It is crucial to improve your financial health, take total control of it and tame your money.
Often, most people follow specific rules of thumb, such as “save 10% of your income ahead of retirement” to stay on track with their finances.
However, while this famous financial rule can be helpful, there are other important do’s and don’t that you need to be aware of to improve your financial health.
What is Financial Health?
Financial health describes the condition of a person’s financial affairs.
Financial health has several aspects, including how much savings you have, the amount of money you’re setting aside for your retirement, and the proportion of your income spent on non-discretionary and fixed expenses.
Why is Financial Health Important?
Financial Health, just like physical health, is essential to lead a happy and successful life.
A sound financial state will not only ensure that you live a stress-free life, but it’ll also help you tame your money and secure your financial future.
Tips to Improve Your Financial Health and Tame Your Money
1. Master the Art of Self-Control
If you desire to grow financially and hold the rein to your financial life, you should cultivate the habit of self-control.
The earlier you cultivate this character as a part of yourself, the sooner you learn to improve your financial health and keep it in order.
Developing self-control requires a measure of discipline, but the benefits are financially rewarding.
First, you get to suppress that urge to purchase items on random thoughts.
Second, you learn to get a grip on your spending habit and spend less, thereby taming money you would have spent on probably invaluable liabilities.
2. Know Where Your Money Goes
Watching your spending habits is the first step to controlling your finances and taming your money, but it doesn’t end there.
It would be best if you tracked your spending to ensure your expenses don’t surpass your earnings. To do this, you will need to set a budget and record your spendings.
This would make you realize where you need to cut down a bit of spending.
It could be cutting off the newspaper print you purchase every morning that could make the difference.
Small changes like this in your daily expenses will positively affect your financial situation over time.
Also, minimizing recurring monthly expenses will prove helpful and save you a significant sum of money.
3. Understand and Handle Your Taxes
It is imperative that you understand the way income taxes works even before you receive your first paycheck.
Understanding this will give you an insight into your actual salary, enable you to better plan your finances, and meet your financial obligations.
For instance, if a company proposes to you a starting or annual salary of $35,000 in New York City (different state and city taxes differs) after taking into account federal taxes, you would be left with $27,490 as your net pay.
If you are a little confused about calculating this, there are online calculators such as PaycheckCity.com to help you out.
However, it would be best for you to learn to do your taxes. If you put your head to it, it isn’t challenging to do, except it is a complicated financial situation.
4. Start an Emergency Fund
A famous finance quote is “pay yourself first.” This quote is applicable in the discipline to tame your money and ensure your financial success.
Notwithstanding how little your income may be or the weight of your debt, it is crucial to set aside some amount in an emergency fund every month.
The last thing you’d wish is emergencies hindering you from accomplishing your financial goals.
Since emergencies are unpredictable, it is best to prepare ahead of them.
It may be hard to do this; however, doing this will keep you out of financial troubles and on track to achieving your financial goals.
If you treat your emergency funds as a non-negotiable expense, sooner you will grow it into more than just money for emergency purposes.
In saving up emergency funds, it is wise to keep your money in a high-interest online savings account or money market account to avoid inflation eating up the value of your savings.
5. Manage Lifestyle Inflation
The majority of Americans spend more when they earn more.
As people achieve higher ranks in their career endeavors and work-life and begin to make more money, their wants tend to increase, resulting in a phenomenon termed “lifestyle inflation.”
Although you may still be able to afford the payment of your bills, lifestyle inflation can still have long-lasting damage on your financial life and limit your financial creativity to build or increase your wealth.
A primary reason people get sucked into the lifestyle inflation trap is the desire to match up to their peers, friends, or coworkers’ financial expectations.
However, you should do well to remember your finances, be it negative or positive, is your business and not your peers business; if you mismanage your finances, you bear the burns of your mismanagement.
Every single dollar you spend on unnecessary wants is a dollar short during your retirement.
6. Recognize Needs vs. Wants—and Spend Mindfully
Still, on spending mindfully, you need to be able to tell the difference between needs and wants.
Knowing the difference will help you make better spending decisions.
