If you’ve been thinking about your financial health, or if you realize it’s finally time to put on your grown-up pants and take your money seriously, I want to help you get financially healthy. The good news is, it doesn’t matter what your money situation looks like right now. Anyone can learn how to improve their financial health by following a few basic money principles.
With skyrocketing inflation and the aftermath of COVID-19, lots of Americans’ incomes and financial health have taken a big hit. And according to The State of Personal Finance in America 2022 study by Ramsey Solutions, half of Americans said their finances had a negative impact on their mental health in the last quarter.1 But what is financial health, exactly, and how do you measure it?
What Is Financial Health?
Think of financial health like your money’s overall wellness. Financial health is when you take control of your money so it doesn’t take control of you. That means getting out of debt, budgeting, saving, and retiring with confidence. Financial health is not taking out loans, using credit cards, getting paycheck advances, or making risky investing moves. No, no, no.
When you’re financially healthy, you:
Have no debt—or are actively paying it off
Have an emergency fund
Have a budget and stick to it
Don’t rely on debt to pay your bills
Have a plan to pay off your home early
Invest regularly to build wealth for retirement (and I don’t mean cryptocurrency!)
Give generously
How to Measure Financial Health
When you’re trying to figure out your financial health, you’ll want to ask yourself a few questions to get an overall picture of your unique money situation. Remember that measuring financial health covers a few things, like your debt, savings, income, investments and monthly spending—not to mention outside factors, like inflation. Here are a few questions to ask when you want to measure your financial health:
What’s your net worth? You want to have, or be working toward, a positive net worth. That means what you own is worth more than what you owe—which will only be the case if you pay off your debt.
How much and what kind of debt do you have? You may have heard there’s good and bad debt. But the truth is, there’s no such thing as good debt. All debt holds you back and keeps you paying for the past. When you’re debt-free, you can focus on the future!
Are you able to cover your bills each month without dipping into savings or using credit cards? If you notice inflation affecting your spending on things like gas and groceries, getting on a zero-based budget is the best way to tell your money where to go each month.
What’s your annual income? Do you have any side hustles bringing in extra cash? Making extra money can be a quick way to improve your financial health.
Do you have an emergency fund so you can cover unexpected events? Think about a busted water heater or a broken arm—this is life, and these things are bound to happen!
Do you have a reliable plan for long-term investing? Investing consistently is a smart and reliable way to build wealth in the future.
Not too complicated, right? Let’s break these down.
How to Improve Your Financial Health
Here’s the thing, y’all. No matter what your current money situation is, you can improve your financial health. And if you’re already in a good spot, hey, it’s never a bad idea to review these money basics! Here are 10 ways to improve your financial health:
1. Calculate your net worth.
If you want to improve your financial health, you’ve got to know where you’re starting from! To calculate your net worth, you’ll subtract all your liabilities (things like credit card debt, student loans or car payments) from the total value of your assets (like your savings accounts, retirement accounts and home equity).
2. Organize your bank accounts.
Okay, when I say use cash to pay for your expenses, I don’t mean whipping out a crinkled bunch of bills from a shoebox. You can use cash or a debit card to keep your money organized. Make sure you have your checking and savings accounts set up with a bank you trust. Getting your accounts organized for direct deposit and automatic saving is an easy way to improve your financial health.
3. Get on a budget.
Can you cover your bills each month without dipping into savings or using credit cards? Has inflation affected your spending on things like gas and groceries? Using a zero-based budget tells you where your money’s going so you don’t have to wonder where it went. Making a budget is super simple with the free EveryDollar app. Give it a try!
4. List all your debts from smallest to largest—and start paying them off.
If you want to improve your financial health, you need to pay off debt. And using the debt snowball is the fastest way to do that. Just imagine what you could do with your money if you didn’t have debt payments. (Hint: You could do anything you want!)
5. Increase your annual income.
Is your current income enough to save money, cover expenses, and give? Do you have any side hustles bringing in extra cash? Sometimes improving your financial health is as a simple as making more money, either by taking a new job, starting a side hustle, or starting your own business.
6. Save up an emergency fund so you can cover unexpected events.
Nothing will make you feel more financially healthy than a stockpile of cash sitting in the bank, waiting for a rainy day. It’s called your emergency fund, and it’s your safety net when emergencies happen.
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Once you’re out of debt, take your emergency fund up to a full three to six months of your expenses. Whew! Doesn’t knowing you have enough to cover unexpected expenses make you breathe a sigh of relief? Guys, this is how it feels to be financially healthy.
7. Make a reliable plan for long-term investing.
Learning how to invest doesn’t have to be complicated! After you pay off debt, you can start investing 15% of your income in good growth stock mutual funds. I know it sounds super exciting to invest in your cousin’s new restaurant concept or even the latest crypto trap—ahem, I mean trend—but I don’t recommend it. In fact, stay far away. Consistently investing in your company’s 401(k) or a Roth IRA can set you on the path to retiring with millions of dollars. And the best time to start investing is now (after you pay off debt, that is)! You can even see how much you can save with this investment calculator.
8. Start saving for your kids’ college funds.
Once you’ve paid off all your debt (except the house) and started saving for retirement, it’s time to save for your kids’ college expenses. I recommend a 529 college savings plan or an Education Savings Account (ESA).
9. Get on a plan to pay off your house.
After you fully fund your emergency fund, invest 15%, and start contributing to your kids’ college funds, the only thing standing between you and total freedom from debt is your house. Once you pay off your mortgage, you’re in the clear to starting living and giving like no one else! (Want to see how far you’ve got to go? Check out the mortgage payoff calculator.)
10. Give generously.
You might wonder how giving money away will improve your financial health, but this foundation will change you in more ways than one.
Giving back changes your relationship with money and the people around you. Living generously keeps money in the proper perspective for you, and it blesses everyone involved. Giving moves you on the spectrum from selfish to selfless.
Plus, people who give are generally happier and less stressed because giving releases oxytocin—a happy chemical—in your brain.
You Can Change Your Financial Health
If you want to change your financial health, you’ve got to learn a proven plan to pay off debt fast and save more money for future—and decide to change your habits for good. And that’s the hard part, am I right? To stick to your plan over the long haul and truly live life on your terms, you’ve got to commit. But I know you can do it!
That’s why I want to introduce you to Financial Peace University. It’s a nine-lesson course that teaches you how to save for emergencies, pay off debt, spend wisely, and invest for your future. It’s full of commonsense money principles that will help you improve your financial health. Try it out today!
