Figuring Out Your Financial Health

By Ismail Abdur-Rahman, CEO iVIBES

*This is the first in a series of posts about managing personal finances.

Following up on last week’s post about theme-based goals, I’d like to follow up by discussing a theme that most people I know struggle with: financial health.

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Getting your financial health in order is a key step in attaining financial freedom, but it is impossible to do without conducting periodic checkups on your financial health. We’ve all heard stories in which someone goes to the doctor complaining of a hard-to-pinpoint illness, only to be told be a doctor that they’ve got terminal cancer. Because they waited so long to get a checkup, it’s too late to treat the disease, and the patient is given only a few months (or weeks) to live. Neglecting your personal health for too long can be catastrophic, akin to suicide.

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Your financial health works in much the same way. Failing to properly manage your money until you’re in the middle of a crisis is essentially committing financial suicide. One of the biggest failings of the American school system is that they never teach us about money. We learn to become employable, but we don’t learn how to make and manage money to gain financial independence. Because the average American lives paycheck-to-paycheck, improving our financial health - starting by improving financial literacy - is a must, before there is a sharp increase in the number of homeless people across the country. They say the struggle is real, and this is definitely the truth, especially when the struggle is marked by financial stress.

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The first step along the journey to financial well-being (and subsequently, financial freedom) is to do an assessment of your current financial position. Warning: this step can be painful, but if you want to ultimately improve your situation, it is a necessary evil.

Take some time to figure out your net worth. Your net worth, in a nutshell, is the difference between your assets and your liabilities, the difference between what you own and what you owe. This can be a sobering reality check for many people - it certainly was for me. We always hear about the net worth of celebrities and professional athletes, and the numbers can be astonishing. When you examine your own financial position relative to very wealthy individuals, it can be, well…..depressing.

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Now, no matter where you’re starting from, you have to be optimistic. Calculating your net worth at least once per year can help you measure your progress towards your financial goals, and it can also inform the strategy you use to increase your assets and decrease your liabilities. As we say in business, ‘what gets measured, gets managed.’

Re-calibrating Your Financial Goals

After calculating your net worth, you might find it necessary to review your goals for handling your debt and increasing your available cash. In this regard, there are varying expert opinions about what you should do to improve your position, so it’s probably safe to say that a one-size-fits-all approach isn’t going to be effective here. Having said that, I will say that creating a budget, though people hate doing this about as much as they hate calculating their net worth, can be instrumental in helping you fully engage the theme of financial well-being. Think of it as a GPS for your bank account. Wouldn’t it be better to tell your money where to go instead of trying to figure out where it went at the end of the month?

We’ll follow up with a couple of key strategies you can use to improve your financial health in subsequent posts. So, if you’re dying to make it rain, but your money is running short now (see exhibit A)…..

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We’ll help you identify strategies that you can use to improve your cash situation, and maybe a year from now, your whole situation will be different.

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