Use this checklist to see if you are financially healthy

It is no secret that today’s society is pretty health obsessed. Scrolling through social media, we are inundated with posts and advertisements for meditation apps, CBD gummies, green smoothies, and gym memberships that are totally different than the last three we joined—all with the promise of being the transformative factor in your personal health journey.

And honestly, I’m here for it! I love my green juice and barre classes as much as the next person, and I believe that—especially in this post-COVID-19 landscape—investing in your physical health will always be a good investment with a high ROI.

But with that being said, I do wish that we were talking about and investing in our financial health as proactively as our physical health. After all, the two are inextricably linked, as our financial health can have a significant and lasting impact on our physical health, and vice versa.

From aches and pains to dry skin to diseases, it can be pretty easy to identify when our physical health could use some improvement; but it can be more difficult to figure out the state of our financial health. Understanding what financial health is and how to measure it and improve it in your own life is the first step of financial education in making your financial health a priority and will have a lifetime of benefits.

What does it mean to be financially healthy and why is financial health important?

Our financial health is the overall state of our current personal finances, including our income, expenses, debt, credit score, savings, investments, and financial literacy, as well as the way that we think and feel about money. 

In other words, our financial health is affected by every part of our relationship with money and also lays the foundation for all of the financial decisions that we will make throughout our lifetime. As such, our financial health impacts every aspect of our day-to-day life and our future.

Without financial health, you may find yourself in a less-than-ideal financial situation such as carrying excessive credit card debt, defaulting on loan payments, having a low credit score, being unable to get approved for loans, being under-prepared for financial emergencies, struggling to advance in your career, not adequately saving for retirement, etc.

And it doesn’t stop there. Our financial health is also directly related to our mental and physical health, as a lack of financial health is often associated with chronic money stress—stress that affects your mind and body for years. The effect of this daily stress extends beyond the mental, and ultimately causes premature damage to your cardiovascular system, exacerbates mental health concerns, and can even affect the parts of your brain that are associated with Alzheimer’s syndrome. 

Without financial, mental, and physical health, we can find ourselves trapped in a cycle of financial insecurity, as someone who is enduring the mental and physical symptoms of chronic money stress may experience more illnesses that may affect their ability to go to work consistently. Even if they are able to show up to work, their focus may be impaired, ultimately resulting in a decrease in productivity, work performance, and the ability to bring in income.

So, safe to say that financial health is really important.

How to assess if you arefinancially healthy

Not sure where you fall on the scale of financial health? That’s okay! While financial health can (and will) look different from person to person, there are a few questions that you can ask yourself in order to assess your personal financial health: 

• Do you have a thorough understanding of your personal financial situation, including income, expenses, savings, debt balances, credit score, etc.?
• Do you feel financially prepared for an emergency?
• Do you have a cash reserve that could cover 3-6 months of essential expenses saved as an emergency fund?
• Do you know your net worth? Is it positive or negative?
• Are you able to afford the day-to-day essentials? 
• Are you able to afford any of the things that you want?
• How much of your debt is considered “high interest” debt, such as credit cards?
• Are you actively paying off debt and seeing progress on your debt-payoff journey?
• Are you proactively saving for your retirement? 
• Do you feel like you are saving enough and consistently so that you will be adequately provided for in retirement?
• Do you have health insurance and life insurance that are appropriate to your needs?

Take some time to answer the above questions in order to get a better understanding of your financial situation and where you fall on your personal journey to achieving financial health.

If after completing the above assessment you suspect that your financial health could use some improvement, I have some really great news: you’re not stuck. Just like your physical health, your financial health can also be improved through consistent, intentional action.

How to improve your financial health

Think of improving your financial health like going to the gym: you won’t see results overnight, but with small, daily actions, you will notice a significant improvement in your financial health and well-being.

So while achieving financial health will be a lifelong journey of improvement and maintenance, there are some ways that you can immediately make significant progress on your financial health journey:

Get a thorough understanding of your personal finances if you don’t already have one.

One of the biggest ways that people sabotage their financial health is by taking an “ignorance is bliss” approach. Rather than equipping themselves with a thorough understanding of their personal money situation, they choose to avoid looking at their bank statements, balances on their credit cards, or their updated credit score in order to avoid negative feelings like stress, anxiety, or hopelessness.

