Basic Care of Personal Finance Health - Some Personal Finance Advice

Personal financial health is essential for a person's well being. Is your personal finance healthy? This article describes about financial health, how to do a broad assessment, factors that affect personal finance health and how to keep it in good condition or improve it.

What is in this article:

- Definition of finance health

- Financial health assessment, is yours healthy enough?

- Things that shape our financial condition: income, expenses, asset, liabilities

- How to improve financial health (some personal finance advice)

- Things that deteriorate our financial condition

- What to do to improve financial health condition

Hi,

Welcome to a worldbestaffiliate.com’s article. This article covers basic personal finance. Here we will discuss some essential things about personal financial state, how to make broad assessment, things that could affect its condition, and how to improve its condition and avoid pitfalls.

This article is a simplification of basic personal finance that might be beneficial for general people. The subject itself may include wider and more in-depth exploration on the financial knowledge not covered here. Nevertheless, this article might serve as a basic personal finance guide for a common man.

I expect this article will set the some readers up on some initial financial know-how. Many others more knowledgeable readers, of course, might have already had deeper understanding on how finance health has effects on their lives and activities.

Definition of personal financial health

Financial health can be defined in various ways. According to investopedia.com, it is the term used to describe the state of one’s personal monetary affairs.

Here we can define financial health as the financial capability to cover one’s expenses at a given time. Of course, the financial health may change over time. A person can make his financial health better (with increasing income or reducing expenses), while unexpected conditions or unawareness can deteriorate one’s financial health.

Financial health assessment, is yours healthy enough?

How do we define healthy? In medical terms, according to WHO (who.int), health is a state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.

In finance, we can say that financial health is the state of our financial and resource well-being. This would mean that a healthy financial state would have the capability to cover all the expenses and the liabilities, be them routine, foreseen, and hopefully some unexpected ones.

As in medical health, financial health state can improve or deteriorate. As addition to its status, it is important to know whether our financial health is in stable condition, increasing, or deteriorating. We must always remember that often times, financial health could be sliding down in condition, declining slowly without we knowing it.

Things that shape financial condition: income, expenses, assets, liabilities

Income

Income is the money or earning a person gains in form of wages, salaries, gains from investment, or other financial benefits. In other words, income means inflow of money.

While this seems easy to understand, income does not always look obvious and may not be instant. There are also times when the income can only be actually realized long after an investment or efforts are made.

Some income are  regular, such as monthly salary. Some may be produced after some time, such as investments.

Generally, a person's income must cover his expenses. Thus it is crucial to keep a watchful eye on the balance between income (money in) and expenses (money out).

Expenses

Expenses is the money spent to pay for something. Some expenses are basic and unavoidable, such as rent, electricity, water, child's education, etc. Some expenses may come from personal demand for things, which badly, are  sometimes irresistible.

Often a person must cover the numerous expenses from only one income. This is certainly quite dreadful, but this happens to many people around us.

As expenses increase, sometimes a person finds it harder to cover them due to unfavorable balance between income and expenses.

Thus it is crucial to manage a balance between income and expenses to get a good financial health.

Asset

Asset is a resource with economic value that an individual, corporation, or country owns or controls with expectation that it provide a future benefit (investopedia.com).

What does an asset mean to a person? An asset can be described as a resource that brings net financial benefit, in short or long term. The benefits can be in form of money, wealth, or even better, more, or better resources to produce even more benefit.

Some assets could be less evident, especially those that cannot be immediately valued with money. Improved health, gained knowledge, widened network are also assets that will bring benefit in the future.

There are also other things that can affect our financial health. A sudden health incident, like a disease or accident can quickly drop financial health condition. On the other side, winning a lottery, or getting a bequest can suddenly increase financial condition. But these are some things beyond our control. While we should always be ready should sudden financial disaster (unexpected large expenses), here we take into account only things that are normally in our control in day to day life.

How to improve financial  health (some personal finance advice)

The latest status or condition of a person’s financial health could be fine, which means every incurred expense can be covered by the generated income, at a given time. The difference between income and expense will determine whether the financial condition will improve (when income is larger than expenses), and will decrease (when income is less than expenses).

It is easy to see that a larger income will improve financial health condition. Since the difference between income and expense is the main factor in determining financial health improvement, reducing expenses will also help in making the improvement.

So what can we do to improve financial health condition? Here are some usable financial health tips.

- Increasing income. Basically there are two ways to increase income. One is increasing the amount of money from the source, the other is adding other sources. For a job we’re holding, income increase will depend on a salary hike, promotion, or getting a new better paid job. To add other sources of income , running a business, making investment could be the way to take.

With help of the internet, it has been possible to run a business from a computer. There are many ways to create income using the internet. One example is affiliate business.

