Published: Financial Health - Blush Magazine, March 2011
By Elena Harrill, CPA
It is important for all of us to be financially healthy. If we neglect this area of our life, it can sometimes have a detrimental effect on other aspects of our life that we value such as health, family relationships and careers.
To be financially healthy does not necessarily mean to have wealth. Rather, it means that you have control over your finances instead of your finances controlling you. It takes some discipline on your part, but the rewards are definitely worth the effort. Initially you need to take inventory and determine your monthly income and your expenses. To have financial health, your income must be greater than your monthly expenditures. Many people regularly spend more than their income each month and the result is ever increasing credit card balances. If your expenses exceed your income then you need to start reviewing the areas in which you can reduce your expenses. Items such as additional cable or telephone services, brown bagging lunch rather than eating out, and limiting unnecessary shopping expeditions can reduce your monthly expenses considerably.
Once expenses are under control, you need to establish a plan for financial emergencies. You need to set aside an amount each month that will be used for medical emergencies, home and auto repairs, and those many other unexpected items that occur. Many advisors recommend that you should strive to have a fund equal to six months of your income for emergencies.
You also need to regularly review your bank statement and all receipts and bills. This monthly review should help you determine if any of your spending habits have changed and need to be adjusted. The review also lets you notice any possible mistakes in the bills you are paying. Saving for retirement, investment, education and vacation should then become part of your plan. You need to set goals and you may be surprised how quickly they can be accomplished when you have established regular contributions to these funds. Many banks offer automatic transfers into these accounts so that you do not even have to take the time to make the transfers.
Remember, establishing good financial health empowers us with the ability to make better choices, and not have worries that can diminish the enjoyment of other aspects of our life.
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The contents and opinions contained in this article are for informational purposes only. The information is not intended to be a substitute for professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have regarding your financial goals.