Financial health refers to the state of a person’s monetary status and how it applies to their physical, mental, and social wellbeing. It includes different aspects of financial life such as savings, expenses, and retirement planning. While the markers for what is good financial health may vary because of individual circumstances, some of the metrics that cut across include:
- Rare changes in expenses.
- Steady income flows.
- Low debt to income ratio.
- Growing cash balances.
- Strong returns on investment.
Are you financially healthy?
Financial health can improve the quality of life by putting you in a position to take advantage of investment opportunities. A financially healthy individual can easily plan for emergencies like job losses, unexpected medical bills, and death. They are also in a better position to plan for their purchases, widen their credit limit, and secure their financial life after retirement. However, these benefits are alien to many. According to the 2021 FinAcess Household Survey, only 17% of Kenyans above 18 years are financially healthy. Further, only 23% have enough savings to deal with emergencies.
Building Better Financial Health
Building better financial health starts with an assessment to understand one’s current financial health by analyzing incomes, expenses, savings and investments. Only after you have a clear understanding of where your financial health lies can you proceed to create financial goals to improve your financial health. Financial goals are things you want to achieve with money, either in the short term, midterm or long term, such as buying a new electronic, paying off a bank loan or saving for a house. An assessment will help you create good money habits, and inform your investment plan to achieve your financial goals.
Creating financial goals is the next step towards better financial health. Since you already have an understanding of your income and expenses, think of where you want to be in the next month, year and five years and the money that you will need to be that person.
Once you have a clear picture, create a budget to determine how much of your income you will save, spend and invest. Your future financial goals will likely be financed by savings, investments, or new streams of income above what you already need to cater for your expenses. Some financial goals you can think of include building an emergency fund, saving for retirement, paying off debts, planning for fun, investing in further education, and saving for a home.
In case you choose to save and invest towards your financial goals, tools like the Cashlet App can help you keep track of your progress, as well as generate between 8-10% annual interest on your savings to help you achieve your financial goals faster. Learn more about Cashlet here.