Believe it or not, for most people, their financial success in terms of paying their bills, accumulating wealth and staying out of debt has very little to do with how much money they earn. Sure, your salary is an important factor in your financial success, but it is only one of several key factors, and it is far from the most important one.
What is financial health and why do I care?
As defined in the Business Dictionary:
“A way in which to measure the overall financial aspect of an individual that includes the amount of assets they own and how much income they must pay out to cover regular and other expenses.”
Having healthy finances means you can afford comfortable life for you and your family throughout your life.
Let’s simplify this and say that good financial health is when your Net Worth (the sum of everything you have) is positive and forecasting your future finances has a positive trend (i.e. your Net Worth will grow). MoneyWiz has a built-in forecasting tool that allows you to quickly check all this.
In this article, we’d like to focus on the psychological aspect of achieving financial health.
So, how do I get there?
We’ve been serving hundreds of thousands of customers who use MoneyWiz to improve their financial health. Over the past 4 years, we’ve spoken to tens of thousands of them, and we’ve observed common traits between people with good financial health and people with bad financial health.
In this article, we’d like to focus on the very core of improving your financial health. And that is, believe it or not, your attitude towards it.
If you’ve read the article this far, congratulations, you’re on the right track! Read on!
Rule #1 – Reality Check
So, you think everything’s all right. Are you sure? Most people don’t realize that they’re on the way to a financial disaster, before it’s too late. So, it’s time to face the reality. If your debts are more than your savings, if you consistently get loans/credits or make purchases on installments plans, or if you earn less than you spend, you have a problem. And it’s a big one. Don’t worry, it’s fixable, as long as you realize you have a problem and take actions to fix it.
If none of the above is valid for you – job well done! Pat yourself on the back and continue doing what you’re already doing, because it’s obviously working.
Rule #2 – Calculate the Scope of Your Problem
The first step to improving your financial health is calculating the scope of your problem. Meaning – how much you owe vs how much you earn.
Here’s what you need to do:
- Make a list of all your savings and checking accounts with their balances. That’s your positive balance. Calculate the total positive balance that you have.
- Make a list of all your credit cards, loans, mortgages and their balances. That’s your negative balance. That’s the money you have to pay off over time.
- Make a list of all your monthly recurring bills, but skip your credit card, loan and mortgage payments. If you are paying off an iPhone for example, that’s a bill. Your electricity, gas, phone, internet …