5 Simple Steps to Check Your Financial Health

When is the last time you checked your financial health? Check your financial health today! It can help you determine what kind of adjustments you need to make.

Remember, your financial health is just as important as your physical health!

Many of us go to the doctor, to have a regular check-up or we have an issue we want to be diagnosed with. We’re doing a constant physical health check. Did I sleep enough last night? How am I eating? Why is this itchy red spot not faded yet?

This is very normal for all of us. But, when was the last time you did a financial health check? Just as your physical health, your financial health can have huge consequences.

I have seen people break just by not paying attention to their finances for too long. They had unexpected costs coming up, like needing a tire change or large unexpected costs around the house, and they simply couldn’t pay it.

Looking at your financial health is extremely important, to make sure you’ll never end up in a situation where you can’t pay your unexpected expenses without going into more debt. Let’s see the five steps you can take today to check your financial health!

5 Steps To Check Your Financial Health

Check Your Housing Situation

Remember what happened in 2008, when people couldn’t afford their homes anymore? My parents just bought a new home around that time, so it’s not something I will soon forget.

To avoid any future housing crisis, it’s important that you’re getting yourself housing you can afford.

Many people say that your cap for how much you pay on housing should be around 30% of your gross income – I’m not a fan of these kinds of caps, but perhaps it provides some kind of direction for you.

Keep in mind that everyone’s situation is different. If you’re living outside the big city and paying less on your rent, but you spend more than one hour commuting each day, you’re not really winning anything.

Rather than pinning yourself to get to this 30%, evaluate your situation. Can you find a cheaper option compared to what you have now? If you don’t want to move, can you get a roommate or hire a room for a few days a week with Airbnb?

Steps to Take

Check if you can find a cheaper place to live within the area you´re currently living in, or move to another beautiful part of the country that is less expensive.

If you´re looking for inspiration, here is a 2019 list of top 100 best places to live.

What is also an option is refinancing your mortgage. Since interests rates are very low currently, many people are choosing that option now. Check whether this is a feasible option for you!

[Related Read: How I Live On Half My Income – And You Can Too!]

Determine Your Net Worth

After you’ve looked at your housing situation, you should find out what your net worth is. Determining your net worth is a quick way to see your financial health in the blink of an eye. It’s calculated by taking the value of all your assets combined and subtracting your liabilities.

If you want to track your net worth in a sheet that does this for you, go over to my other post to get your net worth sheet completely for free!

Basically what you are doing in this sheet or in any app that tracks your net worth: writing down every asset you own (cash, your car, your house, investments) and subtracting all your debt (car loan, mortgage, credit card debt, student loan, other debt).

Net worth = value of assets – the value of liabilities

What you can see here is that your income doesn’t come into play here, because it’s simply looking at the gap between your current income and expenses.

Your net worth is a great way to see where you’ve come from and to see where you’re going. It’s important to compare yourself with previous years so that you can see which direction your net worth is moving.

If you’re having a negative net worth currently, no worries! The point is to see write your net worth down today and compare it on a regular basis.

Steps to Take

Your net worth is a great way to measure how well you’re doing with your money. As mentioned before, don’t compare yourself to other people in terms of their net worth. They are somewhere else along their journey.

Don’t compare yourself to someone else, but play your own game. Life is different for everyone. You get dealt a unique set of circumstances, so comparing yourself to someone else is comparing apples with oranges.

Focus on increasing your net worth 10% each year as a baseline.

[Related Read: Don’t Let Your Self Worth Affect Your Net Worth]

Know Where Your Money Is Going

When I was studying, I didn’t budget my money at all. I sometimes miscalculated when my health insurance or tuition would be written off my checking account, and I would be in the supermarket without being able to pay my groceries. Trust me, that’s not something you want!

You should be aware of where your money is coming from and going to. It is something that you should do a few months in the beginning, to get ahead financially and to become more in tune with where your money is going.

One way to do this is to create a budget. Personally, I’ve used YNAB for this and I love it. The goal is to not spend more than I allocated to my categories for the month.

