Apply These 4 Tips To Improve Your Financial Health

If you were asked how confident you feel about your financial health, what would you say? Would you feel secure? Optimistic? Distressed or nervous? Would you know what areas need tweaking and improvement?

If you’re not sure, you’re not alone. In 2019, only 29% of people describe themselves as “financially strong, according to a report from the Financial Health Network. Meaning that only a little over a quarter of Americans are saving, spending, borrowing, and planning in a way that will ensure long-term financial success.


But with many people currently dealing with financial stress due to recent furloughs, student loan debt, and so much more, there is no one-size-fits-all solution for improving your financial health. Instead, we’ll take a look at a variety of ways to assess your financial health and allow you to decide how to optimize your finances in a way that works best for you and your unique situation.


1. Spend Less Money Than You Earn

If there’s one surefire way to get ahead financially, it’s to spend less money than you earn. You can have a six-figure salary, an impeccable credit score, and zero debt, but none of that matters if you shell out more money than you bring in.

Spending less than your income is critical—not only to teach you practical money management skills—but also to allow you to build your savings and emergency fund. To stop overspending, start by creating a budget and sticking to it (the latter is key here). Focus on reducing your monthly expenses by cutting back wherever possible, like making coffee at home or dining out less.


2. Pay All of Your Bills on Time

The ability to pay your bills on time, every time, and in full, will do wonders for your financial health, especially in regards to your credit score. Your payment history, which takes into account your record of on-time and late payments, represents 35% of your credit score. Therefore, it’s essential that you pay all of your bills, including your credit card and loan balances, on time to protect your credit rating and to avoid paying any interest or late fees.


One way to keep up with your bills is to sign up for automated payments, which automatically deducts a recurring bill from your checking or savings accounts every month. Although sometimes, the withdrawal date might not fit in your existing bill calendar depending on when you get paid (e.g., weekly, bi-weekly, etc.). If this is the case, you may consider a financial service with early paycheck deposits that allows you to receive your money up to two days early. With quicker access to your funds, you can pay your bills early to ensure your payments are on time, which will have a positive impact on your credit score and overall financial situation in the long-run.


3. Save, Save, Save

A significant component of your financial health involves saving—both liquid savings and long-term savings. You may be staring at your screen right now, puzzled, questioning the word liquid. Don’t worry; You don’t need to grab the propane torch and start melting gold. Liquid savings simply means that the money you save is easily accessible for emergencies and not stored somewhere difficult to withdraw funds from, like a 401(k), for example. That said, retirement accounts are great for long-term savings to achieve financial security in the future.


For emergency funds, experts generally recommend that you have six months’ worth of expenses saved. In turn, you will have enough money set aside as a cushion for unexpected circumstances, such as losing your job. Typically, for long-term savings, that’s when you turn to a “nest egg” or retirement account. You can grow your nest egg in various ways, including a 401(k), IRA, and other investment options.


4. Manage Your Debt Load

A major indicator of your financial health is your capability to manage your debt load. If your debt load is not sustainable, you will find it difficult to pay your bills and save money– putting you at risk of facing further financial hardships such as bankruptcy. This is not to say that debt equals doom; Instead, it means striving for a reasonable debt load.


How?” you might ask. Well, there are numerous ways to control your debt. For starters, avoid becoming over-indebted by ensuring your monthly credit payments do not exceed your income. And as with anything, do your research. Examine options to lower your monthly debt payments or interest rates that you are paying on your debt. For instance, with student loans, a viable option would be to secure an income-driven repayment plan that determines an affordable monthly payment amount based on your income.


Additionally, you may find it useful to utilize the 28/36 rule to calculate the amount of debt you should take on. The 28/36 rule maintains that an individual or household should spend no more than 28% of their gross income on housing expenses and 36% on total debt service.


Those who take the time and effort to create a solid financial foundation provide themselves with a head start toward a healthy financial future. Learning valuable money management skills, navigating financial difficulties, and taking advantage of financial tools and resources can help instill the confidence needed to make better financial decisions, and ultimately provide peace of mind for a stable future.