5 Ways to Improve Financial Health

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5 Ways to Improve Financial Health
Proper money management gives a sense of security: you will cope with unforeseen expenses and life situations. Do a financial health check to see what you’re doing wrong with your money and make adjustments.

Financial health is the state of your finances. Financial and physical and mental health lays the foundation for a secure and prosperous future.

According to the Financial Health Network, only 29% of Americans are financially healthy. Due to the pandemic, 33 million people in the United States were left without work, and in Nigeria, more than 6 million people were officially registered as unemployed. With many living paychecks to paycheck, the remaining 71% met the lockdown and crisis unprepared.

Symptoms that signal that your financial health is at risk

  • You don’t know how much you spend per month.
  • You do not receive passive income.
  • You often use consumer loans.
  • You don’t use cashback.
  • The return on your investment does not cover inflation.
  • You will take out a loan if you need treatment or if your refrigerator breaks.
Assessing your financial condition, analyze whether the budget meets your financial goals – this is the main criterion.

“To understand whether a person manages personal finances well, you need to analyze how much he managed to adjust his capital structure to his own financial goals and objectives. Since everyone’s goals may be different, then the actions of people may differ. For example, those who plan to buy real estate will behave more conservatively than those who save money for retirement or want to increase their capital.”

1. How to improve your financial health

Reduce debt repayments to 20-30% of income

The debt burden (debt-to-wage ratio) of Nigeria is 47.1%, which is significantly higher than the norm. When loan costs are more than 40% of the capital structure, the bank will not approve a new loan for you.

Calculate the amount of equity: it shows the property that you own. First, sum up all your assets: real estate, cash, deposit, iand nvestments. And then subtract the total debt from that number. Consider all your debts: credit cards, mortgages, and debts to friends. The amount received is your net worth. If you have an apartment worth 6 million rubles, but you still have a mortgage for this apartment for 5 million rubles, then your equity is 1 million rubles.

To get out of the debt hole, first deal with the “expensive” loan at a high rate and pay it off. If possible, refinance the debt. That is, take a new loan from another bank to pay off the old one.

2. Form an airbag


This is a reserve of money in case of unforeseen circumstances. For example, if you lose your job, then you will have a reserve – savings that you can live on without getting stuck in debt.

You can calculate your financial cushion like this:

  1. Determine the period during which you can, at worst, look for a job or new clients. Usually, this takes 4-6 months.
  2. Open the bank app and calculate how much you spend on regular items of expenditure: rent, food, housing, and communal services, loan payments, transport (car maintenance or travel cards), communications, medicine, and education. And multiply this value by the number of “crisis” months.

A pillow cannot be spent even on large goals, such as buying a car or real estate. This is your confidence in the future and security.

If you already have an airbag and money for short-term financial goals, it’s time to consider investing and opening a brokerage account. You can start investing with 50-100 thousand rubles – you will collect a portfolio of several instruments and will receive tangible income.

3. Start saving for retirement right now

Save 10-15% of your income for retirement and emergency reserves. Set up automatic deductions from the current account to the deposit so that no excuses interfere with saving. To do this, you just need to select the date and amount to be debited.

You can multiply your savings if you invest for the long term – you will have more time for cumulative growth. Make a “pension” investment portfolio from a protective (OFZ and corporate bonds) and a risk part (dividend shares, ETF) depending on your risk profile, and reinvest the received coupons and dividends. With such passive investment, the portfolio can be reviewed only once a year.

4. Control Lifestyle Inflation

If you get a raise today, will you spend more? An increase in spending in proportion to an increase in income is called lifestyle inflation. This seems quite natural: after rising the career ladder, moving from a one-room apartment to a two-room apartment, going on vacation, not to your hometown, but to Rome – why do we earn then, if not for comfort? But the ever-increasing lifestyle inflation can mean you still can’t buy a car without a loan, even though the cost of the car is 4 times your paycheck.

7 steps to setting your goals and achieving financial success

Train yourself to distinguish needs from wants. Needs – necessary for survival – food, shelter, transportation, medicines. When you develop a personal budget, first plan out loan deductions, mandatory expenses, sand avings for goals. And only after that, consider the cost of entertainment – no more than 30%.

5. Take out insurance

Insurance protects you and your property from life situations that can deprive you of your usual standard of living. Accidents, fires, sicknesses and theft will bankrupt many people without good insurance.

Let’s see how insurance works with an example. Let’s say you’ve taken out life insurance. With its help, you can create a financial reserve and insure your life and health. The program involves fixed contributions – the amount you determine yourself. If an insured event (injury, death, illness) occurs, you or your relatives specified in the contract receive money to cover the damage. If the insured event does not occur, you return the accumulated money to yourself by the end of the contract.

Short

  1.  Financial health is the state of your finances.
  2. If you don’t know how much you spend per month, or your capital structure is not aligned with your financial goals, you need to take care of your financial health.
  3. The basis of financial security consists of: a financial airbag, loan repayments of no more than 20-30% of income, insurance, retirement savings, land ifestyle inflation control.

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