You don’t have to use that though, you can also start with a tool like Mint, where you import your bank transactions and categorize them. That way you can also see your spending patterns. Read the full Mint review here for more information.

The goal is to get a good understanding of your money habits. Where is your money coming from and where is it going? What are your spending patterns?

Once you have a good understanding of where you spend your most money, you can try your own budgeting methods. Personally, I pay myself first for the month and the rest of the money I allocate wherever.

The goal is not to never overspend and be perfect. The goal is to understand your spending habits and to make sure part of your money goes towards debt payoff or savings.

Steps to Take

Create a budget today. Don’t make it more complicated than it is, start using YNAB. Using my sign-up link you get 34 days of free trial (and I get one additional month of free use, yay!). Also, you may read our full YNAB review and know more details on how the platform works.

Start My Free YNAB Trial Today >>

I used to be terrible at budgeting but this really helped me get control of my spending. You know what is going where and it’s simple to use. It’s okay to fail one month, but it will keep you on track to reaching your financial goals.

There are other ways to budget, like paying yourself first or doing everything in cash. Try some things out and see what works for you!

[Related Read: The Ultimate Guide To Financial Independence And Early Retirement]

Build an Emergency Fund

After you’ve done all the steps above, it’s time to focus on building an emergency fund. If you don’t have one already, focus on building up around six months of expenses into a savings account: this is your emergency fund.

An emergency fund is basically building up a buffer so that when something unexpected happens, you don’t have to go back into debt to cover the expenses.

What kind of unexpected things can happen? You can lose your job, you or your partner have unexpected medical expenses, your car breaks down, you need to take care of a sick family member, and more.

Steps to Take

If you don’t have an emergency fund already, start building it today. Aim for six months of expenses in an emergency fund, which allows you to pay for unexpected events.

If you’re budgeting, try to factor in a minimum amount of savings that is going to your emergency fund every month.

[Related Read: 13 Things To Sell To Make Money Fast]

Invest, Invest, Invest

After you’ve built your emergency fund, you’re ready to start investing. You know I’m an avid investor, and I’m one of those people that says: time in the market beats timing the market. What does that even mean? Start today!

Also if you’re living in a country where you can max out certain retirement accounts like a 401K or a Roth IRA, I recommend you do that at the beginning of the year as a prioritization. Later in the year, you can start putting money in your personal investments accounts.

When you start investing, take into account your personal preferences and current situation.

Because I’m young, I go for ETFs and individual stocks and no bonds whatsoever. If you’re more risk-averse or your personal situation is different, you can adjust this percentage to your liking.

Steps To Take

If you’re not investing already, you can start today! If you’re not sure where to start you can read my investing for beginner’s series, where I talk about:

The most important thing is to just start and evaluate your strategy and how it makes you feel along the way. Invest so that you feel comfortable and relaxed throughout the day.

Make Your Financial Goals Crystal Clear

If you don’t know where you’re going, it doesn’t matter which way you take. You won’t get to what you want, because you don’t know what you want!

Setting (financial) goals is a step you should never skip – if you skip this, you’ll be sure to never end up where you want to be.

For example, I wanted to go traveling for four months as soon as I graduated with my master’s degree. The problem was that I already had spent all my money when I was studying in the US for a semester. What did I do? I maximized my income from my side job, kept track of my budget, and minimized my spending. At the same time I took out a loan from the government to cover my tuition and rent, so my side job paid for all my living expenses and I saved the rest.

Had I not known what I wanted to do after I graduated and had I just decided that I wanted to travel last minute, this would have not been possible for me.

Hindsight is always 20/20, try to set financial goals as much as you can right now, even if you’re not fully aware of all your future wants. Trying to anticipate it can be challenging, but when you have your goals clear it will provide guidance that is worth so much!

Steps To Take

Start setting goals in your life. Both financial and non-financial. Goal setting has really helped me get a sense of direction and clarity.

If you don know where to start, read:

How is your financial health?

check your financial health