In this post we will explore the basics of financial health and get you on your way with a Financial Health starter kit!
I’ve spoken here a lot about the mindset shifts that have to come along if you’re going to increase your financial health. Learning is required, and not just any learning. Real learning, the kind that has nothing to do with sitting down and memorizing facts that you forget the moment a test is over.
I’ve also mentioned that the only way to improve your situation is to take responsibility for it. Even if there are forces out there making you poorer by the day (and there are), you must still bear the responsibility for your own situation. It is the only way to improve (in anything).
Fun talk out of the way, what do you need to know?
Know How Much You Have
Do an inventory of your financial position and find out what it looks like. Get hard numbers, not feelings. Note down all your expenses and your income sources. Note anything that stands out.
Know What You Need
Cover over any income you receive as an employee, self-employed included. What would happen if this income disappeared? Laid off, sick, injured. What does your financial health look like now? This is a scary thought and that’s the point.
The number in the expense column that is not covered by your non-employee related income is what you need. Said another way, you need passive income to cover your expenses. Now you have a number to strive for.
Cut Expenses?
I hear the same refrain a lot from people who like spending but have no money, and that’s the “You’ve got to live!” refrain. They mean that any sort of self-imposed financial restraint is an insult to their to their right to enjoy themselves today. It’s a lack of self-awareness and responsibility.
So let’s be clear: You can of course just make more passive income and cover every frivolous impulse you have as it arrives in your mind. You’ll have covered your expenses passively and be on your way. But is that realistic? In this example, it doesn’t sound like you’re the type of person who has earned long-term wealth and the freedom it provides. You’re likely to simply raise your expenses as you go in the name of your right to a bacchanalian existence.
Practically too, if you’re blowing through all your income every month on nonsense you will have nothing to invest with. Personal growth precedes financial growth.
So look at your expenses and wonder if you can redirect some of your enjoyment to your investment activity. I get more enjoyment out of paying myself than other people anyway. It will become a habit. You’ll get paid and immediately take a big slice for yourself. What’s left is for living well on. The Richest Man In Babylon talked about paying yourself 10% each month and living on the rest. Make it 20% or 30%. You’ll find that you get by just fine and you’ll like yourself more.
Make Money
Now we have a handle on our financial steed. We’re looking around for opportunities. You have 2 things in your saddle bag; Time and Money. If you’re like me, you want to get your money working for you more than you want to work yourself. Both will be important. If you can find ways to increase your income through trading your time for extra cash you can speed up your investing.
This is especially true today. Today you can’t just save up and buy a house or a lot of stock, asset prices are in huge bubbles in most places. The prices are distorted out of the reach of lot of normal people. What you can do is invest in yourself and create some value for people.
Create some value, invest in yourself and start small. If you’re going to use any of your hard-earned money use it sparingly at first. There are plenty of ways to get educated for pennies on the dollar and I share some of them here on this blog. Information products that have high price tags are usually sold with enough free information that you can leave it without buying and still learn something useful.
That being said, do invest in yourself in some way. A course that costs a few hundred dollars but makes you money for a lifetime will be your best investment when you look back.