Health is the right of anyone, including financial health.
For those of you who are making financial planning, let's find out how to check
financial health which will be discussed in this article.
Usually we often hear, "money cannot buy
happiness" but of course this is not always true, because if a person
faces difficulties in financial matters, of course his survival will be
disrupted. Therefore, it is important for someone to pay attention to financial
/ financial health to avoid financial problems in the future.
A person's financial health will affect all aspects of his
life, even his financial planning will be disrupted too.
Controlling the health of their finances is included in the
financial planning section which must also be considered properly. Financial
planning is useful for helping someone in managing their finances, such as
paying credit on time, determining appropriate financial protection and the
benefits of this financial protection, and managing money by saving or
investing.
For those of you who are doing financial planning or are
curious about what financial health is? Keep reading this article.
Financial Health
Launching from the Investopedia page, financial health or
financial health is a term used to describe a person's financial situation. In
financial health there are several aspects that need to be considered, such as
the amount of savings owned, the amount of funds allocated for retirement, and
the income issued by a person including fixed costs and expenses outside the
budget.
Health is a state of well-being which includes, physically,
mentally and socially as a whole without any deficiencies or weaknesses.
Financial is a term that refers to and relates to finance and cannot be
separated from economic activities. In simple terms, financial health is a
source of income and the amount of wealth, be it money or assets, is greater
than the amount of debt you have.
An example of healthy finances is someone's financial
stability and being able to manage it by managing expenses, having the advantage
of investment returns, and having a smooth income. For both individuals and
companies, improving financial health is essential.
Basically, financial decisions and activities involving
finance will affect the financial health of both a person and a company. Being
in a healthy state financially includes being a healthy person, because there
are no burdens to disturb the mind.
If a person is in good health financially, then that person
can more easily develop with his life and get the opportunity to achieve his
goals or desires. In addition, this person can be interpreted as good at
managing risk, more careful in making decisions, and more complex in managing
incoming income.
How to Check Financial Health
According to the old Financial Services Authority, financial
health is a person's skills in dealing with his finances to deal with
unexpected things, in carrying out financial planning and activities related to
the person's financial ability.
According to the Center for Financial Services Innovation,
there are four main components that determine unhealthy financial health,
including expenses, savings, loans and financial planning.
Characteristics of Unsound Finance
To determine someone is financially healthy, it can be seen
from the characteristics of unhealthy finances.
- The number of expenses than income. The first way to check financial health is to make sure to pay attention to your income and expenses first. If you spend more, then you need to do more precise and careful financial planning. More expenses indicate that you are still adjusting or not fully able to manage your finances.
- Do you have debt? If so, then you need to do debt management carefully. Basically, debt can provide benefits if you can manage it properly. It needs to be reviewed whether your debt-to-income ratio shows healthy finances or not, as well as debt that has interest, because if you have debt and high interest it will disrupt your financial health.
- Do not have insurance, emergency funds, and pension funds. In carrying out financial planning, it is also necessary to think about long-term financial planning. Someone who has an emergency fund, pension fund, and insurance reflects his financial ability by managing finances and understanding related institutions.
An emergency fund will help anyone if someone is
laid off.
What is the minimum emergency fund? You can set up a fund of
at least 6 months of expenses for an emergency fund. You can also adjust
insurance to your needs, and choose the right institution to allocate
retirement funds.
- Lazy to save and invest. Maybe for some people investment is still avoided because of the high risk. However, if you are unsure about investing, you can do the easiest thing, namely saving. You can manage these savings later if you start choosing the services of existing financial institutions, understand investment activities, and understand the financial protection instruments that suit you.
- Not paying monthly bills on time. If you often make bill payments that don't match their due date, then you need to re-evaluate your financial management. To do this, you can allocate your income by calculating the amount of your monthly bills, or set bills to be automatically deducted from your account.
Understanding the Concept of the Financial Planning Pyramid
To avoid mistakes in financial management, proper and good
financial management is needed. As we know from the previous explanation, not
everyone has the financial ability to manage their money properly. Good
financial management will help anyone align their wants and needs with the
available funds, even the goal of achieving financial freedom can be achieved.
Someone who is able to manage his income properly will also
increase his ability and skills in managing his money. With these skills,
managed funds can be used as a tool to develop strategies in life wisely and
the remaining income can be used to save or invest.
In financial planning known as the financial pyramid. Why
the pyramids? The pyramid is a building with a strong and sturdy structure.
Therefore, the financial pyramid is used as a projection in the most robust
financial planning by knowing the most basic level to the top.
Aspects included in the financial pyramid that can help
someone financially healthy are financial security, financial comfort and
distribution of wealth.
1. Financial Security
This level is at the most basic, in financial planning it is
necessary for someone to meet their short term needs first. Such as managing
cash flow, emergency funds, and debt. These three things are the most basic and
can be applied by anyone.
The need for strategies at this level include:
- You can do budgeting so you can control your incoming and outgoing funds.
- Second, you can get used to saving or allocating your funds for primary and secondary needs.
- Third, leave approximately 10% -20% of your income for emergency funds.
- Fourth, avoid debt related to interest.
- Finally looking for information about financial protection and financial risk, studying investments to increase profits and add insight regarding financial literacy.
2. Financial Convenience
At the second level of the financial planning pyramid is
risk management. If at the first level you are financially literate, then you
need financial risk management by having insurance.
By understanding financial protection a person can be
careful in making decisions on his finances. After that, you can decide on a
financial protection product, namely insurance that suits your condition.
At this level, you can manage your finances well, such as
planning finances according to a timeframe, having insurance as financial
planning protection, and achieving your dreams, or having assets as your
financial goals.
3. Distribution of Wealth
The final stage in the financial pyramid concept is
inheritance preparation. With this distribution of wealth, of course, children,
grandchildren, and the next generation will have prosperity and a decent life.
The need to teach your children to manage finances well, so they can use your
inheritance as wisely as possible.
Of these three stages is a good level of the financial
pyramid. By implementing a financial planning strategy using a financial
pyramid, a person can determine priorities in his life. A good and strong
foundation will make the building sturdy, like a pyramid as an illustration of
financial planning.
Closing
Financial health is an indicator of a person's personal
financial management. In addition, good financial health has an impact on one's
physical, mental and social well-being.
Planned and careful financial management can help anyone
meet their needs, someone with good financial management also gets the
opportunity to reach their potential with a calm and safe life.
Applying the financial pyramid in financial planning to
achieve financial health can be used as a tool to measure one's priorities in
financial planning. You certainly have to relax when doing financial planning
so that it is more mature and well planned. Therefore, it is necessary to
understand financial literacy and your financial capabilities first as capital
to build a strong foundation.
Healthy in financial terms is anyone's desire, for this
reason it is necessary to increase knowledge about good financial management.
Hopefully this discussion about financial health can add to your knowledge
about financial literacy. The rest, you alone have a role in managing finances
by saving, having insurance, and investing.
Nowadays, investments are increasingly diverse. Of course,
investing itself carries risks, therefore it is necessary to adjust your skills
with the investment instrument you choose.
If you want to invest with minimal risk, then the equity
crowdfunding scheme is suitable for those of you who want to get passive
income. Equity crowdfunding is an activity of raising funds from a number of
people to fund potential businesses and get profit sharing or dividends.
Crowdfunding investment itself is a long-term investment,
apart from that with a crowdfunding system, you become the owner of the
business you are funding without the need to be involved in managing the
business as well.
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