What is financial health and how to improve it

business psychologist, clinical psychologist “Dr. Anikino’s Clinic”

“Financial health is the state of personal monetary resources, which reflects a person’s ability to successfully cope with daily monetary obligations and achieve relevant goals. This is what is important for material well-being and at the same time for psychological, social and even physical health.”

Inhaltsübersicht

What affects financial health?

It depends on many factors that can be categorized into two groups.

1- Objective factors

They can be measured and compared to other people’s factors or to standards.

Income level. This is the amount a person earns, receives as income from a business, investments or other sources. Income determines your standard of living and potential to achieve financial goals.

Expenditure level. This is the amount a person spends on their needs and wants, including mandatory payments (housing, utilities, taxes, loans) and voluntary (good food, new clothes, entertainment, travel). Spending determines the level of savings and the potential for investment.

Savings. This is the amount a person sets aside for the future. They include savings in bank accounts, cash, securities, real estate, business or other assets. Savings determine security and the potential for capital growth.

Insurance. This is the amount a person pays for protection against unforeseen situations. These can adversely affect one’s financial situation. This includes policies and funds that people form on their own. This determines resilience and the potential for recovery.

Subjective factors

They depend on personal perception, evaluation and emotions.

Financial literacy. This is the level of knowledge, skills and abilities that allow you to manage funds. Includes understanding of basic concepts, rules and tools, ability to plan, analyze, make and implement decisions, adapt to changing conditions and use available resources.

Financial Confidence. This is the degree of belief in one’s ability to meet challenges and achieve goals. That is, expectations, motivation, responsibility and self-control, willingness to take risks and tolerance for uncertainty.

Financial Satisfaction. This is the degree of contentment with one’s situation. Among them are feelings, emotions and moods related to money, evaluation of well-being and comparison of one’s situation with others or with standards.

Financial health and well-being

Money skills are important to a person’s overall well-being as they affect many aspects of their life.

Physical health

For example, financial health directly affects physical health. A person can increase or decrease it, depending on how they spend their money. Obviously, a healthy diet, a fitness center membership, medical checkups and preventive care improve well-being.

Conversely, spending on bad habits (smoking, alcohol, sweets and overeating) worsens a person’s condition. Also, financial health affects stress levels. A person who is experiencing financial difficulties is subjected to a lot of stress, which leads to various diseases.

At the same time, financial health can undermine or enhance mental health. A financially literate person feels confident. Her satisfaction with quality of life is higher. A well-being-conscious person realizes his or her potential more easily.

People who don’t know how to handle daily money obligations have poor financial health. They will spend their entire lives losing money. And, even while downing a fortune, will remain unhappy, anxious and disappointed in life.

Common companions of poor financial health are low self-esteem, lack of motivation, loss of interest in self-actualization and aggression.

Social health

Financial health can increase or decrease a person’s social health. Funds and the skill to manage them, attitudes towards money divide people into parts of society. Individuals with similar habits are more likely to approve of those who make similar spending, investing, and investing habits.

Thus, financial health improves or worsens one’s social circle and social health. Good relationships with family, friends, coworkers, partners, or monetary isolation is an individual’s choice.

It is important to learn how to manage your money so that you don’t suffer from loneliness, social phobia and discrimination.

How to improve financial health?

Financial health can be improved through practical and psychological ways.

Practical ways aim to improve objective financial indicators. Such as income, expenses, savings and insurance.

Step-by-step plan

Increase income. You can raise its level through improving your skills, getting a better job, investing money in profitable projects.
Reduce unnecessary expenses. Maintaining and analyzing the budget will allow you to painlessly adjust behavior and expenses. Refusing unnecessary or harmful purchases is much easier than it seems. Comparing prices and buying necessary items outside of high season and demand is not that difficult.
Increase savings by regularly setting aside a portion of your income for financial purposes. Constant investment and an accumulated “cash cushion” makes a person calm and confident.
Improve insurance. Insurance is not very common in our country, and insurance is most often bought only when it is a prerequisite. Nevertheless, it is possible to find suitable policies that cover potential risks.

Psychological methods are aimed at improving subjective material indicators. Such as financial literacy, confidence and satisfaction. All of these are very important.

First of all, it is necessary to improve financial literacy. At the initial level, you need to study and master the basic monetary concepts and tools on your own. It is enough to read books and articles, watch video blogs of experts.

The next step is to increase financial confidence. How? Strengthen your belief in your ability to cope with monetary tasks and achieve your goals. To do this, you can set expectations and motivation, evaluate your current performance, and take responsibility for financial decisions.