5 Habits to improve your financial health

Last updated on 9 October 2020

Have you ever thought about the state of your finances, and how to improve your financial health? By this I mean the overall state of your finances. How you manage money in your day-to-day life, your financial habits (good or bad), your debt situation, your investments and your financial knowledge. One way to measure your financial health is to think about your financial stress level. Unless you’re truly ignorant, a bad financial health will equate to much higher money-stress.

Take a listen to me discuss this one on Cape Talk Radio

You can actually use the Financial Health Calculator to determine your health percentage which is a very useful number to have and something that you can work towards improving!

Although you can’t just change your financial situation overnight, there are definitely some small and easy habits which you can implement which will make a huge difference over time. Small but yet consistent steps will not necessarily make any noticeable difference in a few days or weeks, but over months and years the difference will be huge.

Here are 5 habits that you should get into right away! Perhaps you do some already, but check them out anyway just to see if there’s something more you can do. And if these interest you then you’ll definitely want to look at my 6-part course on improving your financial health (coming soon…)!

Habit 1: Use a budget

Using a budget may seem restrictive or maybe just too much admin but the advantage of having a budget is really just having less stress. Think of it like this, at some point when you’re calm and thinking straight, you allocate your money and work out how you’ll make it through the month as well as save or pay off debt. Then, when you’re out shopping and in the spur of the moment, you don’t have to wonder about whether you have the money or not. You just quickly look at your budget. And if you decide that you really really want to get something that you haven’t allocated money for, that’s fine, but something else will be affected and you can easily make that decision.

If you don’t have a budget yet, check out this out on how to create a budget.

Habit 2: Read more

Reading books and blogs about personal finances, wealth creation and investing will have a huge impact on your finances and your financial health. With more knowledge you will almost certainly change how you do things or reconsider decisions made or simply make better decisions. You’re never too old to learn and you will also never know everything. Even the most accredited and qualified financial advisor needs to keep learning – for them it’s to keep up to date with changes to tax legislation or new investment products on offer. You don’t necessarily need to keep up with such things, but never feel that you know enough or that it’s too complicated to learn. Keep reading and learning!

Habit 3: Plan for upcoming expenses

Planning for upcoming expenses is a great way to smooth your cashflow and avoid the sinking feeling of when you have to pay over a large amount of money. If you have a budgeting app you can easily create categories for upcoming expenses and allocate money accordingly. I use YNAB which I really love (* this is an affiliate link but it will get you and I both a free month which seems a good deal!)

You can however just keep track of things in a journal or spreadsheet. What you really want to do is to list all upcoming expenses that you know of for the next 3 – 4 months and start making a plan to pay them. If you earn a fixed income and the expenses are the same each month then it should be pretty simple as it will form part of your monthly budget. If you don’t have a fixed income, or the expenses are special things such as a car service, holiday, anniversay, etc then you will need to decide how much money you need by which date, and then keep track of the savings. Have a look at this post on how to use savings pockets.

Habit 4: Save for Emergencies

Saving for emergencies is a fantastic habit that everyone should be doing. As I’m sure you know life can sometimes throw curve-balls at us which just mess up all our plans. An emergency fund isn’t necessarily just for “real emergencies”, but also for the unexpected and unplanned expenses that are unavoidable. Perhaps unexpected taxes that suddenly need to be paid, a major car problem or just some home appliance may suddenly stop working. This fund will help keep your cash flow smooth from month to month and you won’t have the stress of waiting for the next payday. For more on this see my post on Saving for Emergencies. This alone will really help improve your financial health!

Habit 5: Monitor your accounts

A really great habit to get into is keeping track of all your accounts. And by all I really mean all! From investments to store cards, bank accounts and everything else. There are a few reasons for this:

• Knowing the blances in all your accounts and investments may give you better insight to your overall finances. Having the information may spark off some ideas or give you motivation to do certain things.
• If you have several cards and accounts and you find it too much admin to monitor them all then it is a sure sign that you need to simplify your financial life! Make a plan to cancel you store cards or close unnecessary accounts!
• Keeping track of your accounts can help you identify any fraudulant transactions. We live in a world where identity theft and electronic fraud is an everyday reality.
• Keeping an eye on all your accounts will help you notice trends that could lead to better financial decisions.

Work to improve your financial health

Implementing these habits may not seem like a big deal, but it’s the small and focused changes in habits that will turn your finances around and improve the overall state of your financial health. Take the financial health check by using this financial health calculator.