Improve your financial health because it matters. Money and finances impacts almost every facet of your life. If you’re stressing about bills or debt, it’s quite challenging to be present with your loved ones. The burden of financial insecurity creates stress impacting our physical and mental wellbeing. As a result, illness can compound our financial troubles when we’re too sick to work or can’t afford to pay the medical bills.
So, I focus on encouraging people (and you) to make it a priority to manage your money better. It can help you shift your focus back on what’s truly important. The actual reasons why you work–to earn money–to pay for the things that keep you safe, fed, and healthy, and ultimately brings joy into your life.
In this simple (and short) guide, you’ll learn 6 steps to get your personal finances on track, improve your relationship with money, and gain control for your peace of mind. My aim is to set you off on a journey to improve your financial health.
Let’s begin to put your financial pieces together.
How to improve your financial health
Start with your mindset
In order to change your habits and behaviors, we’ll need to get to the root of your relationship with money. It may sound bizarre to discuss mindset and beliefs but they do inform our behaviors. How we think and feel about money has a strong correlation with how it’s managed. In my book, You Only Live Once, I wrote about how our thoughts and feelings impact our savings rates and spending habits. And often, this influence is unknown. So, if you’re wondering why it’s challenging to save money or curtail spending, it may be related to your money mindset.
The first step in managing your money better is to understand your money mindset. Really get into the heart of your beliefs around money, not just your financial goals. The increased awareness can lead to a big leap in changing the trajectory of your life.
In You Only Live Once, I asked the readers to complete this sentence:
Money is ______________.
Take the time to complete this sentence yourself. What are the words that come to mind immediately? Is it power, freedom, not important, or evil?
There’s no right or wrong answer. It’s just a step into understanding how you view money. For instance, I once thought money didn’t buy happiness (Money is not important because I wanted to just be happy in life). But, the belief that money didn’t buy happiness meant I spent it on things that actually never brought long lasting happiness into my life. This informed my financial behaviors so much so I didn’t see the importance of saving more of it or finding ways to make more of it.
Now, think about that statement again. Close your eyes (humor me) and complete the sentence: money is__________.
The words used to complete the sentence says a lot about your relationship with money. It’s the starting point on your journey to shift your money beliefs.
Let’s take it a step further. Ask yourself additional questions like:
- If money wasn’t an issue, how would I spend my time?
- Does the thought of money stress me?
- Do I avoid looking at my bank accounts, paycheck, and credit statements?
- How am I spending my money and why am I choosing those things?
- Do I work solely to make income to keep up a lifestyle?
I recommend reading more on how to improve your money mindset.
Become financially aware
The typical advice given to people seeking to improve their financial health is “have a budget.” It’s good advice but budgets don’t work when they are created without financial awareness of your current situation. I’ve seen enough “experts” give people cookie-cutter budget plans that are devoid of personal choices.
After getting a better understanding of your mindset, you want to complete a financial analysis. This is a crucial step that helps you uncover your financial wins and areas of improvement. You need to to become completely aware of every aspect of your financial life down to the penny.
The goal of the analysis is to fully grasp where you are today before creating a plan or budget. It’s important to know how your money is used currently before creating a budget that allocates money to goals.
Consider things like:
- How much is your actual income?
- What’s your total debt load?
- How much are you spending monthly? And what are you spending money on?
You can learn more on how to do a financial analysis with my 7 easy steps.
Create Your Goals
After analyzing your current finances, you’ll then want to set financial goals based on what you’ve uncovered. Don’t skip the first two steps so you can simply write down your goals. What tends to prevent people from reaching their goals is due to financial habits influenced by beliefs and an unclear understanding of their actual financial picture.
Creating realistic goals that are achievable happens when you’re more aware. This step can mirror the budgeting process because it asks you to dive deeper into your financial numbers.
Create a list for each bullet point:
- Income and sources
- Total debts
- Monthly fixed expenses
- Savings balances
- Investments and assets
- Retirement balances
Based on your lists and analysis, start thinking about the financial goals you’d like to achieve.
Is it to increase income? payoff debt? Move to a new neighborhood? Buy a home or a new car? Go on that dream vacation? Save more for retirement or a child’s college education?
Learn more about setting financial goals and achieving them.
Allocate Your Money
The next step is to allocate the money you currently make to the goals you’ve identified. This is budgeting. If you’re like most people, budgets may seem like an act of deprivation. But budgets are acts of direction. You’re directing your money towards your goals and that includes the expenses to live your life daily.
You can use a variety of methods to allocate your money.
Consider the following:
- Budget using a spreadsheet
- Use an actual budgeting software (not simply an expense tracker)
Remember budgets are living and breathing tools that must be tracked and adjusted.
I do recommend checking the financial marketplace for true budgeting apps, not just financial trackers. You want to direct your money to goals, not simply be informed of where you’re spending your money.
Create your strategy
It’s now time to build your plan. Once you’ve identified the state of your finances and future goals, it’s time to draft a financial plan. A financial plan will help you stay focused on the big picture along with the tactical aspects of money.
For instance, your goal to own a home may include a financial plan to save enough for a down payment. So you’ll want to know how you’ll go about saving money. Will you work more hours? Start a side hustle? Could you save by refinancing existing debt? Will you use automation?
Track your money and finances
Lastly, you want to track your progress. The best way to do so is using a financial tracking app. These apps alerts you on your spending and may even categorize them to give you a better idea of how your spending money.
There are many apps available to use and as I wrote earlier it’s important to use a budget app to set your goals and monitor your progress. These apps often come with expense tracking built-in. However, I’ve found using another tool that alerts me and categorizes spending simplifies my life. For instance, I can visually see if I’ve spent more on coffee this week than last and make quick adjustments.
Take note that if you discover you’re spending more than planned, you can consciously make changes so you’re on track towards meeting your goals even if you had one too many coffees.
Learn more about our picks for the best budgeting apps.
On a final note, you got this. You can learn to manage money better to improve your financial health.