Now that we know what a picture of financial health looks like and what our financial health scores are, how do we make progress towards a healthier financial life?

Just like your physical health, there’s no silver bullet to building and maintaining your financial health. Managing your physical health means balancing multiple things: eating right, exercising, sleeping, and managing stress. Financial health is similar in that you need to juggle multiple things in order to stay on the right track.

If you’ve had a rough relationship with your finances in the past or don’t know where to start, we have a few tips for kickstarting your financial health. For those of you familiar with Maslow’s hierarchy of needs, think about covering your most basic needs and then working upward from there. We tapped the team at Common Cents Lab, a collective of behavioral researchers who design and test solutions to increase the financial well-being for low- to moderate- income people living in the United States. Here are their suggestions of 6 steps to follow in order to achieve financial health:

  1. Cover the essentials (rent, bills, food, healthcare): these are non-negotiable, fixed costs that you have to cover every month. Not being able to afford these could strain your financial health. Make sure to de-prioritize other spending until you’re able to make ends meet. Use EarnUp’s budgeting template [http://www.earnup.com/starting-year-off-right-monthly-budget/] to make sure you’re not spending more than your making. If you aren’t able to cover these costs, find opportunities to cut costs, such as saving on groceries, getting rid of cable, finding a roommate, or reducing your energy consumption.
  2. Build a safety net: this is the equivalent of what we call an emergency fund. You can start small with, say, $100, and eventually you’ll want to build this up so you have more of a buffer. Having an emergency fund that you don’t touch unless it’s a true emergency (retail therapy doesn’t count!) means you’ll be less likely to go into debt if something unforeseeable happens, such as losing your job, having larger-than-expected medical bills or needing to travel last-minute for a family emergency.
  3. Tackle your debt: One way to do this is to prioritize paying off your most expensive loans, which is known as the debt avalanche approach. Another option is the debt snowball method which helps you build good momentum by tackling your smallest loans first. The idea is that knocking out those smaller loans will give you a motivational boost to keep making progress on your remaining balances. You always can pay the EarnUp way to make significant progress on paying down your loans. Research the option that’s best for you and start chipping away at those balances.  
  4. Save 6 months of expenses (Rent, Bills, Food): having this buffer gives you runway in case of an emergency. It also gives you options if you decide you need to make a career change, go back to school, or care for a family member. The benefit of good financial health is that it gives your future self options.
  5. Pay off your remaining debt: chip away at any remaining loan balances, as well as any credit card debt.
  6. Contribute to retirement: retirement can feel a long way away but the sooner your can begin contributing to it, the more time you’ll have for that money to grow. If your employer offers a 401k matching program, it’s like free money that will continue to grow over time.

As you get farther along, you should get better and better at balancing multiple priorities at the same time. Another technique for getting your financial health on a solid path is to automate things as much as possible. Chip away at your debt faster by setting up automatic payments with EarnUp. Set up automatic contributions to savings and retirement so you can make progress on those goals without needing to think about it. The easier you can make it on yourself, the better you’ll set yourself up for financial stability and health.

Once you’ve covered these basics, then you can start to prioritize other fun goals such as saving for a home, saving for grad school, investing in home improvement or eating out more. Real financial health means you have flexibility and options to not only stay afloat but truly thrive.

 

EarnUp blog content is for educational purposes only. Information shown is for illustrative purposes only and is not intended as financial advice. Please consult a financial adviser for advice specific to your financial situation. EarnUp makes no guarantees as to the accurateness, quality, or completeness of the information and EarnUp shall not be responsible or liable for any errors, omissions, inaccuracies in the information or for any user’s reliance on the information.