What is financial health?
You probably have a general idea of what it means to have a healthy body. So what’s the equivalent for your bank balance?
Financial health is about your money habits (the good and the bad). It’s about your debt levels, your credit score, how you spend and how you save. But it goes beyond these things. It’s also about how you feel about your money and your financial situation, and about how that impacts your life and the things you feel you can achieve.
When you ask people what financial health means to them, there are 2 consistent themes in their responses: security and freedom.
Although everybody's goals and ambitions are different, there are 4 key elements that are essential for creating this sense of security and freedom in our own financial lives:
- Control over your daily and monthly spending. This means knowing what your expenses and spending habits are, being able to manage your debt repayments, and not spending more than you earn each month
- Being able to cope with financial shocks and unexpected expenses without relying on debt. This means having emergency savings that you can quickly access if there's an unexpected expense like a big repair or medical cost. It also means having the right kinds of insurance to cover you and your family
- The ability to set goals and work towards them. You should know what you want to accomplish in the short term and in your future, and you have a plan in place to get there
- The freedom to make choices that allow you to enjoy life. Whether it’s something big (changing jobs or starting a business) or something smaller (starting a hobby or having a treat), everybody wants to feel free to make choices. This freedom is something that needs to be built slowly over time, perhaps eventually allowing you to make choices about how you spend your time, and how you can retire.
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