Financial health has the same level of importance as physical health and Mental Health. If we don’t improve financial health, then it would have an adverse effect on our mental health. Which in turn makes us stressed and depressed.
Financial health has a direct and indirect impact on people’s health. When people talk about financial independence and financial health, some pessimists mock them. People ask can your money buy happiness. Yes, the answer is definitely No. But money does make life easier and you have one less problem to deal with.
Financial health can be interpreted in different ways. What amount makes you financially healthy will differ from person to person. I am not a financial expert. This article is written purely for educational purposes. It’s always advisable to consult your advisor before making any decisions.
I write this article with my own personal experience. No one in my family had financial education and my parents lived paycheck to paycheck. So I didn’t have any heritage of knowledge about handling money. I had to learn these things the hard way.
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Why is financial health important?
Most problems in our life are related to one thing “Money”. You might have often heard people say “wish I had a little more money”. Financial health is often disregarded by people, but if your financial health is good you are bound to have good mental health.
If you take care of three things in life you will live a more purposeful and happy life.
These 3 things are physical, mental, and financial health. If there’s an imbalance in any one of them then, it will adversely affect your life.
But the sad part is, society will tell you to focus on physical health and mental health, but not on financial health. Truth be told, all of them are directly or indirectly dependent on each other.
Over the years I learned many things about financial health and with my knowledge, I narrowed it down to 5. These 5 rules of financial health help me achieve a better financial situation. Though I am not financially independent, these learnings have helped me find the path.
Simple Guide on 5 ways to improve your financial health
Frugality Cut back on Spending
The first and the most important step of acquiring better financial health is to cut back on spending. This might sound quite obvious, but the fact of the matter is people don’t follow it. People are driven by social status and show-offs.
But one important thing I learned about money is: it’s not of vital importance how you earn it, but how you save it. You should never spend more than you earn. If you are an impulsive buyer then cancel the credit card and create a separate savings account. And every month add a fixed amount of money to that account. You can also create a recurring deposit to save money.
The best example of frugality is Graham Stephan. The famous Millionaire Youtuber, who is one of the most frugal online personalities that I follow. People make it look like a crime if you are frugal. Frugality doesn’t mean compromising with your needs or being cheap.
Frugality means spending money on only things that matter. Like spending 1000’s on clothes is of no use. Similarly, it’s ok to spend money on good healthy food. Ramit Sethi has mentioned a similar idea in his book, I will teach you to be rich.
Budgeting – Track your Expense
The second rule of financial health is to create a budget. If you ask any financial expert one thing to do to make more money, they will always say create a monthly budget and stick to it. Even when people call Dave Ramsey on his show and talk about their financial problems. The first things he asks them is their financial budget
The idea behind making a monthly financial budget is to track your money better. If you don’t really know where you are spending your money, you will not really be able to cut back on unwanted spending.
A budget helps us to understand our needs and wants. And allows us to spend money only to the budget limit. I earlier wrote an article about a simple budgeting rule of 50/30/20. You can use this budgeting technique to create a simple monthly budget and track all your expenses.
It’s important that you make it a habit to create a budget every month and start tracking your spending. If you are able to manage your money by tracking and sticking to the budget, then soon you will be able to see your financial health improve.
“Men plan and God laughs” you might have heard this idiom. We humans often think that we have it all sorted and life’s good. But the Guy above has a different plan. You might think that you are all set in life and suddenly a pandemic comes by and you are fired from the job.
We don’t like to think about bad days. That’s the way the cookie crumbles and we cannot plan for it. But we can be for sure ready for it. An emergency fund is your 6 months of salary put away into a fixed deposit or savings account.
This money is to be used only in case of emergency. And don’t confuse savings with an Emergency fund. But the first part of your saving should be building your emergency fund and then start with your savings.
The emergency fund will give you a breathing space and will not put you in immediate risk if dark clouds gather above you. If you start working the first thing you need to add to your budget is to save for the emergency fund.
The first 3 rules of improving financial health were completely based on managing money. Investment is about growing your money. When people hear the word investment they think of FD or investment in real estate.
But there are many ways of investing in the 21st century. Though I would not deny the investment in real estate. But it requires too much capital. So what is the best way to invest money with small capital? The answer is the stock market!
Now many of you might have already started cursing me. The stock market is a scary term in today’s society. We all might have heard some or the other story of a person who lost all his life’s savings in the stock market.
But have you heard the story of Ronald James Reed? A Janitor, Gas station attendant who at the time of his death was worth over 8 Million dollars. I read this story in the book The Psychology of Money. People were shocked to see Ronald’s net worth and everyone started to see how a janitor became a millionaire.
On searching they found out Ronald would invest a small amount of money every month into the stock market. He didn’t really go too far with picking the stocks. What he did was simple, he just kept investing in Index stocks.
The same way you can also start investing in the Stock market. But it’s always better to learn about the stock market before you start investing. And in today’s time there is no shortage of learning content. Learn how the stock market works and start investing with a small amount of money.
The last part of improving financial health is to have more than one source of income. To do this you need to have side hustles that will bring you an extra income every month. This side hustle takes extra effort but you will gain extra rewards for the same.
I have been working on Multiple side hustle like Blogging, youtube, Affiliate Marketing, etc. I have a full-time job as a Software Engineer, so that means I get my monthly salary from my employer. But apart from that I also make a small amount of money from my side hustle as well.
A side hustle is about monetizing your skill or passion. You can start a side hustle by doing freelance. If you work as a software developer, you can take small side projects to work on and make money from them.
You can also use conventional methods like blogging and Youtube But these might take a little more time. Some of the best places to find ideas for a side hustle is from the book Side Hustle by Chris Guillebeau.
I follow these 5 rules to improve financial health. Financial health will help to improve your current monetary condition and make you capable enough to live freely. I wrote this article to help people learn about financial health.
If you like the article and want to spread awareness about financial health then share it with the people who you think need to read this.
Disclaimer: The article is completely for educational purposes. Kindly don’t take finance advice from this article. I am not a Financial advisor or expert. Kindly consult a financial advisor before taking any financial steps.