Many financial experts agree that financial health includes four key components: Spend, Save, Borrow, and Plan. It is crucial that you actively work on improving the health of each one. Unsatisfied with your financial health? Here are some valuable tips to strengthen each component.
Spend.
To spend wisely, you need a budget. With a little time, you can put together a clear budget to improve your spending habits. You can easily find budgeting tips online or take a look at our Budget Challenge earlier this year. There are also tools and apps that you can download to automate the budgeting process for you. Whatever method you choose to use to budget, you must stay within that budget. That means using healthy spending habits to stay on (or even better - under) budget.
Save.
Everyone needs to be saving each month, but the realities of life sometimes make that difficult. In general, you should aim to save a minimum of 10% of your monthly income. If that's not possible, any amount saved helps improve your financial fitness. Once you start saving, those funds should be considered untouchable. They are not for meeting monthly bills or impulse buys. Instead, they should be used to begin building an emergency fund and more considerable savings for long-term goals. Having these funds readily available will keep you from putting these expenses on credit cards.
Borrow.
Healthy debt payments should be no more than 15% of your income (not including mortgage and transportation loans). Remember, higher debt payments can indicate that your debt load is no longer sustainable, and therefore, unhealthy. While credit cards can have perks, such as raising your credit score for on-time payments or rewards, they can also be dangerous. If you have more credit card debt than you should, paying down debt fast should be a priority.
Plan.
Where do you see yourself financially in 5 years, and where would you like to be? Those questions are part of planning your healthy financial future. Take some time to figure out what you want your life to look like in the future: do you need retirement funds? Do you want to be able to buy a house or maybe an income property? Will you need to help a child with college tuition costs? These questions factor into your goals and what you need to do (or change) to get there. By focusing on long-term goals, rather than just monthly spending, you can start to re-prioritize your budget in ways that make sense for your goals. And don't be afraid to seek out a financial planner. They can help you better prepare for the future and put you on track to meet all of your long-term financial goals.
Remember, no matter what your financial situation, improvements are possible. Take time to analyze your financial health, set a plan, and then actively work towards your goals. Financial fitness may be a long journey, but it is doable with the right mindset and tools.
Above provided by BALANCE and sponsored by the Union Home Mortgage Foundation. If you’ve been impacted financially by the coronavirus, you may qualify for mortgage assistance. Please read our FAQs page for more information.