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Written by Andrea Ragoo

When it comes to financial health, I know a thing or two. After all, I am a Financial Consultant. I like to refer to myself as ‘The Virtual CFO’ for entrepreneurs and small businesses because I help them take control of their financial destiny (and not have money control them).

When it comes to our financial health, we all want to be in a good place; we want the financial security that allows us the freedom to live the lives we desire. But, what are the things we must do to gain that security? There is no one sure way nor any quick schemes to financial security. As our Caribbean people say, “It takes a village to raise a child”, it takes a “village” of steps and actions combined that can help secure your financial health. Ensuring your financial health means creating sustainable activities that allow you to move away from just stashing away savings when it is possible.

What does it look like? Here are a few examples.

1) Know your net worth. 

To increase your financial health, you first need to know your starting point. Your net worth is your assets minus your liabilities. Ideally, you want this result to be a positive figure meaning that your assets are more than your liabilities; however, this figure may fluctuate from time to time depending on what is going on with you. Your liabilities can exceed your assets, but the real value of this metric is gained by tracking this figure over time to understand the pattern. If tracking your net worth over time reveals your liabilities increasing at a faster and higher pace than assets, this could signal that you need to take action to improve it.

2) Understand your financial goals.

They can be long-term or short-term. At best, there should be a healthy balance of both, allowing you to spread your actions over a period of time. Not everything has to be achieved at the same time. This exercise of understanding your goals helps you to see the big picture. Each goal should contribute to the overall picture in some way. E.g. a long-term goal could be what age you want to retire. That goal could easily be ten years away. A short-term goal can be wanting to save for a down payment on a home. This goal may be 1 to 2 years away.

3) Developing passive income streams

Passive income is income derived without much effort. Passive income is perfect for supplementing your regular income and creating additional income streams. Because it requires little effort, it does not interfere with your principal source of income and allows you to earn money even in your free time, thus making it a very efficient method. Additionally, your entire (passive) income stream can be devoted to achieving one of your financial goals. Passive income streams can come from within your current business. E.g. if you are a consultant, you can monetize your blog (if you have one) or your social media page. Or passive income streams can come from a different source altogether, e.g. you may be a lawyer who also bakes cakes! The cake business may be secondary and can be done at your convenience.

4) Diversify your Income portfolio.

The old adage about all eggs in 1 basket rings true. In these uncertain times, your income shouldn’t be dependent on one source. The pandemic has taught us how quickly things can change. If needed, one of the passive streams (point 3) can be taken up and developed as the main income stream if your current income dries up. Diversifying your portfolio ensures that your income comes from different areas so that the risk of losing any one income is spread across different ones. So you may have income from real estate investments and income from a food business.

5) Hire a financial planner.

Financial planners help manage your financial matters and work towards your financial goals. They use structured processes to guide you during your financial decisions ensuring that they are prudent and help you achieve your goals. They can also help manage any complexities with your situation that might create problems later on. 

Just as your doctor recommends good habits for your physical health, the key to achieving good financial health is the development of good financial habits. The five habits listed above are not the only actions you should take. Traditional habits like using a budget, reducing overspending, and creating an emergency fund still remain a good foundation for good financial wellness. Making these habits a regular part of your routine can help you feel more in control over your money and move you closer to your financial goals.