Another way to add source of income is making investment. One can do this by investing in stocks (in a stock market), making direct investment in a business offering, buying a house to rent, and many other ways. Investment is a way to make money grows.

- Reducing expenses. This is probably the most meticulous act to do. Since there are so many expenses related to our everyday activities, there are lots of saving potentials. Making assessment of which expenses are really the necessary basics is a good start. It can then be followed by sorting which expenses are really crucial, and which are less effective in supporting productivity. Often times, we can find that some expenses are induced by emotional desires. Such desire may also has

- Increasing asset. Asset produces income. Increasing the number of assets a person has can increase income significantly. The asset is an investment. This means it will produce financial benefit or income, although the result may not show up immediately or in a short time. Shifting between assets (selling a low-productivity asset to buy a more profitable one) is a common method to improve asset return. 

However, in every asset, there are inherent liabilities, which will translate into costs to maintain or operate the assets. Thus when building or buying an asset, one must really consider whether it is really profitable or may only give insignificant benefit, or even make loss.

A careful examination and calculation should be made when selecting what asset to buy or build. An object that looks or feels like an asset by common sense may not be actually producing financial benefit. For example, a house bought for rent may not get a good rent price, renovation might cost too much, its location is no longer economically feasible in the near future (for example: abandoned area), and other factors.

To keep asset effectiveness, every asset must periodically be examined and maintained. Likewise an investment, its current and future financial value may change, which change could occur in a short or long time. Having only a few types of assets is advisable which allows its owner to have sufficient time and resources to ‘watch over’ how the assets are going (and are going to).

However, since every asset and investment has different characteristics, investing several types of assets (or investments) is usually advisable.

- Turning liabilities into assets. Also includes in this is reducing liabilities in the assets. For example: renting unused sections of a property, renting unused vehicles, or part of unused available time of the assets, could help improving the asset to liability ratio.

We must also take into consideration ‘assets’ which do not directly produce financial benefits. For examples are our health, knowledge, relationship with other people. These too, may have liabilities and incur expenses, but in the long run, they will surely pay.

Things that deteriorate financial condition

Now we have seen how our financial condition is shaped. Thus it is important that we know about things that may deteriorate it. Some are obvious, and some others may occur without we realizing them. Here are some that may need extra attention. 

- Hidden /often ignored expenses and liabilities in almost every activity /object.

Beware of the hidden costs. Often we ignore some costs that will exist along the way or in the future. Things that look like only need purchase cost will later need replacement cost, maintenance and repair cost.

For example: Let’s say you have extra pair of running shoes, a good asset for health. They will age, need cleaning (which costs), and will eventually need replacing, even when rarely used. And in long-term storage, it may need special care. 

Another example: a vacant piece of land may require mowing, cleaning, posts and fences installed, environment managed, and documents updated, although it seems that an empty piece of land hardly needs maintenance.

- Routine expenses and liabilities that increase gradually.

Routine expenses are often taken for granted, while they may gradually increase while on personal budget the increase is often neglected. Expenses such as electricity, internet, fuel may change not only in price, but also in payment terms. And children education is a cost that over time increases significantly.

What we can do

So what can a person do to improve his personal financial health? First he must learn the basics on financial health. Then an assessment can be made to find broadly how it fares, by knowing whether it is favorable, and whether it is deteriorating or improving.
Furthermore, notes may be taken to find details on each of income (including assets that produce income), and all liabilities and incurring costs.

More over, the following set of acts might also be necessary:

- Set a self control and discipline.

This is the mental preparation. This is essential because all the actions will require no compromise when it comes to financial stuff. A strong will to resist temptation is needed concerning cutting expenses, making new acts and making investment which result is not immediately evident.

- Set a schedule and procedure for actions.

Getting organized is the first step before the act. Set an objective, make a plan, turn it into small, chewable steps. Then put it in a daily schedule, then stick to it. This will make sure that nothing, or only a little, will be missed. Making small and regular steps to take will make it much easier to get results. For example: set a plan to track daily expenses and find where to trim. Set the day and time when to read about a specific business, maybe chapters of a book.

- Learn what is normal for a specific investment. There are various so called investment opportunities available. The offers, them being offers, certainly come with enticing prospect, which may raise expectation high.

But every business has its own character. Before making an investment, an investor should find out whether the offer is fair and the opportunity is real. For example: we must be careful on an offer which is too good, riskless, and never mention the risk of loss. Business and investment are no magic. Something too good to be true most probably is.

To sum it up, here are what you should do to make a better financial health: learn a bit about finance, make an assessment on the financial condition, create a plan for improvement and stick to it. And we shall not forget that maintaining medical health is also needed to allow us to care about financial health.

I hope this article is useful for the readers. Thank you for visiting. Suggestions and ideas can be sent to hendra@worldbestaffiliate.com.