Last update: 05/04/2023
What does "financial health" mean? It's the stability of your finances and has a lot to do with the decisions you make to keep a balanced budget. Here are some tips on how to limit your spending and keep your finances in top shape.
You’ve probably had to fork out money for things that you hadn't planned: car repairs, a new appliance or even a spur-of-the-moment getaway with friends. That’s when you realize more than ever the importance of saving money to avoid a blow to your finances. Watch out for the foes of frugality!
The key to sound financial health is to plan your spending and use your money wisely. Just as a doctor checks your health, you can check your finances’ health with ratios that help you understand their current state, take steps to improve them and plan for the future.
You can use the liquidity ratio to measure your ability to pay your short-term debt.
The solvency ratio tells you if you have more assets (properties and investments) than liabilities (debts).
The debt-to-income ratio compares your debt to your overall income.
Once you find out how your finances are doing, you should adopt good financial habits to spot ways to cut back your spending. Drawing up a budget is a good start. You can use it to crosscheck your regular income (e.g. salary) with your outgoings. While some expenses, like monthly rent or mortgage instalments, will stay the same in the short term, others, like your electricity bill and filling up your car, can fluctuate. You should also keep an eye on “ant expenses”, like your morning coffee. As paltry as these may seem, they can also affect your finances.
Other ways you can rein in your expenses and boost your savings include the 50-30-20 rule. It suggests allocating 50% of your monthly income to everyday needs (mortgage, food, utilities, etc.); 30% to expenses (leisure and treating yourself); and 20% to savings. Check out this video to learn more about other ways to budget, like the “leisure box” and the “weekly ladder”.
You should also look for ways to make your money work more efficiently. You could also get some extra income from the collaborative economy, where the latest technology enables you to lend, buy, sell, share and rent goods and services. Selling products second-hand and ride sharing are just a few options that have become popular in recent years. Not only will your wallet thank you for it, but you’ll also be helping protect the planet.
Planning, jotting down and reviewing your finances are crucial to making sure you stay financially healthy. Setting financial goals is one of many good ways to improve your financial health.