Tips to Protect your Financial Health
The saying, ‘save for a rainy’ day is something we are all too familiar with, but notwithstanding, a recent study shows that only 29% of Americans are considered to be financially healthy. It’s good to know that 29% of people out there have actually saved for a rainy day, but that simply means the remaining 71% are flying blind.
In simple terms, financial health comprises your income, bills, and savings. While this may seem straightforward and easy to accomplish when an economy is stable, the true test of your financial health is during a recession, much like what many countries in the world are dealing with right now. If the current pandemic has made you reassess your financial health, here are five ways to protect it.
1. Develop a Savings Habit
Robert Kiyosaki, the author of Rich Dad, Poor Dad, explains that the trick to building a saving habit is to budget for it. While having savings is not the one sure way to get rich, it is a hedge that protects you against unforeseen circumstances. So, if you want to protect your financial health, you have to learn to shun the habit of spending your entire paycheck. Set aside a certain amount every month and think of it as a way of paying yourself.
2. Build an Emergency Fund
Financial experts around the world often stress the importance of building an emergency fund. Just like savings, an emergency fund is set aside for unexpected events, and as you would have guessed – emergencies.
A sound emergency fund should contain anything between 3 – 6 months of your living expense. This means you first need to be aware of your base living expenses. One way to do this is to take note of every single cost you incur in a month and multiply it by six.
3. Review Your Insurance
When it comes to personal finances, discussing insurance can be a bit dicey because insurance involves spending money to cover events that may never occur. However, the risk of not taking out an insurance policy is far costlier than sparing a few dollars every month.
You do not have to start with all the insurance policies available out there; instead, review these policies against your current lifestyle. For instance, if you work in a hazardous environment, you should opt for a disability or life insurance policy. So, if anything happens to you, you simply call the insurance company or a service like personal injury attorneys.
4. Avoid Financial Inflation
Financial inflation often happens when a person feels the need to match his or her lifestyle with an increase in income. One way to avoid financial inflation is by using percentages to distribute your income – that way, even when your income increases, everything will follow, from the amount set aside for feeding to savings.
A vital takeaway here is that your financial health lies in the decisions you make today, like what you choose to spend your money on so, invest wisely.