10 ways to be financially healthy

We’ve all heard the saying “Health is Wealth” since we were children. While it may have been used to reference to bodily health, financial health is just as important. Just as being fit and healthy can help reduce your long-term medical costs, being financially fit can assure your long-term financial stability.

However, because everyone of us is unique and has various financial objectives, there is no “one-size-fits-all” approach for ensuring financial health. In reality, a variety of factors can influence to a person’s financial situation.

In this blog post, we will go over ten financial recommendations that will help you improve your financial situation.

Personalised Budget

Any journey starts with a single step, and setting a budget is an important first step on your path to financial wellness. Creating a budget may help you better control your spending and boost your savings, which could improve your financial health.

However, while setting the budget, you must be practical. Setting unrealistic targets for reducing spending or increasing savings can make sticking to your budget hard. This can have a negative impact on your financial health in both short term and long term.

Assume you are spending nearly 80% of your monthly salary to meet your expenditures, and you construct a budget with the objective of saving 50% of your income. Unfortunately, cutting your monthly costs by 30% is certainly an ambitious target that will be tough, if not hard, to reach.

Investment Objectives

Setting investing objectives that you wish to attain may make a huge difference in your financial health. You cannot develop strategies to achieve your goals until you have clearly stated them. Setting investing objectives is like to driving a car without a place in mind — you’ll most likely wind up going in circles and getting nowhere.

When creating financial objectives for oneself, you might utilise the term SMART. This is due to the fact that your financial objectives must be Specific, Measurable, Achievable, Realistic, and Time-bound.

A SMART financial objective would be to save $1000 per month for five years in order to purchase a new automobile. This sort of financial objective is far realistic to plan for than one that just declares that you should save $1000 per month.

Emergency Reserve

You must factor in the likelihood of crises as part of a broader financial strategy. These crises may take many forms, including job loss, unforeseen costs such as auto repairs, the replacement of costly household items, and so on. Your funds will be drained unless you have an emergency reserve to handle these unforeseen costs. Worse, you may have to take out a loan and endure any additional interest payments to get through the emergency.

You may be wondering how much of an emergency fund you will need to cover such unanticipated costs. To be on the safer side, set aside an amount equivalent to your monthly costs for the next 6 to 12 months in case of emergency. While it is conceivable that you may not need to utilise your whole emergency reserve all at once, having some additional cash on hand during an emergency is preferable than running out.

Term and Health Insurance

An emergency reserve may assist you in dealing with a variety of unforeseen expenditures. However, having insurance can help your financial position. A Healthcare Plan can considerably lessen your financial burden in the event of a medical emergency that necessitates hospitalisation. You would be able to retain your funds untouched and stay on course to meet your financial objectives since you will not have to pay for all medical expenditures out of pocket.

Similarly, by purchasing a Term Insurance Policy, you may ensure that your loved ones are stable financially even after your death. While obtaining a life insurance coverage is advised for everybody, it is especially critical if you are your family’s primary earner.

Save to Invest

You would have begun saving money every month as component of your budget. However, parking it in a savings bank account and collecting meagre 2% to 4% interest may not be enough to meet your financial objectives.

Making investments is one strategy to accelerate the growth of your money. However, selecting the best investment for your specific needs will necessitate some work on your behalf. The term of your investment and your risk appetite are two key elements that might affect your choice to choose a certain investment strategy.

Assume you’re saving for a short-term goal, such as a down payment on a new automobile you intend to buy next year. Debt-oriented investments, such as Debt Funds and similar fixed return investments, would be a better choice in this situation than equity-oriented ones. However, if you are saving with a long-term objective in mind then, investing in equity-oriented assets such as equity funds could give you a far higher chance of meeting that objective.

Be Consistent

After you begin investing, you may encounter colleagues and close relatives who appear to be making investments that have yielded significant profits. This may entice you to change your existing investments in order to attain comparable high returns. This, however, might have a negative impact on the overall success of your portfolio.

One explanation for this is because there is no assurance that a high-performing investment will continue to perform well in the future. Furthermore, some investments, like stock-oriented funds, may under-perform in the shorter run. Nonetheless, in the long run, their potential to provide inflation-beating returns is unrivalled.

To guarantee that your holdings have enough time to increase your net-worth, you should choose and stick to proper assets depending on your financial goals.

Spread the Investment Risk

Asset allocation entails distributing your assets over different asset types like, stocks, bonds, gold, and so on. The goal is to maximise profits while minimising risk, regardless of market conditions. To determine how much you have to invest in various asset types, assess your current age, your risk profile, present responsibilities, financial goals, and so on.

When deciding on diverse asset types, you should prioritise asset types that are independent of each other investment’s performance. As a result, even if your assets in a particular asset type under-perform, other assets in your portfolio have the ability to give better profits. This kind of strategy, ensures that your total portfolio will be ideally prepared to maximise your returns regardless of market circumstances.

Diversify

Despite the fact that diversifying your investments might help lower your overall risk, there is always room for improvement. :)

After you’ve decided on the asset classes in which you want to invest, think about diversifying your assets among different alternatives in same asset class. By diversifying your assets throughout the same asset class, you may further minimise the total risk of your investing portfolio.

In the case of equity investing, for example, you might consider diversifying your assets among primary types such as Large-Cap Funds, Small-Cap, Mid-Cap Funds, and so on.

Know Where Your Money is Going

Many investors make the mistake of selecting assets without fully knowing where their money is invested in. If you invest recklessly, you may inadvertently risk your savings and hard-earned money at danger, which may have a negative influence on your financial health.

Many people, have recently invested in cryptocurrencies. While some have gained money, the vast majority have lost money. One important reason for this is that many of these individuals had almost no understanding of how these assets worked.

To avoid this occurring to you, make necessary homework to grasp the nature of the investment. While there may still be some room for mistake in your analysis, you will have significantly reduced the danger of making the wrong investment.

Reevaluate Investment Portfolio

Even if changing your assets frequently is not a smart idea, investing and then forgetting about it is also not a good approach for ensuring your financial health. To guarantee that your chosen assets are performing as expected, you will need to review your portfolio on a regular basis and make changes as needed.

However, you must take care not to over-monitor the success of your investing portfolio. This inspection should ideally be done once a year. If it sounds like a long period, you may consider doing similar reviews every 6 months. If you do these reviews too frequently, you may be making too many adjustments to your portfolio. This can have adverse effect on your investment portfolio’s performance and have a negative impact on your financial health.

Final Thoughts

Financial stability is a process that must be continued over time, not a one-time event. In this regard, financial health is similar to physical health. However, much as daily exercise and a healthy diet are required to preserve physical health, sustaining financial health over time necessitates consistent work.