5 Rules To Improve Your Financial Health

Priyanka Verma Verma Author

Apr 18, 2022 |

For Beginners On Financial Journey Easy And Simple to Follow Basic Personal Finance Rules to Achieve Financial Goals and Improve Financial Health

For living happily and enjoying every moment of life your financial health is as important as your physical and mental health.

You put a lot of effort to maintain your physical and mental health. You immediately visit a Doctor if you feel unwell.You definitely follow some rules and good habits to keep yourself physically fit, such as — regular exercise, taking healthy diet including fruits and vegetables, drinking plenty of water, regular health check-ups etc.

For good mental health you may do meditation, take time out for entertainment, spend time with family and friends and even plan for holidays at regular intervals.

Likewise you also need to follow some rules to keep yourself financially healthy.

If you have your financial health good than only you will be able to manage your physical and mental health. Because you need money for healthcare, food, entertainment, vacation and anything you can think about.

Also you need to keep yourself stress-free and free from all kind of worries to stay healthy.

Here I am going to tell you about 5 Basic Rules which anyone can follow for the betterment of his/ her financial health.

1. Know your Net Worth and prepare Personal Budget.

2. Learn to manage Lifestyle Inflation.

3. Differentiate your Needs Vs. Wants.

4. Always Pay Yourself First and start early.

5. Always maintain an Emergency Fund.

1. Know Your Net Worth And Prepare Your Personal Budget— 

Net worth is the best parameter to understand the financial situation at a certain point of time. Your Net Worth will clearly tell you-

“Where do you stand at that particular time financially?”

By knowing your present financial health you can easily find out the ways to reach your short term and long term financial goals.

Net Worth is the difference between your Assets i.e. What you own? and your liabilities i.e. What you owe?

So to Get your Net Worth number, first make a list of all your assets and liabilities, than subtract the liabilities from the assets.

Track your Net Worth regularly i.e. quarterly, half yearly or yearly. It will help you to evaluate your progress and identify the areas requiring improvement.

After calculating your Net Worth prepare your monthly personal budget. Clearly list out your income streams and your categories of expenses and smartly allocate your income to different expenses.

While preparing your budget keep in mind savings and investments related to your financial goals.

Your personal budget will help you to :

• get a closer look at your Income and Expenses categories.
• put a control over emotional expenses.
• differentiate wants and needs easily.
• plan for savings to meet your financial goals.
• plan for emergencies in advance.

Ultimately your personal budget will help you to prepare a roadmap for your financial health betterment.

2. Learn To Manage Lifestyle Inflation —

Lifestyle Inflation means increase in spendings with the increase in earnings. Its a natural human behaviour that you will spend more if you have more money in your pocket.

Lifestyle Inflation can be damaging in long run, because it limits your ability to build wealth.

One of the biggest reason of lifestyle inflation is that people try to match their living standard with their friend’s and coworker’s. They spend more for shoe-off to the society.

If your friend is driving BMW and living in a bigger house than your’s, enjoying vacation at the expensive resort, you will feel pressure to compete with him. This is all emotional trap.

You need to learn and practice the way to put a control over this emotional trap and ultimately to control lifestyle inflation.

With the raise in career it is natural demand to raise your living standards to some extend but this raise must not be out of control and should not sabotage your future wealth building capacity and financial wellbeing.

3. Differentiate Your Needs Vs. Wants—

For maintaining a good financial health you must be able to clearly differentiate your needs and wants, so that you can improve your spending habits and save more for wealth building.

You must have clear demarcation between your needs and wants.

Needs are the things you have to have to survive like : food, shelter, health-care, education, transport etc.

Whereas wants are the things you would like to have but don’t require for survival.

When you understood your wants and needs clearly you will become much mindful while spending.

You should give priority to your needs in your personal budget. Than second priority should be Savings and Investing to meet your future financial goals. Than pay attention to emergency fund bucket. After that create a fund to fulfil your wants also.

You need to be smart enough while budgeting so that you can easily meet your needs and wants both without compromising with your future security.

4. Always Pay Yourself First And Start Early —

You are the one who is making efforts to earn a living and still you are not rewarding yourself for the efforts you are putting in. If you are doing so than you are not justifying with you. If you are not recognising your efforts than no one will.

So start paying yourself first from the day one of your earnings.

Always put a minimum of at least 10% of your earnings for yourself, for your rainy days ( never ever touch this amount for other requirements ). And start doing so as early as you start your first job or business.

Starting early will help you to get the best advantage of compounding.

Illustration : Mr. X wants to save and invest those savings to build wealth. He wants to start SIP, where he will get return @12% per annum. Here is the growth he will achieve if he is investing Rs.5000 per month for different time intervals.

SIP of Rs. 5000 per month compounding @12% per annum

If he will start @age of 25 years till the age of 60 he will get 35 years to grow his investment. Simply by the SIP of Rs. 5000/month he will be able to accumulate around 2.59 crore Rs.

“The sooner you start the easier it is to reach your long term financial goals.”

5. Always Maintain An Emergency Fund—

Emergency fund means the money you have kept aside for emergency purposes only.

Life is full of uncertainties. You can’t be 100% sure about your future. You can meet any kind of situation in life like - job-loss, serious health issues, accidents, any natural calamities like Corona these days.

Best practice is to create your emergency funds enough to meet at least 6 months of your family living expenses. You can keep even more than that if you can, upto 12 months of expenses.

Best is to fix certain amount to be transferred to a separate bank account every month, as an emergency bank account.

Conclusion

You can achieve anything in life if you are determined for that.

Never try to complicate the process, keep that simple enough to stick with that. Keep experimenting in between to the extent of your affordable capacity.

These are some simple basic personal finance rules which anyone can follow to achieve his financial goals and living a healthy life financially. You just need to follow these rules with determination.

Categories: : Basicfinancialrules, FinancialHealth