How Important Is Your Financial Health?

In my opinion, when it comes to real estate investing, financial Heath is directly linked to physical health. Many people don’t like to talk about their financial health, but it’s essential to consider when investing in real estate. Take some time to review your financial health, diagnose it and put it under stress testing so that you know your limits. We go to a doctor when we are physically or mentally sick; the same applies to financial health. It’s vital to see professional help and advice to help you make prudent decisions and save you a lot of time and money.

Many people can bury their heads in the sand when it comes to financial problems and debt, pretending the crisis is not there. All the time it’s been left untreated is only making things worse. In my role as a wealth advisor, I have experienced the difficulties it has caused for people who come to me looking for help. Usually, people seek advice as a last resort when things have become so bad they have no other options. We would not do this with our physical health, so why do we do it with our financial health. A client and good friend of mine explained that she felt ashamed to talk to me about her financial problems as she felt that it reflected poorly on her business reputation.

This is a common reason why people don’t seek financial advice. It’s like seeking medical advice and not telling the Doctor that you have pain. Without proper diagnosis, a doctor cannot prescribe the correct treatment and cure. Financial problems can put tremendous stress and pressure on relationships. I experienced this during my divorce, watching my savings disappear. I had to sell my house as I could not afford to pay for it independently. The transition phase of our divorce was a costly experience, and the financial pressure did not help our physical relationship. So you must address your financial health and a financial health check as it can save you a lot of time and money in the long run.

After my divorce, I retrained as a wealth advisor, took all the courses and was awarded my certifications. This opened my eyes to the mathematics behind financial investments. I learned all about the rule of 72, a benchmark and core principle of investment portfolios. So the rule is straightforward. The rule of 72 says that if you divide the number 72 into the interest rate that you get into your investments, it will give you the approximate number of years that your investment will double. Hers is an example. Let’s say that you have $10,000 in you just put them in the stock market, and they make an average of 6%. That’s pretty reasonable. So if we divide 72 divided by six, and then now we have 12 years, so every 12 years, this $10,000 will become 20,000 and another 24 years 40,000 And in 36 years will be 80,000.

I would also like to talk about debt and your credit rating. The above rule of 72 also applies to credit cards and loan repayments. For example, let’s say you have borrowed $10,000 on a credit card at 18%. So now, if you do the calculation 72 divided by 18%, we get four years. So every four years, this debt will double and in the same amount of time which is 36 years that our $10,000 grew to $80,000, our debt rose to $5 million. This figure is pretty scary. So that’s why it’s so important to take care of our finances. I will post some explainer videos relating directly to financial health and debt with a more in-depth analysis on each subject. 

Another crucial factor in determining in your financial health is your net worth and calculating your debt to income ratio this will show you how well you’re doing financially. For your debt to income ratio the higher that rate is, the more unstable your finances will be. You will incur lots of responsibilities to pay for debts, then you have to calculate your lifestyle costs. Lifestyle costs are all the expenses you currently have to live the life you now live. Then you need to review and optimize your cash flow – when you’re paying your bills and spending your money so that you always have the cash to meet them and that you have the money coming in at the right time. The next thing you need to review is your investment criteria. Are you maximizing all your registered accounts or any other accounts for that matter?

Insurance criteria is another crucial component related to financial health. Over 40% of people don’t have life insurance. If you have a family and assets, you should have life insurance that will need to be reviewed every five years or so. Your credit score also needs careful protection and management as it’s vital to your overall financial health and is the rating that allows you to access capital or refinance. Having no credit is the same as having bad credit. I will be posting explainer videos on each of the key criteria associated with financial health, so I suggest you take a little time to view them and understand their dynamic. As always, I am available to assist, advise and help you with any questions or problems you may have, so please feel free to reach out and say hello. Until next time, please take care of your financial and physical health. 

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