I grew up being a math geek. Maybe that is why I enjoy personal finance so much. I am a heavy user of excel. At one point or another, I kept track of all sorts of personal finance numbers ranging from my budget to net worth to retirement savings.
One item I used to keep meticulous track of was my expenses. I went as far as to save every credit card receipt in the old days and reconciled the charges back to my credit card statements. Can you blame me? I never wanted to be overcharged by a vendor.
Such careful tracking of my personal finance numbers helped me greatly early on in maintaining strong financial health. It allowed me to keep to a budget and achieve my target savings amounts.
I was able to start my financial nest egg very early. The financial nest egg grew over time due to the power of compounding.
Looking back at the past 20 years, I never felt even once that I was not in good financial health.
Unfortunately, this is not the case for many Americans.
Americans Struggle With Maintaining Good Financial Health
Many Americans still struggle with maintaining good financial health. A new report recently published by the Financial Health Network shows that the percentage of Americans in good financial health decreased in 2022 after three years of increases.
The report, through surveys of Americans, measures financial health using 4 indicators:
Indicator 1: Spend less than income
79% of the people reported spending less than or equal to their income. This was a drop from the prior few years. High inflation is likely the driver for the percentage decrease in this indicator.
Indicator 2: Pay bills on time
70% of those surveyed pay their bills on time. There is no meaningful change year over year with people being able to meet their financial obligations such as rent or mortgage payments.
Indicator 3: Have sufficient liquid savings
Only 58% of the people surveyed reported that they have enough savings to cover at least three months of expenses. This is a decline from the prior year. But this percentage is an increase from the pre-pandemic levels of 2019.
Indicator 4: Have sufficient long-term savings
40% of those surveyed were confident they were on track to meet their long-term financial goals. This is a decrease from the prior year. The volatility in equity markets, linked to geopolitical and economic uncertainties, reduced retirement account balances substantially since the start of the year. This results in lower confidence for people to be able to meet their long-term savings goals.
Based on the responses, the survey results put Americans into three buckets:
(i) Financially healthy;
(ii) Financially coping; and
(iii) Financially vulnerable
Less than 31% of adults (78 million) in the US are financially healthy in 2022. 55% (139 million) of adults are financially coping. The remaining adults (15%) are financially vulnerable.
There are a lot of economic uncertainties right now and the outlook is pointing to worsening financial health for Americans in the coming year.
But all is not lost. There are actions you can take to help reverse the trend of declining financial health.
Ways To Improve Your Financial Health
Train Your Mind To Prioritize Financial Health
Make it a goal of yours to be more financially healthy. Just as people make a conscious effort to lose weight by going on a diet, you should consciously want to do better financially.
Shift your priorities around and put building stronger financial health as your top priority. You should constantly think about ways to do better financially.
I believe, that to do well financially, your mind needs to consistently think about your own personal finance. No one cares about your financial well-being more than you do.
Make sure your mind is in the right place here. If you don’t put improvement of your financial health as a top priority, you won’t be able to achieve it.
As I think back to the past 20 years since graduating college, achieving a robust financial nest egg was a big focus of mine. Being financially free was a top goal for me and it took a couple of decades to achieve financial independence.
Find Ways To Increase Income
Go and increase your income. To me, this is the action with the highest impact. It is incredibly hard for anyone to save their way to financial freedom without a strong income.
I grew up with the mindset of the old Benjamin Franklin adage “a penny saved is a penny earned.” The way to build wealth is to save, and try to save as much as possible. While this is true, I believe this is only part of the story.
I came across another saying that I believe in as well. “A penny saved is just a f’ing penny.”
Increasing your income can produce a far greater result for your financial health than focusing on the expense side. There is no limit to how much you can make. However, there is a limit to how much you can reduce your expenses.
Some ways to increase your income:
(i) Start a side hustle. The side hustle can be an online business or a weekend job to help boost your pay. It can be consulting work or gig work. But increase your take-home pay by starting a side hustle right now.
I like starting an online business because it gives you greater control of your time and provides tremendous flexibility location-wise.
Today is a good time to start a side hustle given the work-from-home environment we are in.