Unfortunately though, this strategy tends to backfire as it will be extremely difficult to make any significant improvement to your current financial situation if you do not first understand what that financial situation is.

Rather than taking this avoidance strategy, I encourage you to get into the nitty gritty of your personal finances in order to relieve the anxiety of “not knowing” and start to formulate an actionable plan to reach your financial goals.

I recommend taking yourself on a “money date” to help make this process as easy (and maybe even enjoyable!) as possible. Put on some comfy clothes, turn your phone on “do not disturb,” pour yourself a glass of wine, and spend some quality one-on-one time with your finances.

During your money date, I want you to write down your monthly income and expenses, as well as your total debts and their interest rates. This will help you start to understand where your money is coming from and going every single month so that you can plan accordingly and start working towards your financial goals. Then, repeat this money date monthly so you can monitor changes and see your progress.

The first time you take yourself on a money date will feel like a real first date: probably a little awkward. But as you incorporate the money date into your monthly routine, you will gain a better understanding of your personal finances, and your confidence in your knowledge and capabilities will increase. Before you know it, you will be reaching money milestones on your financial health journey that you had previously thought were impossible to achieve.

Create a budget that is appropriate for your financial goals, situation, and lifestyle.

A realistic and sustainable budget is a tool that will serve you for years to come and will be the MVP of reaching your financial goals and achieving lifelong financial health. The best part? Your budget doesn’t have to feel restrictive or controlling—rather, a good budget should give you the keys to discovering financial confidence and freedom!

Use the information that you gathered during your money date about your monthly income and expenses to create the basis of your monthly budget. Your budget should allow you to afford your necessities, proactively save, pay down debt, prepare for retirement, and engage in activities you love. Plug these areas of spending into a budget spreadsheet so that you can update it each month and track your progress.

Remember, we want your budget to be realistic and sustainable. Sure, it sounds great in theory to save 90% of your income by cutting back on spending and living off of beans and rice—but the reality is that that kind of budget is not realistic, and it's definitely not sustainable. In fact, that kind of restrictive budget is a recipe for budgeting burnout and bitterness, not financial health. 

If you are finding that your expenses are exceeding your income, you can certainly find areas to reduce spending in order to stick to your budget. Just make sure that you are still leaving money on the table to partake in things that bring you joy and fill you up emotionally.

Start an emergency fund

A big part of being financially healthy is being financially prepared for an emergency. That’s where your emergency fund comes in.

Your emergency fund should be an absolute financial priority as it’s not a matter of if an emergency will arise, but when. I have unfortunately seen a sudden emergency completely derail someone’s financial health journey one too many times, and often it could have been completely avoided if they had an emergency fund.

I recommend having 3 to 6 months' worth of essential living expenses (such as rent, food, utilities, insurance, etc.) in a savings account so that if an emergency arises, you won’t have to reach for a credit card or dip into your savings. 

Pro tip: put your emergency fund into a high-yield savings account so that your money will earn more interest than traditional savings accounts while it sits in your account waiting for a rainy day. Talk about getting more bang for your buck—literally!

Purchase insurance

Speaking of financial preparedness, having sufficient insurance for your needs is a key contributor to both being financially prepared and financially healthy. 

Purchasing life insurance not only gives you confidence in knowing that your loved ones are provided for in the case of an emergency but also contributes to your overall financial preparedness and health. I recommend seeking term life insurance through Ladder, as they work with their clients to provide coverage that is both appropriate to their needs and their budget with the goal of improving their financial health.

Put your finances on autopilot

One of the easiest ways to immediately improve your financial health is to make your finances as streamlined and automatic as possible so that they don’t require any of your time or mental power. 

Set up automatic payments on as many bills as you can so that you’ll never fall behind on a payment all while saving mental energy. I also recommend setting up an automatic transfer to your savings account so that you will make active progress toward your savings goals. You can even create an investing plan and set up automatic investing reminders on a variety of investing apps that can help you stay on track with your investing goals with ease.

Putting your finances on “autopilot” will help you improve your overall financial health without requiring immense amounts of time and mental effort, as these automated systems will essentially do all the hard work for you as they quietly run in the background.