how financial health is determined
an individual s financial health can be measured in a number of ways a person s savings and overall net worth represent the monetary resources at their disposal for current or future use these can be affected by debt such as credit cards mortgages and auto and student loans 1 financial health is not a static figure it changes based on an individual s liquidity and assets as well as the fluctuation of the price of goods and services for example an individual s salary might remain constant while the costs for gasoline food mortgages and college tuition increase despite the good state of their initial financial health the person may lose ground and lapse into decline if they do not keep pace with rising costs of goods typical signs of strong financial health include a steady flow of income rare changes in expenses strong returns on investments that have been made and a cash balance that is growing and is on track to continue to grow 2improving your financial healthto improve your financial health you must first take a hard realistic look at where you re currently at calculate your net worth and figure out where you stand this includes taking everything you own such as retirement accounts vehicles and other assets and subtracting any and all debts 3then you need to create a budget with your budget it s not enough just to plan for where you ll be spending but it s also important to take a hard and close look at where you already spend are there areas where you could cut back recurring subscriptions that you don t really need such as cable it s fortuitous to understand what your needs are versus what your wants are use spreadsheets or mobile apps to help set up a budget or use the time tested envelope method which has you create an envelope for each budget item such as groceries and keeping the allocated cash in the respective envelope 4one of the major keys to a budget and maintaining your financial health is to stick to your budget regardless of whether you start making more money or bringing in more income lifestyle creep which includes spending more money as you make more money is detrimental to your financial health building an emergency fund can materially boost your financial health the fund is meant to be money that is saved and readily available for emergencies such as car repairs or job loss the goal should be to have three to six months worth of living expenses in your energy fund 5pay down your debt use either the avalanche or snowball methods the avalanche method suggests paying as much as possible toward the highest interest debt while paying the minimum on all others the snowball meanwhile suggests taking the smallest debt balance first and then work your way up to the largest debt 6 there are pros and cons of each pick the one that works the best for your debt load and your money handling preferences rules and tips for financial health