Like your physical health, your financial health should be a key concern as you get older. Laying the foundation for a stable financial future does more than alleviate your current stress, it sets you up for a more secure future.
So what is good financial health?
Your financial health is made up of several facets that work together to create a cohesive picture of your finances. Your credit, debit, retirement planning, savings, and insurance are all part of the bigger financial picture that makes up your financial health. Good financial health allows you to meet your financial needs while still preparing for unexpected financial emergencies. Many people would struggle with even missing one paycheck and would not be able to afford an unexpected cost of even $1,000. In fact, 78% of Americans currently live paycheck-to-paycheck. Being in this situation can be taxing for your physical and mental health since it greatly increases your overall stress levels.
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What are the benefits of being financially healthy?
The benefits of being financially healthy are well-documented and multi-faceted. Here are some of the reasons your financial health matters:
1. Better interest rates
Credit ratings decide a lot about our lives. If you’ve missed payments in the past, had overdue bills, or defaulted on loans, your credit rating might be pretty abysmal. If you don’t have a great credit rating, you won’t be offered the best deals on major purchases like cars or homes. This is because your credit rating tells a loan officer what kind of risk you are. The lower your credit rating, the more of a risk they take on by giving you money. Other than paying your bills on time, you should also monitor your credit rating on a quarterly basis to make sure no odd transactions have taken place indicating identity theft.
2. Being ready for emergencies
For many people, an unexpected cost can sink their finances. Few Americans have even $1,000 extra dollars to cover something like a car breaking down or an unexpected vet visit. A key part of being financially secure is having enough in your savings account to cover unexpected costs or emergencies. Being able to put aside a bit of your money each pay to cover unexpected costs will give you peace of mind. Aim to have $1,000 to start and expand from there into a larger savings account.
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3. Lets you plan for a comfortable retirement
No one wants to retire poor or have to work until they drop. Financial security will allow you to plan for a secure and stable retirement that doesn’t see you have to work beyond the time you want. Investing wisely and consistently is key to a happy retirement, lawalways can offer methods and information to help you invest more. Research has shown that those that plan for the future end up with more wealth than savers. Setting a timetable for your retirement and a goal for how much you hope to retire with. This should be less of a single number and more what you hope to have on an annual or monthly basis.