Needs are the basic amenities you require to survive, such as food, shelter, clothing, transportation, and healthcare.
On the other hand, wants are your desires—things you would like to have but are not necessary for your day-to-day living.
Labeling an expense as a need or want can be tricky, but being honest with yourself in your purchases and asking questions such as “can I make good without buying this?” will help.
Your needs should be your top priority in your budget, and after clearing your needs, if there is a remainder sum, you could allocate them to meeting your wants, but it would be wise to save up such monies.
7. Stop Using Your Credit Cards
A more brutal approach to curtail lousy spending habits and tame your money is to avoid using credit cards.
If you develop the habit of depending on credit cards as a stop-measure to meet your needs, you will quickly end up in debt.
It will negatively impact your finance as the amount of money coming will be limited.
Hence, after payment of necessary bills, there may be little or nothing left for saving or working toward achieving other financial goals.
Switch to cash payment or debit card payment to break this habit
Open a short-term savings account to cover significant expenses rather than using credit cards.
Cutting up your credit cards is not enough; cancel them!
8. Make the Most of Employee Benefits
Aside from essential benefits such as retirement plans and health insurance, Some of your employee benefits may include those that could relieve you of paying out your pocket for other critical expenses of which you may not be aware.
Example of such benefits is dental insurance, vision insurance, and flexible spending accounts.
Evaluate your options so as to make the most advantage of your employee benefits.
9. Save First, Pay Bills Later
There is a difference between setting a saving goal to meet your lifestyle and adjusting your lifestyle to meet your saving goals.
The latter is the best choice if you want to spend less and tame your money.
The default logic of most people in today’s society is to pay bills and then save. That is wrong. It should be reversed, save first and pay bills later.
It is advisable to save between 25–30% of your income after deducting taxes. Unless you adhere to this rule, you may be unable to achieve financial freedom.
10. Your House is Not an Asset
Nothing takes your money from your very eyes without your notice than a liability you consider an asset.
The average American believes buying a house is an asset. While there is a degree of truth to this, it is not entirely true.
Your home is likely going take money out of your pocket than putting it in your pocket.
You may have to spend on your home in the form of a mortgage or monthly maintenance.
Therefore your house isn’t an asset but a liability and would instead take your money than tame your money.
Consider renting instead of buying a house and put in the money you would have spent on maintenance into income-producing assets.
11. Be Self-Reliant and Do Things Yourself
Being self-reliant and doing things on your own can help save money you would have otherwise spent in getting a little task done.
It could be a little task like fixing a minor fault in your mobile device or painting your walls.
There are thousands of information on the internet that can prove helpful in helping you get a minor task like this done rather than paying for it to get done.
Doing things yourself will help buckle down on your financial stability.
12. Do Not Cosign a Loan or Lend Money
There may be friends or families seeking financial help from you to aid them in getting loans.
Now is the time to put your financial intelligence to use and take charge of your financial well-being by been discreet enough to reject co-signing on any loan.
There is a reason the bank requires a cosigner. You are putting your financial life at risk by agreeing to cosign on a loan for another individual.
There is a chance that the bank may come after you in the event the borrower misses a payment.
Thus, you are not only risking your money but your relationship with such an individual.
13. Ditch Cable
Nowadays, there are endless tools for entertainment (Netflix, Redbox, YouTube, Internet). But, unfortunately, most of these tools aren’t for free and require payments.
You may not always be around to watch the numerous cable TV dramas and even when you are, be rest assured that there are more fun, engaging, and effective ways to pass the time.
In addition, cutting down on your cable fees will save you a reasonable amount of money in the long run, which you can put into good use on investments.
Final Words: Tame Your Money by Improving Your Financial Health
Reputable American personal finance personality Dave Ramsey once quoted, “You will either manage money, or the lack of it will always manage you.”
It is sheer truth.
In building financial security, you have to be disciplined with your finance, hold a grip on your spending, avoid the barest minimum whatever takes money from you, and maximize whatever brings money to you.
Hopefully, the above tips to improve your financial health will prove helpful in your endeavors to take control of your finances and tame your money.
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