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Simple Steps to Improve Your Financial Health

Did you know that 72% of Americans stress over money? The fact is, it’s not just poor Americans that constantly worry about their finances. Even those with a seven-figure net worth experience financial issues. That’s why it is important to know the fundamental tips to help improve financial health. Here are five simple steps you can start today.

1). Run the Numbers on Your Current Net Worth and Budgets 
It may be surprising to learn that most people do not know their net worth nor set a budget. This is the financial equivalent of driving a vehicle without knowing how much gas is in the tank. The first thing you should do is make a list of your assets and liabilities. 

Your assets include items that you own such as the following:

  • Your home 
  • Checking/saving account
  • Financial accounts
  • Vehicles 
  • Gold/jewelry/coins
  • Collectables/art 
  • Life insurance policy

 Your liabilities include the following:

  • Auto loans
  • Student loans
  • Mortgage loans
  • Credit card balances
  • Business loans
  • Personal loans 

You will want to subtract your liabilities from your assets to calculate your net worth.

After you have your net worth calculated, you will want to set a budget. When setting a budget, you will want to determine your monthly income and then set your expenses so it does not exceed your income.

To help you budget, you can use the following free apps:

2). Guard Against Lifestyle Inflation 
As your income and net worth grow, you may be tempted to make more purchases. This is known as “lifestyle inflation.” The sad fact is that no income level is immune to this type of accelerated spending. Therefore, it is important to avoid increasing spending as your income grows. Use the increase in income as an opportunity to increase your investing and saving levels. 

3). Be Mindful of Spending Habit 
It is also important to impulse purchases that can sabotage your budget. It is a good idea to follow what is known as the “24-hour rule.” If you feel tempted to make an unplanned purchase, give yourself 24 hours to carefully consider whether the purchase is worth it. This can help you better control your spending. 

4). Start Saving and Investing As Early as Possible
The earlier you save, the better you can make the power of compounding work for you. As an example, let’s say you start saving and investing $10,000 per year at age 21. Using the historical S&P index returns, you can build a nest egg of $7,557,933.38 by the time you reach 65 years of age. However, if you want until you are 45 to save and invest $10,000 per year in the S&P 500, you will only have $662,466.81. 

5). Always Maintain an Emergency Fund 
You never know what life is going to throw at you. Therefore, you should save at least six months of expenses in an emergency fund. This will protect you from the following types of emergencies that can occur over your lifetime:

  • Job loss
  • Medical bills
  • Car repairs
  • Home repairs 

 Key Insights

  • Don’t be afraid to “open up your books” and list your assets and liabilities. This will help you better create and follow a budget 
  • Your spending doesn’t have to grow in proportion with your income. Splurge on stuff you love. Don’t feel pressured to keep up with your neighbors. 
  • The earlier you save, the better
  • Always maintain an emergency fund. The pandemic of the last two years demonstrates that anything can happen. 

Building a Financially Fit Life 
Your financial health is as easy as following a few steps. Sure, you may make experience some setbacks or miss some opportunities along the way. However, if you follow the proven steps to protect and grow your financial health, then you’ll be surprised how far your wealth will go. 

Gain More Valuable Insights 
We’re always adding valuable insight to help you make the most of your wealth. Check out our other recent blog posts on protecting and building your wealth. 

About Boardwalk Wealth Management: Offer financial planning & wealth management for individuals and businesses in Ann Arbor, Michigan & beyond. The foundation of Boardwalk Wealth Management lies in true dedication to our clients and determining what their wealth means to them. We offer investment management, tax planning, and retirement services. As a fee-only financial advisor, we do not sell financial products or collect commissions. We enjoy working with clients both locally and remotely.