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Financial Health: What Does It Look Like To You?

Photo by Andra C Taylor Jr on Unsplash

This April is Financial Literacy Month, and this is an excellent time to look at your financial situation. According to the Financial Industry Regulatory Authority (FINRA), nearly two-thirds of Americans could not pass this basic test on financial literacy. Take a look at your money and see where it's going and how it's doing. How good are you at managing your money? Do you live paycheck to paycheck, have savings, bad or good credit, outstanding debts, and pay your bills on time? There are many facets to good personal money management.

When you have a goal for your finances, it helps to write that down. Think about what you need to do to reach that goal, and then think about the steps it will take to get there. Whether you are saving for retirement or something more immediate, it's easier to implement these actions once you've written what needs to happen next.

If you want to improve your lifestyle or feel more secure with your finances, the key is learning how to manage the money you do have. It's never too late to make a change. The first step is to look at your current situation and answer these questions:

  • How much money do you have?

  • What are your expenses?

  • How much debt do you have?

If you are living paycheck-to-paycheck, it might be time to look at your budget. If you don't have savings, consider starting a savings account. If you have bad credit, now might be the time to change that. While there is no magic bullet for financial success, the first step is taking a good look at where you are right now and plan where you want to be. Money management skills can help us reach our goals and aspirations, improve our quality of life, avoid financial stress and hardship and build wealth.

The information below will help you understand some of the critical concepts behind personal money management and how they affect you.

1. Peel Back The Veil

Take an honest look at your finances. Gather all your bills and statements and organize them by debt types, such as credit card bills, auto loans, student loans, and medical debt. Then list your monthly income. Next, tally up all your monthly expenditures—think housing, transportation, child care, and other living expenses. Subtract your total expenses from your monthly income to determine what is left over. Ideally, you want to have some money left over after paying your bills. If not, then it's time to make a change. Experian helps its consumers become more financially fit.

2. Know Where Your Money Goes

The best way to track spending is thorough record keeping. Make two lists—one for the things you buy regularly and another for things that come up from time to time—such as car repairs, entertainment costs, or medical expenses. This will help you figure out your minimum needs and how much extra cash is available for savings or debt reduction. Mint is an excellent free resource for keeping track of how you're spending your money.

3. Create a Budgeting System & Make It Stick

Make a budget and stick to it. Do you spend more than you earn each month? Do you know where your money goes each month? How much do you save? A budgeting system helps to answer these questions. The best way to gain control of your spending is to set a budget and follow it every month.

A budget allows you to plan how much you'll spend on everything from rent/mortgage payments, utilities, food, gas, etc. When unexpected expenses come up, they won't send you into debt. Keeping track of your expenses can help you identify areas where you may be overspending or opportunities to cut back and save more.

Always have a plan for every dollar you spend and stick to it. Make sure to use cash instead of plastic whenever possible. Using cash will help curb impulse purchases because it forces you to feel the pain of paying for something immediately rather than later when the bill comes in the mail or when making minimum payments on credit cards.

4. Decide On A Savings Plan

Creating a savings plan is essential. It allows for unexpected expenses as well as future goals such as retirement. When creating a savings plan, it's important to consider things like emergencies, retirement, education, and other large purchases such as cars or homes, if applicable.

Once you've figured out what you can set aside each month in savings, look into setting up automatic transfers that deposit money from your employer to a separate untouchable savings account. It would be ideal to choose a high-yielding savings account so you can also enjoy a bit of interest!

First and foremost, no matter how you feel about money today, being financially healthy is something everyone can work towards. Break money management into many small, simple steps. It doesn't have to be incredibly intimidating if you take it easy and go at your own pace. No one will be financially prepared for every situation that might crop up in life, and that's okay. Take a detailed assessment of your financial situation, set attainable goals, and commit to implementing some of the tactics we covered. Everything else—your retirement planning, health care, and family—falls into place when you have a solid financial foundation.

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