Financial health tells you where you stand in matters related to personal finance in the long term. It is determined less by your current lifestyle and more by how prepared you are to deal with emergencies, unexpected loss of income and your retirement savings. Depending on how you manage your expenses, it is possible to be financially healthy in spite of having a nominal income.
Here are some ways to ensure you are financially healthy early on.
Start saving for your retirement early
While it is true that it’s never too late, in this case, however, it is never too early. Most of us think of retirement only after we cross 35 or 40 which makes it a lot more difficult to build a sufficient retirement fund. Starting early gives you a head start and also ensures that you don’t waste your hard earned money on trivial stuff.
Plan for the rainy day
Many consider buying insurance as an investment tool. It is wise to not mix the two and have enough insurance cover that will protect you and your family against death, loss of income or disability. Apart from this, there can be several other emergencies that may put a strain on your finances. Try to maintain a good minimum balance in your account that should be spent only on emergencies. You can also install an app-based personal line of credit wherein you can use the approved amount whenever in need of money.
Know how much to spend
As a general rule, it is recommended to spend no more than 35 – 40% of your income towards living expenses. Similarly, your total debt repayments including house loan, car loan, and credit card loan should not exceed 30-35% of your income. The remainder of your income should be invested and saved for future. To be able to achieve this, it is good to track how much you currently spend. Once that is done make a monthly or an annual budget and be sure to follow it.
Watch out for inflated lifestyle
Nothing gives a high like a salary hike or a good annual bonus. It is easy to think you can afford to spend more since you are now earning more. Be it the latest gadget or a high-end watch or an expensive vacation. However, if you spend all your bonus or your hike, you aren’t getting any richer in terms of your savings. In our social-media-driven lives, everyone is trying to outdo each other without really sparing a thought towards long-term finances. Always keep a check on your needs and wants.
Get financially literate
If you do not work in the finance field, it can be daunting to take the first step. However, the more you know about money the more you will be conscious about making the right choices. So sign up for newsletters or read blog articles of finance companies and start taking charge of your money. You can take help of financial advisors but don’t forget that the ultimate responsibility is yours alone.
Improve your credit score
Your credit score determines the interest at which your bank approves your loans. A bad credit score may even prevent banks from approving loans altogether. This can have an adverse effect on your savings if say for example you pay a high interest on your housing loan for several years. Pay all your bills on time and do not keep too many credit cards to maintain a good credit history.
A good financial health saves you from a lot of avoidable stress during difficult times. Being financially healthy is in many ways similar to your physical health. They both are indicators of how well will you lead your life when you are old. To maintain, they both require discipline and cannot be taken for granted.