Nowadays, people have caught up to the fact that just because someone is employed does not mean that they enjoy a healthy financial life. You may be wondering what does a healthy financial life mean? Simply put, it means nothing but fulfilling your dreams and providing a healthy lifestyle and financial security to your family. It is possible for you to be financially sound with a significant degree of financial planning. Are you currently planning for a family holiday or want to buy a car? Or is there a long bucket list that you need to strike off in a specified period? To achieve your financial goals, it is of utmost importance for you to keep track of your savings and expenses in an organized manner.
To live a financially healthy life, it is important for you to emphasise changing your current financial lifestyle because healthy financial practices lead to financial stability. It is important to note that it may never be too late to learn how to handle your own money to achieve your financial goals.
How to determine if you have healthy financial habits?
The general rule of thumb is that it is vital to think about the steps one should take to achieve good financial health. Listed below are some of the guidelines that can help you get on track to attaining your financial objectives.
- Start budgeting and define your goals:
Firstly, you need to do is to list down your financial goals and, after that, you need to start budgeting to achieve the goal. While budgeting, you will be listing down how much money are you willing to spend on different activities, based on how much you earn. Maintaining a budget is one of the best ways to increase your chances of good financial health in the future. You need to prepare a budget at the start of every month to allocate how discretionary money is spent. Throughout the month, track your expenditures and at the end of the month, assess if you adhered to the budget. While budgeting, you need to start by writing down your income and then subtracting the expenses from the income to determine how much money you have left. Determining these details can assist you in better budgeting and planning your finances. Additionally, you may compare the numbers to your income to determine feasibility. The main aim behind budgeting is not to be too hard on oneself but to concentrate on your most essential financial objectives. It is important for you to create a budget that accounts for things like saving for retirement, children’s education or vacations and also day-to-day expenses. You can also change your budget from time to time. It is the first step toward maintaining healthy finances.
- Compare your debt to income:
This step is vital to assess to have a better knowledge of your financial situation and to identify areas of strength and weakness. You need to determine the following things:
- What is your debt ratio in the past year compared to your income?
- If your debt ratio has increased, try to repay the overall debt and stop taking on more debt, that is the key to getting out of debt for good.
- Keep tabs on your spending:
While someone might feel guilty, it is natural to spend more if you earn more. Additionally, some expenditures are inevitable when your career and personal circumstances change over time. Therefore, there tends to be a corresponding increase in spending, which is referred to as lifestyle inflation. In the long term, lifestyle inflation may be detrimental since it inhibits your potential to accumulate money. Every additional dollar you spend today means you’ll have less money later in life and in retirement. Hence, it is crucial to keep tabs on your spending for a healthy financial life. Spend mindfully by evaluating your needs and wants. The objective is to rationalize and accurately label expenses as needs and wants. After the evaluation, you’ll know where you stand financially.
Listed below are critical practices advised by experts to lead a healthy financial life:
- You can start investing:
Once you have determined your financial goals and prepared your budget, you need to set aside a sizable portion of your income for the purpose of investing. An appropriate allocation of your income into investment plans can help you reach your financial goals. Furthermore, you can invest in mutual funds schemes depending on your short-term and long-term goals. SIP can help you to be disciplined and regular in your investments.
- Insure yourself for the financial protection of your family:
Insurance is known for serving as a safety net for your rainy day. In addition, for healthy financial habits, the presence of financial protection is of utmost importance. You can devise different investment strategies, one of them being insurance to protect and secure your family. The options of insurance to consider are health insurance and term insurance. Before buying an insurance policy, you can hire a professional financial advisor to guide you through the policies and premiums. While it might be tempting to save money by skipping insurance, keep in mind that it protects you against misfortunes that might send your finances into a tailspin.
- Build a retirement corpus:
To be financially healthy, retirement planning is crucial. That’s because, after retirement, you will not earn income and life will be expensive. Therefore, you need a corpus that is enough to sustain you throughout your life expectancy. Additionally, with inflation, the costs of the price of everyday goods and services after retirement will be substantially higher than they are now. For example, if your monthly expenses are ₹40,000 right now, they would be approximately ₹ 80,000 in 20 years if you want to continue the same standard of living.
Following the steps mentioned above should help you to maintain a healthy financial life. Happy investing.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.
