How do you know if you are financially healthy? When was the last time you checked your financial health?
One way to know if you are financially healthy is to ask yourself “Can I or my family survive an economic downturn?”
If you’re unsure of the answer, you may not be as financially secure as you thought, and you probably need to check your financial health.
Just like your physical health, it’s good practice to check your financial health periodically.
So many people assume they are doing well financially, but when there’s a small change in their circumstances, they realize they are not as financially stable as they thought or hoped.
Carrying out a financial check is an easy way to prepare and protect yourself from financial crisis.
Many people ignore all the warning signs about their finances because they don’t want to face reality or they are hoping things would resolve themselves.
Unfortunately, burying your head in the sand isn’t a smart strategy.
If you suspect that your finances are not in a good place, it’s time to check it out so you can work on fixing it.
Waiting until you’re facing a financial crisis before you take action, isn’t very smart. From my experience, it’s much harder to fix financial problems after things have gotten really bad.
So if you feel anxious about the future, or your ability to survive any economic downturn, use the questions below to check if you are financially healthy.
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HOW TO KNOW IF YOU ARE FINANCIALLY HEALTHY
1 WHERE DO YOU STAND FINANCIALLY?
The first step to checking your financial health is to know where you stand financially.
For example, if you have debts, do you know how much you owe? Are your debts up to date? What I mean is, are your payments current or are you in arrears or default?
Do you have savings accounts? Do you have an emergency fund? What about retirement accounts?
If you answered yes to these questions, do you know how much you have in those accounts?
Are your accounts safe and do you have easy access to them in an emergency or are they tied up?
Do you have some cash reserves on hand in case of any emergency?
Are your bills current and paid up or are you in arrears? What about you car and rent or mortgage payments? Is everything up to date?
If you have personal or student loans, are you doing okay with them?
I know this is a lot to think about, but if you want to know whether you’re financially healthy or not, you need to do a thorough assessment of your finances.
You have to take a deep hard look at every area of your financial life, so you can locate any trouble spot or anything that could plunge you into financial hardship if there’s a slight change in your circumstances.
If you locate anything that could potentially hurt you financially, you have to come up with a plan to fix it before things get out of control.
Knowing where you stand financially will give you peace of mind and help you to set future financial goals.
2. ARE YOU IN A GOOD PLACE FINANCIALLY?
How do you know if you’re in a good place financially?
Let me give you some clues.
You earn a good income or at least enough to pay your bills with some leftover.
You make regular deposits into your savings accounts (including emergency and retirement).
You pay your bills on time and sometimes in advance.
You don’t lie awake at night thinking about money or wondering how you’re going to survive.
You are debt free or if you have debt, you have a debt repayment plan and you’re working hard to get rid of them.
You don’t live paycheck to paycheck. You live below your means and don’t spend much time waiting or thinking about pay day because everything is under control.
You have a budget that you stick to and you know where your money goes each month.
You plan your purchases and don’t give in to impulse buying no matter how tempting something is.
If all this reflects your current financial situation, it’s safe to say you’re in a good place financially.
So keep doing what you are doing and rock on!
What if your financial situation is not good?
First, understand that you are not alone, so don’t beat yourself up!
Second, you have to accept that you are going to have a lot of work to do to become financially healthy. Of course the amount of work required depends on how bad your financial situation is.
You should have figured out how bad your situation is if you answered all the questions above.
Once you have a clear picture of your financial situation, the next thing to do is to create a plan to tackle all the issues you identified.
Start with the first thing that will make the biggest difference to your finances, or if you need some motivation or quick wins, start with the easiest thing. That could be saving $50, creating a budget, stop eating out or whatever.
Work your way through the problems and replace bad money habits with some good ones.
That’s how you win with money and turn your financial life around.
3. IF YOU LOSE YOUR MAIN JOB SUDDENLY CAN YOU SURVIVE MORE THAN A MONTH OR TWO?
This is a very hard question to answer because no one wants to think of becoming unemployed.
Unfortunately, the sad reality is that this happens a lot. Many people find themselves out of a job through no fault of their own and they have to figure out a way to survive while searching for a new job.
So the question is, what if you lost your job today? Are you prepared?
Can your family survive without your main income?
If you live on one income like I do, then you know how important and scary the thought of losing your job or income is.
If your family can’t survive the loss of your main income for more than a month or two, you need to think seriously about changing that.
The best way to go about it is to create multiple sources of income so you don’t have to rely on one income.
The truth is, even if you have six months of expenses saved, you can still run into financial problems if you can’t find a new job immediately.
I have heard of people who couldn’t find a job for months or even years after they lost their job.
