Financial health is the state of your complete money situation, and it encompasses everything from how easily you can manage your monthly bills to your ability to save toward retirement.
When you're financially healthy, you feel secure that you can afford your expenses, weather hiccups in your financial life and set and reach money goals. Here are 10 ways to start improving your financial health now.
1. Create a Budget
When it comes to achieving a healthy financial life, you can think of a budget as the foundation on which you build everything else. It's a plan for how you'll direct your income toward all your financial needs and goals, from paying your monthly bills to affording the things you want to reaching financial freedom in retirement.
Having a plan for how you'll use your money can help you live within your means, and it can also provide clarity about what things are most important to you and what you can live without. For example, you may decide you're willing to cook more at home and skip frequent retail purchases to save more for a large vacation this year. A solid budget is the foundation on which you can confidently base those decisions.
2. Track Your Spending
While creating a budget is a forward-thinking move, sticking with a budget is a day-to-day commitment that requires you to stay flexible but dedicated. Because small decisions—what to have for lunch during the work week, whether to buy new running shoes now or wait, whether to buy concert tickets—can make or break your budget, you need to be prepared to pivot.
The most effective approach is often to install a budgeting app on your phone and use it to track and categorize your spending. If you find that you went over what you planned at the grocery store this week, for example, you can pivot to reduce spending in a discretionary area, such as online shopping.
3. Automate Saving
Few pieces of financial advice are repeated more often than this savings mantra: Pay yourself first.
And that's for good reason. Saving money before you direct funds to expenses and spending is key for consistently working toward your financial goals. You won't be as tempted to spend money that never lands in your checking account. To start saving automatically, see if your employer allows you to split your direct deposit into a checking account and into a high-yield savings account.
Be sure you're also directing a portion of your pay toward long-term savings. If you aren't already investing a portion of your income in a 401(k), individual retirement account (IRA) or another type of tax-advantaged retirement savings account, learn how to start investing now.
4. Create a Plan for Debt
Using debt to your advantage and avoiding bad debt are key. In general, avoid high-interest debt and try not to rely on debt to cover your expenses. That said, it can make sense to use a credit card for everyday spending and then pay off the balance each month before interest accrues to take advantage of rewards credit cards.
For debts you already have, make a plan for how you'll manage them effectively. Paying off high-interest debts is an important investment in your financial future. Check your credit report for free to see a clear picture of all your debts. Then, set priorities.
You could rank your debts from smallest to largest balance and focus on paying off your smallest ones first, which can help you stay motivated. But by the numbers alone, the debt repayment strategy that could save you the most money is paying off your debts in order of highest-interest account to lowest-interest account. That often means attacking credit card balances that carry the highest interest rates and going from there. In the end, the best debt payment strategy is the one you can stick with.
5. Look for Ways to Cut Expenses
Reducing your overhead and lifestyle costs helps you increase your disposable income, which frees you up to save more toward your goals. It also makes it easier to stick with your budget and avoid going into debt.
There are two main areas you can look for ways to cut back: your essential expenses and your discretionary spending. Reducing discretionary spending, which includes non-essential spending on things such as entertainment and dining out, is often a matter of staying committed to your goals, reducing temptation and finding budget-friendly replacements for things you want but don't necessarily need.
When it comes to reducing your basic expenses, look to tried-and-true strategies such as shopping sales and couponing. For bigger savings, try negotiating your monthly bills or saving on housing costs by getting a roommate or moving to a less expensive place.
6. Invest More of Your Income
Part of the beauty of regular retirement investing through a 401(k) or IRA is that you can essentially set and forget your contributions. That said, you should still give your retirement savings a periodic checkup.
One strong strategy is to increase your retirement contributions by a set percentage each year, which many employer-sponsored accounts allow you to do automatically. As your income increases, those extra percentage points of deferred income won't be missed—but they'll have a big impact on your retirement savings.
But you don't have to wait until next year or your next raise to invest more. Consider deferring an extra percentage point or two now. Your goal is to find balance between enjoying the present and saving for the future—perhaps easier said than done, but well worth the effort.
7. Review Your Insurance
Check your insurance policies to see if you still have the best policy for your needs, plus to check if you could be saving money with a different policy.
You may be able to save money by bundling different types of insurance under one provider. You can also use Experian's auto insurance comparison tool to look for the best price you could be paying for car insurance.
8. Create a Financial Plan
A comprehensive financial plan is a long-term guide to how you'll direct your income toward building the life you want, now and in the future. Financial planning involves setting financial goals, aligning your budget to meet them, understanding your tolerance for risk at this stage in your financial journey and tailoring your investments to match.
Consider meeting with a financial planner if you have any questions about financial planning, such as how to rebalance your portfolio, or how to balance different goals such as getting married, having kids, saving for a home or retiring early. While it comes with fees, financial planning can make you feel more confident and in-the-know about your money progress.
9. Build Your Emergency Fund
An expensive car repair, tax bill or other emergency expense can bust your budget in no time. If you don't already have an emergency fund to cover unforeseen expenses, the time to start one is now.
If you already have a dedicated account for emergency savings, it's a good idea to periodically check in to ensure that you're setting enough aside. A general rule of thumb is to keep three to six months of basic expenses in your emergency fund. Crunch the numbers to see what that means for you, then aim to have at least that much in your fund. If that number is still a ways off, try some techniques to funnel more money into savings.
If, on the other hand, your emergency fund has ballooned to contain more money than you need liquid, come up with a strategy to put spare funds to good use. Contribute the overflow to an IRA or another financial goal to get your money's worth.
10. Stay up to Date on Financial News
You have your own personal economy—the inflow and outflow of cash in your household, how much you're saving, what you're spending on, the debts you carry and everything else that makes up your financial life.
Zooming out, your financial picture is impacted by larger economic trends. How much you'll pay if you apply for a mortgage, the interest rate on your credit card, the amount you're allowed to save in retirement accounts each year—much of what makes up your financial life is impacted by larger trends in the economy, such as fluctuations in interest rates or changes to tax laws.
For up-to-date financial news every month summed up in one place and in clear terms, check out The Latest Personal Finance News from Experian. Staying in the know about current financial news may help you tailor your priorities to the current money climate. For example, you might prioritize boosting your emergency fund, upping your investments or paying off debt based on what experts are recommending now.
The Bottom Line
Financial health encompasses a lot, but the money habits you can start now to boost your financial security, lower stress and build wealth often come down to budgeting, saving and being cautious about borrowing. Beyond that, you can set long-term goals that you find personally motivating and consider getting in touch with a finance expert such as a financial planner or financial advisor when you need hands-on help managing your money.