(ii) Negotiate for higher pay. Inflation has been soaring. This is still a tight labor market for talent. Always keep on top of your true value by constantly connecting with headhunters. If you are being paid under-market, time to negotiate for higher pay.
(iii) Look elsewhere for an upward move in pay. Sometimes, loyalty to a firm pays. But a lot of times, loyalty is actually costly to the employee. People dislike change and employers know that. If you have been with a company for a while, you might be surprised by how underpaid you are. Don’t be afraid to take interviews and look elsewhere for a higher-paying job.
(iv) Start investing your savings to generate cash flow. If you have very little savings, then it might not be worth the effort to spend time on managing it. I believe in Warren Buffet’s advice of putting that money into the S&P 500 index.
But if you are starting to accrue a large financial nut, then spend some time thinking about how to best invest it to increase your income and cash flow.
I worked relentlessly for the past 20 years to grow my income. My financial nest egg grew at a nice clip because I was able to continuously grow my income.
First off, I decided to go into finance because it was a high-income paying industry. I changed companies a few times to land higher positions with higher pay.
Within the same company, I negotiated my pay on a few occasions and those negotiations paid off resulting in higher pay or extra bonus payments.
I spent time building a portfolio of rental properties which provide me with a predictable and steady stream of cash flow. Even during the past two years in the middle of a pandemic, my rental portfolio cash flow held up relatively well thanks to government subsidies.
Increasing your income is the best way of improving your financial health.
Budget And Track Your Numbers
I meticulously tracked my budget, expenses, and net worth when I was younger. A budget provided me with a savings goal for which to aim. And I monitored how I was doing by tracking my spending and expenses.
I would update my net worth spreadsheet on, at a minimum, a monthly basis. I looked at my budget and spending at least monthly as well.
Those efforts paid off in putting me on the right path to financial prosperity. To achieve a goal, you need to monitor progress. Having a budget and tracking my numbers gave me a great progress report.
Figure Out Ways To Save
While reducing expenses in my mind isn’t as beneficial as increasing income, it is still important in achieving financial health. And in many ways, I find there are many low-hanging fruits in reducing expenses.
One easy way for me to reduce my expenses is bringing lunch from home as opposed to buying it outside. Buying lunch in New York City can now cost between $15 to $20 pretty easily. Bringing lunch from home costs under $10.
Those little savings can add up over time. Additionally, watching your expenses and figuring out ways to reduce your expenses train your mind to constantly think about your financial situation. That way, it can become top of mind for you.
The two big ways to reduce significant expenses are (i) buying a house that fits your needs but does not have excess space and (ii) buying a more budget-friendly car.
Housing cost is the number 1 expense for Americans. Americans tend to buy houses that are too big for them with too much space. Look to reduce costs here by buying the right size home.
A car is a depreciating asset and is also a big expense for most Americans. Look to reduce this expense and watch your savings increase.
Pay Bills On Time To Avoid Financial Charges
Financial charges are very expensive. Lenders charge large late fees and high-interest rates, especially in a rising interest rate environment.
Set up automatic payments of your mortgage and credit card bills. That way, there is no excuse for not making your payments on time.
I have always paid my credit card payments on time and in full. I hate to pay the outrageous interest rate on the credit card. All my mortgage payments and most of my utility bills are set up as auto pays. Autopay not only helps keep my payments on schedule but also helps to eliminate additional administrative work.
Conclusion
People spend a lot of time talking about physical and mental health. Now is the time for people to focus on financial health.
The action items above should put you on the right financial path.
To The Audience: How is your financial health? Do you have additional financial suggestions on how to maintain strong financial health? Does it surprise you that only 31% of US adults are financially healthy?
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Many people work hard to better their physical and mental health. What about their financial health?
I started this blog back in 2019 to help people better their financial health as well.
My financial journey began with tens of thousands in student loan debt. Over the span of 20 years, I am close to achieving financial independence.
I truly believe anyone can get to strong financial health. Hopefully, this blog can help you on your financial journey to greater wealth and financial independence.
You can read more about me here.
Thank you for visiting. Come again soon!
