Wealth is the slave of a wise man, the master of a fool.
Lucius Annaeus Seneca, Greek philosopher
You can have the sense of safety, wellbeing, and pleasure only if you’re financially sound. You’ve probably thought that financial soundness is the privilege only of rich people. No, on the contrary! Being rich doesn’t necessarily mean being financially sound. Anyone can be this. Why is this important? Because this is the crucial part of general good health since stress induced by poor financial situation may easily lead to actual health conditions.
A financially sound person is the person who has control of daily and monthly earnings and expenses, but who also has the ability to absorb a financial crisis and find a solution for it. This especially means that the way in which we spend money satisfies our personal values and inner needs.
On the other hand, when your finances are sound, it’s much easier to improve other areas of life. Admit it, it’s easier to live without having to stress over bills you have to pay or other financial dues while at the same time you have more resources and time you can use to achieve your goals.
“ The art of living easily as to money is to pitch your scale of living one degree below your means.”
Sir Henry Taylor, artist
Financial experts have outlined guidelines for each indicator of financial soundness, but every person’s situation is different. This is why it’s Important for each and every one of us to take the time to make our own financial plan, to make sure that we’re on the fast track to achieve our goals, without being exposed to unnecessary financial risk in case of unforeseen circumstances, because there is no such thing as the universal formula.
In order for you to understand better your financial soundness, it might be helpful if you asked yourself some crucial questions and did a self-assessment:
- How prepared are you for unexpected events? Do you have a contingency fund?
- Are you currently in the red or in the black?
- Are there any things in your life that you need? What other things do you really need?
If you assess that your financial condition isn’t good, don’t despair, it’s not the end of the world! You just need to work on it and find the best solution for you.
How to become financially sound?
The answers to self-assessment questions are just the first step because nothing, not even financial soundness, happens just like that. Just like you choose what you’ll eat, whether you’ll be physically active to keep healthy and slender, it’s important that you put in effort to achieve, but also maintain, financial soundness.
So, what can you do to improve your finances? According to a research conducted by relevant financial institutions and their experts, these are the key steps you can immediately take, no matter what your current financial situation is.
Step 1 – take a look at your finances
Do a self-assessment of your current financial condition and run a calculation to see what your net worth is. First add the value of everything you own, including cash, savings, investments, car, property and then reduce it by the amount of debts, such as mortgage loan debt, credit card debt, unpaid obligations. This is how you get your net worth.
Step 2 – make a budget
This is a very important step because without a budget you can’t hope to achieve financial soundness. There are two aspects of every budget: credits and debits. You’ll probably add credits easily but summing your debits will take much more time and effort.
Put on paper all your regular monthly expenses, such as rent or mortgage loan instalment, bills, credit card instalments and any other regular payments.
Then, compare your income with your expenses. This is the only way to learn whether you live beyond your means. For example, you’ll find out whether you’re adding to your budget by credit card overspending. This is the only way to avoid falling into a trap of debt that grows to such an extent that you can no longer control it and it starts causing real and major financial trouble.
Find where you can cut your costs. Put aside more money to reduce your credit card or overdraft debt.
One of the most important things you should factor in when it comes to your budget is a solid plan to invest in savings regularly.
Finance consultants always tell their clients that they should have enough savings to cover their living expenses for between 6 and 12 months. It seems intimidating but it’s not impossible. Of course, this can’t be achieved over night. But the sooner you start working on it, the sooner you’ll achieve your goal. In addition to a financial safety net, this can provide other benefits, such as better creditworthiness.
And finally, become a smart buyer of everything you buy! Look for the best your money can buy!