How to Evaluate Your Financial Health | WaterStone Bank

We all know we’re supposed to see the doctor every year for an annual physical, but have you given your financial health a check-up lately?

The best way to improve your financial health is by regularly evaluating your accounts, your budget, and your financial goals. Here are a few tips to get you started today.

1. Shore up your savings.

Do you have enough money in savings to offset a $1,000 emergency? Only 39 percent of Americans can answer “yes,” according to a 2020 poll by Bankrate.

If you aren’t already making regular contributions to your savings account, start now. Your rainy-day savings are a key component of your financial health: You never know when you might need to pay an insurance deductible, an unplanned house repair, or unforeseen medical bills.

Even starting small by saving $20 a week adds up to over $1,000 in one year. You may also want to consider CDs and money market accounts that offer higher interest rates to make your savings go even further.

2. Update your budget.

Don’t just set it and forget it: Your budget should evolve as your income and expenses change. If you’ve gotten a raise, taken on a side gig, added new monthly payments, or welcomed a new member to your family, it’s time to revisit your budget and make sure it still aligns with your income and expenses.

Reassessing your budget is also a great way to identify costs you can cut, like streaming services you no longer use. You may even find opportunities to save money by switching cable or insurance providers or shopping around for lower insurance rates.

3. Defeat your debt.

The best strategy for eliminating debt is to first pay down the debt with the highest interest rate. In many cases, that means prioritizing credit card debt, payday loans, private student loans, or other debts that tend to carry higher interest rates.

If you can, pay more than the minimum each month to work down high-interest debts more quickly—and to avoid accruing more interest.

4. Plan out your “fun money.”

Saving, budgeting, and debt management are all important, but they’re not exactly fun for most people. Keep yourself motivated to continue making wise financial decisions by setting aside 5 to 10 percent of your monthly income for “fun money.”

Adding entertainment and leisure to your budget will ensure you have enough funds set aside for all your favorite activities, whether that’s tickets to a baseball game, a nice dinner with friends, or a trip to the spa.

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