The financial health of a person is based on several components and can generally be defined as the state of your personal finances. There are several criteria used to determine the health of one’s financial conditions. Some of them are the ability to generate savings, feeling in control, ability to plan expenses and meeting financial goals.

It is important to promote strong financial health that corresponds to the person’s age, especially for those who wish to live a financially independent life. In this article we will talk about how to evaluate the state of your own financial health and how it may be improved.

The importance of financial health
Having a healthy relationship with money takes maintenance and consistency. The same way we exercise and try to eat a balanced diet to keep our body strong, keeping our finances in shape also takes some work. If you are not actively working on your relationship with money, the situation may slip out of your hands. It is quite similar to money management in trading: without good risk management, the whole trade may go wrong.
Contrary to what many people think, financial health is not entirely based on and evaluated by the absence of debt. Though debt is a big part of it, strong financial health can be

characterized by a steady flow of income, predictable expenses without splurges and unplanned purchases, savings balance that is steadily growing and strong returns on investments. The lack of debt does not automatically mean a healthy financial state, because it doesn’t necessarily indicate that a person can budget and is good at planning. So it isn’t just one factor, but a whole set of components that matter.

How to determine your financial health?
Before going any further, evaluate your current circumstances. To better understand your financial situation, it is helpful to ask yourself a few important questions. Think of it as a self-assessment of your financial state:
• Are you well prepared for the unexpected? Do you have a contingency fund for unexpected or emergency expenses?
• Do you have sufficient health or life insurance?
• What is your net worth — is it positive? To calculate it, subtract your debts from the total amount of your assets (investments, cash and cash equivalents, property)
• Do you feel like you have enough money for living?
• Can you afford the things you need? What about the things you want?
• Are you in debt? If so, how much of your debt is high interest (like credit cards)? Is it less than 50%?
• Do you have retirement savings? Are you on track to

reach your long-term savings goal?
If you answered yes to most or all of these questions, it is a sign that you have a healthy financial state and that you are wise about your money. However, if the answer is no, or you’re not sure — it might be the time to make some changes. You don’t need expensive medicine to improve your financial health, but a good planner and some willpower will come in handy.
Improving financial health in 3 steps

No one was born good at budgeting. It is an acquired skill that you can learn just like you learnt to read or write. There are many things you can do for that, but here are 3 very clear steps that aren’t hard to follow to get you started.
Start budgeting

If you constantly feel like you don’t have money but have no idea where it went, the solution is to start recording every single purchase. There are hundreds of ways to document your expenses — writing it down in your planner, filling a Google spreadsheet, using an app that syncs with your bank account — regardless of what you choose, it will give you an insight at your spending habits. Split your expenses into categories and make sure to count every one of them.

While it sounds boring, this method will help you understand where those extra pennies go so that you could cut on unnecessary expenses. After a while, you may not need to record your purchases anymore because you will know exactly how much funds you need for every category, but at the beginning this method will help you to feel more in control.
Pay off your debt

When you owe money, having a healthy financial routine may be challenging. Paying off your debts is crucial, so that it doesn’t pressure you and make you miserable. It is up to you how you decide to do it: gradually, with small amounts, or faster, making it your priority. The important thing is to allocate enough funds for saving and spending at the same time, to prevent further debt.
Start saving

Even if you have some debt, it is never too soon to start a savings account. Whether you call it a financial cushion or an emergency account — you may have it to protect yourself in case of need. Professionals say that it should have the amount of three to six months’ worth of living expenses, but you can start small. The key in generating savings is consistency, so you may aim for smaller amounts that you’re comfortable with saving, without the urge to dip into them immediately.
The bottom line

Financial health is a large topic that has many layers to it. However, ultimately, it is about evaluating where you are currently at, and planning your future expenses and savings, rather than going with the flow. Anyone can improve their financial state with some determination, so you may consider using the tips described above.
Do you have strong financial health? Share your thoughts and experience in the comments below!