Financial health is a term that’s used to describe the state of your monetary affairs. There are a number of factors included, such as your savings strategy, how much of your income is spent on fixed expenses, how much is used for non-discretionary expenses, and how you are managing your debt.

Being financially healthy means that you’re secure enough to handle your expected expenses, as well as any unexpected costs. It makes sense that your personal financial health has a direct impact on your wellbeing, given that it’s how you’re able to meet both your essential and non-essential needs, explore your potential, and lead the life that you want.

The problem is, most people see their money coming in and their money going out and that’s about as deep as it gets. But if you continue to ignore your finances, you aren’t likely to keep track of your overall financial goals.

Here we’re going to discuss 5 ways you can build better money habits and have better financial health in 2023.

1. Calculate your personal budget

People who have strong financial health know everything about their money. They know how much is coming in, how much they’re saving, what’s going out and, importantly, what they’re actually spending their money on.

Sadly, not everyone is this clued up. If you want to make it a habit to know more about your money so that you can plan for future costs, reduce unnecessary spending, and save for future goals, you need to maintain a budget spreadsheet each month.

Why not experiment with our Monthly Personal Budget Calculator to see where your money is going and how much you’re spending.

2. Review your expenses and spend wisely

You can really only improve your spending habits if you know where it’s going wrong. With a budget spreadsheet in place, you can more easily review your current spending patterns. You’ll probably be surprised at how much you’re blowing on things that aren’t necessary and why you don’t have enough for savings or unexpected expenses.

Identifying these patterns is the first step in dealing with them.

3. Recognise lifestyle inflation

Most people tend to spend more money as they increase the amount of money coming in. It’s a phenomenon known as lifestyle inflation, which can be pretty damaging in the long run because it limits your ability to build wealth.

Think of it this way, every extra Rand that you spend now means that you’ll have less money later. This is worrying when you consider that just because you have finally reached a place where you have higher disposable income doesn’t mean that you’ll always have this higher income.

People who are working towards strong financial health are those who recognise lifestyle inflation and don’t just spend more because they have more to spend. We recognise that there are things that you may need to spend more money on, like upgrading your home as your family grows. But it’s wise to evaluate which costs are truly needed and which you can go without.

4. Automate your savings

Saving isn’t something you start doing when you’re a bit older and wiser. You need to start as early as you can and one of the best ways to make sure that you’re getting it done is to automate your savings.

In fact, automating your savings is particularly useful for those who often spend more than they should or are more likely to forget. Basically, automating your savings is a really good way to maintain financial discipline.

Setting up a monthly automated transfer from your checking account to a savings account is one of the easiest ways to automate your savings. You only need to set it up once and then forget about it. Additionally, you can arrange for automatic withdrawals from your salary or automated transfers from your credit card payments to a savings account. A debit order is another way to setup automated transfers.  You may quickly increase your savings without having to worry about it with little forward planning and automation.

5. Revise your debt management

Let’s end with one of the most important factors involved in building strong financial health, which is to manage your debt well.

Perhaps the first thing to do is to understand that while debt may seem like an indication that you’ve made financial mistakes, it’s actually just part of life. You can have good financial health and have debt, like car payments or house payments, so long as you have a plan for how you’re managing your debts.

Here are examples of debt repayment strategies:

• Debt snowball – Pay the most you can afford into your smallest debt first, while still making the minimum payments into your remaining debts, and when you’ve paid this off, you move onto the next smallest debt.
• Debt avalanche – Pay off the debt with the highest interest rate first, while still making the minimum payments into your remaining debts, and then move onto the debt with the next highest interest rate.
• Debt consolidation – Take out a personal loan or use your savings to pay off all your debts at once. If you take out a loan, then you’ll only have one repayment to worry about, and often personal loans can help you save money with a lower interest rate.

If you’re interested in taking out a personal loan, then check out what the repayments could look like and weigh these up against your expenses on your budget spreadsheet.

You can click here to use our Personal Loan Calculator.

Feeling informed?

Financial health is all about money habits, so we hope that these tips will help you make better decisions around how you manage your debt, spend and save.

Don’t forget that AA Inform is home to a range of useful tools and resources, including a personal loan calculator, access to multiple car and home insurance quotes, property valuation reports, and much more.