What is a financial health check and how do I get one?

It’s pretty easy to associate healthy with active physical and mental well-being, but what about your financial health too?

Our health is multifaceted, with various sides linking to one another. For example, stress over money has been linked to migraines, sleep disorders, depression, heart disease and more.

That’s why it’s important to schedule time to assess your finances. With this, you can identify problems, chart your progress and make the necessary adjustments that will lead to a healthy financial life.

This article will explain the following:

  • What is a financial health check?
  • Simple financial health checks to carry out
  • What to do in a bad financial health situation
  • Steps to improve one’s financial health.

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What is financial health?

Financial health describes the state of a person’s financial situation. Being financially healthy means that you can handle expected and unexpected expenses. It also means that you’re actively preparing for your life goals through careful budgeting, savings, investments, insurance and retirement planning. A financially healthy person can afford their living expenses and has a cash reserve for emergencies such as a sudden job loss, health emergency or even home repairs.

Findex 2021 reports that women in Sub-Saharan Africa find it difficult to assess an emergency fund. About a third of adults in SSA rely on family and friends for emergency funds. Still, half of them find it difficult to obtain those funds when needed. These findings indicate poor financial health.

Other signs of poor financial health include:

  • You are always stressed when you think about money
  • You can’t handle major unexpected expenses
  • You often have to borrow money to pay for food, rent or utilities
  • You don’t have a retirement plan
  • You also find it difficult to talk about money with friends and loved ones.

On the other hand, If you can achieve your financial goals, you may consider yourself financially healthy.

What is a financial health check?

A financial check is simply looking at your current financial state to determine what kind of shape they are in and the steps you should take if you need to stay on track with your financial goals. It assesses your savings, investment, expenses, and other personal finance activities to evaluate your progress.

Financial experts advise a financial check-up at least twice a year preferably at the beginning and towards the end of the year. It could also be after a major life event such as getting married, starting a family, buying a home, getting a divorce or even the death of a loved one.

Can I conduct a financial check-up by myself?

If your finances aren’t complex, you should be able to perform a financial check-up independently. The more complex your financial situation gets, you’ll likely need to engage the services of a financial advisor or planner.

Here are seven steps to conduct a financial check-up.

  1. Review your life changes: The first step is to consider any significant life events that might have altered your finances recently. Did you get married? Did you start a family? Did you change homes or a new job? Did you relocate to a new country or enrol on an academic program? If you made significant life changes, you must also make financial decisions to achieve your life goals.
  2. Review your spending situation: A bank statement or a list of your expenses can reveal much about your spending habits and even your money personality. You might find yourself paying for things or subscriptions you don’t need. Never underestimate tracking your finances; it updates you about your present financial situation and the adjustments to make.
  3. Set or reset your savings goals: Saving goals such as an emergency fund, starting your own business, or even a retirement plan should be reviewed regularly. Are you on track? Once you have achieved a goal, cross it off the list and replace it with another. If you don’t have an emergency fund for unexpected expenses or a sinking fund for significant unplanned purchases like a birthday party, now is the time to create one.
  4. Set up a budget: A budget is a plan for spending and saving your money. Without it, you’ll have little or no control over your cash. A budget should be regularly followed and updated. The goal is to ensure you have enough income to cover your expenses with extra aside to achieve your short and long-term financial goals. You can maintain your budget by writing it down or using a computer spreadsheet. There are also free budgeting tools online to support your planning process.
  5. What is your debt picture like? Review your progress with paying down both good and bad debt. If your high-interest debt is rising, it’s time to adjust your spending to deal with the surge. What plans do you need to put in place to tackle your debt? Read more about the snowball and avalanche methods of reducing debt.
  6. Consider insurance: We often wonder why we need insurance when we are young, healthy and seem to be living the best life. But we never know what’s around the corner of life. Regardless of how much you earn, how fit you are or how smooth your business is, one of life’s most important financial decisions is to save for an emergency.

There are many types of insurance policies, from life insurance to health, retirement plans, auto insurance, home insurance and even phone insurance. The goal is to provide protection or relieve financial stress during a crisis.

For instance, the recent flooding in Nigeria has led to a substantial loss of property, cars and, sadly, lives. We’ve seen videos and images of homes and cars submerged in water. Consider how handy an insurance plan will have gone a long way for those affected. Do your due research on what insurance company to work with. You can also save money by having multiple policies with one company.

7. Evaluate your Estate Plan: This entails having a plan for your assets if you are no more. Review your wills or trust and make sure you are okay with the choice of your trustee or your estate planning attorney. Review beneficiaries and allocations to ensure they match your wishes. Again, you must engage the services of a financial expert or wealth management advisor.

Lastly, look at your tax returns and ensure you make the estimated tax payments. Also, take a look at your saving goals. Reset and set new financial goals if necessary and remember to automate your finances. Automating your finances helps you plan and stay on track with your financial goals.

How to maintain good financial health

Maintaining a financially healthy lifestyle starts with adopting sound financial habits. Although it involves some discipline, the results are worth your attention. Kick off with these tips:

  • Spend below your means
  • Cancel subscriptions you don’t use
  • Pay off debt
  • Automate your finances
  • Build up an emergency fund for at least 6–9 months of earnings
  • Have financial goals and stick to it
  • Work with a budget
  • Start investing and saving up for retirement
  • Consider speaking to a financial expert
  • And get on HerVest- Yes! We’ve got super helpful tools to help you manage your money better.

What to do in a bad financial situation: If you find yourself in an unhealthy financial situation, don’t panic. Neither should you bury your head in the sand like the proverbial ostrich. Consider your financial changes, prioritise adjustments and cut back on unnecessary spending.

A financial check-up helps you take a fresh look at your finances and redefine your goals. Often these changes can propel you to a more secure and extraordinary life. Comment on the steps you’ll take to make this happen.

For more personal finance-related tips, subscribe here. Remember to sign up on HerVest and start saving towards your financial goals.

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HerVest

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An inclusive Fintech for underserved and excluded women in Africa. We're bridging the Gender economic gap from the farmlands to the boardrooms.