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What Is Financial Health, & How Can You Improve Yours?

So we all know what it means to be physically healthy. And we all know how important mental health is too, right? Well, what about your financial health?

First things first: you might not know exactly what I mean by the term “financial health,” and that’s okay! Admittedly, I knew very little about the topic of financial wellness until a few months ago. But, it’s a pretty easy concept to grasp, so just bear with me for a bit.

Essentially, financial health is defined as the ability to build and manage your wealth, as well as the ability to recover quickly and easily from financial shocks. If you’re looking for a deeper dive into this topic, don’t you worry — I’ve got you covered!

Related: I Bet I Can Guess Your Exact Money Habits Based on Your Zodiac Sign

The psychology of money

A few months ago I read a book called The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by columnist Morgan Housel. 

Wait, pause — what does psychology have to do with money? As it turns out, quite a lot. 

In Psychology of Money, Housel details the many ways in which finance is related to human behavior. In order to understand financial health and how you can improve yours, let me walk you through some of the biggest lessons from Housel’s book that you can use in your everyday life.

Money is personal

One of the first tips that Housel offers is, in fact, a fairly straightforward one: “no one’s crazy.” Now, what Housel means by this is that every person makes financial decisions based on their own “unique view of the world, ego, pride, marketing, and odd incentives.” In other words, no one makes decisions about money “purely with a spreadsheet.” Rather, financial decisions are deeply personal. Hence, it makes sense to talk about money using the language of health and wellness, seeing as our attitudes about finance are deeply rooted in our unique psychological makeup. 

On that note, because decisions about money are often linked to our individualistic beliefs and opinions, it’s easy to fall into a “my way or the highway” mindset. Housel explains this perfectly: “Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.”

Ultimately, you shouldn’t simply abandon your own personal viewpoint regarding financial health. Instead, while finance is a personal — rather than purely mathematical — issue, you should also try to put things in perspective.

Even though you shouldn’t compare your financial situation to other people around you, it’s always good to keep in mind that there’s more than one way to do things correctly. So, maybe start considering some changes you could make to your lifestyle in order to improve your financial health.

But, what kind of changes should you make exactly?


One quick and easy way to improve your financial health is to start a budget. Some components of an efficient, balanced budget include accurate spending categories, accurate income projections, categories for irregular/unexpected expenses, saving allocations, and realistic written goals. When I say accurate income projections, I mean that you want to make sure you know exactly how much you’ll be making each month, so that you can allocate your funds accordingly. 

A good rule of thumb to follow is the 50/30/20 budget. This means that 50% of your income is allocated to essentials, such as rent or food. 30% is for “wants,” like gym memberships and vacations, and 20% is for savings. Obviously, this budget is pretty ideal, but it’s okay if you can’t follow it exactly! That’s what I mean by realistic spending goals. So, if some months this budget looks more like 40/50/10, that’s not a huge deal! 

There are a bunch of amazing (and free) apps that can help you easily start a budget: Intuit Mint, YNAB, Personal Capital and Mvelopes are all great options. Or, if you’re more old-fashioned, you could start your own spreadsheet and track your spending that way. 

According to Housel, creating a budget is probably one of the simplest (and most effective) improvements you can make to your financial lifestyle. So, what are you waiting for? 

Emergency funds

Another easy way to quickly and effectively improve your financial health is to set up an emergency fund. An emergency fund is, essentially, a bank account with money set aside that you can use on a rainy day. You can easily start one by creating a high interest saving account at your bank. 

Emergency funds can help ensure that you don’t ruin your overall financial health just because you are faced with unexpected expenses. A lot of financial experts recommend that you save between three to six months of living expenses in an emergency fund to make sure you’re really prepared to weather any unexpected financial storm. 

Obviously, three to six months of expenses may seem like a lot of money at first — however, if you slowly start putting away even just a little bit each month, you’ll get there eventually. 

Creating one of these funds will help you maintain control of your financial wellness while still being able to deal with whatever emergency needs to be attended to. 

Avoid seductive pessimism

Okay, so I’ve talked about some ways you can save money in order to improve your financial health. But, what happens when you actually want to spend some money?

Even though Housel notes that it’s important to maintain a frugal budget and a rational mindset when it comes to finances, he also notes that being overly pessimistic and avoiding all unnecessary spending is not the way to go. 

“Optimism sounds like a sales pitch,” he writes. “Pessimism sounds like someone trying to help you.” Put differently, pessimism can be a seductive mindset to fall into when you’re trying to actively preserve and maintain your financial wellness. But don’t let yourself fall into the trap of being overly conservative. Don’t hold yourself back from things you really want in the name of being money-conscious! Treat yourself once in a while — you’ve earned it!

Of course, it’s important to know the difference between being money-conscious and just being stingy. A good rule of thumb for distinguishing between these two is that if your budget and financial habits often restrict you from doing things that really bring you joy and fulfillment, then perhaps it’s time to re-evaluate your financial decisions to allow a little more breathing room. Obviously, it’s not good to treat yourself all the time. You still want to make sure your budget and emergency fund are in good shape; however, you also want to strike a balance between being aware of how you’re spending your money and being aware of your individual financial needs and wants. 

Maintaining, and even improving, your financial health doesn’t always come in the form of being uber-responsible and uptight. A “financially healthy” person can come in many different shapes and forms. And being financially well doesn’t mean that you can’t have fun and enjoy yourself!

Elizabeth is a student at Williams College majoring in English.