When you feel peaky, you go for a doctor check-up; when you feel pain in your teeth, you go for a dentist check-up; you care for your physical health so much, likewise, financial health is also pivotal to live your life contentedly and cozily. You should erratically pay attention to your financial health.
Our finances tell us the real picture of ourselves like where you stand now, how much savings and spending you have done till now. By performing a financial wellness check, you will be able to make changes in your lives. So, being conscious about your financial health is really very essential.
In this article, we will discuss the factors that you must regulate to evaluate your financial status. So, read this article carefully and grow your finances faster by achieving your goals.
Know about financial health
Financial health or financial status is the term we use to tell our state of finances. We classify a person’s financial health on the basis of his spending, emergency funds, debt, investment, and savings.
A person is considered in a good financial status or financially healthy who has a quality income source, the slightest debt, satisfactory savings for the future, and is presently completing all his needs. Whereas on the other hand, a person who has fallen into a lot of debt, zero savings, no emergency fund, no quality source of income, are considered financially unstable.
Do not worry there are sufficient ways by which you can improve your financial health. But for that, you must have to understand the factors that will evaluate your financial status.
Factors that you must consider for financial health:
1. Your net worth:
Your net worth will give you a clear picture of your financial status. By calculating your net worth, you can know about the money you are earning, spending, and saving. You can also solve your financial problems and take measures to safeguard your future.
To calculate your net worth, subtract the total amount of liabilities from your assets.
Net Worth= Total Assets – Total Liabilities
The amount of assets includes the money you have saved, your investments, properties, and gold that you have bought whereas total liabilities include your debt amount, expenditure, bills, EMI’s, and regular monthly expenses.
By knowing your net worth, you can avoid the mistakes you are doing and enhance your financial status.
2. Your net cash flow:
Cash flow means the profit you are earning by spending all your monthly expenses by your income. It also refers to the increase or decrease in the amount of money of a person. You can calculate your total net cash flow by subtracting the money you are spending from the money you are earning.
Net Cash Flow = Total Money You Are Earning – Total Money You Are Spending
This will help you to create a budget for yourself by knowing your earning and spending. You can also start saving your money for future goals by getting an idea of your cash flow.
3. Your financial ratio:
You should start looking at your different financial ratios because this will help you identify your achievements and capacity in every situation of your finances. You should calculate your basic liquidity ratio which will tell you how much time you can use your cash or assets in your future to live off. This can be called your emergency fund. The next ratio you can calculate is your saving ratio which will tell you your ability to save money. You can also go for a mortgage servicing ratio based on your installment. In short, you should have a basic knowledge of all your expenses, savings, and earnings.
Knowing financial status is not the whole process to become financially healthy. You also have to improve your financial state. You should set your goals, become debt-free, start saving your money on a regular spend according to your budget, start earning extra income, prepare your emergency fund, and believe in investing to grow your income. By following these tips, you can surely enhance your financial status and become financially stable and healthy. So, start adopting them in your daily lives. Hope this article helped you!