Tuesday, October 3, 2017
10 Tips for Excellent Financial Health
We all know what it takes to have excellent physical health. Eating right, exercising and proper monitoring all go hand in hand to maintaining a healthy lifestyle. Financial Health can be much more confusing. The answers are somewhat simple, but the outcomes if not followed are what is unclear. We know that if your diet is poor, you will gain weight. We know that if you don’t exercise you will be out of shape. Do we know the consequences of not saving money or having adequate insurance coverage? The aim of good Financial Health is more of an actual understanding as opposed to physical results. In this post, I will show 10 tips to excellent financial health and the expected outcomes. Financial Health begins with knowledge, so let’s clear the air a little bit.
1) Maintain positive cash flow
This is mentioned first for a reason. Positive cash flow is the only way to get what you want out of life. Think of your life as a business. Any business that loses money every month will sooner or later shut its doors. Seems pretty simple right? The same is true for the “Business of You.” If you do not make more money than you spend every month, soon you will be out of business, meaning you will be bankrupt.
Outcomes: Increased net-worth, never be cash-strapped, obtain needs and wants.
2) You must follow a budget
In order to maintain positive cash flow, you must adopt a budget. Once again in the “Business of You,” how much money you make is not as important as how much money you spend. In order to spend less than you make you must track inflows and outflows. That is all a budget is. A method for you to track what you make and what you need to spend every month. What you need to spend includes the essentials such as housing, transportation, food, utilities, etc. Everything else you spend is optional. By limiting the “everything else” portion of your expenses, you will always maintain positive cash flow.
Outcomes: Money allocated to the proper places, ability to adjust to changes, positive cash flow achieved.
6 Reasons You Need a Budget – Investopedia
3) Have an emergency fund
This subject was so important I dedicated a whole week to it last week. Having money set aside for emergencies is crucial for good financial health. The number one reason people don’t achieve their goals in life is that they allow emergencies to ruin their financial health. Having a healthy emergency fund will help you navigate to small things that crash into your life like car problems, home repairs, and pet emergencies. It will also help you handle the larger ones like job loss, injury, and illness.
Outcomes: Weather almost any financial storm, feel confident and protected, access to opportunities.
4) Eliminate consumer debt from your life
We all know consumer debt is bad. VISA and MasterCard crush many people’s hopes and dreams. The main reason people hate consumer debt is that they have to pay it back and that gives them less money to spend on themselves. My reason for hating it is a little different. I hate any debt that doesn’t bring you a return. With all consumer debt, you will pay back the money borrowed with high-interest rates. This means that you will never achieve investment returns greater than the return bank’s make off your debt. This also means that while you complain about the greed of the banks, you also help their bottom line by not being financially fit. Make it a goal to never carry a balance on high-interest debt.
Outcomes: Less money spent on debt repayment means more money to spend on yourself. That money can be allocated to investments and goal obtainment.
5) Make educated decisions
Never make any big financial decision without doing your research. Like checking the labels on the food you buy, you should also read up on financial decisions. You wouldn’t go to a witch doctor to heal your broken leg. Don’t listen to a friend about investment advice. The financial world is full of “get rich quick” schemes and idiotic ideas. Stick the fundamentals such as saving your money, investing your savings for long-term growth and protecting your family and investments with insurance. The rest is just noise.
Outcomes: You will feel confident about your choices. You will invest in the plan, not the returns.
6) Save money for retirement
The days of the employer-sponsored pension are dying every year. Little by little, we are on our own when it comes to retirement. It is essential for everyone to save for retirement. The government doesn’t provide much help either. Any little bit you can save for retirement will augment government plans and that could mean the difference between a comfortable retirement and eating Mr. Noodles for 20 years.
Outcomes: A comfortable, happy old age. Have increased discipline and dedication that will aid you in other aspects of life. Those with wealth tend to live longer than those in poverty.
7) Invest your money for long-term growth
Saving your money is great but you also need to invest your money for growth. Inflation eats away at your money every year to the tune of 1-3%. The cost of everything is going up constantly so you have to fight against that by getting growth out of your savings. If a Tim Horton’s coffee is 25 cents more this year compared to last, what do you think it will cost in 30 years? Having your money invested is essential to a financially healthy savings plan.
Outcomes: Maintain purchasing power, take advantage of compound interest, have enough money to achieve goals and dreams
8) Seek help from professionals
Experts in the field of personal finance, tax efficiency, estate planning and investing can help you do what’s best for yourself. Even the savviest investor’s get second opinions so don’t be too proud to ask for help. Getting the right advice could result in thousands of dollars saved and a lot of heartaches as well.
Outcomes: Efficiency in your financial plan, save thousands of dollars in taxes and fees, avoid unnecessary stress and aggravation.
Why You Should Have a Financial Advisor – Brad McMillan, Forbes Magazine
9) Protect what’s important
There are many things that are important to all of us. Our families, our lives, and our livelihoods are near the top of that list. Proper coverage can cover you if you are not able to work, replace income if there is no income and take care of your family if you are not around. These types of protection cannot be obtained when disaster strikes. You can only protect against disaster before the disaster. This is why every solid financial plan includes Insurance Coverage. We don’t plan to fail, we fail to plan.
Outcomes: Financial plan continues through adversity, family protected in your absence, maintain a standard of living if unable to work
10) Pay off good debts
The largest good debt any of us have is a mortgage. The problem is that you only truly own your home when it is fully paid off. To reap the rewards of your investment you have to continuously pay down that good debt. Entering into retirement owning your place of residence is key to keeping a livable budget. Do your best not to fall into the trap of borrowing against your home.
Outcomes: Being an owner and not a renter, ease of expenses during retirement years, a saleable asset that can provide income if needed/wanted
Financial Health can be tricky to understand. Sometimes we don’t know that what we are doing is hurting us. Like being physically healthy, being financially fit requires discipline and dedication. You must take the small steps daily that will lead to the big steps being achieved with ease. You don’t get ripped by going to the gym every January, and you don’t become wealthy by addressing your finances every April.
Thanks for reading today’s post on Financial Health and don’t forget to tune in tomorrow when we discuss Protecting your Assets. Shoot me a message at joe@budgetboss.ca if you have any questions about your own financial fitness. Have a great day!
“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” – Suze Orman
Email – joe@budgetboss.ca
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