Must-Know Tips to Measure Your Financial Health
Managing your money and understanding how to measure your financial health is something that many people don’t think about until they are facing financial issues.
Every financial decision you make as an effect on your well-being financially and, although we may understand some basic financial rules, such as not purchasing a home that we cannot afford or that you should save money toward retirement, there are other tips that can have a significant impact on our financial health.
Know Your Net Worth
One of the most important ways to measure your financial health is to know your net worth. Your net worth is the difference between what you own and what you owe. Make a list of the value of what you own and a list of what you owe. Subtract what you owe from what you own to determine your net worth.
It is important to do this on a regular basis and many experts recommend doing it annually as it will fluctuate over time. Knowing your net worth lets you recognize your successes and understand where you can improve.
Develop a Budget
A budget allows you to plan for expenses and save for future goals. Sticking to a budget may even allow you to eliminate expenses once you see where your money is going. To create a budget, list all your income, including alimony, child support, salary, tips or any other money that comes into your home on a regular basis.
Once you have determined your income, list your expenses, such as car loans, student loans, mortgage or rent, insurance, food and anything else you spend money on. In some cases, you may need to estimate what your expenses will be if you don’t have them available. Subtract your expenses from your income.
The amount left over is your surplus and you can either decide to save that money or apply it to pay down debt.
If your income is less than your expenses, you will either need to increase your income or lower your expenses. Most experts recommend developing a monthly budget and tracking it throughout the year.
Avoid Lifestyle Inflation
As you earn more money, you may find that you are spending more money. This may because you are trying to fit in with friends, family or neighbors or simply because you have more money to spend.
Although some increases in spending are normal when you begin earning higher salaries, but it is important to not let lifestyle inflation drag you into debt. One way to do that is to recognize the difference between need and want. There are things you need in order to survive, such as food, shelter and clothing.
However, some needs can also be wants. You need a car to get back and forth to work, but do you need to buy that expensive SUV or would a more economical car make more sense? Needs should be a high priority in your budget and wants should come only after you have prepared yourself for the needs.
Other tips for measuring your financial health are to begin saving early and build an emergency fund to cover any unexpected expenses. The most important things to remember are that building good financial habits and keeping an eye on the big picture are the best things you can do to maintain a strong financial footing.