people in a state of poor financial health. It can feel impossible to climb out of, but a big reason for that is that people don’t put together a plan.
Take a look at all your current debts, write down how much you owe, the loan term, interest rate, and usual monthly repayments.
If you’re currently making minimum payments on everything, your next step is to see if you can free up cash elsewhere and make bigger payments. Even if it’s just a little.
Check out debt repayment methods like the snowball or avalanche methods, which involve clearing the biggest/highest interest debt first.
Get clear on your financial goals
There’s little point in trying to prioritize your financial health now without looking further into the future. Setting goals is the best way to take control of your finances because you can work towards something.
People often have very vague goals, and as a result, they never meet them. Instead, try to set clear, realistic, and actionable goals for the year ahead.
Clear goal examples include:
“I want to save an extra $100 a month. To do this I will reduce spending on XYZ.”
“I want to clear X debt by December 2022. To do this, I will need to make extra repayments of X each month.”
By having specific figures in mind, you can forge a path to achieve that goal.
Automate your savings
The best way to save is without thinking of it. But what most people do is they spend all month and then see what’s left to drop into a savings pot. Financially savvy people do it the other way round. They pay themselves first and drop money into savings as soon as they get their paycheck.
Go one step further and automate them so you don’t even have to think about it. Set up an automatic payment each month to stick $X into each savings pot.
Start an emergency fund if you haven’t already
No matter what your financial status looks like, we all get hit with a surprise expense sooner or later. If you don’t have one, you could be forced into debt or to empty your savings accounts to pay for it.
Make building your emergency fund one of your priorities. Even if it’s as little as $10 a month. It’s better than nothing. An emergency fund can give you a much-needed buffer.
Prioritizing your financial health doesn’t need to be overly complicated. It’s often about the smaller, simpler steps that people often overlook.