How’s your health these days? Are you getting plenty of rest, healthy food and exercise?
If so, you’re probably feeling pretty good right now. The checklist for optimal physical health isn’t that long or complicated—it just takes discipline to stick to the system and enjoy the results.
Financial health is a lot like that. The Baby Steps for taking control of your money are easy to understand, but actually taking them can feel hard at times.
To help you assess your financial health and get you thinking about practical ways to move forward, read through this checklist. It’s all about checking your actual daily habits against what you know to be ideal—the Baby Steps to getting in great shape financially.
1. How’s your emergency fund?
This one’s simple, but for some people it’s the hardest to achieve: Do you have $1,000 set aside somewhere that’s fairly easy to access but far enough away to keep you from blowing it on a pizza party?
If you’re having trouble keeping a grand on hand, here are some tips:
- Once you’ve covered this month’s household bills, set every remaining dollar aside for your emergency fund. It should only take you a few paychecks to reach $1,000.
- If eating out keeps sapping your extra funds, find thriftier ways to indulge. Fancy groceries cost the same as a restaurant meal, but they last a lot longer.
- As you save up to the thousand-dollar mark, your sock drawer isn’t the place to store your money. The temptation to go shopping is too strong. Instead, put your money in an account with easy access to cover those big bills that pop up in everyone’s life from time to time.
2. Are you debt-free (or working on it)?
Your paycheck is the heart of your financial health, and when your heart’s not pumping, everything slows down. And when debt takes a big chunk out of your monthly income, it blocks you from doing great stuff like investing and giving.
If you’re still feeling stuck in debt, the debt snowball (Baby Step 2) is your solution. List your debts from smallest to largest and start throwing every extra dollar you have at that top debt while continuing with minimum payments on the rest. Once you’ve killed the first one, divert those payments to the second one. Keep it up until you’re out of debt.
Car payments. Student loans. Credit cards. It doesn’t matter what kind of debt is slowing you down—there’s no such thing as good debt. All debt prevents your financial growth because each monthly payment is one less chance to spend your hard-earned money on things you really want.
3. What’s the worst that could happen?
Now that you’ve paid off all your debt, it’s time to attack Baby Step 3: making yourself emergency-proof by saving up three to six months’ worth of living expenses.
You need that much money on hand because your starter $1,000 emergency fund won’t hold up for long in any of the following events:
- Sudden job loss
- A blown car engine
- The death of a spouse
You get the idea. When something big and awful comes along, the last thing you want to be worrying about is how to pay for it. So use the brighter days to shore yourself up for the inevitable days when it rains.
Here are some ways you can do that:
- Downsize temporarily. If you’re cash poor but stuff rich, now’s the time to sell something. Add the earnings to your emergency fund, and remember this scrimping is just for a season. You can always buy more later.
- Get a second job, or start a side business. This isn’t possible for everyone, but you never know when a great goal like an emergency fund could ignite new career possibilities. That’s a win-win!
Major, unexpected costs come up at some point in everyone’s life. Sometimes the best way to stay healthy is to think about a worst-case scenario and prepare for the possibilities.
Are you beginning to see, hear and feel the power of real and lasting financial strength? Keep this list nearby and compare it to what you’re doing once in a while. Soon you’ll be well on your way to lasting financial health.