Hopefully, that won’t happen to you, but hope isn’t a strategy, so it’s smart to take things into your own hands and make sure you’re prepared if you ever find yourself in this situation.
If you are used to working one job, you may be feeling confused about where to start finding a second job or creating another income stream.
Don’t worry, I got you. I found some very good articles and resources on creating multiple sources of income and side hustles. Check them out below.
Diversifying your income or creating a second income isn’t easy or something that’s going to happen in a day.
You should expect to invest a lot of time and some money into creating another income stream, but it’s certainly worth it, because it will give you peace of mind and financial security.
4. DOES WATCHING THE STOCK MARKET MAKE YOU ANXIOUS?
What if the stock market crashed today? Would you still be okay?
If you spend all your time (or a significant part of your time) watching the stock market and feeling anxious, it may be a warning sign that you’re in bad financial health.
While it’s a good idea to keep an eye on your investments, you should also understand the stock market goes through cycles every few years. There’s always a boom followed by a bust.
It’s been that way for a long time and it isn’t likely to change.
People who invest in the stock market need to understand that it’s a long-term game unless you are a speculator, which you shouldn’t be to begin with.
So if you’re feeling anxious about the stock market, ask yourself why.
Maybe you aren’t diversified enough? Maybe you’ve put all your eggs in one basket? Perhaps you invested your emergency savings in the stock market instead of keeping it in a regular savings account or a money market account?
If the stock market crashing would send you into financial ruin and hardship, you need to take a step back and look at your investments and investment strategy.
You probably need to make some changes to the way you invest (or what you invest in), so when the stock market goes through one of its bust cycles you’re not left in a bad financial situation.
5. IF YOU HAD A MAJOR MEDICAL EMERGENCY COULD YOU AFFORD IT?
Did you know that medical debts is the lead cause of bankruptcy in the United States? Well, according to this article.
If you are young and in relative good health, it’s hard to imagine you could have a medical emergency, but anyone can get sick at any time. even if not you, it could be a family member.
One of my kids needed two surgeries when he was just four. I didn’t see it coming, and it’s still one of the most harrowing experiences I have gone through in my life.
Are you prepared for a medical emergency? Are you adequately insured or would a medical emergency totally wreck your finances?
If you are uncertain that you can cover a medical emergency, you better start working on it if you want to avoid a financial crisis.
If you need health insurance, search for affordable insurance and make sure you can afford the premiums, and you have enough saved to cover any deductibles.
If you are lucky to have health insurance through your job, make sure you don’t lose it, so you can use it if you’re faced with a medical emergency.
6. CAN YOU LIVE ON ONE INCOME EVEN IF YOU ARE A TWO-INCOME HOUSEHOLD?
Well, this blog is primarily focused on how to live well on one income, so it makes sense to use this metric as a sign of good financial health.
I know lots of families struggle to make ends meet even on two incomes, so the thought of living on a single income might seem like a big ask. But it’s totally doable if you put your mind to it.
If your family can’t survive on one income, you should consider making some lifestyle changes to change that.
Some families choose to live on one income while saving the other. This has helped them to pay off debt faster, save for retirement or build a large emergency fund that they can live on for a long time, even if they lose their jobs.
So think about where you can make some adjustments, so you can start saving one of your income.
If you can’t save one income, you can always start small. Maybe start with 25 or 50 percent of one income and work your way up.
These percentages may not be possible for everyone, so just do whatever you are comfortable with, and work your way up from there.
The important thing is to focus on saving more of your income so you can be better prepared if your financial situation changes.
7. DO YOU HAVE APPRECIATING AND INCOME GENERATING ASSETS?
Appreciating assets are assets that increase in value over time.
Unfortunately, depending on where you live and how much equity you have on it, your home may not be an appreciating asset.
If you don’t have any asset you can trade for a significant amount of money, then it’s possible all you’ve done is invested in liabilities.
To feel financially healthy, you should have some appreciating assets in your portfolio and little or no liabilities.
So invest in some appreciating and income generating assets so they can serve as a buffer during lean times, and to secure your financial future.
You can learn more about appreciating assets from the posts below.
How to know if you are financially healthy
It’s possible some of you might be scared or worried after reading this post, but note that’s not my intention for this post.
Instead, I want you to confront your financial reality so you can be prepared for any adverse changes in your financial life.
If you feel out of control or in bad place financially, it’s never too late to turn your situation around as long as you take the first step.
So don’t feel hopeless or think your situation is too dire, because it isn’t. There’s always a way out. You just need to find it.
Why do you want to get financially healthy?
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